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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 19341933


For the fiscal Year Ended December 31,
2004

or




|  |                                                             
|- | ------------------------------------------------------------
|o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
    THE

SECURITIES EXCHANGE ACT OF 19341934


For the transition period
from                          to                          .


Commission file number 0-6835

IRWIN FINANCIAL CORPORATION


(Exact name of Corporation as Specified in its
Charter)


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

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

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

|                |  |                                                                                                                                        
|--------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------
|Title of Class: |  | Common Stock*                                                                                                                          
|Title of Class: |  | 10.50% Cumulative Trust Preferred Securities
    issued by IFC Capital Trust II and the guarantee with
    respect thereto.            
|Title of Class: |  | 8.75% Cumulative Convertible Trust Preferred
    Securities issued by IFC Capital Trust III and the
    guarantee with respect thereto.
|Title of Class  |  | 8.70% Cumulative Trust Preferred Securities
    issued by IFC Capital Trust VI and the guarantee with
    respect thereto.             

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

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

Indicate
by check mark whether the Corporation is an accelerated filer
(as defined in Exchange Act
Rule 12b-2).    Yes þ         No o

The
aggregate market value of the voting and non-voting common
equity held by non-affiliates of the registrant, based on the
closing price for the registrants common stock on the New
York Stock Exchange on June 30, 2004, was approximately
$460,798,377.

The
aggregate market value of the voting stock held by
non-affiliates of the Corporation was $425,686,165 as of
February 18, 2005. As of February 18, 2005, there were
outstanding 28,506,964 common shares of the Corporation.



|  |                            
|- | ---------------------------
|* | Includes associated rights.

Documents Incorporated by Reference

|                                                                                            |  |                                          
|------------------------------------------------------------------------------------------- |  | -----------------------------------------
|Selected Portions of the Following Documents                                                |  | Part of Form 10-K Into Which Incorporated
|                                                                                            |  |                                          
|Definitive Proxy Statement for Annual
    Meeting
    Shareholders to be held April 7, 2005 |  | Part III                                 
|Exhibit Index on Pages 121 through
    123                                                  |  |                                          



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FORM 10-K

TABLE OF CONTENTS


|                                                   |         |     |   |  |                                                                                                        |  |    
|-------------------------------------------------- | ------- | --- | - |  | ------------------------------------------------------------------------------------------------------ |  | ---
|Part I                                             |         |     |   |  |                                                                                                        | 
|                                                   | Item 1  |     |  |  | Business                                                                                               |  | 2  
|                                                   | Item 2  |     |  |  | Properties                                                                                             |  | 15 
|                                                   | Item 3  |     |  |  | Legal Proceedings                                                                                      |  | 15 
|                                                   | Item 4  |     |  |  | Submission of Matters to a
    Vote of Security Holders                                                |  | 21 
|Part II                                            |         |     |   |  |                                                                                                        | 
|                                                   | Item 5  |     |  |  | Market for
    Corporations Common Equity and Related Stockholder
    Matters                         |  | 22 
|                                                   | Item 6  |     |  |  | Selected Financial Data                                                                                |  | 23 
|                                                   | Item 7  |     |  |  | Managements Discussion
    and Analysis of Financial Condition and Results of Operations              |  | 25 
|                                                   | Item 7A |     |  |  | Quantitative and Qualitative
    Disclosures about Market Risk                                         |  | 77 
|                                                   | Item 8  |     |  |  | Financial Statements and
    Supplementary Data                                                        |  | 78 
|                                                   | Item 9  |     |  |  | Changes in and Disagreements
    with Accountants on Accounting and Financial Disclosure               |  | 119
|                                                   | Item 9A |     |  |  | Controls and Procedures                                                                                |  | 119
|                                                   | Item 9B |     |  |  | Other Information                                                                                      |  | 119
|Part III                                           |         |     |   |  |                                                                                                        | 
|                                                   | Item 10 |     |  |  | Directors and Executive
    Officers of the Corporation                                                |  | 120
|                                                   | Item 11 |     |  |  | Executive Compensation                                                                                 |  | 120
|                                                   | Item 12 |     |  |  | Security Ownership of
    Certain Beneficial Owners and Management and Related Stockholder
    Matters |  | 120
|                                                   | Item 13 |     |  |  | Certain Relationships and
    Related Transactions                                                     |  | 120
|                                                   | Item 14 |     |  |  | Principal Accountant Fees
    and Services                                                             |  | 120
|Part IV                                            |         |     |   |  |                                                                                                        | 
|                                                   | Item 15 |     |  |  | Exhibits, Financial
    Statement Schedules                                                            |  | 121
|SIGNATURES                                         |         | 124
|Redemption and Loan Repayment Agreement           
|Amendment and Restatement of Shareholder Agreement
|Deferred Compensation Agreement                   
|Tax Gross-Up Agreement                            
|Computation of Earnings Per Share                 
|Computation of Ratio of Earnings to Fixed Charges 
|Code of Conduct                                   
|Subsidiaries                                      
|Consent of Registered Public Accounting Firm      
|Certification by the CEO                          
|Certification by the CFO                          
|Certification of the CEO                          
|Certification of the CFO                          



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PART I






|        |         
|------- | --------
|Item 1. | Business

General

We are a diversified financial services company
headquartered in Columbus, Indiana with $524.9 million of
net revenues in 2004 and $5.2 billion in assets at
December 31, 2004. We focus primarily on the extension of
credit to consumers and small businesses as well as providing
the ongoing servicing of those customer accounts. Through our
direct and indirect subsidiaries, we currently operate five
major lines of business: mortgage banking, commercial banking,
home equity lending, commercial finance and venture capital.
More recently, our venture capital business has assumed a lesser
role in our consolidated results.

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

At the parent level, we work actively to add
value to our lines of business by interacting with the
management teams, capitalizing on interrelationships, providing
centralized services and coordinating overall organizational
decisions. Additionally, as discussed in more detail later in
this report on Risk Management the parent company
also provides risk management oversight and controls for our
subsidiaries. Under this organizational structure, the majority
of our mortgage banking, home equity lending and commercial
finance lines of business operate as direct and indirect
subsidiaries of Irwin Union Bank and Trust. This structure
provides additional liquidity and results in regulatory
oversight of our business.

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

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

Major Lines of Business

Mortgage Banking

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

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on each loan serviced and pays the real estate
taxes and insurance necessary to protect the integrity of the
mortgage lien, for which it receives a servicing fee.


At January 31, 2005, Irwin Mortgage operated
169 production and satellite offices in 33 states. We
discuss this line of business further in the Mortgage
Banking section of Managements Discussion and
Analysis of Financial Condition and Results of Operations
(MD&A) of this report.

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:



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

In 2004, our Las Vegas and Salt Lake City
branches of Irwin Union Bank, F.S.B. were sold to Irwin Union
Bank and Trust Company.

We discuss this line of business further in the
Commercial Banking section of the MD&A of this
report.

Home Equity Lending

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

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

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

Commercial Finance

Established in 1999, our commercial finance line
of business originates small-ticket equipment leases through an
established North American network of vendors and third-party
originators and provides financing

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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 and try to
limit the industry and geographic concentrations in our lease
and loan portfolios. Loans to franchisees may include the
financing of real estate as well as equipment.


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

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

Venture Capital

We re-entered the private equity business in late
1997 and established this line of business when we formed Irwin
Ventures Incorporated in August 1999. Our objective is to make
minority investments in early stage companies in the financial
services industry and related fields that intend to use
technology as a key component of their competitive strategies.
We provide Irwin Ventures portfolio companies the benefit
of our management experience in the financial services industry.
In addition, we expect that contacts made through venture
activities may benefit management of our other lines of business
through the sharing of technologies and market opportunities.

In April 2000, Irwin Ventures established a
subsidiary, Irwin Ventures Incorporated-SBIC, which received a
small business investment company license from the Small
Business Administration. In December 2000, Irwin Ventures and
Irwin Ventures-SBIC became Delaware limited liability companies.
To date, the primary geographic focus of this line of business
and each of our investments has been on the corridors of the
east and west coasts between Washington, D.C. and Boston,
and Palo Alto and Seattle.

Since inception we have invested
$14.7 million in eight portfolio companies. However, over
the last two years we have found it more difficult to find new
investments that meet our strategic objectives and have
re-directed certain personnel formerly addressing this segment.
In 2004 and 2003, only $0.1 million and $2.0 million,
respectively were invested in portfolio companies. In addition,
our growth has caused this activity to become less significant
on a consolidated basis. When the company was formed, we
expected to make approximately $4 million in annual
investments. That was 2.5% of year-end 1999 common equity. We
now expect that annual investments are unlikely to exceed
$2 million which would be less than 0.4% of
2004 year-end common equity.

Given the change in the materiality of this
segment to consolidated results, we intend to discontinue
segment reporting for private equity with this report. When
appropriate due to materiality, we will report on financial
results for private equity in the Parent and Other
segment.

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.

Competition

We compete nationally in the U.S. in each
business, except for commercial banking where our market focus
is in the Midwest and Rocky Mountain states, and for commercial
leasing where products are offered in the U.S. and
throughout Canada. In our mortgage banking business we compete
for mortgage loans with

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mortgage banking companies, as well as commercial
banks, savings banks, credit unions and savings and loan
associations, and with a number of nonbank companies.


In our home equity lending business, our primary
competitors for our home equity loans and lines of credit are
similar to those in our mortgage banking business with the
addition of large securities firms, credit card issuers and
finance companies. Competitors in our commercial banking
business include all of the above institutions.

In our venture capital line of business, we
compete primarily with other venture capital firms that invest
in start-up companies.

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

Financial Information About Geographic
Areas

We conduct part of our commercial finance line of
business in Canadian markets. Net revenues for the last three
years in this line of business attributable to Canadian
customers were $11.5 million, $7.9 million and $5.2 million in
2004, 2003 and 2002, respectively.

Supervision and Regulation

General

The financial services business is highly
regulated, primarily for the protection of depositors and other
customers. The following is a summary of several applicable
statutes and regulations that apply to us and to our
subsidiaries. These summaries are not complete, and you should
refer to the statutes and regulations for more information.
Also, these statutes and regulations may change in the future,
and we cannot predict what effect these changes, if made, will
have on our operations.

We are regulated at both the holding company and
subsidiary level and subject to both state and federal
regulation and examinations relating to safety and
soundness, including risk management, asset quality and
capital adequacy, as well as a broad range of other regulatory
concerns including: insider transactions, the adequacy of the
reserve for loan losses, intercompany transactions, regulatory
reporting, adequacy of systems of internal controls and
limitations on permissible activities.

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

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

Regulatory agencies have a broad range of
sanctions and enforcement powers, 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

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BHC Act. We are subject to regulation,
supervision and examination by the Federal Reserve, and as part
of this process, we must file reports and additional information
with the Federal Reserve.


Minimum Capital Requirements

The Federal Reserve has adopted risk-based
capital guidelines for assessing bank holding company capital
adequacy. These standards define capital and establish minimum
capital ratios in relation to assets, both on an aggregate basis
and as adjusted for credit risks and off-balance sheet
exposures. Under the Federal Reserves risk-based
guidelines applicable to us, capital is classified into two
categories for bank holding companies:

Tier 1 capital, or core capital, consists of:



| |   |                                                                                                                                                                                                                            
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | common stockholders equity;                                                                                                                                                                                               
|
| |  | qualifying noncumulative perpetual preferred
    stock;                                                                                                                                                                    
|
| |  | qualifying cumulative perpetual preferred stock
    (subject to some limitations, and including our
    Trust Preferred securities, of which $165 million
    qualified as Tier 1 capital as of December 31,
    2004); and
|
| |  | minority interests in the common equity accounts
    of consolidated subsidiaries;                                                                                                                                         

less



| |   |                                                                                                                                      
| | - | -------------------------------------------------------------------------------------------------------------------------------------
| |  | goodwill;                                                                                                                            
|
| |  | credit-enhancing interest-only strips (certain
    amounts only); and                                                                
|
| |  | specified intangible assets (including
    $19 million of disqualified Mortgage Servicing Assets
    (MSRs) as of December 31, 2004).

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 $67 million
    qualified as Tier 2 capital as of December 31, 2004);
|
| |  | unrealized holding gains on equity securities;                                                                                                      
|
| |  | perpetual debt and mandatory convertible debt
    securities;                                                                                       
|
| |  | term subordinated debt, including related
    surplus; and                                                                                          
|
| |  | intermediate-term preferred stock, including
    related securities.                                                                                

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

In its capital adequacy guidelines, the Federal
Reserve emphasizes that the standards discussed above are
minimums and that banking organizations generally are expected
to operate well above these minimum levels. These guidelines
also state that banking organizations experiencing growth,
whether internally or through

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acquisitions or other expansionary initiatives,
are expected to maintain strong capital positions substantially
above the minimum levels.


As of December 31, 2004, we had regulatory
capital in excess of all the Federal Reserves minimum
levels and our internal minimum target of 11% for risk-adjusted
capital. Our ratio of total capital to risk weighted assets at
December 31, 2004 was 15.9% and our Tier 1 leverage
ratio was 11.6%.

Expansion

The BHC Act requires prior Federal Reserve
approval for certain activities, such as the acquisition by a
bank holding company of more than 5% of the voting shares of any
company, including a bank or bank holding company. Under the BHC
Act, a bank holding company may 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.

Sarbanes-Oxley Act of 2002

The Sarbanes-Oxley Act of 2002 comprehensively
revised the laws affecting corporate governance, accounting
obligations and corporate reporting for companies, including us,
that have equity or debt securities registered under the
Securities Exchange Act of 1934. In particular, the
Sarbanes-Oxley Act established: (i) new requirements for
audit committees, including independence, expertise, and
responsibilities; (ii) additional responsibilities
regarding financial statements for the Chief Executive Officer
and Chief Financial Officer of the reporting company;
(iii) new standards for auditors and regulation of audits;
(iv) increased disclosure and reporting obligations for the
reporting company and its directors and executive officers; and
(v) new and increased civil and criminal penalties for
violation of the securities laws.

Bank and Thrift Regulation

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

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

The Federal Reserve also supervises Irwin Union
Bank and Trusts compliance with federal law and
regulations that restrict loans by member banks to their
directors, executive officers, and other controlling persons, as
well as transactions with affiliated entities. The OTS
supervises Irwin Union Bank, F.S.B,s compliance with these
laws and regulations.

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

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

Mortgage Banking and Residential Lending
Regulation

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

Capital Requirements

The Federal Reserve has published regulations
applicable to state member banks such as Irwin Union Bank and
Trust regarding the maintenance of adequate capital
substantially similar 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

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on broad credit risk considerations. The
risk-based ratio does not take explicit account of the quality
of individual asset portfolios or the range of other types of
risks to which banks may be exposed, such as interest rate,
liquidity, market or operational risks. For this reason, banks
are generally expected to operate with capital positions above
the minimum ratios.


At December 31, 2004, Irwin Union Bank and
Trust had a total risk-based capital ratio of 14.6%, a
Tier 1 capital ratio of 13.0%, and a leverage ratio of
11.3%.

The Federal Reserve, the OTS, the FDIC and other
federal banking agencies also adopted a rule modifying the
risk-based capital standards to provide for consideration of
interest rate risk when assessing capital adequacy of a bank or
savings association. Under this rule, the Federal Reserve, the
OTS and the FDIC must explicitly include a bank or savings
associations exposure to declines in the economic value of
their capital due to changes in interest rates as a factor in
evaluating capital adequacy of a bank or savings association.
This assessment of interest rate risk management made by the
banks examiners is incorporated into the banks
overall risk management rating and used to determine
managements effectiveness.

Insurance of Deposit Accounts

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

In addition to deposit insurance fund
assessments, the FDIC assesses both BIF and SAIF insured
deposits a special assessment to fund the repayment of debt
obligations of the Financing Corporation (FICO). FICO is a
government-sponsored entity that was formed to borrow the money
necessary to carry out the closing and ultimate disposition of
failed thrift institutions by the Resolution
Trust Corporation. At December 31, 2004, the
annualized rate established by the FDIC for the FICO assessment
on both BIF and SAIF deposits was 1.46 basis points per
$100 of insured deposits.

Dividend Limitations

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. 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 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 capital
and noncapital standards established under the FDICIA, as
described above. Our rights and the rights of our shareholders
and our creditors to

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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 the Riegle-Neal Interstate Banking and
Branching Efficiency Act of 1994 (the Interstate Banking Act),
banks are permitted, subject to being adequately or better
capitalized, in compliance with Community Reinvestment Act
requirements and in compliance with state law requirements (such
as age-of-bank limits and deposit caps), to merge with one
another across state lines and to create a main bank with
branches in separate states. After establishing branches in a
state through an interstate merger transaction, a bank may
establish and acquire additional branches at any location in the
state where any bank involved in the interstate merger could
have established or acquired branches under applicable federal
and state law.

As a federally chartered savings bank, Irwin
Union Bank, F.S.B. has greater flexibility in pursuing
interstate branching than an Indiana state bank. Subject to
certain exceptions, a federal savings association generally may
establish or operate a branch in any state outside the state of
its home office if the association meets applicable 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.
The CRA does not establish specific lending requirements or
programs for financial institutions, or limit an
institutions discretion to develop the types of products
and services it believes are best suited to its particular
community that are consistent with the CRA. 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.
The CRA also requires that all institutions publicly disclose
their CRA ratings. 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

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generally to operations and management, asset
quality and executive compensation, and authorizes
administrative action against an institution that fails to meet
such standards.


Brokered Deposits

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

Gramm-Leach-Bliley Act

In 1999, the Gramm-Leach-Bliley Act (the GLB Act)
amended or repealed certain provisions of the Glass-Steagall Act
and other legislation that restricted the ability of bank
holding companies, securities firms and insurance companies to
affiliate with one another. The GLB Act established a
comprehensive framework to permit affiliations among commercial
banks, insurance companies and securities firms. The GLB Act
also contains provisions intended to safeguard consumer
financial information in the hands of financial service
providers by, among other things, requiring these entities to
share their privacy policies with their customers and allowing
customers to opt out of having their financial
service providers disclose their confidential financial
information with non-affiliated third parties, subject to
certain exceptions. Financial privacy regulations implementing
the GLB provisions contain specific provisions on the treatment
and safeguarding of confidential financial information. To the
extent the GLB Act permits banks, securities firms and insurance
companies to affiliate, the financial services industry may
experience further consolidation. This consolidation could
result in a growing number of larger financial institutions that
offer a wider variety of financial services than we currently
offer and that can aggressively compete in the markets we
currently serve.

Anti-Money Laundering Laws

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

Compliance with Consumer Protection
Laws

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



| |   |                                                                                                                                              
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------
| |  | require lenders to disclose credit terms in
    meaningful and consistent ways;                                                              
|
| |  | prohibit discrimination against an applicant in
    any consumer or business credit transaction;                                             
|
| |  | 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;

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| |   |                                                                                                                          
| | - | -------------------------------------------------------------------------------------------------------------------------
| |  | 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 regulations that offer consumer protections to
depositors, including account terms and disclosures, funds
availability and electronic funds transfers.

Equal Credit Opportunity Act

The federal Equal Credit Opportunity Act
prohibits discrimination against an applicant in any credit
transaction, whether for consumer or business purposes, on the
basis of race, color, religion, national origin, sex, marital
status, age (except in limited circumstances), receipt of income
from public assistance programs or good faith exercise of any
rights under the Consumer Credit Protection Act. In addition to
prohibiting outright discrimination on any of the impermissible
bases listed above, an effects test has been applied
to determine whether a violation of the act has occurred. This
means that if a creditors actions have had the effect of
discriminating, the creditor may be held liable, even when there
is no intent to discriminate. In addition to actual damages, the
Equal Credit Opportunity Act permits regulatory agencies to take
enforcement action and provides for punitive damages. Successful
complainants also may be entitled to an award of court costs and
attorneys fees.

Fair Housing Act

The federal Fair Housing Act regulates many
lending practices, including prohibiting discrimination in a
lenders housing-related lending activities against any
person because of race, color, religion, national origin, sex,
handicap or familial status. The Fair Housing Act is broadly
written and has been broadly interpreted by the courts. A number
of lending practices have been found to be, or may be
considered, illegal under the Fair Housing Act, including some
that are not specifically mentioned in the act itself. Among
those practices that have been found to be, or may be
considered, illegal under the Fair Housing Act are declining a
loan for the purposes of racial discrimination, making
excessively low appraisals of property based on racial
considerations and pressuring, discouraging, or denying
applications for credit on a prohibited basis.

The Fair Housing Act allows a person who believes
he or she has been discriminated against to file a complaint
with the Department of Housing and Urban Development (HUD).
Aggrieved persons also may initiate a civil action. The Fair
Housing Act also permits the Attorney General of the United
States to commence a civil action if there is reasonable cause
to believe that a person has been discriminated against in
violation of the Fair Housing Act. Penalties for violation of
the Fair Housing Act include actual damages suffered by the
aggrieved person and injunctive or other equitable relief. The
courts also may assess civil penalties.

Home Mortgage Disclosure Act

The federal Home Mortgage Disclosure Act grew out
of public concern over the availability of credit in certain
urban neighborhoods. One purpose of the Home Mortgage Disclosure
Act is to provide public information that will help show whether
financial institutions are serving the housing credit needs of
the neighborhoods and communities in which they are located. The
Home Mortgage Disclosure Act also includes a fair
lending aspect that requires the collection and disclosure
of data about applicant and borrower characteristics as a way of
identifying possible discriminatory lending patterns and
enforcing anti-discrimination statutes. The Home Mortgage
Disclosure Act requires institutions to report data regarding
applications for loans for the purchase or improvement of
one-to-four family and multifamily dwellings, as well as
information concerning originations and purchases of such loans.
Federal bank regulators rely, in part, upon

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data provided under the Home Mortgage Disclosure
Act to determine whether depository institutions engage in
discriminatory lending practices.


The appropriate federal banking agency (that is,
the Federal Reserve for Irwin Union Bank and Trust and the OTS
for Irwin Union Bank, F.S.B.), or in some cases, HUD, enforces
compliance with the Home Mortgage Disclosure Act and implements
its regulations. Administrative sanctions, including civil money
penalties, may be imposed by supervisory agencies for violations
of this act.

Real Estate Settlement Procedures
Act

The federal Real Estate Settlement Procedures Act
(RESPA), requires lenders to provide borrowers with disclosures
regarding the nature and cost of real estate settlements. RESPA
also prohibits certain abusive practices, such as kickbacks, and
places limitations on the amount of escrow accounts. Violations
of RESPA may result in imposition of penalties, including:
(1) civil liability equal to three times the amount of any
charge paid for the settlement services or civil liability of up
to $1,000 per claimant, depending on the violation;
(2) awards of court costs and attorneys fees; and
(3) fines of not more than $10,000 or imprisonment for not
more than one year, or both. A significant number of individual
claims and purported consumer class action claims have been
commenced against financial institutions and other mortgage
lending companies, including Irwin Mortgage, alleging violations
of the prohibition against kickbacks and seeking civil damages,
court costs and attorneys fees. See the Legal
Proceedings section of this report.

Truth in Lending Act

The federal Truth in Lending Act is designed to
ensure that credit terms are disclosed in a meaningful way so
that consumers may compare credit terms more readily and
knowledgeably. As a result of the act, all creditors must use
the same credit terminology and expressions of rates, the annual
percentage rate, the finance charge, the amount financed, the
total of payments and the payment schedule.

Violations of the Truth in Lending Act may result
in regulatory sanctions and in the imposition of both civil and,
in the case of willful violations, criminal penalties. Under
certain circumstances, the Truth in Lending Act and Federal
Reserve Regulation Z also provide a consumer with a right
of rescission, which relieves the consumer of the obligation to
pay amounts to the creditor or to a third party in connection
with the offending transaction, including finance charges,
application fee, commitment fees, title search fees and
appraisal fees. Consumers may also seek actual and punitive
damages for violations in the Truth in Lending Act. See the
Legal Proceedings section of this report.

State Consumer Protection Laws

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

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Employees and Labor Relations

At January 31, 2005, we and our subsidiaries
had a total of 3,145 employees, including full-time and
part-time employees. We continue a commitment of equal
employment opportunity for all job applicants and staff members,
and management regards its relations with its employees as
satisfactory.

Executive Officers

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

Richard Barbercheck(46) has been Vice
President-Corporate Credit Risk Evaluation Officer since October
2003. He was an officer of Irwin Union Bank and Trust since
March 1998.

Elena Delgado(49) has been President and Chief
Executive Officer of Irwin Home Equity since September 1994.

Gregory F. Ehlinger(42) has been our Senior Vice
President and Chief Financial Officer since August of 1999. He
has been one of our officers since August 1992.

Paul D. Freudenthaler(40) has been our Vice
President-Chief Risk Officer since December 2003. He was Vice
President-Financial Risk Management from December 2001 to
December 2003. From September 2000 through November 2001, he was
Corporate Controller for America Online Latin America, an
Internet service provider. From July 2000 to August 2000 he
served as Senior Vice President-Treasurer of Telscape
International, Inc., a development stage telecommunications
company. Prior thereto, he held the position of Chief Accounting
Officer of Telscape from July 1999 until June 2000. Subsequent
to his departure from Telscape, Telscape filed a voluntary
petition for relief under Chapter 11 of the
U.S. Bankruptcy Code on April 27, 2001. From February
1999 through June 1999, he was Director-International of Bank
United, F.S.B. From January 1994 through January 1999, he was
Director-International of Irwin Mortgage Corporation, our
subsidiary.

Jose M. Gonzalez(46) has been our Vice President-Director Internal Audit since
October 1995.

Robert H. Griffith(46) has been President and Chief Executive Officer of Irwin
Mortgage since January 2001. He has been an officer of Irwin
Mortgage since 1993.

Bradley J. Kime(44)
has been President of Irwin Union Banks commercial line of
business since May 2003. He has been President of Irwin Union
Bank F.S.B. since December 2000. He has been an officer of Irwin
Union Bank and Trust since 1987 and one of our officers since
1986.

Joseph R. LaLeggia(43) has been President of Irwin Commercial Finance Corporation
since July of 2002. He has been the President and Chief
Executive Officer of Irwin Commercial Finance Canada Corporation
(formerly, Onset Capital Corporation) since April 1998. From
January 1997 until April of 1998 he was President of AT&T
Capital Canada Inc.

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

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

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|        |           
|------- | ----------
|Item 2. | Properties

Our main office and the main offices of Irwin
Ventures LLC are 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, 2005 are as follows:

Irwin Mortgage

The main office, where administrative and
servicing activities are centered, is located at 10500 Kincaid
Drive, Fishers, Indiana, and is leased. Loan production and
satellite offices, which are leased, are operated from
approximately 169 locations in 33 states.

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 six locations in Columbus. These properties
have no major encumbrances. Irwin Union Bank and Trust leases
eleven 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 main office is located at 140 Whittington
Parkway, Suite 100, Louisville, Kentucky. Irwin Union Bank,
F.S.B. has four branch offices located in Arizona, California,
Missouri, and Wisconsin. All offices are leased.

Irwin Home Equity

The main office is located at 12677 Alcosta
Boulevard, Suite 500, San Ramon, California. Irwin
Home Equity also occupies one other office at this location in
San Ramon, California. Both 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 Business Finance Corporation is located at
330 120th Avenue NE, Bellevue, Washington and is leased.
Our Canadian commercial finance subsidiary, Irwin Commercial
Finance Canada Corporation (formerly Onset Capital Corporation),
leases its main office at Suite 300 Park Place,
666 Burrard Street, Vancouver, British Columbia, Canada,
and leases its three processing centers in Calgary, Alberta;
Toronto, Ontario; and Montreal, Quebec. The main offices of our
franchise lending subsidiary, Irwin Franchise Capital
Corporation, are located at 10 Paragon Drive, Montvale, New
Jersey and 2700 Westchester Avenue, Purchase, New York and
are both leased. In addition, Irwin Franchise Capital owns the
building that houses its telesales center at 2715
13th Street, Columbus, Nebraska.






|        |                  
|------- | -----------------
|Item 3. | Legal Proceedings



| |                                             
| | --------------------------------------------
| | Culpepper v. Inland Mortgage
    Corporation

Our indirect subsidiary, Irwin Mortgage
Corporation (formerly Inland Mortgage Corporation), is a
defendant in a class action lawsuit in the United States
District Court for the Northern District of Alabama, filed in
April 1996, alleging that Irwin Mortgage violated the federal
Real Estate Settlement Procedures Act (RESPA) relating to
Irwin Mortgages payment of broker fees to mortgage
brokers. In June 2001, the Court of Appeals for the 11th Circuit
upheld the district courts certification of a plaintiff
class and the case was remanded for further proceedings in the
federal district court.

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In November 2001, by order of the district court,
the parties filed supplemental briefs analyzing the impact of an
October 18, 2001 policy statement issued by the Department
of Housing and Urban Development (HUD) that explicitly disagreed
with the judicial interpretation of RESPA by the Court of
Appeals for the 11th Circuit in its ruling upholding class
certification in this case. In response to a motion from Irwin
Mortgage, in March 2002, the district court granted Irwin
Mortgages motion to stay proceedings in this case until
the 11th Circuit decided the three other RESPA cases originally
argued before it with this case.

The 11th Circuit subsequently decided all of the
RESPA cases pending in that court. In one of those cases, the
11th Circuit concluded that the trial court had abused its
discretion in certifying a class action under RESPA. Further, in
that decision, the 11th Circuit expressly recognized it was, in
effect, overruling its previous decision upholding class
certification in our case. In March 2003, Irwin Mortgage filed a
motion to decertify the class and the plaintiffs filed a renewed
motion for summary judgment. On October 2, 2003 the case
was reassigned to another U.S. district court judge. In
response to an order from the court, the parties met and
submitted a joint status report at the end of October 2003. On
June 14, 2004, at the courts request, the parties
engaged in mediation, which was unsuccessful. The court then
reassigned this case to a new judge.

If the class is not decertified and the district
court finds that Irwin Mortgage violated RESPA, Irwin Mortgage
could be liable for damages equal to three times the amount of
that portion of payments made to the mortgage brokers that is
ruled unlawful. Based on notices sent by the plaintiffs to date
to potential class members and additional notices that might be
sent in this case, we believe the class is not likely to exceed
32,000 borrowers who meet the class specifications.

Irwin Mortgage intends to defend this lawsuit
vigorously and believes it has numerous defenses to the alleged
violations. Irwin Mortgage further believes that the 11th
Circuits RESPA rulings in the cases argued before it with
this one provide grounds for reversal of the class certification
in this case. We have no assurance, however, that Irwin Mortgage
will be successful in defeating class certification or will
ultimately prevail on the merits. However, we expect that an
adverse outcome in this case could result in substantial
monetary damages that could be material to our financial
position. We have not established any reserves for this case and
are unable at this stage of the litigation to form a reasonable
estimate of potential loss that we could suffer.



| |                                                      
| | -----------------------------------------------------
| | United States ex rel. Paranich v.
    Sorgnard et al.

In January 2001, we and Irwin Leasing Corporation
(formerly Affiliated Capital Corp.), our indirect subsidiary,
and Irwin Equipment Finance Corporation, our direct subsidiary
(together, the Irwin companies), were served as defendants in an
action filed in the United States District Court for the Middle
District of Pennsylvania. The suit alleges that a
manufacturer/importer of certain medical devices made
misrepresentations to health care professionals and to
government officials to improperly obtain Medicare reimbursement
for treatments using the devices, and that the Irwin companies,
through Affiliated Capitals financing activities, aided in
making the alleged misrepresentations. On August 10, 2001,
the court dismissed Irwin Financial and Irwin Equipment Finance
as defendants in the suit. The Irwin companies prevailed on a
motion for summary judgment in the district court on
October 8, 2003, and the plaintiff appealed. The Court of
Appeals for the Third Circuit heard oral argument on
plaintiffs appeal on September 27, 2004. On
January 28, 2005, the court of appeals affirmed the
district courts dismissal of plaintiffs action. The
period for which the plaintiff can petition the United States
Supreme Court for a writ of certiorari expires on April 28,
2005.



| |                                              
| | ---------------------------------------------
| | McIntosh v. Irwin Home Equity
    Corporation

Our subsidiary, Irwin Union Bank and
Trust Company, was a defendant in a class action lawsuit
filed in the United States District Court in Massachusetts in
July 2001. The case involved loans purchased by Irwin Union Bank
and Trust Company from an unaffiliated third-party originator.
The plaintiffs alleged a failure to comply with certain
disclosure provisions of the Truth in Lending Act relating to
high-rate loans in making second mortgage home equity loans to
the plaintiff borrowers. The complaint sought rescission of the
loans and other damages.

A limited class was certified. As originally
specified, the plaintiff class included those borrowers who
obtained a mortgage loan originated by the third-party
originator with prepayment penalty provisions during

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the three-year period prior to the filing of the
suit. Subsequently, the court further restricted the class to
those borrowers with high-rate loans subject to the Home
Ownership and Equity Protection Act who refinanced their loans
and paid a prepayment penalty. A preliminary analysis led us to
conclude that fewer than 100 loans qualified for class
membership.


The parties settled this matter for a nonmaterial
amount. The court dismissed the lawsuit with prejudice on
December 16, 2004.



| |                              
| | -----------------------------
| | Stamper v. A Home of Your Own

Our indirect subsidiary, Irwin Mortgage
Corporation, is a defendant in a case filed in August 1998 in
the Baltimore, Maryland, City Circuit Court. On January 25,
2002, a jury in this case awarded the plaintiffs damages of
$1.434 million jointly and severally against defendants,
including Irwin Mortgage. The nine plaintiff borrowers alleged
that a home rehabilitation company defrauded the plaintiffs by
selling them defective homes at inflated prices and that Irwin
Mortgage, which provided the plaintiff borrowers mortgage loans
on the home purchases, participated in the fraud. Irwin Mortgage
filed an appeal with the Maryland Court of Special Appeals and
oral argument was held on January 7, 2003. On
February 27, 2004, the Court of Special Appeals ruled
against Irwin Mortgage and remanded the case to the trial court
for a partial retrial on whether the plaintiffs are entitled to
punitive damages. Irwin Mortgage petitioned the Maryland Court
of Appeals for a writ of certiorari on April 12, 2004. The
Court of Appeals granted Irwin Mortgages petition and
heard oral argument on November 4, 2004. On
February 4, 2005, the Court of Appeals affirmed in part and
reversed in part the judgment of the Court of Special Appeals,
remanding the case as follows: to modify the judgment for all
plaintiffs by striking the award of $145,000 for non-economic
damages; for further proceedings concerning one plaintiff as to
non-economic damages; and for a new trial as to punitive
damages. We have reserved for this case based upon the advice of
our legal counsel.



| |                                        
| | ---------------------------------------
| | Silke v. Irwin Mortgage
    Corporation

In April 2003, our indirect subsidiary, Irwin
Mortgage Corporation, was named as a defendant in a class action
lawsuit filed in the Marion County, Indiana, Superior Court. The
complaint alleges that Irwin Mortgage charged a document
preparation fee in violation of Indiana law for services
performed by clerical personnel in completing legal documents
related to mortgage loans. Irwin Mortgage filed an answer on
June 11, 2003 and a motion for summary judgment on
October 27, 2003. On June 18, 2004, the court
certified a plaintiff class consisting of Indiana borrowers who
were allegedly charged the fee by Irwin Mortgage any time after
April 17, 1997. This date was later clarified by
stipulation of the parties to be April 14, 1997. 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.



| |                                            
| | -------------------------------------------
| | Gutierrez v. Irwin Mortgage
    Corporation

In April 2003, our indirect subsidiary, Irwin
Mortgage Corporation, was named as a defendant in an action
filed in the District Court of Nueces County, Texas. The
complaint alleged that Irwin Mortgage improperly charged
borrowers fees for the services of third-party vendors in excess
of Irwin Mortgages costs, and charged certain fees to
which plaintiffs did not agree. The plaintiffs sought to certify
a class consisting of similarly situated borrowers. In August
2004, the plaintiffs amended their complaint to remove the
allegations that Irwin Mortgage charged excess fees. After a
period of discovery, the parties settled this case for a
nonmaterial amount.



| |                                          
| | -----------------------------------------
| | 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

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intended use, loss of services and the cost of
medical treatment. Because the case is in the early stages of
litigation, we are unable at this time to form a reasonable
estimate of the amount of potential loss, if any, that Irwin
Mortgage could suffer. The parties agreed to delay the filing of
an answer in this case until March 31, 2005. We are
attempting to obtain a voluntary dismissal based on our belief
that there is insufficient nexus between the cause of the
alleged injuries and Irwin Mortgage. 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
Companywas filed on July 30,
2004 in the United States District Court for the Northern
District of Alabama. As amended on August 30, 2004, the
Hobsoncomplaint, 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. Hobsonalleges 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 Hobsonclaims as untimely filed
and substantively defective.

Kossler v. Community Bank of Northern
Virginiawas 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 Kosslercomplaint
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.

The plaintiffs in Hobsonand Kosslerclaim 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 Hobsonplaintiffs
are alleging that Irwin has assignee liability under HOEPA.

If the Hobsonand Kosslerplaintiffs 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
Hobsoncould 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
Hobsonplaintiffs are seeking unspecified punitive
damages. Under TILA, HOEPA, RESPA and RICO, statutory remedies
include recovery of attorneys fees and costs. Other
possible damages in Kossler could include the refunding
of all origination fees paid by the plaintiffs.

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

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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.


Under the loan purchase agreement between Irwin
and Community, Irwin has the right to demand repurchase of the
mortgage loans and indemnification from Community for these
claims. On September 17, 2004, Irwin made a demand for
indemnification and a defense to Hobson, Chatfield and
Ransom. Community denied this request as premature.

On December 22, 2004, Irwin filed a motion
with the Judicial Panel On Multidistrict Litigation requesting a
transfer of Hobson, Chatfieldand Ransom to the
Western District of Pennsylvania for coordinated or consolidated
proceedings with the Kossleraction. That motion was
accepted by the Panel, and plaintiffs filed a motion in
opposition.

At this early stage, we are unable to form a
reasonable estimate of the amount of potential loss, if any,
that Irwin could suffer. We have established a reserve for the
Community litigation based upon the advice of legal counsel.



| |                                            
| | -------------------------------------------
| | Litigation Related to NorVergence,
    Inc.

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

Complaints by former NorVergence customers have
led to investigations by the Attorneys General of several states
and the filing of a number of lawsuits. Irwin Business Finance
has been named as a defendant in several lawsuits connected with
NorVergence. Exquisite Caterers, LLC et al. v.
Popular Leasing et al. is a lawsuit filed in the
Superior Court of New Jersey, Monmouth County, and was amended
to include Irwin Business Finance and others on
September 1, 2004. The Exquisite Caterersplaintiffs
seek certification of a class of persons who leased network
computer equipment from NorVergence, whose leases were assigned
to defendants. The complaint alleges that NorVergence
misrepresented the services and equipment provided, that the
lessees were defrauded and the lease agreements should not be
enforced. The action alleges violations of, among other things,
the New Jersey Consumer Fraud Act; the New Jersey
Truth-in-Consumer Contract, Warranty, and Notice Act; the FTC
Holder Rule; the FTC Act; and breach of contract and implied
warranties. The plaintiffs seek compensatory, statutory and
punitive damages, and injunctive relief, including rescission of
the leases and cessation of collections.

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

Irwin Business Finance was also named as a
defendant, along with other lenders, in Sterling
Asset & Equity Corp. et al. v. Preferred
Capital, Inc. et al., an action filed in the United
States District Court for the Southern District of Florida in
October 2004, which was voluntarily dismissed in January 2005.
The plaintiffs then filed a similar complaint in the Circuit
Court of the 11th Judicial Circuit, Miami-Dade County, Florida

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on January 14, 2005 seeking class
certification on behalf of Florida persons or entities who
leased equipment from NorVergence and whose agreement was
assigned to one of the named lenders. The plaintiffs allege that
NorVergence engaged in false, misleading and deceptive sales and
billing practices. The complaint alleges violations of the
Florida Deceptive and Unfair Trade Practices Act, the FTC Holder
Rule, and breach of contract and warranties. Plaintiffs seek,
among other relief, compensatory and punitive damages,
injunctive and/or declaratory relief prohibiting enforcement of
the leases, rescission, return of payments, interest,
attorneys fees and costs.


In addition, Irwin Business Finance has been
named in several individual lawsuits involving equipment and
services leased from NorVergence, where the lease was assigned
to Irwin Business Finance. The suits allege fraud and
nonfunctional equipment and services. The plaintiffs request
rescission, restitution and/or reformation of the leases and/or
a declaration of unenforceability. These suits were filed in the
following jurisdictions: two actions in the District Court of
Dallas County, Texas (July 2004 and October 2004); one
action in the Superior Court of California, County of
San Diego (August 2004); and one in the Superior Court
of Massachusetts (September 2004). All but the
Massachusetts action have been resolved by agreements under
which the lessees have paid a significant portion of their lease
obligations.

In connection with investigations by various
state attorneys general, Irwin Business Finance and other
lenders were asked to produce information about their
relationships with NorVergence and to refrain from enforcing
NorVergence leases. On October 21, 2004, the Attorney
General of Florida filed a complaint against twelve lenders,
including Irwin Business Finance, in the Circuit Court of the
Second Judicial Circuit, Leon County, Florida (State of
Florida v. Commerce Commercial Leasing, LLC
et al.). The complaint alleges that the agreements
assigned by NorVergence to the lenders are unconscionable under
the Florida Deceptive and Unfair Trade Practices Act. The suit
seeks to prohibit collection activities by the lenders and asks
for repayment of revenues, rescission of the agreements,
restitution, recovery of actual damages, and civil money
penalties. Prosecution of this suit against Irwin Business
Finance has been stayed by agreement of the parties while they
discuss resolution of the concerns expressed by the Florida
Attorney General.

Irwin Business Finance was among a number of
lenders to receive a notice of intent to sue from the Attorney
General of New York. In January 2005, Irwin Business Finance
reached an agreement with the New York Attorney General in
connection with the five NorVergence-related leases Irwin
Business Finance has with New York lessees. The agreement calls
for, among other provisions, forgiveness of 90% of the remaining
principal balance due on the leases as of July 15, 2004
(approximately $116,000). Irwin Business Finance is also
communicating with other state attorneys general about ways in
which Irwin Business Finance might work with the states to bring
some relief to those who have suffered as a result of the
failure of NorVergence.

We are unable to form a reasonable estimate of
potential loss, if any, that Irwin Business Finance could suffer
as a result of ongoing litigation. Agreements with the various
state attorneys general, if reached, would tend to decrease
damages awarded, if any, in NorVergence-related class actions
and other lawsuits because lessees who accept such agreements
would normally cease to be among potential class action
plaintiffs. We have not established reserves in connection with
NorVergence-related litigation.

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.

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

During the fourth quarter of 2004, no matters
were submitted to a vote of our security holders, through the
solicitation of proxies or otherwise.

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PART II






|        |                                                                           
|------- | --------------------------------------------------------------------------
|Item 5. | Market for Corporations Common Equity
    and Related Stockholder Matters

Our stock is listed on the New York Stock
Exchange under the symbol IFC. The following table
sets forth certain information regarding trading in, and cash
dividends paid with respect to, the shares of our common stock
in each quarter of the two most recent calendar years. The
approximate number of shareholders of record on
February 18, 2005, was 1,755.

Stock Prices and Dividends:

|               |  |             |       |         |  |      |       |           |  |          |       |  |  |   |      |  |  |   |      | 
|-------------- |  | ----------- | ----- | ------- |  | ---- | ----- | --------- |  | -------- | ----- |  |  | - | ---- |  |  | - | ---- | 
|               |  |             |       |         |  |      |       |          
|               |  | Price Range |       |         |  |      |       | Total    
|               |  |             |       | Quarter |  | Cash |       | Dividends
|               |  | High        |       | Low     |  | End  |       | Dividends |  | For Year
|               |  |             |       |         |  |      |       |           |  |         
|2003           |  |             |       |         |  |      |       |           |  |          |       |  |  |   |      |  |  |   |      | 
|First quarter  |  |             | 20.12 |         |  |      | 15.95 |           |  |          | 19.49 |  |  | $ | 0.07 |  |  |   |      | 
|Second quarter |  |             | 26.50 |         |  |      | 19.26 |           |  |          | 25.90 |  |  | $ | 0.07 |  |  |   |      | 
|Third Quarter  |  |             | 25.81 |         |  |      | 20.90 |           |  |          | 24.30 |  |  | $ | 0.07 |  |  |   |      | 
|Fourth Quarter |  |             | 32.15 |         |  |      | 25.30 |           |  |          | 31.40 |  |  | $ | 0.07 |  |  | $ | 0.28 | 
|2004           |  |             |       |         |  |      |       |           |  |          |       |  |  |   |      |  |  |   |      | 
|First quarter  |  |             | 36.17 |         |  |      | 26.63 |           |  |          | 26.98 |  |  | $ | 0.08 |  |  |   |      | 
|Second quarter |  |             | 27.43 |         |  |      | 23.10 |           |  |          | 26.40 |  |  | $ | 0.08 |  |  |   |      | 
|Third Quarter  |  |             | 27.58 |         |  |      | 25.05 |           |  |          | 25.82 |  |  | $ | 0.08 |  |  |   |      | 
|Fourth Quarter |  |             | 28.85 |         |  |      | 23.80 |           |  |          | 28.39 |  |  | $ | 0.08 |  |  | $ | 0.32 | 

We expect to continue our policy of paying
regular cash dividends, although there is no assurance as to
future dividends because they are dependent on future earnings,
capital requirements, and financial condition. On
February 10, 2005, our Board of Directors approved an
increase in the first quarter dividend to $0.10 per share,
payable in March 2005. Dividends paid by Irwin Union Bank
and Trust and Irwin Union Bank, F.S.B. to the Corporation are
restricted by banking law.

Sales of Unregistered Securities:

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

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|        |                        
|------- | -----------------------
|Item 6. | Selected Financial Data

Five-Year Selected Financial Data

|                         |                                                                       |                                              |   |            |      |      |   |            |      |      |   |            |      |  |   |            |      |  |   |           |      | 
|------------------------ | --------------------------------------------------------------------- | -------------------------------------------- | - | ---------- | ---- | ---- | - | ---------- | ---- | ---- | - | ---------- | ---- |  | - | ---------- | ---- |  | - | --------- | ---- | 
|                         |                                                                       |                                             
|                         |                                                                       | At or For Year Ended December 31,           
|                         |                                                                       |                                             
|                         |                                                                       | 2004                                         |   | 2003       |      | 2002 |   | 2001       |      | 2000
|                         |                                                                       |                                              |   |            |      |      |   |            |      |     
|                         |                                                                       |                                             
|                         |                                                                       | (Dollars in thousands except per share data)
|For the year:            |                                                                       |                                              |   |            |      |      |   |            |      |      |   |            |      |  |   |            |      |  |   |          
|                         | Net revenues                                                          |                                              | $ | 524,933    |      |      | $ | 530,445    |      |      | $ | 403,788    |      |  | $ | 387,019    |      |  | $ | 290,626   |     
|                         | Noninterest expense                                                   |                                              |   | 407,235    |      |      |   | 412,043    |      |      |   | 317,557    |      |  |   | 312,819    |      |  |   | 231,095   |     
|                         |                                                                       |                                              |   |            |      |      |   |            |      |      |   |            |      |  |   |            |      |  |   |          
|                         | Income before income taxes                                            |                                              |   | 117,698    |      |      |   | 118,402    |      |      |   | 86,231     |      |  |   | 74,200     |      |  |   | 59,531    |     
|                         | Provision for income taxes                                            |                                              |   | 47,794     |      |      |   | 45,585     |      |      |   | 33,398     |      |  |   | 28,859     |      |  |   | 23,865    |     
|                         |                                                                       |                                              |   |            |      |      |   |            |      |      |   |            |      |  |   |            |      |  |   |          
|                         | Income before cumulative effect of change in
    accounting principle |                                              |   | 69,904     |      |      |   | 72,817     |      |      |   | 52,833     |      |  |   | 45,341     |      |  |   | 35,666    |     
|                         |                                                                       |                                              |   |            |      |      |   |            |      |      |   |            |      |  |   |            |      |  |   |          
|                         | Cumulative effect of change in accounting
    principle, net of tax   |                                              |   |           |      |      |   |           |      |      |   | 495        |      |  |   | 175        |      |  |   |          |     
|                         |                                                                       |                                              |   |            |      |      |   |            |      |      |   |            |      |  |   |            |      |  |   |          
|                         | Net income                                                            |                                              | $ | 69,904     |      |      | $ | 72,817     |      |      | $ | 53,328     |      |  | $ | 45,516     |      |  | $ | 35,666    |     
|                         |                                                                       |                                              |   |            |      |      |   |            |      |      |   |            |      |  |   |            |      |  |   |          
|                         | Mortgage loan originations                                            |                                              | $ | 13,093,082 |      |      | $ | 22,669,246 |      |      | $ | 11,411,875 |      |  | $ | 9,225,991  |      |  | $ | 4,091,573 |     
|                         | Home equity loan originations                                         |                                              |   | 1,442,314  |      |      |   | 1,133,316  |      |      |   | 1,067,227  |      |  |   | 1,149,410  |      |  |   | 1,225,955 |     
|Common Share Data:       |                                                                       |                                              |   |            |      |      |   |            |      |      |   |            |      |  |   |            |      |  |   |          
|                         | Earnings per share:(1)                                                |                                              |   |            |      |      |   |            |      |      |   |            |      |  |   |            |      |  |   |           |     
|                         |                                                                       | Basic                                        |   | $          | 2.47 |      |   | $          | 2.61 |      |   | $          | 1.99 |  |   | $          | 2.15 |  |   | $         | 1.70 | 
|                         |                                                                       | Diluted                                      |   |            | 2.32 |      |   |            | 2.45 |      |   |            | 1.89 |  |   |            | 2.00 |  |   |           | 1.67 | 
|                         | Cash dividends per share                                              |                                              |   | 0.32       |      |      |   | 0.28       |      |      |   | 0.27       |      |  |   | 0.26       |      |  |   | 0.24      |     
|                         | Book value per share                                                  |                                              |   | 17.67      |      |      |   | 15.36      |      |      |   | 12.98      |      |  |   | 10.81      |      |  |   | 8.92      |     
|                         | Dividend payout ratio                                                 |                                              |   | 12.97      | %    |      |   | 10.76      | %    |      |   | 14.01      | %    |  |   | 12.13      | %    |  |   | 14.13     | %   
|                         | Weighted average shares  basic                                       |                                              |   | 28,274     |      |      |   | 27,915     |      |      |   | 26,823     |      |  |   | 21,175     |      |  |   | 20,973    |     
|                         | Weighted average shares  diluted                                     |                                              |   | 31,278     |      |      |   | 30,850     |      |      |   | 29,675     |      |  |   | 24,173     |      |  |   | 21,593    |     
|                         | Shares outstanding  end of period                                    |                                              |   | 28,452     |      |      |   | 28,134     |      |      |   | 27,771     |      |  |   | 21,305     |      |  |   | 21,026    |     
|At year end:             |                                                                       |                                              |   |            |      |      |   |            |      |      |   |            |      |  |   |            |      |  |   |          
|                         | Assets                                                                |                                              | $ | 5,239,341  |      |      | $ | 4,988,359  |      |      | $ | 4,910,392  |      |  | $ | 3,446,602  |      |  | $ | 2,425,690 |     
|                         | Residual interests                                                    |                                              |   | 56,101     |      |      |   | 71,491     |      |      |   | 157,514    |      |  |   | 199,071    |      |  |   | 152,614   |     
|                         | Loans held for sale                                                   |                                              |   | 890,711    |      |      |   | 883,895    |      |      |   | 1,314,849  |      |  |   | 502,086    |      |  |   | 579,788   |     
|                         | Loans and leases                                                      |                                              |   | 3,450,440  |      |      |   | 3,161,054  |      |      |   | 2,815,276  |      |  |   | 2,137,822  |      |  |   | 1,234,922 |     
|                         | Allowance for loan and lease losses                                   |                                              |   | 44,443     |      |      |   | 64,285     |      |      |   | 50,936     |      |  |   | 22,283     |      |  |   | 13,129    |     
|                         | Servicing assets                                                      |                                              |   | 367,032    |      |      |   | 380,123    |      |      |   | 174,935    |      |  |   | 228,624    |      |  |   | 130,627   |     
|                         | Deposits                                                              |                                              |   | 3,395,263  |      |      |   | 2,899,662  |      |      |   | 2,693,810  |      |  |   | 2,308,962  |      |  |   | 1,442,589 |     
|                         | Short-term borrowings                                                 |                                              |   | 237,277    |      |      |   | 429,758    |      |      |   | 993,124    |      |  |   | 487,963    |      |  |   | 476,928   |     
|                         | Collateralized debt                                                   |                                              |   | 547,477    |      |      |   | 590,131    |      |      |   | 391,425    |      |  |   |           |      |  |   |          |     
|                         | Other long-term debt(2)                                               |                                              |   | 270,172    |      |      |   | 270,184    |      |      |   | 30,070     |      |  |   | 30,000     |      |  |   | 30,000    |     
|                         | Trust preferred securities(2)                                         |                                              |   |           |      |      |   |           |      |      |   | 233,000    |      |  |   | 198,500    |      |  |   | 153,500   |     
|                         | Shareholders equity                                                  |                                              |   | 502,644    |      |      |   | 432,260    |      |      |   | 360,555    |      |  |   | 231,665    |      |  |   | 188,870   |     
|                         | Managed mortgage banking servicing portfolio                          |                                              |   | 26,196,627 |      |      |   | 29,640,122 |      |      |   | 16,792,669 |      |  |   | 12,875,532 |      |  |   | 9,196,513 |     
|Selected Financial Data: |                                                                       |                                              |   |            |      |      |   |            |      |      |   |            |      |  |   |            |      |  |   |          
|Performance Ratios:      |                                                                       |                                              |   |            |      |      |   |            |      |      |   |            |      |  |   |            |      |  |   |          
|                         | Return on average assets                                              |                                              |   | 1.3        | %    |      |   | 1.4        | %    |      |   | 1.3        | %    |  |   | 1.5        | %    |  |   | 1.8       | %   
|                         | Return on average equity                                              |                                              |   | 14.8       |      |      |   | 18.4       |      |      |   | 16.7       |      |  |   | 21.8       |      |  |   | 20.8      |     
|                         | Net interest margin(3)                                                |                                              |   | 5.46       |      |      |   | 5.82       |      |      |   | 6.01       |      |  |   | 5.35       |      |  |   | 5.36      |     

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|                                    |                                                                                 |                                              |  |       |       |      |  |       |       |      |  |       |       |   |  |       |       |   |  |       |       |  
|----------------------------------- | ------------------------------------------------------------------------------- | -------------------------------------------- |  | ----- | ----- | ---- |  | ----- | ----- | ---- |  | ----- | ----- | - |  | ----- | ----- | - |  | ----- | ----- | -
|                                    |                                                                                 |                                             
|                                    |                                                                                 | At or For Year Ended December 31,           
|                                    |                                                                                 |                                             
|                                    |                                                                                 | 2004                                         |  | 2003  |       | 2002 |  | 2001  |       | 2000
|                                    |                                                                                 |                                              |  |       |       |      |  |       |       |     
|                                    |                                                                                 |                                             
|                                    |                                                                                 | (Dollars in thousands except per share data)
|                                    | Noninterest income to revenues(4)                                               |                                              |  | 53.2  |       |      |  | 53.0  |       |      |  | 52.3  |       |   |  | 64.8  |       |   |  | 69.9  |      
|                                    | Efficiency ratio(5)                                                             |                                              |  | 75.7  |       |      |  | 71.3  |       |      |  | 70.9  |       |   |  | 78.1  |       |   |  | 78.6  |      
|                                    | Loans and leases and loans held for sale to
    deposits(6)                     |                                              |  | 91.4  |       |      |  | 94.1  |       |      |  | 89.9  |       |   |  | 79.1  |       |   |  | 85.6  |      
|                                    | Average interest-earning assets to average
    interest-bearing liabilities     |                                              |  | 132.4 |       |      |  | 132.2 |       |      |  | 121.7 |       |   |  | 117.2 |       |   |  | 113.5 |      
|Asset Quality Ratios:               |                                                                                 |                                              |  |       |       |      |  |       |       |      |  |       |       |   |  |       |       |   |  |      
|                                    | Allowance for loan and lease losses to:                                         |                                              |  |       |       |      |  |       |       |      |  |       |       |   |  |       |       |   |  |       |      
|                                    |                                                                                 | Total loans and leases                       |  |       | 1.3   | %    |  |       | 2.0   | %    |  |       | 1.8   | % |  |       | 1.0   | % |  |       | 1.1   | %
|                                    |                                                                                 | Non-performing loans and leases              |  |       | 131.9 |      |  |       | 144.9 |      |  |       | 163.6 |   |  |       | 116.3 |   |  |       | 181.8 |  
|                                    | Net charge-offs to average loans and leases                                     |                                              |  | 0.7   |       |      |  | 1.1   |       |      |  | 0.7   |       |   |  | 0.7   |       |   |  | 0.3   |      
|                                    | Non-performing assets to total assets                                           |                                              |  | 0.9   |       |      |  | 1.1   |       |      |  | 0.8   |       |   |  | 0.7   |       |   |  | 0.4   |      
|                                    | Non-performing assets to total loans and leases
    and other real estate owned |                                              |  | 1.3   |       |      |  | 1.7   |       |      |  | 1.3   |       |   |  | 1.1   |       |   |  | 0.8   |      
|Ratio of Earnings to Fixed Charges: |                                                                                 |                                              |  |       |       |      |  |       |       |      |  |       |       |   |  |       |       |   |  |      
|                                    | Including deposit interest                                                      |                                              |  | 2.3   | x     |      |  | 2.2   | x     |      |  | 1.9   | x     |   |  | 1.6   | x     |   |  | 1.6x  |      
|                                    | Excluding deposit interest                                                      |                                              |  | 3.5   |       |      |  | 3.1   |       |      |  | 3.0   |       |   |  | 2.5   |       |   |  | 2.5   |      
|Capital Ratios:                     |                                                                                 |                                              |  |       |       |      |  |       |       |      |  |       |       |   |  |       |       |   |  |      
|                                    | Average shareholders equity to average
    assets                              |                                              |  | 9.0   | %     |      |  | 7.6   | %     |      |  | 8.0   | %     |   |  | 6.7   | %     |   |  | 8.5   | %    
|                                    | Tier 1 capital ratio                                                            |                                              |  | 13.0  |       |      |  | 11.4  |       |      |  | 9.3   |       |   |  | 6.8   |       |   |  | 8.9   |      
|                                    | Tier 1 leverage ratio                                                           |                                              |  | 11.6  |       |      |  | 11.2  |       |      |  | 9.7   |       |   |  | 9.4   |       |   |  | 12.4  |      
|                                    | Total risk-based capital ratio                                                  |                                              |  | 15.9  |       |      |  | 15.1  |       |      |  | 13.2  |       |   |  | 10.8  |       |   |  | 13.6  |      



