##### Table of Contents









UNITED STATES

SECURITIES AND EXCHANGE COMMISSION


Washington, DC 20549


FORM 10-K

(Mark One)

|  |                                                     
|- | ----------------------------------------------------
|x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934


For the fiscal year ended December 31,
2003

or




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

SECURITIES EXCHANGE ACT OF 1934


For the transition period
from                          to                          .

Commission file number 0-6835

IRWIN FINANCIAL CORPORATION

(Exact name of Corporation as Specified in its
Charter)


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

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

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

|                |  |                                                                                                                                        
|--------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------
|Title of Class: |  | Common Stock*                                                                                                                          
|Title of Class: |  | 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    x    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.    x

Indicate by check mark
whether the Corporation is an accelerated filer (as defined in
Exchange Act
Rule 12b-2).    Yes    x    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, 2003, was approximately $441,622,584.

The aggregate market
value of the voting stock held by non-affiliates of the
Corporation was $506,648,817 as of February 19, 2004. As of
February 19, 2004, there were outstanding 28,250,371 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
    of Shareholders to be held April 8, 2004 |  | Part III                                 
|Exhibit Index on Pages 117 through
    119                                                     |  |                                          



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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                                                |     | 18 
|Part II                                           |         |  |   |            |                                                                                                        |    
|                                                  | Item 5  |  |  |            | Market for
    Corporations Common Equity and Related Stockholder
    Matters                         |     | 19 
|                                                  | Item 6  |  |  |            | Selected Financial Data                                                                                |     | 20 
|                                                  | Item 7  |  |  |            | Managements Discussion
    and Analysis of Financial Condition and Results of Operations              |     | 22 
|                                                  | Item 7A |  |  |            | Quantitative and Qualitative
    Disclosures about Market Risk                                         |     | 73 
|                                                  | Item 8  |  |  |            | Financial Statements and
    Supplementary Data                                                        |     | 73 
|                                                  | Item 9  |  |  |            | Changes in and Disagreements
    with Accountants on Accounting and Financial Disclosure               |     | 115
|                                                  | Item 9A |  |  |            | Controls and Procedures                                                                                |     | 115
|Part III                                          |         |  |   |            |                                                                                                        |    
|                                                  | Item 10 |  |  |            | Directors and Executive
    Officers of the Corporation                                                |     | 116
|                                                  | Item 11 |  |  |            | Executive Compensation                                                                                 |     | 116
|                                                  | Item 12 |  |  |            | Security Ownership of
    Certain Beneficial Owners and Management and Related Stockholder
    Matters |     | 116
|                                                  | Item 13 |  |  |            | Certain Relationships and
    Related Transactions                                                     |     | 116
|                                                  | Item 14 |  |  |            | Principal Accountant Fees
    and Services                                                             |     | 116
|Part IV                                           |         |  |   |            |                                                                                                        |    
|                                                  | Item 15 |  |  |            | Exhibits, Financial
    Statement Schedules, and Reports on Form 8-K                                   |     | 117
|                                                  |         |  |   | Signatures |                                                                                                        | 120
|Code of By-laws                                  
|Computation of Earnings Per Share                
|Computation of Ratio of Earnings to Fixed Charges
|Code of Conduct                                  
|Subsidiaries                                     
|Consent of Independent Auditors                  
|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 $553.6 million of
net revenues in 2003 and $4.9 billion in assets at
December 31, 2003. We focus primarily on the extension of
credit to consumers and small businesses as well as providing
the ongoing servicing of those customer accounts. We currently
operate five major lines of business through our direct and
indirect subsidiaries. Our major lines of business are: mortgage
banking, commercial banking, home equity lending, commercial
finance and venture capital.

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 and we
formed the holding company in 1972. Our direct and indirect
major subsidiaries include Irwin Union Bank and Trust, 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 other
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 and brokers help
us identify potential borrowers. Irwin Mortgage also engages in
the mortgage reinsurance business through its subsidiary, Irwin
Reinsurance Corporation, a Vermont corporation. We sell mortgage
loans to institutional and private investors but may retain
servicing rights to the loans we originate or purchase. Irwin
Mortgage collects and accounts for the monthly payments on each
loan serviced

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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, 2004, Irwin Mortgage operated
170 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, and Carson City, Nevada; and
|
| |  | 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; Salt Lake
    City, Utah; Las Vegas, Nevada; and Phoenix, Arizona.                                                                  

We are pursuing the sale of our Las Vegas and
Salt Lake City branches of Irwin Union Bank, F.S.B. to Irwin
Union Bank and Trust Company in 2004. This sale will not
materially effect our results of operation, but should reduce
operational complexity.

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 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 finance for franchisees of selected
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

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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 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 (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 established this line of business when we
formed Irwin Ventures Incorporated in August 1999. 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 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.



| |                   
| | ------------------
| | Other Subsidiaries

We established Irwin Residual Holdings
Corporation and Irwin Residual Holdings Corporation II in
2002 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.

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 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.

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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. The primary concern of banking
regulation is Safety and Soundness, which places
emphasis on asset quality and capital adequacy. Safety and
Soundness also encompasses 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 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 $143 million qualified as Tier 1
    capital as of December 31, 2003); and
|
| |  | minority interests in the common equity accounts
    of consolidated subsidiaries;                                                                                                                                     

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less



| |   |                                                                                                                                      
| | - | -------------------------------------------------------------------------------------------------------------------------------------
| |  | goodwill;                                                                                                                            
|
| |  | credit-enhancing interest-only strips (certain
    amounts only); and                                                                
|
| |  | specified intangible assets (including
    $16 million of disqualified Mortgage Servicing Assets
    (MSRs) as of December 31, 2003).

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 $89 million qualified as
    Tier 2 capital as of December 31, 2003);
|
| |  | 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 acquisitions or other expansionary
initiatives, are expected to maintain strong capital positions
substantially above the minimum levels.

As of December 31, 2003, 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, 2003 was 15.1% and our Tier 1 leverage
ratio was 11.4%.

Residual Interests.On November 29, 2001, the four
federal banking agencies jointly adopted revised regulatory
capital standards regarding the treatment of certain recourse
obligations, direct credit substitutes, residual interests in
assets securitizations, and other securitized transactions that
expose financial institutions primarily to credit risk. The
agencies had previously published guidelines on securitization
activities in December 1999 (the Securitization
Guidance) which dealt with the risk management and
regulatory oversight issues involved with asset securitizations
and residual interests.

Residual interests generally include any
on-balance sheet asset created by the sale of financial assets
that results in the retention of any credit risks, directly or
indirectly, associated with the transfer of assets, where the
retained risk exceeds a pro rata share of the
organizations claim on the assets, whether through
subordination provisions or other credit enhancement techniques.

The revised rules (the New Rules)
became effective January 1, 2002 for residual interests
related to any transaction that settles on or after that date.
For transactions that settled prior to the effective date of the

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New Rules, capital treatment prescribed by the
application of the New Rules was delayed until December 31,
2002.


Capital Treatment of Residual Interests.The New Rules imposed a concentration
limit on credit-enhancing interest-only strips (CEIOS), a subset
of residual interests, and a dollar-for-dollar capital
requirement on residual interests not deducted from Tier 1
capital.

CEIOS are, generally, assets created from the
excess interest on assets transferred (after reduction for
administrative expenses, investor interest payments, servicing
fees, and credit losses on investors interests in these
assets) that serve as credit enhancements for the investors.
CEIOS are the residual interests most often resulting from asset
securitizations such as our prior securitizations of home equity
loans, in which the seller of loans accounts for the transaction
using gain-on-sale accounting treatment. Under the New Rules,
CEIOS are limited to 25% of Tier 1 capital, with the excess
deducted from Tier 1 capital. At December 31, 2003,
our CEIOS represented 2% of Tier 1 capital.



| |          
| | ---------
| | Expansion

The BHC Act requires prior Federal Reserve
approval for certain activities, such as the acquisition by a
bank holding company of control of another 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 Legislation below.



| |          
| | ---------
| | Dividends

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

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

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

Bank and Thrift Regulation

Indiana law subjects Irwin Union Bank and Trust
and its subsidiaries to supervision and examination by the
Indiana Department of Financial Institutions. Irwin Union Bank
and Trust is a member of the Federal Reserve System and, along
with its subsidiaries, is also subject to regulation,
examination and supervision by the Federal Reserve. Because we
meet the definition of large bank (over
$5 billion in assets), Irwin Union Bank and Trust is
subject to continuous supervision by the Federal Reserve in
accordance with their large bank examination guidelines.
Subsidiaries routinely subject to examination include Irwin
Mortgage, Irwin Home Equity and Irwin Commercial Finance. Irwin
Union Bank, F.S.B., a direct subsidiary of the bank holding
company, is a federally chartered savings bank. Accordingly, it
is governed by and subject to regulation, examination and
supervision by the Office of Thrift Supervision (OTS).

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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.

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. also are subject to supervision and
examination by the Federal Deposit Insurance Corporation (FDIC).
The regulatory scheme applicable to Irwin Union Bank and Trust
is comparable to that imposed on Irwin Union Bank, F.S.B. by the
OTS.



| |                                                        
| | -------------------------------------------------------
| | Mortgage Banking and Residential Lending
    Regulation

The residential lending activities of Irwin Union
Bank and Trust, the mortgage banking activities of Irwin
Mortgage, and the home equity lending business of 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, as the primary federal regulator of the
bank pursuant to the FDIA, and the nonbanking subsidiaries of
both Irwin Financial Corporation and Irwin Union Bank and Trust,
pursuant to the BHC Act. Federal Reserve regulations, such as
restrictions on affiliate transactions, asset quality and
earnings performance, 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. While
retaining the authority to set capital ratios for individual
banks, these regulations group banks into categories based upon
total risk-based capital, Tier 1 risk-based capital and a
leverage ratio (Tier 1 capital divided by average total
assets). 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.

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. For
purposes of this ratio, Tier 1 capital is defined as the
sum of core capital elements less goodwill and other intangible
assets.

The minimum ratio of Tier 1 capital to total
assets 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. For example, a majority of such institutions generally
have operated at capital levels ranging from 1 to 2 percent
above the stated minimums. Higher capital ratios could be
required if warranted by the particular circumstances to risk
profiles of individual banks. The standards set forth above
specify minimum supervisory ratios based primarily on broad
credit risk considerations. The risk-based ratio does not take
explicit account of the quality of individual asset portfolios
or the range of other types of risks to which banks may be
exposed, such as interest rate, liquidity, market or operational
risks. For this reason, banks are generally expected to operate
with capital positions above the minimum ratios.

At December 31, 2003, Irwin Union Bank and
Trust had a total risk-based capital ratio of 14.0%, a
Tier 1 capital ratio of 12.1%, and a leverage ratio of
11.2% and was considered well-capitalized. See Bank
Holding Company Regulation  Minimum Capital
Requirements  Residual Interests earlier in
this section for a discussion of the impact of the new
regulatory capital treatment rules. We transferred our residual
assets held at Irwin Union Bank and Trust to our holding company
in the form of dividends during the fourth quarter of

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2001 and the first quarter of 2002. Because of
the amount of the residuals, we sought and received regulatory
approval of these dividends as required. After discussion with
our regulators as well as consideration of the risk profile of
our organization, our Board of Directors adopted resolutions
regarding maintenance of capital levels above the
well-capitalized minimum requirements beginning March 31,
2002. The benchmark levels we established are 12% total capital
to risk-weighted assets at Irwin Union Bank and Trust, and 11%
total capital to risk-weighted assets at Irwin Financial.
Although the dividends of the residual assets did not have a
meaningful impact on our consolidated capital ratios calculated
under the New Rules, the dividends had the effect of increasing
regulatory capital ratios at Irwin Union Bank and Trust.


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.
The Federal Reserve, the OTS, the FDIC and other federal banking
agencies also adopted a joint agency policy statement providing
guidance for managing interest rate risk. The policy statement
emphasizes the importance of adequate management oversight and a
sound risk management process. 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

Under the Federal Deposit Insurance Corporation
Improvements Act of 1991 (FDICIA), 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 and the Savings Association
Insurance Fund, respectively. The FDIC also has 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. Each depository
institution is assigned to one of three capital groups:
well capitalized, adequately capitalized
or undercapitalized. An institution is considered
well capitalized under regulatory guidelines if it has a total
risk-based capital ratio of 10% or greater, has a Tier 1
risk-based capital ratio of 6% or greater, has a leverage ratio
of 5% or greater and is not subject to any order or written
directive to meet and maintain a specific capital level. An
adequately capitalized institution has a total risk-based
capital ratio of 8% or greater, has a Tier 1 risk-based
capital ratio of 4% or greater, has a leverage ratio of 4% or
greater and does not meet the definition of a well capitalized
bank. An institution is considered undercapitalized if it does
not meet the definition of well capitalized or adequately
capitalized. Within each capital group, institutions are
assigned to one of three supervisory subgroups: A
(institutions with few minor weaknesses), B
(institutions that demonstrate weaknesses which, if not
corrected, could result in significant deterioration of the
institution and increased risk of loss to the insurance funds),
and C (institutions that pose a substantial
probability of loss to the insurance funds unless effective
corrective action is taken). There are nine combinations of
capital groups and supervisory subgroups to which varying
assessment rates may apply. An institutions assessment
rate depends on the capital category and supervisory category to
which it is assigned.



| |                     
| | --------------------
| | 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.
The amount of the residual assets transferred to the holding
company as a dividend from the bank in 2001 and 2002 exceeded
the amount that could have been dividended by the bank to the
bank holding company without regulatory approval as described
above and, as a result, we sought and obtained regulatory
approval for the dividend. Had Irwin Union Bank and Trust wished
to pay us a dividend following the transfer

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##### Table of Contents



of the residuals, prior approval from the Indiana
Department of Financial Institutions and the Federal Reserve
Bank of Chicago would have been required until such time as net
income for the year, combined with retained net income of the
preceding two years, less any required transfers to the surplus
account, exceeded the amount to be dividended. This limitation
was eliminated during the fourth quarter of 2003 due to retained
earnings growth at Irwin Union Bank and Trust.


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 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
    Legislation

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.

Although Irwin Union Bank, F.S.B. has a different
primary federal regulator from Irwin Union Bank and Trust, most,
if not all, of the federal statutes and regulations applicable
to Irwin Union Bank also apply to Irwin Union Bank, F.S.B.
However, as a federally chartered savings bank, Irwin Union
Bank, F.S.B. has greater flexibility in pursuing interstate
branching than an Indiana state bank. A federal savings
association may establish or operate a branch in any state
outside the state of its home office if the association meets
certain statutory requirements. These requirements do not apply
if the law of the state where the branch is to be located offers
reciprocal branching privileges with the state where the savings
association has its home office located. As Irwin Union Bank and
Trust does with its supervisory regulatory agencies, Irwin Union
Bank, F.S.B. must file reports with the OTS and 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.



| |                       
| | ----------------------
| | Community Reinvestment

Under the Community Reinvestment Act (CRA),
banking and thrift institutions have a continuing and
affirmative obligation, consistent with its 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 that 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

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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.




| |                  
| | -----------------
| | 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.



| |                                             
| | --------------------------------------------
| | 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;
|
| |  | 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.                         

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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
that 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 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.

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##### Table of Contents





| |                                          
| | -----------------------------------------
| | 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.

Employees and Labor Relations

At January 31, 2004, we and our subsidiaries
had a total of 3,589 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.

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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. Miller, who also
serves as a director, our executive officers are listed below.

Richard Barbercheck(45) has been a Vice President of Irwin Financial Corporation
since October 2003. He was an officer of Irwin Union Bank and
Trust since March 1998.

Claude E. Davis(43)
has been Chairman of Irwin Union Bank and Trust and Senior Vice
President of Irwin Financial Corporation since May 2003. He
served as President of Irwin Union Bank and Trust from January
1996 to May 2003. He has been an officer since 1988. He was
elected to the Federal Home Loan Bank of Indianapolis (FHLBI)
Board of Directors in 2003. We are a member of the FHLBI.

Elena Delgado(48)
has been President and Chief Executive Officer of Irwin Home
Equity since September 1994.

Gregory F. Ehlinger(41) 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(39) was recently
promoted to Chief Risk Officer in 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(45) has been our Vice President  Internal Audit
since October 1995. In 2001, he was also appointed as Vice
President  Operational Risk Management.

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.

Theresa L. Hall(51)
has been our Vice President  Human Resources since
1988 and has been one of our officers since 1980.

Bradley J. Kime(43) 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(42) has been President of Irwin Commercial Finance
Corporation since July of 2002. He has been the President and
Chief Executive Officer of Onset Capital Corporation since April
1998. From January 1997 until April of 1998 he was President of
AT&T Capital Canada Inc.

Jody A. Littrell(36) has been our Vice President and Controller since March
2000. He was employed with Arthur Andersen LLP from September
1990 to March 2000.

Matthew F. Souza(47) 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(57) has been our Executive Vice President since August
1999 and has been 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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##### Table of Contents



Brett R. Vanderkolk(38) has been our Vice President  Treasurer
since September 2000. From August 1996, to September 2000, he
served as Manager, Corporate Finance for Arvin Industries, Inc.
(manufacturer of automotive products).






|        |           
|------- | ----------
|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,
2004 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 170 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 and one office in Nevada.

Irwin Union Bank, F.S.B.

The main office is located at
9300 Shelbyville Road, Louisville, Kentucky. Irwin Union
Bank, F.S.B. has four branch offices located in Arizona,
Missouri, Nevada and Utah. All offices are leased. Subject to
regulatory approval, we expect to move the main office to a
leased space at 140 Whittington Parkway, Suite 100,
Louisville, Kentucky during the second quarter of 2004.

Irwin Home Equity

The main office is located at 12677 Alcosta
Boulevard, Suite 500, San Ramon, California. Irwin
Home Equity also occupies two other offices in San Ramon,
California. All offices are leased.

Irwin Commercial Finance Corporation

Irwin Commercial Finance Corporation leases its
main office located at 500 Washington Street, Columbus,
Indiana. The office of our domestic commercial finance
operation, Irwin Business Finance, is located at 330
120th Avenue NE, Bellevue, Washington and is leased. Our
Canadian commercial finance subsidiary, Onset Capital
Corporation, leases its main office in Vancouver, British
Columbia, Canada, as well as its two processing centers in
Toronto, Ontario and Montreal, Quebec. The main office of our
franchise lending subsidiary, Irwin Franchise Capital
Corporation, is located at 2700 Westchester Avenue,
Purchase, New York and is 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, is a defendant in a class action lawsuit, filed in
April 1996, in the United States District Court for the Northern
District of Alabama 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

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##### Table of Contents



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 Culpepper. In response to a motion
from Irwin Mortgage, in March 2002, the district court granted
Irwin Mortgages motion to stay proceedings in
Culpepper until the 11th Circuit decided the three
other RESPA cases originally argued before it with
Culpepper.

The 11th Circuit subsequently decided the three
other RESPA cases pending in that court. In one of those cases
(Heimmermann v. First Union Mortgage Corporation),
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 Culpepper. In March
2003, Irwin Mortgage filed a motion to decertify the class in
Culpepper 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 submitted a
joint status report at the end of October 2003.

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.

As discussed in prior periodic reports, other
cases filed against Irwin Mortgage alleging RESPA and other
violations similar to those in Culpepper were settled in
2003 for nonmaterial amounts. 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 rulings in Heimmermann and the
companion RESPA decisions provide grounds for reversal of the
class certification in Culpepper. 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 (Matrix
Biokinetics, Inc. and others) 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. The Irwin companies filed a motion to
dismiss on February 12, 2001. On August 10, 2001, the
court granted our motion in part by dismissing Irwin Financial
and Irwin Equipment Finance as defendants in the suit. In June
2003, Irwin Leasing filed a motion for summary judgment. Oral
argument on the motion was held on August 27, 2003. On
October 8, 2003, the court granted Irwin Leasings
motion for summary judgment, dismissing the plaintiffs
complaint. On October 22, 2003, the plaintiff filed a
notice of appeal. The appeal is currently in the briefing
process. We have not established any reserves for this case.
Although we believe the trial courts decision is
well-reasoned, we cannot predict at this time whether we will
prevail on appeal.

16



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

Our subsidiary, Irwin Union Bank and Trust
company, is a defendant in a class action lawsuit filed in the
U.S. District Court in Massachusetts in July 2001. The case
involves loans purchased by Irwin Union Bank from FirstPlus, an
unaffiliated third-party lender. The plaintiffs allege 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 seeks rescission of the loans and other damages.

On September 30, 2002, the court granted
plaintiffs motion for certification of a class subject to
certain limitations. In October 2002, we filed a motion for
reconsideration with the district court and a petition for
permission to appeal the class certification decision with the
Court of Appeals for the 1st Circuit. In May 2003, the
district court denied our motion for summary judgment and denied
in part our motion for reconsideration of class decertification.
However, the court further restricted membership in the
plaintiff class. In October 2003, the court of appeals denied
our application for appellate review of the district
courts certification of the class.

As originally specified, the plaintiff class was
limited to those borrowers who obtained a mortgage loan
originated with prepayment penalty provisions by FirstPlus
during the three-year period prior to the filing of the suit. As
more recently defined by the court, the class has been further
restricted to those borrowers who refinanced their loans and
paid a prepayment penalty. Only high-rate loans that are subject
to the provisions of the Home Ownership and Equity Protection
Act of 1994 would be included in the class.

Limited discovery on issues pertaining to class
certification and the merits of plaintiffs individual
claim has been conducted. The actual number of plaintiff
borrowers will be determined only after a review of loan files.
Nevertheless, after performing a limited analysis of the
approximately 200 loans acquired directly from FirstPlus through
our correspondent lending channel and the approximately
7,800 loans acquired from others through bulk acquisitions
that may include FirstPlus originations, we believe that fewer
than 100 loans will qualify for inclusion in the class. We
believe we have available numerous defenses to the allegations
and intend to vigorously defend this lawsuit. Because this case
is in the early stages of litigation, we are unable to form a
reasonable estimate of potential loss, if any, and have not
established any reserves related to this case.



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

On January 25, 2002, a jury in this case
awarded the plaintiffs damages of $1.434 million, jointly
and severally, against defendants, including our indirect
subsidiary, Irwin Mortgage Corporation. The case was filed in
August 1998 in the Baltimore, Maryland, City Circuit Court. The
nine plaintiff borrowers alleged that A Home of Your Own, Inc.,
a home rehabilitation company, and its principal, Robert Beeman,
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 is considering whether to appeal further. We have
reserved for this case based upon 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 an action
filed in the Marion County, Indiana, Circuit 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. The plaintiff is seeking to certify a
class consisting of Indiana borrowers who were charged the fee
during the six-year period prior to the filing of the lawsuit.
Irwin Mortgage filed an answer on June 11, 2003 and a
motion for summary judgment on October 27, 2003. On
November 3, 2003, the court ruled that a determination of
class certification will precede any action on Irwin
Mortgages summary judgment motion. On January 9,
2004, the plaintiff filed a Supplemental Brief and Submission of
Additional Evidence in Support of Class Certification. A hearing
on plaintiffs summary judgment motion is scheduled for
March 15, 2004. Because the case is in the early stages of
litigation, we are

17



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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 alleges 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 are seeking to
certify a class consisting of similarly situated borrowers.
Irwin Mortgage filed an answer on July 11, 2003 and
responded to plaintiffs initial discovery requests on
December 19, 2003. 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. We have not established any reserves for
this case.



| |                                      
| | -------------------------------------
| | Cohens v. Inland Mortgage
    Company

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 $41,000,000 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. However, 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.

We and our subsidiaries are from time to time
engaged in various matters of litigation, including the matters
described above, and 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, based upon the advice
of legal counsel.






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

During the fourth quarter of 2003, no matters
were submitted to a vote of our security holders, through the
solicitation of proxies or otherwise.

18



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##### Table of Contents






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 19, 2004, was 1,781.