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Earnings per share of common stock before
    cumulative effect of change in accounting principle related to
    SFAS 142, Goodwill and Other Intangible Assets,
    for the year ended December 31, 2002 was $1.97 basic and
    $1.87 diluted. Earnings per share of common stock before
    cumulative effect of change in accounting principle related to
    SFAS 133, Accounting for Derivative Instruments and
    Hedging Activities, for the year ended December 31,
    2001 was $2.14 basic and $1.99 diluted.
|   
|(2) | At December 31, 2004 and 2003, the Trusts
    holding trust preferred securities were not consolidated in
    accordance with FASB Interpretation No. 46,
    Consolidation of Variable Interest Entities. See
    Collateralized and Other Long-Term Debt and
    footnote 1 to the consolidated financial statements for
    further discussion.                                                                                                                                                                       
|   
|(3) | Net interest income divided by average
    interest-earning assets.                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   
|(4) | Revenues consist of net interest income plus
    noninterest income.                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   
|(5) | Noninterest expense divided by net interest
    income plus noninterest income.                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   
|(6) | Excludes first (but not second) mortgage loans
    held for sale and loans collateralizing secured financings.                                                                                                                                                                                                                                                                                                                                                                                                               

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|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 7. | Managements Discussion and Analysis
    of Financial Condition and Results of Operations

About Forward-looking Statements

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

Forward-looking statements are based on
managements expectations, estimates, projections, and
assumptions. These statements involve inherent risks and
uncertainties that are difficult to predict and are not
guarantees of future performance. In addition, our past results
of operations do not necessarily indicate our future results.
Words that convey our beliefs, 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, asset valuations, capital
    ratios or financial performance measures;
| |  | our plans and strategies, including the expected
    results or impact of implementing such plans and strategies;                                          
| |  | potential litigation developments and the
    anticipated impact of potential outcomes of pending legal
    matters;                                       
| |  | the anticipated effects on results of operations
    or financial condition from recent developments or events;                                            
| |  | any other projections or expressions that are not
    historical facts.                                                                                    

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



| |   |                                                                                                                                                                                                                                                                                                                   
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | potential changes in and volatility of interest
    rates, which may affect consumer demand for our products and the
    management and success of our interest rate risk management
    strategies;                                                                                                              
| |  | staffing fluctuations in response to product
    demand;                                                                                                                                                                                                                                                          
| |  | the relative profitability of our lending
    operations;                                                                                                                                                                                                                                                         
| |  | the valuation and management of our servicing
    portfolios, including short-term swings in valuation of such
    portfolios due to quarter-end secondary market interest rates,
    which are inherently volatile;                                                                                              
| |  | borrowers refinancing opportunities, which
    may affect the prepayment assumptions used in our valuation
    estimates and which may affect loan demand;                                                                                                                                                       
| |  | unanticipated deterioration in the credit quality
    of our assets;                                                                                                                                                                                                                                              
| |  | deterioration in the carrying value of our other
    assets, including securities;                                                                                                                                                                                                                                
| |  | difficulties in delivering products to the
    secondary market as planned;                                                                                                                                                                                                                                       
| |  | difficulties in expanding our businesses or
    raising capital and other funding sources as needed;                                                                                                                                                                                                              
| |  | competition from other financial service
    providers for experienced managers as well as for customers;                                                                                                                                                                                                         
| |  | changes in the value of companies in which we
    invest;                                                                                                                                                                                                                                                         
| |  | changes in variable compensation plans related to
    the performance and valuation of lines of business where we tie
    compensation systems to line-of-business performance;                                                                                                                                   
| |  | unanticipated outcomes in litigation;                                                                                                                                                                                                                                                                             
| |  | legislative or regulatory changes, including
    changes in tax laws or regulations, changes in the
    interpretation of regulatory capital rules, changes in consumer
    or commercial lending rules or rules affecting corporate
    governance, and the availability of resources to address these
    rules;
| |  | changes in applicable accounting policies or
    principles or their application to our business;                                                                                                                                                                                                                 
| |  | or governmental changes in monetary or fiscal
    policies.                                                                                                                                                                                                                                                       

25



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##### Table of Contents



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

Strategy

Our strategy is to maintain a diverse and
balanced revenue stream by focusing on niches in financial
services where we believe we can optimize the productivity of
our capital and where our experience and expertise can provide a
competitive advantage. Our operational objectives are premised
on simultaneously achieving three goals: creditworthiness,
profitability and growth. We believe we must continually balance
these goals in order to deliver long-term value to all of our
stakeholders. We have developed a four-part strategy to meet
these goals:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Identify underserved
    niches.We focus on product or market
    niches in financial services that we believe are
    underserved and where we believe customers are willing to
    pay a premium for value-added services. We dont believe it
    is necessary to be the largest or leading market share company
    in any of our product lines, but we do believe it is important
    that we are viewed as a preferred provider in niche segments of
    those product offerings.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| |  | Hire exceptional management with niche
    expertise.We enter niches only when
    we have attracted senior managers who have proven track
    records in the niche for which they are responsible. Each of our
    five lines of business has a separate management team that
    operates as an independent business unit responsible for
    performance goals specific to that particular line of business.
    Our structure allows the senior managers of each line of
    business to focus their efforts on understanding their customers
    and meeting the needs of the markets they serve. This structure
    also promotes accountability among managers of each enterprise.
    The senior managers at each of our lines of business and at the
    parent company have significant industry experience. We attempt
    to create a mix of short-term and long-term incentives
    (including, in some instances, minority interests in the line of
    business) that provide these managers with the incentive to
    achieve creditworthy, profitable growth over the long
    term.
|
| |  | Diversify capital and earnings
    risk.We diversify our
    revenues and allocate our capital across
    complementary lines of business as a key part of our risk
    management. Our lines of business 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. For example, both the origination and
    servicing of residential mortgage loans are very cyclical
    businesses, which normally respond in opposite ways to changes
    in interest rates and show generally opposite effects in certain
    economic environments. We believe our participation in these
    markets has been profitable over time due to our dedication to
    participating in both segments of the mortgage banking business,
    rather than one or the other.                                                                                                                                                                                                             
|
| |  | Reinvest in new
    opportunities.We reinvest on
    an ongoing basis in the development of new and existing
    opportunities. As a result of our attention to long-term value
    creation, we believe it is important at times to dampen
    short-term earnings growth by investing for future return. We
    are biased toward seeking new growth through organic expansion
    of existing lines of business. At times we will initiate a new
    line through a start-up, with highly qualified managers we
    select to focus on a single line of business. Over the past ten
    years, we have made only a few acquisitions. Those have
    typically not been in competitive bidding situations.                                                                                                                                                                                                                                                                                                                                                                                         

We believe our historical growth and
profitability is the result of our endeavors to pursue
complementary consumer and commercial lending niches through our
bank holding company structure, our experienced management, our
diverse product and geographic markets, and our willingness and
ability to align the compensation structure of each of our lines
of business with the interests of our stakeholders. Through
various economic environments and cycles, we have had a
relatively stable revenue and earnings stream on a consolidated
basis generated primarily through internal growth rather than
acquisitions.

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##### Table of Contents



Critical Accounting Policies/ Management
Judgments and Accounting Estimates

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



| |                                           
| | ------------------------------------------
| | Valuation of Mortgage Servicing
    Rights

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



| |                                    
| | -----------------------------------
| | Allowance for Loan and Lease Losses

The allowance for loan and lease losses
(ALLL) reflects our estimate of the adequacy of reserves
needed to cover probable loan and lease losses and certain risks
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 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. 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 will occur. These loans are segregated by major product
type, and in some instances, by aging, with an estimated loss
ratio applied against each product type and aging category. The
loss ratio is generally based upon historic loss experience for
each loan type as adjusted for certain environmental factors
management believes to be relevant. Loans and leases that are
determined by management to be uncollectible are charged against
the allowance. The allowance is increased by provisions against
income and recoveries of loans and leases previously charged
off. See the Credit Risk section of
Managements Discussion and Analysis and footnote 6 to
the consolidated financial statements for further discussion.

27



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##### Table of Contents



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



| |                                
| | -------------------------------
| | Valuation of Residual Interests

Residual interests from securitizations treated
as sales under SFAS No. 140, Accounting for
Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities, are classified as trading assets and as
such, we record them at fair value on the balance sheet. We
record the changes in fair value of these residuals as trading
gains or losses in our statement of income in the period of
change. We use a discounted cash flow analysis to determine the
fair value of these residuals. Cash flows are projected over the
lives of the residuals using prepayment, default, and interest
rate assumptions that we believe market participants would use
for similar financial instruments. Inaccurate assumptions in
valuing residual interests could result in additional impairment
and adversely affect our results of operations. We have not
created these types of residuals since early 2002. See
footnote 3 to the consolidated financial statements for
further discussion.



| |                              
| | -----------------------------
| | Accounting for Deferred Taxes

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

Consolidated Overview

|                              |  |      |      |          |  |      |      |          |  |      |      |   |  |  |      |   |  |   |      |  
|----------------------------- |  | ---- | ---- | -------- |  | ---- | ---- | -------- |  | ---- | ---- | - |  |  | ---- | - |  | - | ---- | -
|                              |  | 2004 |      | % Change |  | 2003 |      | % Change |  | 2002
|                              |  |      |      |          |  |      |      |          |  |     
|Net income (millions)         |  | $    | 69.9 |          |  |      | (4.0 | )%       |  | $    | 72.8 |   |  |  | 36.5 | % |  | $ | 53.3 |  
|Basic earnings per share(1)   |  |      | 2.47 |          |  |      | (5.4 | )        |  |      | 2.61 |   |  |  | 31.2 |   |  |   | 1.99 |  
|Diluted earnings per share(1) |  |      | 2.32 |          |  |      | (5.3 | )        |  |      | 2.45 |   |  |  | 29.6 |   |  |   | 1.89 |  
|Return on average equity      |  |      | 14.8 | %        |  |      |     |          |  |      | 18.4 | % |  |  |     |   |  |   | 16.7 | %
|Return on average assets      |  |      | 1.3  |          |  |      |     |          |  |      | 1.4  |   |  |  |     |   |  |   | 1.3  |  



---



|    |                                                                                                                                                                                                                                                   
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Earnings per share of common stock before
    cumulative effect of change in accounting principle related to
    SFAS 142, Goodwill and Other Intangible Assets,
    for the year ended December 31, 2002 was $1.97 basic and
    $1.87 diluted.

Consolidated Income Statement
Analysis



| |           
| | ----------
| | Net Income

We recorded net income of $69.9 million for
the year ended December 31, 2004, down 4% from net income
of $72.8 million for the year ended December 31, 2003,
and compared to $53.3 million in 2002. Net income per share
(diluted) was $2.32 for the year ended December 31,
2004, down 5% from $2.45 per share in 2003 and up 23% from
$1.89 per share in 2002. Return on equity was 14.8% for the
year ended December 31, 2004, 18.4% in 2003 and 16.7% in
2002. The effective income tax rate for 2004 was 40.6%, compared
to 38.5% in 2003 and 38.7% in 2002. The higher effective rate in
2004 was caused, in part, by non-deductible interest at our
Canadian leasing subsidiary. We believe the effective rate in
2005 will be closer to the rates in 2002 and 2003, rather than
the rate in 2004.

28



---



##### Table of Contents





| |                    
| | -------------------
| | Net Interest Income

Net interest income for the year ended
December 31, 2004 totaled $252.1 million, down 7% from
2003 net interest income of $271.9 million and up 18%
from 2002. The following table shows our daily average
consolidated balance sheet and interest rates at the dates
indicated:

|                                         |                                                           |                                                            |                                    |           |   |           |   |         |         |          |  |        |      |         |         |           |   |           |   |         |         |         |  |       |      |      |         |           |   |           |   |         |         |         |  |       |      |      |  
|---------------------------------------- | --------------------------------------------------------- | ---------------------------------------------------------- | ---------------------------------- | --------- | - | --------- | - | ------- | ------- | -------- |  | ------ | ---- | ------- | ------- | --------- | - | --------- | - | ------- | ------- | ------- |  | ----- | ---- | ---- | ------- | --------- | - | --------- | - | ------- | ------- | ------- |  | ----- | ---- | ---- | -
|                                         |                                                           |                                                           
|                                         |                                                           | December 31,                                              
|                                         |                                                           |                                                           
|                                         |                                                           |                                                            |                                    |           |   |          
|                                         |                                                           | 2004                                                       |                                    | 2003      |   | 2002     
|                                         |                                                           |                                                            |                                    |           |   |          
|                                         |                                                           | 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 |                                                            | $                                  | 85,304    |   |           | $ | 794     |         |          |  | 0.93   | %    |         | $       | 74,216    |   |           | $ | 550     |         |         |  | 0.74  | %    |      | $       | 25,859    |   |           | $ | 311     |         |         |  | 1.20  | %   
|                                         | Federal funds sold                                        |                                                            |                                    | 15,340    |   |           |   | 173     |         |          |  | 1.13   |      |         |         | 10,824    |   |           |   | 118     |         |         |  | 1.10  |      |      |         | 12,582    |   |           |   | 104     |         |         |  | 0.83  |     
|                                         | Residual interests                                        |                                                            |                                    | 67,544    |   |           |   | 12,509  |         |          |  | 18.52  |      |         |         | 108,351   |   |           |   | 20,651  |         |         |  | 19.06 |      |      |         | 186,947   |   |           |   | 34,164  |         |         |  | 18.27 |     
|                                         | Investment securities(2)                                  |                                                            |                                    | 88,254    |   |           |   | 4,536   |         |          |  | 5.14   |      |         |         | 68,602    |   |           |   | 3,723   |         |         |  | 5.43  |      |      |         | 39,923    |   |           |   | 2,809   |         |         |  | 7.04  |     
|                                         | Loans held for sale                                       |                                                            |                                    | 1,034,032 |   |           |   | 80,003  |         |          |  | 7.74   |      |         |         | 1,237,963 |   |           |   | 104,350 |         |         |  | 8.43  |      |      |         | 668,522   |   |           |   | 55,336  |         |         |  | 8.28  |     
|                                         | Loans and leases, net of unearned
    income(1)           |                                                            |                                    | 3,324,333 |   |           |   | 246,288 |         |          |  | 7.41   |      |         |         | 3,168,776 |   |           |   | 241,592 |         |         |  | 7.62  |      |      |         | 2,620,428 |   |           |   | 218,718 |         |         |  | 8.35  |     
|                                         |                                                           |                                                            |                                    |           |   |           |   |         |         |          |  |        |      |         |         |           |   |           |   |         |         |         |  |       |      |      |         |           |   |           |   |         |         |         |  |      
|                                         |                                                           |                                                            | Total interest earning assets      |           | $ | 4,614,807 |   |         | $       | 344,303  |  |        |      | 7.46    | %       |           |   | 4,668,732 |   |         | $       | 370,984 |  |       |      | 7.95 | %       |           |   | 3,554,261 |   |         | $       | 311,442 |  |       |      | 8.76 | %
|Noninterest-earning assets:              |                                                           |                                                            |                                    |           |   |           |   |         |         |          |  |        |      |         |         |           |   |           |   |         |         |         |  |       |      |      |         |           |   |           |   |         |         |         |  |      
|                                         | Cash and due from banks                                   |                                                            |                                    | 104,115   |   |           |   |         |         |          |  |        |      |         |         | 103,581   |   |           |   |         |         |         |  |       |      |      |         | 100,259   |   |           |   |         |         |         |  |       |     
|                                         | Premises and equipment, net                               |                                                            |                                    | 31,219    |   |           |   |         |         |          |  |        |      |         |         | 32,644    |   |           |   |         |         |         |  |       |      |      |         | 34,041    |   |           |   |         |         |         |  |       |     
|                                         | Other assets                                              |                                                            |                                    | 586,668   |   |           |   |         |         |          |  |        |      |         |         | 440,164   |   |           |   |         |         |         |  |       |      |      |         | 354,296   |   |           |   |         |         |         |  |       |     
|                                         | Less allowance for loan and lease losses                  |                                                            |                                    | (56,311   | ) |           |   |         |         |          |  |        |      |         |         | (57,986   | ) |           |   |         |         |         |  |       |      |      |         | (37,054   | ) |           |   |         |         |         |  |       |     
|                                         |                                                           |                                                            |                                    |           |   |           |   |         |         |          |  |        |      |         |         |           |   |           |   |         |         |         |  |       |      |      |         |           |   |           |   |         |         |         |  |      
|                                         |                                                           |                                                            | Total assets                       |           | $ | 5,280,498 |   |         |         |          |  |        |      |         |         |           | $ | 5,187,135 |   |         |         |         |  |       |      |      |         |           | $ | 4,005,803 |   |         |         |         |  |       |      |      |  
|                                         |                                                           |                                                            |                                    |           |   |           |   |         |         |          |  |        |      |         |         |           |   |           |   |         |         |         |  |       |      |      |         |           |   |           |   |         |         |         |  |      
|                                        
|Liabilities and Shareholders
    Equity |                                                           |                                                            |                                    |           |   |           |   |         |         |          |  |        |      |         |         |           |   |           |   |         |         |         |  |       |      |      |         |           |   |           |   |         |         |         |  |      
|Interest-bearing liabilities:            |                                                           |                                                            |                                    |           |   |           |   |         |         |          |  |        |      |         |         |           |   |           |   |         |         |         |  |       |      |      |         |           |   |           |   |         |         |         |  |      
|                                         | Money market checking                                     |                                                            | $                                  | 333,772   |   |           | $ | 4,487   |         |          |  | 1.34   | %    |         | $       | 169,674   |   |           | $ | 913     |         |         |  | 0.54  | %    |      | $       | 132,351   |   |           | $ | 664     |         |         |  | 0.50  | %   
|                                         | Money market savings                                      |                                                            |                                    | 1,071,617 |   |           |   | 15,127  |         |          |  | 1.41   |      |         |         | 866,241   |   |           |   | 11,085  |         |         |  | 1.28  |      |      |         | 648,706   |   |           |   | 10,253  |         |         |  | 1.58  |     
|                                         | Regular savings                                           |                                                            |                                    | 60,800    |   |           |   | 873     |         |          |  | 1.44   |      |         |         | 62,756    |   |           |   | 1,249   |         |         |  | 1.99  |      |      |         | 58,204    |   |           |   | 1,586   |         |         |  | 2.72  |     
|                                         | Time deposits                                             |                                                            |                                    | 907,736   |   |           |   | 24,000  |         |          |  | 2.64   |      |         |         | 992,954   |   |           |   | 29,118  |         |         |  | 2.93  |      |      |         | 1,027,045 |   |           |   | 41,858  |         |         |  | 4.08  |     
|                                         | Short-term borrowings                                     |                                                            |                                    | 307,929   |   |           |   | 9,583   |         |          |  | 3.11   |      |         |         | 595,243   |   |           |   | 14,889  |         |         |  | 2.50  |      |      |         | 600,821   |   |           |   | 15,003  |         |         |  | 2.50  |     
|                                         | Collateralized debt                                       |                                                            |                                    | 534,660   |   |           |   | 15,259  |         |          |  | 2.85   |      |         |         | 578,656   |   |           |   | 15,369  |         |         |  | 2.66  |      |      |         | 215,128   |   |           |   | 5,932   |         |         |  | 2.76  |     
|                                         | Other long-term debt                                      |                                                            |                                    | 270,178   |   |           |   | 22,896  |         |          |  | 8.47   |      |         |         | 30,060    |   |           |   | 2,325   |         |         |  | 7.74  |      |      |         | 31,985    |   |           |   | 2,699   |         |         |  | 8.44  |     
|                                         | Trust preferred securities
    distributions(3)           |                                                            |                                    |          |   |           |   |        |         |          |  | n/a    |      |         |         | 236,823   |   |           |   | 24,151  |         |         |  | 10.20 |      |      |         | 205,400   |   |           |   | 19,800  |         |         |  | 9.64  |     
|                                         |                                                           |                                                            |                                    |           |   |           |   |         |         |          |  |        |      |         |         |           |   |           |   |         |         |         |  |       |      |      |         |           |   |           |   |         |         |         |  |      
|                                         |                                                           |                                                            | Total interest-bearing liabilities |           | $ | 3,486,692 |   |         | $       | 92,225   |  |        |      | 2.65    | %       |           | $ | 3,532,407 |   |         | $       | 99,099  |  |       |      | 2.81 | %       |           |   | 2,919,640 |   |         | $       | 97,795  |  |       |      | 3.35 | %
|Noninterest-bearing liabilities:         |                                                           |                                                            |                                    |           |   |           |   |         |         |          |  |        |      |         |         |           |   |           |   |         |         |         |  |       |      |      |         |           |   |           |   |         |         |         |  |      
|                                         | Demand deposits                                           |                                                            |                                    | 1,006,558 |   |           |   |         |         |          |  |        |      |         |         | 1,042,403 |   |           |   |         |         |         |  |       |      |      |         | 577,409   |   |           |   |         |         |         |  |       |     
|                                         | Other liabilities                                         |                                                            |                                    | 314,478   |   |           |   |         |         |          |  |        |      |         |         | 216,111   |   |           |   |         |         |         |  |       |      |      |         | 188,738   |   |           |   |         |         |         |  |       |     
|Shareholders equity                     |                                                           |                                                            | 472,770                            |           |   |           |   |         |         |          |  |        |      |         | 396,214 |           |   |           |   |         |         |         |  |       |      |      | 320,016 |           |   |           |   |         |         |         |  |      
|                                         |                                                           |                                                            |                                    |           |   |           |   |         |         |          |  |        |      |         |         |           |   |           |   |         |         |         |  |       |      |      |         |           |   |           |   |         |         |         |  |      
|                                         | Total liabilities and shareholders equity                |                                                            | $                                  | 5,280,498 |   |           |   |         |         |          |  |        |      |         | $       | 5,187,135 |   |           |   |         |         |         |  |       |      |      | $       | 4,005,803 |   |           |   |         |         |         |  |       |     
|                                         |                                                           |                                                            |                                    |           |   |           |   |         |         |          |  |        |      |         |         |           |   |           |   |         |         |         |  |       |      |      |         |           |   |           |   |         |         |         |  |      
|                                         |                                                           | Net interest income                                        |                                    |           |   |           |   | $       | 252,078 |          |  |        |      |         |         |           |   |           |   | $       | 271,885 |         |  |       |      |      |         |           |   |           |   | $       | 213,647 |         |  |       |      |     
|                                         |                                                           |                                                            |                                    |           |   |           |   |         |         |          |  |        |      |         |         |           |   |           |   |         |         |         |  |       |      |      |         |           |   |           |   |         |         |         |  |      
|                                         |                                                           | Net interest income to average interest earning
    assets |                                    |           |   |           |   |         |         |          |  |        | 5.46 | %       |         |           |   |           |   |         |         |         |  |       | 5.82 | %    |         |           |   |           |   |         |         |         |  |       | 6.01 | %   
|                                         |                                                           |                                                            |                                    |           |   |           |   |         |         |          |  |        |      |         |         |           |   |           |   |         |         |         |  |       |      |      |         |           |   |           |   |         |         |         |  |      



---



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

29



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##### Table of Contents



Net interest margin for the year ended
December 31, 2004 was 5.46% compared to 5.82% in 2003 and
6.01% in 2002. The decline in margin in 2004 relates to the
lower interest rate environment relative to 2003 that caused
yields on variable rate loans to decline at a more rapid pace
than underlying funding sources, some of which (e.g., mortgage
escrow deposits) have rates close to zero in any interest rate
environment and, therefore, cannot reduce in a declining rate
environment. In addition, the average balance on the
high-yielding residual interests declined 38% in 2004 due
primarily to the full year effect in 2004 of unrealized trading
losses (reflecting valuation impairment) recorded during the
first half of 2003.

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,
|                 |                                                           |                                
|                 |                                                           |                                 |   |               
|                 |                                                           | 2004 Over 2003                  |   | 2003 Over 2002
|                 |                                                           |                                 |   |               
|                 |                                                           | Volume                          |   | Rate           |         | Total |   | Volume  |         | Rate |   | Total  
|                 |                                                           |                                 |   |                |         |       |   |         |         |      |   |        
|                 |                                                           |                                
|                 |                                                           | (Dollars and thousands)        
|Interest Income  |                                                           |                                 |   |                |         |       |   |         |         |      |   |         |         |   |   |         |        |  |   |         |         |   |   |        
|                 | Loans and leases                                          |                                 | $ | 11,860         |         |       | $ | (7,164  | )       |      | $ | 4,696   |         |   | $ | 45,769  |        |  | $ | (22,895 | )       |   | $ | 22,874  |       
|                 | Mortgage loans held for sale                              |                                 |   | (17,189        | )       |       |   | (7,158  | )       |      |   | (24,347 | )       |   |   | 47,134  |        |  |   | 1,880   |         |   |   | 49,014  |       
|                 | Investment securities                                     |                                 |   | 1,066          |         |       |   | (253    | )       |      |   | 813     |         |   |   | 2,018   |        |  |   | (1,104  | )       |   |   | 914     |       
|                 | Residual interests                                        |                                 |   | (7,777         | )       |       |   | (365    | )       |      |   | (8,142  | )       |   |   | (14,363 | )      |  |   | 850     |         |   |   | (13,513 | )     
|                 | Interest bearing deposits with financial
    institutions |                                 |   | 82             |         |       |   | 162     |         |      |   | 244     |         |   |   | 581     |        |  |   | (342    | )       |   |   | 239     |       
|                 | Federal funds sold                                        |                                 |   | 50             |         |       |   | 5       |         |      |   | 55      |         |   |   | (15     | )      |  |   | 29      |         |   |   | 14      |       
|                 |                                                           |                                 |   |                |         |       |   |         |         |      |   |         |         |   |   |         |        |  |   |         |         |   |   |        
|                 |                                                           | Total                           |   |                | (11,908 | )     |   |         | (14,773 | )    |   |         | (26,681 | ) |   |         | 81,124 |  |   |         | (21,582 | ) |   |         | 59,542 | 
|                 |                                                           |                                 |   |                |         |       |   |         |         |      |   |         |         |   |   |         |        |  |   |         |         |   |   |        
|Interest Expense |                                                           |                                 |   |                |         |       |   |         |         |      |   |         |         |   |   |         |        |  |   |         |         |   |   |        
|                 | Money market checking                                     |                                 |   | 883            |         |       |   | 2,691   |         |      |   | 3,574   |         |   |   | 187     |        |  |   | 62      |         |   |   | 249     |       
|                 | Money market savings                                      |                                 |   | 2,628          |         |       |   | 1,414   |         |      |   | 4,042   |         |   |   | 3,438   |        |  |   | (2,606  | )       |   |   | 832     |       
|                 | Regular savings                                           |                                 |   | (39            | )       |       |   | (337    | )       |      |   | (376    | )       |   |   | 124     |        |  |   | (461    | )       |   |   | (337    | )     
|                 | Time deposits                                             |                                 |   | (2,499         | )       |       |   | (2,619  | )       |      |   | (5,118  | )       |   |   | (1,389  | )      |  |   | (11,351 | )       |   |   | (12,740 | )     
|                 | Short-term borrowings                                     |                                 |   | (7,187         | )       |       |   | 1,881   |         |      |   | (5,306  | )       |   |   | (139    | )      |  |   | 25      |         |   |   | (114    | )     
|                 | Collateralized debt                                       |                                 |   | (1,169         | )       |       |   | 1,059   |         |      |   | (110    | )       |   |   | 10,024  |        |  |   | (587    | )       |   |   | 9,437   |       
|                 | Other long-term debt                                      |                                 |   | 18,575         |         |       |   | 1,996   |         |      |   | 20,571  |         |   |   | (162    | )      |  |   | (212    | )       |   |   | (374    | )     
|                 | Trust preferred securities distribution                   |                                 |   | (24,151        | )       |       |   | 0       |         |      |   | (24,151 | )       |   |   | 3,029   |        |  |   | 1,322   |         |   |   | 4,351   |       
|                 |                                                           |                                 |   |                |         |       |   |         |         |      |   |         |         |   |   |         |        |  |   |         |         |   |   |        
|                 |                                                           | Total                           |   |                | (12,959 | )     |   |         | 6,085   |      |   |         | (6,874  | ) |   |         | 15,112 |  |   |         | (13,808 | ) |   |         | 1,304  | 
|                 |                                                           |                                 |   |                |         |       |   |         |         |      |   |         |         |   |   |         |        |  |   |         |         |   |   |        
|                 | Net Interest Income                                       |                                 | $ | 1,051          |         |       | $ | (20,858 | )       |      | $ | (19,807 | )       |   | $ | 66,012  |        |  | $ | (7,774  | )       |   | $ | 58,238  |       
|                 |                                                           |                                 |   |                |         |       |   |         |         |      |   |         |         |   |   |         |        |  |   |         |         |   |   |        

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



| |                                    
| | -----------------------------------
| | Provision for Loan and Lease Losses

The consolidated provision for loan and lease
losses for the year 2004 was $14.1 million, compared to
$47.6 million and $44.0 million in 2003 and 2002,
respectively. More information on this subject is contained in
the section on credit risk.



| |                   
| | ------------------
| | Noninterest Income

Noninterest income during the year 2004 totaled
$287.0 million, compared to $306.1 million for 2003
and $234.1 million in 2002. The decrease in 2004 versus
2003 was primarily a result of a $180 million or 49%

30



---



##### Table of Contents



decrease in gain from sale of loans as a result
of decreased production and decreased secondary market
deliveries of first mortgage loans. In addition, we recorded
impairment on our mortgage servicing asset totaling
$2 million in 2004, versus impairment recovery in 2003 of
$45 million. Offsetting this was $21 million in
derivative gains from our economic hedging activities during
2004, compared to $44 million of derivative losses during
2003. Accordingly, mortgage servicing asset impairment/recovery
net of derivative gains/losses was a net recovery of
$19 million in 2004 compared to a net recovery of
$24 million in 2003. Also offsetting the decreased gain on
sale was amortization expense on our servicing asset that
decreased 14% to $117 million in 2004 compared to
$136 million in 2003 due to lower prepayments and as a
result of permanent impairment taken in 2003. These fluctuations
in noninterest income primarily occurred at our mortgage banking
line of business and relate to market conditions driven by a low
interest rate environment throughout most of 2004. See
Mortgage Banking section for further discussion. In
our Home Equity Lending segment, we recorded trading gains of
$25 million in 2004 compared to trading losses of
$52 million in 2003. The unrealized gains in 2004
principally reflect lower actual loss rates than those
previously modeled and reflect more sizable recoveries resulting
from home price appreciation and more aggressive collection
efforts. See Home Equity Lending section for further
discussion.


Noninterest Expense

Noninterest expenses for the year ended
December 31, 2004 totaled $407.2 million, compared to
$412.0 million and $317.6 million in 2003 and 2002,
respectively. The decrease in consolidated noninterest expense
in 2004 is primarily related to lower personnel costs associated
with our decreased production at the mortgage banking line of
business. This decline was offset by higher personnel costs at
the home equity lending, commercial banking, and commercial
finance lines of business in connection with their improved
performance in 2004.

Consolidated Balance Sheet Analysis

Average assets for 2004 were $5.3 billion up
2% from December 31, 2003, and up 32% from
December 31, 2002. The growth in the consolidated average
balance sheet reflects increases in portfolio loans and leases
particularly at the commercial banking and commercial finance
lines of business. This growth was offset by declines in
mortgage loans held for sale at the mortgage banking line of
business as mortgage production decreased in 2004. Total assets
at December 31, 2004 were $5.2 billion, up 5% from
December 31, 2003.

Loans Held For Sale

Loans held for sale totaled $0.9 billion at
December 31, 2004, unchanged from December 31, 2003
and down 32% from December 31, 2002. The decrease compared
to 2002 occurred primarily at our mortgage banking line of
business where first mortgage loans held for sale declined from
$1.2 billion at December 31, 2002 to $0.7 billion
at December 31, 2003 and 2004. This decline reflects slower
refinance activity at the mortgage line of business as a result
of the interest rate environment at year-end 2003 and 2004.
Included in loans held for sale at the mortgage line of business
at December 31, 2004 and 2003 were $68 million and
$116 million, respectively, of loans for which we have the
right, but not the obligation, to repurchase due to default,
under the terms of the government servicing agency contracts.
Upon default, we have the non-contingent right to repurchase
these loans which causes repurchase accounting under
Financial Accounting Standards Board (FASB) Statement of
Financial Accounting Standards (SFAS) No. 140,
Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities. The liability
associated with these loans is reflected in other
liabilities on our Consolidated Balance Sheet.

Loans and Leases

Our commercial loans and leases are originated
throughout the United States and Canada. Equipment loans and
leases are also originated in Canada by our commercial finance
line of business. At December 31, 2004, 93% of our loan and
lease portfolio was associated with our U.S. operations. We
also extend credit to

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consumers nationally through mortgages,
installment loans and revolving credit arrangements. Loans by
major category for the periods presented were as follows:


|                                       |                     |                        |           |         |           |      |           |         |           |      |           |         |           |   |           |         |           |   |         |         |           | 
|-------------------------------------- | ------------------- | ---------------------- | --------- | ------- | --------- | ---- | --------- | ------- | --------- | ---- | --------- | ------- | --------- | - | --------- | ------- | --------- | - | ------- | ------- | --------- | 
|                                       |                     |                       
|                                       |                     | December 31,          
|                                       |                     |                       
|                                       |                     | 2004                   |           | 2003    |           | 2002 |           | 2001    |           | 2000
|                                       |                     |                        |           |         |           |      |           |         |           |     
|                                       |                     |                       
|                                       |                     | (Dollars in thousands)
|Commercial, financial and agricultural |                     | $                      | 1,697,651 |         |           | $    | 1,503,619 |         |           | $    | 1,347,962 |         |           | $ | 1,055,307 |         |           | $ | 677,066 |        
|Real estate construction               |                     |                        | 287,496   |         |           |      | 306,669   |         |           |      | 314,851   |         |           |   | 287,228   |         |           |   | 220,485 |        
|Real estate mortgage                   |                     |                        | 808,875   |         |           |      | 859,541   |         |           |      | 777,865   |         |           |   | 490,186   |         |           |   | 122,301 |        
|Consumer                               |                     |                        | 31,166    |         |           |      | 27,370    |         |           |      | 27,857    |         |           |   | 38,489    |         |           |   | 56,785  |        
|Commercial financing:                  |                     |                        |           |         |           |      |           |         |           |      |           |         |           |   |           |         |           |   |         |        
|                                       | Franchise financing |                        |           | 330,496 |           |      |           | 207,341 |           |      |           | 130,247 |           |   |           | 47,447  |           |   |         |        |          
|                                       | Domestic leasing    |                        |           | 174,035 |           |      |           | 157,072 |           |      |           | 161,464 |           |   |           | 185,080 |           |   |         | 116,867 |          
|                                       | Canadian leasing    |                        |           | 265,780 |           |      |           | 207,355 |           |      |           | 133,784 |           |   |           | 91,816  |           |   |         | 72,864  |          
|Unearned income:                       |                     |                        |           |         |           |      |           |         |           |      |           |         |           |   |           |         |           |   |         |        
|                                       | Franchise financing |                        |           | (86,638 | )         |      |           | (56,837 | )         |      |           | (34,494 | )         |   |           | (11,497 | )         |   |         |        |          
|                                       | Domestic leasing    |                        |           | (23,924 | )         |      |           | (22,038 | )         |      |           | (24,793 | )         |   |           | (32,686 | )         |   |         | (21,570 | )        
|                                       | Canadian leasing    |                        |           | (34,497 | )         |      |           | (29,038 | )         |      |           | (19,467 | )         |   |           | (13,548 | )         |   |         | (9,876  | )        
|                                       |                     |                        |           |         |           |      |           |         |           |      |           |         |           |   |           |         |           |   |         |        
|                                       |                     | Total                  |           | $       | 3,450,440 |      |           | $       | 3,161,054 |      |           | $       | 2,815,276 |   |           | $       | 2,137,822 |   |         | $       | 1,234,922 | 
|                                       |                     |                        |           |         |           |      |           |         |           |      |           |         |           |   |           |         |           |   |         |        

The following table shows our contractual
maturity distribution of loans at December 31, 2004. Actual
principal payments may differ depending on customer prepayments:

|                                       |                         |                        |         |            |           |            |         |         |           |   |         |         |           |   |           |           |           | 
|-------------------------------------- | ----------------------- | ---------------------- | ------- | ---------- | --------- | ---------- | ------- | ------- | --------- | - | ------- | ------- | --------- | - | --------- | --------- | --------- | 
|                                       |                         |                        |         | After One  |           |            |         |        
|                                       |                         | Within One             |         | But Within |           | After      |         |        
|                                       |                         | Year                   |         | Five Years |           | Five Years |         | Total  
|                                       |                         |                        |         |            |           |            |         |        
|                                       |                         |                       
|                                       |                         | (Dollars in thousands)
|Commercial, financial and agricultural |                         | $                      | 736,322 |            |           | $          | 693,360 |         |           | $ | 267,969 |         |           | $ | 1,697,651 |          
|Real estate construction               |                         |                        | 192,868 |            |           |            | 74,690  |         |           |   | 19,938  |         |           |   | 287,496   |          
|Real estate mortgage                   |                         |                        | 42,137  |            |           |            | 71,423  |         |           |   | 695,315 |         |           |   | 808,875   |          
|Consumer                               |                         |                        | 20,715  |            |           |            | 8,546   |         |           |   | 1,905   |         |           |   | 31,166    |          
|Commercial financing:                  |                         |                        |         |            |           |            |         |         |           |   |         |         |           |   |           |          
|                                       | Franchise financing     |                        |         | 10,445     |           |            |         | 46,611  |           |   |         | 186,802 |           |   |           | 243,858   |          
|                                       | Domestic leasing        |                        |         | 10,745     |           |            |         | 138,129 |           |   |         | 1,237   |           |   |           | 150,111   |          
|                                       | Canadian leasing        |                        |         | 11,349     |           |            |         | 205,401 |           |   |         | 14,533  |           |   |           | 231,283   |          
|                                       |                         |                        |         |            |           |            |         |         |           |   |         |         |           |   |           |          
|                                       |                         | Total                  |         | $          | 1,024,581 |            |         | $       | 1,238,160 |   |         | $       | 1,187,699 |   |           | $         | 3,450,440 | 
|                                       |                         |                        |         |            |           |            |         |         |           |   |         |         |           |   |           |          
|Loans due after one year with:         |                         |                        |         |            |           |            |         |         |           |   |         |         |           |   |           |          
|                                       | Fixed interest rates    |                        |         |            |           |            |         |         |           |   |         |         |           |   | $         | 1,060,852 |          
|                                       | Variable interest rates |                        |         |            |           |            |         |         |           |   |         |         |           |   |           | 1,365,007 |          
|                                       |                         |                        |         |            |           |            |         |         |           |   |         |         |           |   |           |          
|                                       |                         | Total                  |         |            |           |            |         |         |           |   |         |         |           |   |           | $         | 2,425,859 | 
|                                       |                         |                        |         |            |           |            |         |         |           |   |         |         |           |   |           |          

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Allowance for Loan and Lease Losses

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

|                                                        |  |                        |         |      |  |      |         |   |  |   |         |  
|------------------------------------------------------- |  | ---------------------- | ------- | ---- |  | ---- | ------- | - |  | - | ------- | -
|                                                        |  |                       
|                                                        |  | December 31,          
|                                                        |  |                       
|                                                        |  | 2004                   |         | 2003 |  | 2002
|                                                        |  |                        |         |      |  |     
|                                                        |  |                       
|                                                        |  | (Dollars in thousands)
|Balance at beginning of year                            |  | $                      | 64,285  |      |  | $    | 50,936  |   |  | $ | 22,283  |  
|Provision for loan and lease losses                     |  |                        | 14,195  |      |  |      | 47,583  |   |  |   | 43,996  |  
|Charge-offs                                             |  |                        | (28,180 | )    |  |      | (37,312 | ) |  |   | (18,230 | )
|Recoveries                                              |  |                        | 5,335   |      |  |      | 3,420   |   |  |   | 2,870   |  
|Reduction due to sale of loans and leases and
    other |  |                        | (627    | )    |  |      | (234    | ) |  |   |        |  
|Reduction due to reclassification of loans              |  |                        | (10,808 | )    |  |      | (690    | ) |  |   |        |  
|Foreign currency adjustment                             |  |                        | 243     |      |  |      | 582     |   |  |   | 17      |  
|                                                        |  |                        |         |      |  |      |         |   |  |   |         |  
|Balance at end of period                                |  | $                      | 44,443  |      |  | $    | 64,285  |   |  | $ | 50,936  |  
|                                                        |  |                        |         |      |  |      |         |   |  |   |         |  

The 2004 rollforward 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
$20.6 million. The loans were transferred with an allowance
of $10.8 million to reduce their carrying value to fair
market value. After the transfers, the remaining
$9.8 million of excess allowance was reversed through the
provision for loan and lease losses.

Investment Securities

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

|                                                 |       |                        |        |         |  |      |        |        |  |   |        |        | 
|------------------------------------------------ | ----- | ---------------------- | ------ | ------- |  | ---- | ------ | ------ |  | - | ------ | ------ | 
|                                                 |       |                       
|                                                 |       | December 31,          
|                                                 |       |                       
|                                                 |       | 2004                   |        | 2003    |  | 2002
|                                                 |       |                        |        |         |  |     
|                                                 |       |                       
|                                                 |       | (Dollars in thousands)
|U.S. Treasury and government obligations         |       | $                      | 3,556  |         |  | $    | 20,994 |        |  | $ | 14,992 |       
|Obligations of states and political subdivisions |       |                        | 3,746  |         |  |      | 3,960  |        |  |   | 4,210  |       
|Mortgage-backed securities                       |       |                        | 31,556 |         |  |      | 2,039  |        |  |   | 1,738  |       
|Other                                            |       |                        | 69,364 |         |  |      | 65,532 |        |  |   | 47,008 |       
|                                                 |       |                        |        |         |  |      |        |        |  |   |        |       
|                                                 | Total |                        | $      | 108,222 |  |      | $      | 92,525 |  |   | $      | 67,948 | 
|                                                 |       |                        |        |         |  |      |        |        |  |   |        |       

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Included within the other category is
$66 million, $63 million, and $46 million of FHLB
and Federal Reserve Bank stock at December 31, 2004, 2003,
and 2002, respectively, for which there is no readily
determinable market value. The following table shows maturity
distribution of our investment securities at December 31,
2004:

|                                                 |                    |                        |       |            |   |           |     |                 |   |       |       |       |   |   |        |      |   |   |         |        | 
|------------------------------------------------ | ------------------ | ---------------------- | ----- | ---------- | - | --------- | --- | --------------- | - | ----- | ----- | ----- | - | - | ------ | ---- | - | - | ------- | ------ | 
|                                                 |                    |                        |       |            |   |           |     | Mortgage-backed |   |      
|                                                 |                    |                        |       |            |   |           |     | Securities and  |   |      
|                                                 |                    |                        |       | After Five |   |           |     | FHLB & Federal  |   |      
|                                                 |                    | Within                 |       | But Within |   | After Ten |     | Reserve Bank    |   |      
|                                                 |                    | One Year               |       | Ten Years  |   | Years     |     | Stock           |   | Total
|                                                 |                    |                        |       |            |   |           |     |                 |   |      
|                                                 |                    |                       
|                                                 |                    | (Dollars in thousands)
|U.S. Treasury and government obligations         |                    | $                      |      |            |   | $         |    |                 |   | $     | 3,556 |       |   | $ |       |      |   | $ | 3,556   |       
|Obligations of states and political subdivisions |                    |                        |      |            |   |           | 530 |                 |   |       | 3,216 |       |   |   |       |      |   |   | 3,746   |       
|Other                                            |                    |                        | 3,134 |            |   |           |    |                 |   |       |      |       |   |   |       |      |   |   | 3,134   |       
|                                                 |                    |                        |       |            |   |           |     |                 |   |       |       |       |   |   |        |      |   |   |         |       
|                                                 | Total              |                        |       | 3,134      |   |           |     | 530             |   |       |       | 6,772 |   |   |        |     |   |   |         | 10,436 | 
|Mortgage-backed securities                       |                    |                        |       |            |   |           |     |                 |   |       |       |       |   |   | 31,556 |      |   |   | 31,556  |       
|FHLB & Federal Reserve Bank stock                |                    |                        |       |            |   |           |     |                 |   |       |       |       |   |   | 66,230 |      |   |   | 66,230  |       
|                                                 |                    |                        |       |            |   |           |     |                 |   |       |       |       |   |   |        |      |   |   |         |       
|                                                 |                    | $                      | 3,134 |            |   | $         | 530 |                 |   | $     | 6,772 |       |   | $ | 97,786 |      |   | $ | 108,222 |       
|                                                 |                    |                        |       |            |   |           |     |                 |   |       |       |       |   |   |        |      |   |   |         |       
|Weighted Average Yield                           |                    |                        |       |            |   |           |     |                 |   |       |       |       |   |   |        |      |   |   |         |       
|                                                 | Held-to-maturity   |                        |       |           |   |           |     | 5.18            | % |       |       | 5.17  | % |   |        | 5.30 | % |   |         |        | 
|                                                 | Available-for-sale |                        |       | 3.98       | % |           |     |                |   |       |       | 5.36  | % |   |        | 4.64 | % |   |         |        | 

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



| |         
| | --------
| | Deposits

Total deposits in 2004 averaged $3.4 billion
compared to average deposits in 2003 of $3.1 billion, and
average deposits in 2002 of $2.4 billion. Demand deposits
in 2004 averaged $1.0 billion, unchanged from the 2003
average balance and up 74% on average from 2002. A significant
portion of demand deposits is related to deposits at Irwin Union
Bank and Trust associated with escrow accounts held on loans in
the servicing portfolio at the mortgage banking line of
business. During 2004, these escrow accounts averaged
$0.7 billion compared to a 2003 average of
$0.8 billion, and a 2002 average of $0.4 billion. The
decrease in average escrow balances in 2004 relates to the
mortgage banking line of business decline in refinancing
activity. More than offsetting this decrease was an increase in
core deposits. Average core deposits at our commercial bank,
which exclude jumbo and brokered CDs and public funds, increased
to $2.2 billion in 2004 compared to $1.7 billion in
2003.

Our lines of business utilize institutional
broker-sourced deposits as funding from time to time to
supplement deposits solicited through branches and other
wholesale funding sources. At December 31, 2004,
institutional broker-sourced deposits totaled
$279.0 million compared to a balance of $339.4 million
at December 31, 2003.

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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,          
|                                 |           |                       
|                                 |           | 2004                   |           | 2003    |  | 2002
|                                 |           |                        |           |         |  |     
|                                 |           |                       
|                                 |           | (Dollars in thousands)
|Under 3 months                   |           | $                      | 266,200   |         |  | $    | 284,095   |         |  | $ | 241,722   |        
|3 to 6 months                    |           |                        | 117,339   |         |  |      | 60,786    |         |  |   | 116,119   |        
|6 to 12 months                   |           |                        | 91,276    |         |  |      | 98,746    |         |  |   | 63,742    |        
|after 12 months                  |           |                        | 169,796   |         |  |      | 252,743   |         |  |   | 280,287   |        
|                                 |           |                        |           |         |  |      |           |         |  |   |           |        
|                                 | Total CDs |                        | $         | 644,611 |  |      | $         | 696,370 |  |   | $         | 701,870 | 
|                                 |           |                        |           |         |  |      |           |         |  |   |           |        
|Brokered deposits                |           | $                      | 278,993   |         |  | $    | 339,417   |         |  | $ | 337,431   |        
|                                 |           |                        |           |         |  |      |           |         |  |   |           |        
|Mortgage banking escrow deposits |           | $                      | 680,812   |         |  | $    | 566,956   |         |  | $ | 582,626   |        
|                                 |           |                        |           |         |  |      |           |         |  |   |           |        
|Commercial banking core deposits |           | $                      | 2,197,671 |         |  | $    | 1,752,758 |         |  | $ | 1,516,812 |        
|                                 |           |                        |           |         |  |      |           |         |  |   |           |        

Short-Term Borrowings

Short-term borrowings during 2004 averaged
$307.9 million compared to an average of
$595.2 million in 2003, and $600.8 million in 2002.
Short-term borrowings declined to $237.3 million at
December 31, 2004 compared to $429.8 million at
December 31, 2003. The decrease in short-term borrowings
relates primarily to the increased use of deposits to support
our asset growth in 2004.

Federal Home Loan Bank borrowings averaged
$185.9 million for the year ended December 31, 2004,
with an average rate of 1.69%. The balance at December 31,
2004 was $71.8 million at an interest rate of 3.15%. The
maximum outstanding during any month end during 2004 was
$536.3 million. At December 31, 2003, Federal Home
Loan Bank borrowings averaged $317.2 million, with an
average rate of 1.46%. The balance at December 31, 2003 was
$286.0 million at an interest rate of 1.34%. The maximum
outstanding at any month end during 2003 was $977.0 million.

Collateralized and Other Long-Term
Debt

Collateralized borrowings totaled
$547.5 million at December 31, 2004 compared to
$590.1 million at December 31, 2003. The bulk of these
borrowings have resulted from securitization structures that
result in loans remaining as assets and debt being recorded on
our balance sheet. This securitization debt represents
match-term funding for these loans and leases. The decreased
debt relates to the sale of portfolio loans at the home equity
lending line of business and on-going run-off of the underlying
loan and lease portfolios. This was offset by a new
$0.4 billion secured financing transaction completed in
2004. These transactions are discussed in more detail in the
Home Equity Lending section of this document.

Other long-term debt totaled $270.2 million
at December 31, 2004, unchanged from 2003. We have
obligations represented by subordinated debentures totaling
$240.1 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, 2004. In accordance with FASB Interpretation
No. 46 (FIN 46), Consolidation of Variable
Interest Entities (revised December 2003), at the end
of 2003 we deconsolidated the wholly-owned trusts that issued
the trust preferred securities. As a result, these securities
are no longer consolidated on our balance sheet. Instead, the
subordinated debentures held by the trusts are disclosed on the
balance sheet as other long-term debt. We are
evaluating the potential benefits of calling the trust preferred
securities issued by IFC Capital Trust II, which become
callable (under certain conditions) at par in
September 2005.

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Capital

Shareholders equity averaged
$472.5 million during 2004, up 19% compared to 2003, and up
48% from 2002. Shareholders equity balance of
$502.6 million at December 31, 2004 represented
$17.67 per common share, compared to $15.36 per common
share at December 31, 2003, and compared to $12.98 per
common share at year-end 2002. We paid an aggregate of
$9.1 million in dividends during 2004, compared to
$7.8 million during 2003 and $7.5 million during 2002.

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

|                                       |                       |                          |           |      |         |      |           |      |         |   |           |      |         | 
|-------------------------------------- | --------------------- | ------------------------ | --------- | ---- | ------- | ---- | --------- | ---- | ------- | - | --------- | ---- | ------- | 
|                                       |                       |                         
|                                       |                       | December 31,            
|                                       |                       |                         
|                                       |                       | 2004                     |           | 2003 |         | 2002
|                                       |                       |                          |           |      |         |     
|                                       |                       |                         
|                                       |                       | (Dollars in thousands)  
|Tier 1 capital                         |                       | $                        | 641,079   |      |         | $    | 556,793   |      |         | $ | 462,064   |     
|Tier 2 capital                         |                       |                          | 141,866   |      |         |      | 183,738   |      |         |   | 196,092   |     
|                                       |                       |                          |           |      |         |      |           |      |         |   |           |     
|                                       |                       | Total risk-based capital |           | $    | 782,945 |      |           | $    | 740,531 |   |           | $    | 658,156 | 
|                                       |                       |                          |           |      |         |      |           |      |         |   |           |     
|Risk-weighted assets                   |                       | $                        | 4,930,684 |      |         | $    | 4,917,622 |      |         | $ | 4,996,891 |     
|Risk-based ratios:                     |                       |                          |           |      |         |      |           |      |         |   |           |     
|                                       | Tier 1 capital        |                          |           | 13.0 | %       |      |           | 11.4 | %       |   |           | 9.3  | %      
|                                       | Total capital         |                          |           | 15.9 |         |      |           | 15.1 |         |   |           | 13.2 |        
|                                       | Tier 1 leverage ratio |                          |           | 11.6 |         |      |           | 11.2 |         |   |           | 9.7  |        
|Ending shareholders equity to assets  |                       |                          | 9.6       |      |         |      | 8.7       |      |         |   | 7.4       |     
|Average shareholders equity to assets |                       |                          | 9.0       |      |         |      | 7.6       |      |         |   | 8.0       |     

At December 31, 2004, our total risk-based
capital ratio was 15.9%, exceeding our internal minimum target
of 11.0%. At December 31, 2003 and 2002, our total
risk-based capital ratio was 15.1% and 13.2%, respectively. Our
ending equity to assets ratio at December 31, 2004 was 9.6%
compared to 8.7% at December 31, 2003. However, as
previously discussed, temporary conditions that existed at year
end make the average balance sheet ratio a more accurate measure
of capital. Our average equity to assets for the year ended
December 31, 2004 was 9.0% compared to 7.6% for the year
2003. Our Tier 1 capital totaled $641.1 million as of
December 31, 2004, or 13.0% 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,
Supervision and Regulation.

We have issued $233.0 million in trust
preferred securities through five IFC Capital Trusts and one IFC
Statutory Trust as of December 31, 2004. All securities are
callable at par after five years. These funds are all
Tier 1 qualifying capital under current regulatory
guidance. The sole assets of these trusts are our subordinated
debentures. See further discussion in the Collateralized
and Other Long-Term Debt section above. As of

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


|                        |  |             |          |               |  |          |       |             |  |          |          |       |  |   |         |  |  |  |            |  |  |                                                                                                                                        
|----------------------- |  | ----------- | -------- | ------------- |  | -------- | ----- | ----------- |  | -------- | -------- | ----- |  | - | ------- |  |  |  | ---------- |  |  | ---------------------------------------------------------------------------------------------------------------------------------------
|                        |  |             |          | Interest Rate |  |          |       |             |  |          |          |      
|                        |  |             |          | at            |  |          |       |             |  |          |          |      
|                        |  | Origination |          | December 31,  |  | Maturity |       | $ Amount in |  |          |          |      
|Name                    |  | Date        |          | 2004          |  | Date     |       | Thousands   |  | Dividend |          | Other
|                        |  |             |          |               |  |          |       |             |  |          |          |      
|IFC Capital Trust II    |  |             | Nov 2000 |               |  |          | 10.50 | %           |  |          | Sep 2030 |       |  | $ | 51,750  |  |  |  | quarterly  |  |  |                                                                                                                                        
|IFC Capital Trust III   |  |             | Nov 2000 |               |  |          | 8.75  |             |  |          | Sep 2030 |       |  |   | 51,707  |  |  |  | quarterly  |  |  | 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 |       |  |   | 15,000  |  |  |  | semiannual |  |  |                                                                                                                                        
|IFC Capital Trust V     |  |             | Nov 2001 |               |  |          | 9.95  |             |  |          | Nov 2031 |       |  |   | 30,000  |  |  |  | semiannual |  |  |                                                                                                                                        
|IFC Capital Trust VI    |  |             | Oct 2002 |               |  |          | 8.70  |             |  |          | Sep 2032 |       |  |   | 34,500  |  |  |  | quarterly  |  |  |                                                                                                                                        
|IFC Statutory Trust VII |  |             | Nov 2003 |               |  |          | 5.46  |             |  |          | Nov 2033 |       |  |   | 50,000  |  |  |  | quarterly  |  |  | Rate changes quarterly at three month LIBOR plus
    290 basis points                                                                  
|                        |  |             |          |               |  |          |       |             |  |          |          |       |  |   |         |  |  |  |            |  |  |                                                                                                                                        
|                        |  |             |          |               |  |          |       |             |  |          |          |       |  | $ | 232,957 |  |  |  |            |  |  |                                                                                                                                        
|                        |  |             |          |               |  |          |       |             |  |          |          |       |  |   |         |  |  |  |            |  |  |                                                                                                                                        

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

In connection with our stock option plans, we
repurchased 13 thousand common shares in 2004 with a market
value of $0.4 million. In 2003, we repurchased 171 thousand
shares with a market value of $4.2 million.

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

Inflation

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

Cash Flow Analysis

Our cash and cash equivalents decreased
$43.7 million in 2004 compared to decreases of
$17.0 million during 2003 and $0.5 million in 2002.
Cash flows from operating activities provided $15.6 million
in cash and cash equivalents in 2004 compared to
$596.9 million in 2003. Changes in loans held for sale
impact cash flows from operations. In a period in which loan
sales exceed production such as we experienced in 2003, operating

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cash flows will increase. In 2003, our loans held
for sale decreased $431 million, thus increasing the cash
provided by operating activities. In 2004, our loans held for
sale balance was relatively unchanged.


Earnings Outlook

We do not provide quantitative earnings guidance,
as we do not believe it to be in the best interest of our
long-term stakeholders. However, as discussed before, our
strategy is to seek opportunities for credit-worthy, profitable
growth by serving niche markets and balancing the impact of
changes in interest rates and economic conditions on our
mortgage banking production with investments in mortgage
servicing and in our credit retained portfolios. These
investments will typically respond in an opposite and
complementary manner. We expect a substantial proportion of 2005
earnings to come from net interest income derived from our
credit portfolios in commercial banking, home equity lending and
commercial finance lines of business. We expect segment growth
and earnings to be more proportionate to our balance sheet
exposures, rather than the disproportionate contribution
provided by the mortgage segment during 2002 and 2003.
Currently, market conditions for our mortgage banking segment
are very difficult. Origination margins are significantly below
our long-term expectations and we are not seeing increases in
the value of our servicing portfolio as we would typically
expect when mortgage origination revenues are declining

A meaningful amount of our earnings comes from
activities and mark-to-market accounting requirements tied
directly or indirectly to capital market activities. For
example, the valuation of our mortgage servicing portfolio is
impacted by movements in the bond market. The impact of
short-term movements in interest rates on the valuation of our
mortgage servicing rights is mitigated by a combination of
financial derivatives and changes in income from production of
new mortgages likely to be driven by those same movements in
interest rates. However, the correlation within short periods of
time (such as a single quarter) between interest rate movements
that impact the reported value of our mortgage servicing rights
at quarter end and the production effects of those interest rate
movements  which may not be reflected until
subsequent quarters  can be low. In addition,
accounting principles generally accepted in the
U.S. (GAAP) impose a lower-of-cost-or-market valuation
cap on the value of our servicing asset, while we know of no
financial derivatives available in the secondary market with
similarly asymmetric value change characteristics. This anomaly
in accounting for mortgage servicing assets makes it difficult
at times to construct economic hedges with the desired GAAP
accounting outcome, although the economic balance may still
exist.

We are subject to basis risk in the management of
our servicing portfolio. Currently, the basis risk is moving in
a manner opposite to historic patterns, negatively affecting
management of these assets. As discussed in more detail in the
section of this report on Interest Rate Risk, we
have approximately $1.6 million of mortgage servicing
rights at risk to each one basis point change in interest rates.
We typically counter-act this risk with the use of derivatives
with a similar basis point value. Over time, this hedge has
performed well in mitigating loss in value when interest rates
have declined and has been structured in such a manner so that
we can recapture some of the increase in value of servicing
rights as rates rise, without losing an equal amount on our
derivatives. Over the past six months, however, basis risk in
our servicing asset and derivative position has caused our
hedging position to be less effective than it has been
historically as recent declines in mortgage rates has not been
matched with equal declines in swap rates.

Finally, while basis risk exhibits stability over
longer periods of time, over shorter periods there can be
separation in the relative spreads of interest rates and indices
used to value mortgage servicing rights and the financial
derivatives we use to hedge the change in value in mortgage
servicing rights. At times this basis risk benefits us and at
other times it does not. It is generally not possible to
eliminate this basis risk. It is possible, therefore, that our
balanced revenue strategy may be successful as measured over
several quarters or years, but may have market-based variances
if measured over short periods such as quarters.

As a result, assuming these conditions persist
through quarter end, we expect our revenues and thus net income
will be lower in the first quarter of 2005 than in the fourth
quarter. However, we believe we are in a transitory period for
mortgage banking and, in light of the good growth we have had in
our credit portfolios in 2004, we expect net income for the full
year of 2005 to return to levels commensurate with our historic

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performance. These estimates are based on various
factors and current assumptions management believes are
reasonable, including current industry forecasts of a variety of
economic and competitive factors. However, projections are
inherently uncertain, and our actual earnings may differ
significantly from this estimate due to uncertainties and risks
related to our business such as fluctuations in interest rates
and other factors mentioned above in the About
Forward-Looking Statements section. Over periods of normal
economic cycles we strive to meet or exceed our long-term
targets of double-digit growth in earnings per share and a
return on equity above our cost of capital.


We also have a large amount of income that is
subject to assumptions and pricing for credit risks. We use a
variety of methods for estimating the effects of and accounting
for credit losses and interest rate changes, but ultimately, we
need to make estimates based on imperfect knowledge of future
events, which may cause actual results to differ materially from
our expectations. For example, if the pace of economic growth in
the U.S. is slower in 2005 than currently anticipated by
consensus estimates, our credit related costs may increase
beyond our current estimates. While a substantial portion of
mortgage banking revenues are derived from loan origination
activities, we have taken steps over the past year, more rapidly
in the past six months, to reduce the number of branches in our
system that are not achieving our desired return targets. This,
by definition, lowers our revenues and in many cases,
contribution to fixed or semi-fixed costs, but we believe it is
the appropriate tactic over the long-term as a response to
rising interest rates. We have continued these office-closing
activities in the first quarter of 2005, principally in our
retail channel that has historically had the lowest margins in
rising interest rate environments. Where possible, we have
attempted to transfer office lease obligations to acquirors.
This is typically done for nominal consideration.

Summary of Quarterly Financial
Information

|                           |                                     |                |   |         |      |         |   |          |      |  |   |          |      |  |   |          |      | 
|-------------------------- | ----------------------------------- | -------------- | - | ------- | ---- | ------- | - | -------- | ---- |  | - | -------- | ---- |  | - | -------- | ---- | 
|                           |                                     |               
|                           |                                     | 2004          
|                           |                                     |               
|                           |                                     | Fourth         |   | Third   |      | Second  |   | First   
|                           |                                     | Quarter        |   | Quarter |      | Quarter |   | Quarter 
|                           |                                     |                |   |         |      |         |   |         
|                           |                                     |               
|                           |                                     | (In thousands)
|Summary Income Information |                                     |                |   |         |      |         |   |          |      |  |   |          |      |  |   |         
|                           | Interest income                     |                | $ | 89,439  |      |         | $ | 89,965   |      |  | $ | 85,096   |      |  | $ | 79,803   |     
|                           | Interest expense                    |                |   | (26,480 | )    |         |   | (24,305  | )    |  |   | (20,840  | )    |  |   | (20,600  | )   
|                           | Provision for loan and lease losses |                |   | (2,357  | )    |         |   | (1,898   | )    |  |   | (1,794   | )    |  |   | (8,146   | )   
|                           | Non-interest income                 |                |   | 60,653  |      |         |   | 67,935   |      |  |   | 76,008   |      |  |   | 82,454   |     
|                           | Non-interest expense                |                |   | (96,550 | )    |         |   | (102,492 | )    |  |   | (107,757 | )    |  |   | (100,436 | )   
|                           | Income taxes                        |                |   | (10,280 | )    |         |   | (12,011  | )    |  |   | (12,769  | )    |  |   | (12,734  | )   
|                           |                                     |                |   |         |      |         |   |          |      |  |   |          |      |  |   |         
|                           | Net income                          |                | $ | 14,425  |      |         | $ | 17,194   |      |  | $ | 17,944   |      |  | $ | 20,341   |     
|                           |                                     |                |   |         |      |         |   |          |      |  |   |          |      |  |   |         
|                           | Earnings per share of common stock: |                |   |         |      |         |   |          |      |  |   |          |      |  |   |          |     
|                           |                                     | Basic(1)       |   | $       | 0.51 |         |   | $        | 0.61 |  |   | $        | 0.64 |  |   | $        | 0.72 | 
|                           |                                     | Diluted(1)     |   |         | 0.48 |         |   |          | 0.57 |  |   |          | 0.60 |  |   |          | 0.67 | 

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|                           |                                     |                |   |          |      |         |   |          |      |  |   |          |      |  |   |          |      | 
|-------------------------- | ----------------------------------- | -------------- | - | -------- | ---- | ------- | - | -------- | ---- |  | - | -------- | ---- |  | - | -------- | ---- | 
|                           |                                     |               
|                           |                                     | 2003          
|                           |                                     |               
|                           |                                     | Fourth         |   | Third    |      | Second  |   | First   
|                           |                                     | Quarter        |   | Quarter  |      | Quarter |   | Quarter 
|                           |                                     |                |   |          |      |         |   |         
|                           |                                     |               
|                           |                                     | (In thousands)
|Summary Income Information |                                     |                |   |          |      |         |   |          |      |  |   |          |      |  |   |         
|                           | Interest income                     |                | $ | 84,372   |      |         | $ | 98,880   |      |  | $ | 98,851   |      |  | $ | 88,882   |     
|                           | Interest expense                    |                |   | (24,472  | )    |         |   | (23,247  | )    |  |   | (26,890  | )    |  |   | (24,490  | )   
|                           | Provision for loan and lease losses |                |   | (9,928   | )    |         |   | (14,778  | )    |  |   | (13,634  | )    |  |   | (9,243   | )   
|                           | Non-interest income                 |                |   | 80,407   |      |         |   | 105,024  |      |  |   | 74,269   |      |  |   | 69,599   |     
|                           | Non-interest expense                |                |   | (103,603 | )    |         |   | (114,767 | )    |  |   | (111,230 | )    |  |   | (105,600 | )   
|                           | Income taxes                        |                |   | (10,080  | )    |         |   | (19,994  | )    |  |   | (8,139   | )    |  |   | (7,372   | )   
|                           |                                     |                |   |          |      |         |   |          |      |  |   |          |      |  |   |         
|                           | Net income                          |                | $ | 16,696   |      |         | $ | 31,118   |      |  | $ | 13,227   |      |  | $ | 11,776   |     
|                           |                                     |                |   |          |      |         |   |          |      |  |   |          |      |  |   |         
|                           | Earnings per share of common stock: |                |   |          |      |         |   |          |      |  |   |          |      |  |   |          |     
|                           |                                     | Basic(1)       |   | $        | 0.60 |         |   | $        | 1.11 |  |   | $        | 0.47 |  |   | $        | 0.42 | 
|                           |                                     | Diluted(1)     |   |          | 0.56 |         |   |          | 1.03 |  |   |          | 0.45 |  |   |          | 0.41 | 



---



|    |                                                                                                                                                           
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------
|(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.

Earnings by Line of Business

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



| |   |                    
| | - | -------------------
| |  | Mortgage Banking   
|
| |  | Commercial Banking 
|
| |  | Home Equity Lending
|
| |  | Commercial Finance 
|
| |  | Venture Capital    

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

|                   |                                         |                         |        |        |   |      |        |         |   |   |        |        |  
|------------------ | --------------------------------------- | ----------------------- | ------ | ------ | - | ---- | ------ | ------- | - | - | ------ | ------ | -
|                   |                                         |                        
|                   |                                         | Year Ended December 31,
|                   |                                         |                        
|                   |                                         | 2004                    |        | 2003   |   | 2002
|                   |                                         |                         |        |        |   |     
|                   |                                         |                        
|                   |                                         | (Dollars in thousands) 
|Net income (loss): |                                         |                         |        |        |   |      |        |         |   |   |        |       
|                   | Mortgage Banking                        |                         | $      | 20,266 |   |      | $      | 78,100  |   |   | $      | 44,543 |  
|                   | Commercial Banking                      |                         |        | 23,424 |   |      |        | 22,477  |   |   |        | 16,085 |  
|                   | Home Equity Lending                     |                         |        | 30,180 |   |      |        | (19,890 | ) |   |        | 1,005  |  
|                   | Commercial Finance                      |                         |        | 3,217  |   |      |        | 1,793   |   |   |        | (58    | )
|                   | Venture Capital                         |                         |        | (397   | ) |      |        | (1,708  | ) |   |        | (2,483 | )
|                   | Other (including consolidating entries) |                         |        | (6,786 | ) |      |        | (7,955  | ) |   |        | (5,764 | )
|                   |                                         |                         |        |        |   |      |        |         |   |   |        |       
|                   |                                         | $                       | 69,904 |        |   | $    | 72,817 |         |   | $ | 53,328 |       
|                   |                                         |                         |        |        |   |      |        |         |   |   |        |       

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Mortgage Banking

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

|                                                                          |                                       |                                |          |            |         |      |          |            |         |      |          |            |         |   |          |            |         |   |          |           |         |  
|------------------------------------------------------------------------- | ------------------------------------- | ------------------------------ | -------- | ---------- | ------- | ---- | -------- | ---------- | ------- | ---- | -------- | ---------- | ------- | - | -------- | ---------- | ------- | - | -------- | --------- | ------- | -
|                                                                          |                                       |                               
|                                                                          |                                       | Year Ended December 31,       
|                                                                          |                                       |                               
|                                                                          |                                       | 2004                           |          | 2003       |         | 2002 |          | 2001       |         | 2000
|                                                                          |                                       |                                |          |            |         |      |          |            |         |     
|                                                                          |                                       |                               
|                                                                          |                                       | (Dollars in thousands)        
|Selected Income Statement Data:                                           |                                       |                                |          |            |         |      |          |            |         |      |          |            |         |   |          |            |         |   |          |          
|Net interest income                                                       |                                       | $                              | 40,825   |            |         | $    | 72,311   |            |         | $    | 41,545   |            |         | $ | 30,261   |            |         | $ | 15,401   |          
|Recovery of (provision for) loan losses                                   |                                       |                                | 278      |            |         |      | (664     | )          |         |      | (354     | )          |         |   | 31       |            |         |   | 357      |          
|Noninterest income                                                        |                                       |                                | 197,971  |            |         |      | 326,000  |            |         |      | 207,177  |            |         |   | 185,251  |            |         |   | 118,293  |          
|                                                                          |                                       |                                |          |            |         |      |          |            |         |      |          |            |         |   |          |            |         |   |          |          
|                                                                          |                                       | Total net revenue              |          |            | 239,074 |      |          |            | 397,647 |      |          |            | 248,368 |   |          |            | 215,543 |   |          |           | 134,051 |  
|Operating expense                                                         |                                       |                                | (204,205 | )          |         |      | (267,880 | )          |         |      | (175,277 | )          |         |   | (153,706 | )          |         |   | (112,506 | )        
|                                                                          |                                       |                                |          |            |         |      |          |            |         |      |          |            |         |   |          |            |         |   |          |          
|Income before taxes                                                       |                                       |                                | 34,869   |            |         |      | 129,767  |            |         |      | 73,091   |            |         |   | 61,837   |            |         |   | 21,545   |          
|Income taxes                                                              |                                       |                                | (14,603  | )          |         |      | (51,667  | )          |         |      | (28,548  | )          |         |   | (23,912  | )          |         |   | (8,539   | )        
|                                                                          |                                       |                                |          |            |         |      |          |            |         |      |          |            |         |   |          |            |         |   |          |          
|Net income before cumulative effect of change in
    accounting principle |                                       |                                | 20,266   |            |         |      | 78,100   |            |         |      | 44,543   |            |         |   | 37,925   |            |         |   | 13,006   |          
|Cumulative effect of change in accounting
    principle                   |                                       |                                |         |            |         |      |         |            |         |      |         |            |         |   | 175      |            |         |   |         |          
|                                                                          |                                       |                                |          |            |         |      |          |            |         |      |          |            |         |   |          |            |         |   |          |          
|Net income                                                                |                                       | $                              | 20,266   |            |         | $    | 78,100   |            |         | $    | 44,543   |            |         | $ | 38,100   |            |         | $ | 13,006   |          
|                                                                          |                                       |                                |          |            |         |      |          |            |         |      |          |            |         |   |          |            |         |   |          |          
|Selected Balance Sheet Data at End of
    Period:                         |                                       |                                |          |            |         |      |          |            |         |      |          |            |         |   |          |            |         |   |          |          
|                                                                          | Total assets                          |                                | $        | 1,238,136  |         |      | $        | 1,258,641  |         |      | $        | 1,631,406  |         |   | $        | 926,946    |         |   | $        | 522,349   |        
|                                                                          | Mortgage loans held for sale          |                                |          | 662,832    |         |      |          | 679,360    |         |      |          | 1,239,309  |         |   |          | 502,086    |         |   |          | 249,580   |        
|                                                                          | Mortgage servicing assets             |                                |          | 319,225    |         |      |          | 348,174    |         |      |          | 146,398    |         |   |          | 211,201    |         |   |          | 121,555   |        
|                                                                          | Deposits                              |                                |          | 680,812    |         |      |          | 567,047    |         |      |          | 581,425    |         |   |          | 360,523    |         |   |          | 158,416   |        
|                                                                          | Short-term borrowing                  |                                |          | 133,150    |         |      |          | 214,877    |         |      |          | 809,921    |         |   |          | 385,640    |         |   |          | 215,826   |        
|                                                                          | Shareholders equity                  |                                |          | 123,265    |         |      |          | 122,671    |         |      |          | 100,069    |         |   |          | 63,150     |         |   |          | 47,828    |        
|Selected Operating Data:                                                  |                                       |                                |          |            |         |      |          |            |         |      |          |            |         |   |          |            |         |   |          |          
|                                                                          | Mortgage loan originations            |                                | $        | 13,093,082 |         |      | $        | 22,669,246 |         |      | $        | 11,411,875 |         |   | $        | 9,225,991  |         |   | $        | 4,091,573 |        
|                                                                          | Servicing portfolio:                  |                                |          |            |         |      |          |            |         |      |          |            |         |   |          |            |         |   |          |           |        
|                                                                          | Balance at end of period              |                                |          | 26,196,627 |         |      |          | 29,640,122 |         |      |          | 16,792,669 |         |   |          | 12,875,532 |         |   |          | 9,196,513 |        
|                                                                          |                                       | Weighted average coupon rate   |          |            | 5.75    | %    |          |            | 5.83    | %    |          |            | 6.59    | % |          |            | 7.23    | % |          |           | 7.76    | %
|                                                                          |                                       | Weighted average servicing fee |          |            | 0.35    |      |          |            | 0.33    |      |          |            | 0.37    |   |          |            | 0.45    |   |          |           | 0.43    |  
|                                                                          | Servicing sold as a % of originations |                                |          | 74.2       |         |      |          | 6.2        |         |      |          | 31.1       |         |   |          | 29.9       |         |   |          | 108.0     |        

Overview

In our mortgage banking line of business, we
originate, purchase, sell and service conventional and
government agency-backed residential mortgage loans throughout
the United States. We also engage in the business of mortgage
reinsurance. Because most of our mortgage originations either
are insured by an agency of the federal government, such as the
Federal Housing Administration (FHA) or the Veterans
Administration (VA), or, in the case of conventional mortgages,
meet requirements for sale to the Federal National Mortgage
Association (FNMA), the Federal Home Loan Mortgage Corporation
(FHLMC) or the Federal Home Loan Bank (FHLB), we are able
to remove substantially all of the credit risk associated with
these loans from our balance sheet. While we securitize and sell
mortgage loans to institutional and private investors, we may
choose to retain the servicing rights. Loan origination demand
and servicing values normally react in opposite directions to
changes in interest rates, as explained below. We believe this
balance between mortgage loan originations and mortgage loan
servicing values assists in managing the risk from interest rate
changes, which has helped stabilize our revenue stream.

Our channels for originating loans consist
primarily of retail, wholesale, and correspondent lending. The
retail channel originates loans through retail branches and
identifies potential borrowers mainly through relationships
maintained with housing intermediaries, such as realtors,
homebuilders and brokers. Our

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wholesale and correspondent divisions purchase
loans from third party sources. The wholesale division purchases
primarily from mortgage loan brokers and issues loan proceeds
directly to the borrower. The correspondent lending division
purchases closed mortgage loans primarily from small mortgage
banks and retail banks. We fund our mortgage loan originations
using internal funding sources and through credit facilities
provided by third parties. Generally within a 30-day period
after funding, we sell our mortgage loan originations into the
secondary mortgage market either by direct loan sales or by
securitization. Our secondary market sources include
government-sponsored mortgage entities, nationally sponsored
mortgage conduits, and institutional and private investors.


We believe there is a balance between mortgage
loan originations and mortgage loan servicing that assists in
managing the risk from interest rate changes and the impact of
rate changes on each part of the business. In rising interest
rate environments, originations typically decline, while the
value of our mortgage servicing portfolio generally increases as
prepayment expectations decline. In declining interest rate
environments, servicing values typically decrease as prepayment
expectations increase, while the economic value of our mortgage
production franchise generally increases due to the potential
for greater mortgage loan originations. However, the offsetting
impact of changes in production income and servicing values may
not always be recognized in the same quarter under generally
accepted accounting principles. The timing difference is due to
the application of lower-of-cost-or-market treatment under
generally accepted accounting principles to the mortgage
servicing asset, with no accounting equivalent for the
production franchise. As a result, we sometimes experience
greater volatility in short-term results than is apparent in
longer-term measurements such as annual income.

Our strategy of balancing exposure to mortgage
originations and mortgage servicing is challenged in a period of
flat or mildly declining interest rates (particularly in a
period after significant refinance activity has subsided).
Periods such as these are characterized by excess industry
origination capacity and too little volume relative to fixed
expenses, coupled with no meaningful increases in servicing
values. These conditions have existed since the summer of 2004.
As such, our mortgage segment results are likely to continue to
be depressed until these conditions change.

We sell servicing rights periodically for many
reasons, including income recognition, cash flow, capital
management and servicing portfolio management. Servicing rights
sales occur at the time the underlying loans are sold to an
investor (in flow sales) or in pools from our seasoned servicing
portfolio (in bulk sales). As interest rates fluctuated in 2004,
we chose to sell the servicing asset associated with a
relatively higher percentage of our current originations due to
the changed interest rate risk and expected total return profile
of owning servicing on loans with current interest rates as well
as to mitigate the growth of servicing assets as a percentage of
our consolidated balance sheet. This differs from our actions
over the past several years of adding to the portfolio as rates
reached historic lows.

Strategy

Our mortgage banking line of business focuses
primarily on first-time homeowners, who we believe will increase
in number in coming years due to certain national demographic
trends that are favorable to housing formation in our target
markets. The mortgage banking business is cyclical, following
changes in interest rates. In our mortgage banking line of
business we do not try to anticipate the timing of changes in
interest rates, but instead we have developed a strategy
intended to maintain profitability across interest rate cycles.
Our strategy has three components:



| |   |                                                                                                                                                                                                                                                                                                                                                          
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | We manage our loan production activities through
    the expansion or contraction of existing channels in geographic
    markets and demographic groups that support our strategy and by
    serving intermediaries (such as some brokers, correspondents and
    credit unions) that value our mortgage banks
    service-oriented approach to lending.
|
| |  | We focus on increasing profit margins by reducing
    fixed costs associated with the mortgage cycle. This initiative
    includes redesigning our work flow as to how we process,
    underwrite, and close loans.                                                                                                                                      

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | We are more likely to retain servicing rights in
    periods of declining interest rates and more likely to sell
    these servicing rights during periods of increasing interest
    rates. This strategy gives us the flexibility to invest in
    servicing rights during periods of relatively high production
    when servicing values tend to decrease and sell the servicing
    during periods of lower production when servicing values tend to
    increase.

Net Income

Net income from mortgage banking for the year
ended December 31, 2004 was $20.3 million, compared to
$78.1 million during 2003, a decrease of 74% and a decrease
of 55% from 2002 results of $44.5 million. This net income
decrease in 2004 primarily relates to a decline in mortgage
originations due to generally rising interest rates, compressed
interest margins and reduced valuation recoveries on mortgage
servicing rights. The increased earnings in 2003 were primarily
related to increased production as a result of a declining
interest rate environment in 2003 relative to 2002.

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

|                        |  |                         |            |      |  |      |            |   |  |   |            |  
|----------------------- |  | ----------------------- | ---------- | ---- |  | ---- | ---------- | - |  | - | ---------- | -
|                        |  |                        
|                        |  | Year Ended December 31,
|                        |  |                        
|                        |  | 2004                    |            | 2003 |  | 2002
|                        |  |                         |            |      |  |     
|                        |  |                        
|                        |  | (Dollars in thousands) 
|Total originations      |  | $                       | 13,093,082 |      |  | $    | 22,669,246 |   |  | $ | 11,411,875 |  
|Percent retail loans    |  |                         | 20         | %    |  |      | 26         | % |  |   | 34         | %
|Percent wholesale loans |  |                         | 34         |      |  |      | 42         |   |  |   | 59         |  
|Percent correspondent   |  |                         | 35         |      |  |      | 28         |   |  |   | 1          |  
|Percent brokered(1)     |  |                         | 11         |      |  |      | 4          |   |  |   | 6          |  
|Percent refinances      |  |                         | 52         |      |  |      | 67         |   |  |   | 61         |  



---



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

Mortgage loan originations for the year ended
December 31, 2004 totaled $13.1 billion, down 42% from
the same period in 2003. While 2004 was a strong production
year, rates were not low enough to stimulate refinance demand
similar to 2003. Refinanced loans accounted for 52% of loan
production for 2004 compared to 67% in 2003 and 61% in 2002.

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Net Revenue

Mortgage banking net revenue for the year ended
December 31, 2004 totaled $239.1 million, compared to
$397.6 million for the year ended December 31, 2003,
and $248.4 million in 2002. The following table sets forth
certain information regarding net revenue for the periods
indicated:

|                                |                                           |                         |   |         |         |      |   |          |         |  |   |          |         | 
|------------------------------- | ----------------------------------------- | ----------------------- | - | ------- | ------- | ---- | - | -------- | ------- |  | - | -------- | ------- | 
|                                |                                           |                        
|                                |                                           | Year Ended December 31,
|                                |                                           |                        
|                                |                                           | 2004                    |   | 2003    |         | 2002
|                                |                                           |                         |   |         |         |     
|                                |                                           |                        
|                                |                                           | (Dollars in thousands) 
|Selected Income Statement Data: |                                           |                         |   |         |         |      |   |          |         |  |   |         
|                                | Net interest income                       |                         | $ | 40,825  |         |      | $ | 72,311   |         |  | $ | 41,545   |        
|                                | Recovery of (provision for) loan losses   |                         |   | 278     |         |      |   | (664     | )       |  |   | (354     | )      
|                                | Gain on sales of loans                    |                         |   | 151,172 |         |      |   | 327,864  |         |  |   | 200,204  |        
|                                | Servicing fees                            |                         |   | 104,500 |         |      |   | 83,124   |         |  |   | 58,316   |        
|                                | Amortization expense                      |                         |   | (95,721 | )       |      |   | (118,920 | )       |  |   | (55,097  | )      
|                                | Recovery (impairment) of servicing assets |                         |   | (4,204  | )       |      |   | 45,456   |         |  |   | (143,376 | )      
|                                | Gain (loss) on derivatives                |                         |   | 18,889  |         |      |   | (21,307  | )       |  |   | 125,586  |        
|                                | Gain (loss) on sales of servicing assets  |                         |   | 16,681  |         |      |   | (305     | )       |  |   | 14,842   |        
|                                | Other income                              |                         |   | 6,654   |         |      |   | 10,088   |         |  |   | 6,702    |        
|                                |                                           |                         |   |         |         |      |   |          |         |  |   |         
|                                |                                           | Total net revenue       |   | $       | 239,074 |      |   | $        | 397,647 |  |   | $        | 248,368 | 
|                                |                                           |                         |   |         |         |      |   |          |         |  |   |         

Net interest income is generated from the
interest earned on mortgage loans before they are sold to
investors, less the interest expense incurred on borrowings to
fund the loans. Net interest income in 2004 decreased 44% to
$40.8 million, compared to $72.3 million in 2003, and
$41.5 million in 2002. The decrease in net interest income
in 2004 is a result of decreased production resulting in a lower
average balance of mortgage loans held for sale on our balance
sheet during the year. The increase in net interest income in
2003 is a result of increased production related to the
favorable interest rate environment in that year.

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



| |   |                                                                                                                               
| | - | ------------------------------------------------------------------------------------------------------------------------------
| |  | the valuation of newly-created mortgage servicing
    rights;                                                                 
| |  | net loan origination fees which are recognized
    when loans are pooled and sold into the secondary mortgage
    market; and,
| |  | changes in fair value of forward contracts and
    interest rate lock commitments.                                            

Gain on sale of loans for the year ended 2004
totaled $151.2 million, compared to $327.9 million and
$200.2 million in 2003 and 2002, a decrease of 54% and 24%,
respectively. This decrease is attributable to decreased
originations and reduced secondary market margins as a result of
the increasing interest rate environment that began in the
latter half of 2003 and subsequent intensified price
competition. The increase in 2003 is a result of increased
originations and secondary market activity during that year as a
result of the favorable interest rate environment.

While a substantial portion of mortgage banking
revenues are derived from loan origination activities, we have
taken steps over the past year, more rapidly in the past six
months, to reduce the number of branches in our system that are
not achieving our desired return targets. This, by definition,
lowers our revenues and in many cases, lowers the contribution
to fixed or semi-fixed costs, but we believe it is the
appropriate tactic over the long-term as a response to rising
interest rates. We have continued these office-closing
activities in the first quarter of 2005, principally in our
retail channel that has historically had the lowest margins in
rising interest rate environments. Where possible, we have
attempted to transfer office lease obligations to acquirors.
This is typically done for nominal consideration.

Servicing fee income is recognized by collecting
fees, which normally range between 25 and 44 basis points
annually on the principal amount of the underlying mortgages.
Servicing fee income totaled $104.5 million for the year of
2004, an increase of 26% from 2003 and an increase of 79% from
2002, primarily reflecting the growth in the servicing portfolio
over the last two years.

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Amortization expense relates to mortgage
servicing rights and is based on the proportion of current net
servicing cash flows to the total expected for the estimated
lives of the underlying loans. Amortization expense totaled
$95.7 million for the year ended December 31, 2004,
compared to $118.9 million during 2003 and
$55.1 million during 2002. The decrease in amortization
expense in 2004 compared to 2003 relates in part to an
other-than-temporary impairment adjustment of $7.0 million
taken in the first quarter of 2004 and $38.5 million taken
in the fourth quarter of 2003 to reflect our view that the
originally recorded value of certain servicing rights, net of
amortization, 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
adjustment has resulted in a reduction of amortization expense.
Amortization expense in 2004 has also decreased as a result of
an increase in the expected servicing life and cash flows caused
by higher interest rates.

Impairment expense is recorded when the book
value of the mortgage servicing rights exceeds the fair market
value on a strata by strata basis. We determined fair value at
December 31, 2004, through the use of independent
valuations, valuation comparisons to actual servicing sale
proceeds, and internal models. Impairment expense totaled
$4.2 million during 2004, compared to impairment recovery
of $45.5 million during 2003 and impairment expense of
$143.4 million in 2002. The fluctuations in impairment
expense are attributable to changes in actual and expected
prepayment speeds due to interest rate changes. At
December 31, 2004, the mortgage line of business held
$10 billion notional amount in interest rate swaptions to
manage the risk of our servicing assets. Notional amounts do not
represent the amount of risk. The current risk management
activities of the mortgage bank related to servicing assets do
not satisfy the criteria for hedge accounting under
SFAS 133. As a result, these derivatives are accounted for
as other assets and other liabilities,
and changes in fair value are adjusted through earnings as
derivative gains (losses), while the underlying
servicing asset is accounted for on a strata-by-strata basis at
the lower of cost or market. The impairment expense recorded in
2004 was more than offset by derivative gains of
$18.9 million. We recorded derivative losses of
$21.3 million during 2003 and derivative gains of
$125.6 million were recorded during 2002. See the
discussion of Derivative Financial Instruments in
our Risk Management section for additional information on our
risk management activities.

Since the second quarter of 2004, the interest
rate differential between the mortgages underlying our servicing
asset and the interest rate swap curve underlying the
derivatives we use to hedge the fluctuation in value of our
servicing rights has moved in a manner counter to traditional
movements during declining rate periods. For example, as of
May 31, 2004, the spread between these two rates was 0.99%.
As of March 7, 2005, mortgage interest rates have declined
0.68% since May 2004, and the spread between the mortgage
and swap rates has compressed to 0.50%. Traditionally, in
falling rate environments, the spread between these rates
increases. The compression between these rates has rendered our
servicing hedge significantly less effective than we would want.
Over time, should mortgage rates remain at or near low current
levels we would anticipate an increase in mortgage production.
Alternatively, if rates rise or spreads return to more normal
patterns, we would anticipate recapturing a meaningful amount of
the impairment. Nonetheless, in the short-term, should these
mortgage swap relationships not revert to historic patterns
prior to the end of the first quarter, we may experience
material impairment for the quarter, with a resulting negative
effect on consolidated net income for the period.

Our mortgage banking business maintains the
flexibility either to sell servicing for current cash flow or to
retain servicing for future cash flow through the retention of
ongoing servicing fees. Total servicing sales represented 74% of
loan originations in 2004, compared to 6% in 2003, and 31% in
2002. The decision to sell or retain servicing is based on
current market conditions for servicing assets, loan origination
levels and production expenses, servicing portfolio management
considerations, consolidated capital constraints and the general
level of risk tolerance of the mortgage banking line of business
and the Corporation. We sold $8.3 billion of servicing in
2004, generating $16.7 million in pre-tax gains. This
compares to servicing sales of $0.6 billion in 2003,
producing a $0.3 million pre-tax loss. In 2002, servicing
sales totaled $2.9 billion producing a $14.8 million
pre-tax gain. Over the past few years, we have built our
servicing portfolio in anticipation of rising interest rates
that would result in lower mortgage loan production. We sold
servicing in 2004 to manage the size and composition of our
investment in mortgage servicing assets.

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##### Table of Contents



Operating Expenses

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

|                                     |                          |                         |        |         |  |      |         |         |  |   |        |         | 
|------------------------------------ | ------------------------ | ----------------------- | ------ | ------- |  | ---- | ------- | ------- |  | - | ------ | ------- | 
|                                     |                          |                        
|                                     |                          | Year Ended December 31,
|                                     |                          |                        
|                                     |                          | 2004                    |        | 2003    |  | 2002
|                                     |                          |                         |        |         |  |     
|                                     |                          |                        
|                                     |                          | (Dollars in thousands) 
|Salaries and employee benefits       |                          | $                       | 77,209 |         |  | $    | 81,589  |         |  | $ | 61,418 |        
|Incentive and commission pay         |                          |                         | 41,230 |         |  |      | 79,956  |         |  |   | 47,137 |        
|Other expenses                       |                          |                         | 85,766 |         |  |      | 106,335 |         |  |   | 66,722 |        
|                                     |                          |                         |        |         |  |      |         |         |  |   |        |        
|                                     | Total operating expenses |                         | $      | 204,205 |  |      | $       | 267,880 |  |   | $      | 175,277 | 
|                                     |                          |                         |        |         |  |      |         |         |  |   |        |        
|Number of employees at period end(1) |                          |                         | 1,675  |         |  |      | 2,175   |         |  |   | 1,858  |        



---



|    |                                 
|--- | --------------------------------
|(1) | On a full time equivalent basis.

Operating expenses for the year ended
December 31, 2004 totaled $204.2 million, a 24%
decrease over the year 2003, and a 17% increase over 2002.
Salaries and employee benefits including incentive and
commission pay decreased 27% in 2004 over 2003 and increased 9%
over 2002. These decreases in operating expenses reflect
significant decreases in production activities in 2004 versus
2003. However, the relative decreases in operating expenses are
less than the relative decreases in production due to the fixed
and semi-variable nature of certain operating expenses and the
impact of investments in various process improvement initiatives.

Mortgage Servicing

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

|                                                                                       |                           |                         |         |      |   |      |         |      |   |   |         |      |  
|-------------------------------------------------------------------------------------- | ------------------------- | ----------------------- | ------- | ---- | - | ---- | ------- | ---- | - | - | ------- | ---- | -
|                                                                                       |                           |                        
|                                                                                       |                           | Year Ended December 31,
|                                                                                       |                           |                        
|                                                                                       |                           | 2004                    |         | 2003 |   | 2002
|                                                                                       |                           |                         |         |      |   |     
|                                                                                       |                           |                        
|                                                                                       |                           | (Portfolio in billions)
|Beginning servicing portfolio                                                          |                           | $                       | 29.6    |      |   | $    | 16.8    |      |   | $ | 12.9    |     
|                                                                                       | Mortgage loan closings(1) |                         |         | 11.7 |   |      |         | 21.9 |   |   |         | 10.8 |  
|                                                                                       | Sales(1)                  |                         |         | (8.3 | ) |      |         | (0.6 | ) |   |         | (2.9 | )
|                                                                                       | Run-off(2)                |                         |         | (6.8 | ) |      |         | (8.5 | ) |   |         | (4.0 | )
|                                                                                       |                           |                         |         |      |   |      |         |      |   |   |         |     
|Ending servicing portfolio                                                             |                           | $                       | 26.2    |      |   | $    | 29.6    |      |   | $ | 16.8    |     
|                                                                                       |                           |                         |         |      |   |      |         |      |   |   |         |     
|Number of loans (end of period)                                                        |                           |                         | 205,463 |      |   |      | 229,983 |      |   |   | 137,738 |     
|Average loan size                                                                      |                           | $                       | 127,500 |      |   | $    | 128,880 |      |   | $ | 121,917 |     
|Weighted average coupon                                                                |                           |                         | 5.75    | %    |   |      | 5.83    | %    |   |   | 6.59    | %   
|Percent Government National Mortgage Association
    (GNMA) and state housing programs |                           |                         | 30      |      |   |      | 26      |      |   |   | 37      |     
|Percent conventional and other                                                         |                           |                         | 70      |      |   |      | 74      |      |   |   | 63      |     
|Delinquency ratio                                                                      |                           |                         | 4.6     |      |   |      | 4.6     |      |   |   | 5.3     |     
|Mortgage servicing assets to related servicing
    portfolio (3)                       |                           |                         | 1.20    |      |   |      | 1.19    |      |   |   | 0.88    |     



---



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

Our mortgage servicing portfolio, including
mortgage loans held for sale, totaled $26.2 billion at
December 31, 2004, a 12% decrease from the
December 31, 2003 balance of $29.6 billion, and a 56%
increase

46



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##### Table of Contents



from the same date in 2002. The decrease in 2004
relates primarily to bulk servicing sales and the decision to
sell a relatively high proportion of the servicing rights
created by new production (flow sales where the
servicing is sold at the same time the underlying mortgage is
sold into the secondary market). In 2003 we had minimal
servicing sales and sold a lower proportion of originated
servicing rights as we built our servicing portfolio in
anticipation of rising interest rates that would result in lower
mortgage loan production.


We record originated mortgage servicing assets at
allocated cost basis when the loans are sold and record
purchased servicing assets at fair value. Thereafter, servicing
rights are accounted for at the lower of their cost or fair
value. We record a valuation allowance for any impairment on a
disaggregated basis. We determine fair value on a monthly basis
based on a discounted cash flow analysis. These cash flows are
projected over the life of the servicing using prepayment,
default, discount rate and cost to service assumptions that we
believe market participants would use to value similar assets.
We then assess these modeled assumptions for reasonableness
through independent third-party valuations, periodic servicing
asset sales and through the use of industry surveys. At
December 31, 2004, we estimated the fair value of these
assets to be $320.7 million in the aggregate, or
$1.5 million greater than the carrying value on the balance
sheet. At December 31, 2003, we estimated the fair value of
these assets to be $358.9 million in the aggregate, or
$10.7 million greater than the carrying value on the
balance sheet. The difference between carrying value and market
value is the result of a cap under generally accepted accounting
principles at the lower of cost or market for these assets.

47



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##### Table of Contents



Commercial Banking

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

|                                                  |                                       |                         |   |           |         |      |   |           |        |      |   |           |        |  |   |           |        |  |   |           |        | 
|------------------------------------------------- | ------------------------------------- | ----------------------- | - | --------- | ------- | ---- | - | --------- | ------ | ---- | - | --------- | ------ |  | - | --------- | ------ |  | - | --------- | ------ | 
|                                                  |                                       |                        
|                                                  |                                       | Year Ended December 31,
|                                                  |                                       |                        
|                                                  |                                       | 2004                    |   | 2003      |         | 2002 |   | 2001      |        | 2000
|                                                  |                                       |                         |   |           |         |      |   |           |        |     
|                                                  |                                       |                        
|                                                  |                                       | (Dollars in thousands) 
|Selected Income Statement Data:                   |                                       |                         |   |           |         |      |   |           |        |      |   |           |        |  |   |           |        |  |   |          
|                                                  | Interest income                       |                         | $ | 127,029   |         |      | $ | 112,679   |        |      | $ | 110,107   |        |  | $ | 104,514   |        |  | $ | 82,680    |       
|                                                  | Interest expense                      |                         |   | (37,412   | )       |      |   | (33,663   | )      |      |   | (40,253   | )      |  |   | (53,515   | )      |  |   | (44,268   | )     
|                                                  |                                       |                         |   |           |         |      |   |           |        |      |   |           |        |  |   |           |        |  |   |          
|                                                  |                                       | Net interest income     |   |           | 89,617  |      |   |           | 79,016 |      |   |           | 69,854 |  |   |           | 50,999 |  |   |           | 38,412 | 
|                                                  | Provision for loan and lease losses   |                         |   | (3,307    | )       |      |   | (5,913    | )      |      |   | (9,812    | )      |  |   | (7,900    | )      |  |   | (2,933    | )     
|                                                  | Other income                          |                         |   | 18,316    |         |      |   | 21,070    |        |      |   | 16,081    |        |  |   | 14,981    |        |  |   | 12,006    |       
|                                                  |                                       |                         |   |           |         |      |   |           |        |      |   |           |        |  |   |           |        |  |   |          
|                                                  |                                       | Total net revenue       |   |           | 104,626 |      |   |           | 94,173 |      |   |           | 76,123 |  |   |           | 58,080 |  |   |           | 47,485 | 
|                                                  | Operating expense                     |                         |   | (65,450   | )       |      |   | (56,699   | )      |      |   | (50,029   | )      |  |   | (43,482   | )      |  |   | (35,805   | )     
|                                                  |                                       |                         |   |           |         |      |   |           |        |      |   |           |        |  |   |           |        |  |   |          
|                                                  |                                       | Income before taxes     |   |           | 39,176  |      |   |           | 37,474 |      |   |           | 26,094 |  |   |           | 14,598 |  |   |           | 11,680 | 
|                                                  | Income taxes                          |                         |   | (15,752   | )       |      |   | (14,997   | )      |      |   | (10,009   | )      |  |   | (5,680    | )      |  |   | (4,590    | )     
|                                                  |                                       |                         |   |           |         |      |   |           |        |      |   |           |        |  |   |           |        |  |   |          
|                                                  |                                       | Net income              |   | $         | 23,424  |      |   | $         | 22,477 |      |   | $         | 16,085 |  |   | $         | 8,918  |  |   | $         | 7,090  | 
|                                                  |                                       |                         |   |           |         |      |   |           |        |      |   |           |        |  |   |           |        |  |   |          
|Selected Balance Sheet Data at End of
    Period: |                                       |                         |   |           |         |      |   |           |        |      |   |           |        |  |   |           |        |  |   |          
|                                                  | Assets                                |                         | $ | 2,622,877 |         |      | $ | 2,203,965 |        |      | $ | 1,969,956 |        |  | $ | 1,648,294 |        |  | $ | 1,167,559 |       
|                                                  | Securities and short-term investments |                         |   | 327,664   | (1)     |      |   | 107,668   |        |      |   | 44,433    |        |  |   | 43,278    |        |  |   | 27,287    |       
|                                                  | Loans and leases                      |                         |   | 2,223,474 |         |      |   | 1,988,633 |        |      |   | 1,823,304 |        |  |   | 1,514,957 |        |  |   | 1,067,980 |       
|                                                  | Allowance for loan and lease losses   |                         |   | (22,230   | )       |      |   | (22,055   | )      |      |   | (20,725   | )      |  |   | (14,644   | )      |  |   | (9,228    | )     
|                                                  | Deposits                              |                         |   | 2,390,839 |         |      |   | 1,964,274 |        |      |   | 1,733,864 |        |  |   | 1,456,376 |        |  |   | 998,855   |       
|                                                  | Shareholders equity                  |                         |   | 143,580   |         |      |   | 162,050   |        |      |   | 154,423   |        |  |   | 129,179   |        |  |   | 68,539    |       
|Daily Averages:                                   |                                       |                         |   |           |         |      |   |           |        |      |   |           |        |  |   |           |        |  |   |          
|                                                  | Assets                                |                         | $ | 2,476,835 |         |      | $ | 2,119,944 |        |      | $ | 1,802,896 |        |  | $ | 1,402,589 |        |  | $ | 956,744   |       
|                                                  | Loans and leases                      |                         |   | 2,094,190 |         |      |   | 1,914,608 |        |      |   | 1,693,426 |        |  |   | 1,276,003 |        |  |   | 879,875   |       
|                                                  | Allowance for loan and lease losses   |                         |   | (22,304   | )       |      |   | (21,895   | )      |      |   | (17,823   | )      |  |   | (11,038   | )      |  |   | (8,133    | )     
|                                                  | Deposits                              |                         |   | 2,258,538 |         |      |   | 1,894,406 |        |      |   | 1,583,926 |        |  |   | 1,253,725 |        |  |   | 851,386   |       
|                                                  | Shareholders equity                  |                         |   | 147,759   |         |      |   | 147,886   |        |      |   | 140,249   |        |  |   | 85,312    |        |  |   | 57,214    |       
|                                                  | Shareholders equity to assets        |                         |   | 5.97      | %       |      |   | 6.98      | %      |      |   | 7.78      | %      |  |   | 6.08      | %      |  |   | 5.98      | %     



---



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

Overview

Our commercial banking line of business focuses
on providing credit, cash management and personal banking
products to small businesses and business owners. We offer
commercial banking services through our banking subsidiaries,
Irwin Union Bank and Trust, an Indiana state-chartered
commercial bank, and Irwin Union Bank, F.S.B., a federal savings
bank.

Strategy

Our strategy is to provide superior service to
our existing small business customers and to expand those
services into selected new markets. We target metropolitan
markets with strong economies where we believe

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




| |   |                                                                                                                                                                                                                               
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the market is a metropolitan area with attractive
    business demographics and diversification displaying evidence of
    sustainable growth;                                                                                
|
| |  | recent banking merger and acquisition activity
    has occurred in the market and management believes that the
    acquiror 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 to manage the new market.                                                                                                                                        

In 2004, we opened new banking offices in
Milwaukee and Sacramento. These offices contributed an
immaterial amount to revenues and expenses in 2004.

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

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

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

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|                      |       |                        |           |           |  |             |      |          |   |             |           |           |  |  |      |       |   |   |           |           |  |  |      |       |  
|--------------------- | ----- | ---------------------- | --------- | --------- |  | ----------- | ---- | -------- | - | ----------- | --------- | --------- |  |  | ---- | ----- | - | - | --------- | --------- |  |  | ---- | ----- | -
|                      |       |                       
|                      |       | December 31,          
|                      |       |                       
|                      |       |                        |           |           |  |            
|                      |       | 2004                   |           | 2003      |  | 2002       
|                      |       |                        |           |           |  |            
|                      |       | Loans                  |           | Percent   |  | Loans       |      | Percent  |   | Loans       |           | Percent  
|                      |       | Outstanding            |           | of Total  |  | Outstanding |      | of Total |   | Outstanding |           | of Total 
|                      |       |                        |           |           |  |             |      |          |   |             |           |          
|                      |       |                       
|                      |       | (Dollars in thousands)
|Southern Indiana      |       | $                      | 456,672   |           |  |             | 20.5 | %        |   | $           | 423,213   |           |  |  | 21.3 | %     |   | $ | 407,493   |           |  |  | 22.3 | %    
|Other Midwest Markets |       |                        | 1,227,848 |           |  |             | 55.2 |          |   |             | 1,134,489 |           |  |  | 57.0 |       |   |   | 1,092,759 |           |  |  | 59.9 |      
|Western Markets       |       |                        | 538,954   |           |  |             | 24.2 |          |   |             | 430,931   |           |  |  | 21.7 |       |   |   | 323,052   |           |  |  | 17.7 |      
|                      |       |                        |           |           |  |             |      |          |   |             |           |           |  |  |      |       |   |   |           |           |  |  |      |      
|                      | Total |                        | $         | 2,223,474 |  |             |      | 100.0    | % |             | $         | 1,988,633 |  |  |      | 100.0 | % |   | $         | 1,823,304 |  |  |      | 100.0 | %
|                      |       |                        |           |           |  |             |      |          |   |             |           |           |  |  |      |       |   |   |           |           |  |  |      |      

|                      |       |          |         |           |  |          |      |          |   |          |         |           |  |  |      |       |   |   |         |           |  |  |      |       |  
|--------------------- | ----- | -------- | ------- | --------- |  | -------- | ---- | -------- | - | -------- | ------- | --------- |  |  | ---- | ----- | - | - | ------- | --------- |  |  | ---- | ----- | -
|                      |       | Core     |         | Percent   |  | Core     |      | Percent  |   | Core     |         | Percent  
|                      |       | Deposits |         | of Total  |  | Deposits |      | of Total |   | Deposits |         | of Total 
|                      |       |          |         |           |  |          |      |          |   |          |         |          
|Southern Indiana      |       | $        | 943,869 |           |  |          | 42.9 | %        |   | $        | 835,552 |           |  |  | 47.7 | %     |   | $ | 763,531 |           |  |  | 50.3 | %    
|Other Midwest Markets |       |          | 663,492 |           |  |          | 30.2 |          |   |          | 556,831 |           |  |  | 31.8 |       |   |   | 482,489 |           |  |  | 31.8 |      
|Western Markets       |       |          | 590,310 |           |  |          | 26.9 |          |   |          | 360,375 |           |  |  | 20.6 |       |   |   | 270,792 |           |  |  | 17.9 |      
|                      |       |          |         |           |  |          |      |          |   |          |         |           |  |  |      |       |   |   |         |           |  |  |      |      
|                      | Total |          | $       | 2,197,671 |  |          |      | 100.0    | % |          | $       | 1,752,758 |  |  |      | 100.0 | % |   | $       | 1,516,812 |  |  |      | 100.0 | %
|                      |       |          |         |           |  |          |      |          |   |          |         |           |  |  |      |       |   |   |         |           |  |  |      |      

Net Income

Commercial banking net income increased to
$23.4 million during 2004 up 4%, compared to
$22.5 million in 2003, and up 46% compared to 2002 net
income of $16.1 million.



| |                    
| | -------------------
| | Net Interest Income

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

|                                |  |                         |           |      |  |      |           |   |  |   |           |  
|------------------------------- |  | ----------------------- | --------- | ---- |  | ---- | --------- | - |  | - | --------- | -
|                                |  |                        
|                                |  | Year Ended December 31,
|                                |  |                        
|                                |  | 2004                    |           | 2003 |  | 2002
|                                |  |                         |           |      |  |     
|                                |  |                        
|                                |  | (Dollars in thousands) 
|Net interest income             |  | $                       | 89,617    |      |  | $    | 79,016    |   |  | $ | 69,854    |  
|Average interest earning assets |  |                         | 2,392,049 |      |  |      | 2,046,658 |   |  |   | 1,745,816 |  
|Net interest margin             |  |                         | 3.75      | %    |  |      | 3.86      | % |  |   | 4.00      | %

Net interest income was $89.6 million, an
increase of 13% over 2003, and an increase of 28% from 2002. The
2004 improvement in net interest income resulted primarily from
an increase in our commercial banking loan portfolio as a result
of growth and expansion efforts. Net interest margin is computed
by dividing net interest income by average interest earning
assets. Net interest margin during 2004 was 3.75%, compared to
3.86% in 2003, and 4.00% in 2002. The reduction in 2004 margin
is due to slower than anticipated loan growth, which has led to
greater than planned excess liquidity invested in lower yielding
assets.



| |                                    
| | -----------------------------------
| | Provision for Loan and Lease Losses

Provision for loan and lease losses declined to
$3.3 million in 2004, compared to provisions of
$5.9 million and $9.8 million in 2003 and 2002,
respectively. The declining provision relates to a combination
of improved overall loan quality, improving economic conditions
and slower loan growth. 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,
|                                          |  |                        
|                                          |  | 2004                    |        | 2003 |  | 2002
|                                          |  |                         |        |      |  |     
|                                          |  |                        
|                                          |  | (Dollars in thousands) 
|Trust fees                                |  | $                       | 1,902  |      |  | $    | 1,817  |   |  | $ | 1,933  |  
|Service charges on deposit accounts       |  |                         | 5,071  |      |  |      | 5,095  |   |  |   | 4,775  |  
|Insurance commissions, fees and premiums  |  |                         | 2,143  |      |  |      | 2,009  |   |  |   | 1,705  |  
|Gain from sales of loans                  |  |                         | 2,947  |      |  |      | 7,814  |   |  |   | 5,167  |  
|Loan servicing fees                       |  |                         | 1,374  |      |  |      | 1,237  |   |  |   | 945    |  
|Amortization of servicing assets          |  |                         | (1,559 | )    |  |      | (2,705 | ) |  |   | (1,609 | )
|Recovery (impairment) of servicing assets |  |                         | 582    |      |  |      | 744    |   |  |   | (1,574 | )
|Brokerage fees                            |  |                         | 1,465  |      |  |      | 1,264  |   |  |   | 1,236  |  
|Other                                     |  |                         | 4,391  |      |  |      | 3,795  |   |  |   | 3,503  |  
|                                          |  |                         |        |      |  |      |        |   |  |   |        |  
|Total noninterest income                  |  | $                       | 18,316 |      |  | $    | 21,070 |   |  | $ | 16,081 |  
|                                          |  |                         |        |      |  |      |        |   |  |   |        |  

Noninterest income during 2004 decreased 13% over
2003 and increased 14% over 2002. This decrease was due
primarily to lower gains from sales of loans related to
decreased mortgage production in this line of business,
partially offset by lower servicing asset amortization. The
commercial banking line of business has a first mortgage
servicing portfolio that has increased to $454 million,
principally a result of mortgage loan production in its
south-central Indiana markets. Those servicing rights are
carried on the balance sheet at the lower of cost or market,
estimated at December 31, 2004, to be $3.8 million.



| |                   
| | ------------------
| | Operating Expenses

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

|                                     |  |                         |        |      |  |      |        |   |  |   |        |  
|------------------------------------ |  | ----------------------- | ------ | ---- |  | ---- | ------ | - |  | - | ------ | -
|                                     |  |                        
|                                     |  | Year Ended December 31,
|                                     |  |                        
|                                     |  | 2004                    |        | 2003 |  | 2002
|                                     |  |                         |        |      |  |     
|                                     |  |                        
|                                     |  | (Dollars in thousands) 
|Salaries and employee benefits       |  | $                       | 40,422 |      |  | $    | 34,853 |   |  | $ | 29,896 |  
|Other expenses                       |  |                         | 25,028 |      |  |      | 21,846 |   |  |   | 20,133 |  
|                                     |  |                         |        |      |  |      |        |   |  |   |        |  
|Total operating expenses             |  | $                       | 65,450 |      |  | $    | 56,699 |   |  | $ | 50,029 |  
|                                     |  |                         |        |      |  |      |        |   |  |   |        |  
|Efficiency ratio                     |  |                         | 60.6   | %    |  |      | 56.7   | % |  |   | 58.2   | %
|Number of employees at period end(1) |  |                         | 525    |      |  |      | 493    |   |  |   | 454    |  



---



|    |                                
|--- | -------------------------------
|(1) | On a full time equivalent basis

Operating expenses during 2004 totaled
$65.5 million, an increase of 15% over 2003, and an
increase of 31% from 2002. The increase in salaries and benefits
is primarily attributable to higher incentive compensation
driven by a higher return on equity at this line of business in
2004 and increased personnel costs related to new market
expansion and support staff. The higher return on equity was
partially the result of lower internal capital allocations
during 2004.