Stock Prices and Dividends:

|               |  |             |       |         |  |      |       |           |  |          |       |  |  |   |        |  |  |   |      | 
|-------------- |  | ----------- | ----- | ------- |  | ---- | ----- | --------- |  | -------- | ----- |  |  | - | ------ |  |  | - | ---- | 
|               |  |             |       |         |  |      |       |          
|               |  | Price Range |       |         |  |      |       | Total    
|               |  |             |       | Quarter |  | Cash |       | Dividends
|               |  | High        |       | Low     |  | End  |       | Dividends |  | For Year
|               |  |             |       |         |  |      |       |           |  |         
|2002           |  |             |       |         |  |      |       |           |  |          |       |  |  |   |        |  |  |   |      | 
|First quarter  |  | $           | 19.15 |         |  | $    | 14.40 |           |  | $        | 16.49 |  |  | $ | 0.0675 |  |  |   |      | 
|Second quarter |  |             | 20.66 |         |  |      | 17.65 |           |  |          | 20.10 |  |  |   | 0.0675 |  |  |   |      | 
|Third quarter  |  |             | 20.05 |         |  |      | 14.50 |           |  |          | 17.00 |  |  |   | 0.0675 |  |  |   |      | 
|Fourth quarter |  |             | 17.80 |         |  |      | 13.20 |           |  |          | 16.50 |  |  |   | 0.0675 |  |  | $ | 0.27 | 
|2003           |  |             |       |         |  |      |       |           |  |          |       |  |  |   |        |  |  |   |      | 
|First quarter  |  | $           | 20.12 |         |  | $    | 15.95 |           |  | $        | 19.49 |  |  | $ | 0.0700 |  |  |   |      | 
|Second quarter |  |             | 26.50 |         |  |      | 19.26 |           |  |          | 25.90 |  |  |   | 0.0700 |  |  |   |      | 
|Third quarter  |  |             | 25.81 |         |  |      | 20.90 |           |  |          | 24.30 |  |  |   | 0.0700 |  |  |   |      | 
|Fourth quarter |  |             | 32.15 |         |  |      | 25.30 |           |  |          | 31.40 |  |  |   | 0.0700 |  |  | $ | 0.28 | 

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 20, 2004, our Board of Directors approved an
increase in the first quarter dividend to $0.08 per share,
payable in March 2004. 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 2003, we issued 23,776 shares of common
stock pursuant to elections made by six 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.

19



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##### Table of Contents








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

Five-Year Selected Financial Data

|                   |                                                                       |                                              |   |            |      |      |   |            |      |      |   |            |      |  |   |           |      |  |   |            |      | 
|------------------ | --------------------------------------------------------------------- | -------------------------------------------- | - | ---------- | ---- | ---- | - | ---------- | ---- | ---- | - | ---------- | ---- |  | - | --------- | ---- |  | - | ---------- | ---- | 
|                   |                                                                       |                                             
|                   |                                                                       | At or For Year Ended December 31,           
|                   |                                                                       |                                             
|                   |                                                                       | 2003                                         |   | 2002       |      | 2001 |   | 2000       |      | 1999
|                   |                                                                       |                                              |   |            |      |      |   |            |      |     
|                   |                                                                       |                                             
|                   |                                                                       | (Dollars in thousands except per share data)
|For the year:      |                                                                       |                                              |   |            |      |      |   |            |      |      |   |            |      |  |   |           |      |  |   |           
|                   | Net revenues                                                          |                                              | $ | 553,601    |      |      | $ | 404,647    |      |      | $ | 387,019    |      |  | $ | 290,626   |      |  | $ | 255,318    |     
|                   | Noninterest expense                                                   |                                              |   | 435,199    |      |      |   | 318,416    |      |      |   | 312,819    |      |  |   | 231,095   |      |  |   | 202,681    |     
|                   |                                                                       |                                              |   |            |      |      |   |            |      |      |   |            |      |  |   |           |      |  |   |           
|                   | Income before income taxes                                            |                                              |   | 118,402    |      |      |   | 86,231     |      |      |   | 74,200     |      |  |   | 59,531    |      |  |   | 52,637     |     
|                   | Provision for income taxes                                            |                                              |   | 45,585     |      |      |   | 33,398     |      |      |   | 28,859     |      |  |   | 23,865    |      |  |   | 19,481     |     
|                   | Income before cumulative effect of change in
    accounting principle |                                              |   | 72,817     |      |      |   | 52,833     |      |      |   | 45,341     |      |  |   | 35,666    |      |  |   | 33,156     |     
|                   | Cumulative effect of change in accounting
    principle, net of tax   |                                              |   |           |      |      |   | 495        |      |      |   | 175        |      |  |   |          |      |  |   |           |     
|                   |                                                                       |                                              |   |            |      |      |   |            |      |      |   |            |      |  |   |           |      |  |   |           
|                   | Net income                                                            |                                              | $ | 72,817     |      |      | $ | 53,328     |      |      | $ | 45,516     |      |  | $ | 35,666    |      |  | $ | 33,156     |     
|                   |                                                                       |                                              |   |            |      |      |   |            |      |      |   |            |      |  |   |           |      |  |   |           
|                   | Mortgage loan originations                                            |                                              | $ | 22,669,246 |      |      | $ | 11,411,875 |      |      | $ | 9,225,991  |      |  | $ | 4,091,573 |      |  | $ | 5,876,750  |     
|                   | Home equity loan originations                                         |                                              |   | 1,133,316  |      |      |   | 1,067,227  |      |      |   | 1,149,410  |      |  |   | 1,225,955 |      |  |   | 439,507    |     
|Common Share Data: |                                                                       |                                              |   |            |      |      |   |            |      |      |   |            |      |  |   |           |      |  |   |           
|                   | Earnings per share:(1)                                                |                                              |   |            |      |      |   |            |      |      |   |            |      |  |   |           |      |  |   |            |     
|                   |                                                                       | Basic                                        |   | $          | 2.61 |      |   | $          | 1.99 |      |   | $          | 2.15 |  |   | $         | 1.70 |  |   | $          | 1.54 | 
|                   |                                                                       | Diluted                                      |   |            | 2.45 |      |   |            | 1.89 |      |   |            | 2.00 |  |   |           | 1.67 |  |   |            | 1.51 | 
|                   | Cash dividends per share                                              |                                              |   | 0.28       |      |      |   | 0.27       |      |      |   | 0.26       |      |  |   | 0.24      |      |  |   | 0.20       |     
|                   | Book value per share                                                  |                                              |   | 15.36      |      |      |   | 12.98      |      |      |   | 10.81      |      |  |   | 8.92      |      |  |   | 7.55       |     
|                   | Dividend payout ratio                                                 |                                              |   | 10.76      | %    |      |   | 14.01      | %    |      |   | 12.13      | %    |  |   | 14.13     | %    |  |   | 12.93      | %   
|                   | Weighted average shares  basic                                       |                                              |   | 27,915     |      |      |   | 26,823     |      |      |   | 21,175     |      |  |   | 20,973    |      |  |   | 21,530     |     
|                   | Weighted average shares  diluted                                     |                                              |   | 30,850     |      |      |   | 29,675     |      |      |   | 24,173     |      |  |   | 21,593    |      |  |   | 21,886     |     
|                   | Shares outstanding  end of period                                    |                                              |   | 28,134     |      |      |   | 27,771     |      |      |   | 21,305     |      |  |   | 21,026    |      |  |   | 21,105     |     
|At year end:       |                                                                       |                                              |   |            |      |      |   |            |      |      |   |            |      |  |   |           |      |  |   |           
|                   | Assets                                                                |                                              | $ | 4,988,359  |      |      | $ | 4,910,392  |      |      | $ | 3,446,602  |      |  | $ | 2,425,690 |      |  | $ | 1,682,992  |     
|                   | Residual interests                                                    |                                              |   | 71,491     |      |      |   | 157,514    |      |      |   | 199,071    |      |  |   | 152,614   |      |  |   | 59,025     |     
|                   | Loans held for sale                                                   |                                              |   | 883,895    |      |      |   | 1,314,849  |      |      |   | 502,086    |      |  |   | 579,788   |      |  |   | 508,997    |     
|                   | Loans and leases                                                      |                                              |   | 3,161,054  |      |      |   | 2,815,276  |      |      |   | 2,137,822  |      |  |   | 1,234,922 |      |  |   | 733,424    |     
|                   | Allowance for loan and lease losses                                   |                                              |   | 64,285     |      |      |   | 50,936     |      |      |   | 22,283     |      |  |   | 13,129    |      |  |   | 8,555      |     
|                   | Servicing assets                                                      |                                              |   | 380,123    |      |      |   | 174,935    |      |      |   | 228,624    |      |  |   | 130,627   |      |  |   | 138,500    |     
|                   | Deposits                                                              |                                              |   | 2,899,662  |      |      |   | 2,693,810  |      |      |   | 2,308,962  |      |  |   | 1,442,589 |      |  |   | 870,318    |     
|                   | Short-term borrowings                                                 |                                              |   | 429,758    |      |      |   | 993,124    |      |      |   | 487,963    |      |  |   | 476,928   |      |  |   | 473,103    |     
|                   | Collateralized debt                                                   |                                              |   | 590,131    |      |      |   | 391,425    |      |      |   |           |      |  |   |          |      |  |   |           |     
|                   | Other long-term debt(2)                                               |                                              |   | 270,184    |      |      |   | 30,070     |      |      |   | 30,000     |      |  |   | 30,000    |      |  |   | 30,000     |     
|                   | Trust preferred securities(2)                                         |                                              |   |           |      |      |   | 233,000    |      |      |   | 198,500    |      |  |   | 153,500   |      |  |   | 50,000     |     
|                   | Shareholders equity                                                  |                                              |   | 432,260    |      |      |   | 360,555    |      |      |   | 231,665    |      |  |   | 188,870   |      |  |   | 159,296    |     
|                   | Managed first mortgage servicing portfolio                            |                                              |   | 29,640,122 |      |      |   | 16,792,669 |      |      |   | 12,875,532 |      |  |   | 9,196,513 |      |  |   | 10,488,112 |     
|                   | Managed home equity portfolio                                         |                                              |   | 1,513,289  |      |      |   | 1,830,339  |      |      |   | 2,064,542  |      |  |   | 1,625,719 |      |  |   | 777,934    |     

20



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|                                    |                                                                                 |                                              |  |       |       |      |  |       |       |      |  |       |       |   |  |       |       |   |  |       |       |  
|----------------------------------- | ------------------------------------------------------------------------------- | -------------------------------------------- |  | ----- | ----- | ---- |  | ----- | ----- | ---- |  | ----- | ----- | - |  | ----- | ----- | - |  | ----- | ----- | -
|                                    |                                                                                 |                                             
|                                    |                                                                                 | At or For Year Ended December 31,           
|                                    |                                                                                 |                                             
|                                    |                                                                                 | 2003                                         |  | 2002  |       | 2001 |  | 2000  |       | 1999
|                                    |                                                                                 |                                              |  |       |       |      |  |       |       |     
|                                    |                                                                                 |                                             
|                                    |                                                                                 | (Dollars in thousands except per share data)
|Selected Financial Ratios:          |                                                                                 |                                              |  |       |       |      |  |       |       |      |  |       |       |   |  |       |       |   |  |      
|Performance Ratios:                 |                                                                                 |                                              |  |       |       |      |  |       |       |      |  |       |       |   |  |       |       |   |  |      
|                                    | Return on average assets                                                        |                                              |  | 1.40  | %     |      |  | 1.33  | %     |      |  | 1.45  | %     |   |  | 1.76  | %     |   |  | 2.01  | %    
|                                    | Return on average equity                                                        |                                              |  | 18.37 |       |      |  | 16.66 |       |      |  | 21.82 |       |   |  | 20.83 |       |   |  | 21.51 |      
|                                    | Net interest margin(3)                                                          |                                              |  | 5.82  |       |      |  | 6.01  |       |      |  | 5.35  |       |   |  | 5.36  |       |   |  | 5.01  |      
|                                    | Noninterest income to revenues(4)                                               |                                              |  | 54.8  | %     |      |  | 52.4  | %     |      |  | 64.8  | %     |   |  | 69.9  | %     |   |  | 75.3  | %    
|                                    | Efficiency ratio(5)                                                             |                                              |  | 72.4  |       |      |  | 71.0  |       |      |  | 78.1  |       |   |  | 78.6  |       |   |  | 79.0  |      
|                                    | Loans and leases and loans held for sale to
    deposits(6)                     |                                              |  | 94.1  |       |      |  | 89.9  |       |      |  | 79.1  |       |   |  | 85.6  |       |   |  | 84.3  |      
|                                    | Average interest-earning assets to average
    interest-bearing liabilities     |                                              |  | 132.2 |       |      |  | 121.7 |       |      |  | 117.2 |       |   |  | 113.5 |       |   |  | 127.4 |      
|Asset Quality Ratios:               |                                                                                 |                                              |  |       |       |      |  |       |       |      |  |       |       |   |  |       |       |   |  |      
|                                    | Allowance for loan and lease losses to:                                         |                                              |  |       |       |      |  |       |       |      |  |       |       |   |  |       |       |   |  |       |      
|                                    |                                                                                 | Total loans and leases                       |  |       | 2.0   | %    |  |       | 1.8   | %    |  |       | 1.0   | % |  |       | 1.1   | % |  |       | 1.2   | %
|                                    |                                                                                 | Non-performing loans and leases              |  |       | 144.9 |      |  |       | 163.6 |      |  |       | 116.3 |   |  |       | 181.8 |   |  |       | 189.9 |  
|                                    | Net charge-offs to average loans and leases                                     |                                              |  | 1.1   |       |      |  | 0.7   |       |      |  | 0.7   |       |   |  | 0.3   |       |   |  | 0.3   |      
|                                    | Net home equity charge-offs to managed home
    equity portfolio                |                                              |  | 4.4   |       |      |  | 2.9   |       |      |  | 1.8   |       |   |  | 0.6   |       |   |  | 0.4   |      
|                                    | Non-performing assets to total assets                                           |                                              |  | 1.1   |       |      |  | 0.8   |       |      |  | 0.7   |       |   |  | 0.4   |       |   |  | 0.5   |      
|                                    | Non-performing assets to total loans and leases
    and other real estate owned |                                              |  | 1.7   |       |      |  | 1.3   |       |      |  | 1.1   |       |   |  | 0.8   |       |   |  | 1.1   |      
|Ratio of Earnings to Fixed Charges: |                                                                                 |                                              |  |       |       |      |  |       |       |      |  |       |       |   |  |       |       |   |  |      
|                                    | Including deposit interest                                                      |                                              |  | 2.2   | x     |      |  | 1.9   | x     |      |  | 1.6   | x     |   |  | 1.6   | x     |   |  | 1.9   | x    
|                                    | Excluding deposit interest                                                      |                                              |  | 3.1   |       |      |  | 3.0   |       |      |  | 2.5   |       |   |  | 2.5   |       |   |  | 2.5   |      
|Capital Ratios:                     |                                                                                 |                                              |  |       |       |      |  |       |       |      |  |       |       |   |  |       |       |   |  |      
|                                    | Average shareholders equity to average
    assets                              |                                              |  | 7.6   | %     |      |  | 8.0   | %     |      |  | 6.7   | %     |   |  | 8.5   | %     |   |  | 9.4   | %    
|                                    | Tier 1 capital ratio                                                            |                                              |  | 11.4  |       |      |  | 9.3   |       |      |  | 6.8   |       |   |  | 8.9   |       |   |  | 11.4  |      
|                                    | Tier 1 leverage ratio                                                           |                                              |  | 11.2  |       |      |  | 9.7   |       |      |  | 9.4   |       |   |  | 12.4  |       |   |  | 12.8  |      
|                                    | Total risk-based capital Ratio                                                  |                                              |  | 15.1  |       |      |  | 13.2  |       |      |  | 10.8  |       |   |  | 13.6  |       |   |  | 13.5  |      



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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, 2003, the Trusts holding
    trust preferred securities were not consolidated in accordance
    with FASB Interpretation No. 46, Consolidation of
    Variable Interest Entities. See Other Long-Term Debt
    and Collateralized Borrowings 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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##### Table of Contents






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 and other assets;                                                                                                                 
|
| |  | 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;                                                                                                                                                           

22



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##### Table of Contents





| |   |                                                                                                                                                                                
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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;
|
| |  | legislative or regulatory changes, including
    changes in the interpretation of regulatory capital rules;                                                                    
|
| |  | disclosure or consumer lending rules or rules
    affecting corporate governance;                                                                                              
|
| |  | changes in applicable accounting policies or
    principles or their application to our business;                                                                              
|
| |  | or governmental changes in monetary or fiscal
    policies.                                                                                                                    

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

Consolidated Overview

|                              |  |      |       |          |  |      |      |          |  |      |       |   |  |  |      |   |  |   |       |  
|----------------------------- |  | ---- | ----- | -------- |  | ---- | ---- | -------- |  | ---- | ----- | - |  |  | ---- | - |  | - | ----- | -
|                              |  | 2003 |       | % Change |  | 2002 |      | % Change |  | 2001
|                              |  |      |       |          |  |      |      |          |  |     
|Net income (millions)         |  | $    | 72.8  |          |  |      | 36.5 | %        |  | $    | 53.3  |   |  |  | 17.2 | % |  | $ | 45.5  |  
|Basic earnings per share(1)   |  |      | 2.61  |          |  |      | 31.2 |          |  |      | 1.99  |   |  |  | (7.4 | ) |  |   | 2.15  |  
|Diluted earnings per share(1) |  |      | 2.45  |          |  |      | 29.6 |          |  |      | 1.89  |   |  |  | (5.5 | ) |  |   | 2.00  |  
|Return on average equity      |  |      | 18.37 | %        |  |      |     |          |  |      | 16.66 | % |  |  |     |   |  |   | 21.82 | %
|Return on average assets      |  |      | 1.40  |          |  |      |     |          |  |      | 1.33  |   |  |  |     |   |  |   | 1.45  |  



---



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

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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | 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 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, which
    would otherwise leave us more susceptible to swings in interest
    rates.
|
| |  | 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.

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 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 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

24



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##### Table of Contents



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.
An allowance is established when the collateral value,
observable market price or discounted cash flows of an impaired
loan is lower than the carrying value of that loan. In addition
to establishing allowance levels for specifically identified
impaired loans, management determines an allowance for all other
loans in the portfolio for which historical experience and/or
expected performance indicates that certain losses exist. These
loans are segregated by major product type, and in some
instances, by aging, with an estimated loss ratio applied
against each product type and aging category. The loss ratio is
generally based upon historic loss experience for each loan type
as adjusted for certain environmental factors management
believes to be relevant. Loans and leases that are determined by
management to be uncollectible are charged against the
allowance. The allowance is increased by provisions against
income and recoveries of loans and leases previously charged
off. See the Credit Risk section of
Managements Discussion and Analysis and footnote 6 to
the consolidated financial statements for further discussion.



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

Residual interests from past securitizations 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. See footnote 3 to the
consolidated financial statements for further discussion.



| |                                              
| | ---------------------------------------------
| | Accounting for Private Equity
    Investments

We account for private equity investments held by
our venture capital line of business at fair value, with
unrealized and realized gains and losses included in noninterest
income as investment securities gains and losses. The fair value
of private equity investments (which by their nature are not
publicly traded) is estimated based on the investees
financial results, conditions and prospects, values of
comparable public companies, market liquidity and sales
restrictions. We assume that cost approximates fair value,
unless there is evidence suggesting a revaluation is
appropriate. Potential reasons for revaluation include:
1) an anticipated pricing of a companys future equity
financing that would be lower than the previous funding round
(although the reverse would not necessarily require an upward
adjustment), 2) a significant deterioration in the
companys performance, and 3) a significant reduction
in the companys potential realizable value  for
example, if market conditions have caused a meaningful change in
the value of peer companies. We may increase the valuation of a
private equity investment only if the investee has completed a
new equity financing in which a professional investor is
investing for the first time at a higher valuation. We believe
the values derived from the application of our policy represent
fair value for these non-marketable securities.



| |                              
| | -----------------------------
| | 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.

25



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##### Table of Contents



Consolidated Income Statement
Analysis



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

We recorded net income of $72.8 million for
the year ended December 31, 2003, up 37% from net income of
$53.3 million for the year ended December 31, 2002,
and compared to $45.5 million in 2001. Net income per share
(diluted) was $2.45 for the year ended December 31, 2003,
up 30% from $1.89 per share in 2002 and up 23% from
$2.00 per share in 2001. Return on equity was 18.37% for
the year ended December 31, 2003, 16.66% in 2002 and 21.82%
in 2001. The effective income tax rate for 2003 was 38.5%,
compared to 38.7% in 2002 and 38.9% in 2001.



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

Net interest income for the year ended
December 31, 2003 totaled $271.9 million, up 27% from
2002 net interest income of $213.6 million and up 84%
from 2001. Net interest margin for the year ended
December 31, 2003 was 5.82% compared to 6.01% in 2002 and
5.35% in 2001. The decline in margin in 2003 relates to the
declining interest rate environment relative to 2002 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 42% in 2003 due
primarily to unrealized trading losses (reflecting valuation
impairment) during the first half of 2003. The following tables
show our daily average consolidated balance sheet, interest
rates and interest differential at the dates indicated:

|                                         |                                                           |                               |   |           |           |        |   |         |         |          |  |        |      |         |   |           |           |        |   |         |         |  |  |       |      |   |   |           |           |  |   |         |         |  |  |       |      |  
|---------------------------------------- | --------------------------------------------------------- | ----------------------------- | - | --------- | --------- | ------ | - | ------- | ------- | -------- |  | ------ | ---- | ------- | - | --------- | --------- | ------ | - | ------- | ------- |  |  | ----- | ---- | - | - | --------- | --------- |  | - | ------- | ------- |  |  | ----- | ---- | -
|                                         |                                                           |                              
|                                         |                                                           | December 31,                 
|                                         |                                                           |                              
|                                         |                                                           |                               |   |           |           |       
|                                         |                                                           | 2003                          |   | 2002      |           | 2001  
|                                         |                                                           |                               |   |           |           |       
|                                         |                                                           | 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 |                               | $ | 74,216    |           |        | $ | 550     |         |          |  | 0.74   | %    |         | $ | 25,859    |           |        | $ | 311     |         |  |  | 1.20  | %    |   | $ | 64,290    |           |  | $ | 1,927   |         |  |  | 3.00  | %   
|                                         | Federal funds sold                                        |                               |   | 10,824    |           |        |   | 118     |         |          |  | 1.10   |      |         |   | 12,582    |           |        |   | 104     |         |  |  | 0.83  |      |   |   | 17,973    |           |  |   | 257     |         |  |  | 1.43  |     
|                                         | Residual interests                                        |                               |   | 108,351   |           |        |   | 20,651  |         |          |  | 19.06  |      |         |   | 186,947   |           |        |   | 34,164  |         |  |  | 18.27 |      |   |   | 188,166   |           |  |   | 32,029  |         |  |  | 17.02 |     
|                                         | Investment securities                                     |                               |   | 68,602    |           |        |   | 3,723   |         |          |  | 5.43   |      |         |   | 39,923    |           |        |   | 2,809   |         |  |  | 7.04  |      |   |   | 35,317    |           |  |   | 3,228   |         |  |  | 9.14  |     
|                                         | Loans held for sale                                       |                               |   | 1,237,963 |           |        |   | 104,350 |         |          |  | 8.43   |      |         |   | 668,522   |           |        |   | 55,336  |         |  |  | 8.28  |      |   |   | 911,949   |           |  |   | 102,383 |         |  |  | 11.23 |     
|                                         | Loans and leases, net of unearned
    income(1)           |                               |   | 3,168,776 |           |        |   | 241,592 |         |          |  | 7.62   |      |         |   | 2,620,428 |           |        |   | 218,718 |         |  |  | 8.35  |      |   |   | 1,533,261 |           |  |   | 128,458 |         |  |  | 8.38  |     
|                                         |                                                           |                               |   |           |           |        |   |         |         |          |  |        |      |         |   |           |           |        |   |         |         |  |  |       |      |   |   |           |           |  |   |         |         |  |  |      
|                                         |                                                           | Total interest-earning assets |   | $         | 4,668,732 |        |   | $       | 370,984 |          |  |        | 7.95 | %       |   | $         | 3,554,261 |        |   | $       | 311,442 |  |  |       | 8.76 | % |   | $         | 2,750,956 |  |   | $       | 268,282 |  |  |       | 9.75 | %
|                                         |                                                           |                               |   |           |           |        |   |         |         |          |  |        |      |         |   |           |           |        |   |         |         |  |  |       |      |   |   |           |           |  |   |         |         |  |  |      
|Noninterest-earning assets:              |                                                           |                               |   |           |           |        |   |         |         |          |  |        |      |         |   |           |           |        |   |         |         |  |  |       |      |   |   |           |           |  |   |         |         |  |  |      
|                                         | Cash and due from banks                                   |                               | $ | 103,581   |           |        |   |         |         |          |  |        |      |         | $ | 100,259   |           |        |   |         |         |  |  |       |      |   | $ | 85,242    |           |  |   |         |         |  |  |       |     
|                                         | Premises and equipment, net                               |                               |   | 32,644    |           |        |   |         |         |          |  |        |      |         |   | 34,041    |           |        |   |         |         |  |  |       |      |   |   | 32,727    |           |  |   |         |         |  |  |       |     
|                                         | Other assets                                              |                               |   | 440,164   |           |        |   |         |         |          |  |        |      |         |   | 354,296   |           |        |   |         |         |  |  |       |      |   |   | 281,904   |           |  |   |         |         |  |  |       |     
|                                         | Less allowance for loan and lease losses                  |                               |   | (57,986   | )         |        |   |         |         |          |  |        |      |         |   | (37,054   | )         |        |   |         |         |  |  |       |      |   |   | (15,587   | )         |  |   |         |         |  |  |       |     
|                                         |                                                           |                               |   |           |           |        |   |         |         |          |  |        |      |         |   |           |           |        |   |         |         |  |  |       |      |   |   |           |           |  |   |         |         |  |  |      
|                                         |                                                           | Total assets                  |   | $         | 5,187,135 |        |   |         |         |          |  |        |      |         |   | $         | 4,005,803 |        |   |         |         |  |  |       |      |   |   | $         | 3,135,242 |  |   |         |         |  |  |       |      |  
|                                         |                                                           |                               |   |           |           |        |   |         |         |          |  |        |      |         |   |           |           |        |   |         |         |  |  |       |      |   |   |           |           |  |   |         |         |  |  |      
|                                        
|Liabilities and Shareholders
    Equity |                                                           |                               |   |           |           |        |   |         |         |          |  |        |      |         |   |           |           |        |   |         |         |  |  |       |      |   |   |           |           |  |   |         |         |  |  |      
|Interest-bearing liabilities:            |                                                           |                               |   |           |           |        |   |         |         |          |  |        |      |         |   |           |           |        |   |         |         |  |  |       |      |   |   |           |           |  |   |         |         |  |  |      
|                                         | Money market checking                                     |                               | $ | 169,674   |           |        | $ | 913     |         |          |  | 0.54   | %    |         | $ | 132,351   |           |        | $ | 664     |         |  |  | 0.50  | %    |   | $ | 105,564   |           |  | $ | 1,097   |         |  |  | 1.04  | %   
|                                         | Money market savings                                      |                               |   | 866,241   |           |        |   | 11,085  |         |          |  | 1.28   |      |         |   | 648,706   |           |        |   | 10,253  |         |  |  | 1.58  |      |   |   | 388,432   |           |  |   | 13,383  |         |  |  | 3.45  |     
|                                         | Regular savings                                           |                               |   | 62,756    |           |        |   | 1,249   |         |          |  | 1.99   |      |         |   | 58,204    |           |        |   | 1,586   |         |  |  | 2.72  |      |   |   | 52,650    |           |  |   | 1,998   |         |  |  | 3.79  |     
|                                         | Time deposits                                             |                               |   | 992,954   |           |        |   | 29,118  |         |          |  | 2.93   |      |         |   | 1,027,045 |           |        |   | 41,858  |         |  |  | 4.08  |      |   |   | 1,015,105 |           |  |   | 56,862  |         |  |  | 5.60  |     
|                                         | Short-term borrowings                                     |                               |   | 595,243   |           |        |   | 14,889  |         |          |  | 2.50   |      |         |   | 600,821   |           |        |   | 15,003  |         |  |  | 2.50  |      |   |   | 594,831   |           |  |   | 29,656  |         |  |  | 4.99  |     

26



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##### Table of Contents



|                                 |                                                            |                                            |         |           |           |        |   |         |        |          |  |        |      |         |         |          |           |        |   |         |        |  |  |      |      |   |         |         |           |  |   |         |         |  |  |      |      |  
|-------------------------------- | ---------------------------------------------------------- | ------------------------------------------ | ------- | --------- | --------- | ------ | - | ------- | ------ | -------- |  | ------ | ---- | ------- | ------- | -------- | --------- | ------ | - | ------- | ------ |  |  | ---- | ---- | - | ------- | ------- | --------- |  | - | ------- | ------- |  |  | ---- | ---- | -
|                                 |                                                            |                                           
|                                 |                                                            | December 31,                              
|                                 |                                                            |                                           
|                                 |                                                            |                                            |         |           |           |       
|                                 |                                                            | 2003                                       |         | 2002      |           | 2001  
|                                 |                                                            |                                            |         |           |           |       
|                                 |                                                            | Average                                    |         |           |           | Yield/ |   | Average |        |          |  | Yield/ |      | Average |         |          |           | Yield/
|                                 |                                                            | Balance                                    |         | Interest  |           | Rate   |   | Balance |        | Interest |  | Rate   |      | Balance |         | Interest |           | Rate  
|                                 |                                                            |                                            |         |           |           |        |   |         |        |          |  |        |      |         |         |          |           |       
|                                 |                                                            |                                           
|                                 |                                                            | (Dollars in thousands)                    
|                                 | Collateralized debt                                        |                                            |         | 578,656   |           |        |   | 15,369  |        |          |  | 2.66   |      |         |         | 215,128  |           |        |   | 5,932   |        |  |  | 2.76 |      |   |         |        |           |  |   |        |         |  |  |     |     
|                                 | Other long-term debt                                       |                                            |         | 30,060    |           |        |   | 2,325   |        |          |  | 7.74   |      |         |         | 31,985   |           |        |   | 2,699   |        |  |  | 8.44 |      |   |         | 25,517  |           |  |   | 2,320   |         |  |  | 9.09 |     
|                                 | Trust preferred securities distribution                    |                                            |         | 236,823   |           |        |   | 24,151  |        |          |  | 10.20  |      |         |         | 205,400  |           |        |   | 19,800  |        |  |  | 9.64 |      |   |         | 165,500 |           |  |   | 15,767  |         |  |  | 9.53 |     
|                                 |                                                            |                                            |         |           |           |        |   |         |        |          |  |        |      |         |         |          |           |        |   |         |        |  |  |      |      |   |         |         |           |  |   |         |         |  |  |     
|                                 |                                                            | Total interest-bearing liabilities         |         | $         | 3,532,407 |        |   | $       | 99,099 |          |  |        | 2.81 | %       |         | $        | 2,919,640 |        |   | $       | 97,795 |  |  |      | 3.35 | % |         | $       | 2,347,599 |  |   | $       | 121,083 |  |  |      | 5.16 | %
|                                 |                                                            |                                            |         |           |           |        |   |         |        |          |  |        |      |         |         |          |           |        |   |         |        |  |  |      |      |   |         |         |           |  |   |         |         |  |  |     
|Noninterest-bearing liabilities: |                                                            |                                            |         |           |           |        |   |         |        |          |  |        |      |         |         |          |           |        |   |         |        |  |  |      |      |   |         |         |           |  |   |         |         |  |  |     
|                                 | Demand deposits                                            |                                            | $       | 1,042,403 |           |        |   |         |        |          |  |        |      |         | $       | 577,409  |           |        |   |         |        |  |  |      |      |   | $       | 419,512 |           |  |   |         |         |  |  |      |     
|                                 | Other liabilities                                          |                                            |         | 216,111   |           |        |   |         |        |          |  |        |      |         |         | 188,738  |           |        |   |         |        |  |  |      |      |   |         | 159,553 |           |  |   |         |         |  |  |      |     
|Shareholders equity             |                                                            |                                            | 396,214 |           |           |        |   |         |        |          |  |        |      |         | 320,016 |          |           |        |   |         |        |  |  |      |      |   | 208,578 |         |           |  |   |         |         |  |  |     
|                                 |                                                            |                                            |         |           |           |        |   |         |        |          |  |        |      |         |         |          |           |        |   |         |        |  |  |      |      |   |         |         |           |  |   |         |         |  |  |     
|                                 |                                                            | Total liabilities and shareholders equity |         | $         | 5,187,135 |        |   |         |        |          |  |        |      |         |         | $        | 4,005,803 |        |   |         |        |  |  |      |      |   |         | $       | 3,135,242 |  |   |         |         |  |  |      |      |  
|                                 |                                                            |                                            |         |           |           |        |   |         |        |          |  |        |      |         |         |          |           |        |   |         |        |  |  |      |      |   |         |         |           |  |   |         |         |  |  |     
|                                 | Net interest income                                        |                                            |         |           |           |        | $ | 271,885 |        |          |  |        |      |         |         |          |           |        | $ | 213,647 |        |  |  |      |      |   |         |         |           |  | $ | 147,199 |         |  |  |      |     
|                                 |                                                            |                                            |         |           |           |        |   |         |        |          |  |        |      |         |         |          |           |        |   |         |        |  |  |      |      |   |         |         |           |  |   |         |         |  |  |     
|                                 | Net interest income to average interest-earning
    assets |                                            |         |           |           |        |   |         |        |          |  | 5.82   | %    |         |         |          |           |        |   |         |        |  |  | 6.01 | %    |   |         |         |           |  |   |         |         |  |  | 5.35 | %   
|                                 |                                                            |                                            |         |           |           |        |   |         |        |          |  |        |      |         |         |          |           |        |   |         |        |  |  |      |      |   |         |         |           |  |   |         |         |  |  |     



---



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

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,
|                |                                                           |                                
|                |                                                           |                                 |   |               
|                |                                                           | 2003 Over 2002                  |   | 2002 Over 2001
|                |                                                           |                                 |   |               
|                |                                                           | Volume                          |   | Rate           |        | Total |   | Volume  |         | Rate |   | Total  
|                |                                                           |                                 |   |                |        |       |   |         |         |      |   |        
|                |                                                           |                                
|                |                                                           | (Dollars in thousands)         
|Interest Income |                                                           |                                 |   |                |        |       |   |         |         |      |   |         |        |  |   |         |        |  |   |         |         |   |   |        
|                | Loans and leases                                          |                                 | $ | 45,769         |        |       | $ | (22,895 | )       |      | $ | 22,874  |        |  | $ | 91,084  |        |  | $ | (824    | )       |   | $ | 90,260  |       
|                | Loans held for sale                                       |                                 |   | 47,134         |        |       |   | 1,880   |         |      |   | 49,014  |        |  |   | (27,329 | )      |  |   | (19,718 | )       |   |   | (47,047 | )     
|                | Investment securities                                     |                                 |   | 2,018          |        |       |   | (1,104  | )       |      |   | 914     |        |  |   | 421     |        |  |   | (839    | )       |   |   | (419    | )     
|                | Residual interests                                        |                                 |   | (14,363        | )      |       |   | 850     |         |      |   | (13,513 | )      |  |   | (207    | )      |  |   | 2,342   |         |   |   | 2,135   |       
|                | Interest-bearing deposits with financial
    institutions |                                 |   | 581            |        |       |   | (342    | )       |      |   | 239     |        |  |   | (1,152  | )      |  |   | (465    | )       |   |   | (1,616  | )     
|                | Federal funds sold                                        |                                 |   | (15            | )      |       |   | 29      |         |      |   | 14      |        |  |   | (77     | )      |  |   | (76     | )       |   |   | (153    | )     
|                |                                                           |                                 |   |                |        |       |   |         |         |      |   |         |        |  |   |         |        |  |   |         |         |   |   |        
|                |                                                           | Total                           |   |                | 81,124 |       |   |         | (21,582 | )    |   |         | 59,542 |  |   |         | 62,740 |  |   |         | (19,580 | ) |   |         | 43,160 | 
|                |                                                           |                                 |   |                |        |       |   |         |         |      |   |         |        |  |   |         |        |  |   |         |         |   |   |        

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##### Table of Contents



|                 |                                         |                                 |   |                |        |       |   |         |         |      |   |         |       |  |   |        |        |  |   |         |         |   |   |         |         |  
|---------------- | --------------------------------------- | ------------------------------- | - | -------------- | ------ | ----- | - | ------- | ------- | ---- | - | ------- | ----- |  | - | ------ | ------ |  | - | ------- | ------- | - | - | ------- | ------- | -
|                 |                                         |                                
|                 |                                         | For the Year Ended December 31,
|                 |                                         |                                
|                 |                                         |                                 |   |               
|                 |                                         | 2003 Over 2002                  |   | 2002 Over 2001
|                 |                                         |                                 |   |               
|                 |                                         | Volume                          |   | Rate           |        | Total |   | Volume  |         | Rate |   | Total  
|                 |                                         |                                 |   |                |        |       |   |         |         |      |   |        
|                 |                                         |                                
|                 |                                         | (Dollars in thousands)         
|Interest Expense |                                         |                                 |   |                |        |       |   |         |         |      |   |         |       |  |   |        |        |  |   |         |         |   |   |        
|                 | Money market checking                   |                                 |   | 187            |        |       |   | 62      |         |      |   | 249     |       |  |   | 278    |        |  |   | (711    | )       |   |   | (433    | )      
|                 | Money market savings                    |                                 |   | 3,438          |        |       |   | (2,606  | )       |      |   | 832     |       |  |   | 8,968  |        |  |   | (12,098 | )       |   |   | (3,130  | )      
|                 | Regular savings                         |                                 |   | 124            |        |       |   | (461    | )       |      |   | (337    | )     |  |   | 211    |        |  |   | (623    | )       |   |   | (412    | )      
|                 | Time deposits                           |                                 |   | (1,389         | )      |       |   | (11,352 | )       |      |   | (12,741 | )     |  |   | 669    |        |  |   | (15,672 | )       |   |   | (15,003 | )      
|                 | Short-term borrowings                   |                                 |   | (139           | )      |       |   | 25      |         |      |   | (114    | )     |  |   | 299    |        |  |   | (14,952 | )       |   |   | (14,653 | )      
|                 | Collateralized debt                     |                                 |   | 10,024         |        |       |   | (587    | )       |      |   | 9,437   |       |  |   |       |        |  |   | 5,932   |         |   |   | 5,932   |        
|                 | Other long-term debt                    |                                 |   | (162           | )      |       |   | (211    | )       |      |   | (373    | )     |  |   | 588    |        |  |   | (210    | )       |   |   | 378     |        
|                 | Trust preferred securities distribution |                                 |   | 3,029          |        |       |   | 1,322   |         |      |   | 4,351   |       |  |   | 3,801  |        |  |   | 232     |         |   |   | 4,033   |        
|                 |                                         |                                 |   |                |        |       |   |         |         |      |   |         |       |  |   |        |        |  |   |         |         |   |   |        
|                 |                                         | Total                           |   |                | 15,112 |       |   |         | (13,808 | )    |   |         | 1,304 |  |   |        | 14,814 |  |   |         | (38,102 | ) |   |         | (23,288 | )
|                 |                                         |                                 |   |                |        |       |   |         |         |      |   |         |       |  |   |        |        |  |   |         |         |   |   |        
|                 | Net interest income                     |                                 | $ | 66,012         |        |       | $ | (7,774  | )       |      | $ | 58,238  |       |  | $ | 47,926 |        |  | $ | 18,522  |         |   | $ | 66,448  |        
|                 |                                         |                                 |   |                |        |       |   |         |         |      |   |         |       |  |   |        |        |  |   |         |         |   |   |        

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 2003 was $47.6 million, compared to
$44.0 million and $17.5 million in 2002 and 2001,
respectively. More information on this subject is contained in
the section on credit risk.



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

Noninterest income during the year 2003 totaled
$329.3 million, compared to $235.0 million for 2002
and $257.3 million in 2001. The increase in 2003 versus
2002 was primarily a result of a $127 million or
53% increase in gain from sale of loans as a result of
increased production and increased secondary market deliveries.
In addition, we recorded impairment recovery on our mortgage
servicing asset totaling $45 million, versus impairment
expense in 2002 of $146 million. Offsetting this was
$21 million in derivative losses during 2003, compared to
$125 million of derivative gains during 2002. Accordingly,
mortgage servicing asset impairment net of derivative gains/
losses was a recovery of $24 million in 2003 compared to a
writedown of $21 million in 2002. Also offsetting the
increased gain on sale and impairment recovery was amortization
expense on our servicing asset that increased 118% to
$136 million in 2003 compared to $62 million in 2002.
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 2003 with an increase in rates late in the year. See
Mortgage Banking section for further discussion.



| |                    
| | -------------------
| | Noninterest Expense

Noninterest expenses for the year ended
December 31, 2003 totaled $435.2 million, compared to
$318.4 million and $312.8 million in 2002 and 2001,
respectively. The increase in consolidated other expense in 2003
is primarily related to higher personnel costs, especially
commissions, associated with our increased production at our
mortgage banking line of business.

Consolidated Balance Sheet Analysis

Total assets at December 31, 2003 were
$5.0 billion, up 2% from December 31, 2002. However,
we believe that changes in the average balance sheet are a more
accurate reflection of the actual changes in the level of
activity on the balance sheet. Average assets for 2003 were
$5.2 billion up 29% from December 31,

28



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##### Table of Contents



2002, and up 65% from December 31, 2001. The
growth in the consolidated average balance sheet reflects
increases in portfolio loans and leases at the commercial
banking, home equity lending and commercial finance lines of
business. This growth stopped mid-year 2003 because mortgage
loans held for sale at the mortgage banking line of business
declined as mortgage production decreased.




| |      
| | -----
| | Loans

Our commercial loans and leases are originated
throughout the United States. Equipment loans and leases are
also originated in Canada by our commercial finance line of
business. At December 31, 2003, 94% of our loan and lease
portfolio was associated with our U.S. operations. We also
extend credit to consumers nationally through mortgages,
installment loans and revolving credit arrangements. The
majority of the remaining portfolio consists of residential
mortgage loans (1-4 family dwellings) and mortgage loans on
commercial property. Loans by major category for the periods
presented were as follows:

|                                       |          |                         |           |         |           |      |           |         |           |      |           |         |           |   |         |         |           |   |         |       |         | 
|-------------------------------------- | -------- | ----------------------- | --------- | ------- | --------- | ---- | --------- | ------- | --------- | ---- | --------- | ------- | --------- | - | ------- | ------- | --------- | - | ------- | ----- | ------- | 
|                                       |          |                        
|                                       |          | Year Ended December 31,
|                                       |          |                        
|                                       |          | 2003                    |           | 2002    |           | 2001 |           | 2000    |           | 1999
|                                       |          |                         |           |         |           |      |           |         |           |     
|                                       |          |                        
|                                       |          | (Dollars in thousands) 
|Commercial, financial and agricultural |          | $                       | 1,503,619 |         |           | $    | 1,347,962 |         |           | $    | 1,055,307 |         |           | $ | 677,066 |         |           | $ | 443,985 |      
|Real estate construction               |          |                         | 306,669   |         |           |      | 314,851   |         |           |      | 287,228   |         |           |   | 220,485 |         |           |   | 121,803 |      
|Real estate mortgage                   |          |                         | 859,541   |         |           |      | 777,865   |         |           |      | 490,186   |         |           |   | 122,301 |         |           |   | 115,265 |      
|Consumer                               |          |                         | 27,370    |         |           |      | 27,857    |         |           |      | 38,489    |         |           |   | 56,785  |         |           |   | 48,936  |      
|Direct lease financing:                |          |                         |           |         |           |      |           |         |           |      |           |         |           |   |         |         |           |   |         |      
|                                       | Domestic |                         |           | 364,413 |           |      |           | 291,711 |           |      |           | 232,527 |           |   |         | 116,867 |           |   |         | 3,890 |        
|                                       | Canadian |                         |           | 207,355 |           |      |           | 133,784 |           |      |           | 91,816  |           |   |         | 72,864  |           |   |         |      |        
|Unearned income:                       |          |                         |           |         |           |      |           |         |           |      |           |         |           |   |         |         |           |   |         |      
|                                       | Domestic |                         |           | (78,875 | )         |      |           | (59,287 | )         |      |           | (44,183 | )         |   |         | (21,570 | )         |   |         | (455  | )      
|                                       | Canadian |                         |           | (29,038 | )         |      |           | (19,467 | )         |      |           | (13,548 | )         |   |         | (9,876  | )         |   |         |      |        
|                                       |          |                         |           |         |           |      |           |         |           |      |           |         |           |   |         |         |           |   |         |      
|                                       |          | Total                   |           | $       | 3,161,054 |      |           | $       | 2,815,276 |      |           | $       | 2,137,822 |   |         | $       | 1,234,922 |   |         | $     | 733,424 | 
|                                       |          |                         |           |         |           |      |           |         |           |      |           |         |           |   |         |         |           |   |         |      

The following table shows our contractual
maturity distribution of loans at December 31, 2003. Actual
principal payments may differ depending on customer prepayments:

|                                       |                         |                        |         |            |         |            |         |         |           |   |         |         |           |   |           |           |           | 
|-------------------------------------- | ----------------------- | ---------------------- | ------- | ---------- | ------- | ---------- | ------- | ------- | --------- | - | ------- | ------- | --------- | - | --------- | --------- | --------- | 
|                                       |                         |                        |         | After One  |         |            |         |        
|                                       |                         | Within                 |         | But Within |         | After      |         |        
|                                       |                         | One Year               |         | Five Years |         | Five Years |         | Total  
|                                       |                         |                        |         |            |         |            |         |        
|                                       |                         |                       
|                                       |                         | (Dollars in thousands)
|Commercial, financial and agricultural |                         | $                      | 494,904 |            |         | $          | 694,949 |         |           | $ | 313,766 |         |           | $ | 1,503,619 |          
|Real estate construction               |                         |                        | 236,662 |            |         |            | 67,197  |         |           |   | 2,810   |         |           |   | 306,669   |          
|Real estate mortgage                   |                         |                        | 28,743  |            |         |            | 64,760  |         |           |   | 766,038 |         |           |   | 859,541   |          
|Consumer loans                         |                         |                        | 10,170  |            |         |            | 14,253  |         |           |   | 2,947   |         |           |   | 27,370    |          
|Direct lease financing:                |                         |                        |         |            |         |            |         |         |           |   |         |         |           |   |           |          
|                                       | Domestic                |                        |         | 15,945     |         |            |         | 151,455 |           |   |         | 118,138 |           |   |           | 285,538   |          
|                                       | Canadian                |                        |         | 7,363      |         |            |         | 157,886 |           |   |         | 13,068  |           |   |           | 178,317   |          
|                                       |                         |                        |         |            |         |            |         |         |           |   |         |         |           |   |           |          
|                                       |                         | Total                  |         | $          | 793,787 |            |         | $       | 1,150,500 |   |         | $       | 1,216,767 |   |           | $         | 3,161,054 | 
|                                       |                         |                        |         |            |         |            |         |         |           |   |         |         |           |   |           |          
|Loans due after one year with:         |                         |                        |         |            |         |            |         |         |           |   |         |         |           |   |           |          
|                                       | Fixed interest rates    |                        |         |            |         |            |         |         |           |   |         |         |           |   |           | 893,250   |          
|                                       | Variable interest rates |                        |         |            |         |            |         |         |           |   |         |         |           |   |           | 1,474,017 |          
|                                       |                         |                        |         |            |         |            |         |         |           |   |         |         |           |   |           |          
|                                       |                         | Total                  |         |            |         |            |         |         |           |   |         |         |           |   |           | $         | 2,367,267 | 
|                                       |                         |                        |         |            |         |            |         |         |           |   |         |         |           |   |           |          

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| |                    
| | -------------------
| | Loans Held For Sale