| |              
| | -------------
| | Balance Sheet

Total assets for the year ended December 31,
2004 averaged $2.5 billion compared to $2.1 billion in
2003, and $1.8 billion in 2002. Average earning assets for
the year ended December 31, 2004 were $2.4 billion
compared to $2.0 billion in 2003, and $1.7 billion in
2002. The most significant component of the increase was

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an increase in commercial loans as a result of
the commercial banks continued growth and expansion
efforts into new markets. In addition, average investments have
increased from $22 million in 2003 to $202 million in
2004. This increase relates primarily to inter-company
investments, the result of excess liquidity related to deposit
growth in excess of asset deployment needs. The funds have been
redeployed in earning assets at our other lines of business.
Earnings credited to the commercial banking line of business
from these investments approximate alternative external
investment rates. Average core deposits for the year totaled
$2.0 billion, an increase of 23% over average core deposits
in 2003, and an increase of 58% from 2002.




| |               
| | --------------
| | Credit Quality

Nonperforming assets to total assets and the
allowance for loan losses to total loans both decreased at
December 31, 2004, compared to December 31, 2003. The
decline in nonperformings in 2004 was primarily the result of
satisfactory management of delinquent loans and collections made
to nonperforming relationships during the past year.
Nonperforming loans are not significantly concentrated in any
industry category. The decline in the allowance for loan losses
as a percent of total loans reflects our belief that overall
loss experience has declined due to improving economic
conditions, significantly lower loan growth, improved overall
loan quality and successful workouts of several nonperforming
loans in 2004. The following table shows information about our
nonperforming assets in this line of business and our allowance
for loan losses.

|                                         |  |                        |        |      |  |      |        |   |  |   |        |  
|---------------------------------------- |  | ---------------------- | ------ | ---- |  | ---- | ------ | - |  | - | ------ | -
|                                         |  |                       
|                                         |  | December 31,          
|                                         |  |                       
|                                         |  | 2004                   |        | 2003 |  | 2002
|                                         |  |                        |        |      |  |     
|                                         |  |                       
|                                         |  | (Dollars in thousands)
|Nonperforming loans                      |  | $                      | 21,247 |      |  | $    | 25,614 |   |  | $ | 14,970 |  
|Other real estate owned                  |  |                        | 1,533  |      |  |      | 995    |   |  |   | 96     |  
|                                         |  |                        |        |      |  |      |        |   |  |   |        |  
|Total nonperforming assets               |  | $                      | 22,780 |      |  | $    | 26,609 |   |  | $ | 15,066 |  
|                                         |  |                        |        |      |  |      |        |   |  |   |        |  
|Nonperforming assets to total assets     |  |                        | 0.87   | %    |  |      | 1.21   | % |  |   | 0.76   | %
|Allowance for loan losses                |  | $                      | 22,230 |      |  | $    | 22,055 |   |  | $ | 20,725 |  
|Allowance for loan losses to total loans |  |                        | 1.00   | %    |  |      | 1.11   | % |  |   | 1.14   | %
|For the Period Ended:                    |  |                        |        |      |  |      |        |   |  |   |        |  
|Provision for loan losses                |  | $                      | 3,307  |      |  | $    | 5,913  |   |  | $ | 9,812  |  
|Net charge-offs                          |  |                        | 3,133  |      |  |      | 4,583  |   |  |   | 3,731  |  
|Net charge-offs to average loans         |  |                        | 0.15   | %    |  |      | 0.24   | % |  |   | 0.22   | %

52



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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,
|                                                               |                 |                        
|                                                               |                 | 2004                    |           | 2003    |         | 2002 |           | 2001    |        | 2000
|                                                               |                 |                         |           |         |         |      |           |         |        |     
|                                                               |                 |                        
|                                                               |                 | (Dollars in thousands) 
|Selected Income Statement Data:                                |                 |                         |           |         |         |      |           |         |        |      |           |         |        |   |           |         |         |   |           |        
|Net interest income                                            |                 | $                       | 98,983    |         |         | $    | 106,545   |         |        | $    | 94,068    |         |        | $ | 61,803    |         |         | $ | 35,864    |        
|Provision for loan and lease losses                            |                 |                         | (4,369    | )       |         |      | (29,575   | )       |        |      | (25,596   | )       |        |   | (2,320    | )       |         |   | (461      | )      
|Noninterest income                                             |                 |                         | 71,368    |         |         |      | (19,525   | )       |        |      | 11,791    |         |        |   | 64,786    |         |         |   | 68,044    |        
|                                                               |                 |                         |           |         |         |      |           |         |        |      |           |         |        |   |           |         |         |   |           |        
|                                                               |                 | Total net revenues      |           |         | 165,982 |      |           |         | 57,445 |      |           |         | 80,263 |   |           |         | 124,269 |   |           |         | 103,447 | 
|Operating expenses                                             |                 |                         | (114,779  | )       |         |      | (90,538   | )       |        |      | (78,588   | )       |        |   | (97,189   | )       |         |   | (72,623   | )      
|                                                               |                 |                         |           |         |         |      |           |         |        |      |           |         |        |   |           |         |         |   |           |        
|Income (loss) before taxes                                     |                 |                         | 51,203    |         |         |      | (33,093   | )       |        |      | 1,675     |         |        |   | 27,080    |         |         |   | 30,824    |        
|Income taxes                                                   |                 |                         | (21,023   | )       |         |      | 13,203    |         |        |      | (670      | )       |        |   | (10,832   | )       |         |   | (12,330   | )      
|                                                               |                 |                         |           |         |         |      |           |         |        |      |           |         |        |   |           |         |         |   |           |        
|Net income (loss)                                              |                 | $                       | 30,180    |         |         | $    | (19,890   | )       |        | $    | 1,005     |         |        | $ | 16,248    |         |         | $ | 18,494    |        
|                                                               |                 |                         |           |         |         |      |           |         |        |      |           |         |        |   |           |         |         |   |           |        
|Selected Balance Sheet Data:                                   |                 |                         |           |         |         |      |           |         |        |      |           |         |        |   |           |         |         |   |           |        
|Total assets                                                   |                 | $                       | 996,500   |         |         | $    | 1,070,634 |         |        | $    | 939,494   |         |        | $ | 602,226   |         |         | $ | 550,526   |        
|Home equity loans and lines of
    credit(1)                   |                 |                         | 590,175   |         |         |      | 692,637   |         |        |      | 626,355   |         |        |   | 346,192   |         |         |   | 4,510     |        
|Allowance for loan losses                                      |                 |                         | (11,330   | )       |         |      | (29,251   | )       |        |      | (21,689   | )       |        |   | (2,220    | )       |         |   | (500      | )      
|Home equity loans held for sale                                |                 |                         | 227,740   |         |         |      | 202,627   |         |        |      | 75,540    |         |        |   |          |         |         |   | 330,208   |        
|Residual interests                                             |                 |                         | 51,542    |         |         |      | 70,519    |         |        |      | 157,065   |         |        |   | 199,071   |         |         |   | 152,614   |        
|Mortgage servicing assets                                      |                 |                         | 44,000    |         |         |      | 28,425    |         |        |      | 26,444    |         |        |   | 15,265    |         |         |   | 7,708     |        
|Short-term borrowings                                          |                 |                         | 359,902   |         |         |      | 368,640   |         |        |      | 201,328   |         |        |   | 138,527   |         |         |   | 163,732   |        
|Collateralized debt                                            |                 |                         | 352,625   |         |         |      | 460,535   |         |        |      | 391,425   |         |        |   |          |         |         |   |          |        
|Shareholders equity                                           |                 |                         | 138,372   |         |         |      | 128,555   |         |        |      | 155,831   |         |        |   | 135,493   |         |         |   | 99,586    |        
|Selected Operating Data:                                       |                 |                         |           |         |         |      |           |         |        |      |           |         |        |   |           |         |         |   |           |        
|Loan volume:                                                   |                 |                         |           |         |         |      |           |         |        |      |           |         |        |   |           |         |         |   |           |        
|                                                               | Lines of credit |                         | $         | 508,287 |         |      | $         | 324,094 |        |      | $         | 443,323 |        |   | $         | 317,579 |         |   | $         | 629,906 |        
|                                                               | Loans           |                         |           | 934,027 |         |      |           | 809,222 |        |      |           | 623,903 |        |   |           | 831,830 |         |   |           | 596,049 |        
|Total managed portfolio balance                                |                 |                         | 1,147,137 |         |         |      | 1,513,289 |         |        |      | 1,830,339 |         |        |   | 2,064,542 |         |         |   | 1,625,719 |        
|Delinquency ratio(2)                                           |                 |                         | 4.8       | %       |         |      | 5.9       | %       |        |      | 6.0       | %       |        |   | 5.1       | %       |         |   | 4.4       | %      
|Total managed portfolio balance including credit
    risk sold |                 |                         | 2,807,367 |         |         |      | 2,568,356 |         |        |      | 2,502,685 |         |        |   | 2,317,975 |         |         |   | 1,825,527 |        
|Weighted average coupon rate:                                  |                 |                         |           |         |         |      |           |         |        |      |           |         |        |   |           |         |         |   |           |        
|                                                               | Lines of credit |                         |           | 9.18    | %       |      |           | 9.71    | %      |      |           | 10.79   | %      |   |           | 11.11   | %       |   |           | 14.04   | %      
|                                                               | Loans           |                         |           | 11.87   |         |      |           | 12.07   |        |      |           | 13.50   |        |   |           | 13.38   |         |   |           | 13.09   |        
|Gain on sale of loans to loans sold                            |                 |                         | 2.24      |         |         |      | 3.81      |         |        |      | 4.70      |         |        |   | 8.47      |         |         |   | 6.06      |        
|Net home equity charge-offs to average managed
    portfolio   |                 |                         | 2.48      |         |         |      | 4.37      |         |        |      | 2.87      |         |        |   | 1.82      |         |         |   | 0.57      |        



---



|    |                                                                                                                                                                                     
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes $361.1 million, $478.7 million
    and $392.4 million of collateralized loans at
    December 31, 2004, 2003 and 2002, respectively, as part of
    securitized financings.
|   
|(2) | Nonaccrual loans are included in the delinquency
    ratio.                                                                                                                         

53



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| |         
| | --------
| | Overview

Our home equity lending line of business
originates, purchases, sells and services a variety of home
equity lines of credit and fixed-rate home equity loan products
nationwide to certain qualified borrowers. We market our home
equity products (generally using second mortgage liens) through
a combination of direct mail, brokers, the Internet, and
correspondent channels. We target creditworthy homeowners who
are active credit users. Customers are underwritten using
proprietary models based on several criteria, including the
customers previous use of credit.



| |         
| | --------
| | Strategy

We offer home equity loans with combined
loan-to-value (CLTV) ratios of up to 125% of their collateral
value. Home equity loans are priced taking into account, among
other factors, the credit history of our customer, the
disposable income of the borrower, and the relative
loan-to-value (LTV) ratio of the loan at origination. For
example, all else being equal, those loans with loan-to-value
ratios greater than 100% (high LTV, or HLTVs) are priced with
higher coupons than home equity loans with loan-to-value ratios
less than 100% to compensate for increased expected losses
through default. For the year ended December 31, 2004, HLTV
home equity loans made up 44% of our loan originations and 47%
of our managed portfolio. HLTVs constituted 64% of our managed
portfolio at December 31, 2003. 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%. In accordance with regulatory guidance set
forth in Supervision and Regulation Letter 01-4 and in
consultation with our banking regulators, we made a
risk-weighting adjustment in our regulatory Consolidated Report
of Condition and Income, beginning with the third quarter of
2003. This adjustment reflects a risk weighting of
200 percent for certain HLTV assets (approximately
$72 million at December 31, 2004 compared with
$235 million at December 31, 2003) that are described
in the guidance as subprime. The designation of
certain loans as subprime and the additional capital
requirement for those loans was a principal driver in our
decision to respond to secondary market demand for seasoned home
equity product and sell a portion of our portfolio in 2004.

For most of our home equity product offerings, we
offer customers the choice to accept an early repayment fee in
exchange for a lower interest rate. A typical early repayment
option provides for a fee equal to up to six months
interest that is payable if the borrower chooses to repay the
loan during the first three to five years of its term.
Approximately 78%, or $0.9 billion, of our home equity
managed portfolio at December 31, 2004 was originated with
early repayment provisions, reflecting such customer choice.

Generally we either sell loans through whole loan
sales or we fund these loans on balance sheet through warehouse
lines or secured, term financings. In addition to loan sales,
from time to time we have sold loans and will continue to
consider the sale of certain assets such as residual assets and
mortgage servicing rights. We balance our loan portfolio growth
objectives with cash flow and profit targets, as well as a
desire to manage our capital accounts. In addition, regulated
banks are prohibited from holding more than their total
regulatory capital in certain mortgage exposures where the
underlying loan to value exceeds 90 percent. This
limitation also factors into our sale decisions. Our long-term
expectations for whole loan sales are in the 75% range. We
generally retain the servicing rights for the loans we sell.



| |              
| | -------------
| | Portfolio Mix

Our home equity lending line of business blends
aspects of the credit card and mortgage banking industries. The
home equity products are designed to appeal to homeowners who
have high levels of unsecured (credit card) debt, who through
the use of a debt consolidating mortgage loan can meaningfully
reduce their after-tax monthly cash outflows. We underwrite our
loans using unsecured debt criteria, while adjusting for
relative riskiness by LTV level and credit profile through our
pricing. We believe that the mortgage lien associated with the
loan has a meaningful, positive influence on the payment
priority of our customers. We lend nationally in our home equity
lending line of business to avoid concentrations that may be
subject to local

54



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##### Table of Contents



real estate market inflation. The following table
shows the geographic composition of our home equity lending
managed portfolio on a percentage basis as of December 31,
2004 and December 31, 2003:


|                 |       |      |      |       |   |  |      |       |  
|---------------- | ----- | ---- | ---- | ----- | - |  | ---- | ----- | -
|State            |       | 2004 |      | 2003 
|                 |       |      |      |      
|California       |       |      | 15.4 | %     |   |  | 16.2 | %    
|Florida          |       |      | 7.4  |       |   |  | 7.5  |      
|Washington       |       |      | 6.1  |       |   |  | 5.3  |      
|Michigan         |       |      | 6.0  |       |   |  | 3.9  |      
|Arizona          |       |      | 5.6  |       |   |  | 6.0  |      
|All other states |       |      | 59.5 |       |   |  | 61.1 |      
|                 |       |      |      |       |   |  |      |      
|                 | Total |      |      | 100.0 | % |  |      | 100.0 | %
|                 |       |      |      |       |   |  |      |      

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, 2004:

|                                         |                            |                        |         |            |  |          |       |        |   |  |       |       |  
|---------------------------------------- | -------------------------- | ---------------------- | ------- | ---------- |  | -------- | ----- | ------ | - |  | ----- | ----- | -
|                                         |                            |                        |         |            |  | Weighted
|                                         |                            |                        |         |            |  | Average 
|                                         |                            | Amount                 |         | % of Total |  | Coupon  
|                                         |                            |                        |         |            |  |         
|                                         |                            |                       
|                                         |                            | (Dollars in thousands)
|Home equity loans< = 100% CLTV           |                            | $                      | 182,817 |            |  |          | 15.94 | %      |   |  | 9.79  | %    
|Home equity lines of credit< = 100% CLTV |                            |                        | 384,547 |            |  |          | 33.52 |        |   |  | 7.82  |      
|                                         |                            |                        |         |            |  |          |       |        |   |  |       |      
|Total< = 100% CLTV                       |                            |                        | 567,364 |            |  |          | 49.46 |        |   |  | 8.46  |      
|Home equity loans> 100% CLTV             |                            |                        | 349,791 |            |  |          | 30.49 |        |   |  | 13.27 |      
|Home equity lines of credit> 100% CLTV   |                            |                        | 175,082 |            |  |          | 15.26 |        |   |  | 11.70 |      
|                                         |                            |                        |         |            |  |          |       |        |   |  |       |      
|Total> 100% CLTV                         |                            |                        | 524,873 |            |  |          | 45.75 |        |   |  | 12.75 |      
|First mortgages                          |                            |                        | 36,694  |            |  |          | 3.20  |        |   |  | 7.18  |      
|Other (including discontinued products)  |                            |                        | 18,206  |            |  |          | 1.59  |        |   |  | 13.88 |      
|                                         |                            |                        |         |            |  |          |       |        |   |  |       |      
|                                         | Total managed portfolio(1) |                        | $       | 1,147,137  |  |          |       | 100.00 | % |  |       | 10.46 | %
|                                         |                            |                        |         |            |  |          |       |        |   |  |       |      



---



|    |                                                                                                                                                                                                                                                                
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | We define our Managed Portfolio as
    the portfolio of loans ($1.1 billion) that we service and
    on which we carry credit risk. At December 31, 2004, we
    also serviced another $1.7 billion of loans for which the
    credit risk is held by others.

Securitizations

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



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | As off balance sheet, SFAS 140,
    structures where both the loans and securitization liabilities
    are off balance sheet. We record a gain on sale of loans at the
    time of securitization, retain a residual interest and record
    subsequent trading gains/losses throughout the life of the loans
    as our assumptions of future performance change. We engaged in
    such securitizations from 1995 through 2001.
|
| |  | As on balance sheet structures (secured
    financings) where the loans are left on balance sheet and
    the securitization liabilities are brought on balance sheet as
    collateralized debt. We then report net interest income on an
    accrual basis over the life of the loans. We have used these
    structures since 2001.                                                                                           

Our secured financings and securitizations have
triggers that, when exceeded, provide trustees and/or bond
insurers with the ability, but not the obligation, of removing
us as servicer. Trigger levels are typically in the form of
cumulative or periodic losses and/or delinquencies for a pool of
loans over a stated period of time. At December 31, 2004,
we had $45.7 million in loans that we serviced and for
which certain triggers had been exceeded. The mortgage servicing
rights related to the loans for which a trigger had been
exceeded totaled

55



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##### Table of Contents



$1.4 million at December 31, 2004.
Based on our evaluation of industry practice by trustees and
bond insurers and our estimation of the steps the independent
trustees would take, we believe it is unlikely that the trustees
will remove servicing from us given current performance of our
securitizations. As a result, we have not provided for an
allowance for this contingency.


Home Equity Servicing

Our home equity lending business continues to
service the majority of the loans it has securitized and sold.
We earn a servicing fee of approximately 50 to 100 basis
points of the outstanding principal balance of the loans
securitized. Generally accepted accounting principles require us
to book a servicing asset under both the
SFAS 140 and the secured financing
structures. The total servicing portfolio was $2.8 billion
at December 31, 2004 compared to $2.6 billion at
December 31, 2003. For whole loans sold with servicing
retained totaling $1.4 billion and $1.0 billion at
December 31, 2004 and 2003, respectively, we capitalize
servicing fees including rights to future early repayment fees.
The servicing asset at December 31, 2004 was
$44.0 million up from $28.4 million at
December 31, 2003 reflecting additional secondary market
sales and financings, net of amortization and run-off.

Our Managed Portfolio, representing that portion
of the servicing portfolio on which we have retained credit
risk, is separated into two categories: $0.8 billion of
loans originated, generally since 2002, and held on balance
sheet either as loans held for investment or loans held for
sale, and $0.3 billion of loans and lines of credit
securitized for which we retained a residual interest.
Generally, these loans categorized as Owned Residual
were originated prior to 2002 and treated as sold under
SFAS 140 and have a reserve methodology that reflects life
of account loss expectations; whereas our policy for on-balance
sheet loans requires that we hold at a minimum, sufficient
reserves for potential losses inherent in the portfolio at the
balance sheet date. Such losses for on-balance sheet loans
manifest themselves over a period which management believes
approximates twelve months.

In addition, where applicable, we have the
opportunity to earn additional future servicing incentive fees.
Included below in the category Credit Risk Sold, Potential
Incentive Servicing Fee Retained Portfolio are
$1.3 billion of loans at December 31, 2004 and
$0.8 billion at December 31, 2003 for which we have
the opportunity to earn an incentive servicing fee.

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##### Table of Contents



The following table sets forth certain
information for these portfolios:

|                                                                           |  |                        |           |      |  |   |           |  
|-------------------------------------------------------------------------- |  | ---------------------- | --------- | ---- |  | - | --------- | -
|                                                                           |  |                       
|                                                                           |  | December 31,          
|                                                                           |  |                       
|                                                                           |  | 2004                   |           | 2003
|                                                                           |  |                        |           |     
|                                                                           |  |                       
|                                                                           |  | (Dollars in thousands)
|Managed Portfolio                                                          |  |                        |           |      |  |   |           |  
|Total Loans                                                                |  | $                      | 1,147,137 |      |  | $ | 1,513,289 |  
|30 days past due                                                           |  |                        | 4.76      | %    |  |   | 5.87      | %
|90 days past due                                                           |  |                        | 1.60      |      |  |   | 2.43      |  
|Net Chargeoff Rate                                                         |  |                        | 2.48      |      |  |   | 4.37      |  
|Unsold Loans                                                               |  |                        |           |      |  |   |           |  
|Total Loans(1)                                                             |  | $                      | 814,595   |      |  | $ | 897,227   |  
|30 days past due                                                           |  |                        | 1.93      | %    |  |   | 2.91      | %
|90 days past due                                                           |  |                        | 0.78      |      |  |   | 1.25      |  
|Net Chargeoff Rate                                                         |  |                        | 1.28      |      |  |   | 2.49      |  
|Loan Loss Reserve                                                          |  | $                      | 11,330    |      |  | $ | 29,251    |  
|Owned Residual                                                             |  |                        |           |      |  |   |           |  
|Total Loans                                                                |  | $                      | 332,542   |      |  | $ | 616,062   |  
|30 days past due                                                           |  |                        | 11.71     | %    |  |   | 10.18     | %
|90 days past due                                                           |  |                        | 3.61      |      |  |   | 4.15      |  
|Net Chargeoff Rate                                                         |  |                        | 5.00      |      |  |   | 6.40      |  
|Residual Undiscounted Losses                                               |  | $                      | 19,126    |      |  | $ | 64,598    |  
|Credit Risk Sold, Potential Incentive
    Servicing Fee Retained Portfolio |  |                        |           |      |  |   |           |  
|Total Loans                                                                |  | $                      | 1,286,282 |      |  | $ | 849,264   |  
|30 days past due                                                           |  |                        | 2.54      | %    |  |   | 2.44      | %
|90 days past due                                                           |  |                        | 0.87      |      |  |   | 0.72      |  



---



|    |                                  
|--- | ---------------------------------
|(1) | Excludes deferred fees and costs.

The managed portfolio amounts listed above
include those loans we service with credit risk retained.
Delinquency rates and losses on our managed portfolio result
from a variety of factors, including loan seasoning, portfolio
mix, our servicing practices, and general economic conditions.
The 30-day and greater delinquency ratio on our managed
portfolio was 4.8% at December 31, 2004, and 5.9% at
December 31, 2003.

Net Income

Our home equity lending business recorded net
income of $30.2 million during the year ended
December 31, 2004, compared to a net loss of
$19.9 million in 2003 and net income of $1.0 million
in 2002. The most significant factor in the increased earnings
during 2004 was improving credit quality (including the modeling
of recovery experience) that drove significant increases in the
fair value of our residual interests recorded through
trading gains/losses, instead of the significant
write downs of these assets suffered in 2003.

Net Revenue

Net revenue in 2004 totaled $166.0 million,
compared to net revenue in 2003 and 2002 of $57.4 million
and $80.3 million, respectively. The increase in revenues
is primarily a result of the change from trading losses to
trading gains related to adjustments made in marking the
residual interests to fair value in the respective periods,
reflecting improved credit quality trends in the underlying loan
portfolios represented by these residuals. The improved credit
quality including modeling of recoveries has also resulted in
declines to our provision for loan losses in 2004. Provision for
loan losses totaled $4.4 million in 2004 compared to
$29.6 million in 2003 and $25.6 million in 2002.

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##### Table of Contents



Our home equity lending business produced
$1.4 billion of home equity loans in 2004 compared to
$1.1 billion in both 2002 and 2003. Our home equity lending
business had $0.8 billion of loans and loans held for sale
at December 31, 2004, compared to $0.9 billion at
December 31, 2003, and $0.7 billion at the same date
in 2002. Included in the loan balance at December 31, 2004,
2003 and 2002 were $0.4 billion, $0.5 billion and
$0.4 billion of collateralized loans as part of secured
financings.

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

|                                          |  |                         |         |      |  |      |         |   |  |   |         |  
|----------------------------------------- |  | ----------------------- | ------- | ---- |  | ---- | ------- | - |  | - | ------- | -
|                                          |  |                        
|                                          |  | Year Ended December 31,
|                                          |  |                        
|                                          |  | 2004                    |         | 2003 |  | 2002
|                                          |  |                         |         |      |  |     
|                                          |  |                        
|                                          |  | (Dollars in thousands) 
|Net interest income                       |  | $                       | 98,983  |      |  | $    | 106,545 |   |  | $ | 94,068  |  
|Provision for loan losses                 |  |                         | (4,369  | )    |  |      | (29,575 | ) |  |   | (25,596 | )
|Gain on sales of loans                    |  |                         | 29,180  |      |  |      | 26,069  |   |  |   | 29,887  |  
|Loan servicing fees                       |  |                         | 28,824  |      |  |      | 21,835  |   |  |   | 13,528  |  
|Amortization of servicing assets          |  |                         | (19,863 | )    |  |      | (13,894 | ) |  |   | (5,485  | )
|Recovery (impairment) of servicing assets |  |                         | 1,148   |      |  |      | (1,684  | ) |  |   | (1,420  | )
|Trading gains (losses)                    |  |                         | 25,176  |      |  |      | (52,209 | ) |  |   | (26,032 | )
|Other income                              |  |                         | 6,903   |      |  |      | 358     |   |  |   | 1,313   |  
|                                          |  |                         |         |      |  |      |         |   |  |   |         |  
|Total net revenue                         |  | $                       | 165,982 |      |  | $    | 57,445  |   |  | $ | 80,263  |  
|                                          |  |                         |         |      |  |      |         |   |  |   |         |  

Net interest income decreased to
$99.0 million for the year ended December 31, 2004,
compared to 2003 net interest income of
$106.5 million, and $94.1 million in 2002. This line
of business earns interest income on loans held on the balance
sheet and the accretion of the discount applied to its residual
interests. Accretion totaled $12.5 million during 2004
versus $20.7 million in 2003, and $34.2 million in
2002. The decline in accretion reflects the reduced carrying
value of our residual interests. The non-accretion net interest
income increased to $86.5 million in 2004 compared to
$85.9 million in 2003 and $59.9 million in 2002. The
increase in 2003 over 2002 is a result of the buildup of our
on-balance sheet loan portfolio.

Provision for loan losses decreased to
$4.4 million in 2004 compared to $29.6 million in 2003
and $25.6 million in 2002. The decreased provision relates
to improvements in the credit quality of the loan portfolio. In
addition, we transferred $355 million in loans to loans
held for sale when the decisions were made to sell these
portfolio loans. These loans had an associated allowance of
$20.6 million. The loans were transferred with an allowance
of $10.8 million to reduce their carrying value to fair
market value. After the transfers, the remaining
$9.8 million of excess allowance was reversed through the
provision for loan and lease losses.

Gains on sales of loans for the year ended
December 31, 2004 totaled $29.2 million, compared to
$26.1 million and $29.9 million during the same period
in 2003 and 2002, respectively. We completed whole loan sales
during 2004 of $1.3 billion compared to sales in 2003 of
$0.7 billion. The gain relative to the amount of loans sold
was lower than in the prior year due to product mix sold and the
related loan yields.

We do not record a residual interest as a result
of whole loan sales. These are cash sales for which we receive a
premium, generally record a servicing asset, and recognize any
points and fees at the time of sale. For certain sales, we have
the right to an incentive servicing fee 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 incentive servicing fee
contracts are treated as derivatives and classified in other
assets. At December 31, 2004, we recorded incentive fees
for two transactions. Included in other income during the year
of 2004 was $4.5 million related to these
incentive-servicing fees based upon actual and projected
performance of the underlying pools of loans. Of the
$4.5 million recognized during 2004, $1.0 million was
the result of cash collections and $3.5 million represented
the projected value of future cash payments, present valued
using a discount rate of 30%.

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Loan servicing fees totaled $28.8 million in
2004 compared to $21.8 million in 2003 and
$13.5 million in 2002. The servicing portfolio underlying
the mortgage servicing asset at our home equity lending line of
business totaled $2.3 billion and $1.7 billion at
December 31, 2004 and 2003, respectively. The increase in
loan servicing fees relates to the increased size of the
servicing portfolio and increased early repayment fees that
totaled $13.7 million and $8.3 million in 2004 and
2003, respectively, on the portfolio underlying the mortgage
servicing asset.

Amortization and impairment of servicing assets
includes amortization expenses and valuation adjustments
relating to the carrying value of servicing assets. Our home
equity lending business determines fair value of its servicing
asset using discounted cash flows and assumptions as to
estimated future servicing income and cost that we believe
market participants would use to value similar assets. In
addition, we periodically assess these modeled assumptions for
reasonableness through independent third-party valuations. At
December 31, 2004, net servicing assets totaled
$44.0 million, compared to a balance of $28.4 million
at December 31, 2003, and $26.4 million at
December 31, 2002. Servicing asset amortization expense
totaled $19.9 million during 2004, compared to
$13.9 million in 2003, and $5.5 million in 2002. The
increased amortization is a result of the increase in the size
of the underlying servicing portfolio.

Trading gains (losses) represent unrealized gains
(losses) as a result of adjustments to the carrying values of
our residual interests. Trading gains totaled $25.2 million
in 2004 compared to losses of $52.2 million in 2003 and
$26.0 million in 2002. Residual interests had a balance of
$51.5 million at December 31, 2004 and
$70.5 million at December 31, 2003, compared to
$157.1 million at the same date in 2002. The decrease in
residual interest balance reflects a combination of cash
receipts, runoff, performance-based valuation adjustments and
the 2004 repurchase of $5.3 million of residuals we had
sold between 1999 and 2001. The $51.5 million valuation at
December 31, 2004 reflects $58.2 million of
anticipated undiscounted cash flows of which $47.8 million
represents existing securitization overcollateralization and
reserve funds, and the remaining $10.4 million represents
expected future net spread and prepayment penalties. Included in
the valuation are assumptions for estimated prepayments,
expected losses, and discount rates that we believe market
participants would use to value similar assets. To the extent
our expectations of future loss rates, prepayment speeds and
other factors change as we gather additional data over time,
these residual valuations may be subject to additional
adjustments in the future. These adjustments could have a
material effect on our reported earnings. The increased
unrealized trading gains in 2004 principally reflect lower
actual loss rates than those previously modeled. A material
portion of the lower losses came about due to improved
recoveries during 2004 of previously charged-off loans. This
improvement in recoveries was the result of enhancements we have
made to our loss recovery systems and strong housing markets. In
our residual asset valuation models, as well as in our
assumptions for allowance for loan and lease losses, we
anticipate continued strong recoveries in 2005, although not at
the level of 2004 recoveries due to reduced levels of
charge-offs and moderating home prices. These models were
revised in the fourth quarter of 2004 to account for potential
recoveries, as our credit risk management analysis had by that
time been able to collect sufficient data to make statistically
reliable estimates of future recoveries. Our forward loss
assumptions, including assumptions about gross losses and
recoveries, are reevaluated monthly and, as such, our residual
asset valuations are adjusted monthly to reflect changes in
actual and expected loss rates in our portfolio.



| |                   
| | ------------------
| | Operating Expenses

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

|                                     |                          |                         |        |         |  |      |        |        |  |   |        |        | 
|------------------------------------ | ------------------------ | ----------------------- | ------ | ------- |  | ---- | ------ | ------ |  | - | ------ | ------ | 
|                                     |                          |                        
|                                     |                          | Year Ended December 31,
|                                     |                          |                        
|                                     |                          | 2004                    |        | 2003    |  | 2002
|                                     |                          |                         |        |         |  |     
|                                     |                          |                        
|                                     |                          | (Dollars in thousands) 
|Salaries and employee benefits       |                          | $                       | 75,649 |         |  | $    | 52,074 |        |  | $ | 46,548 |       
|Other                                |                          |                         | 39,130 |         |  |      | 38,464 |        |  |   | 32,040 |       
|                                     |                          |                         |        |         |  |      |        |        |  |   |        |       
|                                     | Total operating expenses |                         | $      | 114,779 |  |      | $      | 90,538 |  |   | $      | 78,588 | 
|                                     |                          |                         |        |         |  |      |        |        |  |   |        |       
|Number of employees at period end(1) |                          |                         | 642    |         |  |      | 663    |        |  |   | 692    |       



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|    |                                 
|--- | --------------------------------
|(1) | On a full time equivalent basis.

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Operating expenses were $114.8 million for
the year ended December 31, 2004, up from $90.5 in 2003,
and an increase of 46% from 2002. Operating expenses in 2004
include compensation expense related to long term compensation
plans at the home equity line of business totaling
$14.5 million, $2.3 million and ($5.1) million in
2004, 2003 and 2002, respectively.

Commercial Finance

|                                                                             |                   |                         |         |        |  |      |         |        |  |      |         |        |  |   |         |       |  |   |         |       | 
|---------------------------------------------------------------------------- | ----------------- | ----------------------- | ------- | ------ |  | ---- | ------- | ------ |  | ---- | ------- | ------ |  | - | ------- | ----- |  | - | ------- | ----- | 
|                                                                             |                   |                        
|                                                                             |                   | Year Ended December 31,
|                                                                             |                   |                        
|                                                                             |                   | 2004                    |         | 2003   |  | 2002 |         | 2001   |  | 2000
|                                                                             |                   |                         |         |        |  |      |         |        |  |     
|                                                                             |                   |                        
|                                                                             |                   | (Dollars in thousands) 
|Selected Income Statement Data:                                              |                   |                         |         |        |  |      |         |        |  |      |         |        |  |   |         |       |  |   |         |      
|Net interest income                                                          |                   | $                       | 28,084  |        |  | $    | 22,766  |        |  | $    | 15,140  |        |  | $ | 9,481   |       |  | $ | 3,196   |      
|Provision for loan and lease losses                                          |                   |                         | (6,798  | )      |  |      | (11,308 | )      |  |      | (8,481  | )      |  |   | (6,939  | )     |  |   | (1,513  | )    
|Noninterest income                                                           |                   |                         | 6,275   |        |  |      | 5,868   |        |  |      | 4,397   |        |  |   | 1,695   |       |  |   | 799     |      
|                                                                             |                   |                         |         |        |  |      |         |        |  |      |         |        |  |   |         |       |  |   |         |      
|                                                                             | Total net revenue |                         |         | 27,561 |  |      |         | 17,326 |  |      |         | 11,056 |  |   |         | 4,237 |  |   |         | 2,482 | 
|Operating expense                                                            |                   |                         | (18,782 | )      |  |      | (15,072 | )      |  |      | (12,122 | )      |  |   | (8,424  | )     |  |   | (5,045  | )    
|                                                                             |                   |                         |         |        |  |      |         |        |  |      |         |        |  |   |         |       |  |   |         |      
|Income (loss) before taxes                                                   |                   |                         | 8,779   |        |  |      | 2,254   |        |  |      | (1,066  | )      |  |   | (4,187  | )     |  |   | (2,563  | )    
|Income taxes                                                                 |                   |                         | (5,562  | )      |  |      | (461    | )      |  |      | 513     |        |  |   | 1,309   |       |  |   | 945     |      
|                                                                             |                   |                         |         |        |  |      |         |        |  |      |         |        |  |   |         |       |  |   |         |      
|Income (loss) before cumulative effect of change
    in accounting principle |                   |                         | 3,217   |        |  |      | 1,793   |        |  |      | (553    | )      |  |   | (2,878  | )     |  |   | (1,618  | )    
|Cumulative effect of change in accounting
    principle                      |                   |                         |        |        |  |      |        |        |  |      | 495     |        |  |   |        |       |  |   |        |      
|                                                                             |                   |                         |         |        |  |      |         |        |  |      |         |        |  |   |         |       |  |   |         |      
|Net income (loss)                                                            |                   | $                       | 3,217   |        |  | $    | 1,793   |        |  | $    | (58     | )      |  | $ | (2,878  | )     |  | $ | (1,618  | )    
|                                                                             |                   |                         |         |        |  |      |         |        |  |      |         |        |  |   |         |       |  |   |         |      
|Selected Balance Sheet Data at End of
    Period:                            |                   |                         |         |        |  |      |         |        |  |      |         |        |  |   |         |       |  |   |         |      
|Total assets                                                                 |                   | $                       | 636,604 |        |  | $    | 474,915 |        |  | $    | 343,384 |        |  | $ | 266,670 |       |  | $ | 159,773 |      
|Loans and leases                                                             |                   |                         | 625,140 |        |  |      | 463,423 |        |  |      | 345,844 |        |  |   | 264,827 |       |  |   | 154,934 |      
|Allowance for loan and lease losses                                          |                   |                         | (9,624  | )      |  |      | (11,445 | )      |  |      | (7,657  | )      |  |   | (4,587  | )     |  |   | (2,441  | )    
|Shareholders equity                                                         |                   |                         | 55,993  |        |  |      | 44,255  |        |  |      | 29,236  |        |  |   | 18,741  |       |  |   | 21,346  |      
|Selected Operating Data:                                                     |                   |                         |         |        |  |      |         |        |  |      |         |        |  |   |         |       |  |   |         |      
|Net charge-offs                                                              |                   | $                       | 8,235   |        |  | $    | 7,868   |        |  | $    | 5,401   |        |  | $ | 4,653   |       |  | $ | 961     |      
|Net interest margin                                                          |                   |                         | 5.33    | %      |  |      | 5.63    | %      |  |      | 5.07    | %      |  |   | 4.64    | %     |  |   | 4.50    | %    
|Total funding of loans and leases                                            |                   | $                       | 366,545 |        |  | $    | 272,685 |        |  | $    | 207,087 |        |  | $ | 190,716 |       |  | $ | 113,323 |      



| |         
| | --------
| | Overview

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



| |         
| | --------
| | Strategy

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

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loans with higher transaction sizes than in our
small-ticket channel. The franchise channel may also finance
real estate for select franchise systems.




| |           
| | ----------
| | Net Income

Commercial finance net income increased to
$3.2 million during 2004, compared to net income of $1.8
during 2003 and a loss of $58 thousand in 2002. Results in 2004
reflect growth of $5.3 million in net interest income over
2003. Net interest income in 2003 increased 50% over 2002.
Provision for loan and lease losses decreased to
$6.8 million in 2004, compared to provisions of
$11.3 million and $8.5 million in 2003 and 2002,
respectively. The 2004 earnings are attributable to portfolio
growth, improvements in credit quality, and higher than expected
gains from the sale of leases and whole loans without credit
recourse.



| |                    
| | -------------------
| | Net Interest Income

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

|                                |  |                         |         |      |  |      |         |   |  |   |         |  
|------------------------------- |  | ----------------------- | ------- | ---- |  | ---- | ------- | - |  | - | ------- | -
|                                |  |                        
|                                |  | Year Ended December 31,
|                                |  |                        
|                                |  | 2004                    |         | 2003 |  | 2002
|                                |  |                         |         |      |  |     
|                                |  |                        
|                                |  | (Dollars in thousands) 
|Net interest income             |  | $                       | 28,084  |      |  | $    | 22,766  |   |  | $ | 15,140  |  
|Average interest earning assets |  |                         | 526,754 |      |  |      | 404,089 |   |  |   | 298,854 |  
|Net interest margin             |  |                         | 5.33    | %    |  |      | 5.63    | % |  |   | 5.07    | %

Net interest income was $28.1 million, an
increase of 23% over 2003, and an increase of 85% from 2002. The
improvement in net interest income resulted from an increase in
our commercial finance portfolio. The total loan and lease
portfolio has increased to $625.1 million at
December 31, 2004, an increase of 35% and 81% over year-end
2003 and 2002 balances, respectively. This line of business
originated $366.5 million in loans and leases during 2004,
compared to $272.7 million during 2003 and
$207.1 million in 2002.

Net interest margin is computed by dividing net
interest income by average interest earning assets. Net interest
margin during 2004 was 5.33%, compared to 5.63% in 2003, and
5.07% in 2002. The decrease in 2004 margin is due primarily to
changes in yields and product mix.



| |                                    
| | -----------------------------------
| | Provision for Loan and Lease Losses

The provision for loan and lease losses decreased
to $6.8 million in 2004 compared to $11.3 million in
2003 and $8.5 million in 2002. The decreased provisioning
levels relate primarily to improvements in credit quality in our
lease portfolio. We added $2.8 million in specific reserves
to the allowance during 2004 related to a potential loss on
lease receivables on product manufactured and supplied to
customers by a single vendor. The majority of these leases were
charged off in 2004. We no longer originate leases for this
vendor.



| |                   
| | ------------------
| | Noninterest Income

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

|                         |  |                         |       |      |  |      |       |   |  |   |       | 
|------------------------ |  | ----------------------- | ----- | ---- |  | ---- | ----- | - |  | - | ----- | 
|                         |  |                        
|                         |  | Year Ended December 31,
|                         |  |                        
|                         |  | 2004                    |       | 2003 |  | 2002
|                         |  |                         |       |      |  |     
|                         |  |                        
|                         |  | (Dollars in thousands) 
|Gain from sales of loans |  | $                       | 1,796 |      |  | $    | 2,630 |   |  | $ | 1,374 | 
|Derivative losses, net   |  |                         | (536  | )    |  |      | (803  | ) |  |   |      | 
|Other                    |  |                         | 5,015 |      |  |      | 4,041 |   |  |   | 3,023 | 
|                         |  |                         |       |      |  |      |       |   |  |   |       | 
|Total noninterest income |  | $                       | 6,275 |      |  | $    | 5,868 |   |  | $ | 4,397 | 
|                         |  |                         |       |      |  |      |       |   |  |   |       | 

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Noninterest income during 2004 increased 7% over
2003 and 43% over 2002. Included in noninterest income were
gains from sales of leases and whole loans that totaled
$1.8 million in 2004 compared to $2.6 million in 2003
and $1.4 million in 2002. Also included in noninterest
income during 2004 and 2003 was $0.5 million and
$0.8 million of interest rate derivative losses in our
Canadian operation related to asset-liability mismatches in our
funding of that operation. We had no derivative losses for this
line of business during the same period in 2002.



| |                   
| | ------------------
| | Operating Expenses

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

|                                     |                          |                         |        |        |  |      |        |        |  |   |       |        | 
|------------------------------------ | ------------------------ | ----------------------- | ------ | ------ |  | ---- | ------ | ------ |  | - | ----- | ------ | 
|                                     |                          |                        
|                                     |                          | Year Ended December 31,
|                                     |                          |                        
|                                     |                          | 2004                    |        | 2003   |  | 2002
|                                     |                          |                         |        |        |  |     
|                                     |                          |                        
|                                     |                          | (Dollars in thousands) 
|Salaries and employee benefits       |                          | $                       | 14,333 |        |  | $    | 11,606 |        |  | $ | 9,482 |       
|Other                                |                          |                         | 4,449  |        |  |      | 3,466  |        |  |   | 2,640 |       
|                                     |                          |                         |        |        |  |      |        |        |  |   |       |       
|                                     | Total operating expenses |                         | $      | 18,782 |  |      | $      | 15,072 |  |   | $     | 12,122 | 
|                                     |                          |                         |        |        |  |      |        |        |  |   |       |       
|Number of employees at period end(1) |                          |                         | 162    |        |  |      | 133    |        |  |   | 134   |       



---



|    |                                
|--- | -------------------------------
|(1) | On a full time equivalent basis

Operating expenses during 2004 totaled
$18.8 million, an increase of 25% over 2003, and an
increase of 55% from 2002. The increased operating expenses
relate to the continued growth in this business since its
inception in 1999, including compensation costs related to
higher production levels and the achievement of profitability.



| |               
| | --------------
| | Credit Quality

The commercial finance line of business had
nonperforming loans and leases at December 31, 2004
totaling $3.9 million, compared to non-performing loans and
leases at December 31, 2003 and 2002 totaling
$4.1 million and $4.9 million, respectively. Net
charge-offs recorded by this line of business totaled
$8.2 million in 2004 compared to $7.9 million in 2003
and $5.4 million in 2002. The bulk of the charge-offs in
2004 relate to a credit relationship with a single vendor as
noted above in the discussion on provision for loan and leases
losses. Allowance for loan and lease losses at December 31,
2004 totaled $9.6 million, representing 1.54% of loans and
leases, compared to a balance at December 31, 2003 of
$11.4 million, representing 2.47% of loans and leases and a
balance of $7.7 million or 2.21% of the portfolio at
December 31, 2002.

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,          
|                                         |  |                       
|                                         |  | 2004                   |       | 2003 |  | 2002
|                                         |  |                        |       |      |  |     
|                                         |  |                       
|                                         |  | (Dollars in thousands)
|Nonperforming loans                      |  | $                      | 3,936 |      |  | $    | 4,083  |   |  | $ | 4,855 |  
|Allowance for loan losses                |  |                        | 9,624 |      |  |      | 11,445 |   |  |   | 7,657 |  
|Allowance for loan losses to total loans |  |                        | 1.54  | %    |  |      | 2.47   | % |  |   | 2.21  | %
|For the Period Ended:                    |  |                        |       |      |  |      |        |   |  |   |       |  
|Provision for loan losses                |  | $                      | 6,798 |      |  | $    | 11,308 |   |  | $ | 8,481 |  
|Net charge-offs                          |  |                        | 8,235 |      |  |      | 7,868  |   |  |   | 5,401 |  
|Net charge-offs to average loans         |  |                        | 1.59  | %    |  |      | 1.97   | % |  |   | 1.81  | %

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

|                         |                        |                        |         |      |   |   |         |       |  
|------------------------ | ---------------------- | ---------------------- | ------- | ---- | - | - | ------- | ----- | -
|                         |                        |                       
|                         |                        | December 31,          
|                         |                        |                       
|                         |                        | 2004                   |         | 2003
|                         |                        |                        |         |     
|                         |                        |                       
|                         |                        | (Dollars in thousands)
|Domestic franchise loans |                        | $                      | 243,859 |      |   | $ | 150,505 |      
|                         | Weighted average yield |                        |         | 8.11 | % |   |         | 8.45  | %
|                         | Delinquency ratio      |                        |         | 0.35 |   |   |         | 0.45  |  
|Domestic leases          |                        | $                      | 149,999 |      |   | $ | 134,602 |      
|                         | Weighted average yield |                        |         | 8.95 | % |   |         | 9.54  | %
|                         | Delinquency ratio      |                        |         | 1.09 |   |   |         | 1.32  |  
|Canadian leases(1)       |                        | $                      | 231,282 |      |   | $ | 178,316 |      
|                         | Weighted average yield |                        |         | 9.77 | % |   |         | 10.12 | %
|                         | Delinquency ratio      |                        |         | 0.82 |   |   |         | 0.89  |  



---



|    |                 
|--- | ----------------
|(1) | In U.S. dollars.

Venture Capital

The following table shows selected financial
information for our venture capital line of business for the
periods indicated:

|                                                  |                    |                         |         |      |   |      |         |        |   |   |        |        |  
|------------------------------------------------- | ------------------ | ----------------------- | ------- | ---- | - | ---- | ------- | ------ | - | - | ------ | ------ | -
|                                                  |                    |                        
|                                                  |                    | Year Ended December 31,
|                                                  |                    |                        
|                                                  |                    | 2004                    |         | 2003 |   | 2002
|                                                  |                    |                         |         |      |   |     
|                                                  |                    |                        
|                                                  |                    | (Dollars in thousands) 
|Selected Income Statement Data:                   |                    |                         |         |      |   |      |         |        |   |   |        |       
|Net interest income                               |                    | $                       | (11     | )    |   | $    | (210    | )      |   | $ | 43     |       
|Mark-to-market adjustment on investments          |                    |                         | (852    | )    |   |      | (2,954  | )      |   |   | (4,187 | )     
|Noninterest income                                |                    |                         | 649     |      |   |      | 886     |        |   |   | 501    |       
|                                                  |                    |                         |         |      |   |      |         |        |   |   |        |       
|                                                  | Total net revenues |                         |         | (214 | ) |      |         | (2,278 | ) |   |        | (3,643 | )
|Operating expense                                 |                    |                         | (440    | )    |   |      | (548    | )      |   |   | (495   | )     
|                                                  |                    |                         |         |      |   |      |         |        |   |   |        |       
|Loss before taxes                                 |                    |                         | (654    | )    |   |      | (2,826  | )      |   |   | (4,138 | )     
|Income tax benefit                                |                    |                         | 257     |      |   |      | 1,118   |        |   |   | 1,655  |       
|                                                  |                    |                         |         |      |   |      |         |        |   |   |        |       
|Net loss                                          |                    | $                       | (397    | )    |   | $    | (1,708  | )      |   | $ | (2,483 | )     
|                                                  |                    |                         |         |      |   |      |         |        |   |   |        |       
|Selected Balance Sheet Data at End of
    Period: |                    |                         |         |      |   |      |         |        |   |   |        |       
|Investment in portfolio companies (cost)          |                    | $                       | 14,717  |      |   | $    | 14,601  |        |   | $ | 12,620 |       
|Mark-to-market adjustment                         |                    |                         | (11,929 | )    |   |      | (11,077 | )      |   |   | (8,123 | )     
|                                                  |                    |                         |         |      |   |      |         |        |   |   |        |       
|Carrying value of portfolio companies             |                    | $                       | 2,788   |      |   | $    | 3,524   |        |   | $ | 4,497  |       
|                                                  |                    |                         |         |      |   |      |         |        |   |   |        |       

Overview

In our venture capital line of business, we make
minority investments in early stage companies in the financial
services industry and related fields that intend to use
technology as a key component of their competitive strategy. We
expect that contacts made through venture activities may benefit
management of our other lines of business through the sharing of
technologies and market opportunities. Our venture capital line
of business had investments in five private companies as of
December 31, 2004, with an aggregate investment cost of
$14.7 million and a carrying value of $2.8 million
representing our interest in three companies.

Over the last three years we have found it more
difficult to find new investments that meet our strategic
objectives and have re-directed certain personnel formerly
addressing this segment. In 2004 and 2003, only

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$0.1 million and $2.0 million,
respectively were invested in portfolio companies. In addition,
our consolidated growth has caused this activity to become less
significant on a consolidated basis. When the company was
formed, we expected to make approximately $4 million in
annual investments. That was 2.5% of year-end 1999 common
equity. We now expect that annual investments are unlikely to
exceed $2 million that would be less than 0.4% of
2004 year-end common equity.


Given the change in the materiality of this
segment to consolidated results, we intend to discontinue
segment reporting for private equity with this report. When
appropriate due to materiality, we will report on financial
results for private equity in the Parent and Other segment.

During the year ended December 31, 2004, the
venture capital line of business recorded a net loss of
$0.4 million, compared to a net loss of $1.7 million
in 2003, and a net loss of $2.5 million in 2002. The
fluctuation in results in the venture capital line of business
is primarily due to valuation adjustments to reflect the
companys portfolio investments at market value.

Parent and Other

Results at the parent company and other
businesses totaled a net loss of $6.8 million for the year
ended December 31, 2004, compared to a loss of
$8.0 million during the same period in 2003 and
$5.8 million in 2002. These losses at the parent company
primarily relate to operating expenses in excess of management
fees charged to the lines of business and interest income earned
on intracompany loans. Included in parent and other expense were
compensation charges related to key employee retention
initiatives at the home equity lending line of business totaling
$2.6 million, $(0.7) million, and $(2.0) million
for 2004, 2003 and 2002, respectively. Also 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, 2004, we
allocated $14.0 million of these expenses to our
subsidiaries, compared to $15.2 million and
$13.5 million during 2003 and 2002, respectively,
reflecting reduced use of parent company-sourced capital funding
for the lines of business in 2004.

Each subsidiary pays taxes to us at the statutory
rate, with the exception of our Canadian subsidiary that pays
taxes in Canada. 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.

Risk Management

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



| |   |                   
| | - | ------------------
| |  | Credit risk       
|
| |  | Liquidity risk    
|
| |  | Interest rate risk
|
| |  | Operational risk  

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

Our Chairman, Executive Vice President, Senior
Vice Presidents (including the Chief Financial Officer), and
Chief Risk Officer meet on a regularly-scheduled basis (or more
frequently as appropriate) as an Enterprise-wide Risk Management
Committee (ERMC), reporting to the Board of Directors
Audit and Risk Management Committee.

Each of our principal risks is managed at the
line of business level, with oversight and, when appropriate,
standardization provided by the ERMC and its subcommittees. The
ERMC and its subcommittees oversee all aspects of our financial,
credit, and operational risks. The ERMC provides senior-level
review and enhance-

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ment of line manager risk processes and oversight
of our risk reporting, surveillance and model parameter changes.


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

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

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

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 (for commercial loans) or loan
delinquency status (for consumer loans) 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 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 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, 2004 were $22.8 million, or 0.7% of
average loans, compared to $33.9 million, or 1.1% of
average loans during 2003. Net charge-offs in 2002 were
$15.4 million or 0.7% of average loans. At
December 31, 2004, the allowance for loan and lease losses
was 1.3% of outstanding loans and leases, compared to 2.0% at
year-end 2003, and 1.8% at year-end 2002. The decrease in
charge-offs and allowance is a result of improvements in credit
quality associated with tighter underwriting guidelines in our
home equity business and an improving economy.

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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,
|                                                                          |                                              |                                      
|                                                                          |                                              | 2004                                  |                   | 2003   |       | 2002   |           | 2001   |       | 2000  
|                                                                          |                                              |                                       |                   |        |       |        |           |        |       |       
|                                                                          |                                              |                                      
|                                                                          |                                              | (Dollars in thousands)               
|Loans and leases outstanding at end of period,
    net of unearned income |                                              | $                                     | 3,450,440         |        |       | $      | 3,161,054 |        |       | $      | 2,815,276 |       |       | $      | 2,137,822 |       |       | $     | 1,234,922 |      
|                                                                          |                                              |                                       |                   |        |       |        |           |        |       |        |           |       |       |        |           |       |       |       |           |      
|Average loans and leases for the period, net of
    unearned income       |                                              | $                                     | 3,324,333         |        |       | $      | 3,168,776 |        |       | $      | 2,620,428 |       |       | $      | 1,533,261 |       |       | $     | 960,848   |      
|                                                                          |                                              |                                       |                   |        |       |        |           |        |       |        |           |       |       |        |           |       |       |       |           |      
|Allowance for loan and lease losses:                                      |                                              |                                       |                   |        |       |        |           |        |       |        |           |       |       |        |           |       |       |       |           |      
|Balance beginning of period                                               |                                              | $                                     | 64,285            |        |       | $      | 50,936    |        |       | $      | 22,283    |       |       | $      | 13,129    |       |       | $     | 8,555     |      
|Charge-offs:                                                              |                                              |                                       |                   |        |       |        |           |        |       |        |           |       |       |        |           |       |       |       |           |      
|                                                                          | Commercial, financial and agricultural loans |                                       |                   | 3,262  |       |        |           | 4,263  |       |        |           | 3,666 |       |        |           | 1,638 |       |       |           | 1,210 |    
|                                                                          | Real estate mortgage loans                   |                                       |                   | 15,381 |       |        |           | 23,522 |       |        |           | 7,130 |       |        |           | 600   |       |       |           |      |    
|                                                                          | Consumer loans                               |                                       |                   | 351    |       |        |           | 765    |       |        |           | 800   |       |        |           | 1,489 |       |       |           | 818   |    
|                                                                          | Commercial Financing:                        |                                       |                   |        |       |        |           |        |       |        |           |       |       |        |           |       |       |       |           |       |    
|                                                                          |                                              | Franchise Financing                   |                   |        | 88    |        |           |        | 146   |        |           |       | 19    |        |           |       |      |       |           |       |    |      
|                                                                          |                                              | Domestic Leasing                      |                   |        | 6,581 |        |           |        | 6,026 |        |           |       | 5,139 |        |           |       | 3,624 |       |           |       | 363 |      
|                                                                          |                                              | Canadian Leasing                      |                   |        | 2,517 |        |           |        | 2,590 |        |           |       | 1,476 |        |           |       | 2,402 |       |           |       | 777 |      
|                                                                          |                                              |                                       |                   |        |       |        |           |        |       |        |           |       |       |        |           |       |       |       |           |      
|                                                                          |                                              |                                       | Total charge-offs |        |       | 28,180 |           |        |       | 37,312 |           |       |       | 18,230 |           |       |       | 9,753 |           |       |     | 3,168 | 
|                                                                          |                                              |                                       |                   |        |       |        |           |        |       |        |           |       |       |        |           |       |       |       |           |      
|Recoveries:                                                               |                                              |                                       |                   |        |       |        |           |        |       |        |           |       |       |        |           |       |       |       |           |      
|                                                                          | Commercial, financial and agricultural loans |                                       |                   | 318    |       |        |           | 77     |       |        |           | 435   |       |        |           | 144   |       |       |           | 76    |    
|                                                                          | Real estate mortgage loans                   |                                       |                   | 3,899  |       |        |           | 2,198  |       |        |           | 1,002 |       |        |           |      |       |       |           |      |    
|                                                                          | Consumer loans                               |                                       |                   | 169    |       |        |           | 248    |       |        |           | 252   |       |        |           | 193   |       |       |           | 221   |    
|                                                                          | Commercial Financing:                        |                                       |                   |        |       |        |           |        |       |        |           |       |       |        |           |       |       |       |           |       |    
|                                                                          |                                              | Franchise Financing                   |                   |        |      |        |           |        |      |        |           |       |      |        |           |       |      |       |           |       |    |      
|                                                                          |                                              | Domestic Leasing                      |                   |        | 626   |        |           |        | 448   |        |           |       | 523   |        |           |       | 334   |       |           |       | 84  |      
|                                                                          |                                              | Canadian Leasing                      |                   |        | 323   |        |           |        | 449   |        |           |       | 658   |        |           |       | 877   |       |           |       | 85  |      
|                                                                          |                                              |                                       |                   |        |       |        |           |        |       |        |           |       |       |        |           |       |       |       |           |      
|                                                                          |                                              |                                       | Total recoveries  |        |       | 5,335  |           |        |       | 3,420  |           |       |       | 2,870  |           |       |       | 1,548 |           |       |     | 466   | 
|                                                                          |                                              |                                       |                   |        |       |        |           |        |       |        |           |       |       |        |           |       |       |       |           |      
|Net charge-offs                                                           |                                              |                                       | (22,845           | )      |       |        | (33,892   | )      |       |        | (15,360   | )     |       |        | (8,205    | )     |       |       | (2,702    | )    
|Acquisition of Onset Capital                                              |                                              |                                       |                  |        |       |        |          |        |       |        |          |       |       |        |          |       |       |       | 1,908     |      
|Reduction due to sale of loans                                            |                                              |                                       | (627              | )      |       |        | (234      | )      |       |        |          |       |       |        | (6        | )     |       |       |          |      
|Reduction due to reclassification of loans                                |                                              |                                       | (10,808           | )      |       |        | (690      | )      |       |        |          |       |       |        |          |       |       |       | (16       | )    
|Foreign currency adjustment                                               |                                              |                                       | 243               |        |       |        | 582       |        |       |        | 17        |       |       |        | (140      | )     |       |       | (19       | )    
|Provision charged to expense                                              |                                              |                                       | 14,195            |        |       |        | 47,583    |        |       |        | 43,996    |       |       |        | 17,505    |       |       |       | 5,403     |      
|                                                                          |                                              |                                       |                   |        |       |        |           |        |       |        |           |       |       |        |           |       |       |       |           |      
|Balance end of period                                                     |                                              | $                                     | 44,443            |        |       | $      | 64,285    |        |       | $      | 50,936    |       |       | $      | 22,283    |       |       | $     | 13,129    |      
|                                                                          |                                              |                                       |                   |        |       |        |           |        |       |        |           |       |       |        |           |       |       |       |           |      

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|                                                                            |                                              |                                       |        |        |       |        |     |        |       |        |     |        |       |        |     |        |       |        |     |       |       |        | 
|--------------------------------------------------------------------------- | -------------------------------------------- | ------------------------------------- | ------ | ------ | ----- | ------ | --- | ------ | ----- | ------ | --- | ------ | ----- | ------ | --- | ------ | ----- | ------ | --- | ----- | ----- | ------ | 
|                                                                            |                                              |                                      
|                                                                            |                                              | At or For the Year Ended December 31,
|                                                                            |                                              |                                      
|                                                                            |                                              | 2004                                  |        | 2003   |       | 2002   |     | 2001   |       | 2000  
|                                                                            |                                              |                                       |        |        |       |        |     |        |       |       
|                                                                            |                                              |                                      
|                                                                            |                                              | (Dollars in thousands)               
|Allowance for loan and lease losses by
    category:                        |                                              |                                       |        |        |       |        |     |        |       |        |     |        |       |        |     |        |       |        |     |      
|                                                                            | Commercial, financial and agricultural loans |                                       | $      | 18,126 |       |        | $   | 20,571 |       |        | $   | 17,942 |       |        | $   | 11,198 |       |        | $   | 4,370 |      
|                                                                            | Real estate mortgage loans                   |                                       |        | 12,332 |       |        |     | 31,445 |       |        |     | 23,150 |       |        |     | 2,872  |       |        |     | 2,462 |      
|                                                                            | Consumer loans                               |                                       |        | 4,242  |       |        |     | 809    |       |        |     | 2,067  |       |        |     | 2,309  |       |        |     | 2,226 |      
|                                                                            | Commercial Financing:                        |                                       |        |        |       |        |     |        |       |        |     |        |       |        |     |        |       |        |     |       |      
|                                                                            |                                              | Franchise Financing                   |        |        | 3,728 |        |     |        | 2,158 |        |     |        | 1,327 |        |     |        | 204   |        |     |       |      |       
|                                                                            |                                              | Domestic Leasing                      |        |        | 2,926 |        |     |        | 6,285 |        |     |        | 4,626 |        |     |        | 4,323 |        |     |       | 2,325 |       
|                                                                            |                                              | Canadian Leasing                      |        |        | 3,089 |        |     |        | 3,017 |        |     |        | 1,824 |        |     |        | 1,377 |        |     |       | 1,746 |       
|                                                                            |                                              |                                       |        |        |       |        |     |        |       |        |     |        |       |        |     |        |       |        |     |      
|                                                                            |                                              |                                       | Totals |        | $     | 44,443 |     |        | $     | 64,285 |     |        | $     | 50,936 |     |        | $     | 22,283 |     |       | $     | 13,129 | 
|                                                                            |                                              |                                       |        |        |       |        |     |        |       |        |     |        |       |        |     |        |       |        |     |      
|Percent of loans and leases to total loans and
    leases by category:      |                                              |                                       |        |        |       |        |     |        |       |        |     |        |       |        |     |        |       |        |     |      
|                                                                            | Commercial, financial and agricultural loans |                                       |        | 49     | %     |        |     | 47     | %     |        |     | 48     | %     |        |     | 49     | %     |        |     | 55    | %    
|                                                                            | Real estate mortgage loans                   |                                       |        | 32     |       |        |     | 37     |       |        |     | 39     |       |        |     | 36     |       |        |     | 28    |      
|                                                                            | Consumer loans                               |                                       |        | 1      |       |        |     | 1      |       |        |     | 1      |       |        |     | 2      |       |        |     | 4     |      
|                                                                            | Commercial Financing:                        |                                       |        |        |       |        |     |        |       |        |     |        |       |        |     |        |       |        |     |       |      
|                                                                            |                                              | Franchise Financing                   |        |        | 7     |        |     |        | 5     |        |     |        | 3     |        |     |        | 2     |        |     |       |      |       
|                                                                            |                                              | Domestic Leasing                      |        |        | 4     |        |     |        | 4     |        |     |        | 5     |        |     |        | 7     |        |     |       | 8     |       
|                                                                            |                                              | Canadian Leasing                      |        |        | 7     |        |     |        | 6     |        |     |        | 4     |        |     |        | 4     |        |     |       | 5     |       
|Ratios:                                                                     |                                              |                                       |        |        |       |        |     |        |       |        |     |        |       |        |     |        |       |        |     |      
|Net charge-offs to average loans and leases                                 |                                              |                                       | 0.7    | %      |       |        | 1.1 | %      |       |        | 0.7 | %      |       |        | 0.7 | %      |       |        | 0.3 | %    
|Allowance for possible loans and leases to loans
    and leases outstanding |                                              |                                       | 1.3    | %      |       |        | 2.0 | %      |       |        | 1.8 | %      |       |        | 1.0 | %      |       |        | 1.1 | %    

Total nonperforming loans and leases at
December 31, 2004, were $33.7 million, compared to
$44.4 million at December 31, 2003, and
$31.1 million at December 31, 2002. Nonperforming
loans and leases as a percent of total loans and leases at
December 31, 2004 were 0.9%, compared to 1.4% at
December 31, 2003, and 1.1% in 2002. The 2004 decrease
occurred primarily at the commercial banking line of business
(where nonperforming loans decreased from $26.6 million at
December 31, 2003 to $21.2 million at the end of 2004)
and at the home equity lending line of business (where they
decreased to $6.4 million at December 31, 2004,
compared to $11.2 million at the end of 2003).
Nonperforming loan and leases at the commercial finance line of
business decreased from $4.1 million at December 31,
2003 to $3.9 million at December 31, 2004.

Other real estate we owned totaled
$9.4 million at December 31, 2004, up from
$6.4 million at December 31, 2003, which was up from
$5.3 million at the same date in 2002. The increase in 2004
relates to the mortgage banking line of business. We also
include in our nonperforming assets category nonperforming loans
held for sale that are not guaranteed which increased to
$2.1 million at December 31, 2004 compared to
$1.7 million at the end of 2003. These loans also reside at
the mortgage banking line of business. Total nonperforming
assets at December 31, 2004 were $45.2 million, or
0.9% of total assets. Nonperforming assets at December 31,
2003, totaled $52.5 million, or 1.1% of total assets,
compared to $37.6 million, or 0.8%, in 2002.

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

|                                                             |                                                  |                                      |        |       |        |      |        |       |        |      |        |       |        |   |        |       |        |   |       |       |        | 
|------------------------------------------------------------ | ------------------------------------------------ | ------------------------------------ | ------ | ----- | ------ | ---- | ------ | ----- | ------ | ---- | ------ | ----- | ------ | - | ------ | ----- | ------ | - | ----- | ----- | ------ | 
|                                                             |                                                  |                                     
|                                                             |                                                  | December 31,                        
|                                                             |                                                  |                                     
|                                                             |                                                  | 2004                                 |        | 2003  |        | 2002 |        | 2001  |        | 2000
|                                                             |                                                  |                                      |        |       |        |      |        |       |        |     
|                                                             |                                                  |                                     
|                                                             |                                                  | (Dollars in thousands)              
|Accruing loans past due 90 days or
    more:                 |                                                  |                                      |        |       |        |      |        |       |        |      |        |       |        |   |        |       |        |   |       |      
|Commercial, financial and agricultural loans                 |                                                  | $                                    |       |       |        | $    | 4,172  |       |        | $    | 30     |       |        | $ | 1,146  |       |        | $ | 324   |      
|Real estate mortgages                                        |                                                  |                                      | 219    |       |        |      |       |       |        |      |       |       |        |   |       |       |        |   |      |      
|Consumer loans                                               |                                                  |                                      | 426    |       |        |      | 226    |       |        |      | 688    |       |        |   | 157    |       |        |   | 510   |      
|Commercial Financing:                                        |                                                  |                                      |        |       |        |      |        |       |        |      |        |       |        |   |        |       |        |   |       |      
|                                                             | Franchise Financing                              |                                      |        |      |        |      |        | 151   |        |      |        | 43    |        |   |        |      |        |   |       |      |       
|                                                             | Domestic Leasing                                 |                                      |        |      |        |      |        | 8     |        |      |        | 177   |        |   |        | 1,624 |        |   |       | 627   |       
|                                                             | Canadian Leasing                                 |                                      |        | 12    |        |      |        | 70    |        |      |        | 143   |        |   |        | 68    |        |   |       |      |       
|                                                             |                                                  |                                      |        |       |        |      |        |       |        |      |        |       |        |   |        |       |        |   |       |      
|                                                             |                                                  |                                      | 657    |       |        |      | 4,627  |       |        |      | 1,081  |       |        |   | 2,995  |       |        |   | 1,461 |      
|                                                             |                                                  |                                      |        |       |        |      |        |       |        |      |        |       |        |   |        |       |        |   |       |      
|Nonaccrual loans and leases:                                 |                                                  |                                      |        |       |        |      |        |       |        |      |        |       |        |   |        |       |        |   |       |      
|Commercial, financial and agricultural loans                 |                                                  |                                      | 20,394 |       |        |      | 20,447 |       |        |      | 13,798 |       |        |   | 5,066  |       |        |   | 752   |      
|Real estate mortgages                                        |                                                  |                                      | 8,590  |       |        |      | 14,663 |       |        |      | 11,308 |       |        |   | 8,115  |       |        |   | 1,922 |      
|Consumer loans                                               |                                                  |                                      | 128    |       |        |      | 769    |       |        |      | 454    |       |        |   | 708    |       |        |   | 918   |      
|Commercial Financing:                                        |                                                  |                                      |        |       |        |      |        |       |        |      |        |       |        |   |        |       |        |   |       |      
|                                                             | Franchise Financing                              |                                      |        | 1,193 |        |      |        | 552   |        |      |        |      |        |   |        |      |        |   |       |      |       
|                                                             | Domestic Leasing                                 |                                      |        | 1,029 |        |      |        | 1,364 |        |      |        | 3,415 |        |   |        | 1,180 |        |   |       | 960   |       
|                                                             | Canadian Leasing                                 |                                      |        | 1,702 |        |      |        | 1,943 |        |      |        | 1,077 |        |   |        | 1,088 |        |   |       | 1,209 |       
|                                                             |                                                  |                                      |        |       |        |      |        |       |        |      |        |       |        |   |        |       |        |   |       |      
|                                                             |                                                  |                                      | 33,036 |       |        |      | 39,738 |       |        |      | 30,052 |       |        |   | 16,157 |       |        |   | 5,761 |      
|                                                             |                                                  |                                      |        |       |        |      |        |       |        |      |        |       |        |   |        |       |        |   |       |      
|                                                             |                                                  | Total nonperforming loans and leases |        |       | 33,693 |      |        |       | 44,365 |      |        |       | 31,133 |   |        |       | 19,152 |   |       |       | 7,222  | 
|                                                             |                                                  |                                      |        |       |        |      |        |       |        |      |        |       |        |   |        |       |        |   |       |      
|                                                             | Nonperforming loans held for sale not guaranteed |                                      |        | 2,066 |        |      |        | 1,695 |        |      |        | 1,201 |        |   |        | 1,562 |        |   |       | 3,959 |       
|                                                             | Other real estate owned                          |                                      |        | 9,427 |        |      |        | 6,431 |        |      |        | 5,272 |        |   |        | 4,388 |        |   |       | 2,833 |       
|                                                             |                                                  |                                      |        |       |        |      |        |       |        |      |        |       |        |   |        |       |        |   |       |      
|                                                             |                                                  | Total nonperforming assets           |        | $     | 45,186 |      |        | $     | 52,491 |      |        | $     | 37,606 |   |        | $     | 25,102 |   |       | $     | 14,014 | 
|                                                             |                                                  |                                      |        |       |        |      |        |       |        |      |        |       |        |   |        |       |        |   |       |      
|Nonperforming loans and leases to total loans and
    leases |                                                  |                                      | 1.0    | %     |        |      | 1.4    | %     |        |      | 1.1    | %     |        |   | 0.9    | %     |        |   | 0.6   | %    
|                                                             |                                                  |                                      |        |       |        |      |        |       |        |      |        |       |        |   |        |       |        |   |       |      
|Nonperforming assets to total assets                         |                                                  |                                      | 0.9    | %     |        |      | 1.1    | %     |        |      | 0.8    | %     |        |   | 0.7    | %     |        |   | 0.4   | %    
|                                                             |                                                  |                                      |        |       |        |      |        |       |        |      |        |       |        |   |        |       |        |   |       |      

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

Loans that are past due 90 days or more are
placed on nonaccrual status unless, in managements
opinion, there is sufficient collateral value to offset both
principal and interest. The $45.2 million of nonperforming
assets at December 31, 2004, were concentrated at our lines
of business as follows:

|                      |  |   |      | 
|--------------------- |  | - | ---- | 
| Mortgage banking    |  | $ | 8.5  | 
| Commercial banking  |  |   | 22.8 | 
| Home equity lending |  |   | 10.0 | 
| Commercial finance  |  |   | 3.9  | 

Interest income of approximately
$2.9 million would have been recorded during 2004 on
nonaccrual and renegotiated loans if such loans had been
accruing interest throughout the year in accordance with their
original terms. The amount of interest income actually recorded
during the year of 2004 on nonaccrual and restructured loans was
approximately $1.2 million.

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

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

The objectives of liquidity management are to
ensure that funds will be available to meet current and future
demands and that funds are available at a reasonable cost. We
manage liquidity centrally via daily interaction with the lines
of business and periodic liquidity planning sessions. Since
loans are less marketable than securities, the ratio of total
loans to total deposits is a traditional measure of liquidity
for banks and bank holding companies. At December 31, 2004,
the ratio of loans and loans held for sale to total deposits was
128%. We are comfortable with this relatively high level due to
our position in first mortgage loans held for sale
($0.7 billion) and second mortgage loans and leases
financed through matched-term secured financing
($0.6 billion). The mortgage loans carry an interest rate
at or near current market rates and are generally sold within a
short period after origination. Excluding these items, our loans
to deposit ratio at December 31, 2004 was 91%.

As disclosed in the footnotes to the Consolidated
Financial Statements, we have certain obligations to make future
payments under contracts. At December 31, 2004, the
aggregate contractual obligations are:

|                                   |       |                        |           |           |  |            |           |            |  |   |         |         |  |   |         |         | 
|---------------------------------- | ----- | ---------------------- | --------- | --------- |  | ---------- | --------- | ---------- |  | - | ------- | ------- |  | - | ------- | ------- | 
|                                   |       |                       
|                                   |       | Payments Due by Period
|                                   |       |                       
|                                   |       |                        |           | Less than |  | One to     |           | After     
|                                   |       | Total                  |           | One Year  |  | Five Years |           | Five Years
|                                   |       |                        |           |           |  |            |           |           
|                                   |       |                       
|                                   |       | (Dollars in thousands)
|Deposits with contractual maturity |       | $                      | 849,853   |           |  | $          | 596,997   |            |  | $ | 250,626 |         |  | $ | 2,230   |        
|Deposits without a stated maturity |       |                        | 2,545,411 |           |  |            | 2,545,411 |            |  |   |        |         |  |   |        |        
|Short-term borrowings              |       |                        | 237,277   |           |  |            | 235,451   |            |  |   |        |         |  |   | 1,826   |        
|Collateralized debt                |       |                        | 547,477   |           |  |            | 247,189   |            |  |   | 262,474 |         |  |   | 37,814  |        
|Other long-term debt               |       |                        | 270,172   |           |  |            | 47        |            |  |   |        |         |  |   | 270,125 |        
|Operating leases                   |       |                        | 65,435    |           |  |            | 20,259    |            |  |   | 30,720  |         |  |   | 14,456  |        
|                                   |       |                        |           |           |  |            |           |            |  |   |         |         |  |   |         |        
|                                   | Total |                        | $         | 4,515,625 |  |            | $         | 3,645,354  |  |   | $       | 543,820 |  |   | $       | 326,451 | 
|                                   |       |                        |           |           |  |            |           |            |  |   |         |         |  |   |         |        

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

The mortgage banking line of business sells
virtually all of its mortgage loan originations within
30 days of funding, taking them off our balance sheet.
Therefore, the on-balance sheet funding of first mortgage loans
is for the brief period of time from origination to
sale/securitization. In 2004, the home equity lending line of
business produced $1.4 billion and the sum of home equity
loan sales and secured financings totaled $1.7 billion.

Beginning in 2002, home equity loan
securitizations were retained on-balance sheet, moving away from
gain-on-sale treatment. As a result, both the securitized assets
and the funding from the securitization are now reflected on the
balance sheet. From a liquidity perspective, the securitizations
in 2002 through 2004 provided

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matched funding for the life of the loans making
up the securitizations unless we choose to utilize a
clean-up call provision to terminate the
securitization funding early. A clean-up call
typically is optional at our discretion. It can typically be
made once outstanding loan balances in the securitization fall
below 10% of the original loan balance in the securitization.
Bond principal payments are dependent upon principal collections
on the underlying loans. Prepayment speeds can affect the timing
and amount of loan principal payments. The table of contractual
obligations above reflects our current estimate of the principal
collection on these loans.


Deposits consist of three primary types:
non-maturity transaction account deposits, certificates of
deposit (CDs), and escrow account deposits. Core deposits
exclude jumbo CDs, brokered CDs, public funds and mortgage
escrow deposits, although the escrow deposits exhibit core-like
maturity characteristics. Core deposits totaled
$2.2 billion at December 31, 2004 compared to
$1.8 billion at December 31, 2003.

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, 2004, these deposit types totaled
$1.9 billion, an increase of $0.8 billion from
December 31, 2003. 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, 2004 and December 31, 2003. 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
$0.3 billion at December 31, 2004, and had an average
remaining life of 14 months as compared to
$0.3 billion outstanding with an 18 month average
remaining life at December 31, 2003.

Escrow account deposits are related to the
servicing of our first mortgage loans. When a first mortgage
borrower makes a monthly mortgage payment, consisting of
interest and principal due on the loan and often a real estate
tax and insurance portion, we hold the payment on a non-interest
earning basis, except where otherwise required by law, until the
payment is remitted to the current owner of the loan or the
proper tax authority and insurance carrier. Escrow deposits may
also include proceeds from the payoff of loans in our servicing
portfolio prior to the transmission of those proceeds to
investors. At December 31, 2004 these escrow balances
totaled $0.7 billion, compared to $0.6 billion at
December 31, 2003.

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, 2004, FHLBI borrowings outstanding totaled
$0.1 billion, a $0.2 billion decrease from
December 31, 2003. We had sufficient collateral pledged to
FHLBI at December 31, 2004 to borrow an additional
$0.7 billion, if needed.

In addition to borrowings from the FHLBI, we use
other lines of credit as needed. At December 31, 2004, the
amount of short-term borrowings outstanding on our major credit
lines and the total amount of the borrowing lines were as
follows:



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

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| |   |                                                                                                                                                               
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Lines of credit with correspondent banks,
    including fed funds lines: none outstanding out of
    $165 million available but not committed                 
|
| |  | Line of credit with a correspondent bank
    collateralized by mortgage servicing rights: none outstanding
    out of $50 million committed borrowing facility
|
| |  | Warehouse lines of credit to fund Canadian
    sourced small ticket leases: $166 million outstanding on
    $283 million of borrowing facilities              

In addition to short-term borrowings from the
aforementioned credit lines, sale facilities are used to effect
sale of Government Sponsored Enterprise (GSE) conforming first
mortgage loans before scheduled GSE settlement dates. The first
two of these sale facilities listed below have specific dollar
limits as noted. The size of the third facility is limited only
by the amount of mortgage-backed securities we can package for
purchase by the facility provider. At December 31, 2004,
the amount unsettled by the GSE on these facilities and the
total facility amount were as follows:



| |   |                                                                                         
| | - | ----------------------------------------------------------------------------------------
| |  | Committed warehouse sale facility:
    $343 million unsettled on a $600 million facility
|
| |  | Uncommitted warehouse sale facility: none
    unsettled on a $150 million facility      
|
| |  | Investor warehouse sale facility:
    $81 million unsettled                             

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

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

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

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

Our mortgage, commercial banking and home equity
lines of business all assume interest rate risk by holding
mortgage servicing rights (MSRs). These assets are recorded at
lower of cost or fair market value. Among other items, a key
determinant to the value of MSRs is the prevailing level of
interest rates. We purchase derivative securities to mitigate
the expected volatility in the value of these assets.

Our mortgage, commercial banking and home equity
lending lines of business also are exposed to the risk that
interest rates will decline, possibly increasing prepayment
speeds on loans and decreasing the value of servicing assets and
residual interests. Some offsets to these exposures exist in the
form of strong production operations, selective sales of
servicing rights, match-funded asset-backed securities sales and
the use of financial instruments to manage the economic
performance of the assets. Since there are accounting timing

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differences between the recognition of gains or
losses on financial derivatives and the realization of economic
gains or losses on certain offsetting exposures (e.g., strong
production operations), our decisions on the degree to which we
manage risk with derivative instruments to insulate against
short-term price volatility depends on a variety of factors,
including:




| |   |                                                                                                                                                                                   
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the type of risk we are trying to mitigate;                                                                                                                                       
|
| |  | offsetting factors elsewhere in the Corporation;                                                                                                                                  
|
| |  | the level of current capital above our target
    minimums;                                                                                                                       
|
| |  | time remaining in the quarter (i.e., days until
    quarter end);                                                                                                                 
|
| |  | current level of derivative gain or loss relative
    to accounting and economic basis;                                                                                           
|
| |  | basis risk: the degree to which the interest
    rates underlying our derivative instruments might not move
    parallel to the interest rate driving our asset
    valuation; and
|
| |  | convexity: the degree to which asset values, or
    risk management derivative instrument values, do not change in a
    linear fashion as interest rates change; and             
|
| |  | volatility: the level of volatility in market
    interest rates and the related impact on our asset values and
    derivatives instrument values.                                

This strategy may, at times, result in
variability in inter-quarter results that are not reflective of
underlying trends for the Corporation.

The following tables reflect our estimate of the
present value of interest sensitive assets, liabilities, and
off-balance sheet items at December 31, 2004. 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, 2004, although certain accounts
are normalized whereby the three- or six-month average balance
is included rather than the quarter-end balance in order to
avoid having the analysis skewed by a significant increase or
decrease to an account balance at quarter end.

The tables that follow should be used with
caution.



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The net asset value sensitivities do not
    necessarily represent the changes in the lines of business
    net asset value that would actually occur under the given
    interest rate scenarios, as sensitivities do not reflect changes
    in value of the companies as a going concern, nor consider
    potential rebalancing or other management actions that might be
    taken in the future under asset/liability management as interest
    rates change.                                                                                                                                                                                                     
|
| |  | Specifically, the volume of derivative contracts
    entered into to manage the risk of MSRs fluctuates from quarter
    to quarter and within a given quarter, depending upon market
    conditions, the size of our MSR portfolio and various additional
    factors. We monitor derivative positions frequently and
    rebalance them as needed. Therefore, our derivative positions,
    shown in the table below as of December 31, 2004, may or
    may not be representative of our risk position during the
    succeeding quarter. Additionally, it is unlikely that the volume
    of derivative positions would remain constant over large
    fluctuations in

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | interest rates, although the tables below assume
    they do. MSR risk management derivative contracts appear under
    the category Interest Sensitive Financial
    Derivatives in the tables below.                                                                                                                                                                                                                                                                                                                                                  
|
| |  | The tables below show modeled changes in interest
    rates for individual asset classes. Asset classes in our
    portfolio have interest rate sensitivity tied to different
    underlying indices or instruments. While the rate sensitivity of
    individual asset classes presented below is our best estimate of
    changes in value due to interest rate changes, the total
    potential change figures are subject to basis risk
    between value changes of individual assets and liabilities which
    has not been included in the model.
|
| |  | Finally, few of the asset classes shown react to
    interest rate changes in a linear fashion. That is, the point
    estimates we have made at Current and
    +/-2% and +/-1% are good estimates at
    those amounts of rate change, but it may not be accurate to
    interpolate linearly between those points. This is most evident
    in products that contain optionality in payment timing or
    pricing such as mortgage servicing or nonmaturity transaction
    deposits.                                                            

Economic Value Change Method

|                                         |  |                                    |            |     |  |         |            |     |  |     |            |   |  |   |            |   |  |   |            |  
|---------------------------------------- |  | ---------------------------------- | ---------- | --- |  | ------- | ---------- | --- |  | --- | ---------- | - |  | - | ---------- | - |  | - | ---------- | -
|                                         |  |                                   
|                                         |  | Present Value at December 31, 2004
|                                         |  | Change in Interest Rates of:      
|                                         |  |                                   
|                                         |  | -2%                                |            | -1% |  | Current |            | +1% |  | +2%
|                                         |  |                                    |            |     |  |         |            |     |  |    
|                                         |  |                                   
|                                         |  | (In thousands)                    
|Interest Sensitive Assets                |  |                                    |            |     |  |         |            |     |  |     |            |   |  |   |            |   |  |   |            |  
|Loans and other assets                   |  | $                                  | 3,689,368  |     |  | $       | 3,655,587  |     |  | $   | 3,622,103  |   |  | $ | 3,588,543  |   |  | $ | 3,554,672  |  
|Loans held for sale                      |  |                                    | 907,873    |     |  |         | 902,133    |     |  |     | 895,700    |   |  |   | 888,352    |   |  |   | 880,530    |  
|Mortgage servicing rights                |  |                                    | 184,880    |     |  |         | 232,037    |     |  |     | 372,034    |   |  |   | 521,421    |   |  |   | 588,866    |  
|Residual interests                       |  |                                    | 60,925     |     |  |         | 58,777     |     |  |     | 56,101     |   |  |   | 53,354     |   |  |   | 49,918     |  
|Interest sensitive financial derivatives |  |                                    | 44,392     |     |  |         | 41,244     |     |  |     | 552        |   |  |   | (121,791   | ) |  |   | (279,384   | )
|                                         |  |                                    |            |     |  |         |            |     |  |     |            |   |  |   |            |   |  |   |            |  
|Total interest sensitive assets          |  |                                    | 4,887,438  |     |  |         | 4,889,778  |     |  |     | 4,946,490  |   |  |   | 4,929,879  |   |  |   | 4,794,602  |  
|Interest Sensitive Liabilities           |  |                                    |            |     |  |         |            |     |  |     |            |   |  |   |            |   |  |   |            |  
|Deposits                                 |  |                                    | (3,373,289 | )   |  |         | (3,351,765 | )   |  |     | (3,335,683 | ) |  |   | (3,320,655 | ) |  |   | (3,306,159 | )
|Short-term borrowings(1)                 |  |                                    | (399,886   | )   |  |         | (399,558   | )   |  |     | (399,233   | ) |  |   | (398,911   | ) |  |   | (398,593   | )
|Long-term debt                           |  |                                    | (649,428   | )   |  |         | (643,364   | )   |  |     | (636,749   | ) |  |   | (629,307   | ) |  |   | (615,370   | )
|                                         |  |                                    |            |     |  |         |            |     |  |     |            |   |  |   |            |   |  |   |            |  
|Total interest sensitive liabilities     |  |                                    | (4,422,603 | )   |  |         | (4,394,687 | )   |  |     | (4,371,665 | ) |  |   | (4,348,873 | ) |  |   | (4,320,122 | )
|Net market value as of December 31, 2004 |  | $                                  | 464,835    |     |  | $       | 495,091    |     |  | $   | 574,825    |   |  | $ | 581,006    |   |  | $ | 474,480    |  
|                                         |  |                                    |            |     |  |         |            |     |  |     |            |   |  |   |            |   |  |   |            |  
|Change from current                      |  | $                                  | (109,990   | )   |  | $       | (79,734    | )   |  | $   |           |   |  | $ | 6,181      |   |  | $ | (100,345   | )
|                                         |  |                                    |            |     |  |         |            |     |  |     |            |   |  |   |            |   |  |   |            |  
|Net market value as of December 31, 2003 |  | $                                  | 531,596    |     |  | $       | 567,923    |     |  | $   | 575,450    |   |  | $ | 645,981    |   |  | $ | 635,791    |  
|                                         |  |                                    |            |     |  |         |            |     |  |     |            |   |  |   |            |   |  |   |            |  
|Potential change                         |  | $                                  | (43,854    | )   |  | $       | (7,527     | )   |  | $   |           |   |  | $ | 70,531     |   |  | $ | 60,341     |  
|                                         |  |                                    |            |     |  |         |            |     |  |     |            |   |  |   |            |   |  |   |            |  



---



|    |                                                                                                                
|--- | ---------------------------------------------------------------------------------------------------------------
|(1) | Includes certain debt which is categorized as
    collateralized debt in other sections of this
    document.

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GAAP-Based Value Change Method

|                                         |  |                                    |           |     |  |         |           |     |  |     |           |  |  |   |           |   |  |   |           |  
|---------------------------------------- |  | ---------------------------------- | --------- | --- |  | ------- | --------- | --- |  | --- | --------- |  |  | - | --------- | - |  | - | --------- | -
|                                         |  |                                   
|                                         |  | Present Value at December 31, 2004
|                                         |  | Change in Interest Rates of:      
|                                         |  |                                   
|                                         |  | -2%                                |           | -1% |  | Current |           | +1% |  | +2%
|                                         |  |                                    |           |     |  |         |           |     |  |    
|                                         |  |                                   
|                                         |  | (In thousands)                    
|Interest Sensitive Assets                |  |                                    |           |     |  |         |           |     |  |     |           |  |  |   |           |   |  |   |           |  
|Loans and other assets(1)                |  | $                                  |          |     |  | $       |          |     |  | $   |          |  |  | $ |          |   |  | $ |          |  
|Loans held for sale                      |  |                                    | 890,711   |     |  |         | 890,711   |     |  |     | 890,711   |  |  |   | 883,364   |   |  |   | 875,541   |  
|Mortgage servicing rights                |  |                                    | 181,366   |     |  |         | 228,111   |     |  |     | 367,032   |  |  |   | 406,627   |   |  |   | 414,743   |  
|Residual interests                       |  |                                    | 60,925    |     |  |         | 58,777    |     |  |     | 56,101    |  |  |   | 53,354    |   |  |   | 49,918    |  
|Interest sensitive financial derivatives |  |                                    | 44,392    |     |  |         | 41,244    |     |  |     | 552       |  |  |   | (121,791  | ) |  |   | (279,384  | )
|                                         |  |                                    |           |     |  |         |           |     |  |     |           |  |  |   |           |   |  |   |           |  
|Total interest sensitive assets          |  |                                    | 1,177,394 |     |  |         | 1,218,843 |     |  |     | 1,314,396 |  |  |   | 1,221,554 |   |  |   | 1,060,818 |  
|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, 2004 |  | $                                  | 1,177,394 |     |  | $       | 1,218,843 |     |  | $   | 1,314,396 |  |  | $ | 1,221,554 |   |  | $ | 1,060,818 |  
|                                         |  |                                    |           |     |  |         |           |     |  |     |           |  |  |   |           |   |  |   |           |  
|Potential change                         |  | $                                  | (137,002  | )   |  | $       | (95,553   | )   |  | $   |          |  |  | $ | (92,842   | ) |  | $ | (253,578  | )
|                                         |  |                                    |           |     |  |         |           |     |  |     |           |  |  |   |           |   |  |   |           |  
|Net market value as of December 31, 2003 |  | $                                  | 1,260,307 |     |  | $       | 1,303,782 |     |  | $   | 1,313,410 |  |  | $ | 1,279,691 |   |  | $ | 1,222,645 |  
|                                         |  |                                    |           |     |  |         |           |     |  |     |           |  |  |   |           |   |  |   |           |  
|Potential change                         |  | $                                  | (53,103   | )   |  | $       | (9,628    | )   |  | $   |          |  |  | $ | (33,719   | ) |  | $ | (90,765   | )
|                                         |  |                                    |           |     |  |         |           |     |  |     |           |  |  |   |           |   |  |   |           |  



---



|    |                                            
|--- | -------------------------------------------
|(1) | Value does not change in GAAP presentation.

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

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

The Board has directed that primary
responsibility for the management of operational risk rests with
the managers of our business units, who are responsible for
establishing and maintaining internal control procedures that
are appropriate for their operations. In 2002, we started
implementing a multi-year program to provide a more integrated
firm-wide approach for the identification, measurement,
monitoring and mitigation of operational risk. The
enterprise-wide operational risk oversight function reports to
the Chief Risk Officer, who in turn reports to the Audit and
Risk Management Committee of our Board of Directors and chairs
our Enterprise-Wide Risk Management Committee. We have an
enterprise-wide compliance oversight function. The compliance
oversight function reports to our Chief Risk Officer. We have
developed Risk and Control Summaries (RACS) for our key
business processes. Line of business and corporate-level
managers use the RACS 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 RACS to assist in overseeing
and assessing the adequacy of

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our internal and disclosure controls, including
the adequacy of our controls over financial reporting as
required by section 404 of the Sarbanes Oxley Act and
FDICIA.


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

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



| |                              
| | -----------------------------
| | Off-Balance Sheet Instruments

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

Our exposure to credit loss, in the form of
nonperformance by the counterparty on commitments to extend
credit and standby letters of credit, is represented by the
contractual amount of those instruments. Collateral pledged for
standby letters of credit and commitments varies but may include
accounts receivable; inventory; property, plant, and equipment;
and residential real estate. Total outstanding commitments to
extend credit at December 31, 2004 and December 31,
2003, respectively, were $719.7 million and
$546.5 million. We had $24.6 million and
$30.8 million in irrevocable standby letters of credit
outstanding at December 31, 2004 and December 31,
2003, respectively.



| |                                 
| | --------------------------------
| | Derivative Financial Instruments

Financial derivatives are used as part of the
overall asset/liability risk management process. We use certain
derivative instruments that do not qualify for hedge accounting
treatment under SFAS 133. These derivatives are classified
as Other assets and Other liabilities
and marked to market on the income statement. While we do not
seek 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.

In March 2003, we entered into an interest rate
swap that has a notional amount (which does not represent the
amount at risk) of $25 million as of December 31,
2004. Under the terms of the swap agreement, we receive a fixed
rate of interest and pay a floating rate of interest based upon
one-month LIBOR. We recognized a loss of $0.2 million
included in derivative gains (losses) during the
year ended December 31, 2004 related to this swap. By
receiving a fixed rate of interest and paying a floating rate on
the swap, we are converting the economics of a
$25 million fixed rate-funding source into a floating rate
funding source. Additionally, we entered into an interest rate
swap that met the criteria for the application of SFAS 133
hedge treatment accounting. This swap has a notional amount
(which does not represent the amount of risk) of
$10 million to hedge a fixed rate certificate of deposit.
Under the terms of the swap agreement, we receive a fixed rate
of interest and pay a floating rate of interest based upon
three-month LIBOR.

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We enter into forward contracts to protect
against interest rate fluctuations from the date of mortgage
loan commitment until the loans are sold. A portion of the
transactions hedging the closed mortgage loans qualifies for
hedge accounting treatment under SFAS 133. The notional
amount of our forward contracts (which does not represent the
amount at risk) totaled $1.0 billion at December 31,
2004. The closed mortgage loans hedged by forward contracts
qualify for hedge accounting treatment under SFAS 133. The
basis of the hedged closed loans is adjusted for change in value
associated with the risk being hedged. We value closed loan
contracts at period end based upon the current secondary market
value of securities with similar characteristics. The unrealized
loss on our forward contracts at December 31, 2004 was
$0.5 million and the hedge ineffectiveness in 2004 was a
loss of $2.7 million. The effect of these hedging
activities was recorded through earnings as a component of
Gain from sale of loans.

We enter into commitments to originate mortgage
loans whereby the interest rate on the loan is determined prior
to funding (rate lock commitments). Rate lock commitments on
loans intended to be sold are considered to be derivatives. We
record changes in the fair value of these commitments based upon
the current secondary market value of securities with similar
characteristics. For 2004, a net decrease in fair value of these
derivatives totaling $6.5 million was recorded in
Gain from sale of loans. At December 31, 2004,
we had a notional amount of rate lock commitments outstanding
totaling $0.9 billion with a fair value of
$1.5 million. Notional amounts do not represent the amount
of risk.

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



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | In two instances, this funding mismatch is
    lessened by a combination of amortizing interest rate caps and
    Eurodollar futures contracts. The interest rate caps have a
    strike price of 5% and provide protection against a large
    increase in short-term interest rates. As of December 31,
    2004, the notional value and 2004 loss on the interest rate caps
    were $26 million and $43 thousand, respectively. As of
    December 31, 2004, the total notional amount and
    year-to-date gain on the Eurodollar futures were
    $95 million and $40 thousand, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| |  | Beginning in the fourth quarter of 2003, on
    several occasions we have delivered fixed rate leases into a
    second commercial paper conduit. Although the leases and funding
    were in Canadian dollars (CAD), the interest rate mismatch is
    similar in nature to that described above. To lessen the
    repricing mismatch between fixed rate CAD-denominated leases and
    floating rate CAD commercial paper, a series of four amortizing
    CAD interest rate swaps have been executed, although Irwin is
    only a counterparty on three of the swaps. The fourth swap is
    between the commercial paper conduit and an outside party, but
    affects the conduit funding cost that is charged to Irwin. For
    the first and second of the three swaps on Irwins books,
    we pay a fixed rate of interest and receive a floating rate. For
    the third swap, we pay a floating rate of interest and receive a
    fixed rate. The U.S. dollar-equivalents of the CAD-based
    notional and year-to-date losses on these swaps at
    December 31, 2004 were $176.4 million and
    $0.6 million, respectively.

Certain of our home equity fixed rate residual
interests are funded with floating rate liabilities. Starting in
the first quarter of 2004, we began entering into Eurodollar
futures contracts to manage such mismatches. The original
positions taken are typically rebalanced quarterly. The current
notional value outstanding is $495 million (which does not
represent the amount at risk) with expiration dates ranging from
March 2005 through September 2006. As of December 31, 2004,
the fair value and year-to-date gain recorded on these contracts
were $0.5 million and $0.9 million, respectively.

In connection with certain of our whole loan
servicing retained second mortgage sales we have the opportunity
to earn an additional incentive servicing fee (ISF) in the
future. The whole loan sales have been to firms, (the buyers)
who securitize the loans and contract with us to service the
loans. We recognize a mortgage servicing asset or liability for
these contracts. As a part of the buyers securitizations,
the buyers issue an Incentive Servicing Agreement to us as
Master Servicer. Once a pre-established return for the
certificate holders has been met, the ISF provides potential
cash payments to us in the event certain structure-specific loan
credit and servicing performance metrics are met. We have
characterized these contracts as derivative instruments.
Included in Derivative gains or losses for the year
ended December 31, 2004 was a

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$4.5 million gain related to these incentive
servicing fees based upon actual and projected performance of
the underlying pools of loans. Of the $4.5 million
recognized during the year, $1.0 million was the result of
cash collections and $3.5 million represented the projected
value of future cash payments, present valued using a discount
rate of 30%. In total, we have sold $0.7 billion in loans
for which we hold such derivative contracts. Our accounting
policy is to recognize a derivative asset on a mark-to-market
basis at such time that the credit and prepayment performance
models we use for valuing like pools of loans indicate that we
are more likely than not to receive cash payments on the
derivatives. We use assumptions to value the ISFs that we
believe market participants would use to value similar assets.
As of December 31, 2004, only two of six whole loan sales
representing $101.6 million of underlying loans have met
this expected performance trigger.


We manage the interest rate risk associated with
our mortgage servicing rights at our mortgage banking and
commercial banking lines of business through the use of
swaptions and Eurodollar futures contracts. Both the options and
futures contracts were marked-to-market and included in
Other assets with changes in value recorded in the
consolidated income statements as Derivative gains or
losses. At December 31, 2004, we held open swaption
positions with a notional value (which does not represent the
amount at risk) totaling $9.7 billion, with a final
maturity ranging from January 2005 to March 2005. In 2004 we
recorded gains on swaptions, including premiums paid, totaling
$23.5 million. We held no Eurodollar futures contracts at
December 31, 2004, but we recorded losses of
$4.4 million on contracts held during the year. The size
and mix of these positions change during the year, so period-end
positions may not be indicative of our net risk exposure
throughout the year.

We are subject to basis risk in the management of
our servicing portfolio. Currently, the basis risk is moving in
a manner opposite to historic patterns, negatively affecting
management of these assets. As discussed in more detail in the
section of this report on Interest Rate Risk, we
have approximately $1.6 million of mortgage servicing
rights at risk to each one basis point change in interest rates.
We typically counter-act this risk with the use of derivatives
with a similar basis point value. Over time, this hedge has
performed well in mitigating loss in value when interest rates
have declined and has been structured in such a manner so that
we can recapture some of the increase in value of servicing
rights as rates rise, without losing an equal amount on our
derivatives. Over the past six months, however, basis risk in
our servicing asset and derivative position has caused our
hedging position to be less effective than it has been
historically as recent declines in mortgage rates has not been
matched with equal declines in swap rates.

Finally, while basis risk exhibits stability over
longer periods of time, over shorter periods there can be
separation in the relative spreads of interest rates and indices
used to value mortgage servicing rights and the financial
derivatives we use to hedge the change in value in mortgage
servicing rights. At times this basis risk benefits us and at
other times it does not. It is generally not possible to
eliminate this basis risk. It is possible, therefore, that our
balanced revenue strategy may be successful as measured over
several quarters or years, but may have market-based variances
if measured over short periods such as quarters.

We own foreign currency forward contracts to
protect the U.S. dollar value of intercompany loans made to
Onset Capital Corporation that are denominated in Canadian
dollars. We had a notional amount of $48 million in forward
contracts outstanding as of December 31, 2004. In 2004 we
recognized losses on these contracts of $3.2 million. These
contracts are marked-to-market with gains and losses included in
Derivative gains or losses on the consolidated
income statements. The foreign currency transaction gain on the
intercompany loans was $2.3 million for the year ended
December 31, 2004.






|         |                                                               
|-------- | --------------------------------------------------------------
|Item 7A. | Quantitative and Qualitative Disclosures
    about Market Risk

The quantitative and qualitative disclosures
about market risk are reported in the Interest Rate Risk section
of Item 7, Managements Discussion and Analysis
of Financial Condition and Results of Operations found on
pages 71 through 74.

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|        |                                                
|------- | -----------------------------------------------
|Item 8. | Financial Statements and Supplementary
    Data



| |                                                                
| | ---------------------------------------------------------------
| | Management Report on Responsibility for
    Financial Reporting

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

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

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

|                                                                                    |  |                                                                                                     
|----------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------
|-s- William K. MillerWilliam I. Miller
    Chairman and
    Chief Executive Officer |  | -s- Gregory F. EhlingerGregory F. Ehlinger
    Senior Vice President and
    Chief Financial Officer

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REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM

To the Shareholders and Board of Directors of

Irwin Financial Corporation:


We have completed an integrated audit of Irwin
Financial Corporations 2004 consolidated financial
statements and of its internal control over financial reporting
as of December 31, 2004 and audits of its 2003 and 2002
consolidated financial statements in accordance with the
standards of the Public Company Accounting Oversight Board
(United States). Our opinions, based on our audits, are
presented below.

Consolidated financial statements

In our opinion, the accompanying consolidated
balance sheets and the related consolidated statements of
income, of changes in shareholders equity and of cash
flows present fairly, in all material respects, the financial
position of Irwin Financial Corporation and its subsidiaries at
December 31, 2004 and 2003, and the results of their
operations and their cash flows for each of the three years in
the period ended December 31, 2004 in conformity with
accounting principles generally accepted in the United States of
America. These financial statements are the responsibility of
the Companys management. Our responsibility is to express
an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with the
standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit of financial statements includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used
and significant estimates made by management, and evaluating the
overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

Internal control over financial
reporting

Also, in our opinion, managements
assessment, included in Managements Report on Internal
Control over Financial Reporting appearing in Item 9A of
this Report on Form 10-K, that the Company maintained
effective internal control over financial reporting as of
December 31, 2004 based on criteria established in
Internal Control  Integrated Frameworkissued
by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO), is fairly stated, in all material respects,
based on those criteria. Furthermore, in our opinion, the
Company maintained, in all material respects, effective internal
control over financial reporting as of December 31, 2004,
based on criteria established in Internal Control 
Integrated Frameworkissued by the COSO. The Companys
management is responsible for maintaining effective internal
control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting. Our
responsibility is to express opinions on managements
assessment and on the effectiveness of the Companys
internal control over financial reporting based on our audit. We
conducted our audit of internal control over financial reporting
in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable
assurance about whether effective internal control over
financial reporting was maintained in all material respects. An
audit of internal control over financial reporting includes
obtaining an understanding of internal control over financial
reporting, evaluating managements assessment, testing and
evaluating the design and operating effectiveness of internal
control, and performing such other procedures as we consider
necessary in the circumstances. We believe that our audit
provides a reasonable basis for our opinions.

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

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

-s- PricewaterhouseCoopers LLP

New York, New York


March 8, 2005


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IRWIN FINANCIAL CORPORATION AND
SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

|                                                                                                           |                                                                                                                                                                                                                                            |                        |                                            |           |           |           |           |           |           |           |  
|---------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ---------------------- | ------------------------------------------ | --------- | --------- | --------- | --------- | --------- | --------- | --------- | -
|                                                                                                           |                                                                                                                                                                                                                                            |                       
|                                                                                                           |                                                                                                                                                                                                                                            | December 31,          
|                                                                                                           |                                                                                                                                                                                                                                            |                       
|                                                                                                           |                                                                                                                                                                                                                                            | 2004                   |                                            | 2003     
|                                                                                                           |                                                                                                                                                                                                                                            |                        |                                            |          
|                                                                                                           |                                                                                                                                                                                                                                            |                       
|                                                                                                           |                                                                                                                                                                                                                                            | (Dollars in thousands)
|Assets:                                                                                                    |                                                                                                                                                                                                                                            |                        |                                            |           |           |           |           |          
|Cash and cash equivalents  Note 2                                                                         |                                                                                                                                                                                                                                            | $                      | 97,101                                     |           |           | $         | 140,810   |          
|Interest-bearing deposits with financial
    institutions                                                  |                                                                                                                                                                                                                                            |                        | 58,936                                     |           |           |           | 81,166    |          
|Residual interests  Note 3                                                                                |                                                                                                                                                                                                                                            |                        | 56,101                                     |           |           |           | 71,491    |          
|Investment securities 
    held-to-maturity (Fair value: $4,952 in 2004 and $24,971 in
    2003)  Note 4 |                                                                                                                                                                                                                                            |                        | 4,942                                      |           |           |           | 24,956    |          
|Investment securities 
    available-for-sale  Note 4                                                    |                                                                                                                                                                                                                                            |                        | 103,280                                    |           |           |           | 67,569    |          
|Loans held for sale                                                                                        |                                                                                                                                                                                                                                            |                        | 890,711                                    |           |           |           | 883,895   |          
|Loans and leases, net of unearned
    income  Note 5                                                      |                                                                                                                                                                                                                                            |                        | 3,450,440                                  |           |           |           | 3,161,054 |          
|Less: Allowance for loan and lease
    losses  Note 6                                                     |                                                                                                                                                                                                                                            |                        | (44,443                                    | )         |           |           | (64,285   | )        
|                                                                                                           |                                                                                                                                                                                                                                            |                        |                                            |           |           |           |           |          
|Loans and leases, net                                                                                      |                                                                                                                                                                                                                                            |                        | 3,405,997                                  |           |           |           | 3,096,769 |          
|Servicing assets  Note 7                                                                                  |                                                                                                                                                                                                                                            |                        | 367,032                                    |           |           |           | 380,123   |          
|Accounts receivable                                                                                        |                                                                                                                                                                                                                                            |                        | 122,131                                    |           |           |           | 62,045    |          
|Accrued interest receivable                                                                                |                                                                                                                                                                                                                                            |                        | 15,428                                     |           |           |           | 15,502    |          
|Premises and equipment  Note 8                                                                            |                                                                                                                                                                                                                                            |                        | 30,240                                     |           |           |           | 32,208    |          
|Other assets                                                                                               |                                                                                                                                                                                                                                            |                        | 87,442                                     |           |           |           | 131,825   |          
|                                                                                                           |                                                                                                                                                                                                                                            |                        |                                            |           |           |           |           |          
|                                                                                                           |                                                                                                                                                                                                                                            | Total assets           |                                            | $         | 5,239,341 |           |           | $         | 4,988,359 |          
|                                                                                                           |                                                                                                                                                                                                                                            |                        |                                            |           |           |           |           |          
|                                                                                                          
|Liabilities and Shareholders
    Equity:                                                                  |                                                                                                                                                                                                                                            |                        |                                            |           |           |           |           |          
|Deposits                                                                                                   |                                                                                                                                                                                                                                            |                        |                                            |           |           |           |           |          
|                                                                                                           | Noninterest-bearing                                                                                                                                                                                                                        |                        | $                                          | 975,925   |           |           | $         | 850,529   |          
|                                                                                                           | Interest-bearing                                                                                                                                                                                                                           |                        |                                            | 1,774,727 |           |           |           | 1,352,763 |          
|                                                                                                           | Certificates of deposit over $100,000                                                                                                                                                                                                      |                        |                                            | 644,611   |           |           |           | 696,370   |          
|                                                                                                           |                                                                                                                                                                                                                                            |                        |                                            |           |           |           |           |          
|                                                                                                           |                                                                                                                                                                                                                                            |                        | 3,395,263                                  |           |           |           | 2,899,662 |          
|Short-term borrowings  Note 10                                                                            |                                                                                                                                                                                                                                            |                        | 237,277                                    |           |           |           | 429,758   |          
|Collateralized debt  Note 11                                                                              |                                                                                                                                                                                                                                            |                        | 547,477                                    |           |           |           | 590,131   |          
|Other long-term debt  Note 12                                                                             |                                                                                                                                                                                                                                            |                        | 270,172                                    |           |           |           | 270,184   |          
|Other liabilities                                                                                          |                                                                                                                                                                                                                                            |                        | 286,508                                    |           |           |           | 366,364   |          
|                                                                                                           |                                                                                                                                                                                                                                            |                        |                                            |           |           |           |           |          
|                                                                                                           |                                                                                                                                                                                                                                            | Total liabilities      |                                            |           | 4,736,697 |           |           |           | 4,556,099 |          
|                                                                                                           |                                                                                                                                                                                                                                            |                        |                                            |           |           |           |           |          
|Commitments and contingencies 
    Notes 13, 14 and 15                                                    |                                                                                                                                                                                                                                            |                        |                                            |           |           |           |           |          
|Shareholders equity                                                                                       |                                                                                                                                                                                                                                            |                        |                                            |           |           |           |           |          
|                                                                                                           | Preferred stock, no par value 
    authorized 4,000,000 shares; none issued                                                                                                                                                               |                        |                                            |          |           |           |           |          |          
|                                                                                                           | Common stock, no par value  authorized
    40,000,000 shares; issued 29,612,080 shares as of
    December 31, 2004 and 2003; including 1,159,684 and
    1,477,778, shares in treasury as of December 31, 2004 and
    2003, respectively |                        |                                            | 112,000   |           |           |           | 112,000   |          
|                                                                                                           | Additional paid-in capital                                                                                                                                                                                                                 |                        |                                            | 383       |           |           |           | 1,264     |          
|                                                                                                           | Deferred compensation                                                                                                                                                                                                                      |                        |                                            | (660      | )         |           |           | (504      | )        
|                                                                                                           | Accumulated other comprehensive income, net of
    deferred income tax benefit of $129 and expense of $120 as of
    December 31, 2004 and 2003, respectively                                                                              |                        |                                            | 2,454     |           |           |           | 182       |          
|                                                                                                           | Retained earnings                                                                                                                                                                                                                          |                        |                                            | 413,486   |           |           |           | 352,647   |          
|                                                                                                           |                                                                                                                                                                                                                                            |                        |                                            |           |           |           |           |          
|                                                                                                           |                                                                                                                                                                                                                                            |                        | 527,663                                    |           |           |           | 465,589   |          
|                                                                                                           |                                                                                                                                                                                                                                            |                        | Less treasury stock, at cost               |           |           | (25,019   | )         |           |           | (33,329   | )
|                                                                                                           |                                                                                                                                                                                                                                            |                        |                                            |           |           |           |           |          
|                                                                                                           |                                                                                                                                                                                                                                            |                        | Total shareholders equity                 |           |           | 502,644   |           |           |           | 432,260   |  
|                                                                                                           |                                                                                                                                                                                                                                            |                        |                                            |           |           |           |           |          
|                                                                                                           |                                                                                                                                                                                                                                            |                        | Total liabilities and shareholders equity |           | $         | 5,239,341 |           |           | $         | 4,988,359 |  
|                                                                                                           |                                                                                                                                                                                                                                            |                        |                                            |           |           |           |           |          