Loans held for sale totaled $0.9 billion at
December 31, 2003, a decrease from a balance of
$1.3 billion at December 31, 2002. The decrease
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. This decline reflects slower
refinance activity at the mortgage line of business as a result
of increased interest rates in the last quarter of 2003.
Included in loans held for sale at the mortgage line of business
at December 31, 2003 were $116 million 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.



| |                      
| | ---------------------
| | Investment Securities

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

|                                                 |       |                        |        |        |  |      |        |        |  |   |        |        | 
|------------------------------------------------ | ----- | ---------------------- | ------ | ------ |  | ---- | ------ | ------ |  | - | ------ | ------ | 
|                                                 |       |                       
|                                                 |       | December 31,          
|                                                 |       |                       
|                                                 |       | 2003                   |        | 2002   |  | 2001
|                                                 |       |                        |        |        |  |     
|                                                 |       |                       
|                                                 |       | (Dollars in thousands)
|U.S. Treasury and government obligations         |       | $                      | 20,994 |        |  | $    | 14,992 |        |  | $ | 3,076  |       
|Obligations of states and political subdivisions |       |                        | 3,960  |        |  |      | 4,210  |        |  |   | 4,425  |       
|Mortgage-backed securities                       |       |                        | 2,039  |        |  |      | 1,738  |        |  |   | 4,224  |       
|Other                                            |       |                        | 65,532 |        |  |      | 47,008 |        |  |   | 27,071 |       
|                                                 |       |                        |        |        |  |      |        |        |  |   |        |       
|                                                 | Total |                        | $      | 92,525 |  |      | $      | 67,948 |  |   | $      | 38,796 | 
|                                                 |       |                        |        |        |  |      |        |        |  |   |        |       

Included within the other category is
$63 million, $46 million, and $26 million of FHLB
and Federal Reserve Bank stock at December 31, 2003, 2002,
and 2001, respectively, for which there is no readily
determinable market value. The following table shows maturity
distribution of our investment securities at December 31,
2003:

|                                                 |                    |                        |        |            |        |           |    |           |    |       |     |      |     |   |        |      |        |   |        |   |        | 
|------------------------------------------------ | ------------------ | ---------------------- | ------ | ---------- | ------ | --------- | -- | --------- | -- | ----- | --- | ---- | --- | - | ------ | ---- | ------ | - | ------ | - | ------ | 
|                                                 |                    |                        |        | After One  |        |           |    |           |    |      
|                                                 |                    | Within                 |        | But Within |        | Five to   |    | After     |    |      
|                                                 |                    | One Year               |        | Five Years |        | Ten Years |    | Ten Years |    | Total
|                                                 |                    |                        |        |            |        |           |    |           |    |      
|                                                 |                    |                       
|                                                 |                    | (Dollars in thousands)
|U.S. Treasury and government obligations         |                    | $                      | 20,994 |            |        | $         |   |           |    | $     |    |      |     | $ |       |      |        | $ | 20,994 |  
|Obligations of states and political subdivisions |                    |                        | 120    |            |        |           |   |           |    |       | 220 |      |     |   | 3,620  |      |        |   | 3,960  |  
|Mortgage-backed securities                       |                    |                        | 1,338  |            |        |           | 85 |           |    |       | 412 |      |     |   | 204    |      |        |   | 2,039  |  
|Other                                            |                    |                        | 2,158  |            |        |           |   |           |    |       |    |      |     |   | 63,374 |      |        |   | 65,532 |  
|                                                 |                    |                        |        |            |        |           |    |           |    |       |     |      |     |   |        |      |        |   |        |  
|                                                 |                    | Total                  |        | $          | 24,610 |           |    | $         | 85 |       |     | $    | 632 |   |        | $    | 67,198 |   |        | $ | 92,525 | 
|                                                 |                    |                        |        |            |        |           |    |           |    |       |     |      |     |   |        |      |        |   |        |  
|Weighted average yield:                          |                    |                        |        |            |        |           |    |           |    |       |     |      |     |   |        |      |        |   |        |  
|                                                 | Held-to-maturity   |                        |        | 0.94       | %      |           |    | 5.95      | %  |       |     | 8.02 | %   |   |        | 8.55 | %      |   |        |   |       
|                                                 | Available-for-sale |                        |        | 1.64       | %      |           |    | 1.44      | %  |       |     |     |     |   |        |     |        |   |        |   |       

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.

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

Total deposits in 2003 averaged $3.1 billion
compared to average deposits in 2002 of $2.4 billion, and
average deposits in 2001 of $2.0 billion. Demand deposits
in 2003 averaged $1.0 billion, an 81% increase over the
2002 average balance. Demand deposits in 2002 were up 38% on
average, or $157.9 million, from 2001. 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 2003, these escrow accounts averaged
$826.2 million compared to a 2002 average of
$409.4 million, and a 2001 average of $294.8 million.
The increase in average escrow balances in 2003 relates to the
mortgage banking line of business servicing portfolio that
increased from $16.8 billion at December 31, 2002 to
$29.6 billion at December 31, 2003, and the heavy
volume of mortgage refinances.

Irwin Union Bank and Trust utilizes institutional
broker-sourced deposits as funding from time to time to
supplement deposits solicited through branches and other
wholesale funding sources. At December 31, 2003,
institutional broker-sourced deposits totaled
$339.4 million compared to a balance of $337.4 million
at December 31, 2002.

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

|                  |           |                        |           |         |  |      |           |         |  |   |           |         | 
|----------------- | --------- | ---------------------- | --------- | ------- |  | ---- | --------- | ------- |  | - | --------- | ------- | 
|                  |           |                       
|                  |           | December 31,          
|                  |           |                       
|                  |           | 2003                   |           | 2002    |  | 2001
|                  |           |                        |           |         |  |     
|                  |           |                       
|                  |           | (Dollars in thousands)
|Under 3 months    |           | $                      | 284,095   |         |  | $    | 241,722   |         |  | $ | 335,420   |        
|3 to 6 months     |           |                        | 60,786    |         |  |      | 116,119   |         |  |   | 151,924   |        
|6 to 12 months    |           |                        | 98,746    |         |  |      | 63,742    |         |  |   | 260,184   |        
|After 12 months   |           |                        | 252,743   |         |  |      | 280,287   |         |  |   | 138,059   |        
|                  |           |                        |           |         |  |      |           |         |  |   |           |        
|                  | Total CDs |                        | $         | 696,370 |  |      | $         | 701,870 |  |   | $         | 885,587 | 
|                  |           |                        |           |         |  |      |           |         |  |   |           |        
|Brokered deposits |           | $                      | 339,417   |         |  | $    | 337,431   |         |  | $ | 577,297   |        
|                  |           |                        |           |         |  |      |           |         |  |   |           |        
|Core Deposits     |           | $                      | 1,752,461 |         |  | $    | 1,516,812 |         |  | $ | 1,135,870 |        
|                  |           |                        |           |         |  |      |           |         |  |   |           |        

Short-Term Borrowings

Short-term borrowings during 2003 averaged
$595.2 million compared to an average of
$600.8 million in 2002, and $594.8 million in 2001.
Short term borrowings declined to $429.8 million at
December 31, 2003 compared to $993.1 million at
December 31, 2002. The decrease in year-end balances
relates primarily to a corresponding $559.9 million
decrease in loans held for sale at the mortgage banking line of
business during the same period.

The following table shows the distribution of our
short-term borrowings and the weighted average rates at the
dates shown. Also provided are the maximum amount of borrowings
and the average amounts of borrowings as well as weighted
average interest rates.

|                                      |                                           |                        |   |        |  |        |  |      |   |        |   |         |  |  |  |      |   |  |   |         |  |  |  |      |  
|------------------------------------- | ----------------------------------------- | ---------------------- | - | ------ |  | ------ |  | ---- | - | ------ | - | ------- |  |  |  | ---- | - |  | - | ------- |  |  |  | ---- | -
|                                      |                                           |                        |   |        |  |       
|                                      |                                           | 2003                   |   | 2002   |  | 2001  
|                                      |                                           |                        |   |        |  |       
|                                      |                                           | Amount                 |   | Rate   |  | Amount |  | Rate |   | Amount |   | Rate   
|                                      |                                           |                        |   |        |  |        |  |      |   |        |   |        
|                                      |                                           |                       
|                                      |                                           | (Dollars in thousands)
|Lines of Credit and other Borrowings: |                                           |                        |   |        |  |        |  |      |   |        |   |         |  |  |  |      |   |  |   |         |  |  |  |     
|                                      | At December 31,                           |                        | $ | 1,057  |  |        |  | 1.99 | % |        | $ | 221,302 |  |  |  | 2.36 | % |  | $ | 75,483  |  |  |  | 2.95 | %
|                                      | Weighted average during the year          |                        |   | 19,214 |  |        |  | 1.99 |   |        |   | 133,382 |  |  |  | 2.95 |   |  |   | 130,901 |  |  |  | 5.30 |  
|                                      | Maximum month-end balance during the year |                        |   | 67,630 |  |        |  |      |   |        |   | 333,927 |  |  |  |      |   |  |   | 335,223 |  |  |  |      |  

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|                                                      |                                           |                        |   |         |  |        |  |      |   |        |   |         |  |  |  |      |   |  |   |         |  |  |  |      |  
|----------------------------------------------------- | ----------------------------------------- | ---------------------- | - | ------- |  | ------ |  | ---- | - | ------ | - | ------- |  |  |  | ---- | - |  | - | ------- |  |  |  | ---- | -
|                                                      |                                           |                        |   |         |  |       
|                                                      |                                           | 2003                   |   | 2002    |  | 2001  
|                                                      |                                           |                        |   |         |  |       
|                                                      |                                           | Amount                 |   | Rate    |  | Amount |  | Rate |   | Amount |   | Rate   
|                                                      |                                           |                        |   |         |  |        |  |      |   |        |   |        
|                                                      |                                           |                       
|                                                      |                                           | (Dollars in thousands)
|Federal Home Loan Bank Borrowings:                    |                                           |                        |   |         |  |        |  |      |   |        |   |         |  |  |  |      |   |  |   |         |  |  |  |     
|                                                      | At December 31,                           |                        | $ | 286,000 |  |        |  | 1.34 | % |        | $ | 527,000 |  |  |  | 1.49 | % |  | $ | 212,000 |  |  |  | 2.15 | %
|                                                      | Weighted average during the year          |                        |   | 458,167 |  |        |  | 1.46 |   |        |   | 238,629 |  |  |  | 1.95 |   |  |   | 205,657 |  |  |  | 4.07 |  
|                                                      | Maximum month-end balance during the year |                        |   | 977,000 |  |        |  |      |   |        |   | 692,000 |  |  |  |      |   |  |   | 409,000 |  |  |  |      |  
|Federal Funds:                                        |                                           |                        |   |         |  |        |  |      |   |        |   |         |  |  |  |      |   |  |   |         |  |  |  |     
|                                                      | At December 31,                           |                        | $ | 53,600  |  |        |  | 1.18 | % |        | $ | 30,000  |  |  |  | 1.99 | % |  | $ | 35,200  |  |  |  | 3.40 | %
|                                                      | Weighted average during the year          |                        |   | 74,708  |  |        |  | 1.29 |   |        |   | 38,885  |  |  |  | 2.31 |   |  |   | 25,462  |  |  |  | 3.86 |  
|                                                      | Maximum month-end balance during the year |                        |   | 290,000 |  |        |  |      |   |        |   | 56,000  |  |  |  |      |   |  |   | 46,400  |  |  |  |      |  
|Drafts Payable Related to Mortgage
    Loan Closings: |                                           |                        |   |         |  |        |  |      |   |        |   |         |  |  |  |      |   |  |   |         |  |  |  |     
|                                                      | At December 31,                           |                        | $ | 72,686  |  |        |  | n/a  |   |        | $ | 200,701 |  |  |  | n/a  |   |  | $ | 154,157 |  |  |  | n/a  |  
|                                                      | Weighted average during the year          |                        |   | 227,827 |  |        |  | n/a  |   |        |   | 173,708 |  |  |  | n/a  |   |  |   | 216,442 |  |  |  | n/a  |  
|                                                      | Maximum month-end balance during the year |                        |   | 509,501 |  |        |  |      |   |        |   | 258,911 |  |  |  |      |   |  |   | 497,655 |  |  |  |      |  
|Commercial Paper:                                     |                                           |                        |   |         |  |        |  |      |   |        |   |         |  |  |  |      |   |  |   |         |  |  |  |     
|                                                      | At December 31,                           |                        | $ | 16,415  |  |        |  | 1.28 | % |        | $ | 14,121  |  |  |  | 1.59 | % |  | $ | 11,123  |  |  |  | 2.59 | %
|                                                      | Weighted average during the year          |                        |   | 15,960  |  |        |  | 1.37 |   |        |   | 16,217  |  |  |  | 2.00 |   |  |   | 17,609  |  |  |  | 4.65 |  
|                                                      | Maximum month-end balance during the year |                        |   | 19,720  |  |        |  |      |   |        |   | 18,972  |  |  |  |      |   |  |   | 27,965  |  |  |  |      |  

Other Long-Term Debt and Collateralized
Borrowings

Other long-term debt totaled $270.2 million
at December 31, 2003 compared to $30.1 million at
December 31, 2002. This increase is a result of an
accounting change related to FASB Interpretation No. 46,
Consolidation of Variable Interest Entities
(FIN 46). We have obligations represented by subordinated
debentures at December 31, 2003 totaling
$240.1 million and trust preferred securities totaling
$233.0 million at December 31, 2002. The trust
preferred securities were issued by our wholly-owned trusts that
were created for the purpose of issuing these securities. The
subordinated debentures are the sole assets of the trusts at
December 31, 2003. In accordance with FIN 46, we are
deconsolidating the wholly-owned trusts that issued the trust
preferred securities. As a result, these securities no longer
are consolidated on our balance sheet. Instead, the subordinated
debentures held by the trusts are disclosed on the balance sheet
as other long-term debt.

Collateralized borrowings totaled
$590.1 million at December 31, 2003 compared to
$391.4 million at December 31, 2002 relating to
increased securitization activities at the home equity lending
and commercial finance lines of business. The securitization
structures utilized in 2003 result in loans remaining as assets
and collateralized debt being recorded on the balance sheet.
This securitization debt represents match-term funding.

Capital

Shareholders equity averaged
$396.2 million during 2003, up 24% compared to 2002, and up
90% from 2001. Shareholders equity balance of
$432.3 million at December 31, 2003 represented
$15.36 per common share, compared to $12.98 per common
share at December 31, 2002, and compared to $10.81 per
common share at year-end 2001. We paid an aggregate of
$7.8 million in dividends during 2003, compared to
$7.5 million during 2002 and $5.5 million during 2001.

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##### Table of Contents



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

|                                       |                |                          |           |      |         |      |           |      |         |   |           |      |         | 
|-------------------------------------- | -------------- | ------------------------ | --------- | ---- | ------- | ---- | --------- | ---- | ------- | - | --------- | ---- | ------- | 
|                                       |                |                         
|                                       |                | December 31,            
|                                       |                |                         
|                                       |                | 2003                     |           | 2002 |         | 2001
|                                       |                |                          |           |      |         |     
|                                       |                |                         
|                                       |                | (Dollars in thousands)  
|Tier 1 capital                         |                | $                        | 556,793   |      |         | $    | 462,064   |      |         | $ | 295,021   |     
|Tier 2 capital                         |                |                          | 183,738   |      |         |      | 196,092   |      |         |   | 173,316   |     
|                                       |                |                          |           |      |         |      |           |      |         |   |           |     
|                                       |                | Total risk-based capital |           | $    | 740,531 |      |           | $    | 658,156 |   |           | $    | 468,337 | 
|                                       |                |                          |           |      |         |      |           |      |         |   |           |     
|Risk-weighted assets                   |                | $                        | 4,917,622 |      |         | $    | 4,996,891 |      |         | $ | 4,329,973 |     
|Risk-based ratios:                     |                |                          |           |      |         |      |           |      |         |   |           |     
|                                       | Tier 1 capital |                          |           | 11.4 | %       |      |           | 9.3  | %       |   |           | 6.8  | %      
|                                       | Total capital  |                          |           | 15.1 |         |      |           | 13.2 |         |   |           | 10.8 |        
|Tier 1 leverage ratio                  |                |                          | 11.2      |      |         |      | 9.7       |      |         |   | 9.4       |     
|Ending shareholders equity to assets  |                |                          | 8.7       |      |         |      | 7.4       |      |         |   | 6.7       |     
|Average shareholders equity to assets |                |                          | 7.6       |      |         |      | 8.0       |      |         |   | 6.7       |     

At December 31, 2003, our total
risk-adjusted capital ratio was 15.1% exceeding the 10.0%
required to be considered well-capitalized by the
regulators and our internal minimum target of 11.0%. At
December 31, 2002, our total risk-adjusted capital ratio
was 13.2%. We were below the 11.0% target at year-end 2001, just
prior to our issuance of common stock in early 2002. Our ending
equity to assets ratio at December 31, 2003 was 8.7%
compared to 7.4% at December 31, 2002. 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, 2003 was 7.6% compared to 8.0% for the year
2002. Our Tier 1 capital totaled $556.8 million as of
December 31, 2003, or 11.4% of risk-weighted assets. The
increased equity and capital ratios are reflective of our
February 2002 public offering that raised $82.0 million,
net of expenses, on the sale of 6,210,000 shares of common
stock as well as earnings retention over the past two years.

We have issued $233.0 million in trust
preferred securities through five IFC Capital Trusts and one IFC
Statutory Trust as of December 31, 2003. All securities are
callable at par after five years. During 2003, 3,300 shares
of IFC Capital Trust III were converted to 4,159 common
shares. In November 2003, $50 million of trust preferred
securities were issued through IFC Statutory Trust. In December
2003, we called IFC Capital Trust I utilizing the proceeds
from the November trust preferred issuance. These funds are all
Tier 1 qualifying capital under current regulatory guidance
(although regulatory treatment for these securities could
change  see discussion of FIN 46 in
footnote 1). The sole assets of these trusts are our
subordinated debentures. As of December 31, 2003, we no
longer consolidated these trusts in our consolidated

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financial statements. See the discussion in the
Other Long Term Debt and Collateralized Borrowings
section above. Highlights about these trusts are listed below:


|                        |  |             |          |             |  |              |         |          |  |            |       |       |  |  |          |  |  |  |            |  |  |                                                                                       
|----------------------- |  | ----------- | -------- | ----------- |  | ------------ | ------- | -------- |  | ---------- | ----- | ----- |  |  | -------- |  |  |  | ---------- |  |  | --------------------------------------------------------------------------------------
|                        |  |             |          |             |  | Coupon Rate  |         |          |  |            |       |      
|                        |  |             |          |             |  | at           |         |          |  |            |       |      
|                        |  | Origination |          | $ Amount in |  | December 31, |         | Maturity |  | Cumulative |       |      
|Name                    |  | Date        |          | Thousands   |  | 2003         |         | Date     |  | Dividend   |       | Other
|                        |  |             |          |             |  |              |         |          |  |            |       |      
|IFC Capital Trust II    |  |             | Nov 2000 |             |  |              | 51,750  |          |  |            | 10.50 |       |  |  | Sep 2030 |  |  |  | quarterly  |  |  |                                                                                       
|IFC Capital Trust III   |  |             | Nov 2000 |             |  |              | 51,707  |          |  |            | 8.75  |       |  |  | Sep 2030 |  |  |  | quarterly  |  |  | Initial conversion ratio of 1.261 shares of
    common stock to 1 convertible security
|IFC Capital Trust IV    |  |             | Jul 2001 |             |  |              | 15,000  |          |  |            | 10.25 |       |  |  | Jul 2031 |  |  |  | semiannual |  |  |                                                                                       
|IFC Capital Trust V     |  |             | Nov 2001 |             |  |              | 30,000  |          |  |            | 9.95  |       |  |  | Nov 2031 |  |  |  | semiannual |  |  |                                                                                       
|IFC Capital Trust VI    |  |             | Oct 2002 |             |  |              | 34,500  |          |  |            | 8.70  |       |  |  | Sep 2032 |  |  |  | quarterly  |  |  |                                                                                       
|IFC Statutory Trust VII |  |             | Nov 2003 |             |  |              | 50,000  |          |  |            | 4.08  |       |  |  | Nov 2033 |  |  |  | quarterly  |  |  | Variable rate, LIBOR + 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 171 thousand common shares in 2003 with a
market value of $4.2 million. In 2002, we repurchased
59 thousand shares with a market value of $1.2 million.



| |          
| | ---------
| | Inflation

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

Cash Flow Analysis

Our cash and cash equivalents decreased
$17.0 million in 2003 compared to a decrease of
$0.5 million during 2002 and an increase of
$74.7 million in 2001. Cash flows from operating activities
provided $596.9 million in cash and cash equivalents in
2003 compared to 2002 and 2001 when our operations used
$646.9 million and $271.6 million, respectively, in
cash and cash equivalents. Changes in loans held for sale impact
cash flows from operations. In a period in which loan sales
exceed production such as we had in 2003, operating cash flows
will increase. In 2003, our loans held for sale decreased
$431.0 million, thus increasing the cash provided by
operating activities.

Earnings Outlook

We have not provided quantitative earnings
guidance for 2004. As discussed before, our strategy is to
balance the impact of changes in interest rates and economic
conditions in our mortgage banking production with investments
in mortgage servicing and in our credit retained lines of
business. These investments will typically respond in an
opposite and complementary manner. We expect a higher proportion
of 2004 earnings to come from our commercial banking, home
equity lending and commercial finance lines of business. We
expect these earnings to be more in line with the long-term
growth and segment contribution trends we have seen at Irwin
Financial, rather than the disproportionate contribution we had
from mortgage banking during 2002 and 2003. We believe our
credit quality is improving and that our expenses for credit
reserves will decline

34



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in 2004, allowing us to increase earnings. 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. Our
transition off securitization gain-on-sale accounting in our
home equity line of business has now had a two-year history at
the end of 2003. We assume that the completion of this
transition, coupled with the projected growth of our other lines
of business, will enable us over time to meet or exceed our
long-term targets of double digit growth in earnings per share
and 15% return on equity, measured over several years.


A meaningful amount of our earnings comes from
activities and mark-to-market accounting requirements tied
directly or indirectly to market activities, particularly
movements in the bond market (e.g., the valuation of our
mortgage servicing portfolio). We attempt to manage the impact
of short-term movements in interest rates on the valuation of
our mortgage servicing rights through a combination of financial
derivatives and the 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 the
following quarter  can be low. 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. 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, 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 recovery in the U.S. is slower in 2004
than currently anticipated by consensus estimates, our credit
related costs may increase beyond our current estimates.

Summary of Quarterly Financial Data

|                                     |                                     |                        |   |          |      |         |   |          |      |  |   |          |      |  |   |          |      | 
|------------------------------------ | ----------------------------------- | ---------------------- | - | -------- | ---- | ------- | - | -------- | ---- |  | - | -------- | ---- |  | - | -------- | ---- | 
|                                     |                                     |                       
|                                     |                                     | 2003                  
|                                     |                                     |                       
|                                     |                                     | Fourth                 |   | Third    |      | Second  |   | First   
|                                     |                                     | Quarter                |   | Quarter  |      | Quarter |   | Quarter 
|                                     |                                     |                        |   |          |      |         |   |         
|                                     |                                     |                       
|                                     |                                     | (Dollars in thousands)
|Summary Income Statement 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   | )   
|                                     | Noninterest income                  |                        |   | 80,407   |      |         |   | 105,024  |      |  |   | 74,269   |      |  |   | 69,599   |     
|                                     | Noninterest 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:                 |                        |   |          |      |         |   |          |      |  |   |          |      |  |   |          |     
|                                     |                                     | Basic(1)               |   | $        | 0.60 |         |   | $        | 1.11 |  |   | $        | 0.47 |  |   | $        | 0.42 | 
|                                     |                                     | Diluted(1)             |   |          | 0.56 |         |   |          | 1.03 |  |   |          | 0.45 |  |   |          | 0.41 | 

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|                                     |                                                                           |                        |   |         |      |         |   |         |      |  |   |         |      |  |   |         |      |    
|------------------------------------ | ------------------------------------------------------------------------- | ---------------------- | - | ------- | ---- | ------- | - | ------- | ---- |  | - | ------- | ---- |  | - | ------- | ---- | ---
|                                     |                                                                           |                       
|                                     |                                                                           | 2002                  
|                                     |                                                                           |                       
|                                     |                                                                           | Fourth                 |   | Third   |      | Second  |   | First  
|                                     |                                                                           | Quarter                |   | Quarter |      | Quarter |   | Quarter
|                                     |                                                                           |                        |   |         |      |         |   |        
|                                     |                                                                           |                       
|                                     |                                                                           | (Dollars in thousands)
|Summary Income Statement Information |                                                                           |                        |   |         |      |         |   |         |      |  |   |         |      |  |   |        
|                                     | Interest income                                                           |                        | $ | 89,274  |      |         | $ | 83,613  |      |  | $ | 71,019  |      |  | $ | 67,537  |     
|                                     | Interest expense                                                          |                        |   | (25,001 | )    |         |   | (26,211 | )    |  |   | (23,381 | )    |  |   | (23,202 | )   
|                                     | Provision for loan and lease losses                                       |                        |   | (8,587  | )    |         |   | (15,577 | )    |  |   | (9,500  | )    |  |   | (10,332 | )   
|                                     | Noninterest income                                                        |                        |   | 87,409  |      |         |   | 49,171  |      |  |   | 47,063  |      |  |   | 51,353  |     
|                                     | Noninterest expense                                                       |                        |   | (98,606 | )    |         |   | (77,788 | )    |  |   | (72,140 | )    |  |   | (69,882 | )   
|                                     | Income taxes                                                              |                        |   | (17,286 | )    |         |   | (5,015  | )    |  |   | (5,075  | )    |  |   | (6,023  | )   
|                                     |                                                                           |                        |   |         |      |         |   |         |      |  |   |         |      |  |   |        
|                                     | Net income before cumulative effect of change in
    Accounting principle |                        |   | 27,203  |      |         |   | 8,193   |      |  |   | 7,986   |      |  |   | 9,451   |     
|                                     | Cumulative effect of change in accounting
    Principle                   |                        |   |        |      |         |   |        |      |  |   |        |      |  |   | 495     |     
|                                     |                                                                           |                        |   |         |      |         |   |         |      |  |   |         |      |  |   |        
|                                     | Net Income                                                                |                        | $ | 27,203  |      |         | $ | 8,193   |      |  | $ | 7,986   |      |  | $ | 9,946   |     
|                                     |                                                                           |                        |   |         |      |         |   |         |      |  |   |         |      |  |   |        
|                                     | Earnings per share:                                                       |                        |   |         |      |         |   |         |      |  |   |         |      |  |   |         |     
|                                     |                                                                           | Basic(1)               |   | $       | 0.98 |         |   | $       | 0.30 |  |   | $       | 0.29 |  |   | $       | 0.41 | (2)
|                                     |                                                                           | Diluted(1)             |   |         | 0.92 |         |   |         | 0.29 |  |   |         | 0.28 |  |   |         | 0.39 | (2)



---



|    |                                                                                                                                                                                              
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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.                                   
|   
|(2) | Earnings per share of common stock before
    cumulative effect of change in accounting principle for the
    three- month period ended March 31, 2002 was $0.39 basic
    and $0.37 diluted.

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,
|                   |                                         |                        
|                   |                                         | 2003                    |        | 2002    |   | 2001
|                   |                                         |                         |        |         |   |     
|                   |                                         |                        
|                   |                                         | (Dollars in thousands) 
|Net income (loss): |                                         |                         |        |         |   |      |        |        |   |   |        |       
|                   | Mortgage Banking                        |                         | $      | 78,100  |   |      | $      | 44,543 |   |   | $      | 38,100 |  
|                   | Commercial Banking                      |                         |        | 22,477  |   |      |        | 16,085 |   |   |        | 8,918  |  
|                   | Home Equity Lending                     |                         |        | (19,890 | ) |      |        | 1,005  |   |   |        | 16,248 |  
|                   | Commercial Finance                      |                         |        | 1,793   |   |      |        | (58    | ) |   |        | (2,878 | )
|                   | Venture Capital                         |                         |        | (1,708  | ) |      |        | (2,483 | ) |   |        | (6,506 | )
|                   | Other (including consolidating entries) |                         |        | (7,955  | ) |      |        | (5,764 | ) |   |        | (8,366 | )
|                   |                                         |                         |        |         |   |      |        |        |   |   |        |       
|                   |                                         | $                       | 72,817 |         |   | $    | 53,328 |        |   | $ | 45,516 |       
|                   |                                         |                         |        |         |   |      |        |        |   |   |        |       

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Mortgage Banking

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

|                                                                          |                                       |                                |         |            |         |      |         |            |         |      |         |            |         |   |         |           |         |   |         |            |         | 
|------------------------------------------------------------------------- | ------------------------------------- | ------------------------------ | ------- | ---------- | ------- | ---- | ------- | ---------- | ------- | ---- | ------- | ---------- | ------- | - | ------- | --------- | ------- | - | ------- | ---------- | ------- | 
|                                                                          |                                       |                               
|                                                                          |                                       | Year Ended December 31,       
|                                                                          |                                       |                               
|                                                                          |                                       | 2003                           |         | 2002       |         | 2001 |         | 2000       |         | 1999
|                                                                          |                                       |                                |         |            |         |      |         |            |         |     
|                                                                          |                                       |                               
|                                                                          |                                       | (Dollars in thousands)        
|Selected Income Statement Data:                                           |                                       |                                |         |            |         |      |         |            |         |      |         |            |         |   |         |           |         |   |         |           
|Net interest income                                                       |                                       | $                              | 72,311  |            |         | $    | 41,545  |            |         | $    | 30,261  |            |         | $ | 15,401  |           |         | $ | 21,745  |           
|(Provision for) recovery of loan losses                                   |                                       |                                | (664    | )          |         |      | (354    | )          |         |      | 31      |            |         |   | 357     |           |         |   | (1,998  | )         
|Noninterest income                                                        |                                       |                                | 326,000 |            |         |      | 207,177 |            |         |      | 185,251 |            |         |   | 118,293 |           |         |   | 149,590 |           
|                                                                          |                                       |                                |         |            |         |      |         |            |         |      |         |            |         |   |         |           |         |   |         |           
|                                                                          |                                       | Total net revenue              |         |            | 397,647 |      |         |            | 248,368 |      |         |            | 215,543 |   |         |           | 134,051 |   |         |            | 169,337 | 
|Operating expense                                                         |                                       |                                | 267,880 |            |         |      | 175,277 |            |         |      | 153,706 |            |         |   | 112,506 |           |         |   | 133,485 |           
|                                                                          |                                       |                                |         |            |         |      |         |            |         |      |         |            |         |   |         |           |         |   |         |           
|Income before taxes                                                       |                                       |                                | 129,767 |            |         |      | 73,091  |            |         |      | 61,837  |            |         |   | 21,545  |           |         |   | 35,852  |           
|Income taxes                                                              |                                       |                                | 51,667  |            |         |      | 28,548  |            |         |      | 23,912  |            |         |   | 8,539   |           |         |   | 12,789  |           
|                                                                          |                                       |                                |         |            |         |      |         |            |         |      |         |            |         |   |         |           |         |   |         |           
|Net income before cumulative effect of change in
    accounting principle |                                       |                                | 78,100  |            |         |      | 44,543  |            |         |      | 37,925  |            |         |   | 13,006  |           |         |   | 23,063  |           
|Cumulative effect of change in accounting
    Principle                   |                                       |                                |        |            |         |      |        |            |         |      | 175     |            |         |   |        |           |         |   |        |           
|                                                                          |                                       |                                |         |            |         |      |         |            |         |      |         |            |         |   |         |           |         |   |         |           
|Net income                                                                |                                       | $                              | 78,100  |            |         | $    | 44,543  |            |         | $    | 38,100  |            |         | $ | 13,006  |           |         | $ | 23,063  |           
|                                                                          |                                       |                                |         |            |         |      |         |            |         |      |         |            |         |   |         |           |         |   |         |           
|Selected Balance Sheet Data at End of
    Period:                         |                                       |                                |         |            |         |      |         |            |         |      |         |            |         |   |         |           |         |   |         |           
|                                                                          | Total assets                          |                                | $       | 1,258,641  |         |      | $       | 1,631,406  |         |      | $       | 926,946    |         |   | $       | 522,349   |         |   | $       | 549,966    |        
|                                                                          | Mortgage loans held for sale          |                                |         | 679,360    |         |      |         | 1,239,309  |         |      |         | 502,086    |         |   |         | 249,580   |         |   |         | 277,614    |        
|                                                                          | Mortgage servicing assets             |                                |         | 348,174    |         |      |         | 146,398    |         |      |         | 211,201    |         |   |         | 121,555   |         |   |         | 132,648    |        
|                                                                          | Deposits                              |                                |         | 567,047    |         |      |         | 581,425    |         |      |         | 360,523    |         |   |         | 158,416   |         |   |         | 149,419    |        
|                                                                          | Short-term debt                       |                                |         | 214,877    |         |      |         | 809,921    |         |      |         | 385,640    |         |   |         | 215,826   |         |   |         | 217,691    |        
|                                                                          | Shareholders equity                  |                                |         | 122,671    |         |      |         | 100,069    |         |      |         | 63,150     |         |   |         | 47,828    |         |   |         | 98,556     |        
|Selected Operating Data:                                                  |                                       |                                |         |            |         |      |         |            |         |      |         |            |         |   |         |           |         |   |         |           
|                                                                          | Mortgage loan originations            |                                | $       | 22,669,246 |         |      | $       | 11,411,875 |         |      | $       | 9,225,991  |         |   | $       | 4,091,573 |         |   | $       | 5,876,750  |        
|                                                                          | Servicing portfolio:                  |                                |         |            |         |      |         |            |         |      |         |            |         |   |         |           |         |   |         |            |        
|                                                                          | Balance at end of period              |                                |         | 29,640,122 |         |      |         | 16,792,669 |         |      |         | 12,875,532 |         |   |         | 9,196,513 |         |   |         | 10,448,112 |        
|                                                                          |                                       | Weighted average coupon rate   |         |            | 5.83    | %    |         |            | 6.59    | %    |         |            | 7.23    | % |         |           | 7.76    | % |         |            | 7.51%   | 
|                                                                          |                                       | Weighted average servicing fee |         |            | 0.33    |      |         |            | 0.37    |      |         |            | 0.45    |   |         |           | 0.43    |   |         |            | 0.44    | 
|                                                                          | Servicing sold as a % of originations |                                |         | 6.2        |         |      |         | 31.1       |         |      |         | 29.9       |         |   |         | 108.0     |         |   |         | 85.4       |        



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

In our mortgage banking line of business, we
originate, purchase, sell and service primarily 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 first mortgage originations
either are insured by an agency of the federal government, such
as the FHA or the VA, or, in the case of conventional mortgages,
meet requirements for sale to FNMA, the FHLMC or the FHLB, we
are able to remove substantially all of the credit risk of these
loans from our balance sheet. We securitize and sell mortgage
loans to institutional and private investors and usually retain
the servicing rights. Loan origination demand and servicing
values react in opposite directions to interest rate change as
explained below. We believe this balance between mortgage loan
originations and mortgage loan servicing assists in managing the
risk from interest rate changes, which has helped stabilize our
revenue stream.

Our mortgage banking line of business is
currently our largest contributor to net revenue, comprising 72%
of our total net revenues in 2003, compared to 61% in 2002 and
56% in 2001. Our mortgage banking line of business contributed
107% of our net income for 2003, compared to 84% in both 2002
and 2001, respectively.

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

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##### Table of Contents



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. Our correspondent lending division, launched in the
fourth quarter of 2002, purchases closed mortgage loans
primarily from small mortgage banks and retail banks. This
division accounted for 28% of originations in 2003, compared to
only 1% in 2002. 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 by either direct loan sales or by
securitization. Our secondary market sources include
government-sponsored mortgage entities, nationally sponsored
mortgage conduits, and institutional and private investors.


As mentioned, 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 unrealized 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, causing greater volatility in short-term
results than is apparent in longer-term measurements such as
annual income. We sell servicing rights periodically for many
reasons, including revenue 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).



| |         
| | --------
| | 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
    serving intermediaries (such as some brokers, correspondents and
    credit unions) that value our mortgage banks
    service-oriented approach to lending.                                                                                             
|
| |  | We are continuing our process improvement
    initiative to increase profit margins across the interest rate
    cycle by reducing fixed costs associated with processing and
    securitizing mortgage loans. This initiative includes
    redesigning our work flow so that we process, underwrite, and
    close loans in more centralized and automated environments.                                                                           
|
| |  | We are more likely to retain servicing rights in
    periods of low interest rates and more likely to sell these
    servicing rights during periods of high interest rates. This
    strategy gives us the flexibility to invest in servicing rights
    during periods of relatively high production when servicing
    values tend to be low and sell the servicing during periods of
    lower production when servicing values tend to be high.



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

Net income from mortgage banking for the year
ended December 31, 2003 was $78.1 million, compared to
$44.5 million during 2002, an increase of 75% and an
increase of 105% over 2001 results of $38.1 million. These
increases primarily relate to increased production as a result
of a declining interest rate environment, as well as net
improvement of the servicing portfolio.

38



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##### Table of Contents



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

|                        |  |                         |            |      |  |      |            |   |  |   |           |  
|----------------------- |  | ----------------------- | ---------- | ---- |  | ---- | ---------- | - |  | - | --------- | -
|                        |  |                        
|                        |  | Year Ended December 31,
|                        |  |                        
|                        |  | 2003                    |            | 2002 |  | 2001
|                        |  |                         |            |      |  |     
|                        |  |                        
|                        |  | (Dollars in thousands) 
|Total originations      |  | $                       | 22,669,246 |      |  | $    | 11,411,875 |   |  | $ | 9,225,991 |  
|Percent retail loans    |  |                         | 26.3       | %    |  |      | 34.2       | % |  |   | 35.7      | %
|Percent wholesale loans |  |                         | 42.4       |      |  |      | 59.1       |   |  |   | 59.7      |  
|Percent brokered(1)     |  |                         | 3.6        |      |  |      | 5.5        |   |  |   | 4.6       |  
|Percent correspondent   |  |                         | 27.7       |      |  |      | 1.2        |   |  |   |          |  
|Percent refinances      |  |                         | 67.0       |      |  |      | 61.1       |   |  |   | 54.1      |  



---



|    |                                                                                                                                                             
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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, 2003 totaled $22.7 billion, up 99% from
the same period in 2002 as a result of the declining interest
rate environment. Refinanced loans accounted for 67% of loan
production for 2003 compared to 61% in 2002 and 54% in 2001. As
a result of declining interest rates during most of 2002, our
mortgage banking line of business experienced an increase in
loan originations in 2002 compared to 2001. Loan originations in
2002 were $11.4 billion, up 24% from 2001.



| |            
| | -----------
| | Net Revenue

Mortgage banking net revenue for the year ended
December 31, 2003 totaled $397.6 million, compared to
$248.4 million for the year ended December 31, 2002,
and $215.5 million in 2001. The following table sets forth
certain information regarding net revenue for the periods
indicated:

|                                          |  |                         |          |      |  |      |          |   |  |   |         |  
|----------------------------------------- |  | ----------------------- | -------- | ---- |  | ---- | -------- | - |  | - | ------- | -
|                                          |  |                        
|                                          |  | Year Ended December 31,
|                                          |  |                        
|                                          |  | 2003                    |          | 2002 |  | 2001
|                                          |  |                         |          |      |  |     
|                                          |  |                        
|                                          |  | (Dollars in thousands) 
|Net interest income                       |  | $                       | 72,311   |      |  | $    | 41,545   |   |  | $ | 30,261  |  
|(Provision for) recovery of loan losses   |  |                         | (664     | )    |  |      | (354     | ) |  |   | 31      |  
|Gain on sales of loans                    |  |                         | 327,864  |      |  |      | 200,204  |   |  |   | 161,089 |  
|Servicing fees                            |  |                         | 83,124   |      |  |      | 58,316   |   |  |   | 52,837  |  
|Amortization expense                      |  |                         | (118,920 | )    |  |      | (55,097  | ) |  |   | (34,660 | )
|Recovery (impairment) of servicing assets |  |                         | 45,456   |      |  |      | (143,376 | ) |  |   | (11,321 | )
|(Loss) gain on derivatives                |  |                         | (21,307  | )    |  |      | 125,586  |   |  |   | 3,846   |  
|(Loss) gain on sales of servicing assets  |  |                         | (305     | )    |  |      | 14,842   |   |  |   | 8,394   |  
|Other income                              |  |                         | 10,088   |      |  |      | 6,702    |   |  |   | 5,066   |  
|                                          |  |                         |          |      |  |      |          |   |  |   |         |  
|Total net revenue                         |  | $                       | 397,647  |      |  | $    | 248,368  |   |  | $ | 215,543 |  
|                                          |  |                         |          |      |  |      |          |   |  |   |         |  

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 for the year 2003 totaled
$72.3 million, compared to $41.5 million in 2002, and
$30.3 million in 2001. The increases in net interest income
in 2003 and 2002 are a result of increased production related to
the favorable interest rate environment. In addition, the
relative contribution of net interest income to total revenues
has increased as a result of the development of our
correspondent channel where the bulk of net revenues comes from
the warehousing process and where production fees are of lesser
importance to profitability as compared to the retail and
wholesale channels.

Gain on sale of loans includes the valuation of
newly created mortgage servicing rights and net loan origination
fees and is recognized when loans are pooled and sold into the
secondary mortgage market. Also included in gain on sale of
loans are fair value adjustments to forward contracts and
interest rate lock

39



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##### Table of Contents



commitments. Gain on sale of loans for the year
ended 2003 totaled $327.9 million, compared to
$200.2 million in 2002, an increase of 64%. Gain on sale of
loans for the year ended December 31, 2001 totaled
$161.1 million. The increases in 2002 and 2003 are a result
of increased originations and secondary market activity during
these years as a result of the favorable interest rate
environment.


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 $83.1 million for the year of
2003, an increase of 43% from 2002 and an increase of 57% from
2001, primarily reflecting the growth in the servicing portfolio
over the last two years.

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
$118.9 million for the year ended December 31, 2003,
compared to $55.1 million during 2002 and
$34.7 million during 2001. This increase relates to the
increase in the underlying servicing portfolio, the shortening
of estimated lives due to decreases in interest rates, and an
enhancement we made to our mortgage asset amortization
methodology commencing at the beginning of 2003. The methodology
enhancement better aligns the amortization with prepayment
speeds.

Impairment expense is recorded when the book
value of the mortgage servicing rights exceeds the fair market
value on a strata by strata basis. Impairment recovery totaled
$45.5 million during 2003, compared to impairment expense
of $143.4 million during 2002 and $11.3 million in
2001. The impairment reversal recorded in 2003 was somewhat
offset by derivative losses of $21.3 million during the
same period. Net derivative gains of $125.6 million were
recorded during 2002. At December 31, 2003, the mortgage
line of business held $8 billion notional amount of
Eurodollar future contracts and $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. See our
discussion of Derivative Financial Instruments in
our Risk Management section for additional information on our
risk management activities.

In the fourth quarter of 2003, we recorded an
other-than-temporary impairment adjustment of $38 million
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 write-down will result in a
reduction of amortization expense and potentially reduced
recovery of impairment in future periods.

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 6% of
loan originations in 2003, compared to 31% in 2002, and 30% in
2001. 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 $0.6 billion of servicing in
2003, generating a $0.3 million pre-tax loss. This compares
to servicing sales of $2.9 billion in 2002, producing a
$14.8 million pre-tax gain. In 2001, servicing sales
totaled $2.3 billion producing an $8.4 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.

40



---



##### 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,
|                                     |  |                        
|                                     |  | 2003                    |         | 2002 |  | 2001
|                                     |  |                         |         |      |  |     
|                                     |  |                        
|                                     |  | (Dollars in thousands) 
|Salaries and employee benefits       |  | $                       | 82,120  |      |  | $    | 62,010  |  |  | $ | 52,266  | 
|Incentive and commission pay         |  |                         | 79,956  |      |  |      | 47,137  |  |  |   | 44,634  | 
|Other expenses                       |  |                         | 105,804 |      |  |      | 66,130  |  |  |   | 56,806  | 
|                                     |  |                         |         |      |  |      |         |  |  |   |         | 
|Total operating expenses             |  | $                       | 267,880 |      |  | $    | 175,277 |  |  | $ | 153,706 | 
|                                     |  |                         |         |      |  |      |         |  |  |   |         | 
|Number of employees at period end(1) |  |                         | 2,175   |      |  |      | 1,858   |  |  |   | 1,533   | 



---



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

Operating expenses for the year ended
December 31, 2003 totaled $267.9 million, a 53%
increase over the year 2002, and a 74% increase over 2001.
Salaries and employee benefits including incentive and
commission pay increased 48% in 2003 over 2002 and 67% over
2001. These fluctuations reflect a significant increase in
mortgage production activities since 2001.



| |                   
| | ------------------
| | 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,
|                                                                 |                        |                        
|                                                                 |                        | 2003                    |         | 2002 |   | 2001
|                                                                 |                        |                         |         |      |   |     
|                                                                 |                        |                        
|                                                                 |                        | (Portfolio in billions)
|Beginning servicing portfolio                                    |                        | $                       | 16.8    |      |   | $    | 12.9    |      |   | $ | 9.2     |     
|                                                                 | Mortgage loan closings |                         |         | 21.9 |   |      |         | 10.8 |   |   |         | 8.8  |  
|                                                                 | Sales                  |                         |         | (0.6 | ) |      |         | (2.9 | ) |   |         | (2.3 | )
|                                                                 | Run-off(1)             |                         |         | (8.5 | ) |      |         | (4.0 | ) |   |         | (2.8 | )
|                                                                 |                        |                         |         |      |   |      |         |      |   |   |         |     
|Ending servicing portfolio                                       |                        | $                       | 29.6    |      |   | $    | 16.8    |      |   | $ | 12.9    |     
|                                                                 |                        |                         |         |      |   |      |         |      |   |   |         |     
|Number of loans (end of period)                                  |                        |                         | 229,983 |      |   |      | 137,738 |      |   |   | 123,291 |     
|Average loan size                                                |                        | $                       | 128,880 |      |   | $    | 121,917 |      |   | $ | 104,432 |     
|Weighted average coupon                                          |                        |                         | 5.83    | %    |   |      | 6.59    | %    |   |   | 7.23    | %   
|Percent GNMA and state housing programs                          |                        |                         | 26      | %    |   |      | 37      | %    |   |   | 60      | %   
|Percent conventional and other                                   |                        |                         | 74      |      |   |      | 63      |      |   |   | 40      |     
|Delinquency ratio                                                |                        |                         | 4.6     |      |   |      | 5.3     |      |   |   | 7.8     |     
|Mortgage servicing assets to related servicing
    portfolio (2) |                        |                         | 1.19    |      |   |      | 0.88    |      |   |   | 1.79    |     



---



|    |                                                                                                                                                                                                                             
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | 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.                                       
|   
|(2) | 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 $29.6 billion at
December 31, 2003, a 76% increase from the
December 31, 2002 balance of $16.8 billion, and up
130% from the same date in 2001. These increases since 2001
reflect the strong mortgage production we have experienced along
with greater retention of servicing on loans sold over the past
two years. We believe that the relative growth of the
conventional portion of the portfolio is the result of heavy
refinance activity since 2001 as

41



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##### Table of Contents



conventional loans have made up a higher than
normal portion of our originations. We believe that over time
our production strategy will favor a servicing portfolio with a
heavier weighting in GNMA and state housing programs than we had
at the end of 2003.


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
assets are accounted for at the lower of their cost or fair
value. We record a valuation allowance for any impairment on a
strata-by-strata 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 and through the use
of industry surveys. 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. At December 31, 2002, we estimated
the fair value of these assets to be $150.8 million in the
aggregate, or $4.4 million greater than the carrying value
on the balance sheet.