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

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IRWIN FINANCIAL CORPORATION AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

|                                                                                                 |                                       |                                 |          |        |         |      |          |        |         |   |          |          |         | 
|------------------------------------------------------------------------------------------------ | ------------------------------------- | ------------------------------- | -------- | ------ | ------- | ---- | -------- | ------ | ------- | - | -------- | -------- | ------- | 
|                                                                                                 |                                       |                                
|                                                                                                 |                                       | For the Year Ended December 31,
|                                                                                                 |                                       |                                
|                                                                                                 |                                       | 2004                            |          | 2003   |         | 2002
|                                                                                                 |                                       |                                 |          |        |         |     
|                                                                                                 |                                       |                                
|                                                                                                 |                                       | (Dollars in thousands,         
|                                                                                                 |                                       | except per share)              
|Interest income:                                                                                 |                                       |                                 |          |        |         |      |          |        |         |   |          |         
|Loans and leases                                                                                 |                                       | $                               | 246,288  |        |         | $    | 241,592  |        |         | $ | 218,718  |         
|Loans held for sale                                                                              |                                       |                                 | 80,003   |        |         |      | 104,350  |        |         |   | 55,336   |         
|Residual interests                                                                               |                                       |                                 | 12,509   |        |         |      | 20,651   |        |         |   | 34,164   |         
|Investment securities                                                                            |                                       |                                 | 5,330    |        |         |      | 4,273    |        |         |   | 3,120    |         
|Federal funds sold                                                                               |                                       |                                 | 173      |        |         |      | 118      |        |         |   | 104      |         
|                                                                                                 |                                       |                                 |          |        |         |      |          |        |         |   |          |         
|                                                                                                 |                                       | Total interest income           |          |        | 344,303 |      |          |        | 370,984 |   |          |          | 311,442 | 
|                                                                                                 |                                       |                                 |          |        |         |      |          |        |         |   |          |         
|Interest expense:                                                                                |                                       |                                 |          |        |         |      |          |        |         |   |          |         
|Deposits                                                                                         |                                       |                                 | 44,487   |        |         |      | 42,365   |        |         |   | 54,361   |         
|Short-term borrowings                                                                            |                                       |                                 | 9,583    |        |         |      | 14,889   |        |         |   | 15,003   |         
|Collateralized debt                                                                              |                                       |                                 | 15,259   |        |         |      | 15,369   |        |         |   | 5,932    |         
|Other long-term debt                                                                             |                                       |                                 | 22,896   |        |         |      | 2,325    |        |         |   | 2,699    |         
|Preferred securities distribution                                                                |                                       |                                 |         |        |         |      | 24,151   |        |         |   | 19,800   |         
|                                                                                                 |                                       |                                 |          |        |         |      |          |        |         |   |          |         
|                                                                                                 |                                       | Total interest expense          |          |        | 92,225  |      |          |        | 99,099  |   |          |          | 97,795  | 
|                                                                                                 |                                       |                                 |          |        |         |      |          |        |         |   |          |         
|Net interest income                                                                              |                                       |                                 | 252,078  |        |         |      | 271,885  |        |         |   | 213,647  |         
|Provision for loan and lease losses 
    Note 6                                                 |                                       |                                 | 14,195   |        |         |      | 47,583   |        |         |   | 43,996   |         
|                                                                                                 |                                       |                                 |          |        |         |      |          |        |         |   |          |         
|Net interest income after provision for loan and
    lease losses                                |                                       |                                 | 237,883  |        |         |      | 224,302  |        |         |   | 169,651  |         
|Other income:                                                                                    |                                       |                                 |          |        |         |      |          |        |         |   |          |         
|Loan servicing fees                                                                              |                                       |                                 | 135,608  |        |         |      | 106,966  |        |         |   | 73,505   |         
|Amortization of servicing assets 
    Note 7                                                    |                                       |                                 | (117,143 | )      |         |      | (135,519 | )      |         |   | (62,191  | )       
|Recovery (impairment) of servicing
    assets  Note 7                                           |                                       |                                 | (2,474   | )      |         |      | 44,516   |        |         |   | (146,370 | )       
|                                                                                                 |                                       |                                 |          |        |         |      |          |        |         |   |          |         
|                                                                                                 | Net loan administration income (loss) |                                 |          | 15,991 |         |      |          | 15,963 |         |   |          | (135,056 | )      
|Gain from sales of loans                                                                         |                                       |                                 | 184,913  |        |         |      | 364,644  |        |         |   | 237,729  |         
|Gain (loss) on sale of mortgage servicing assets                                                 |                                       |                                 | 16,681   |        |         |      | (271     | )      |         |   | 14,842   |         
|Trading gains (losses), net                                                                      |                                       |                                 | 25,209   |        |         |      | (52,242  | )      |         |   | (26,032  | )       
|Derivative gains (losses), net                                                                   |                                       |                                 | 21,113   |        |         |      | (44,142  | )      |         |   | 124,615  |         
|Other                                                                                            |                                       |                                 | 23,143   |        |         |      | 22,191   |        |         |   | 18,039   |         
|                                                                                                 |                                       |                                 |          |        |         |      |          |        |         |   |          |         
|                                                                                                 |                                       |                                 | 287,050  |        |         |      | 306,143  |        |         |   | 234,137  |         
|Other expense:                                                                                   |                                       |                                 |          |        |         |      |          |        |         |   |          |         
|Salaries                                                                                         |                                       |                                 | 213,826  |        |         |      | 225,348  |        |         |   | 165,564  |         
|Pension and other employee benefits                                                              |                                       |                                 | 45,037   |        |         |      | 42,079   |        |         |   | 33,928   |         
|Office expense                                                                                   |                                       |                                 | 17,677   |        |         |      | 21,804   |        |         |   | 18,225   |         
|Premises and equipment                                                                           |                                       |                                 | 41,558   |        |         |      | 41,746   |        |         |   | 34,392   |         
|Marketing and development                                                                        |                                       |                                 | 13,799   |        |         |      | 15,132   |        |         |   | 12,296   |         
|Professional fees                                                                                |                                       |                                 | 19,356   |        |         |      | 12,417   |        |         |   | 9,611    |         
|Other                                                                                            |                                       |                                 | 55,982   |        |         |      | 53,517   |        |         |   | 43,541   |         
|                                                                                                 |                                       |                                 |          |        |         |      |          |        |         |   |          |         
|                                                                                                 |                                       |                                 | 407,235  |        |         |      | 412,043  |        |         |   | 317,557  |         
|                                                                                                 |                                       |                                 |          |        |         |      |          |        |         |   |          |         
|Income before income taxes                                                                       |                                       |                                 | 117,698  |        |         |      | 118,402  |        |         |   | 86,231   |         
|Provision for income taxes                                                                       |                                       |                                 | 47,794   |        |         |      | 45,585   |        |         |   | 33,398   |         
|                                                                                                 |                                       |                                 |          |        |         |      |          |        |         |   |          |         
|Income before cumulative effect of change in
    accounting principle                            |                                       |                                 | 69,904   |        |         |      | 72,817   |        |         |   | 52,833   |         
|Cumulative effect of change in accounting
    principle, net of tax                              |                                       |                                 |         |        |         |      |         |        |         |   | 495      |         
|                                                                                                 |                                       |                                 |          |        |         |      |          |        |         |   |          |         
|Net income                                                                                       |                                       | $                               | 69,904   |        |         | $    | 72,817   |        |         | $ | 53,328   |         
|                                                                                                 |                                       |                                 |          |        |         |      |          |        |         |   |          |         
|Earnings per share before cumulative effect of
    change in accounting principle: 
    Note 20 |                                       |                                 |          |        |         |      |          |        |         |   |          |         
|                                                                                                 | Basic                                 |                                 | $        | 2.47   |         |      | $        | 2.61   |         |   | $        | 1.97     |        
|                                                                                                 |                                       |                                 |          |        |         |      |          |        |         |   |          |         
|                                                                                                 | Diluted                               |                                 | $        | 2.32   |         |      | $        | 2.45   |         |   | $        | 1.87     |        
|                                                                                                 |                                       |                                 |          |        |         |      |          |        |         |   |          |         
|Earnings per share: 
    Note 20                                                                |                                       |                                 |          |        |         |      |          |        |         |   |          |         
|                                                                                                 | Basic                                 |                                 | $        | 2.47   |         |      | $        | 2.61   |         |   | $        | 1.99     |        
|                                                                                                 |                                       |                                 |          |        |         |      |          |        |         |   |          |         
|                                                                                                 | Diluted                               |                                 | $        | 2.32   |         |      | $        | 2.45   |         |   | $        | 1.89     |        
|                                                                                                 |                                       |                                 |          |        |         |      |          |        |         |   |          |         
|Dividends per share                                                                              |                                       | $                               | 0.32     |        |         | $    | 0.28     |        |         | $ | 0.27     |         
|                                                                                                 |                                       |                                 |          |        |         |      |          |        |         |   |          |         

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

81



---



##### Table of Contents



IRWIN FINANCIAL CORPORATION AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN
SHAREHOLDERS EQUITY

|                                                           |                                                                       |                            |         |          |        |               |         |              |  |            |        |        |   |           |      |          |  |   |       |        |   |   |         |  |  |   |        |   |  |   |         |        |   | 
|---------------------------------------------------------- | --------------------------------------------------------------------- | -------------------------- | ------- | -------- | ------ | ------------- | ------- | ------------ |  | ---------- | ------ | ------ | - | --------- | ---- | -------- |  | - | ----- | ------ | - | - | ------- |  |  | - | ------ | - |  | - | ------- | ------ | - | 
|                                                           |                                                                       |                            |         |          |        | Accumulated   |         |              |  |            |        |        |   |           |      |         
|                                                           |                                                                       |                            |         |          |        | Other         |         |              |  |            |        |        |   |           |      |         
|                                                           |                                                                       |                            |         |          |        | Comprehensive |         |              |  | Additional |        |        |   |           |      |         
|                                                           |                                                                       |                            |         | Retained |        | Income        |         | Deferred     |  | Paid in    |        | Common |   | Preferred |      | Treasury
|                                                           |                                                                       | Total                      |         | Earnings |        | (Loss)        |         | Compensation |  | Capital    |        | Stock  |   | Stock     |      | Stock   
|                                                           |                                                                       |                            |         |          |        |               |         |              |  |            |        |        |   |           |      |         
|                                                           |                                                                       |                           
|                                                           |                                                                       | (Dollars in thousands)    
|Balance at January 1, 2002                                 |                                                                       | $                          | 231,665 |          |        | $             | 241,725 |              |  | $          | (325   | )      |   | $         | (449 | )        |  | $ | 4,426 |        |   | $ | 29,965  |  |  | $ | 1,386  |   |  | $ | (45,063 | )     
|                                                           | Net income                                                            |                            |         | 53,328   |        |               |         | 53,328       |  |            |        |        |   |           |      |          |  |   |       |        |   |   |         |  |  |   |        |   |  |   |         |        |  
|                                                           | Unrealized loss on investment securities net of
    $115 tax benefit  |                            |         | (172     | )      |               |         |              |  |            |        | (172   | ) |           |      |          |  |   |       |        |   |   |         |  |  |   |        |   |  |   |         |        |  
|                                                           | Unrealized loss on interest rate cap net of $49
    tax benefit       |                            |         | (73      | )      |               |         |              |  |            |        | (73    | ) |           |      |          |  |   |       |        |   |   |         |  |  |   |        |   |  |   |         |        |  
|                                                           | Foreign currency adjustment                                           |                            |         | 67       |        |               |         |              |  |            |        | 67     |   |           |      |          |  |   |       |        |   |   |         |  |  |   |        |   |  |   |         |        |  
|                                                           | Minimum SERP liability                                                |                            |         | (639     | )      |               |         |              |  |            |        | (639   | ) |           |      |          |  |   |       |        |   |   |         |  |  |   |        |   |  |   |         |        |  
|                                                           |                                                                       |                            |         |          |        |               |         |              |  |            |        |        |   |           |      |          |  |   |       |        |   |   |         |  |  |   |        |   |  |   |         |       
|                                                           |                                                                       | Total comprehensive income |         |          | 52,511 |               |         |              |  |            |        |        |   |           |      |          |  |   |       |        |   |   |         |  |  |   |        |   |  |   |         |        |   | 
|Other adjustments                                          |                                                                       |                            | 287     |          |        |               | 78      |              |  |            |        |        |   |           | 209  |          |  |   |       |        |   |   |         |  |  |   |        |   |  |   |         |       
|Cash dividends                                             |                                                                       |                            | (7,469  | )        |        |               | (7,469  | )            |  |            |        |        |   |           |      |          |  |   |       |        |   |   |         |  |  |   |        |   |  |   |         |       
|Sale of 6,210,000 shares of common stock                   |                                                                       |                            | 82,035  |          |        |               |         |              |  |            |        |        |   |           |      |          |  |   |       |        |   |   | 82,035  |  |  |   |        |   |  |   |         |       
|Conversion of preferred stock to
    120,441 shares common |                                                                       |                            |        |          |        |               |         |              |  |            |        |        |   |           |      |          |  |   |       |        |   |   |         |  |  |   | (1,386 | ) |  |   | 1,386   |       
|Tax benefit on stock option exercises                      |                                                                       |                            | 516     |          |        |               |         |              |  |            |        |        |   |           |      |          |  |   | 516   |        |   |   |         |  |  |   |        |   |  |   |         |       
|Treasury stock:                                            |                                                                       |                            |         |          |        |               |         |              |  |            |        |        |   |           |      |          |  |   |       |        |   |   |         |  |  |   |        |   |  |   |         |       
|                                                           | Purchase of 58,635 shares                                             |                            |         | (1,176   | )      |               |         |              |  |            |        |        |   |           |      |          |  |   |       |        |   |   |         |  |  |   |        |   |  |   |         | (1,176 | )
|                                                           | Sales of 194,518 shares                                               |                            |         | 2,186    |        |               |         |              |  |            |        |        |   |           |      |          |  |   |       | (1,336 | ) |   |         |  |  |   |        |   |  |   |         | 3,522  |  
|                                                           |                                                                       |                            |         |          |        |               |         |              |  |            |        |        |   |           |      |          |  |   |       |        |   |   |         |  |  |   |        |   |  |   |         |       
|Balance at December 31, 2002                               |                                                                       | $                          | 360,555 |          |        | $             | 287,662 |              |  | $          | (1,142 | )      |   | $         | (240 | )        |  | $ | 3,606 |        |   | $ | 112,000 |  |  | $ |       |   |  | $ | (41,331 | )     
|                                                           |                                                                       |                            |         |          |        |               |         |              |  |            |        |        |   |           |      |          |  |   |       |        |   |   |         |  |  |   |        |   |  |   |         |       
|                                                           | Net income                                                            |                            |         | 72,817   |        |               |         | 72,817       |  |            |        |        |   |           |      |          |  |   |       |        |   |   |         |  |  |   |        |   |  |   |         |        |  
|                                                           | Unrealized loss on investment securities net of
    $17 tax benefit   |                            |         | (25      | )      |               |         |              |  |            |        | (25    | ) |           |      |          |  |   |       |        |   |   |         |  |  |   |        |   |  |   |         |        |  
|                                                           | Unrealized loss on interest rate cap net of $46
    tax benefit       |                            |         | (69      | )      |               |         |              |  |            |        | (69    | ) |           |      |          |  |   |       |        |   |   |         |  |  |   |        |   |  |   |         |        |  
|                                                           | Foreign currency adjustment                                           |                            |         | 1,136    |        |               |         |              |  |            |        | 1,136  |   |           |      |          |  |   |       |        |   |   |         |  |  |   |        |   |  |   |         |        |  
|                                                           | Minimum SERP liability net of $188 tax liability                      |                            |         | 282      |        |               |         |              |  |            |        | 282    |   |           |      |          |  |   |       |        |   |   |         |  |  |   |        |   |  |   |         |        |  
|                                                           |                                                                       |                            |         |          |        |               |         |              |  |            |        |        |   |           |      |          |  |   |       |        |   |   |         |  |  |   |        |   |  |   |         |       
|                                                           |                                                                       | Total comprehensive income |         |          | 74,141 |               |         |              |  |            |        |        |   |           |      |          |  |   |       |        |   |   |         |  |  |   |        |   |  |   |         |        |   | 
|Deferred compensation                                      |                                                                       |                            | (264    | )        |        |               |         |              |  |            |        |        |   |           | (264 | )        |  |   |       |        |   |   |         |  |  |   |        |   |  |   |         |       
|Cash dividends                                             |                                                                       |                            | (7,832  | )        |        |               | (7,832  | )            |  |            |        |        |   |           |      |          |  |   |       |        |   |   |         |  |  |   |        |   |  |   |         |       
|Tax benefit on stock option exercises                      |                                                                       |                            | 2,032   |          |        |               |         |              |  |            |        |        |   |           |      |          |  |   | 2,032 |        |   |   |         |  |  |   |        |   |  |   |         |       
|Treasury stock:                                            |                                                                       |                            |         |          |        |               |         |              |  |            |        |        |   |           |      |          |  |   |       |        |   |   |         |  |  |   |        |   |  |   |         |       
|                                                           | Purchase of 170,940 shares                                            |                            |         | (4,201   | )      |               |         |              |  |            |        |        |   |           |      |          |  |   |       |        |   |   |         |  |  |   |        |   |  |   |         | (4,201 | )
|                                                           | Sales of 533,785 shares                                               |                            |         | 7,829    |        |               |         |             |  |            |        |        |   |           |      |          |  |   |       | (4,374 | ) |   |         |  |  |   |        |   |  |   |         | 12,203 |  
|                                                           |                                                                       |                            |         |          |        |               |         |              |  |            |        |        |   |           |      |          |  |   |       |        |   |   |         |  |  |   |        |   |  |   |         |       
|Balance at December 31, 2003                               |                                                                       | $                          | 432,260 |          |        | $             | 352,647 |              |  | $          | 182    |        |   | $         | (504 | )        |  | $ | 1,264 |        |   | $ | 112,000 |  |  | $ |       |   |  | $ | (33,329 | )     
|                                                           |                                                                       |                            |         |          |        |               |         |              |  |            |        |        |   |           |      |          |  |   |       |        |   |   |         |  |  |   |        |   |  |   |         |       
|                                                           | Net income                                                            |                            |         | 69,904   |        |               |         | 69,904       |  |            |        |        |   |           |      |          |  |   |       |        |   |   |         |  |  |   |        |   |  |   |         |        |  
|                                                           | Unrealized gain on investment securities net of
    $86 tax liability |                            |         | 129      |        |               |         |              |  |            |        | 129    |   |           |      |          |  |   |       |        |   |   |         |  |  |   |        |   |  |   |         |        |  
|                                                           | Unrealized gain on interest rate cap net of $131
    tax liability    |                            |         | 197      |        |               |         |              |  |            |        | 197    |   |           |      |          |  |   |       |        |   |   |         |  |  |   |        |   |  |   |         |        |  
|                                                           | Foreign currency adjustment                                           |                            |         | 1,843    |        |               |         |              |  |            |        | 1,843  |   |           |      |          |  |   |       |        |   |   |         |  |  |   |        |   |  |   |         |        |  
|                                                           | Minimum SERP liability net of $69 tax liability                       |                            |         | 103      |        |               |         |              |  |            |        | 103    |   |           |      |          |  |   |       |        |   |   |         |  |  |   |        |   |  |   |         |        |  
|                                                           |                                                                       |                            |         |          |        |               |         |              |  |            |        |        |   |           |      |          |  |   |       |        |   |   |         |  |  |   |        |   |  |   |         |       
|                                                           |                                                                       | Total comprehensive income |         |          | 72,176 |               |         |              |  |            |        |        |   |           |      |          |  |   |       |        |   |   |         |  |  |   |        |   |  |   |         |        |   | 
|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                               |                                                                       | $                          | 502,644 |          |        | $             | 413,486 |              |  | $          | 2,454  |        |   | $         | (660 | )        |  | $ | 383   |        |   | $ | 112,000 |  |  | $ |       |   |  | $ | (25,019 | )     
|                                                           |                                                                       |                            |         |          |        |               |         |              |  |            |        |        |   |           |      |          |  |   |       |        |   |   |         |  |  |   |        |   |  |   |         |       

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

82



---



##### Table of Contents



IRWIN FINANCIAL CORPORATION AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH
FLOWS

|                                                                                         |                                                                        |                                  |             |          |   |      |             |          |   |   |             |           |  
|---------------------------------------------------------------------------------------- | ---------------------------------------------------------------------- | -------------------------------- | ----------- | -------- | - | ---- | ----------- | -------- | - | - | ----------- | --------- | -
|                                                                                         |                                                                        |                                 
|                                                                                         |                                                                        | For the Years Ended December 31,
|                                                                                         |                                                                        |                                 
|                                                                                         |                                                                        | 2004                             |             | 2003     |   | 2002
|                                                                                         |                                                                        |                                  |             |          |   |     
|                                                                                         |                                                                        |                                 
|                                                                                         |                                                                        | (Dollars in thousands)          
|Net income                                                                               |                                                                        | $                                | 69,904      |          |   | $    | 72,817      |          |   | $ | 53,328      |          
|Adjustments to reconcile net income to cash
    provided (used) by operating activities: |                                                                        |                                  |             |          |   |      |             |          |   |   |             |          
|Depreciation, amortization, and accretion, net                                           |                                                                        |                                  | 8,987       |          |   |      | 9,433       |          |   |   | 11,451      |          
|Amortization and impairment of servicing assets                                          |                                                                        |                                  | 119,617     |          |   |      | 91,003      |          |   |   | 208,561     |          
|Provision for loan and lease losses                                                      |                                                                        |                                  | 14,195      |          |   |      | 47,583      |          |   |   | 43,996      |          
|Deferred income tax                                                                      |                                                                        |                                  | 13,593      |          |   |      | 43,259      |          |   |   | (55,171     | )        
|(Gain) loss on sale of mortgage servicing assets                                         |                                                                        |                                  | (16,681     | )        |   |      | 271         |          |   |   | (14,842     | )        
|Gain from sales of loans held for sale                                                   |                                                                        |                                  | (184,913    | )        |   |      | (364,644    | )        |   |   | (237,729    | )        
|Originations and purchases of loans held for sale                                        |                                                                        |                                  | (14,780,501 | )        |   |      | (24,393,534 | )        |   |   | (12,226,408 | )        
|Proceeds from sales and repayments of loans held
    for sale                            |                                                                        |                                  | 14,814,198  |          |   |      | 25,005,632  |          |   |   | 11,469,245  |          
|Proceeds from sale of mortgage servicing assets                                          |                                                                        |                                  | 52,844      |          |   |      | 89          |          |   |   | 40,597      |          
|Net decrease in residual interests                                                       |                                                                        |                                  | 15,390      |          |   |      | 86,023      |          |   |   | 41,558      |          
|Net increase in accounts receivable                                                      |                                                                        |                                  | (60,086     | )        |   |      | (6,118      | )        |   |   | (14,100     | )        
|Other, net                                                                               |                                                                        |                                  | (50,941     | )        |   |      | 5,097       |          |   |   | 32,657      |          
|                                                                                         |                                                                        |                                  |             |          |   |      |             |          |   |   |             |          
|                                                                                         | Net cash provided (used) by operating
    activities                   |                                  |             | 15,606   |   |      |             | 596,911  |   |   |             | (646,857  | )
|                                                                                         |                                                                        |                                  |             |          |   |      |             |          |   |   |             |          
|Lending and investing activities:                                                        |                                                                        |                                  |             |          |   |      |             |          |   |   |             |          
|Proceeds from maturities/calls of investment
    securities:                             |                                                                        |                                  |             |          |   |      |             |          |   |   |             |          
|                                                                                         | Held-to-maturity                                                       |                                  |             | 118,063  |   |      |             | 682      |   |   |             | 716       |  
|                                                                                         | Available-for-sale                                                     |                                  |             | 1,583    |   |      |             | 78,886   |   |   |             | 5,665     |  
|Purchase of investment securities:                                                       |                                                                        |                                  |             |          |   |      |             |          |   |   |             |          
|                                                                                         | Held-to-maturity                                                       |                                  |             | (98,395  | ) |      |             | (21,333  | ) |   |             |          |  
|                                                                                         | Available-for-sale                                                     |                                  |             | (36,791  | ) |      |             | (82,868  | ) |   |             | (35,660   | )
|Net decrease (increase) in interest-bearing
    deposits                                 |                                                                        |                                  | 22,230      |          |   |      | (46,748     | )        |   |   | (20,690     | )        
|Net increase in loans, excluding sales                                                   |                                                                        |                                  | (367,303    | )        |   |      | (422,569    | )        |   |   | (718,319    | )        
|Proceeds from sale of loans                                                              |                                                                        |                                  | 45,592      |          |   |      | 45,454      |          |   |   | 27,024      |          
|Other, net                                                                               |                                                                        |                                  | (5,642      | )        |   |      | (7,484      | )        |   |   | (4,931      | )        
|                                                                                         |                                                                        |                                  |             |          |   |      |             |          |   |   |             |          
|                                                                                         | Net cash used by lending and investing activities                      |                                  |             | (320,663 | ) |      |             | (455,980 | ) |   |             | (746,195  | )
|                                                                                         |                                                                        |                                  |             |          |   |      |             |          |   |   |             |          
|Financing activities:                                                                    |                                                                        |                                  |             |          |   |      |             |          |   |   |             |          
|Net increase in deposits                                                                 |                                                                        |                                  | 495,601     |          |   |      | 205,851     |          |   |   | 385,382     |          
|Net (decrease) increase in short-term borrowings                                         |                                                                        |                                  | (192,481    | )        |   |      | (563,366    | )        |   |   | 505,161     |          
|(Repayments of) proceeds from the issuance of
    long-term debt                         |                                                                        |                                  | (12         | )        |   |      | (11         | )        |   |   | 70          |          
|Proceeds from issuance of collateralized debt                                            |                                                                        |                                  | 514,223     |          |   |      | 443,989     |          |   |   | 434,968     |          
|Repayments of collateralized debt                                                        |                                                                        |                                  | (554,445    | )        |   |      | (242,327    | )        |   |   | (43,543     | )        
|Proceeds from issuance of trust preferred
    securities                                 |                                                                        |                                  |            |          |   |      | 50,000      |          |   |   | 34,500      |          
|Redemption of trust preferred securities                                                 |                                                                        |                                  |            |          |   |      | (50,000     | )        |   |   |            |          
|Proceeds from the sale of stock for equity
    offering                                  |                                                                        |                                  |            |          |   |      |            |          |   |   | 82,035      |          
|Purchase of treasury stock for employee benefit
    plans                                |                                                                        |                                  | (407        | )        |   |      | (4,201      | )        |   |   | (1,176      | )        
|Proceeds from sale of stock for employee benefit
    plans                               |                                                                        |                                  | 7,836       |          |   |      | 9,777       |          |   |   | 2,702       |          
|Dividends paid                                                                           |                                                                        |                                  | (9,065      | )        |   |      | (7,832      | )        |   |   | (7,469      | )        
|                                                                                         |                                                                        |                                  |             |          |   |      |             |          |   |   |             |          
|                                                                                         | Net cash provided (used) by financing
    activities                   |                                  |             | 261,250  |   |      |             | (158,120 | ) |   |             | 1,392,630 |  
|                                                                                         |                                                                        |                                  |             |          |   |      |             |          |   |   |             |          
|Effect of exchange rate changes on cash                                                  |                                                                        |                                  | 98          |          |   |      | 228         |          |   |   | (30         | )        
|                                                                                         |                                                                        |                                  |             |          |   |      |             |          |   |   |             |          
|Net decrease in cash and cash equivalents                                                |                                                                        |                                  | (43,709     | )        |   |      | (16,961     | )        |   |   | (452        | )        
|Cash and cash equivalents at beginning of period                                         |                                                                        |                                  | 140,810     |          |   |      | 157,771     |          |   |   | 158,223     |          
|                                                                                         |                                                                        |                                  |             |          |   |      |             |          |   |   |             |          
|Cash and cash equivalents at end of period                                               |                                                                        | $                                | 97,101      |          |   | $    | 140,810     |          |   | $ | 157,771     |          
|                                                                                         |                                                                        |                                  |             |          |   |      |             |          |   |   |             |          
|Supplemental disclosures of cash flow
    information:                                   |                                                                        |                                  |             |          |   |      |             |          |   |   |             |          
|Cash flow during the period:                                                             |                                                                        |                                  |             |          |   |      |             |          |   |   |             |          
|                                                                                         | Interest paid                                                          |                                  | $           | 93,319   |   |      | $           | 102,459  |   |   | $           | 104,461   |  
|                                                                                         |                                                                        |                                  |             |          |   |      |             |          |   |   |             |          
|                                                                                         | Income taxes paid                                                      |                                  | $           | 15,184   |   |      | $           | 43,007   |   |   | $           | 49,185    |  
|                                                                                         |                                                                        |                                  |             |          |   |      |             |          |   |   |             |          
|Noncash transactions:                                                                    |                                                                        |                                  |             |          |   |      |             |          |   |   |             |          
|                                                                                         | Liability for loans held for sale eligible for
    repurchase  Note 1 |                                  | $           | 47,692   |   |      | $           | 115,948  |   |   | $           |          |  
|                                                                                         |                                                                        |                                  |             |          |   |      |             |          |   |   |             |          
|                                                                                         | Conversion of trust preferred and preferred stock
    to common stock  |                                  | $           |         |   |      | $           | 83       |   |   | $           | 1,386     |  
|                                                                                         |                                                                        |                                  |             |          |   |      |             |          |   |   |             |          

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

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

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

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

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

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

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

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


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

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

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

Within the allowance, there are specific and
expected loss components. The specific loss component is
assessed for loans we believe to be impaired in accordance with
SFAS 114. We have defined impairment as nonaccrual loans.
For loans determined to be impaired, we measure the level of
impairment by comparing the loans carrying value to fair
value using one of the following fair value measurement
techniques: present value of expected future cash flows,
observable market price, or fair value of the associated
collateral. An allowance is established when the fair value
implies a value that is lower than the carrying value of that
loan. In addition to establishing allowance levels for
specifically identified higher risk graded 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.

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

In determining servicing value impairment, the
servicing portfolio is stratified into its predominant risk
characteristics, principally by interest rate and product type.
Each stratum is valued using market prices under comparable
servicing sale contracts when available, or alternatively, using
the same model as was used to originally determine the fair
value at origination using current market assumptions. The
calculated value is then compared with the book value of each
stratum to determine the required reserve for impairment. The
impairment reserve fluctuates as interest rates change and,
therefore, no reasonable estimate can be made as to future
increases or declines in impaired reserve levels. We also
compare actual cash collections to projected cash collections
and adjust our models as appropriate. In addition, we
periodically have independent valuations performed on the
portfolio. Other than temporary impairment is recorded to
reflect our view that the originally recorded value of certain
servicing rights and subsequent impairment associated with those
rights is unlikely to

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be recovered in market value. There is no related
direct impact on net income as this other than temporary
impairment affects only balance sheet accounts. However, a
write-down will result in a reduction of amortization expense
and potentially reduced recovery of impairment in future periods.


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.

Venture Capital
Investments:Venture capital
investments held by Irwin Ventures are carried at fair value
with changes in fair value recognized in other income. The
investment committee of Irwin Ventures determines the value of
these nonpublicly traded investments at the end of each
reporting period based upon review of the investees
financial results, condition, and prospects. Changes in
estimated fair values can also be made when an event such as a
new round of funding from other private equity investors would
cause a change in estimated market value. In the future, should
the company have investments in publicly-traded securities, it
would look to the traded market value of the investments as the
basis of its mark-to-market.

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

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

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

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

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applied the fair value recognition provisions of
SFAS 123, Accounting for Stock-Based
Compensation, to stock-based employee compensation:


|                                                                                                                                                    |             |                        |        |      |  |      |        |      |  |   |        |      | 
|--------------------------------------------------------------------------------------------------------------------------------------------------- | ----------- | ---------------------- | ------ | ---- |  | ---- | ------ | ---- |  | - | ------ | ---- | 
|                                                                                                                                                    |             | 2004                   |        | 2003 |  | 2002
|                                                                                                                                                    |             |                        |        |      |  |     
|                                                                                                                                                    |             |                       
|                                                                                                                                                    |             | (Dollars in thousands,
|                                                                                                                                                    |             | except per share)     
|Net income as reported                                                                                                                              |             | $                      | 69,904 |      |  | $    | 72,817 |      |  | $ | 53,328 |     
|Deduct: Total stock-based employee compensation
    expense determined under fair value based method for all awards,
    net of related tax effects |             |                        | (2,578 | )    |  |      | (2,683 | )    |  |   | (2,639 | )   
|                                                                                                                                                    |             |                        |        |      |  |      |        |      |  |   |        |     
|Pro forma net income                                                                                                                                |             | $                      | 67,326 |      |  | $    | 70,134 |      |  | $ | 50,689 |     
|                                                                                                                                                    |             |                        |        |      |  |      |        |      |  |   |        |     
|Basic earnings per share                                                                                                                            |             |                        |        |      |  |      |        |      |  |   |        |     
|                                                                                                                                                    | As reported |                        | $      | 2.47 |  |      | $      | 2.61 |  |   | $      | 1.99 | 
|                                                                                                                                                    | Pro forma   |                        | $      | 2.38 |  |      | $      | 2.51 |  |   | $      | 1.89 | 
|Diluted earnings per share                                                                                                                          |             |                        |        |      |  |      |        |      |  |   |        |     
|                                                                                                                                                    | As reported |                        | $      | 2.32 |  |      | $      | 2.45 |  |   | $      | 1.89 | 
|                                                                                                                                                    | Pro forma   |                        | $      | 2.24 |  |      | $      | 2.36 |  |   | $      | 1.80 | 

In determining compensation expense above, the
weighted average fair value of each option was estimated to be
$10.41, $9.70, and $6.99 on the date of the grant with the
following assumptions for 2004, 2003, and 2002, respectively:
weighted average risk free interest rates of 4.42%, 3.90%, and
4.54%; dividend yield of 1.00% and volatility of 40% for 2004,
2003 and 2002; and a weighted average expected life of six and a
half years in 2004 and seven years in 2003 and 2002,
respectively.

Recent Accounting
Developments:We adopted FIN 46
as of December 31, 2003 and as a result, deconsolidated IFC
Capital Trust II, IFC Capital Trust III, IFC Capital
Trust IV, IFC Capital Trust V, IFC Capital
Trust VI, and IFC Statutory Trust VII (collectively
the IFC Trusts). The sole assets of the IFC Trusts are
subordinated debentures of Irwin Financial Corporation. The IFC
Trusts liabilities are represented by Trust Preferred
Securities, which have previously been listed as
Company-obligated mandatorily redeemable preferred
securities of subsidiary trusts on our consolidated
balance sheets. Under FIN 46, the subordinated debentures,
which are substantially equal in amount to the
Trust Preferred Securities, cease to be eliminated in
consolidation and are included in other long-term
debt in our consolidated balance sheets. Details about the
IFC Trusts and debentures can be found in Note 12,
Other Long-Term Debt. On March 1, 2005, the
Federal Reserve Board reached final conclusion on the continued
qualification of Trust Preferred Securities as Tier 1
regulatory capital.

In December 2003 the FASB issued a revised
Statement 132 (SFAS 132R), Employers
Disclosures about Pensions and Other Postretirement
Benefits which changed the disclosure requirements for
employers pension plans and other postretirement benefit
plans, including information describing the types of plan
assets, investment strategy, measurement dates, plan obligations
and cash flows. SFAS 132R did not change the measurement or
recognition of those plans required by other related accounting
standards. The disclosure requirements of SFAS 132R were
effective for periods after December 15, 2003. These
disclosures as well as additional annual disclosures required by
SFAS 132R have been included in these financial statements.

In December 2004 the FASB issued a revised
Statement 123 (SFAS 123R), Accounting for
Stock-Based Compensation requiring public entities to
measure the cost of employee services received in exchange for
an award of equity instruments based on grant date fair value.
The cost will be recognized over the period during which an
employee is required to provide service in exchange for the
award  usually the vesting period. The effective date
for this statement is as of the first interim period that begins
after June 15, 2005. We are evaluating the impact of this
new pronouncement and expect it to be comparable to the pro
forma effects of applying the original SFAS 123 as detailed
above.

Reclassifications:Certain amounts in the 2003 and 2002 consolidated financial
statements have been reclassified to conform to the 2004
presentation. These changes had no impact on previously reported
net income or shareholders equity.

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|         |                     
|-------- | --------------------
|Note 2  | Restrictions on Cash

Irwin Union Bank and Trust Company and Irwin
Union Bank, F.S.B. are required to maintain average noninterest
bearing reserve balances with the Federal Reserve Bank. At
December 31, 2004, we exceeded this requirement.



|         |                     
|-------- | --------------------
|Note 3  | Sales of Receivables

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

Prior to 2003, we sold home equity loans and
lines of credit in gain-on-sale securitization transactions
resulting in the creation of residual interests. We held
residual interests related to these transactions totaling
$51.5 million and $70.5 million at December 31,
2004 and 2003, respectively. We receive annual servicing fees of
approximately 0.5% to 1.0% of the outstanding balance and rights
to future cash flows arising after the investors in the
securitization trust have received the return for which they
contracted. The investors and the securitization trusts have no
recourse to our other assets for failure of debtors to pay when
due. Our residual interests are subordinate to investors
interests. The value of the residual interests is subject to
prepayment, credit, and interest rate risks in the transferred
financial assets.

We recognized pretax gains on sale of
$2.5 million on the securitization of home equity loans and
lines of credit at our home equity line of business during 2002.
No securitizations accounted for as gain on sale took place in
2003 or 2004. No residual interests of this type have been
created since the first quarter of 2002.

At December 31, 2004, 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 |  | $                                     | 51,542 |  
|Weighted-average life (in years)                                    |  |                                       | 0.92   |  
|Prepayment speed assumptions (annual rate)                          |  |                                       | 37.61  | %
|Impact on fair value of 10% adverse change                          |  | $                                     | (62    | )
|Impact on fair value of 25% adverse change                          |  |                                       | (266   | )
|Expected credit losses (annual rate)                                |  |                                       | 7.65   | %
|Impact on fair value of 10% adverse change                          |  | $                                     | (1,712 | )
|Impact on fair value of 25% adverse change                          |  |                                       | (4,220 | )
|Residual cash flows discount rate (annual rate)                     |  |                                       | 18.81  | %
|Impact on fair value of 10% adverse change                          |  | $                                     | (581   | )
|Impact on fair value of 25% adverse change                          |  |                                       | (1,428 | )

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.

88



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The table below summarizes the cash flows
received from (paid to) securitization trusts during the three
years ended December 31, 2004, where gain-on-sale
accounting was previously applied:

|                                                     |       |                        |        |        |  |      |        |        |  |   |        |        | 
|---------------------------------------------------- | ----- | ---------------------- | ------ | ------ |  | ---- | ------ | ------ |  | - | ------ | ------ | 
|                                                     |       | 2004                   |        | 2003   |  | 2002
|                                                     |       |                        |        |        |  |     
|                                                     |       |                       
|                                                     |       | (Dollars in thousands)
|Proceeds from new securitizations                    |       | $                      |       |        |  | $    |       |        |  | $ | 31,708 |       
|Servicing fees received                              |       |                        | 5,763  |        |  |      | 8,686  |        |  |   | 14,479 |       
|Net cash flows received on residual
    interests(1) |       |                        | 61,958 |        |  |      | 55,272 |        |  |   | 53,626 |       
|Other cash flows paid                                |       |                        | (8,705 | )      |  |      | (1,878 | )      |  |   | (692   | )     
|                                                     |       |                        |        |        |  |      |        |        |  |   |        |       
|                                                     | Total |                        | $      | 59,016 |  |      | $      | 62,080 |  |   | $      | 99,121 | 
|                                                     |       |                        |        |        |  |      |        |        |  |   |        |       



---



|    |                                                                                                                                                                                                                    
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Cash flows received on residual interests are net
    of $2.1 million and $4.8 million in, 2003, and 2002,
    respectively, used to over-collateralize the trusts. There was
    no overcollateralization in 2004.

Delinquency amounts for the managed portfolio are
set forth below:

|                                                          |  |                        |           |                              |  |             |        |               |  |  |      |   |  |   |        | 
|--------------------------------------------------------- |  | ---------------------- | --------- | ---------------------------- |  | ----------- | ------ | ------------- |  |  | ---- | - |  | - | ------ | 
|                                                          |  | Total Principal Amount |           |                              |  |             |        | Credit Losses
|                                                          |  | of Loans at            |           | Delinquent Principal Over 30 |  | Delinquency |        | on Managed   
|                                                          |  | December 31, 2004      |           | Days at 12/31/2004(2)        |  | Percentage  |        | Portfolio    
|                                                          |  |                        |           |                              |  |             |        |              
|                                                          |  |                       
|                                                          |  | (Dollars in thousands)
|Managed loans comprised of:                               |  |                        |           |                              |  |             |        |               |  |  |      |   |  |   |        | 
|Loans held for investment                                 |  | $                      | 590,340   |                              |  | $           | 13,922 |               |  |  | 2.4  | % |  | $ | 11,482 | 
|Loans held for sale                                       |  |                        | 224,255   |                              |  |             | 1,792  |               |  |  | 0.8  |   |  |   | 575    | 
|Loans securitized, servicing and residual
    retained(1) |  |                        | 332,542   |                              |  |             | 38,936 |               |  |  | 11.7 |   |  |   | 22,380 | 
|                                                          |  |                        |           |                              |  |             |        |               |  |  |      |   |  |   |        | 
|Total managed portfolio                                   |  | $                      | 1,147,137 |                              |  | $           | 54,650 |               |  |  | 4.8  | % |  | $ | 34,437 | 
|                                                          |  |                        |           |                              |  |             |        |               |  |  |      |   |  |   |        | 



---



|    |                                                                                                                                                                         
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Represents the principal amount of the loan.
    Residual interests held for securitized assets are excluded from
    this table because they are recognized separately.
|   
|(2) | Nonaccrual loans included in delinquencies.                                                                                                                             

Note 4  Investment
Securities

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

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

89



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The amortized cost, fair value, and carrying
value of investment securities held at December 31, 2003
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         |                             | $                      | 19,997 |            |  | $          |  |       |  | $        |    |     |   | $ | 19,997 |        |  | $ | 19,997 |       
|Obligations of states and political subdivisions |                             |                        | 3,960  |            |  |            | 8 |       |  |          |    |     |   |   | 3,968  |        |  |   | 3,960  |       
|Mortgage-backed securities                       |                             |                        | 866    |            |  |            | 7 |       |  |          |    |     |   |   | 873    |        |  |   | 866    |       
|Other                                            |                             |                        | 133    |            |  |            |  |       |  |          |    |     |   |   | 133    |        |  |   | 133    |       
|                                                 |                             |                        |        |            |  |            |   |       |  |          |     |     |   |   |        |        |  |   |        |       
|                                                 | Total held-to-maturity      |                        |        | 24,956     |  |            |   | 15    |  |          |     |    |   |   |        | 24,971 |  |   |        | 24,956 | 
|                                                 |                             |                        |        |            |  |            |   |       |  |          |     |     |   |   |        |        |  |   |        |       
|Available-for-Sale:                              |                             |                        |        |            |  |            |   |       |  |          |     |     |   |   |        |        |  |   |        |       
|U.S. Treasury and government obligations         |                             |                        | 998    |            |  |            |  |       |  |          | (1  | )   |   |   | 997    |        |  |   | 997    |       
|Mortgage-backed securities                       |                             |                        | 1,208  |            |  |            |  |       |  |          | (35 | )   |   |   | 1,173  |        |  |   | 1,173  |       
|Other                                            |                             |                        | 65,433 |            |  |            |  |       |  |          | (34 | )   |   |   | 65,399 |        |  |   | 65,399 |       
|                                                 |                             |                        |        |            |  |            |   |       |  |          |     |     |   |   |        |        |  |   |        |       
|                                                 | Total available-for-sale    |                        |        | 67,639     |  |            |   |      |  |          |     | (70 | ) |   |        | 67,569 |  |   |        | 67,569 | 
|                                                 |                             |                        |        |            |  |            |   |       |  |          |     |     |   |   |        |        |  |   |        |       
|                                                 | Total investment securities |                        | $      | 92,595     |  |            | $ | 15    |  |          | $   | (70 | ) |   | $      | 92,540 |  |   | $      | 92,525 | 
|                                                 |                             |                        |        |            |  |            |   |       |  |          |     |     |   |   |        |        |  |   |        |       

Included within available-for-sale investment
securities is $66 million and $63 million of FHLB and
Federal Reserve Bank (FRB) stock at December 31, 2004 and
2003, respectively, for which there is no readily determinable
market value.

The amortized cost and estimated value of
investment securities at December 31, 2004, by contractual
maturity, are shown below. Expected maturities will differ from
contractual maturities because borrowers may have the right to
call or prepay obligations with or without call or prepayment
penalties.

|                                  |                                        |                        |         |         |  |  |         |         | 
|--------------------------------- | -------------------------------------- | ---------------------- | ------- | ------- |  |  | ------- | ------- | 
|                                  |                                        | Amortized              |         | Fair   
|                                  |                                        | Cost                   |         | Value  
|                                  |                                        |                        |         |        
|                                  |                                        |                       
|                                  |                                        | (Dollars in thousands)
|Held-to-Maturity:                 |                                        |                        |         |         |  |  |         |        
|                                  | Due after five years through ten years |                        | $       | 530     |  |  | $       | 531     | 
|                                  | Due after ten years                    |                        |         | 3,377   |  |  |         | 3,379   | 
|                                  |                                        |                        |         |         |  |  |         |        
|                                  |                                        |                        | 3,907   |         |  |  | 3,910   |        
|Mortgage-backed securities        |                                        |                        | 1,035   |         |  |  | 1,042   |        
|                                  |                                        |                        |         |         |  |  |         |        
|                                  |                                        |                        | 4,942   |         |  |  | 4,952   |        
|                                  |                                        |                        |         |         |  |  |         |        
|Available-for-Sale:               |                                        |                        |         |         |  |  |         |        
|                                  | Due in one year or less                |                        |         | 3,166   |  |  |         | 3,134   | 
|                                  | Due after ten years                    |                        |         | 3,330   |  |  |         | 3,395   | 
|                                  |                                        |                        |         |         |  |  |         |        
|                                  |                                        |                        | 6,496   |         |  |  | 6,529   |        
|Mortgage-backed securities        |                                        |                        | 30,453  |         |  |  | 30,521  |        
|FHLB & Federal Reserve Bank Stock |                                        |                        | 66,230  |         |  |  | 66,230  |        
|                                  |                                        |                        |         |         |  |  |         |        
|                                  |                                        |                        | 103,179 |         |  |  | 103,280 |        
|                                  |                                        |                        |         |         |  |  |         |        
|                                  | Total investment securities            |                        | $       | 108,121 |  |  | $       | 108,232 | 
|                                  |                                        |                        |         |         |  |  |         |        

Investment securities of $26.0 million were
pledged and cannot be repledged by holder, as collateral for
borrowings and for other purposes on December 31, 2004.
During 2004 and 2003 there were no sales or calls on investment
securities.

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|         |                 
|-------- | ----------------
|Note 5  | Loans and Leases

Loans and leases are summarized as follows:

|                                       |       |                        |           |           |         |   |           |           |         |  
|-------------------------------------- | ----- | ---------------------- | --------- | --------- | ------- | - | --------- | --------- | ------- | -
|                                       |       |                       
|                                       |       | December 31,          
|                                       |       |                       
|                                       |       | 2004                   |           | 2003     
|                                       |       |                        |           |          
|                                       |       |                       
|                                       |       | (Dollars in thousands)
|Commercial, financial and agricultural |       | $                      | 1,697,651 |           |         | $ | 1,503,619 |          
|Real estate-construction               |       |                        | 287,496   |           |         |   | 306,669   |          
|Real estate-mortgage                   |       |                        | 808,875   |           |         |   | 859,541   |          
|Consumer                               |       |                        | 31,166    |           |         |   | 27,370    |          
|Commercial financing                   |       |                        |           |           |         |   |           |          
|                                       |       | Franchise financing    |           |           | 330,496 |   |           |           | 207,341 |  
|                                       |       | Domestic leasing       |           |           | 174,035 |   |           |           | 157,072 |  
|                                       |       | Canadian leasing       |           |           | 265,780 |   |           |           | 207,355 |  
|Unearned income                        |       |                        |           |           |         |   |           |          
|                                       |       | Franchise financing    |           |           | (86,638 | ) |           |           | (56,837 | )
|                                       |       | Domestic leasing       |           |           | (23,924 | ) |           |           | (22,038 | )
|                                       |       | Canadian leasing       |           |           | (34,497 | ) |           |           | (29,038 | )
|                                       |       |                        |           |           |         |   |           |          
|                                       | Total |                        | $         | 3,450,440 |         |   | $         | 3,161,054 |        
|                                       |       |                        |           |           |         |   |           |          

At December 31, 2004, mortgage loans held
for investment with a carrying value of $0.6 billion were
pledged as collateral for bonds payable to investors (See
Note 11).

Federal Home Loan Bank borrowings are
collateralized by $0.1 billion in loans and loans held for
sale at December 31, 2004.

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, 2004 were current in payment of principal and
interest. The aggregate dollar amount of these loans outstanding
at December 31, 2004 and 2003 represented approximately 1%
of total equity.

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|         |                                                                           
|-------- | --------------------------------------------------------------------------
|Note 6  | Allowance for Loan and Lease Losses and
    Nonperforming Loans and Leases

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

|                                                        |  |                        |         |      |  |      |         |   |  |   |         |  
|------------------------------------------------------- |  | ---------------------- | ------- | ---- |  | ---- | ------- | - |  | - | ------- | -
|                                                        |  |                       
|                                                        |  | December 31,          
|                                                        |  |                       
|                                                        |  | 2004                   |         | 2003 |  | 2002
|                                                        |  |                        |         |      |  |     
|                                                        |  |                       
|                                                        |  | (Dollars in thousands)
|Balance at beginning of year                            |  | $                      | 64,285  |      |  | $    | 50,936  |   |  | $ | 22,283  |  
|Provision for loan and lease losses                     |  |                        | 14,195  |      |  |      | 47,583  |   |  |   | 43,996  |  
|Charge-offs                                             |  |                        | (28,180 | )    |  |      | (37,312 | ) |  |   | (18,230 | )
|Recoveries                                              |  |                        | 5,335   |      |  |      | 3,420   |   |  |   | 2,870   |  
|Reduction due to sale of loans and leases and
    other |  |                        | (627    | )    |  |      | (234    | ) |  |   |        |  
|Reduction due to reclassification of loans              |  |                        | (10,808 | )    |  |      | (690    | ) |  |   |        |  
|Foreign currency adjustment                             |  |                        | 243     |      |  |      | 582     |   |  |   | 17      |  
|                                                        |  |                        |         |      |  |      |         |   |  |   |         |  
|Balance at end of period                                |  | $                      | 44,443  |      |  | $    | 64,285  |   |  | $ | 50,936  |  
|                                                        |  |                        |         |      |  |      |         |   |  |   |         |  

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

Impaired loans and associated valuation reserves
are summarized as follows:

|                                                  |                      |                        |        |        |  |   |        |        | 
|------------------------------------------------- | -------------------- | ---------------------- | ------ | ------ |  | - | ------ | ------ | 
|                                                  |                      |                       
|                                                  |                      | December 31,          
|                                                  |                      |                       
|                                                  |                      | 2004                   |        | 2003  
|                                                  |                      |                        |        |       
|                                                  |                      |                       
|                                                  |                      | (Dollars in thousands)
|Impaired loans with specific valuation reserve    |                      | $                      | 9,623  |        |  | $ | 9,564  |       
|Impaired loans with no specific valuation reserve |                      |                        | 10,771 |        |  |   | 10,884 |       
|                                                  |                      |                        |        |        |  |   |        |       
|                                                  | Total impaired loans |                        | $      | 20,394 |  |   | $      | 20,448 | 
|                                                  |                      |                        |        |        |  |   |        |       
|Valuation reserve on impaired loans               |                      | $                      | 4,584  |        |  | $ | 2,801  |       
|                                                  |                      |                        |        |        |  |   |        |       

For the year ended December 31, 2004, the
average balance of impaired loans was $19.1 million, for
which $0.8 million of interest was recorded. For the years
ended December 31, 2003 and 2002, respectively,
$0.5 million and $0.5 million of interest income was
recorded on average impaired loans balances of
$18.3 million and $42.4 million, respectively.

Nonperforming loans and leases are summarized
below:

|                                        |                                      |                        |        |        |  |   |        |        | 
|--------------------------------------- | ------------------------------------ | ---------------------- | ------ | ------ |  | - | ------ | ------ | 
|                                        |                                      |                       
|                                        |                                      | December 31,          
|                                        |                                      |                       
|                                        |                                      | 2004                   |        | 2003  
|                                        |                                      |                        |        |       
|                                        |                                      |                       
|                                        |                                      | (Dollars in thousands)
|Accruing loans past due 90 days or more |                                      | $                      | 657    |        |  | $ | 4,627  |       
|Nonaccrual loans and leases             |                                      |                        | 33,036 |        |  |   | 39,738 |       
|                                        |                                      |                        |        |        |  |   |        |       
|                                        | Total nonperforming loans and leases |                        | $      | 33,693 |  |   | $      | 44,365 | 
|                                        |                                      |                        |        |        |  |   |        |       



|         |                 
|-------- | ----------------
|Note 7  | Servicing Assets

Included on the consolidated balance sheets at
December 31, 2004 and 2003 were $367.0 million and
$380.1 million, respectively, of capitalized servicing
assets. These amounts relate to the mortgage and home

92



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equity loans serviced by us for investors.
Although they are not generally held for purposes of sale, there
is an active secondary market for servicing assets. Changes in
our capitalized servicing assets are shown below:


|                                    |  |                        |          |      |  |   |          |  
|----------------------------------- |  | ---------------------- | -------- | ---- |  | - | -------- | -
|                                    |  |                       
|                                    |  | December 31,          
|                                    |  |                       
|                                    |  | 2004                   |          | 2003
|                                    |  |                        |          |     
|                                    |  |                       
|                                    |  | (Dollars in thousands)
|Beginning balance                   |  | $                      | 380,123  |      |  | $ | 174,935  |  
|Additions                           |  |                        | 142,689  |      |  |   | 296,551  |  
|Amortization                        |  |                        | (117,143 | )    |  |   | (135,519 | )
|(Impairment) recovery of impairment |  |                        | (2,474   | )    |  |   | 44,516   |  
|Reduction for servicing sales       |  |                        | (36,163  | )    |  |   | (360     | )
|                                    |  |                        |          |      |  |   |          |  
|                                    |  | $                      | 367,032  |      |  | $ | 380,123  |  
|                                    |  |                        |          |      |  |   |          |  

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

|                                    |  |                        |         |      |  |      |         |   |  |   |         | 
|----------------------------------- |  | ---------------------- | ------- | ---- |  | ---- | ------- | - |  | - | ------- | 
|                                    |  |                       
|                                    |  | December 31,          
|                                    |  |                       
|                                    |  | 2004                   |         | 2003 |  | 2002
|                                    |  |                        |         |      |  |     
|                                    |  |                       
|                                    |  | (Dollars in thousands)
|Balance at beginning of year        |  | $                      | 76,869  |      |  | $    | 159,865 |   |  | $ | 13,495  | 
|Impairment (recovery of impairment) |  |                        | 2,474   |      |  |      | (44,516 | ) |  |   | 146,370 | 
|Reclass for sales of servicing      |  |                        | (18,210 | )    |  |      |        |   |  |   |        | 
|Other than temporary impairment(1)  |  |                        | (6,999  | )    |  |      | (38,480 | ) |  |   |        | 
|                                    |  |                        |         |      |  |      |         |   |  |   |         | 
|Balance at end of year              |  | $                      | 54,134  |      |  | $    | 76,869  |   |  | $ | 159,865 | 
|                                    |  |                        |         |      |  |      |         |   |  |   |         | 



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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 does result in a reduction of amortization expense
    and potentially reduced recovery of impairment in future periods.

The servicing assets had a fair value of
$371.9 million and $393.5 million at December 31,
2004 and 2003, respectively. At December 31, 2004, key
economic assumptions and the sensitivity of the current carrying
value of mortgage servicing rights to immediate 10% and 20%
adverse changes in those assumptions are as follows (dollars in
thousands):

|                                             |  |   |         |  
|-------------------------------------------- |  | - | ------- | -
|Carrying amount of mortgage servicing assets |  | $ | 367,032 |  
|Constant prepayment speed                    |  |   | 13.10   | %
|Impact on fair value of 10% adverse change   |  | $ | (18,765 | )
|Impact on fair value of 20% adverse change   |  |   | (35,294 | )
|Discount rate                                |  |   | 11.25   | %
|Impact on fair value of 10% adverse change   |  | $ | (9,762  | )
|Impact on fair value of 20% adverse change   |  |   | (18,982 | )

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.

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The servicing portfolio underlying the portion of
our servicing assets carried on our balance sheet was
$28.3 billion and $31.1 billion at December 31,
2004 and 2003, respectively. Key economic assumptions used in
determining the carrying value of mortgage servicing assets
capitalized in 2004 were as follows:

|                 |  |  |             |      
|---------------- |  |  | ----------- | -----
|Prepayment rates |  |  | 5.10- 46.67 | % (1)
|Discount rates   |  |  | 8.50- 14.00 | % (1)



|    |                                                                                                                                                                                                           
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The mortgage banking component of consolidated
    servicing assets was 87%. The prepayment rates range from 5.10%
    to 11.12% and discount rates range from 8.5% to 14.0% at this
    line of business.

Note 8  Premises and
Equipment

Premises and equipment are summarized as follows:

|                                    |       |                        |         |        |  |              |         |        |  |  |            |  | 
|----------------------------------- | ----- | ---------------------- | ------- | ------ |  | ------------ | ------- | ------ |  |  | ---------- |  | 
|                                    |       |                       
|                                    |       | December 31,          
|                                    |       |                       
|                                    |       | 2004                   |         | 2003   |  | Useful Lives
|                                    |       |                        |         |        |  |             
|                                    |       |                       
|                                    |       | (Dollars in thousands)
|Land                                |       | $                      | 2,630   |        |  | $            | 2,135   |        |  |  | n/a        | 
|Building and leasehold improvements |       |                        | 24,975  |        |  |              | 22,840  |        |  |  | 7-40 years | 
|Furniture and equipment             |       |                        | 53,659  |        |  |              | 52,096  |        |  |  | 3-10 years | 
|                                    |       |                        |         |        |  |              |         |        |  |  |            | 
|                                    |       |                        | 81,264  |        |  |              | 77,071  |        |  |  |            | 
|Less accumulated depreciation       |       |                        | (51,024 | )      |  |              | (44,863 | )      |  |  |            | 
|                                    |       |                        |         |        |  |              |         |        |  |  |            | 
|                                    | Total |                        | $       | 30,240 |  |              | $       | 32,208 |  |  |            |  | 
|                                    |       |                        |         |        |  |              |         |        |  |  |            | 

Amounts charged to other expense for depreciation
amounted to $7.6 million, $7.7 million, and
$7.5 million in 2004, 2003, and 2002, respectively.



|         |                  
|-------- | -----------------
|Note 9  | Lease Obligations

At December 31, 2004, we leased certain
branch locations and office equipment used in our operations.