Commercial Banking

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

|                                                  |  |                         |           |      |  |      |           |      |  |      |           |   |  |   |           |   |  |   |         |  
|------------------------------------------------- |  | ----------------------- | --------- | ---- |  | ---- | --------- | ---- |  | ---- | --------- | - |  | - | --------- | - |  | - | ------- | -
|                                                  |  |                        
|                                                  |  | Year Ended December 31,
|                                                  |  |                        
|                                                  |  | 2003                    |           | 2002 |  | 2001 |           | 2000 |  | 1999
|                                                  |  |                         |           |      |  |      |           |      |  |     
|                                                  |  |                        
|                                                  |  | (Dollars in thousands) 
|Selected Income Statement Data:                   |  |                         |           |      |  |      |           |      |  |      |           |   |  |   |           |   |  |   |         |  
|Interest income                                   |  | $                       | 112,679   |      |  | $    | 110,107   |      |  | $    | 104,514   |   |  | $ | 82,680    |   |  | $ | 54,452  |  
|Interest expense                                  |  |                         | 33,663    |      |  |      | 40,253    |      |  |      | 53,515    |   |  |   | 44,268    |   |  |   | 23,525  |  
|                                                  |  |                         |           |      |  |      |           |      |  |      |           |   |  |   |           |   |  |   |         |  
|Net interest income                               |  |                         | 79,016    |      |  |      | 69,854    |      |  |      | 50,999    |   |  |   | 38,412    |   |  |   | 30,927  |  
|Provision for loan and lease losses               |  |                         | 5,913     |      |  |      | 9,812     |      |  |      | 7,900     |   |  |   | 2,933     |   |  |   | 1,813   |  
|Noninterest income                                |  |                         | 21,070    |      |  |      | 16,081    |      |  |      | 14,981    |   |  |   | 12,006    |   |  |   | 11,797  |  
|Operating expense                                 |  |                         | 56,699    |      |  |      | 50,029    |      |  |      | 43,482    |   |  |   | 35,805    |   |  |   | 29,080  |  
|                                                  |  |                         |           |      |  |      |           |      |  |      |           |   |  |   |           |   |  |   |         |  
|Income before taxes                               |  |                         | 37,474    |      |  |      | 26,094    |      |  |      | 14,598    |   |  |   | 11,680    |   |  |   | 11,831  |  
|Income taxes                                      |  |                         | 14,997    |      |  |      | 10,009    |      |  |      | 5,680     |   |  |   | 4,590     |   |  |   | 4,486   |  
|                                                  |  |                         |           |      |  |      |           |      |  |      |           |   |  |   |           |   |  |   |         |  
|Net income                                        |  | $                       | 22,477    |      |  | $    | 16,085    |      |  | $    | 8,918     |   |  | $ | 7,090     |   |  | $ | 7,345   |  
|                                                  |  |                         |           |      |  |      |           |      |  |      |           |   |  |   |           |   |  |   |         |  
|Selected Balance Sheet Data at End of
    Period: |  |                         |           |      |  |      |           |      |  |      |           |   |  |   |           |   |  |   |         |  
|Total assets                                      |  | $                       | 2,203,965 |      |  | $    | 1,969,956 |      |  | $    | 1,648,294 |   |  | $ | 1,167,559 |   |  | $ | 789,560 |  
|Loans                                             |  |                         | 1,988,633 |      |  |      | 1,823,304 |      |  |      | 1,514,957 |   |  |   | 1,067,980 |   |  |   | 720,493 |  
|Allowance for loan and lease losses               |  |                         | 22,055    |      |  |      | 20,725    |      |  |      | 14,644    |   |  |   | 9,228     |   |  |   | 7,375   |  
|Deposits                                          |  |                         | 1,964,274 |      |  |      | 1,733,864 |      |  |      | 1,456,376 |   |  |   | 998,855   |   |  |   | 710,899 |  
|Shareholders equity                              |  |                         | 162,050   |      |  |      | 154,423   |      |  |      | 129,179   |   |  |   | 68,539    |   |  |   | 63,678  |  
|Daily Averages:                                   |  |                         |           |      |  |      |           |      |  |      |           |   |  |   |           |   |  |   |         |  
|Assets                                            |  | $                       | 2,119,944 |      |  | $    | 1,802,896 |      |  | $    | 1,402,589 |   |  | $ | 956,744   |   |  | $ | 682,632 |  
|Loans                                             |  |                         | 1,914,608 |      |  |      | 1,693,426 |      |  |      | 1,276,003 |   |  |   | 879,875   |   |  |   | 600,877 |  
|Allowance for loan and lease losses               |  |                         | 21,895    |      |  |      | 17,823    |      |  |      | 11,038    |   |  |   | 8,133     |   |  |   | 7,317   |  
|Deposits                                          |  |                         | 1,894,406 |      |  |      | 1,583,926 |      |  |      | 1,253,725 |   |  |   | 851,386   |   |  |   | 619,308 |  
|Shareholders equity                              |  |                         | 147,886   |      |  |      | 140,249   |      |  |      | 85,312    |   |  |   | 57,214    |   |  |   | 52,867  |  
|Shareholders equity to assets                    |  |                         | 6.98      | %    |  |      | 7.78      | %    |  |      | 6.08      | % |  |   | 5.98      | % |  |   | 7.74    | %

42



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##### Table of Contents



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 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 both
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. We did not open operations in new markets in the
2001 to 2003 period, concentrating instead on growing our
presence in the markets we had entered a few years earlier.
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 only 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 where 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.                                                                                                                                          

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.

43



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##### Table of Contents



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

|                              |       |                        |           |           |  |             |      |          |   |             |           |           |  |  |      |       |   |   |         |           |  |  |      |       |  
|----------------------------- | ----- | ---------------------- | --------- | --------- |  | ----------- | ---- | -------- | - | ----------- | --------- | --------- |  |  | ---- | ----- | - | - | ------- | --------- |  |  | ---- | ----- | -
|                              |       |                       
|                              |       | December 31,          
|                              |       |                       
|                              |       |                        |           |           |  |            
|                              |       | 2003                   |           | 2002      |  | 2001       
|                              |       |                        |           |           |  |            
|                              |       | Loans                  |           | Percent   |  | Loans       |      | Percent  |   | Loans       |           | Percent  
|                              |       | Outstanding            |           | of Total  |  | Outstanding |      | of Total |   | Outstanding |           | of Total 
|                              |       |                        |           |           |  |             |      |          |   |             |           |          
|                              |       |                       
|                              |       | (Dollars in thousands)
|Southern Indiana              |       | $                      | 574,286   |           |  |             | 28.9 | %        |   | $           | 553,592   |           |  |  | 30.4 | %     |   | $ | 566,601 |           |  |  | 37.4 | %    
|Indianapolis MSA              |       |                        | 326,357   |           |  |             | 16.4 |          |   |             | 267,508   |           |  |  | 14.7 |       |   |   | 232,576 |           |  |  | 15.4 |      
|Markets entered since 1999(1) |       |                        | 1,087,990 |           |  |             | 54.7 |          |   |             | 1,002,204 |           |  |  | 54.9 |       |   |   | 715,780 |           |  |  | 47.2 |      
|                              |       |                        |           |           |  |             |      |          |   |             |           |           |  |  |      |       |   |   |         |           |  |  |      |      
|                              | Total |                        | $         | 1,988,633 |  |             |      | 100.0    | % |             | $         | 1,823,304 |  |  |      | 100.0 | % |   | $       | 1,514,957 |  |  |      | 100.0 | %
|                              |       |                        |           |           |  |             |      |          |   |             |           |           |  |  |      |       |   |   |         |           |  |  |      |      

|                              |       |          |           |           |  |          |      |          |   |          |         |           |  |  |      |       |   |   |         |           |  |  |      |       |  
|----------------------------- | ----- | -------- | --------- | --------- |  | -------- | ---- | -------- | - | -------- | ------- | --------- |  |  | ---- | ----- | - | - | ------- | --------- |  |  | ---- | ----- | -
|                              |       | Core     |           | Percent   |  | Core     |      | Percent  |   | Core     |         | Percent  
|                              |       | Deposits |           | of Total  |  | Deposits |      | of Total |   | Deposits |         | of Total 
|                              |       |          |           |           |  |          |      |          |   |          |         |          
|Southern Indiana              |       | $        | 1,001,613 |           |  |          | 57.1 | %        |   | $        | 918,528 |           |  |  | 60.5 | %     |   | $ | 795,117 |           |  |  | 70.0 | %    
|Indianapolis MSA              |       |          | 92,920    |           |  |          | 5.3  |          |   |          | 140,712 |           |  |  | 9.3  |       |   |   | 67,003  |           |  |  | 5.9  |      
|Markets entered since 1999(1) |       |          | 658,225   |           |  |          | 37.6 |          |   |          | 457,572 |           |  |  | 30.2 |       |   |   | 273,750 |           |  |  | 24.1 |      
|                              |       |          |           |           |  |          |      |          |   |          |         |           |  |  |      |       |   |   |         |           |  |  |      |      
|                              | Total |          | $         | 1,752,758 |  |          |      | 100.0    | % |          | $       | 1,516,812 |  |  |      | 100.0 | % |   | $       | 1,135,870 |  |  |      | 100.0 | %
|                              |       |          |           |           |  |          |      |          |   |          |         |           |  |  |      |       |   |   |         |           |  |  |      |      



---



|    |                                                                                                                                                                                                                                                             
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes offices in Kalamazoo, Grandville (near
    Grand Rapids), Traverse City and Lansing, Michigan; Clayton,
    Missouri (near St. Louis); Louisville, Kentucky; Salt Lake
    City, Utah; Las Vegas and Carson City, Nevada; and Phoenix,
    Arizona.



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

Commercial banking net income increased to
$22.5 million during 2003 up 39.7%, compared to
$16.1 million in 2002, and up 152.0% compared to
2001 net income of $8.9 million.



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

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

|                                |  |                         |           |      |  |      |           |   |  |   |           |  
|------------------------------- |  | ----------------------- | --------- | ---- |  | ---- | --------- | - |  | - | --------- | -
|                                |  |                        
|                                |  | Year Ended December 31,
|                                |  |                        
|                                |  | 2003                    |           | 2002 |  | 2001
|                                |  |                         |           |      |  |     
|                                |  |                        
|                                |  | (Dollars in thousands) 
|Net interest income             |  | $                       | 79,016    |      |  | $    | 69,854    |   |  | $ | 50,999    |  
|Average interest earning assets |  |                         | 2,046,658 |      |  |      | 1,745,816 |   |  |   | 1,347,327 |  
|Net interest margin             |  |                         | 3.86      | %    |  |      | 4.00      | % |  |   | 3.79      | %

Net interest income was $79.0 million, an
increase of 13% over 2002, and an increase of 55% from 2001. The
improvement in net interest income resulted 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 2003 was 3.86%, compared to 4.00% in
2002, and 3.79% in 2001. The reduction in 2003 margin is due
primarily to the fact that the commercial bank has been
negatively impacted by repricing a significant portion of its
commercial loan portfolio, which is tied to the prime rate, in
advance of corresponding declines in its funding base, which is
more closely tied to market-driven rate indices such as the
London InterBank Offering Rate (LIBOR), as well as slower than
anticipated loan growth which led to greater than planned excess
liquidity in 2003.

44



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##### Table of Contents





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

Provision for loan and lease losses declined to
$5.9 million in 2003, compared to provisions of
$9.8 million and $7.9 million in 2002 and 2001,
respectively. The declining provision relates to a combination
of improving economic conditions, significantly lower loan
growth, improved overall loan quality, successful workouts of
several nonperforming loans in 2003, and a lower level of
potential loss exposure. See further discussion in Credit
Quality section later in this document.



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

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

|                                               |  |                         |        |      |  |      |        |   |  |   |        |  
|---------------------------------------------- |  | ----------------------- | ------ | ---- |  | ---- | ------ | - |  | - | ------ | -
|                                               |  |                        
|                                               |  | Year Ended December 31,
|                                               |  |                        
|                                               |  | 2003                    |        | 2002 |  | 2001
|                                               |  |                         |        |      |  |     
|                                               |  |                        
|                                               |  | (Dollars in thousands) 
|Trust fees                                     |  | $                       | 1,817  |      |  | $    | 1,933  |   |  | $ | 2,212  |  
|Service charges on deposit accounts            |  |                         | 5,095  |      |  |      | 4,775  |   |  |   | 3,565  |  
|Insurance commissions, fees and premiums       |  |                         | 2,009  |      |  |      | 1,705  |   |  |   | 1,776  |  
|Gain from sales of loans                       |  |                         | 7,814  |      |  |      | 5,167  |   |  |   | 2,728  |  
|Loan servicing fees                            |  |                         | 1,237  |      |  |      | 945    |   |  |   | 708    |  
|Amortization of servicing assets               |  |                         | (2,705 | )    |  |      | (1,609 | ) |  |   | (936   | )
|Recovery (impairment) of servicing assets      |  |                         | 744    |      |  |      | (1,574 | ) |  |   |       |  
|Brokerage fees                                 |  |                         | 1,264  |      |  |      | 1,236  |   |  |   | 1,554  |  
|Other                                          |  |                         | 3,795  |      |  |      | 3,503  |   |  |   | 3,374  |  
|                                               |  |                         |        |      |  |      |        |   |  |   |        |  
|Total noninterest income                       |  | $                       | 21,070 |      |  | $    | 16,081 |   |  | $ | 14,981 |  
|                                               |  |                         |        |      |  |      |        |   |  |   |        |  
|Total noninterest income to total net revenues |  |                         | 22     | %    |  |      | 21     | % |  |   | 26     | %

Noninterest income during 2003 increased 31% over
2002 and 41% over 2001. This increase was due primarily to
higher gains from sales of loans related to increased mortgage
production and increased fee income on deposit accounts related
to new fee structures put into place in mid-2001. These
increases were partially offset by increased amortization
charges recorded against mortgage servicing assets in this line
of business. The commercial banking line of business has a first
mortgage servicing portfolio that has increased to
$448 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, 2003, to be
$3.5 million.



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

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

|                                     |  |                         |        |      |  |      |        |   |  |   |        |  
|------------------------------------ |  | ----------------------- | ------ | ---- |  | ---- | ------ | - |  | - | ------ | -
|                                     |  |                        
|                                     |  | Year Ended December 31,
|                                     |  |                        
|                                     |  | 2003                    |        | 2002 |  | 2001
|                                     |  |                         |        |      |  |     
|                                     |  |                        
|                                     |  | (Dollars in thousands) 
|Salaries and employee benefits       |  | $                       | 34,853 |      |  | $    | 29,896 |   |  | $ | 25,411 |  
|Other expenses                       |  |                         | 21,846 |      |  |      | 20,133 |   |  |   | 18,071 |  
|                                     |  |                         |        |      |  |      |        |   |  |   |        |  
|Total operating expenses             |  | $                       | 56,699 |      |  | $    | 50,029 |   |  | $ | 43,482 |  
|                                     |  |                         |        |      |  |      |        |   |  |   |        |  
|Efficiency ratio                     |  |                         | 56.7   | %    |  |      | 58.2   | % |  |   | 65.9   | %
|Number of employees at period end(1) |  |                         | 493    |      |  |      | 454    |   |  |   | 470    |  



---



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

45



---



##### Table of Contents



Operating expenses during 2003 totaled
$56.7 million, an increase of 13% over 2002, and an
increase of 30% from 2001. Net revenues increased 24% in 2003
compared to 2002 and increased 62% over 2001. Operating expenses
have increased at a slower rate than net revenues due to
improved operating efficiency.



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

Total assets for the year ended December 31,
2003 averaged $2.1 billion compared to $1.8 billion in
2002, and $1.4 billion in 2001. Average earning assets for
the year ended December 31, 2003 were $2.0 billion
compared to $1.7 billion in 2002, and $1.3 billion in
2001. The most significant component of the increase was an
increase in commercial loans as a result of the commercial
banks continued growth and expansion efforts into new
markets. Average core deposits for the year totaled
$1.7 billion, an increase of 12% over average core deposits
in 2002 of $1.5 billion, and an increase of 59% from 2001.



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

The increase in nonperforming loans reflects cash
flow difficulties of our borrowers which jeopardizes their
ability to make payments on all principal and interest amounts
owed. Four large relationships comprise $16.4 million or
64% of nonperforming loans that are well-collateralized and
represent minimal potential loss exposure. Despite the increase
in nonperforming loans, we believe overall loan loss exposure
declined in 2003. 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 2003. The allowance levels in 2002 reflected
managements assessment of increasing potential loss
exposure in the loan portfolio during a period of economic
uncertainty. Nonperforming loans are not significantly
concentrated in any industry category. The following table shows
information about our nonperforming assets in this line of
business and our allowance for loan losses:

|                                         |  |                        |        |      |  |      |        |   |  |   |        |  
|---------------------------------------- |  | ---------------------- | ------ | ---- |  | ---- | ------ | - |  | - | ------ | -
|                                         |  |                       
|                                         |  | December 31,          
|                                         |  |                       
|                                         |  | 2003                   |        | 2002 |  | 2001
|                                         |  |                        |        |      |  |     
|                                         |  |                       
|                                         |  | (Dollars in thousands)
|Nonperforming loans                      |  | $                      | 25,614 |      |  | $    | 14,970 |   |  | $ | 7,077  |  
|Other real estate owned                  |  |                        | 995    |      |  |      | 96     |   |  |   | 100    |  
|                                         |  |                        |        |      |  |      |        |   |  |   |        |  
|Total nonperforming assets               |  | $                      | 26,609 |      |  | $    | 15,066 |   |  | $ | 7,177  |  
|                                         |  |                        |        |      |  |      |        |   |  |   |        |  
|Nonperforming assets to total assets     |  |                        | 1.21   | %    |  |      | 0.76   | % |  |   | 0.44   | %
|Allowance for loan losses                |  | $                      | 22,055 |      |  | $    | 20,725 |   |  | $ | 14,644 |  
|Allowance for loan losses to total loans |  |                        | 1.11   | %    |  |      | 1.14   | % |  |   | 0.97   | %
|For the Period Ended:                    |  |                        |        |      |  |      |        |   |  |   |        |  
|Provision for loan losses                |  | $                      | 5,913  |      |  | $    | 9,812  |   |  | $ | 7,900  |  
|Net charge-offs                          |  | $                      | 4,583  |      |  | $    | 3,731  |   |  | $ | 2,484  |  
|Net charge-offs to average loans         |  |                        | 0.24   | %    |  |      | 0.22   | % |  |   | 0.19   | %

46



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##### Table of Contents



Home Equity Lending

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

|                                                                        |                 |                         |           |         |        |      |           |         |        |      |           |         |         |   |           |         |         |   |         |         |        | 
|----------------------------------------------------------------------- | --------------- | ----------------------- | --------- | ------- | ------ | ---- | --------- | ------- | ------ | ---- | --------- | ------- | ------- | - | --------- | ------- | ------- | - | ------- | ------- | ------ | 
|                                                                        |                 |                        
|                                                                        |                 | Year Ended December 31,
|                                                                        |                 |                        
|                                                                        |                 | 2003                    |           | 2002    |        | 2001 |           | 2000    |        | 1999
|                                                                        |                 |                         |           |         |        |      |           |         |        |     
|                                                                        |                 |                        
|                                                                        |                 | (Dollars in thousands) 
|Selected Income Statement Data:                                         |                 |                         |           |         |        |      |           |         |        |      |           |         |         |   |           |         |         |   |         |        
|Net interest income                                                     |                 | $                       | 106,545   |         |        | $    | 94,068    |         |        | $    | 61,803    |         |         | $ | 35,864    |         |         | $ | 18,852  |        
|Provision for loan losses                                               |                 |                         | (29,575   | )       |        |      | (25,596   | )       |        |      | (2,320    | )       |         |   | (461      | )       |         |   |        |        
|Noninterest income                                                      |                 |                         | (19,525   | )       |        |      | 11,791    |         |        |      | 64,786    |         |         |   | 68,044    |         |         |   | 31,714  |        
|                                                                        |                 |                         |           |         |        |      |           |         |        |      |           |         |         |   |           |         |         |   |         |        
|                                                                        |                 | Total net revenues      |           |         | 57,445 |      |           |         | 80,263 |      |           |         | 124,269 |   |           |         | 103,447 |   |         |         | 50,566 | 
|Operating expenses                                                      |                 |                         | 90,538    |         |        |      | 78,588    |         |        |      | 97,189    |         |         |   | 72,623    |         |         |   | 35,557  |        
|                                                                        |                 |                         |           |         |        |      |           |         |        |      |           |         |         |   |           |         |         |   |         |        
|Income before taxes                                                     |                 |                         | (33,093   | )       |        |      | 1,675     |         |        |      | 27,080    |         |         |   | 30,824    |         |         |   | 15,009  |        
|                                                                        | Income taxes    |                         |           | (13,203 | )      |      |           | 670     |        |      |           | 10,832  |         |   |           | 12,330  |         |   |         | 2,403   |       
|                                                                        |                 |                         |           |         |        |      |           |         |        |      |           |         |         |   |           |         |         |   |         |        
|Net income (loss)                                                       |                 | $                       | (19,890   | )       |        | $    | 1,005     |         |        | $    | 16,248    |         |         | $ | 18,494    |         |         | $ | 12,606  |        
|                                                                        |                 |                         |           |         |        |      |           |         |        |      |           |         |         |   |           |         |         |   |         |        
|Selected Balance Sheet Data:                                            |                 |                         |           |         |        |      |           |         |        |      |           |         |         |   |           |         |         |   |         |        
|Total assets                                                            |                 | $                       | 1,070,634 |         |        | $    | 939,494   |         |        | $    | 602,226   |         |         | $ | 550,526   |         |         | $ | 339,640 |        
|Home equity loans                                                       |                 |                         | 692,637   | (1)     |        |      | 626,355   | (1)     |        |      | 346,192   |         |         |   | 4,510     |         |         |   | 1,904   |        
|Allowance for loan losses                                               |                 |                         | 29,251    |         |        |      | 21,689    |         |        |      | 2,220     |         |         |   | 500       |         |         |   |        |        
|Home equity loans held for sale                                         |                 |                         | 202,627   |         |        |      | 75,540    |         |        |      |          |         |         |   | 330,208   |         |         |   | 231,382 |        
|Residual assets                                                         |                 |                         | 70,519    | (2)     |        |      | 157,065   | (2)     |        |      | 199,071   |         |         |   | 152,614   |         |         |   | 57,833  |        
|Short-term debt                                                         |                 |                         | 368,640   |         |        |      | 201,328   |         |        |      | 138,527   |         |         |   | 163,732   |         |         |   | 260,184 |        
|Collateralized borrowings                                               |                 |                         | 460,535   |         |        |      | 391,425   |         |        |      |          |         |         |   |          |         |         |   |        |        
|Shareholders equity                                                    |                 |                         | 128,555   |         |        |      | 155,831   |         |        |      | 135,493   |         |         |   | 99,586    |         |         |   | 58,733  |        
|Selected Operating Data:                                                |                 |                         |           |         |        |      |           |         |        |      |           |         |         |   |           |         |         |   |         |        
|Loan volume:                                                            |                 |                         |           |         |        |      |           |         |        |      |           |         |         |   |           |         |         |   |         |        
|                                                                        | Lines of credit |                         |           | 324,094 |        |      |           | 443,323 |        |      |           | 317,579 |         |   |           | 629,906 |         |   |         | 93,185  |       
|                                                                        | Loans           |                         |           | 809,222 |        |      |           | 623,903 |        |      |           | 831,830 |         |   |           | 596,049 |         |   |         | 346,322 |       
|Total managed portfolio balance at end of period                        |                 |                         | 1,513,289 |         |        |      | 1,830,339 |         |        |      | 2,064,542 |         |         |   | 1,625,719 |         |         |   | 777,934 |        
|Delinquency ratio                                                       |                 |                         | 5.9       | %       |        |      | 6.0       | %       |        |      | 5.1       | %       |         |   | 4.4       | %       |         |   | 2.1     | %      
|Total managed portfolio including credit risk
    sold at end of period |                 | $                       | 2,568,356 |         |        | $    | 2,502,685 |         |        | $    | 2,317,975 |         |         | $ | 1,825,527 |         |         | $ | 842,403 |        
|Weighted average coupon rate:                                           |                 |                         |           |         |        |      |           |         |        |      |           |         |         |   |           |         |         |   |         |        
|                                                                        | Lines of credit |                         |           | 9.71    | %      |      |           | 10.79   | %      |      |           | 11.11   | %       |   |           | 14.04   | %       |   |         | 12.72   | %     
|                                                                        | Loans           |                         |           | 12.07   |        |      |           | 13.50   |        |      |           | 13.38   |         |   |           | 13.09   |         |   |         | 12.33   |       
|Gain on sale of loans to loans sold                                     |                 |                         | 3.81      |         |        |      | 4.70      |         |        |      | 8.47      |         |         |   | 6.06      |         |         |   | 5.57    |        
|Net home equity charge-offs to average managed
    portfolio            |                 |                         | 4.40      |         |        |      | 2.90      |         |        |      | 1.82      |         |         |   | 0.57      |         |         |   | 0.36    |        



---



|    |                                                                                                                                                                                                                                   
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes $478.7 and $392.4 million of
    collateralized loans at December 31, 2003 and 2002,
    respectively, as part of securitized financings.                                                                                
|   
|(2) | Includes $12.4 million and
    $82.5 million of residual assets at December 31, 2003
    and 2002, respectively, that would be considered
    credit-enhancing interest-only strips (CEIOS) under federal
    banking regulations.