Operating lease rental expense was
$28.5 million in 2004, $26.0 million in 2003, and
$21.6 million in 2002.

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

|                        |                               |                        |        |        | 
|----------------------- | ----------------------------- | ---------------------- | ------ | ------ | 
|Year ended December 31: |                               | (Dollars in thousands)
|2005                    |                               | $                      | 20,378 |       
|2006                    |                               |                        | 15,280 |       
|2007                    |                               |                        | 9,247  |       
|2008                    |                               |                        | 5,181  |       
|2009                    |                               |                        | 4,111  |       
|Thereafter              |                               |                        | 11,420 |       
|                        |                               |                        |        |       
|                        | Total minimum rental payments |                        | $      | 65,617 | 
|                        |                               |                        |        |       

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|          |                      
|--------- | ---------------------
|Note 10  | Short-Term Borrowings

Short-term borrowings are summarized as follows:

|                                                 |  |                        |         |      |  |   |         |  
|------------------------------------------------ |  | ---------------------- | ------- | ---- |  | - | ------- | -
|                                                 |  |                       
|                                                 |  | December 31,          
|                                                 |  |                       
|                                                 |  | 2004                   |         | 2003
|                                                 |  |                        |         |     
|                                                 |  |                       
|                                                 |  | (Dollars in thousands)
|Federal Home Loan Bank borrowings                |  | $                      | 71,826  |      |  | $ | 286,000 |  
|Drafts payable related to mortgage loan closings |  |                        | 53,254  |      |  |   | 72,686  |  
|Lines of credit and other                        |  |                        | 2,197   |      |  |   | 1,057   |  
|Federal funds                                    |  |                        | 110,000 |      |  |   | 53,600  |  
|Commercial paper                                 |  |                        |        |      |  |   | 16,415  |  
|                                                 |  |                        |         |      |  |   |         |  
|Total                                            |  | $                      | 237,277 |      |  | $ | 429,758 |  
|                                                 |  |                        |         |      |  |   |         |  
|Weighted average interest rate                   |  |                        | 1.64    | %    |  |   | 1.61    | %

Federal Home Loan Bank borrowings are
collateralized by $129 million in loans and loans held for
sale at December 31, 2004.

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.

At December 31, 2004 we have lines of credit
available of $1.2 billion to fund loan originations and
operations. Interest on the lines of credit is payable monthly
or quarterly with rates ranging from 2.2% to 3.5%.



|          |                    
|--------- | -------------------
|Note 11  | Collateralized Debt

We pledge or sell loans structured as secured
financings at our home equity and commercial finance lines of
business. Sale treatment is precluded on these transactions as
we maintain effective control over the loans and leases
securitized. This type of structure results in cash being
received (and subsequently used by us to pay down short-term
fundings), debt being recorded, and the establishment of an
allowance for credit losses. The notes associated with these
transactions are collateralized by $0.6 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
floating rate. The 2002-1 and 2003-1 asset backed structures
were sold during 2004 resulting in the recognition of a
$3.4 million gain and the removal of $355 million of
loans and associated collateralized debt from our balance sheet.

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Collateralized borrowings are summarized as
follows:

|                                    |                                         |                        |                |                  |  |              |      |      |  |   |         |         |         |   |        |         |         | 
|----------------------------------- | --------------------------------------- | ---------------------- | -------------- | ---------------- |  | ------------ | ---- | ---- |  | - | ------- | ------- | ------- | - | ------ | ------- | ------- | 
|                                    |                                         |                        |                |                  |  |             
|                                    |                                         |                        |                | Interest Rate at |  | December 31,
|                                    |                                         | Contractual            |                | December 31,     |  |             
|                                    |                                         | Maturity               |                | 2004             |  | 2004         |      | 2003
|                                    |                                         |                        |                |                  |  |              |      |     
|                                    |                                         |                       
|                                    |                                         | (Dollars in thousands)
|Commercial finance line of business |                                         |                        |                |                  |  |              |      |      |  |   |         |         |         |   |        |        
|2003 domestic asset backed note     |                                         |                        | 7/2010         |                  |  |              | 3.38 |      |  | $ | 29,050  |         |         | $ | 51,694 |        
|2003 Canadian asset backed note     |                                         |                        | 8/2005-10/2009 |                  |  |              | 3.89 |      |  |   | 165,802 |         |         |   | 77,902 |        
|Home equity line of business        |                                         |                        |                |                  |  |              |      |      |  |   |         |         |         |   |        |        
|2004-1 asset backed notes:          |                                         |                        |                |                  |  |              |      |      |  |   |         |         |         |   |        |        
|                                    | Combined variable rate senior note      |                        |                | 12/2024-12/2034  |  |              |      | 2.53 |  |   |         | 327,850 |         |   |        |        |        
|                                    | Combined variable rate subordinate note |                        |                | 12/2034          |  |              |      | 3.38 |  |   |         | 24,775  |         |   |        |        |        
|2003-1 asset backed notes:          |                                         |                        |                |                  |  |              |      |      |  |   |         |         |         |   |        |        
|                                    | Combined variable rate senior note      |                        |                |                  |  |              |      |      |  |   |         |        |         |   |        | 160,874 |        
|                                    | Combined variable rate subordinate note |                        |                |                  |  |              |      |      |  |   |         |        |         |   |        | 61,763  |        
|                                    | Unamortized premium/discount            |                        |                |                  |  |              |      |      |  |   |         |        |         |   |        | 4,446   |        
|2002-1 asset backed notes:          |                                         |                        |                |                  |  |              |      |      |  |   |         |         |         |   |        |        
|                                    | Combined variable rate senior note      |                        |                |                  |  |              |      |      |  |   |         |        |         |   |        | 156,699 |        
|                                    | Combined variable rate subordinate note |                        |                |                  |  |              |      |      |  |   |         |        |         |   |        | 72,551  |        
|Unamortized premium/discount        |                                         |                        |                |                  |  |              |      |      |  |   |        |         |         |   | 4,202  |        
|                                    |                                         |                        |                |                  |  |              |      |      |  |   |         |         |         |   |        |        
|                                    |                                         | Total                  |                |                  |  |              |      |      |  |   |         | $       | 547,477 |   |        | $       | 590,131 | 
|                                    |                                         |                        |                |                  |  |              |      |      |  |   |         |         |         |   |        |        



|          |                     
|--------- | --------------------
|Note 12  | Other Long-Term Debt

At December 31, 2004 and 2003 we had
$270 million of other long-term debt. Included in both
years is $30 million of subordinated debt with an interest
rate of 7.58% and a maturity date of July 2014.

We also have obligations represented by
subordinated debentures at December 31, 2004 and 2003 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 are no longer consolidating these
trusts. Refer to Note 1 for information regarding the
accounting change for these securities implemented in 2003.
These debentures are the sole assets of these trusts as of
December 31, 2004. All debentures and securities are
callable at par after five years from origination date, although
at this time we

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have no announced plans to call. These securities
are all Tier 1 qualifying capital at December 31,
2004. Highlights about these debentures and the related trusts
are listed below:


|                        |  |                        |          |                  |  |          |       |                   |  |      |          |       |  |   |         |  |  |   |         |  |  |                                                                                                                         |  | 
|----------------------- |  | ---------------------- | -------- | ---------------- |  | -------- | ----- | ----------------- |  | ---- | -------- | ----- |  | - | ------- |  |  | - | ------- |  |  | ----------------------------------------------------------------------------------------------------------------------- |  | 
|                        |  |                        |          |                  |  |          |       |                   |  |     
|                        |  |                        |          |                  |  |          |       | Subordinated Debt |  |     
|                        |  |                        |          | Interest Rate at |  |          |       | December 31,      |  |     
|                        |  | Origination            |          | December 31,     |  | Maturity |       |                   |  |     
|Name                    |  | Date                   |          | 2004             |  | Date     |       | 2004              |  | 2003 |          | Other
|                        |  |                        |          |                  |  |          |       |                   |  |      |          |      
|                        |  |                       
|                        |  | (Dollars in thousands)
|IFC Capital Trust II    |  |                        | Nov 2000 |                  |  |          | 10.50 | %                 |  |      | Sep 2030 |       |  | $ | 53,351  |  |  | $ | 53,351  |  |  |                                                                                                                         |  | 
|IFC Capital Trust III   |  |                        | Nov 2000 |                  |  |          | 8.75  |                   |  |      | Sep 2030 |       |  |   | 53,268  |  |  |   | 53,268  |  |  | initial conversion ratio of 1.261 shares of common stock to 1 convertible preferred security, currently callable at 10%
|IFC Capital Trust IV    |  |                        | Jul 2001 |                  |  |          | 10.25 |                   |  |      | Jul 2031 |       |  |   | 15,464  |  |  |   | 15,464  |  |  |                                                                                                                         |  | 
|IFC Capital Trust V     |  |                        | Nov 2001 |                  |  |          | 9.95  |                   |  |      | Nov 2031 |       |  |   | 30,928  |  |  |   | 30,928  |  |  |                                                                                                                         |  | 
|IFC Capital Trust VI    |  |                        | Oct 2002 |                  |  |          | 8.70  |                   |  |      | Sep 2032 |       |  |   | 35,567  |  |  |   | 35,567  |  |  |                                                                                                                         |  | 
|IFC Statutory Trust VII |  |                        | Nov 2003 |                  |  |          | 5.46  |                   |  |      | Nov 2033 |       |  |   | 51,547  |  |  |   | 51,547  |  |  | rate changes quarterly at three month LIBOR plus 290 basis points                                                      
|                        |  |                        |          |                  |  |          |       |                   |  |      |          |       |  |   |         |  |  |   |         |  |  |                                                                                                                         |  | 
|                        |  |                        |          |                  |  |          |       |                   |  |      |          |       |  | $ | 240,125 |  |  | $ | 240,125 |  |  |                                                                                                                         |  | 
|                        |  |                        |          |                  |  |          |       |                   |  |      |          |       |  |   |         |  |  |   |         |  |  |                                                                                                                         |  | 



|          |                              
|--------- | -----------------------------
|Note 13  | Commitments and Contingencies

Culpepper v. Inland Mortgage
Corporation

Our indirect subsidiary, Irwin Mortgage
Corporation (formerly Inland Mortgage Corporation), is a
defendant in a class action lawsuit in the United States
District Court for the Northern District of Alabama, filed in
April 1996, alleging that Irwin Mortgage violated the
federal Real Estate Settlement Procedures Act
(RESPA) relating to Irwin Mortgages payment of broker
fees to mortgage brokers. In June 2001, the Court of
Appeals for the 11th Circuit upheld the district
courts certification of a plaintiff class and the case was
remanded for further proceedings in the federal district court.

In November 2001, by order of the district court,
the parties filed supplemental briefs analyzing the impact of an
October 18, 2001 policy statement issued by the Department
of Housing and Urban Development (HUD) that explicitly
disagreed with the judicial interpretation of RESPA by the Court
of Appeals for the 11th Circuit in its ruling upholding
class certification in this case. In response to a motion from
Irwin Mortgage, in March 2002, the district court granted
Irwin Mortgages motion to stay proceedings in this case
until the 11th Circuit decided the three other RESPA cases
originally argued before it with this case.

The 11th Circuit subsequently decided all of
the RESPA cases pending in that court. In one of those cases,
the 11th Circuit concluded that the trial court had abused
its discretion in certifying a class action under RESPA.
Further, in that decision, the 11th Circuit expressly
recognized it was, in effect, overruling its previous decision
upholding class certification in our case. In March 2003,
Irwin Mortgage filed a motion to decertify the class and the
plaintiffs filed a renewed motion for summary judgment. On
October 2, 2003 the case was reassigned to another
U.S. district court judge. In response to an order from the
court, the parties met and submitted a joint status report at
the end of October 2003. On June 14, 2004, at the
courts request, the parties engaged in mediation, which
was unsuccessful. The court then reassigned this case to a new
judge.

If the class is not decertified and the district
court finds that Irwin Mortgage violated RESPA, Irwin Mortgage
could be liable for damages equal to three times the amount of
that portion of payments made to the mortgage brokers that is
ruled unlawful. Based on notices sent by the plaintiffs to date
to potential class members and additional notices that might be
sent in this case, we believe the class is not likely to exceed
32,000 borrowers who meet the class specifications.

Irwin Mortgage intends to defend this lawsuit
vigorously and believes it has numerous defenses to the alleged
violations. Irwin Mortgage further believes that the
11th Circuits RESPA rulings in the cases argued

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before it with this one provide grounds for
reversal of the class certification in this case. We have no
assurance, however, that Irwin Mortgage will be successful in
defeating class certification or will ultimately prevail on the
merits. However, we expect that an adverse outcome in this case
could result in substantial monetary damages that could be
material to our financial position. We have not established any
reserves for this case and are unable at this stage of the
litigation to form a reasonable estimate of potential loss that
we could suffer.




| |                                                      
| | -----------------------------------------------------
| | United States ex rel. Paranich v.
    Sorgnard et al.

In January 2001, we and Irwin Leasing Corporation
(formerly Affiliated Capital Corp.), our indirect subsidiary,
and Irwin Equipment Finance Corporation, our direct subsidiary
(together, the Irwin companies), were served as defendants in an
action filed in the United States District Court for the Middle
District of Pennsylvania. The suit alleges that a
manufacturer/importer of certain medical devices made
misrepresentations to health care professionals and to
government officials to improperly obtain Medicare reimbursement
for treatments using the devices, and that the Irwin companies,
through Affiliated Capitals financing activities, aided in
making the alleged misrepresentations. On August 10, 2001,
the court dismissed Irwin Financial and Irwin Equipment Finance
as defendants in the suit. The Irwin companies prevailed on a
motion for summary judgment in the district court on
October 8, 2003, and the plaintiff appealed. The Court of
Appeals for the Third Circuit heard oral argument on
plaintiffs appeal on September 27, 2004. On
January 28, 2005, the court of appeals affirmed the
district courts dismissal of plaintiffs action. The
period during which the plaintiff can petition to the United
States Supreme Court for writ of certiorari expires on
April 28, 2005.



| |                                              
| | ---------------------------------------------
| | McIntosh v. Irwin Home Equity
    Corporation

Our subsidiary, Irwin Union Bank and
Trust Company, was a defendant in a class action lawsuit
filed in the United States District Court in Massachusetts in
July 2001. The case involved loans purchased by Irwin Union Bank
and Trust Company from an unaffiliated third-party
originator. The plaintiffs alleged a failure to comply with
certain disclosure provisions of the Truth in Lending Act
relating to high-rate loans in making second mortgage home
equity loans to the plaintiff borrowers. The complaint sought
rescission of the loans and other damages.

A limited class was certified. As originally
specified, the plaintiff class included those borrowers who
obtained a mortgage loan originated by the third-party
originator with prepayment penalty provisions during the
three-year period prior to the filing of the suit. Subsequently,
the court further restricted the class to those borrowers with
high-rate loans subject to the Home Ownership and Equity
Protection Act who refinanced their loans and paid a prepayment
penalty. A preliminary analysis led us to conclude that fewer
than 100 loans qualified for class membership.

The parties settled this matter for a nonmaterial
amount. The court dismissed the lawsuit with prejudice on
December 16, 2004.



| |                              
| | -----------------------------
| | Stamper v. A Home of Your Own

Our indirect subsidiary, Irwin Mortgage
Corporation, is a defendant in a case filed in August 1998 in
the Baltimore, Maryland, City Circuit Court. On January 25,
2002, a jury in this case awarded the plaintiffs damages of
$1.434 million jointly and severally against defendants,
including Irwin Mortgage. The nine plaintiff borrowers alleged
that a home rehabilitation company defrauded the plaintiffs by
selling them defective homes at inflated prices and that Irwin
Mortgage, which provided the plaintiff borrowers mortgage loans
on the home purchases, participated in the fraud. Irwin Mortgage
filed an appeal with the Maryland Court of Special Appeals and
oral argument was held on January 7, 2003. On
February 27, 2004, the Court of Special Appeals ruled
against Irwin Mortgage and remanded the case to the trial court
for a partial retrial on whether the plaintiffs are entitled to
punitive damages. Irwin Mortgage petitioned the Maryland Court
of Appeals for a writ of certiorari on April 12, 2004. The
Court of Appeals granted Irwin Mortgages petition and
heard oral argument on November 4, 2004. On
February 4, 2005, the Court of Appeals affirmed in part and
reversed in part the judgment of the Court of Special Appeals,
remanding the case as follows: to modify the judgment for all
plaintiffs by striking the award of $145,000 for non-economic
damages; for further

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proceedings concerning one plaintiff as to
non-economic damages; and for a new trial as to punitive
damages. We have reserved for this case based upon SFAS 5
guidance.




| |                                        
| | ---------------------------------------
| | Silke v. Irwin Mortgage
    Corporation

In April 2003, our indirect subsidiary, Irwin
Mortgage Corporation, was named as a defendant in a class action
lawsuit filed in the Marion County, Indiana, Superior Court. The
complaint alleges that Irwin Mortgage charged a document
preparation fee in violation of Indiana law for services
performed by clerical personnel in completing legal documents
related to mortgage loans. Irwin Mortgage filed an answer on
June 11, 2003 and a motion for summary judgment on
October  27, 2003. On June 18, 2004, the court
certified a plaintiff class consisting of Indiana borrowers who
were allegedly charged the fee by Irwin Mortgage any time after
April 17, 1997. This date was later clarified by
stipulation of the parties to be April 14, 1997. 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.



| |                                            
| | -------------------------------------------
| | Gutierrez v. Irwin Mortgage
    Corporation

In April 2003, our indirect subsidiary, Irwin
Mortgage Corporation, was named as a defendant in an action
filed in the District Court of Nueces County, Texas. The
complaint alleged that Irwin Mortgage improperly charged
borrowers fees for the services of third-party vendors in excess
of Irwin Mortgages costs, and charged certain fees to
which plaintiffs did not agree. The plaintiffs sought to certify
a class consisting of similarly situated borrowers. In August
2004, the plaintiffs amended their complaint to remove the
allegations that Irwin Mortgage charged excess fees. After a
period of discovery, the parties settled this case for a
nonmaterial amount.



| |                                          
| | -----------------------------------------
| | 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. Because the case is in the early
stages of litigation, we are unable at this time to form a
reasonable estimate of the amount of potential loss, if any,
that Irwin Mortgage could suffer. The parties agreed to delay
the filing of an answer in this case until March 31, 2005.
We are attempting to obtain a voluntary dismissal based on our
belief that there is insufficient nexus between the cause of the
alleged injuries and Irwin Mortgage. 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 Companywas 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
Virginiawas 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

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mortgage loans as illegal contracts. Plaintiffs
also seek recovery against Irwin for alleged RESPA violations
and for conversion.


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

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

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

Under the loan purchase agreement between Irwin
and Community, Irwin has the right to demand repurchase of the
mortgage loans and indemnification from Community for these
claims. On September 17, 2004, Irwin made a demand for
indemnification and a defense to Hobson, Chatfield and
Ransom. Community denied this request as premature.

On December 22, 2004, Irwin filed a motion
with the Judicial Panel On Multidistrict Litigation requesting a
transfer of Hobson, Chatfieldand Ransomto the
Western District of Pennsylvania for coordinated or consolidated
proceedings with the Kossler action. That motion was
accepted by the Panel, and plaintiffs filed a motion in
opposition.

At this early stage, we are unable to form a
reasonable estimate of the amount of potential loss, if any,
that Irwin could suffer. We have established a reserve for the
Community litigation based upon the advice of legal counsel.



| |                                            
| | -------------------------------------------
| | Litigation Related to NorVergence,
    Inc.

Irwin Business Finance, our indirect subsidiary,
is involved on a national basis in equipment leasing finance and
maintains a diverse portfolio of leases, including leases in the
telecommunications field. A portion of Irwins
telecommunications portfolio involves leases of equipment
acquired from NorVergence, Inc., a New Jersey-based
telecommunications company. After assigning leases to Irwin and
other lenders, NorVergence became a debtor in a Chapter 7
bankruptcy, which is currently pending in the United States
Bankruptcy Court in New Jersey. The sudden failure of
NorVergence left many of its customers without telecommunications

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service. These customers became very angry when
commitments made to them by NorVergence went unfulfilled.


Complaints by former NorVergence customers have
led to investigations by the attorneys general of several
states. Irwin Business Finance has been named as a defendant in
several lawsuits connected with NorVergence. Exquisite
Caterers, LLC et al. v. Popular Leasing
et al. is a lawsuit filed in the Superior Court of New
Jersey, Monmouth County, and was amended to include Irwin
Business Finance and others on September 1, 2004. The
Exquisite Caterers plaintiffs seek certification of a
class of persons who leased network computer equipment from
NorVergence, whose leases were assigned to defendants. The
complaint alleges that NorVergence misrepresented the services
and equipment provided, that the lessees were defrauded and the
lease agreements should not be enforced. The action alleges
violations of, among other things, the New Jersey Consumer Fraud
Act; the New Jersey Truth-in-Consumer Contract, Warranty, and
Notice Act; the FTC Holder Rule; the FTC Act; and breach of
contract and implied warranties. The plaintiffs seek
compensatory, statutory and punitive damages, and injunctive
relief, including rescission of the leases and cessation of
collections.

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

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

In addition, Irwin Business Finance has been
named in several individual lawsuits involving equipment and
services leased from NorVergence, where the lease was assigned
to Irwin Business Finance. The suits allege fraud and
nonfunctional equipment and services. The plaintiffs request
rescission, restitution and/or reformation of the leases and/or
a declaration of unenforceability. These suits were filed in the
following jurisdictions: two actions in the District Court of
Dallas County, Texas (July 2004 and October 2004); one action in
the Superior Court of California, County of San Diego
(August 2004); and one in the Superior Court of Massachusetts
(September 2004). All but the Massachusetts action have been
resolved by agreements under which the lessees have paid a
significant portion of their lease obligations.

In connection with investigations by various
state attorneys general, Irwin Business Finance and other
lenders were asked to produce information about their
relationships with NorVergence and to refrain from enforcing
NorVergence leases. On October 21, 2004, the Attorney
General of Florida filed a complaint against twelve lenders,
including Irwin Business Finance, in the Circuit Court of the
Second Judicial Circuit, Leon County, Florida (State of
Florida v. Commerce Commercial Leasing, LLC
et al.). The complaint alleges that the agreements
assigned by NorVergence to the lenders are unconscionable under
the Florida Deceptive and Unfair Trade Practices Act. The suit
seeks to prohibit collection activities by the lenders and asks
for

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repayment of revenues, rescission of the
agreements, restitution, recovery of actual damages, and civil
money penalties. Prosecution of this suit against Irwin Business
Finance has been stayed by agreement of the parties while they
discuss resolution of the concerns expressed by the Florida
Attorney General.


Irwin Business Finance was among a number of
lenders to receive a notice of intent to sue from the Attorney
General of New York. In January 2005, Irwin Business Finance
reached an agreement with the New York Attorney General in
connection with the five NorVergence-related leases Irwin
Business Finance has with New York lessees. The agreement calls
for, among other provisions, forgiveness of 90% of the remaining
principal balance due on the leases as of July 15, 2004
(approximately $116,000). Irwin Business Finance is also
communicating with other state attorneys general about ways in
which Irwin Business Finance might work with the states to bring
some relief to those who have suffered as a result of the
failure of NorVergence.

We are unable to form a reasonable estimate of
potential loss, if any, that Irwin Business Finance could suffer
as a result of ongoing litigation. Agreements with the various
state attorneys general, if reached, would tend to decrease
damages awarded, if any, in NorVergence-related class actions
and other lawsuits, because lessees who accept such agreements
would normally cease to be among potential class action
plaintiffs. We have not established reserves in connection with
NorVergence-related litigation.

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



|          |                                                      
|--------- | -----------------------------------------------------
|Note 14  | Financial Instruments With Off-Balance Sheet
    Risk

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

Our exposure to credit loss, in the form of
nonperformance by the counterparty on commitments to extend
credit and standby letters of credit, is represented by the
contractual amount of those instruments. Collateral pledged for
standby letters of credit and commitments varies but may include
accounts receivable; inventory; property, plant, and equipment;
and residential real estate. Total outstanding commitments to
extend credit at December 31, 2004 and 2003 were
$719.7 million and $546.5 million, respectively. These
loan commitments include $661.1 million of floating rate
loan commitments and $58.6 million of fixed rate loan
commitments. We had approximately $24.6 million and
$30.8 million in irrevocable standby letters of credit
outstanding at December 31, 2004 and 2003, respectively.



|          |                                 
|--------- | --------------------------------
|Note 15  | Derivative Financial Instruments

Financial derivatives are used as part of the
overall asset/liability risk management process. We use certain
derivative instruments that do not qualify for hedge accounting
treatment under SFAS 133. These derivatives are classified
as Other assets and Other liabilities
and marked to market on the income statement. While we do not
seek 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.

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In March 2003, we entered into an interest rate
swap that has a notional amount (which does not represent the
amount at risk) of $25 million as of December 31,
2004. Under the terms of the swap agreement, we receive a fixed
rate of interest and pay a floating rate of interest based upon
one-month LIBOR. We recognized a loss of $0.2 million
included in derivative gains (losses) during the
year ended December 31, 2004 related to this swap. By
receiving a fixed rate of interest and paying a floating rate on
the swap, we are converting the economics of a
$25 million fixed rate funding source into a floating rate
funding source. Additionally we entered into an interest rate
swap that met the criteria for the application of SFAS 133
hedge treatment accounting. This swap has a notional amount
(which does not represent the amount of risk) of
$10 million to hedge a fixed rate certificate of deposit.
Under the terms of the swap agreement, we receive a fixed rate
of interest and pay a floating rate of interest based upon
three-month LIBOR.

We enter into forward contracts to protect
against interest rate fluctuations from the date of mortgage
loan commitment until the loans are sold. A portion of the
transactions hedging the closed mortgage loans qualifies for
hedge accounting treatment under SFAS 133. The notional
amount of our forward contracts (which does not represent the
amount at risk) totaled $1.0 billion at December 31,
2004. The closed mortgage loans hedged by forward contracts
qualify for hedge accounting treatment under SFAS 133. The
basis of the hedged closed loans is adjusted for change in value
associated with the risk being hedged. We value closed loan
contracts at period end based upon the current secondary market
value of securities with similar characteristics. The unrealized
loss on our forward contracts at December 31, 2004 was
$0.5 million and the hedge ineffectiveness in 2004 was a
loss of $2.7 million. The effect of these hedging
activities was recorded through earnings as a component of
Gain from sale of loans.

We enter into commitments to originate mortgage
loans whereby the interest rate on the loan is determined prior
to funding (rate lock commitments). Rate lock commitments on
loans intended to be sold are considered to be derivatives. We
record changes in the fair value of these commitments based upon
the current secondary market value of securities with similar
characteristics. For 2004, a net decrease in fair value of these
derivatives totaling $6.5 million was recorded in
Gain from sale of loans. At December 31, 2004,
we had a notional amount of rate lock commitments outstanding
totaling $0.9 billion with a fair value of
$1.5 million. Notional amounts do not represent the amount
of risk.

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



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | In two instances, this funding mismatch is
    lessened by a combination of amortizing interest rate caps and
    Eurodollar futures contracts. The interest rate caps have a
    strike price of 5% and provide protection against a large
    increase in short-term interest rates. As of December 31,
    2004, the notional value and 2004 loss on the interest rate caps
    were $26 million and $43 thousand, respectively. As of
    December 31, 2004, the total notional amount and
    year-to-date gain on the Eurodollar futures were
    $95 million and $40 thousand, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| |  | Beginning in the fourth quarter of 2003, on
    several occasions we have delivered fixed rate leases into a
    second commercial paper conduit. Although the leases and funding
    were in Canadian dollars (CAD), the interest rate mismatch is
    similar in nature to that described above. To lessen the
    repricing mismatch between fixed rate CAD-denominated leases and
    floating rate CAD commercial paper, a series of four amortizing
    CAD interest rate swaps have been executed, although Irwin is
    only a counterparty on three of the swaps. The fourth swap is
    between the commercial paper conduit and an outside party, but
    affects the conduit funding cost that is charged to Irwin. For
    the first and second of the three swaps on Irwins books,
    we pay a fixed rate of interest and receive a floating rate. For
    the third swap, we pay a floating rate of interest and receive a
    fixed rate. The U.S. dollar-equivalents of the CAD-based
    notional and year-to-date losses on these swaps at
    December 31, 2004 were $176.4 million and
    $0.6 million, respectively.

Certain of our home equity fixed rate residual
interests are funded with floating rate liabilities. Starting in
the first quarter of 2004, we began entering into Eurodollar
futures contracts to manage such mismatches. The original
positions taken are typically rebalanced quarterly. The current
notional value outstanding is $495 million (which does not
represent the amount at risk) with expiration dates ranging from
March 2005

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through September 2006. As of December 31,
2004, the fair value and year-to-date gain recorded on these
contracts were $0.5 million and $0.9 million,
respectively.


In connection with certain of our whole loan
servicing retained second mortgage sales we have the opportunity
to earn an additional incentive servicing fee (ISF) in the
future. The whole loan sales have been to firms, (the buyers)
who securitize the loans and contract with us to service the
loans. We recognize a mortgage servicing asset or liability for
these contracts. As a part of the buyers securitizations,
the buyers issue an Incentive Servicing Agreement to us as
Master Servicer. Once a pre-established return for the
certificate holders has been met, the ISF provides potential
cash payments to us in the event certain structure-specific loan
credit and servicing performance metrics are met. We have
characterized these contracts as derivative instruments.
Included in Derivative gains or losses for the year
ended December 31, 2004 was a $4.5 million gain
related to these incentive servicing fees based upon actual and
projected performance of the underlying pools of loans. Of the
$4.5 million recognized during the year, $1.0 million
was the result of cash collections and $3.5 million
represented the projected value of future cash payments, present
valued using a discount rate of 30%. In total, we have sold
$0.7 billion in loans for which we hold such derivative
contracts. Our accounting policy is to recognize a derivative
asset on a mark-to-market basis at such time that the credit and
prepayment performance models we use for valuing like pools of
loans indicate that we are more likely than not to receive cash
payments on the derivatives. We use assumptions to value the
ISFs that we believe market participants would use to value
similar assets. As of December 31, 2004, only two of six
whole loan sales representing $101.6 million of underlying
loans have met this expected performance trigger.

We manage the interest rate risk associated with
our mortgage servicing rights at our mortgage banking and
commercial banking lines of business through the use of
swaptions and Eurodollar futures contracts. Both the options and
futures contracts were marked-to-market and included in
Other assets with changes in value recorded in the
consolidated income statements as Derivative gains or
losses. At December 31, 2004, we held open swaption
positions with a notional value (which does not represent the
amount at risk) totaling $9.7 billion, with a final
maturity ranging from January 2005 to March 2005. In 2004 we
recorded gains on swaptions, including premiums paid, totaling
$23.5 million. We held no Eurodollar futures contracts at
December 31, 2004, but we recorded losses of
$4.4 million on contracts held during the year. The size
and mix of these positions change during the year, so period-end
positions may not be indicative of our net risk exposure
throughout the year.

We are subject to basis risk in the management of
our servicing portfolio. Currently, the basis risk is moving in
a manner opposite to historic patterns, negatively affecting
management of these assets. As discussed in more detail in the
section of this report on Interest Rate Risk, we
have approximately $1.6 million of mortgage servicing
rights at risk to each one basis point change in interest rates.
We typically counter-act this risk with the use of derivatives
with a similar basis point value. Over time, this hedge has
performed well in mitigating loss in value when interest rates
have declined and has been structured in such a manner so that
we can recapture some of the increase in value of servicing
rights as rates rise, without losing an equal amount on our
derivatives. Over the past six months, however, basis risk in
our servicing asset and derivative position has caused our
hedging position to be less effective than it has been
historically as recent declines in mortgage rates has not been
matched with equal declines in swap rates.

Finally, while basis risk exhibits stability over
longer periods of time, over shorter periods there can be
separation in the relative spreads of interest rates and indices
used to value mortgage servicing rights and the financial
derivatives we use to hedge the change in value in mortgage
servicing rights. At times this basis risk benefits us and at
other times it does not. It is generally not possible to
eliminate this basis risk. It is possible, therefore, that our
balanced revenue strategy may be successful as measured over
several quarters or years, but may have market-based variances
if measured over short periods such as quarters.

We own foreign currency forward contracts to
protect the U.S. dollar value of intercompany loans made to
Onset Capital Corporation that are denominated in Canadian
dollars. We had a notional amount of $48 million in forward
contracts outstanding as of December 31, 2004. In 2004, we
recognized losses on these contracts of $3.2 million. These
contracts are marked-to-market with gains and losses included in
Derivative

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gains or losses on the consolidated income
statements. The foreign currency transaction gain on the
intercompany loans was $2.3 million for the year ended
December 31, 2004.




|          |           
|--------- | ----------
|Note 16  | Guarantees

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

We sell loans and commercial loan participation
interests to: (i) private investors; (ii) agency
investors including, but not limited to, Federal National
Mortgage Association (FNMA), Federal Home Loan Mortgage
Corporation (FHLMC), and Government National Mortgage
Association (GNMA); and (iii) other financial institutions.
Each loan sale is subject to certain terms and conditions, which
generally require us to indemnify and hold the investor harmless
against any loss arising from errors and omissions in the
origination, processing and/or underwriting of the loans. We are
subject to this risk for loans that we originate as well as
loans we acquire from brokers and correspondents. At
December 31, 2004 and 2003, we had approximately
$15.3 million and $21.6 million, respectively,
recorded as an estimate for losses that may occur as a result of
the guarantees described above based on trends in repurchase and
indemnification requests, actual loss experience, known and
inherent risks in the loans, and current economic conditions.
The length of the indemnification period, which varies by
investor and the nature of the potential defect may extend to
the life of the loan. Sold loans for which these guarantees
apply totaled approximately $11.7 billion in 2004 and
$22.9 billion in 2003.

We also sell home equity loans to private
investors. We have agreed to repurchase loans that do not
perform at agreed-upon levels. The repurchase period generally
ranges from 60-120 days after the settlement date. In
addition, a repurchase obligation may be triggered if a loan
does not meet specified representations related to credit
information, loan documentation and collateral. At
December 31, 2004 and 2003, respectively, we had
approximately $1.7 million and $0.8 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 $1.0 billion in 2004 and $0.7 billion in 2003.

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 $46.1 million at
December 31, 2004 and $49.3 million at
December 31, 2003 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, 2004 and
2003, we had $2.9 million and $2.1 million recorded as
an estimate for possible losses on these advances in other
liabilities.

We also service loans on behalf of private and
agency investors and occasionally sell the servicing rights on
these loans to third-party servicers. The typical servicing
contract requires us to indemnify and hold the investor harmless
against any loss arising from our failure to abide by the
servicing guidelines adopted by the investor or from our breach
of any representation or warranty made in connection with the
sale. Some of the more common servicing sale representations and
warranties include: (i) each loan is in full compliance
with investor requirements; insurer requirements; and federal,
state, and local laws and regulations; (ii) seller and all
prior servicers have serviced and maintained the loans in
accordance with investor requirements; and (iii) each
custodial file and all documents related thereto is true,
correct and complete in all material respects. The loss estimate
recorded for these guarantees at December 31, 2004 and
2003, was $1.3 million and $0.9 million.

We provide guarantees to third parties on behalf
of one of our subsidiaries related to operating lease payments
with maturity dates extending through 2007. The maximum
potential future payments guaranteed by us under these
arrangements is $14.8 million and $21.4 million at
December 31, 2004 and 2003, respectively.

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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, 2004
and 2003, our subsidiary had borrowings totaling
$95.3 million and $78 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, 2004,
our subsidiary had borrowings totaling $48.8 million for
which this guarantee applied.

We provided merchant processing services for
certain of our commercial customers. These services entail
accepting merchant deposits of credit card transactions. Under
credit card chargeback rules we are contingently liable for any
billing disputes between the card company and its customer. As
these disputes arise, the card company charged us and credited
its customer. We would then pass the chargeback on
to the depositing merchant. If for any reason the merchant was
unwilling or unable to reimburse us for its payment to the
credit card company, we bore the loss. During 2004 and 2003,
respectively, we accepted approximately $15.8 million and
$60.2 million in merchant deposits and received an
estimated $0.01 million and $0.1 million in
chargebacks. We incurred no losses on these chargebacks. This
portfolio was closed August 2004 and we no longer provide these
services.



|          |                   
|--------- | ------------------
|Note 17  | Regulatory Matters

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

Quantitative measures established by regulation
to ensure capital adequacy require minimum amounts and ratios
(set forth in the following table) of total and Tier I
capital (as defined in the regulations) to risk-weighted assets
(as defined), and Tier I capital to average assets (as
defined). We believe, as of December 31, 2004, 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 for Irwin Financial and Irwin Union Bank
and Trust of 11% and 12%, respectively.

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

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

|                                          |                             |                        |   |             |  |             |  |       |   |        |   |         |  |  |  |     |   |  |   |         |  |  |  |      |  
|----------------------------------------- | --------------------------- | ---------------------- | - | ----------- |  | ----------- |  | ----- | - | ------ | - | ------- |  |  |  | --- | - |  | - | ------- |  |  |  | ---- | -
|                                          |                             |                        |   |             |  |             |  |      
|                                          |                             |                        |   | Adequately  |  | Well       
|                                          |                             | Actual                 |   | Capitalized |  | Capitalized
|                                          |                             |                        |   |             |  |            
|                                          |                             | Amount                 |   | Ratio       |  | Amount      |  | Ratio |   | Amount |   | Ratio  
|                                          |                             |                        |   |             |  |             |  |       |   |        |   |        
|                                          |                             |                       
|                                          |                             | (Dollars in thousands)
|As of December 31, 2004                   |                             |                        |   |             |  |             |  |       |   |        |   |         |  |  |  |     |   |  |   |         |  |  |  |     
|Total Capital (to Risk-Weighted Assets):  |                             |                        |   |             |  |             |  |       |   |        |   |         |  |  |  |     |   |  |   |         |  |  |  |     
|                                          | Irwin Financial Corporation |                        | $ | 782,945     |  |             |  | 15.9  | % |        | $ | 394,455 |  |  |  | 8.0 | % |  | $ | 493,068 |  |  |  | 10.0 | %
|                                          | Irwin Union Bank and Trust  |                        |   | 645,817     |  |             |  | 14.6  |   |        |   | 353,636 |  |  |  | 8.0 |   |  |   | 442,045 |  |  |  | 10.0 |  
|                                          | Irwin Union Bank, F.S.B.    |                        |   | 40,880      |  |             |  | 14.3  |   |        |   | 22,922  |  |  |  | 8.0 |   |  |   | 28,652  |  |  |  | 10.0 |  
|Tier I Capital (to Risk-Weighted Assets): |                             |                        |   |             |  |             |  |       |   |        |   |         |  |  |  |     |   |  |   |         |  |  |  |     
|                                          | Irwin Financial Corporation |                        |   | 641,079     |  |             |  | 13.0  |   |        |   | 197,227 |  |  |  | 4.0 |   |  |   | 295,841 |  |  |  | 6.0  |  
|                                          | Irwin Union Bank and Trust  |                        |   | 572,844     |  |             |  | 13.0  |   |        |   | 176,818 |  |  |  | 4.0 |   |  |   | 265,227 |  |  |  | 6.0  |  
|                                          | Irwin Union Bank, F.S.B.    |                        |   | 39,636      |  |             |  | 13.8  |   |        |   | N/A     |  |  |  |     |   |  |   | 17,191  |  |  |  | 6.0  |  

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|                                           |                             |                        |   |             |  |             |  |       |   |        |   |         |  |  |  |     |   |  |   |         |  |  |  |      |  
|------------------------------------------ | --------------------------- | ---------------------- | - | ----------- |  | ----------- |  | ----- | - | ------ | - | ------- |  |  |  | --- | - |  | - | ------- |  |  |  | ---- | -
|                                           |                             |                        |   |             |  |             |  |      
|                                           |                             |                        |   | Adequately  |  | Well       
|                                           |                             | Actual                 |   | Capitalized |  | Capitalized
|                                           |                             |                        |   |             |  |            
|                                           |                             | Amount                 |   | Ratio       |  | Amount      |  | Ratio |   | Amount |   | Ratio  
|                                           |                             |                        |   |             |  |             |  |       |   |        |   |        
|                                           |                             |                       
|                                           |                             | (Dollars in thousands)
|Tier I Capital (to Average Assets):        |                             |                        |   |             |  |             |  |       |   |        |   |         |  |  |  |     |   |  |   |         |  |  |  |     
|                                           | Irwin Financial Corporation |                        |   | 641,079     |  |             |  | 11.6  |   |        |   | 222,094 |  |  |  | 4.0 |   |  |   | 277,618 |  |  |  | 5.0  |  
|                                           | Irwin Union Bank and Trust  |                        |   | 572,844     |  |             |  | 11.3  |   |        |   | 202,986 |  |  |  | 4.0 |   |  |   | 253,732 |  |  |  | 5.0  |  
|Core Capital (to Adjusted Tangible Assets) |                             |                        |   |             |  |             |  |       |   |        |   |         |  |  |  |     |   |  |   |         |  |  |  |     
|                                           | Irwin Union Bank, F.S.B.    |                        |   | 39,636      |  |             |  | 10.6  |   |        |   | 14,984  |  |  |  | 4.0 |   |  |   | 18,730  |  |  |  | 5.0  |  
|Tangible Capital (to Tangible Assets)      |                             |                        |   |             |  |             |  |       |   |        |   |         |  |  |  |     |   |  |   |         |  |  |  |     
|                                           | Irwin Union Bank, F.S.B.    |                        |   | 39,636      |  |             |  | 10.6  |   |        |   | 5,619   |  |  |  | 1.5 |   |  |   | N/A     |  |  |  |      |  
|As of December 31, 2003                    |                             |                        |   |             |  |             |  |       |   |        |   |         |  |  |  |     |   |  |   |         |  |  |  |     
|Total Capital (to Risk-Weighted Assets):   |                             |                        |   |             |  |             |  |       |   |        |   |         |  |  |  |     |   |  |   |         |  |  |  |     
|                                           | Irwin Financial Corporation |                        | $ | 740,531     |  |             |  | 15.1  | % |        | $ | 391,304 |  |  |  | 8.0 | % |  | $ | 489,130 |  |  |  | 10.0 | %
|                                           | Irwin Union Bank and Trust  |                        |   | 605,475     |  |             |  | 14.0  |   |        |   | 345,512 |  |  |  | 8.0 |   |  |   | 431,890 |  |  |  | 10.0 |  
|                                           | Irwin Union Bank, F.S.B.    |                        |   | 41,459      |  |             |  | 19.1  |   |        |   | 17,333  |  |  |  | 8.0 |   |  |   | 21,666  |  |  |  | 10.0 |  
|Tier I Capital (to Risk-Weighted Assets):  |                             |                        |   |             |  |             |  |       |   |        |   |         |  |  |  |     |   |  |   |         |  |  |  |     
|                                           | Irwin Financial Corporation |                        |   | 556,793     |  |             |  | 11.4  |   |        |   | 195,652 |  |  |  | 4.0 |   |  |   | 293,478 |  |  |  | 6.0  |  
|                                           | Irwin Union Bank and Trust  |                        |   | 520,996     |  |             |  | 12.1  |   |        |   | 172,756 |  |  |  | 4.0 |   |  |   | 259,134 |  |  |  | 6.0  |  
|                                           | Irwin Union Bank, F.S.B.    |                        |   | 40,432      |  |             |  | 18.7  |   |        |   | N/A     |  |  |  |     |   |  |   | 13,000  |  |  |  | 6.0  |  
|Tier I Capital (to Average Assets):        |                             |                        |   |             |  |             |  |       |   |        |   |         |  |  |  |     |   |  |   |         |  |  |  |     
|                                           | Irwin Financial Corporation |                        |   | 556,793     |  |             |  | 11.2  |   |        |   | 199,620 |  |  |  | 4.0 |   |  |   | 249,524 |  |  |  | 5.0  |  
|                                           | Irwin Union Bank and Trust  |                        |   | 520,996     |  |             |  | 11.2  |   |        |   | 186,481 |  |  |  | 4.0 |   |  |   | 233,101 |  |  |  | 5.0  |  
|Core Capital (to Adjusted Tangible Assets) |                             |                        |   |             |  |             |  |       |   |        |   |         |  |  |  |     |   |  |   |         |  |  |  |     
|                                           | Irwin Union Bank, F.S.B.    |                        |   | 40,432      |  |             |  | 8.7   |   |        |   | 18,565  |  |  |  | 4.0 |   |  |   | 23,206  |  |  |  | 5.0  |  
|Tangible Capital (to Tangible Assets)      |                             |                        |   |             |  |             |  |       |   |        |   |         |  |  |  |     |   |  |   |         |  |  |  |     
|                                           | Irwin Union Bank, F.S.B.    |                        |   | 40,432      |  |             |  | 8.7   |   |        |   | 6,962   |  |  |  | 1.5 |   |  |   | N/A     |  |  |  |      |  



|          |                                     
|--------- | ------------------------------------
|Note 18  | Fair Values of Financial Instruments

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

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

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

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

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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 methodologies discussed in Note 15.

Off-balance sheet loan commitments and standby
letters of credit had an immaterial estimated fair value at
December 31, 2004 and 2003. As of December 31, 2004
and 2003, our loan commitments had a notional amount of
$719.7 million and $546.5 million, respectively. Our
standby letters of credit had a notional amount of
$24.6 million and $30.8 million at December 31,
2004 and 2003, respectively.

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

|                                                          |  |                        |           |                |  |          |           |                |  |   |           |  |  |   |           | 
|--------------------------------------------------------- |  | ---------------------- | --------- | -------------- |  | -------- | --------- | -------------- |  | - | --------- |  |  | - | --------- | 
|                                                          |  |                        |           |               
|                                                          |  | 2004                   |           | 2003          
|                                                          |  |                        |           |               
|                                                          |  | Carrying               |           | Estimated Fair |  | Carrying |           | Estimated Fair
|                                                          |  | Amount                 |           | Value          |  | Amount   |           | Value         
|                                                          |  |                        |           |                |  |          |           |               
|                                                          |  |                       
|                                                          |  | (Dollars in thousands)
|Financial assets:                                         |  |                        |           |                |  |          |           |                |  |   |           |  |  |   |           | 
|Cash and cash equivalents                                 |  | $                      | 97,101    |                |  | $        | 97,101    |                |  | $ | 140,810   |  |  | $ | 140,810   | 
|Interest-bearing deposits with financial
    institutions |  |                        | 58,936    |                |  |          | 58,755    |                |  |   | 81,166    |  |  |   | 81,365    | 
|Residual interests                                        |  |                        | 56,101    |                |  |          | 56,101    |                |  |   | 71,491    |  |  |   | 71,491    | 
|Investment securities                                     |  |                        | 108,222   |                |  |          | 108,232   |                |  |   | 92,525    |  |  |   | 92,540    | 
|Loans held for sale                                       |  |                        | 890,711   |                |  |          | 895,840   |                |  |   | 883,895   |  |  |   | 884,803   | 
|Loans and leases, net of unearned discount                |  |                        | 3,450,440 |                |  |          | 3,480,603 |                |  |   | 3,161,054 |  |  |   | 3,224,674 | 
|Servicing asset                                           |  |                        | 367,032   |                |  |          | 371,887   |                |  |   | 380,123   |  |  |   | 393,540   | 
|Derivatives                                               |  |                        | 6,400     |                |  |          | 6,400     |                |  |   | 12,809    |  |  |   | 12,809    | 
|Financial liabilities:                                    |  |                        |           |                |  |          |           |                |  |   |           |  |  |   |           | 
|Deposits                                                  |  |                        | 3,395,263 |                |  |          | 3,337,705 |                |  |   | 2,899,662 |  |  |   | 2,880,075 | 
|Short-term borrowings                                     |  |                        | 237,277   |                |  |          | 237,312   |                |  |   | 429,758   |  |  |   | 429,759   | 
|Collateralized debt                                       |  |                        | 547,477   |                |  |          | 529,383   |                |  |   | 590,131   |  |  |   | 581,862   | 
|Other long-term debt                                      |  |                        | 270,172   |                |  |          | 280,674   |                |  |   | 270,184   |  |  |   | 279,704   | 
|Derivatives                                               |  |                        | 996       |                |  |          | 996       |                |  |   | 29,851    |  |  |   | 29,851    | 

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

Note 19  Shareholders
Equity

We have a stock plan that provides up to
300,000 shares of our common stock to be used to compensate
Business Development Board members. During 2004 and 2003,
8,078 shares and 11,289 shares were issued at a
weighted average price of $27.19 and $20.27, respectively, as
part of this plan.

We also have a stock plan to compensate our
Directors with our common stock, if so elected, in lieu of cash
for their annual retainer and meeting fees. The number of shares
issued under the plan is based on the

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current market value of our common stock. In 2004
and 2003, respectively, we granted 8,784 and 23,776 shares
under this plan at a weighted average fair value of $28.86 and
$17.14. In addition, we have an employee stock purchase plan for
all qualified employees. The plan provides for employees to
purchase common stock through payroll deduction at approximately
85% of the current market value.


We have two stock option plans (established in
1997 and 1992) that provide for the issuance of
2,840,000 shares of non-qualified and incentive stock
options. In addition, the 2001 stock plan provides for the
issuance of 4,000,000 of non-qualified and incentive stock
options, stock appreciation rights, restricted stock, and
phantom stock units. An additional 2,000,000 of stock
appreciation rights may be granted under this plan. For all
plans, the exercise price of each option, which has a ten-year
life and a vesting period of four years beginning the year
granted, is equal to the market price of our stock on the grant
date. Vested outstanding stock options have been considered as
common stock equivalents in the computation of diluted earnings
per share. In 2004 and 2003, we awarded 12,901 shares and
8,796 shares of common stock in restricted stock grants at
a weighted average fair value of $26.35 and $25.51 through this
plan, respectively.