47



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##### Table of Contents





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

Our home equity lending line of business
originates, purchases, securitizes, sells and services a variety
of home equity lines of credit and fixed-rate home equity loan
products nationwide. 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 and the
relative loan-to-value (LTV) ratio of the loan at origination.
For example, everything 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, 2003, HLTV home equity loans made up 53% of
our loan originations and 64% of our managed portfolio. In an
effort to reduce portfolio concentration risk and to comply with
existing banking regulations, we have in place policies
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
$235 million at December 31, 2003) that are described
in the guidance as subprime.

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 83%, or $1.3 billion, of our home equity
managed portfolio at December 31, 2003, has early repayment
provisions.

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 a desire to build our loan
portfolio with cash flow and profit targets, as well as a desire
to manage our capital accounts. Our long-term targets for whole
loan sales are in the 50-75% range. We generally retain the
servicing rights for the loans we sell. To address new
regulatory capital rules, in 2002 we began using securitizations
accounted for as on-balance sheet financing as well as whole
loan sales, while eliminating our use of securitization
structures requiring gain-on-sale accounting and the creation of
residual interests.

We responded to economic weakness and rising
consumer delinquencies and defaults by implementing a new
origination and underwriting strategy in late 2002. Our
objective was to increase focus on customers whose credit
history would suggest lower risk of default on loans we
extended. It is our expectation that over time, our loss rates
on this new production will be lower than that for our
production up to that point and our

48



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##### Table of Contents



overall risk-adjusted profitability will improve.
The table below illustrates the impact of these underwriting
changes by comparing operations in 2003 versus 2002.


|                                                       |                                       |                        |           |              |  |   |           |       | 
|------------------------------------------------------ | ------------------------------------- | ---------------------- | --------- | ------------ |  | - | --------- | ----- | 
|                                                       |                                       |                       
|                                                       |                                       | For the Year Ended    
|                                                       |                                       |                       
|                                                       |                                       | December 31,           |           | December 31,
|                                                       |                                       | 2003                   |           | 2002        
|                                                       |                                       |                        |           |             
|                                                       |                                       |                       
|                                                       |                                       | (Dollars in thousands)
|Total Originations                                     |                                       | $                      | 1,133,316 |              |  | $ | 1,067,227 |      
|Weighted Average Coupon                                |                                       |                        | 9.71      | %            |  |   | 12.18     | %    
|                                                       |  Loans up to 100% CLTV               |                        |           | 9.25         |  |   |           | 11.09 | 
|                                                       |  Lines of credit up to 100% CLTV     |                        |           | 7.25         |  |   |           | 8.79  | 
|                                                       |  Loans up to 125% CLTV               |                        |           | 11.41        |  |   |           | 14.46 | 
|                                                       |  Lines of credit up to 125% CLTV     |                        |           | 10.86        |  |   |           | 12.66 | 
|                                                       |  First mortgage loans up to 100% LTV |                        |           | 7.30         |  |   |           | 8.05  | 
|Weighted Average FICO score                            |                                       |                        | 682       |              |  |   | 668       |      
|                                                       |  Loans up to 100% CLTV               |                        |           | 679          |  |   |           | 660   | 
|                                                       |  Lines of credit up to 100% CLTV     |                        |           | 676          |  |   |           | 665   | 
|                                                       |  Loans up to 125% CLTV               |                        |           | 682          |  |   |           | 672   | 
|                                                       |  Lines of credit up to 125% CLTV     |                        |           | 695          |  |   |           | 668   | 
|                                                       |  First mortgage loans up to 100% LTV |                        |           | 687          |  |   |           | 673   | 
|Weighted Average Disposable Income (in
    dollars)(1) |                                       | $                      | 4,855     |              |  | $ | 4,367     |      
|                                                       |  Loans up to 100% CLTV               |                        |           | 4,645        |  |   |           | 4,717 | 
|                                                       |  Lines of credit up to 100% CLTV     |                        |           | 6,483        |  |   |           | 6,038 | 
|                                                       |  Loans up to 125% CLTV               |                        |           | 4,275        |  |   |           | 3,603 | 
|                                                       |  Lines of credit up to 125% CLTV     |                        |           | 4,458        |  |   |           | 3,799 | 
|                                                       |  First mortgage loans up to 100% LTV |                        |           | 4,784        |  |   |           | 4,636 | 



---



|    |                                                                                                            
|--- | -----------------------------------------------------------------------------------------------------------
|(1) | We define Disposable Income as gross monthly
    income (from all sources) minus all monthly debt payments.

We believe that our decisions to move away from
securitization gain-on-sale accounting, to expand whole loan
sale opportunities, and to work toward transforming the higher
risk, more volatile segments of our business into lower risk
segments will result in a more stable and robust business with
increased growth opportunities.



| |              
| | -------------
| | 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. 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

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line of business. The following table shows the
geographic composition of our home equity lending managed
portfolio on a percentage basis as of December 31, 2003 and
December 31, 2002:


|                                             |       |              |           |              |   |   |           |       |  
|-------------------------------------------- | ----- | ------------ | --------- | ------------ | - | - | --------- | ----- | -
|                                             |       | December 31, |           | December 31,
|State                                        |       | 2003         |           | 2002        
|                                             |       |              |           |             
|California                                   |       |              | 16.2      | %            |   |   | 20.1      | %    
|Florida                                      |       |              | 7.5       |              |   |   | 7.4       |      
|Arizona                                      |       |              | 6.0       |              |   |   | 4.9       |      
|Ohio                                         |       |              | 5.7       |              |   |   | 5.3       |      
|Maryland                                     |       |              | 5.7       |              |   |   | 5.2       |      
|All other states                             |       |              | 58.9      |              |   |   | 57.1      |      
|                                             |       |              |           |              |   |   |           |      
|                                             | Total |              |           | 100.0        | % |   |           | 100.0 | %
|                                             |       |              |           |              |   |   |           |      
|Total managed portfolio(1)(in
    thousands) |       | $            | 1,513,289 |              |   | $ | 1,830,339 |      

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, 2003:

|                                              |                            |                        |         |            |  |          |       |     |   |  |       |       |  
|--------------------------------------------- | -------------------------- | ---------------------- | ------- | ---------- |  | -------- | ----- | --- | - |  | ----- | ----- | -
|                                              |                            |                        |         |            |  | Weighted
|                                              |                            |                        |         |            |  | Average 
|                                              |                            | Amount                 |         | % of Total |  | Coupon  
|                                              |                            |                        |         |            |  |         
|                                              |                            |                       
|                                              |                            | (Dollars in thousands)
|Home equity loans<  = 100% CLTV               |                            | $                      | 172,774 |            |  |          | 11.42 | %   |   |  | 10.74 | %    
|Home equity lines of
    credit<  = 100% CLTV |                            |                        | 341,414 |            |  |          | 22.56 |     |   |  | 8.53  |      
|                                              |                            |                        |         |            |  |          |       |     |   |  |       |      
|Total<  = 100% CLTV                           |                            |                        | 514,188 |            |  |          | 33.98 |     |   |  | 9.27  |      
|Home equity loans>  100% CLTV                 |                            |                        | 586,490 |            |  |          | 38.75 |     |   |  | 13.72 |      
|Home equity lines of credit>  100% CLTV       |                            |                        | 354,819 |            |  |          | 23.45 |     |   |  | 11.50 |      
|                                              |                            |                        |         |            |  |          |       |     |   |  |       |      
|Total> 100% CLTV                              |                            |                        | 941,309 |            |  |          | 62.20 |     |   |  | 12.88 |      
|First mortgages                               |                            |                        | 26,580  |            |  |          | 1.76  |     |   |  | 8.38  |      
|Other (including discontinued products)       |                            |                        | 31,212  |            |  |          | 2.06  |     |   |  | 13.95 |      
|                                              |                            |                        |         |            |  |          |       |     |   |  |       |      
|                                              | Total managed portfolio(1) |                        | $       | 1,513,289  |  |          |       | 100 | % |  |       | 11.60 | %
|                                              |                            |                        |         |            |  |          |       |     |   |  |       |      



---



|    |                                                                                                                                                                                                                                                                
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | We define our Managed Portfolio as
    the portfolio of loans ($1.5 billion) that we service and
    on which we carry credit risk. At December 31, 2003, we
    also serviced another $1.1 billion of loans for which the
    credit risk is held by others.

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At December 31, 2003, key economic
assumptions and the sensitivity of the current fair value of
residuals based on projected cash flows to immediate 10% and 25%
adverse changes in those assumptions are as follows:

|                                                                                |  |                        |         |              |  |   |         |  
|------------------------------------------------------------------------------- |  | ---------------------- | ------- | ------------ |  | - | ------- | -
|                                                                                |  | December 31,           |         | December 31,
|                                                                                |  | 2003                   |         | 2002        
|                                                                                |  |                        |         |             
|                                                                                |  |                       
|                                                                                |  | (Dollars in thousands)
|Balance sheet carrying value of residual
    interests  fair value             |  | $                      | 70,519  |              |  | $ | 157,065 |  
|Weighted-average life (in years)                                                |  |                        | 1.21    |              |  |   | 1.91    |  
|Prepayment speed assumptions (annual rate
    assuming base case credit losses) |  |                        | 37.82   | %            |  |   | 32.37   | %
|Impact on fair value of 10% adverse change                                      |  | $                      | (688    | )            |  |   |         |  
|Impact on fair value of 25% adverse change                                      |  |                        | (2,044  | )            |  |   |         |  
|Expected credit losses (annual rate over expected
    weighted average life)    |  |                        | 8.14    | %            |  |   | 3.57    | %
|Impact on fair value of 10% adverse change                                      |  | $                      | (4,905  | )            |  |   |         |  
|Impact on fair value of 25% adverse change                                      |  |                        | (12,129 | )            |  |   |         |  
|Residual cash flows discount rate (average annual
    rate)                     |  |                        | 18.82   | %            |  |   | 18.69   | %
|Impact on fair value of 10% adverse change                                      |  | $                      | (1,356  | )            |  |   |         |  
|Impact on fair value of 25% adverse change                                      |  |                        | (3,304  | )            |  |   |         |  

These sensitivities should be used with caution.
As the figures indicate, changes in fair value of residuals
based on a variation in assumptions generally cannot be
extrapolated because the relationship of the change in
assumption to the change in fair value are not linear. Also in
the above table, the effect of a variation in a particular
assumption on the fair value of the residual interest is
calculated without changing any other assumption; in reality,
changes in one factor normally result in changes in another (for
example, increases in market interest rates may result in lower
prepayments but increased credit losses), which might magnify or
counteract the sensitivities.



| |                
| | ---------------
| | Securitizations

Until 2002, our 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 (QSPEs) under SFAS No. 140,
Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities.

These securitization structures, used prior to
2002, involved sales of the loans, transferring them
off of our balance sheet, and have been accounted for using
gain-on-sale treatment in accordance with SFAS 140 or its
predecessor SFAS 125. Although we recognized gains on the
sale of loans in the period in which such loans were sold, we
expect to receive cash, representing the excess spread (the
difference between the payment we receive from borrowers and the
payments we must make to investors), overcollateralization if
applicable, and servicing fees, over the lives of the loans.
Concurrent with recognizing such gains on sale, we recorded the
future expected receipt of discounted cash flow as a residual
interest. We recognized gains on the sale of loans in an amount
equal to the difference between proceeds and allocated cost
basis of the loans sold. Residual interests are recorded at fair
value with the subsequent changes in fair value recorded as
trading gain or loss in our results of operations in the period
of the change. We determine fair value on a monthly basis based
on a discounted cash flow analysis. These cash flows are
projected over the lives of the residuals using prepayment,
default, and discount rate assumptions that we believe market
participants would use for similar financial instruments.

Based on changes to our funding practices to
adjust to new regulatory capital rules, in 2002 we began using
securitization structures that do not qualify as loan sales and
therefore are not accounted for using gain-on-sale treatment
under generally accepted accounting principles, but rather as
secured borrowings. For these assets funded on-balance sheet, we
are now recording interest income over the life of the loan as
it is

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earned, net of interest expense over the life of
the bonds and a provision for credit losses inherent in the
portfolio. We do not expect this different accounting treatment
to affect cash flows related to the loans, nor do we expect that
the ultimate total receipt of revenues and profitability derived
from our home equity loans will change materially by these
different financing structures.


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 if the triggers have been exceeded. 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, 2003, we had
$20.8 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 $2.1 million at December 31, 2003.
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 annually a servicing fee of approximately 50 to
100 basis points of the outstanding principal balance of
the loans we service treated as sales under generally accepted
accounting principles. For whole loans sold with servicing
retained, we capitalize servicing fees including rights to
future early repayment fees. These loans are included below in
managed portfolio including credit risk sold. In addition, where
applicable, we have the opportunity to earn additional future
servicing incentive fees, although we are not currently
recognizing any revenue or balance sheet asset to reflect this
potential given the uncertainty surrounding our ability to earn
and estimate such incentive fees. Should receipt of such
incentive servicing fees become probable due to actual and
projected performance of the underlying pool of loans, we would
recognize revenues as appropriate under generally accepted
accounting principles.

Our managed portfolio is separated into
$0.6 billion of loans and lines of credit originated,
securitized, and treated as sold loans under SFAS 140 and
$0.9 billion of loans originated, generally since 2002, and
held on balance sheet either as loans held for investment or
loans held for sale. Generally, loans originated prior to 2002
and treated as sold under SFAS 140 have a reserve
methodology embedded in the associated residual valuations that
reflects life of account loss expectations, whereas our policy
for on-balance sheet loans requires that we hold sufficient
reserves for potential losses inherent in the portfolio at the
balance sheet date. The following table sets forth certain
information for each of these portfolios.

Our managed portfolio including credit risk sold
of $2.6 billion includes the managed portfolio discussed
above as well as our credit risk sold portfolio. The credit risk
sold portfolio includes $1.0 billion of whole loans sold
with servicing retained, as well as $0.1 billion related to
residual interests we have sold.

|                                                 |  |                        |           |              |  |   |           |  
|------------------------------------------------ |  | ---------------------- | --------- | ------------ |  | - | --------- | -
|                                                 |  | December 31,           |           | December 31,
|                                                 |  | 2003                   |           | 2002        
|                                                 |  |                        |           |             
|                                                 |  |                       
|                                                 |  | (Dollars in thousands)
|Managed Portfolio Including Credit Risk
    Sold |  |                        |           |              |  |   |           |  
|Total Loans                                      |  | $                      | 2,568,356 |              |  | $ | 2,502,685 |  
|30 days past due                                 |  |                        | 4.65      | %            |  |   | 5.12      | %
|90 days past due                                 |  |                        | 1.86      |              |  |   | 2.40      |  
|Net Chargeoff Rate                               |  |                        | 3.66      |              |  |   | 2.42      |  
|Managed Portfolio                                |  |                        |           |              |  |   |           |  
|Total Loans                                      |  | $                      | 1,513,289 |              |  | $ | 1,830,339 |  
|30 days past due                                 |  |                        | 5.87      | %            |  |   | 6.01      | %
|90 days past due                                 |  |                        | 2.43      |              |  |   | 2.80      |  
|Net Chargeoff Rate                               |  |                        | 4.81      |              |  |   | 2.78      |  

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|                 |                              |                        |           |              |   |   |         |           |  
|---------------- | ---------------------------- | ---------------------- | --------- | ------------ | - | - | ------- | --------- | -
|                 |                              | December 31,           |           | December 31,
|                 |                              | 2003                   |           | 2002        
|                 |                              |                        |           |             
|                 |                              |                       
|                 |                              | (Dollars in thousands)
|                 | Unsold Loans                 |                        |           |              |   |   |         |           |  
|                 | Total Loans(1)               |                        | $         | 897,227      |   |   | $       | 706,899   |  
|                 | 30 days past due             |                        |           | 2.91         | % |   |         | 3.01      | %
|                 | 90 days past due             |                        |           | 1.25         |   |   |         | 1.38      |  
|                 | Net Chargeoff Rate           |                        |           | 3.03         |   |   |         | 1.34      |  
|                 | Loan Loss Reserve            |                        | $         | 29,251       |   |   | $       | 21,689    |  
|                 | Owned Residual               |                        |           |              |   |   |         |           |  
|                 | Total Loans                  |                        | $         | 616,062      |   |   | $       | 1,123,440 |  
|                 | 30 days past due             |                        |           | 10.18        | % |   |         | 7.89      | %
|                 | 90 days past due             |                        |           | 4.15         |   |   |         | 3.69      |  
|                 | Net Chargeoff Rate           |                        |           | 7.18         |   |   |         | 3.70      |  
|                 | Residual Undiscounted Losses |                        | $         | 64,598       |   |   | $       | 79,746    |  
|Credit Risk Sold |                              |                        |           |              |   |   |         |          
|Total Loans      |                              | $                      | 1,055,068 |              |   | $ | 672,346 |          
|30 days past due |                              |                        | 2.90      | %            |   |   | 2.71    | %        
|90 days past due |                              |                        | 1.03      |              |   |   | 1.32    |          
|                 | Whole Loan Sales             |                        |           |              |   |   |         |           |  
|                 | Total Loans                  |                        | $         | 993,467      |   |   | $       | 552,660   |  
|                 | 30 days past due             |                        |           | 2.20         | % |   |         | 0.89      | %
|                 | 90 days past due             |                        |           | 0.70         |   |   |         | 0.31      |  
|                 | Sold Residuals               |                        |           |              |   |   |         |           |  
|                 | Total Loans                  |                        | $         | 61,601       |   |   | $       | 119,686   |  
|                 | 30 days past due             |                        |           | 14.16        | % |   |         | 11.12     | %
|                 | 90 days past due             |                        |           | 6.38         |   |   |         | 5.97      |  



---



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

In our managed portfolio, we retain credit risk
on loans we originate, whether funded on- or off-balance sheet.
The managed portfolio amounts listed above include those loans
we service with credit risk retained. Delinquency rates and
losses on our managed portfolio result from a variety of
factors, including loan seasoning, portfolio mix and general
economic conditions. The 30-day and greater delinquency ratio on
our managed portfolio was 5.9% at December 31, 2003, and
6.0% at December 31, 2002. Economic conditions in 2003
caused us to increase near-term expectations for increases in
losses. Given widely varying third-party expectations for the
domestic economy and job growth, it is difficult for us to
predict precisely what long-term losses are expected to be. In
our residual asset valuations, we have assumed a slow economic
recovery with elevated levels of losses in our portfolio through
the end of 2004. For our on-balance sheet portfolio, our method
for evaluation of the adequacy of the allowance for loan losses
is discussed in the earlier section on Critical Accounting
Policies  Allowance for Loan and Lease Losses.



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

Our home equity lending business recorded a net
loss of $19.9 million during the year ended
December 31, 2003, compared to net income of
$1.0 million and $16.2 million in 2002 and 2001,
respectively. The 2003 loss relates primarily to unrealized
trading losses recorded during the first half of the year to
write down our residual assets to fair value. These trading
losses are discussed in more detail below. As discussed earlier,
in 2002 we eliminated our use of securitization structures that
require gain-on-sale accounting

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treatment under SFAS 140. As a result, our
activities and strategies in both 2003 and 2002 reflect changes
made to address the new regulatory capital rules associated with
residual interests on sold loans.




| |            
| | -----------
| | Net Revenue

Net revenue in 2003 totaled $57.4 million,
compared to net revenue in 2002 and 2001 of $80.3 million
and $124.3 million, respectively. The reduction in revenues
is a result of increased trading losses related to write downs
of our residual assets to fair value reflecting our view that
the effects of the economic weakness in 2001 and 2002 on our
home equity portfolio will continue through 2004. In addition,
we have increased our provision for loan losses as the line of
business has built its on-balance sheet loan portfolio.
Provision for loan losses totaled $29.6 million in 2003
compared to $25.6 million in 2002 and $2.3 million in
2001.

Our home equity lending business originated
$1.1 billion of home equity loans in each of the past three
years. Our home equity lending business had $866.0 million
of net loans and loans held for sale at December 31, 2003,
compared to $680.2 million at December 31, 2002, and
$344.0 million at the same date in 2001. The increase in
2002 and 2003 relates to the buildup of the on-balance sheet
loan portfolio as part of the transition away from gain-on-sale
accounting in our securitizations. Included in the loan balance
at December 31, 2003 were $478.7 million of
collateralized loans as part of a secured financing.

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

|                                 |  |                         |         |      |  |      |         |   |  |   |         |  
|-------------------------------- |  | ----------------------- | ------- | ---- |  | ---- | ------- | - |  | - | ------- | -
|                                 |  |                        
|                                 |  | Year Ended December 31,
|                                 |  |                        
|                                 |  | 2003                    |         | 2002 |  | 2001
|                                 |  |                         |         |      |  |     
|                                 |  |                        
|                                 |  | (Dollars in thousands) 
|Net interest income              |  | $                       | 106,545 |      |  | $    | 94,068  |   |  | $ | 61,803  |  
|Provision for loan losses        |  |                         | (29,575 | )    |  |      | (25,596 | ) |  |   | (2,320  | )
|Gain on sales of loans           |  |                         | 26,069  |      |  |      | 29,887  |   |  |   | 91,406  |  
|Loan servicing fees              |  |                         | 21,835  |      |  |      | 13,528  |   |  |   | 13,355  |  
|Amortization of servicing assets |  |                         | (13,894 | )    |  |      | (5,485  | ) |  |   | (3,217  | )
|Impairment of servicing assets   |  |                         | (1,684  | )    |  |      | (1,420  | ) |  |   |        |  
|Trading losses                   |  |                         | (52,209 | )    |  |      | (26,032 | ) |  |   | (38,407 | )
|Other income                     |  |                         | 358     |      |  |      | 1,313   |   |  |   | 1,649   |  
|                                 |  |                         |         |      |  |      |         |   |  |   |         |  
|Total net revenue                |  | $                       | 57,445  |      |  | $    | 80,263  |   |  | $ | 124,269 |  
|                                 |  |                         |         |      |  |      |         |   |  |   |         |  

Net interest income increased to
$106.5 million for the year ended December 31, 2003,
compared to 2002 net interest income of $94.1 million,
and $61.8 million in 2001. 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 $20.7 million during 2003 versus
$34.2 million in 2002, and $32.0 million in 2001. The
increase in net interest income is a result of the buildup of
our on-balance sheet loan portfolio. The decline in accretion
reflects the reduced carrying value of our residual interests.

Provision for loan losses increased to
$29.6 million in 2003 compared to $25.6 million in
2002 and $2.3 million in 2001. The increased provision
relates both to anticipated loss rates and the growth in loans
as we continue to build our on-balance sheet loan portfolio.
On-balance sheet loans totaled $692.6 million at
December 31, 2003 compared to $626.4 million and
$346.2 million at December 31, 2002 and 2001,
respectively.