Activity in the above plans for 2004, 2003, and
2002 is summarized as follows:

|                                         |           |           |           |                |   |           |       |                |  |           |           |                |   |   |       |       |  |  |           |          |   |   |       |       | 
|---------------------------------------- | --------- | --------- | --------- | -------------- | - | --------- | ----- | -------------- |  | --------- | --------- | -------------- | - | - | ----- | ----- |  |  | --------- | -------- | - | - | ----- | ----- | 
|                                         |           |           |           |                |   |          
|                                         |           | 2004      |           | 2003           |   | 2002     
|                                         |           |           |           |                |   |          
|                                         |           |           |           | Weighted       |   |           |       | Weighted       |  |           |           | Weighted      
|                                         |           | Number of |           | average        |   | Number of |       | average        |  | Number of |           | average       
|                                         |           | shares    |           | exercise price |   | shares    |       | exercise price |  | shares    |           | exercise price
|                                         |           |           |           |                |   |           |       |                |  |           |           |               
|Outstanding at the beginning of the year |           |           | 2,170,791 |                |   | $         | 19.28 |                |  |           | 2,083,156 |                |   | $ | 17.22 |       |  |  | 1,673,908 |          |   | $ | 17.02 |      
|                                         | Granted   |           |           | 374,501        |   |           |       | 24.44          |  |           |           | 574,421        |   |   |       | 22.36 |  |  |           | 532,180  |   |   |       | 16.10 | 
|                                         | Exercised |           |           | (249,175       | ) |           |       | 19.15          |  |           |           | (420,118       | ) |   |       | 13.30 |  |  |           | (100,701 | ) |   |       | 7.19  | 
|                                         | Canceled  |           |           | (67,711        | ) |           |       | 21.75          |  |           |           | (66,668        | ) |   |       | 19.18 |  |  |           | (22,231  | ) |   |       | 20.91 | 
|                                         |           |           |           |                |   |           |       |                |  |           |           |                |   |   |       |       |  |  |           |          |   |   |       |      
|Outstanding at the end of the year       |           |           | 2,228,406 |                |   |           | 20.08 |                |  |           | 2,170,791 |                |   |   | 19.28 |       |  |  | 2,083,156 |          |   |   | 17.22 |      
|                                         |           |           |           |                |   |           |       |                |  |           |           |                |   |   |       |       |  |  |           |          |   |   |       |      
|Exercisable at the end of the year       |           |           | 1,609,867 |                |   | $         | 19.27 |                |  |           | 1,428,465 |                |   | $ | 18.70 |       |  |  | 1,410,766 |          |   | $ | 16.89 |      
|                                         |           |           |           |                |   |           |       |                |  |           |           |                |   |   |       |       |  |  |           |          |   |   |       |      

The table below shows options outstanding and
exercisable by price range as of December 31, 2004.

|                         |  |                     |           |                     |  |                |      |                   |  |                |       |  |  |  |           |  |  |   |       | 
|------------------------ |  | ------------------- | --------- | ------------------- |  | -------------- | ---- | ----------------- |  | -------------- | ----- |  |  |  | --------- |  |  | - | ----- | 
|                         |  |                     |           |                    
|                         |  | OPTIONS OUTSTANDING |           | OPTIONS EXERCISABLE
|                         |  |                     |           |                    
|                         |  |                     |           | Weighted            |  |                |      |                  
|                         |  | Number              |           | Average             |  | Weighted       |      | Number            |  | Weighted      
|                         |  | Outstanding as of   |           | Remaining           |  | Average        |      | Exercisable as of |  | Average       
|Range of Exercise Prices |  | December 31, 2004   |           | Contractual Life    |  | Exercise Price |      | December 31, 2004 |  | Exercise Price
|                         |  |                     |           |                     |  |                |      |                   |  |               
|$ 7.84 - $15.31          |  |                     | 260,466   |                     |  |                | 1.56 |                   |  | $              | 11.11 |  |  |  | 260,466   |  |  | $ | 11.11 | 
|$15.31 - $18.69          |  |                     | 576,363   |                     |  |                | 6.51 |                   |  |                | 16.27 |  |  |  | 476,363   |  |  |   | 16.34 | 
|$18.69 - $21.38          |  |                     | 269,785   |                     |  |                | 6.63 |                   |  |                | 21.01 |  |  |  | 244,858   |  |  |   | 21.15 | 
|$21.38 - $23.43          |  |                     | 500,011   |                     |  |                | 8.14 |                   |  |                | 22.54 |  |  |  | 276,461   |  |  |   | 22.61 | 
|$23.43 - $31.44          |  |                     | 621,781   |                     |  |                | 7.25 |                   |  |                | 25.00 |  |  |  | 351,719   |  |  |   | 25.35 | 
|                         |  |                     |           |                     |  |                |      |                   |  |                |       |  |  |  |           |  |  |   |       | 
|$ 7.84 - $31.44          |  |                     | 2,228,406 |                     |  |                | 6.52 |                   |  | $              | 20.08 |  |  |  | 1,609,867 |  |  | $ | 19.27 | 
|                         |  |                     |           |                     |  |                |      |                   |  |                |       |  |  |  |           |  |  |   |       | 

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Note 20  Earnings Per
Share

Earnings per share calculations are summarized as
follow:

|                        |                                                         |                                                  |   |           |  |           |   |             |   |           |   |       |   |  |   |       |   |  |   |        | 
|----------------------- | ------------------------------------------------------- | ------------------------------------------------ | - | --------- |  | --------- | - | ----------- | - | --------- | - | ----- | - |  | - | ----- | - |  | - | ------ | 
|                        |                                                         | Basic                                            |   | Effect of |  | Effect of |   | Effect of   |   | Diluted  
|                        |                                                         | Earnings                                         |   | Stock     |  | Preferred |   | Convertible |   | Earnings 
|                        |                                                         | Per Share                                        |   | Options   |  | Shares    |   | Shares      |   | Per Share
|                        |                                                         |                                                  |   |           |  |           |   |             |   |          
|                        |                                                         |                                                 
|                        |                                                         | (Dollars in thousands, except per share amounts)
|Year ended December 31, |                                                         |                                                  |   |           |  |           |   |             |   |           |   |       |   |  |   |       |   |  |   |       
|2004                    |                                                         |                                                  |   |           |  |           |   |             |   |           |   |       |   |  |   |       |   |  |   |       
|                        | Net income available to common shareholders             |                                                  | $ | 69,904    |  |           | $ |            |   |           | $ |      |   |  | $ | 2,712 |   |  | $ | 72,616 | 
|                        | Shares                                                  |                                                  |   | 28,274    |  |           |   | 397         |   |           |   |      |   |  |   | 2,607 |   |  |   | 31,278 | 
|                        |                                                         |                                                  |   |           |  |           |   |             |   |           |   |       |   |  |   |       |   |  |   |       
|                        | Per-share amount                                        |                                                  | $ | 2.47      |  |           | $ | (0.03       | ) |           | $ |      |   |  | $ | (0.12 | ) |  | $ | 2.32   | 
|                        |                                                         |                                                  |   |           |  |           |   |             |   |           |   |       |   |  |   |       |   |  |   |       
|2003                    |                                                         |                                                  |   |           |  |           |   |             |   |           |   |       |   |  |   |       |   |  |   |       
|                        | Net income available to common shareholders             |                                                  | $ | 72,817    |  |           | $ |            |   |           | $ |      |   |  | $ | 2,715 |   |  | $ | 75,532 | 
|                        | Shares                                                  |                                                  |   | 27,915    |  |           |   | 325         |   |           |   |      |   |  |   | 2,610 |   |  |   | 30,850 | 
|                        |                                                         |                                                  |   |           |  |           |   |             |   |           |   |       |   |  |   |       |   |  |   |       
|                        | Per-share amount                                        |                                                  | $ | 2.61      |  |           | $ | (0.03       | ) |           | $ |      |   |  | $ | (0.13 | ) |  | $ | 2.45   | 
|                        |                                                         |                                                  |   |           |  |           |   |             |   |           |   |       |   |  |   |       |   |  |   |       
|2002                    |                                                         |                                                  |   |           |  |           |   |             |   |           |   |       |   |  |   |       |   |  |   |       
|                        | Net income available to common shareholders             |                                                  | $ | 52,833    |  |           | $ |            |   |           | $ |      |   |  | $ | 2,801 |   |  | $ | 55,634 | 
|                        | Shares                                                  |                                                  |   | 26,829    |  |           |   | 164         |   |           |   | 72    |   |  |   | 2,610 |   |  |   | 29,675 | 
|                        |                                                         |                                                  |   |           |  |           |   |             |   |           |   |       |   |  |   |       |   |  |   |       
|                        | Per-share amount                                        |                                                  |   | 1.97      |  |           |   | (0.01       | ) |           |   | (0.01 | ) |  |   | (0.08 | ) |  |   | 1.87   | 
|                        |                                                         |                                                  |   |           |  |           |   |             |   |           |   |       |   |  |   |       |   |  |   |       
|                        | Cumulative effect of change in accounting
    principle |                                                  |   | 495       |  |           |   |             |   |           |   |       |   |  |   |       |   |  |   | 495    | 
|                        |                                                         |                                                  |   |           |  |           |   |             |   |           |   |       |   |  |   |       |   |  |   |       
|                        | Per-share amount                                        |                                                  |   | 0.02      |  |           |   |             |   |           |   |       |   |  |   |       |   |  |   | 0.02   | 
|                        |                                                         |                                                  |   |           |  |           |   |             |   |           |   |       |   |  |   |       |   |  |   |       
|                        | Net income                                              |                                                  |   | 53,328    |  |           |   |             |   |           |   |       |   |  |   |       |   |  |   | 56,129 | 
|                        |                                                         |                                                  |   |           |  |           |   |             |   |           |   |       |   |  |   |       |   |  |   |       
|                        | Per-share amount                                        |                                                  | $ | 1.99      |  |           |   |             |   |           |   |       |   |  |   |       |   |  | $ | 1.89   | 
|                        |                                                         |                                                  |   |           |  |           |   |             |   |           |   |       |   |  |   |       |   |  |   |       

In 2004, 2003 and 2002, 93,994, 398,544 and
758,030 shares, respectively, related to stock options that
were not included in the dilutive earnings per share calculation
because they were antidilutive.



|          |             
|--------- | ------------
|Note 21  | Income Taxes

In the U.S., the Corporation and our subsidiaries
file and pay federal taxes as a consolidated entity. One of our
subsidiaries, Onset Capital Corporation (and related entities),
files and pays taxes to certain Canadian

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


|                    |         |                        |        |        |   |      |        |        |   |   |         |         |  
|------------------- | ------- | ---------------------- | ------ | ------ | - | ---- | ------ | ------ | - | - | ------- | ------- | -
|                    |         | 2004                   |        | 2003   |   | 2002
|                    |         |                        |        |        |   |     
|                    |         |                       
|                    |         | (Dollars in thousands)
|Current:            |         |                        |        |        |   |      |        |        |   |   |         |        
|                    | Federal |                        | $      | 24,184 |   |      | $      | (254   | ) |   | $       | 71,309  |  
|                    | State   |                        |        | 6,378  |   |      |        | 384    |   |   |         | 17,260  |  
|                    | Foreign |                        |        | 3,639  |   |      |        | 2,196  |   |   |         |        |  
|                    |         |                        |        |        |   |      |        |        |   |   |         |        
|                    |         |                        | 34,201 |        |   |      | 2,326  |        |   |   | 88,569  |        
|                    |         |                        |        |        |   |      |        |        |   |   |         |        
|Deferred:           |         |                        |        |        |   |      |        |        |   |   |         |        
|                    | Federal |                        |        | 11,263 |   |      |        | 36,627 |   |   |         | (44,551 | )
|                    | State   |                        |        | 2,685  |   |      |        | 8,732  |   |   |         | (10,620 | )
|                    | Foreign |                        |        | (355   | ) |      |        | (2,100 | ) |   |         |        |  
|                    |         |                        |        |        |   |      |        |        |   |   |         |        
|                    |         |                        | 13,593 |        |   |      | 43,259 |        |   |   | (55,171 | )      
|                    |         |                        |        |        |   |      |        |        |   |   |         |        
|Income tax expense: |         |                        |        |        |   |      |        |        |   |   |         |        
|                    | Federal |                        |        | 35,447 |   |      |        | 36,373 |   |   |         | 26,758  |  
|                    | State   |                        |        | 9,063  |   |      |        | 9,116  |   |   |         | 6,640   |  
|                    | Foreign |                        |        | 3,284  |   |      |        | 96     |   |   |         |        |  
|                    |         |                        |        |        |   |      |        |        |   |   |         |        
|                    |         | $                      | 47,794 |        |   | $    | 45,585 |        |   | $ | 33,398  |        
|                    |         |                        |        |        |   |      |        |        |   |   |         |        

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:

|                                            |                                                              |                        |        |        |   |      |        |        |   |   |        |       |  
|------------------------------------------- | ------------------------------------------------------------ | ---------------------- | ------ | ------ | - | ---- | ------ | ------ | - | - | ------ | ----- | -
|                                            |                                                              | 2004                   |        | 2003   |   | 2002
|                                            |                                                              |                        |        |        |   |     
|                                            |                                                              |                       
|                                            |                                                              | (Dollars in thousands)
|Income taxes computed at the statutory rate |                                                              | $                      | 41,194 |        |   | $    | 41,441 |        |   | $ | 30,181 |      
|Increase (decrease) resulting from:         |                                                              |                        |        |        |   |      |        |        |   |   |        |      
|                                            | Nontaxable interest from investment securities
    and loans |                        |        | (107   | ) |      |        | (115   | ) |   |        | (127  | )
|                                            | State tax, net of federal benefit                            |                        |        | 5,891  |   |      |        | 5,926  |   |   |        | 4,316 |  
|                                            | Taxes related to foreign operations                          |                        |        | 1,860  |   |      |        | (1,112 | ) |   |        |      |  
|                                            | Other items, net                                             |                        |        | (1,044 | ) |      |        | (555   | ) |   |        | (972  | )
|                                            |                                                              |                        |        |        |   |      |        |        |   |   |        |      
|                                            |                                                              | $                      | 47,794 |        |   | $    | 45,585 |        |   | $ | 33,398 |      
|                                            |                                                              |                        |        |        |   |      |        |        |   |   |        |      

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Our net deferred tax assets and liabilities
consisted of the following:

|                          |                                     |                        |          |          |   |  |          |          |  
|------------------------- | ----------------------------------- | ---------------------- | -------- | -------- | - |  | -------- | -------- | -
|                          |                                     |                       
|                          |                                     | December 31,          
|                          |                                     |                       
|                          |                                     | 2004                   |          | 2003    
|                          |                                     |                        |          |         
|                          |                                     |                       
|                          |                                     | (Dollars in thousands)
|Deferred tax assets:      |                                     |                        |          |          |   |  |          |         
|                          | Deferred securitization income      |                        | $        |         |   |  | $        | 5,406    |  
|                          | Allowance for loan and lease losses |                        |          | 24,247   |   |  |          | 34,348   |  
|                          | Deferred origination fees and costs |                        |          |         |   |  |          | 1,326    |  
|                          | Deferred compensation               |                        |          | 8,929    |   |  |          | 5,542    |  
|                          | Mark to market                      |                        |          | 4,746    |   |  |          | 4,921    |  
|                          | Net operating loss carryforward     |                        |          | 227      |   |  |          | 4,907    |  
|                          | Other, net                          |                        |          | 3,759    |   |  |          | 3,699    |  
|                          |                                     |                        |          |          |   |  |          |         
|                          |                                     |                        | 41,908   |          |   |  | 60,149   |         
|                          |                                     |                        |          |          |   |  |          |         
|Deferred tax liabilities: |                                     |                        |          |          |   |  |          |         
|                          | Mortgage servicing                  |                        |          | (134,414 | ) |  |          | (142,485 | )
|                          | Deferred securitization income      |                        |          | (1,433   | ) |  |          |         |  
|                          | Deferred origination fees and costs |                        |          | (1,525   | ) |  |          |         |  
|                          | Retirement benefits                 |                        |          |         |   |  |          | (284     | )
|                          | Fixed assets                        |                        |          | (4,556   | ) |  |          | (3,807   | )
|                          |                                     |                        |          |          |   |  |          |         
|                          |                                     |                        | (141,928 | )        |   |  | (146,576 | )       
|                          |                                     |                        |          |          |   |  |          |         
|                          | Net deferred tax liability          |                        | $        | (100,020 | ) |  | $        | (86,427  | )
|                          |                                     |                        |          |          |   |  |          |         

Note 22  Employee Retirement
Plans

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

The matching vests 20% after one year, 40% after
two years, 60% after three years, 80% after four years, and 100%
after 5 years. The expense to match employee contributions
for the years ended December 31, 2004, 2003 and 2002 was
$3.6 million, $2.7 million and $2.0 million,
respectively.

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

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

|                                     |                                               |                        |        |        |  |   |        |        | 
|------------------------------------ | --------------------------------------------- | ---------------------- | ------ | ------ |  | - | ------ | ------ | 
|                                     |                                               |                       
|                                     |                                               | December 31,          
|                                     |                                               |                       
|                                     |                                               | 2004                   |        | 2003  
|                                     |                                               |                        |        |       
|                                     |                                               |                       
|                                     |                                               | (Dollars in thousands)
|Change in benefit obligation:        |                                               |                        |        |        |  |   |        |       
|Benefit obligation at January 1,     |                                               | $                      | 24,321 |        |  | $ | 19,317 |       
|Service cost                         |                                               |                        | 2,127  |        |  |   | 1,395  |       
|Interest cost                        |                                               |                        | 1,488  |        |  |   | 1,295  |       
|Actuarial loss                       |                                               |                        | 2,040  |        |  |   | 2,861  |       
|Benefits paid                        |                                               |                        | (628   | )      |  |   | (547   | )     
|                                     |                                               |                        |        |        |  |   |        |       
|Benefit obligation at December 31,   |                                               |                        | 29,348 |        |  |   | 24,321 |       
|                                     |                                               |                        |        |        |  |   |        |       
|Change in plan assets:               |                                               |                        |        |        |  |   |        |       
|Fair value plan assets at January 1, |                                               |                        | 20,552 |        |  |   | 15,963 |       
|Actual return on plan assets         |                                               |                        | 2,383  |        |  |   | 4,236  |       
|Benefits paid                        |                                               |                        | (628   | )      |  |   | (547   | )     
|Employer contributions               |                                               |                        | 2,100  |        |  |   | 900    |       
|                                     |                                               |                        |        |        |  |   |        |       
|                                     | Fair value plan assets at December 31,        |                        |        | 24,407 |  |   |        | 20,552 | 
|                                     |                                               |                        |        |        |  |   |        |       
|Funded status                        |                                               |                        | (4,941 | )      |  |   | (3,769 | )     
|Unrecognized prior service cost      |                                               |                        | 310    |        |  |   | 347    |       
|Unrecognized net actuarial loss      |                                               |                        | 9,459  |        |  |   | 8,834  |       
|                                     |                                               |                        |        |        |  |   |        |       
|                                     | Net amount recognized as prepaid pension cost |                        | $      | 4,828  |  |   | $      | 5,412  | 
|                                     |                                               |                        |        |        |  |   |        |       

The accumulated benefit obligation for our plan
was $23.8 million and $19.7 million at
December 31, 2004 and 2003, respectively.

The net pension cost for 2004, 2003 and 2002
included the following components:

|                                   |                  |                        |        |       |  |      |        |       |  |   |        |       | 
|---------------------------------- | ---------------- | ---------------------- | ------ | ----- |  | ---- | ------ | ----- |  | - | ------ | ----- | 
|                                   |                  | 2004                   |        | 2003  |  | 2002
|                                   |                  |                        |        |       |  |     
|                                   |                  |                       
|                                   |                  | (Dollars in thousands)
|Service cost                       |                  | $                      | 2,127  |       |  | $    | 1,395  |       |  | $ | 1,122  |      
|Interest cost                      |                  |                        | 1,488  |       |  |      | 1,295  |       |  |   | 1,149  |      
|Expected return on plan assets     |                  |                        | (1,605 | )     |  |      | (1,252 | )     |  |   | (1,112 | )    
|Amortization of prior service cost |                  |                        | 37     |       |  |      | 37     |       |  |   | 52     |      
|Amortization of actuarial loss     |                  |                        | 638    |       |  |      | 684    |       |  |   | 396    |      
|                                   |                  |                        |        |       |  |      |        |       |  |   |        |      
|                                   | Net pension cost |                        | $      | 2,685 |  |      | $      | 2,159 |  |   | $      | 1,607 | 
|                                   |                  |                        |        |       |  |      |        |       |  |   |        |      

Weighted average assumptions:

|                                                                    |                                       |      |  |      |   |  |  |      |  
|------------------------------------------------------------------- | ------------------------------------- | ---- |  | ---- | - |  |  | ---- | -
|                                                                    |                                       | 2004 |  | 2003
|                                                                    |                                       |      |  |     
|To determine benefit obligations at
    December 31,                |                                       |      |  |      |   |  |  |     
|                                                                    | Discount rate                         |      |  | 5.75 | % |  |  | 6.00 | %
|                                                                    | Rate of average compensation increase |      |  | 3.83 |   |  |  | 3.83 |  
|To determine net periodic cost for the years
    ended December 31, |                                       |      |  |      |   |  |  |     
|                                                                    | Discount rate                         |      |  | 6.00 | % |  |  | 6.75 | %
|                                                                    | Return on plan assets                 |      |  | 8.00 |   |  |  | 8.00 |  
|                                                                    | Rate of average compensation increase |      |  | 3.83 |   |  |  | 3.83 |  

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

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pension portfolio. This resulted in the selection
of the 8.00% long-term rate of return on assets assumption
listed above.


Plan Assets

Our pension plan asset allocation at
December 31, 2004, and 2003, and target allocation for
2005, by asset category are as follows:

|                  |               |               |     |        |   |      |     |    |   |  |       |       |  
|----------------- | ------------- | ------------- | --- | ------ | - | ---- | --- | -- | - |  | ----- | ----- | -
|                  |               |               |     |       
|                  |               | Percentage of |     |       
|                  |               | Plan Assets   |     |       
|                  |               |               |     | Target
|Asset Category    |               | 2004          |     | 2003   |   | 2005
|                  |               |               |     |        |   |     
|Equity securities |               |               |     |        |   |      |     |    |   |  |       |      
|                  | Domestic      |               |     | 51     | % |      |     | 55 | % |  |       | 50-65 | %
|                  | International |               |     | 23     |   |      |     | 23 |   |  |       | 15-25 | %
|Corporate bonds   |               |               | 17  |        |   |      | 16  |    |   |  | 15-25 | %    
|Cash equivalents  |               |               | 9   |        |   |      | 6   |    |   |  | 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 $2.1 million and $0.9 million
to the plan on December 31, 2004 and 2003, respectively.
These cash contributions were invested in early January of the
subsequent year based on our target allocations. Since these
cash contributions had not yet been reinvested at
December 31, 2004, the percentage of plan assets by
category above is skewed. We currently do not expect to make a
contribution to the pension plan in 2005.

Estimated future benefit payments (in thousands):

|                |  |   |       | 
|--------------- |  | - | ----- | 
|2005            |  | $ | 762   | 
|2006            |  |   | 780   | 
|2007            |  |   | 823   | 
|2008            |  |   | 938   | 
|2009            |  |   | 1,076 | 
|Years 2010-2014 |  |   | 8,005 | 

Note 23  Industry Segment
Information

We have five principal segments that provide a
broad range of financial services throughout the United States
and Canada. The Mortgage Banking line of business originates,
sells, and services residential first mortgage loans. The
Commercial Banking line of business provides commercial banking
services. The Home Equity Lending line of business originates
and services home equity loans. The Commercial Finance line of

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business leases and loans against commercial
equipment and real estate. The Venture Capital line of business
invests in early-stage technology companies focusing on
financial services. Our other segment primarily includes the
parent company and eliminations.


The accounting policies of each segment are the
same as those described in the Summary of Significant
Accounting Policies. Below is a summary of each
segments revenues, net income, and assets for 2004, 2003,
and 2002:

|                       |                            |                        |           |            |  |             |           |            |  |         |           |         |   |              |         |        |  |   |        |        |   |   |          |         |   |   |           |         | 
|---------------------- | -------------------------- | ---------------------- | --------- | ---------- |  | ----------- | --------- | ---------- |  | ------- | --------- | ------- | - | ------------ | ------- | ------ |  | - | ------ | ------ | - | - | -------- | ------- | - | - | --------- | ------- | 
|                       |                            | Mortgage               |           | Commercial |  | Home Equity |           | Commercial |  | Venture |           |         |   |             
|                       |                            | Banking                |           | Banking    |  | Lending     |           | Finance    |  | Capital |           | Other   |   | Consolidated
|                       |                            |                        |           |            |  |             |           |            |  |         |           |         |   |             
|                       |                            |                       
|                       |                            | (Dollars in thousands)
|2004                   |                            |                        |           |            |  |             |           |            |  |         |           |         |   |              |         |        |  |   |        |        |   |   |          |         |   |   |           |        
|Net interest income    |                            | $                      | 42,120    |            |  | $           | 84,318    |            |  | $       | 110,601   |         |   | $            | 21,286  |        |  | $ | 11     |        |   | $ | (20,453  | )       |   | $ | 237,883   |        
|Intersegment interest  |                            |                        | (1,017    | )          |  |             | 1,992     |            |  |         | (15,987   | )       |   |              |        |        |  |   | (22    | )      |   |   | 15,034   |         |   |   |          |        
|Other revenue          |                            |                        | 197,954   |            |  |             | 17,749    |            |  |         | 71,368    |         |   |              | 6,275   |        |  |   | (803   | )      |   |   | (5,493   | )       |   |   | 287,050   |        
|Intersegment revenues  |                            |                        | 17        |            |  |             | 567       |            |  |         |          |         |   |              |        |        |  |   | 600    |        |   |   | (1,184   | )       |   |   |          |        
|                       |                            |                        |           |            |  |             |           |            |  |         |           |         |   |              |         |        |  |   |        |        |   |   |          |         |   |   |           |        
|                       | Total net revenues         |                        |           | 239,074    |  |             |           | 104,626    |  |         |           | 165,982 |   |              |         | 27,561 |  |   |        | (214   | ) |   |          | (12,096 | ) |   |           | 524,933 | 
|Other expense          |                            |                        | 200,693   |            |  |             | 63,656    |            |  |         | 111,856   |         |   |              | 18,091  |        |  |   | 439    |        |   |   | 12,500   |         |   |   | 407,235   |        
|Intersegment expenses  |                            |                        | 3,512     |            |  |             | 1,794     |            |  |         | 2,923     |         |   |              | 691     |        |  |   |       |        |   |   | (8,920   | )       |   |   |          |        
|                       |                            |                        |           |            |  |             |           |            |  |         |           |         |   |              |         |        |  |   |        |        |   |   |          |         |   |   |           |        
|                       | Income (loss) before taxes |                        |           | 34,869     |  |             |           | 39,176     |  |         |           | 51,203  |   |              |         | 8,779  |  |   |        | (653   | ) |   |          | (15,676 | ) |   |           | 117,698 | 
|Income taxes           |                            |                        | 14,603    |            |  |             | 15,752    |            |  |         | 21,023    |         |   |              | 5,562   |        |  |   | (256   | )      |   |   | (8,890   | )       |   |   | 47,794    |        
|                       |                            |                        |           |            |  |             |           |            |  |         |           |         |   |              |         |        |  |   |        |        |   |   |          |         |   |   |           |        
|                       | Net income (loss)          |                        | $         | 20,266     |  |             | $         | 23,424     |  |         | $         | 30,180  |   |              | $       | 3,217  |  |   | $      | (397   | ) |   | $        | (6,786  | ) |   | $         | 69,904  | 
|                       |                            |                        |           |            |  |             |           |            |  |         |           |         |   |              |         |        |  |   |        |        |   |   |          |         |   |   |           |        
|Assets at December 31, |                            | $                      | 1,238,136 |            |  | $           | 2,622,877 |            |  | $       | 996,500   |         |   | $            | 636,604 |        |  | $ | 6,700  |        |   | $ | (261,476 | )       |   | $ | 5,239,341 |        
|                       |                            |                        |           |            |  |             |           |            |  |         |           |         |   |              |         |        |  |   |        |        |   |   |          |         |   |   |           |        
|2003                   |                            |                        |           |            |  |             |           |            |  |         |           |         |   |              |         |        |  |   |        |        |   |   |          |         |   |   |           |        
|Net interest income    |                            | $                      | 80,169    |            |  | $           | 78,785    |            |  | $       | 84,875    |         |   | $            | 12,180  |        |  | $ | (210   | )      |   | $ | (31,497  | )       |   | $ | 224,302   |        
|Intersegment interest  |                            |                        | (8,522    | )          |  |             | (5,683    | )          |  |         | (7,905    | )       |   |              | (722    | )      |  |   |       |        |   |   | 22,832   |         |   |   |          |        
|Other revenue          |                            |                        | 326,000   |            |  |             | 21,071    |            |  |         | (19,525   | )       |   |              | 5,868   |        |  |   | (2,668 | )      |   |   | (24,603  | )       |   |   | 306,143   |        
|Intersegment revenues  |                            |                        |          |            |  |             |          |            |  |         |          |         |   |              |        |        |  |   | 600    |        |   |   | (600     | )       |   |   |          |        
|                       |                            |                        |           |            |  |             |           |            |  |         |           |         |   |              |         |        |  |   |        |        |   |   |          |         |   |   |           |        
|                       | Total net revenues         |                        |           | 397,647    |  |             |           | 94,173     |  |         |           | 57,445  |   |              |         | 17,326 |  |   |        | (2,278 | ) |   |          | (33,868 | ) |   |           | 530,445 | 
|Other expense          |                            |                        | 265,118   |            |  |             | 55,196    |            |  |         | 87,771    |         |   |              | 14,539  |        |  |   | 548    |        |   |   | (11,129  | )       |   |   | 412,043   |        
|Intersegment expenses  |                            |                        | 2,762     |            |  |             | 1,503     |            |  |         | 2,767     |         |   |              | 533     |        |  |   |       |        |   |   | (7,565   | )       |   |   |          |        
|                       |                            |                        |           |            |  |             |           |            |  |         |           |         |   |              |         |        |  |   |        |        |   |   |          |         |   |   |           |        
|                       | Income (loss) before taxes |                        |           | 129,767    |  |             |           | 37,474     |  |         |           | (33,093 | ) |              |         | 2,254  |  |   |        | (2,826 | ) |   |          | (15,174 | ) |   |           | 118,402 | 
|Income taxes           |                            |                        | 51,667    |            |  |             | 14,997    |            |  |         | (13,203   | )       |   |              | 461     |        |  |   | (1,118 | )      |   |   | (7,219   | )       |   |   | 45,585    |        
|                       |                            |                        |           |            |  |             |           |            |  |         |           |         |   |              |         |        |  |   |        |        |   |   |          |         |   |   |           |        
|                       | Net income (loss)          |                        | $         | 78,100     |  |             | $         | 22,477     |  |         | $         | (19,890 | ) |              | $       | 1,793  |  |   | $      | (1,708 | ) |   | $        | (7,955  | ) |   | $         | 72,817  | 
|                       |                            |                        |           |            |  |             |           |            |  |         |           |         |   |              |         |        |  |   |        |        |   |   |          |         |   |   |           |        
|Assets at December 31, |                            | $                      | 1,258,641 |            |  | $           | 2,203,965 |            |  | $       | 1,070,634 |         |   | $            | 474,915 |        |  | $ | 7,345  |        |   | $ | (27,141  | )       |   | $ | 4,988,359 |        
|                       |                            |                        |           |            |  |             |           |            |  |         |           |         |   |              |         |        |  |   |        |        |   |   |          |         |   |   |           |        

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|                                                        |                                                                                  |                        |           |            |  |             |           |            |  |         |         |        |  |              |         |        |   |   |        |        |   |   |        |        |   |   |           |         | 
|------------------------------------------------------- | -------------------------------------------------------------------------------- | ---------------------- | --------- | ---------- |  | ----------- | --------- | ---------- |  | ------- | ------- | ------ |  | ------------ | ------- | ------ | - | - | ------ | ------ | - | - | ------ | ------ | - | - | --------- | ------- | 
|                                                        |                                                                                  | Mortgage               |           | Commercial |  | Home Equity |           | Commercial |  | Venture |         |        |  |             
|                                                        |                                                                                  | Banking                |           | Banking    |  | Lending     |           | Finance    |  | Capital |         | Other  |  | Consolidated
|                                                        |                                                                                  |                        |           |            |  |             |           |            |  |         |         |        |  |             
|                                                        |                                                                                  |                       
|                                                        |                                                                                  | (Dollars in thousands)
|2002                                                    |                                                                                  |                        |           |            |  |             |           |            |  |         |         |        |  |              |         |        |   |   |        |        |   |   |        |        |   |   |           |        
|Net interest income                                     |                                                                                  | $                      | 41,330    |            |  | $           | 61,348    |            |  | $       | 68,472  |        |  | $            | 6,661   |        |   | $ | 43     |        |   | $ | (8,203 | )      |   | $ | 169,651   |        
|Intersegment interest                                   |                                                                                  |                        | (139      | )          |  |             | (1,306    | )          |  |         |        |        |  |              | (2      | )      |   |   |       |        |   |   | 1,447  |        |   |   |          |        
|Other revenue                                           |                                                                                  |                        | 207,177   |            |  |             | 16,081    |            |  |         | 11,791  |        |  |              | 4,397   |        |   |   | (4,220 | )      |   |   | (1,089 | )      |   |   | 234,137   |        
|Intersegment revenues                                   |                                                                                  |                        |          |            |  |             |          |            |  |         |        |        |  |              |        |        |   |   | 534    |        |   |   | (534   | )      |   |   |          |        
|                                                        |                                                                                  |                        |           |            |  |             |           |            |  |         |         |        |  |              |         |        |   |   |        |        |   |   |        |        |   |   |           |        
|                                                        | Total net revenues                                                               |                        |           | 248,368    |  |             |           | 76,123     |  |         |         | 80,263 |  |              |         | 11,056 |   |   |        | (3,643 | ) |   |        | (8,379 | ) |   |           | 403,788 | 
|Other expense                                           |                                                                                  |                        | 173,162   |            |  |             | 48,699    |            |  |         | 76,224  |        |  |              | 12,122  |        |   |   | 495    |        |   |   | 6,855  |        |   |   | 317,557   |        
|Intersegment expenses                                   |                                                                                  |                        | 2,115     |            |  |             | 1,330     |            |  |         | 2,364   |        |  |              |        |        |   |   |       |        |   |   | (5,809 | )      |   |   |          |        
|                                                        |                                                                                  |                        |           |            |  |             |           |            |  |         |         |        |  |              |         |        |   |   |        |        |   |   |        |        |   |   |           |        
|                                                        | Income (loss) before taxes                                                       |                        |           | 73,091     |  |             |           | 26,094     |  |         |         | 1,675  |  |              |         | (1,066 | ) |   |        | (4,138 | ) |   |        | (9,425 | ) |   |           | 86,231  | 
|Income taxes                                            |                                                                                  |                        | 28,548    |            |  |             | 10,009    |            |  |         | 670     |        |  |              | (513    | )      |   |   | (1,655 | )      |   |   | (3,661 | )      |   |   | 33,398    |        
|                                                        | Net income (loss) before cumulative effect of
    change in accounting principle |                        |           | 44,543     |  |             |           | 16,085     |  |         |         | 1,005  |  |              |         | (553   | ) |   |        | (2,483 | ) |   |        | (5,764 | ) |   |           | 52,833  | 
|Cumulative effect of change in accounting
    principle |                                                                                  |                        |          |            |  |             |          |            |  |         |        |        |  |              | 495     |        |   |   |       |        |   |   |       |        |   |   | 495       |        
|                                                        |                                                                                  |                        |           |            |  |             |           |            |  |         |         |        |  |              |         |        |   |   |        |        |   |   |        |        |   |   |           |        
|                                                        | Net income (loss)                                                                |                        | $         | 44,543     |  |             | $         | 16,085     |  |         | $       | 1,005  |  |              | $       | (58    | ) |   | $      | (2,483 | ) |   | $      | (5,764 | ) |   | $         | 53,328  | 
|                                                        |                                                                                  |                        |           |            |  |             |           |            |  |         |         |        |  |              |         |        |   |   |        |        |   |   |        |        |   |   |           |        
|Assets at December 31,                                  |                                                                                  | $                      | 1,631,406 |            |  | $           | 1,969,956 |            |  | $       | 939,494 |        |  | $            | 343,384 |        |   | $ | 4,782  |        |   | $ | 21,370 |        |   | $ | 4,910,392 |        
|                                                        |                                                                                  |                        |           |            |  |             |           |            |  |         |         |        |  |              |         |        |   |   |        |        |   |   |        |        |   |   |           |        

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

The condensed financial statements of the parent
company as of December 31, 2004 and 2003, and for the three
years ended December 31, 2004 are presented below:

Condensed Balance Sheets

|             |                                      |                        |         |         |  |   |         |         | 
|------------ | ------------------------------------ | ---------------------- | ------- | ------- |  | - | ------- | ------- | 
|             |                                      |                       
|             |                                      | December 31,          
|             |                                      |                       
|             |                                      | 2004                   |         | 2003   
|             |                                      |                        |         |        
|             |                                      |                       
|             |                                      | (Dollars in thousands)
|Assets:      |                                      |                        |         |         |  |   |         |        
|             | Cash and short-term investments      |                        | $       | 1,111   |  |   | $       | 4,723   | 
|             | Investment in bank subsidiary        |                        |         | 626,281 |  |   |         | 573,284 | 
|             | Investments in non-bank subsidiaries |                        |         | 32,279  |  |   |         | 98,547  | 
|             | Loans to bank subsidiaries           |                        |         | 82,629  |  |   |         | 56,209  | 
|             | Loans to non-bank subsidiaries       |                        |         | 52,813  |  |   |         | 33,186  | 
|             | Other assets                         |                        |         | 25,976  |  |   |         | 26,110  | 
|             |                                      |                        |         |         |  |   |         |        
|             |                                      | $                      | 821,089 |         |  | $ | 792,059 |        
|             |                                      |                        |         |         |  |   |         |        
|Liabilities: |                                      |                        |         |         |  |   |         |        
|             | Short-term borrowings(1)             |                        | $       | 28,181  |  |   | $       | 89,513  | 
|             | Long-term debt                       |                        |         | 270,125 |  |   |         | 270,125 | 
|             | Other liabilities                    |                        |         | 20,139  |  |   |         | 161     | 
|             |                                      |                        |         |         |  |   |         |        
|             |                                      |                        | 318,445 |         |  |   | 359,799 |        
|             |                                      |                        |         |         |  |   |         |        

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|                      |                            |                        |         |         |  |   |         |         | 
|--------------------- | -------------------------- | ---------------------- | ------- | ------- |  | - | ------- | ------- | 
|                      |                            |                       
|                      |                            | December 31,          
|                      |                            |                       
|                      |                            | 2004                   |         | 2003   
|                      |                            |                        |         |        
|                      |                            |                       
|                      |                            | (Dollars in thousands)
|Shareholders equity: |                            |                        |         |         |  |   |         |        
|                      | Common stock               |                        |         | 112,000 |  |   |         | 112,000 | 
|                      | Other shareholders equity |                        |         | 390,644 |  |   |         | 320,260 | 
|                      |                            |                        |         |         |  |   |         |        
|                      |                            |                        | 502,644 |         |  |   | 432,260 |        
|                      |                            |                        |         |         |  |   |         |        
|                      |                            | $                      | 821,089 |         |  | $ | 792,059 |        
|                      |                            |                        |         |         |  |   |         |        



---



|    |                                                                                                                          
|--- | -------------------------------------------------------------------------------------------------------------------------
|(1) | Includes $28.2 million and
    $73.1 million payable to our subsidiaries at
    December 31, 2004 and 2003, respectively.

Condensed Statements of Income

|                                                                                  |                                      |                                 |         |        |  |      |         |        |  |   |         |        | 
|--------------------------------------------------------------------------------- | ------------------------------------ | ------------------------------- | ------- | ------ |  | ---- | ------- | ------ |  | - | ------- | ------ | 
|                                                                                  |                                      |                                
|                                                                                  |                                      | For the Year Ended December 31,
|                                                                                  |                                      |                                
|                                                                                  |                                      | 2004                            |         | 2003   |  | 2002
|                                                                                  |                                      |                                 |         |        |  |     
|                                                                                  |                                      |                                
|                                                                                  |                                      | (Dollars in thousands)         
|Income:                                                                           |                                      |                                 |         |        |  |      |         |        |  |   |         |       
|                                                                                  | Dividends from non-bank subsidiaries |                                 | $       |       |  |      | $       | 686    |  |   | $       | 66,411 | 
|                                                                                  | Dividends from bank subsidiary       |                                 |         | 66,000 |  |      |         |       |  |   |         |       | 
|                                                                                  | Interest income                      |                                 |         | 7,142  |  |      |         | 4,964  |  |   |         | 1,876  | 
|                                                                                  | Other                                |                                 |         | 10,369 |  |      |         | 7,721  |  |   |         | 5,928  | 
|                                                                                  |                                      |                                 |         |        |  |      |         |        |  |   |         |       
|                                                                                  |                                      |                                 | 83,511  |        |  |      | 13,371  |        |  |   | 74,215  |       
|                                                                                  |                                      |                                 |         |        |  |      |         |        |  |   |         |       
|Expenses:                                                                         |                                      |                                 |         |        |  |      |         |        |  |   |         |       
|                                                                                  | Interest expense                     |                                 |         | 24,101 |  |      |         | 28,917 |  |   |         | 24,127 | 
|                                                                                  | Salaries and benefits                |                                 |         | 9,555  |  |      |         | 6,491  |  |   |         | 3,872  | 
|                                                                                  | Other                                |                                 |         | 6,584  |  |      |         | 5,056  |  |   |         | 4,108  | 
|                                                                                  |                                      |                                 |         |        |  |      |         |        |  |   |         |       
|                                                                                  |                                      |                                 | 40,240  |        |  |      | 40,464  |        |  |   | 32,107  |       
|                                                                                  |                                      |                                 |         |        |  |      |         |        |  |   |         |       
|Income before income taxes and equity in
    undistributed income of subsidiaries |                                      |                                 | 43,271  |        |  |      | (27,093 | )      |  |   | 42,108  |       
|Income tax benefit, less amounts charged to
    subsidiaries                      |                                      |                                 | (12,032 | )      |  |      | (13,081 | )      |  |   | (11,732 | )     
|                                                                                  |                                      |                                 |         |        |  |      |         |        |  |   |         |       
|                                                                                  |                                      |                                 | 55,303  |        |  |      | (14,012 | )      |  |   | 53,840  |       
|Equity in undistributed income of subsidiaries                                    |                                      |                                 | 14,601  |        |  |      | 86,829  |        |  |   | (512    | )     
|                                                                                  |                                      |                                 |         |        |  |      |         |        |  |   |         |       
|Net income                                                                        |                                      | $                               | 69,904  |        |  | $    | 72,817  |        |  | $ | 53,328  |       
|                                                                                  |                                      |                                 |         |        |  |      |         |        |  |   |         |       

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Condensed Statements of Cash Flows

|                                                                                  |                                                            |                                               |                                                                  |         |        |         |        |         |        |         |        |          |        |          |  
|--------------------------------------------------------------------------------- | ---------------------------------------------------------- | --------------------------------------------- | ---------------------------------------------------------------- | ------- | ------ | ------- | ------ | ------- | ------ | ------- | ------ | -------- | ------ | -------- | -
|                                                                                  |                                                            |                                              
|                                                                                  |                                                            | For the Year Ended December 31,              
|                                                                                  |                                                            |                                              
|                                                                                  |                                                            | 2004                                          |                                                                  | 2003    |        | 2002   
|                                                                                  |                                                            |                                               |                                                                  |         |        |        
|                                                                                  |                                                            |                                              
|                                                                                  |                                                            | (Dollars in thousands)                       
|Net income                                                                        |                                                            | $                                             | 69,904                                                           |         |        | $       | 72,817 |         |        | $       | 53,328 |         
|Adjustments to reconcile net income to cash
    provided by operating activities: |                                                            |                                               |                                                                  |         |        |         |        |         |        |         |        |         
|                                                                                  | Equity in undistributed income of subsidiaries             |                                               |                                                                  | (14,601 | )      |         |        | (86,829 | )      |         |        | 512      |       
|                                                                                  | Depreciation and amortization                              |                                               |                                                                  | 727     |        |         |        | 2,529   |        |         |        | 732      |       
|                                                                                  | Increase (decrease) in taxes payable                       |                                               |                                                                  | 18,970  |        |         |        | (13,778 | )      |         |        | 1,583    |       
|                                                                                  | Decrease (increase) in interest receivable                 |                                               |                                                                  | (247    | )      |         |        | 1,208   |        |         |        | 356      |       
|                                                                                  | (Decrease) increase in interest payable                    |                                               |                                                                  | (62     | )      |         |        | 53      |        |         |        | 37       |       
|                                                                                  |                                                            |                                               | Net change in other assets and other liabilities                 |         |        | 2,725   |        |         |        | (11,277 | )      |          |        | (12,124  | )
|                                                                                  |                                                            |                                               |                                                                  |         |        |         |        |         |        |         |        |         
|                                                                                  | Net cash provided (used) by operating
    activities       |                                               |                                                                  | 77,416  |        |         |        | (35,277 | )      |         |        | 44,424   |       
|                                                                                  |                                                            |                                               |                                                                  |         |        |         |        |         |        |         |        |         
|Lending and investing activities:                                                 |                                                            |                                               |                                                                  |         |        |         |        |         |        |         |        |         
|                                                                                  | Net (increase) decrease in loans to subsidiaries           |                                               |                                                                  | (46,046 | )      |         |        | 22,518  |        |         |        | (31,184  | )     
|                                                                                  | Investments in subsidiaries                                |                                               |                                                                  | (15,575 | )      |         |        | (10,286 | )      |         |        | (116,133 | )     
|                                                                                  | Net (purchases) sales of premises and
    equipment        |                                               |                                                                  | (189    | )      |         |        | (121    | )      |         |        | 187      |       
|                                                                                  |                                                            |                                               |                                                                  |         |        |         |        |         |        |         |        |         
|                                                                                  |                                                            |                                               | Net cash provided (used) by lending and
    investing activities |         |        | (61,810 | )      |         |        | 12,111  |        |          |        | (147,130 | )
|                                                                                  |                                                            |                                               |                                                                  |         |        |         |        |         |        |         |        |         
|Financing activities:                                                             |                                                            |                                               |                                                                  |         |        |         |        |         |        |         |        |         
|                                                                                  | Net (decrease) increase in borrowings                      |                                               |                                                                  | (17,680 | )      |         |        | 28,252  |        |         |        | (9,862   | )     
|                                                                                  | Proceeds from long-term debt                               |                                               |                                                                  |        |        |         |        | 51,547  |        |         |        | 36,960   |       
|                                                                                  | Payments of long-term debt                                 |                                               |                                                                  |        |        |         |        | (51,629 | )      |         |        |         |       
|                                                                                  | Proceeds from common stock offering                        |                                               |                                                                  |        |        |         |        |        |        |         |        | 82,035   |       
|                                                                                  | Purchase of treasury stock                                 |                                               |                                                                  | (407    | )      |         |        | (4,201  | )      |         |        | (1,176   | )     
|                                                                                  | Proceeds from sale of stock for employee benefit
    plans |                                               |                                                                  | 7,836   |        |         |        | 9,777   |        |         |        | 2,702    |       
|                                                                                  | Dividends paid                                             |                                               |                                                                  | (9,065  | )      |         |        | (7,832  | )      |         |        | (7,469   | )     
|                                                                                  |                                                            |                                               |                                                                  |         |        |         |        |         |        |         |        |         
|                                                                                  |                                                            |                                               | Net cash provided (used) by financing
    activities             |         |        | (19,316 | )      |         |        | 25,914  |        |          |        | 103,190  |  
|                                                                                  |                                                            |                                               |                                                                  |         |        |         |        |         |        |         |        |         
|                                                                                  | Net increase (decrease) in cash and cash
    equivalents   |                                               |                                                                  | (3,710  | )      |         |        | 2,748   |        |         |        | 484      |       
|                                                                                  | Effect of exchange rate changes on cash                    |                                               |                                                                  | 98      |        |         |        | 228     |        |         |        | (30      | )     
|                                                                                  | Cash and cash equivalents at beginning of year             |                                               |                                                                  | 4,723   |        |         |        | 1,747   |        |         |        | 1,293    |       
|                                                                                  |                                                            |                                               |                                                                  |         |        |         |        |         |        |         |        |         
|                                                                                  | Cash and cash equivalents at end of year                   |                                               | $                                                                | 1,111   |        |         | $      | 4,723   |        |         | $      | 1,747    |       
|                                                                                  |                                                            |                                               |                                                                  |         |        |         |        |         |        |         |        |         
|Supplemental disclosures of cash flow information:                                |                                                            |                                               |                                                                  |         |        |         |        |         |        |         |        |         
|                                                                                  | Cash paid during the year:                                 |                                               |                                                                  |         |        |         |        |         |        |         |        |          |       
|                                                                                  |                                                            | Interest                                      |                                                                  | $       | 24,039 |         |        | $       | 27,709 |         |        | $        | 24,091 |         
|                                                                                  |                                                            |                                               |                                                                  |         |        |         |        |         |        |         |        |         
|                                                                                  |                                                            | Income tax payments                           |                                                                  | $       | 9,954  |         |        | $       | 42,971 |         |        | $        | 48,877 |         
|                                                                                  |                                                            |                                               |                                                                  |         |        |         |        |         |        |         |        |         
|                                                                                  | Non cash transactions:                                     |                                               |                                                                  |         |        |         |        |         |        |         |        |          |       
|                                                                                  |                                                            | Conversion of preferred stock to common stock |                                                                  | $       |       |         |        | $       |       |         |        | $        | 1,386  |         
|                                                                                  |                                                            |                                               |                                                                  |         |        |         |        |         |        |         |        |         
|                                                                                  |                                                            | Conversion of trust preferred to common stock |                                                                  | $       |       |         |        | $       | 83     |         |        | $        |       |         
|                                                                                  |                                                            |                                               |                                                                  |         |        |         |        |         |        |         |        |         

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

Not applicable.






|         |                        
|-------- | -----------------------
|Item 9A. | Controls and Procedures

Evaluation of Disclosure Controls and
Procedures

As of December 31, 2004, we performed an
evaluation under the supervision and with the participation of
our management, including the Chief Executive Officer and the
Chief Financial Officer, of the effectiveness of the design and
operation of our disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e)). Based on that evaluation,
our management, including the CEO and CFO, concluded that our
disclosure controls and procedures were effective as of
December 31, 2004, to provide that material information
relating to the Corporation would be made known to them by
others within the Corporation in a timely manner sufficient for
filing or furnishing reports to the SEC.

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 principal executive officer and
principal financial officer, to provide reasonable assurance
regarding the reliability of financial reporting and the
preparation of the financial statements for external reporting
purposes in accordance with accounting principles generally
accepted in the United States of America.

As of December 31, 2004, management
conducted an assessment of the effectiveness of our internal
control over financial reporting based on the framework
established in Internal Control  Integrated
Frameworkissued 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, 2004 was effective.

Managements assessment of the effectiveness
of internal control over financial reporting as of
December 31, 2004 has been audited by
PricewaterhouseCoopers LLP, the independent registered public
accounting firm that audited our financial statements, as
attested to in their report which is provided in Item 8 of
this Report on Form 10-K.




Item 9B.Other
Information

Not applicable.

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PART III






|         |                                                        
|-------- | -------------------------------------------------------
|Item 10. | Directors and Executive Officers of the
    Corporation

The information contained in our proxy statement
for the 2005 Annual Meeting of Shareholders under the headings
Election of Directors, Compliance with
Section 16(a) of the Securities Act of 1934, and
Director Meetings and Standing Committees 
Committees and Current Membership: Audit and Risk Management
Committee, and Audit and Risk Management Committee
Report is incorporated herein by reference in response to
this item. See also the heading Executive Officers
section in Part I, Item 1, Business.

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



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Our Code of Conduct (our code of business conduct
    and ethics), which is applicable to our directors, officers, and
    employees, including our Chief Executive Officer (principal
    executive officer), our Chief Financial Officer (principal
    financial officer) and our Controller (principal accounting
    officer). Our Code of Conduct is attached as Exhibit 14.1
    to this Report on Form 10-K. Amendments to or waivers for
    executive officers or directors from our Code of Conduct will be
    posted on our website.
|
| |  | Our Audit and Risk Management Committee Charter,
    which is also an attachment to our Proxy Statement.                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| |  | Our Compensation Committee Charter.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| |  | Our Governance (nominating) Committee
    Charter.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

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





|         |                       
|-------- | ----------------------
|Item 11. | Executive Compensation

The information contained in our proxy statement
for the 2005 Annual Meeting of Shareholders under the
headings Election of Directors  Outside
Director Compensation, Executive Compensation and
Other Information, and Compensation Committee
Interlocks and Insider Participation 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 2005 Annual Meeting of Shareholders under the
headings Equity Compensation Plan Information,
Equity Compensation Plans Adopted Without Approval of
Security Holders, Voting Securities and Principal
Holders, and Security Ownership of Management
is incorporated herein by reference in response to this item.





|         |                                                   
|-------- | --------------------------------------------------
|Item 13. | Certain Relationships and Related
    Transactions

The information contained in our proxy statement
for the 2005 Annual Meeting of Shareholders under the
heading Interest of Management in Certain
Transactions is incorporated herein by reference in
response to this item.





|         |                                             
|-------- | --------------------------------------------
|Item 14. | Principal Accountants Fees and
    Services.

The information contained in our proxy statement
for the 2005 Annual Meeting of Shareholders under the
heading Independent Public Accountants is
incorporated herein by reference in response to this item.

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##### Table of Contents






PART IV






|         |                                            
|-------- | -------------------------------------------
|Item 15. | Exhibits, Financial Statement
    Schedules

(a) Documents filed as part of this report.

1. Financial Statements



| |                                                                
| | ---------------------------------------------------------------
| | Management Report on Responsibility for Financial
    Reporting
|
| | Report of Independent Registered Public
    Accounting Firm    
|
| | Irwin Financial Corporation and Subsidiaries                   



| |                                                                                                       
| | ------------------------------------------------------------------------------------------------------
| | Consolidated Balance Sheets for the years ended
    2004 and 2003                                     
|
| | Consolidated Statements of Income for the years
    ended 2004, 2003 and 2002                         
|
| | Consolidated Statements of Changes in
    Shareholders Equity for the years ended 2004, 2003 and 2002
|
| | Consolidated Statements of Cash Flows for the
    years ended 2004, 2003 and 2002                     



| |                                           
| | ------------------------------------------
| | Notes to Consolidated Financial Statements

2. Financial Statement Schedules

None

3. Exhibits to Form 10-K

|        |    |                        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|------- | -- | ---------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |                       
|Number  |    | Description of Exhibit
|        |    |                       
|        | 3  | .1                     |  | Restated Articles of Incorporation of Irwin
    Financial Corporation. (Incorporated by reference to
    Exhibit 3(a) to Form 10-K Report for year ended
    December 31, 2000, File No. 000-06835.)                                                                                                                                                                                                                                                                         
|        | 3  | .2                     |  | Articles of Amendment to Restated Articles of
    Incorporation of Irwin Financial Corporation dated March 2,
    2001. (Incorporated by reference to Exhibit 3(b) to
    Form 10-K Report for year ended December 31, 2000,
    File No. 000-06835.)                                                                                                                                                                                                                        
|        | 3  | .3                     |  | Code of By-laws of Irwin Financial Corporation,
    as amended, dated April 30, 2004. (Incorporated by
    reference to Exhibit 3.3 to Form 10-Q Report for the
    quarter ended June 30, 2004, File No. 001-16691.)                                                                                                                                                                                                                                                        
|        | 4  | .1                     |  | Specimen Common Stock Certificate. (Incorporated
    by reference to Exhibit 4(a) to Form 10-K report for
    year ended December 31, 1994, File No. 000-06835.)                                                                                                                                                                                                                                                                                                             
|        | 4  | .2                     |  | Certain instruments defining the rights of the
    holders of long-term debt of Irwin Financial Corporation and
    certain of its subsidiaries, none of which authorize a total
    amount of indebtedness in excess of 10% of the total assets of
    the Corporation and its subsidiaries on a consolidated basis,
    have not been filed as Exhibits. The Corporation hereby agrees
    to furnish a copy of any of these agreements to the Commission
    upon request.
|        | 4  | .3                     |  | Rights Agreement, dated as of March 1, 2001,
    between Irwin Financial Corporation and Irwin Union Bank and
    Trust. (Incorporated by reference to Exhibit 4.1 to
    Form 8-A filed March 2, 2001, File No. 000-06835.)                                                                                                                                                                                                                                                 
|        | 4  | .4                     |  | Appointment of Successor Rights Agent dated as of
    May 11, 2001 between Irwin Financial Corporation and
    National City Bank. (Incorporated by reference to
    Exhibit 4.5 to Form S-8 filed on September 7,
    2001, File No. 333-69156.)                                                                                                                                                                                                                            
|        | 10 | .1                     |  | *Irwin Financial Corporation 1992 Stock Option
    Plan. (Incorporated by reference to Exhibit 10(h) to
    Form 10-K Report for year ended December 31, 1992,
    File No. 000-06835.)                                                                                                                                                                                                                                                                                      
|        | 10 | .2                     |  | *Irwin Financial Corporation 1997 Stock Option
    Plan. (Incorporated by reference to Exhibit 10 to
    Form 10-Q Report for period ended June 30, 1994, File
    No. 000-06835.)                                                                                                                                                                                                                                                                                           

121



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##### Table of Contents



|        |    |                        |  |                                                                                                                                                                                                                                                                                                       
|------- | -- | ---------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |                       
|Number  |    | Description of Exhibit
|        |    |                       
|        | 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. (Incorporated by reference to Exhibit 1 to
    the Corporations proxy statement for its 2004 Annual
    Meeting, filed with the Commission on March 18, 2004, File
    No. 001-16691.)                                        
|        | 10 | .5                     |  | *Irwin Financial Corporation 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 | .6                     |  | *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 | .7                     |  | *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 | .8                     |  | *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 | .9                     |  | *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 | .10                    |  | *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 | .11                    |  | *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 | .12                    |  | *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 | .13                    |  | *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 | .14                    |  | *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 | .15                    |  | *Redemption and Loan Repayment Agreement dated
    December 22, 2004 between Irwin Financial Corporation,
    Irwin Home Equity Corporation and Elena Delgado.                                                                                                                                        
|        | 10 | .16                    |  | *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.                                                                                           
|        | 10 | .17                    |  | *Deferred Compensation Agreement dated
    December 22, 2004 between Irwin Home Equity Corporation,
    Irwin Financial Corporation and Elena Delgado.                                                                                                                                                
|        | 10 | .18                    |  | *Tax Gross-up Agreement dated December 22,
    2004 between Irwin Financial Corporation and Elena Delgado as
    Shareholder.                                                                                                                                                                         
|        | 10 | .19                    |  | *Irwin Financial Corporation Amended and Restated
    Short Term Incentive Plan effective January 1, 2002.
    (Incorporated by reference to Exhibit 3 to the
    Corporations proxy statement for its 2004 Annual Meeting,
    filed with the Commission on March 18, 2004, File
    No. 001-16691.)
|        | 10 | .20                    |  | *Irwin Commercial Finance Amended and Restated
    Short Term Incentive Plan (Incorporated by reference to
    Exhibit 4 of the Corporations proxy statement for its
    2004 Annual Meeting, filed with the Commission on March 18,
    2004, File No. 001-16691.)                                  
|        | 10 | .21                    |  | *Irwin Home Equity Amended and Restated Short
    Term Incentive Plan (Incorporated by reference to Exhibit 5
    to the Corporations proxy statement for its 2004 Annual
    Meeting, filed with the Commission on March 18, 2004, File
    No. 001-16691.)                                         

122



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##### Table of Contents



|        |    |                        |  |                                                                                                                                                                                                                                                                                                              
|------- | -- | ---------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |                       
|Number  |    | Description of Exhibit
|        |    |                       
|        | 10 | .22                    |  | *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 | .23                    |  | *Irwin Union Bank and Trust Company Amended and
    Restated Short Term Incentive Plan effective January 1,
    2002. (Incorporated by reference to Exhibit 7 to the
    Corporations proxy statement for its 2004 Annual Meeting,
    filed with the Commission on March 18, 2004, File
    No. 001-16691.)
|        | 10 | .24                    |  | *Irwin Capital Holdings Short Term Incentive Plan
    effective January 1, 2002. (Incorporated by reference to
    Exhibit 10.25 to Form 10-Q Report for period ended
    March 31, 2002, File No. 000-06835.)                                                                                               
|        | 10 | .25                    |  | *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 | .26                    |  | *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 | .27                    |  | *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 | .28                    |  | *Onset Capital Corporation Shareholders Agreement
    (Incorporated by reference to Exhibit 10.29 to
    Form 10-K Report for period ended December 31, 2003,
    File No. 000-06835.)                                                                                                                       
|        | 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 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

123



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##### Table of Contents






SIGNATURES

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



| |                            
| | ---------------------------
| | IRWIN FINANCIAL CORPORATION

Date: March 9, 2005

| |     |                      
| | --- | ---------------------
| | By: | /s/ WILLIAM I. MILLER

| |                                                      
| | -----------------------------------------------------
| |                                                      
| | William I. Miller                                    
| | Chairman of the Board and Chief Executive
    Officer

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

|                                             |  |                                                                                              |  |      |               | 
|-------------------------------------------- |  | -------------------------------------------------------------------------------------------- |  | ---- | ------------- | 
|Signature                                    |  | Capacity with Corporation                                                                    |  | Date
|                                             |  |                                                                                              |  |     
|                                            
|/s/ SALLY A. DEANSally A. Dean               |  | Director                                                                                     |  |      | March 9, 2005 | 
|                                            
|/s/ DAVID W. GOODRICHDavid W. Goodrich       |  | Director                                                                                     |  |      | March 9, 2005 | 
|                                            
|/s/ R. DAVID HOOVERR. David Hoover           |  | Director                                                                                     |  |      | March 9, 2005 | 
|                                            
|/s/ WILLIAM H. KLINGWilliam H. Kling         |  | Director                                                                                     |  |      | March 9, 2005 | 
|                                            
|/s/ BRENDA J. LAUDERBACKBrenda J. Lauderback |  | Director                                                                                     |  |      | March 9, 2005 | 
|                                            
|/s/ JOHN C. MCGINTY, JRJohn C. McGinty, Jr   |  | Director                                                                                     |  |      | March 9, 2005 | 
|                                            
|/s/ WILLIAM I. MILLERWilliam I. Miller       |  | Director, Chairman of the Board and Chief
    Executive Officer(principal executive officer) |  |      | March 9, 2005 | 
|                                            
|/s/ LANCE R. ODDENLance R. Odden             |  | Director                                                                                     |  |      | March 9, 2005 | 
|                                            
|/s/ THEODORE M. SOLSOTheodore M. Solso       |  | Director                                                                                     |  |      | March 9, 2005 | 
|                                            
|/s/ GREGORY F. EHLINGERGregory F. Ehlinger   |  | Senior Vice President and Chief Financial
    Officer(principal financial officer)           |  |      | March 9, 2005 | 
|                                            
|/s/ JODY A. LITTRELLJody A. Littrell         |  | Vice President and Controller(principal accounting officer)                                  |  |      | March 9, 2005 | 

124