Gains on sales of loans for the year ended
December 31, 2003 totaled $26.1 million, compared to
$29.9 million and $91.4 million during the same period
in 2002 and 2001, respectively. The significant decline in gains
in 2003 and 2002 compared to 2001 relates to the transition away
from securitization structures requiring gain-on-sale
accounting. Beginning in 2002, sales were executed on a
credit-released basis and we receive a premium, record a
servicing asset, and monetize any points and fees at the time of
sale. We do, however, retain the rights to an incentive
servicing fee that will provide cash payments to us in the event
certain loan credit and servicing performance metrics are met.
As of December 31, 2003, we had not received

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any such payments and had not recorded potential
revenues due to the uncertainty of collecting such fees. Should
receipt of such incentive servicing fees become probable due to
actual and projected performance of the underlying pool of
loans, we would recognize revenues as appropriate under
generally accepted accounting principles. We completed whole
loan sales during 2003 of $684 million compared to sales in
2002 of $615 million. The gain on sales of loans relative
to the principal balance of loans sold decreased during 2003 due
to secondary market demand, product mix between HEL and HELOC
product, and cost factors among our various channels.


Loan servicing fees totaled $21.8 million in
2003 compared to $13.5 million in 2002 and
$13.4 million in 2001. The servicing portfolio underlying
the mortgage servicing asset at our home equity lending line of
business totaled $2.6 billion and $2.5 billion at
December 31, 2003 and 2002, respectively. The increase in
loan servicing fees in 2003 relates to increased early repayment
fees which totaled $8.3 million in 2003 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 assess these modeled assumptions for reasonableness
through independent third-party valuations. At December 31,
2003, net servicing assets totaled $28.4 million, compared
to a balance of $26.4 million at December 31, 2002,
and $15.3 million at December 31, 2001. Servicing
asset amortization and impairment expense totaled
$15.6 million during 2003, compared to $6.9 million in
2002, and $3.2 million in 2001. The increased amortization
and impairment is a result of the increase in the size of the
servicing asset and the decreased interest rate environment.

Trading losses represent unrealized losses as a
result of adjustments to the carrying values of our residual
interests. Trading losses totaled $52.2 million in 2003
compared to $26.0 million in 2002 and $38.4 million in
2001. Residual interests had a balance of $70.5 million at
December 31, 2003 and $157.1 million at
December 31, 2002, compared to $199.1 million at the
same date in 2001. The $70.5 million valuation at
December 31, 2003 reflects $87.2 million of
anticipated undiscounted cash flows of which $72.8 million
represents existing securitization overcollateralization and
reserve funds, and the remaining $14.4 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, up or down. These adjustments could
have a material effect on our earnings. The increased unrealized
trading losses in 2003 principally reflect higher expected loss
rates and higher prepayment speeds. The increased unrealized
trading losses in 2002 also reflect higher expected loss rates
and higher prepayment speeds as well as an increase in the
discount rate. These higher expected loss rates are reflective
of the continued weakness in the economy and a slower rate of
recovery in the delinquency of the portfolio than we had
anticipated. Our forward loss assumptions are reevaluated
monthly and, as such, our residual asset valuations will be
adjusted continuously to reflect changes in actual and expected
loss rates in our portfolio.

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Operating Expenses

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

|                                     |                          |                         |        |        |  |      |        |        |  |   |        |        | 
|------------------------------------ | ------------------------ | ----------------------- | ------ | ------ |  | ---- | ------ | ------ |  | - | ------ | ------ | 
|                                     |                          |                        
|                                     |                          | Year Ended December 31,
|                                     |                          |                        
|                                     |                          | 2003                    |        | 2002   |  | 2001
|                                     |                          |                         |        |        |  |     
|                                     |                          |                        
|                                     |                          | (Dollars in thousands) 
|Salaries and employee benefits       |                          | $                       | 52,074 |        |  | $    | 46,548 |        |  | $ | 59,007 |       
|Other                                |                          |                         | 38,464 |        |  |      | 32,040 |        |  |   | 38,182 |       
|                                     |                          |                         |        |        |  |      |        |        |  |   |        |       
|                                     | Total operating expenses |                         | $      | 90,538 |  |      | $      | 78,588 |  |   | $      | 97,189 | 
|                                     |                          |                         |        |        |  |      |        |        |  |   |        |       
|Number of employees at period end(1) |                          |                         | 663    |        |  |      | 692    |        |  |   | 773    |       



---



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

Operating expenses were $90.5 million for
the year ended December 31, 2003, up from $78.6 in 2002,
and a decrease of 6.8% from 2001. Operating expenses in 2003
include compensation expense related to minority ownership
interests at the home equity line of business totaling
$2.3 million, ($5.1) million and $5.5 million in
2003, 2002 and 2001, respectively.

Commercial Finance

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

|                                                                                       |                    |                         |         |        |  |      |         |        |  |   |         |       |  |   |         |       | 
|-------------------------------------------------------------------------------------- | ------------------ | ----------------------- | ------- | ------ |  | ---- | ------- | ------ |  | - | ------- | ----- |  | - | ------- | ----- | 
|                                                                                       |                    |                        
|                                                                                       |                    | Year Ended December 31,
|                                                                                       |                    |                        
|                                                                                       |                    | 2003                    |         | 2002   |  | 2001 |         | 2000  
|                                                                                       |                    |                         |         |        |  |      |         |       
|                                                                                       |                    |                        
|                                                                                       |                    | (Dollars in thousands) 
|Selected Income Statement Data:                                                        |                    |                         |         |        |  |      |         |        |  |   |         |       |  |   |         |      
|Net interest income                                                                    |                    | $                       | 22,766  |        |  | $    | 15,140  |        |  | $ | 9,481   |       |  | $ | 3,196   |      
|Provision for loan and lease losses                                                    |                    |                         | (11,308 | )      |  |      | (8,481  | )      |  |   | (6,939  | )     |  |   | (1,513  | )    
|Noninterest income                                                                     |                    |                         | 6,671   |        |  |      | 4,397   |        |  |   | 1,695   |       |  |   | 799     |      
|                                                                                       |                    |                         |         |        |  |      |         |        |  |   |         |       |  |   |         |      
|                                                                                       | Total net revenues |                         |         | 18,129 |  |      |         | 11,056 |  |   |         | 4,237 |  |   |         | 2,482 | 
|Operating expense                                                                      |                    |                         | 15,875  |        |  |      | 12,122  |        |  |   | 8,424   |       |  |   | 5,045   |      
|                                                                                       |                    |                         |         |        |  |      |         |        |  |   |         |       |  |   |         |      
|Income (loss) before taxes and cumulative effect
    of change in accounting principle |                    |                         | 2,254   |        |  |      | (1,066  | )      |  |   | (4,187  | )     |  |   | (2,563  | )    
|Income taxes                                                                           |                    |                         | 461     |        |  |      | (513    | )      |  |   | (1,309  | )     |  |   | (945    | )    
|                                                                                       |                    |                         |         |        |  |      |         |        |  |   |         |       |  |   |         |      
|Income (loss) before cumulative effect of change
    in accounting principle           |                    |                         | 1,793   |        |  |      | (553    | )      |  |   | (2,878  | )     |  |   | (1,618  | )    
|Cumulative effect of change in accounting
    principle                                |                    |                         |        |        |  |      | 495     |        |  |   |        |       |  |   |        |      
|                                                                                       |                    |                         |         |        |  |      |         |        |  |   |         |       |  |   |         |      
|Net income (loss)                                                                      |                    | $                       | 1,793   |        |  | $    | (58     | )      |  | $ | (2,878  | )     |  | $ | (1,618  | )    
|                                                                                       |                    |                         |         |        |  |      |         |        |  |   |         |       |  |   |         |      
|Selected Balance Sheet and Operating Data at
    End of Period:                        |                    |                         |         |        |  |      |         |        |  |   |         |       |  |   |         |      
|Total assets                                                                           |                    | $                       | 474,915 |        |  | $    | 343,384 |        |  | $ | 266,670 |       |  | $ | 159,773 |      
|Loans and leases                                                                       |                    |                         | 463,423 |        |  |      | 345,844 |        |  |   | 264,827 |       |  |   | 154,934 |      
|Allowance for loan and lease losses                                                    |                    |                         | (11,445 | )      |  |      | (7,657  | )      |  |   | (4,587  | )     |  |   | (2,441  | )    
|Shareholders equity                                                                   |                    |                         | 44,255  |        |  |      | 29,236  |        |  |   | 18,741  |       |  |   | 21,346  |      
|Net charge-offs                                                                        |                    |                         | 7,868   |        |  |      | 5,401   |        |  |   | 4,653   |       |  |   | 961     |      
|Net interest margin                                                                    |                    |                         | 5.63    | %      |  |      | 5.07    | %      |  |   | 4.64    | %     |  |   | 4.50    | %    
|Total fundings of loans and leases                                                     |                    | $                       | 272,685 |        |  | $    | 207,087 |        |  | $ | 190,716 |       |  | $ | 113,323 |      

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Overview

We established this line of business in 1999 when
we formed Irwin Business Finance, our U.S. commercial leasing
company. In July 2000, this line of business completed an
acquisition of an approximately 78% position in Onset Capital
Corporation, a Canadian small-ticket equipment leasing company
headquartered in Vancouver, British Columbia. Principals of
Onset own the remaining approximately 22% of the company. The
Onset acquisition added approximately $60 million in leases
to our commercial finance portfolio. To begin our franchise
finance operations, we acquired a portfolio of approximately
$22 million in leases and loans in August 2001, and we
established Irwin Franchise Capital Corporation. We established
Irwin Commercial Finance in April 2001 (originally named Irwin
Capital Holdings) as a subsidiary of Irwin Union Bank and Trust
to serve as the parent company for all three of our U.S. and
Canadian commercial finance companies.

In our commercial finance line of business, we
originate small-ticket equipment leases through established U.S.
and Canadian relationships with vendors, manufacturers and third
party originators, and provide financing for franchisees of
selected quick service and casual dining restaurant concepts.
The majority of our leases are full payout (no residual),
small-ticket assets secured by commercial equipment. Within the
franchise channel, the majority of our contracts are loans, and
are full payout with higher transaction sizes than in our
small-ticket channel. The franchise channel may also finance
real estate for select franchise systems. We finance a variety
of commercial and office equipment types and try to limit the
concentrations in our loan and lease portfolios.

Strategy

Despite delays in reaching sustainable
profitability in this line of business largely as a result of
unanticipated credit losses in our U.S.-based small-ticket
leasing portfolio, we continue to believe that our strategy is
appropriate for serving the commercial finance niches we
address. While 2003 was a modestly profitable year, it is our
expectation that this line of business will begin to approach
our long-term return targets in 2004 or 2005, depending on
growth rates and credit performance.



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

Commercial finance net income increased to
$1.8 million during 2003, compared to a losses of $58
thousand and $2.9 million in 2002 and 2001, respectively.
Results in 2003 reflect growth of $7.6 million in net
interest income over 2002. Net interest income in 2002 increased
60% over 2001. Provision for loan and lease losses increased to
$11.3 million in 2003, compared to provisions of
$8.5 million and $6.9 million in 2002 and 2001,
respectively. The 2003 earnings are attributable to portfolio
growth, improvements in credit quality, and higher than expected
gains from the sale of whole loans. The 2002 results include a
$0.5 million benefit from a cumulative effect of an
accounting change as a result of the reversal of unamortized
negative goodwill related to the acquisition of Onset.



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

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

|                                |  |                         |         |      |  |      |         |   |  |   |         |  
|------------------------------- |  | ----------------------- | ------- | ---- |  | ---- | ------- | - |  | - | ------- | -
|                                |  |                        
|                                |  | Year Ended December 31,
|                                |  |                        
|                                |  | 2003                    |         | 2002 |  | 2001
|                                |  |                         |         |      |  |     
|                                |  |                        
|                                |  | (Dollars in thousands) 
|Net interest income             |  | $                       | 22,766  |      |  | $    | 15,140  |   |  | $ | 9,481   |  
|Average interest earning assets |  |                         | 404,089 |      |  |      | 298,854 |   |  |   | 204,290 |  
|Net interest margin             |  |                         | 5.63    | %    |  |      | 5.07    | % |  |   | 4.64    | %

Net interest income was $22.8 million, an
increase of 50% over 2002, and an increase of 140% from 2001.
The improvement in net interest income resulted from an increase
in our commercial finance portfolio. The total loan and lease
portfolio has increased to $463.4 million at
December 31, 2003, an increase of 34.0% and

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75.0% over year-end 2002 and 2001 balances,
respectively. This line of business originated
$272.7 million in loans and leases during 2003, compared to
$207.1 million during 2002 and $190.7 million in 2001.
The 2001 period includes a $22.0 million acquisition of
loans and leases related to the formation of Irwin Franchise
Capital Corporation.


Net interest margin is computed by dividing net
interest income by average interest earning assets. Net interest
margin during 2003 was 5.63%, compared to 5.07% in 2002, and
4.64% in 2001. The increase in 2003 margin is due primarily to
changes in product mix and intercompany funding changes.



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

The provision for loan and lease losses increased
to $11.3 million in 2003 compared to $8.5 million in
2002 and $6.9 million in 2001. The increased provisioning
levels are reflective of general economic conditions, portfolio
growth in this line of business since inception and increased
charge-offs as a result of deterioration in the credit quality
of the broker-based, small-ticket portion of our domestic
portfolio during the first half of 2003.



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

Noninterest income during 2003 increased 52% over
2002 and 294% over 2001. This increase was due primarily to
higher gains from sales of whole loans in our franchise unit
that increased to $2.6 million in 2003 compared to
$1.4 million in 2002. This line of business had no loan
sales in 2001.



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

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

|                                     |  |                         |        |      |  |      |        |  |  |   |       | 
|------------------------------------ |  | ----------------------- | ------ | ---- |  | ---- | ------ |  |  | - | ----- | 
|                                     |  |                        
|                                     |  | Year Ended December 31,
|                                     |  |                        
|                                     |  | 2003                    |        | 2002 |  | 2001
|                                     |  |                         |        |      |  |     
|                                     |  |                        
|                                     |  | (Dollars in thousands) 
|Salaries and employee benefits       |  | $                       | 11,606 |      |  | $    | 9,482  |  |  | $ | 6,481 | 
|Other expenses                       |  |                         | 4,269  |      |  |      | 2,640  |  |  |   | 1,943 | 
|                                     |  |                         |        |      |  |      |        |  |  |   |       | 
|Total operating expenses             |  | $                       | 15,875 |      |  | $    | 12,122 |  |  | $ | 8,424 | 
|                                     |  |                         |        |      |  |      |        |  |  |   |       | 
|Number of employees at period end(1) |  |                         | 133    |      |  |      | 134    |  |  |   | 126   | 



---



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

Operating expenses during 2003 totaled
$15.9 million, an increase of 31% over 2002, and an
increase of 88% from 2001. The increased operating expenses
relates to the continued growth in this business since its
inception in 1999, including compensation costs related to the
achievement of profitability.



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

The commercial finance line of business had
nonperforming loans and leases at December 31, 2003
totaling $4.1 million, compared to non-performing loans and
leases at December 31, 2002 and 2001 totaling
$4.9 million and $3.9 million, respectively. Net
charge-offs recorded by this line of business totaled
$7.9 million in 2003 compared to $5.4 million in 2002
and $4.7 million in 2001. The increased charge-offs in 2002
and 2003 and the spike in 2002 nonperformings loans and leases
relate primarily to the broker-based, small ticket portion of
our U.S. portfolio. During the second quarter of 2003, we
made a decision to exit this distribution channel. We will
continue to manage the broker-based lease portfolio as it runs
off while focusing our efforts in originating vendor-sourced
small ticket leases in the U.S. In the future, we expect
our concentration in vendor-based small ticket products (both
domestic and Canadian) and franchise lending to grow as a
proportion of the line of business portfolio. Allowance for loan
and lease losses at December 31, 2003 totaled
$11.4 million, representing 2.47% of loans and leases,
compared to a balance at December 31, 2002 of

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$7.7 million, representing 2.21% of loans
and leases and a balance of $4.6 million or 1.73% of the
portfolio at December 31, 2001.


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,          
|                                                   |  |                       
|                                                   |  | 2003                   |        | 2002 |  | 2001
|                                                   |  |                        |        |      |  |     
|                                                   |  |                       
|                                                   |  | (Dollars in thousands)
|Nonperforming loans and leases                     |  | $                      | 4,083  |      |  | $    | 4,855 |   |  | $ | 3,923 |  
|Allowance for loan and lease losses                |  |                        | 11,445 |      |  |      | 7,657 |   |  |   | 4,587 |  
|Allowance for loan and lease losses to total loans |  |                        | 2.47   | %    |  |      | 2.21  | % |  |   | 1.73  | %
|For the Period Ended:                              |  |                        |        |      |  |      |       |   |  |   |       |  
|Provision for loan losses                          |  | $                      | 11,308 |      |  | $    | 8,481 |   |  | $ | 6,939 |  
|Net charge-offs                                    |  |                        | 7,868  |      |  |      | 5,401 |   |  |   | 4,653 |  
|Net charge-offs to average loans                   |  |                        | 1.97   | %    |  |      | 1.81  | % |  |   | 2.28  | %

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,          
|                       |                        |                       
|                       |                        | 2003                   |         | 2002 
|                       |                        |                        |         |      
|                       |                        |                       
|                       |                        | (Dollars in thousands)
|Franchise loans        |                        | $                      | 150,505 |       |   | $ | 95,753  |      
|                       | Weighted average yield |                        |         | 8.45  | % |   |         | 9.01  | %
|                       | Delinquency ratio      |                        |         | 0.45  |   |   |         | 0.30  |  
|Domestic (U.S.) leases |                        | $                      | 134,602 |       |   | $ | 135,775 |      
|                       | Weighted average yield |                        |         | 9.54  | % |   |         | 10.37 | %
|                       | Delinquency ratio      |                        |         | 1.32  |   |   |         | 1.41  |  
|Canadian leases(1)     |                        | $                      | 178,316 |       |   | $ | 114,316 |      
|                       | Weighted average yield |                        |         | 10.12 | % |   |         | 10.95 | %
|                       | Delinquency ratio      |                        |         | 0.89  |   |   |         | 1.03  |  



---



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

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Venture Capital

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

|                                                  |                    |                         |         |        |   |      |        |        |   |   |         |         |  
|------------------------------------------------- | ------------------ | ----------------------- | ------- | ------ | - | ---- | ------ | ------ | - | - | ------- | ------- | -
|                                                  |                    |                        
|                                                  |                    | Year Ended December 31,
|                                                  |                    |                        
|                                                  |                    | 2003                    |         | 2002   |   | 2001
|                                                  |                    |                         |         |        |   |     
|                                                  |                    |                        
|                                                  |                    | (Dollars in thousands) 
|Selected Income Statement Data:                   |                    |                         |         |        |   |      |        |        |   |   |         |        
|Net interest income (expense)                     |                    | $                       | 5       |        |   | $    | 43     |        |   | $ | (404    | )      
|Mark-to-market adjustment on investments          |                    |                         | (2,954  | )      |   |      | (4,187 | )      |   |   | (10,444 | )      
|Noninterest income                                |                    |                         | 671     |        |   |      | 501    |        |   |   | 592     |        
|                                                  |                    |                         |         |        |   |      |        |        |   |   |         |        
|                                                  | Total net revenues |                         |         | (2,278 | ) |      |        | (3,643 | ) |   |         | (10,256 | )
|Operating expense                                 |                    |                         | 548     |        |   |      | 495    |        |   |   | 590     |        
|                                                  |                    |                         |         |        |   |      |        |        |   |   |         |        
|Loss before taxes                                 |                    |                         | (2,826  | )      |   |      | (4,138 | )      |   |   | (10,846 | )      
|Income tax benefit                                |                    |                         | (1,118  | )      |   |      | (1,655 | )      |   |   | (4,340  | )      
|                                                  |                    |                         |         |        |   |      |        |        |   |   |         |        
|Net loss                                          |                    | $                       | (1,708  | )      |   | $    | (2,483 | )      |   | $ | (6,506  | )      
|                                                  |                    |                         |         |        |   |      |        |        |   |   |         |        
|Selected Balance Sheet Data at End of
    Period: |                    |                         |         |        |   |      |        |        |   |   |         |        
|Investment in portfolio companies (cost)          |                    | $                       | 14,601  |        |   | $    | 12,620 |        |   | $ | 10,696  |        
|Mark-to-market adjustment                         |                    |                         | (11,077 | )      |   |      | (8,123 | )      |   |   | (3,936  | )      
|                                                  |                    |                         |         |        |   |      |        |        |   |   |         |        
|Carrying value of portfolio companies             |                    | $                       | 3,524   |        |   | $    | 4,497  |        |   | $ | 6,760   |        
|                                                  |                    |                         |         |        |   |      |        |        |   |   |         |        

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
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.
Our venture capital line of business had investments in seven
private companies as of December 31, 2003, with an
aggregate investment cost of $14.6 million and a carrying
value of $3.5 million. Our carrying value for investments
in three of the seven has been reduced through valuation
adjustments to zero.

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.

In 1999, our Board of Directors approved an
allocation of up to $20 million to support this subsidiary.
We carry venture capital investments held by Irwin Ventures at
fair value, with changes in market value recognized in other
income. The investment committee of Irwin Ventures determines
the value of the investments at the end of each reporting
period. We adjust the values based upon review of the
investees financial results, condition, and prospects.
Changes in estimated market values can also be made when an
event such as a new funding round from other private equity
investors would cause a change in estimated market value. In the
future, should Irwin Ventures 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.

Despite the recent sharp reduction in values of
technology companies, we believe that investing in emerging
technology can help identify potential niches for us or enhance
existing niches. We believe

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improvements in technology and entrepreneurial
innovation will continue to change the manner in which financial
services are delivered to businesses and consumers.


Our strategic rationale for making venture
capital investments has evolved as we attempt to make multiple
small investments across a variety of technology-based financial
services niches to capitalize on new market opportunities
enabled by technology. We expect that our continued involvement
in venture capital will enable us to stay close to innovations
that could affect the landscape of financial services in the
future.

During the year ended December 31, 2003, the
venture capital line of business recorded a net loss of
$1.7 million, compared to a net loss of $2.5 million
in 2002, and a net loss of $6.5 million in 2001. 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 $8.0 million for the year
ended December 31, 2003, compared to a loss of
$5.8 million during the same period in 2002 and
$8.4 million in 2001. 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
$0.7 million, ($1.2) million, and $1.9 million
for 2003, 2002 and 2001, 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, 2003, we
allocated $15.2 million of these expenses to our
subsidiaries, compared to $13.5 million and
$9.2 million during 2002 and 2001, respectively.

Each subsidiary pays taxes to us at the statutory
rate. Subsidiaries also pay fees to us to cover direct and
indirect services. In addition, certain services are provided
from one subsidiary to another. Intercompany income and expenses
are calculated on an arms-length, external market basis
and are eliminated in consolidation.

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, Chief Financial Officer, and Chief Risk Officer
meet on a monthly 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. The ERMC and its subcommittees oversee all aspects of
our financial, credit, and operational risks. The ERMC provides
senior-level review and enhancement of line manager risk
processes and oversight of our risk reporting, surveillance and
model parameter changes.

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

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The credit risk in the loan portfolios of the
home equity lending, commercial finance and commercial banking
lines of business have the most potential to have 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
personal contact with borrowers. Loans over a certain size 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 on a quarterly basis.

Within the allowance, there are specific and
expected loss components. The specific loss component is based
on a regular analysis of all loans over a fixed-dollar amount
where the internal credit rating is at or below a predetermined
classification. From this analysis we determine the loans that
we believe to be impaired in accordance with SFAS 114.
Management has defined impaired as nonaccrual loans. An
allowance is established when the collateral value, observable
market price or discounted cash flows of an impaired loan 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. For portfolios that are too new to have adequate
historical experience on which to base a loss estimate, we use
estimates derived from industry and managements
experience. The loss ratio is generally based upon historic loss
experience for each loan type adjusted for certain environmental
factors management believes to be relevant.

Net charge-offs for the year ended
December 31, 2003 were $33.9 million, or 1.1% of
average loans, compared to $15.4 million, or 0.7% of
average loans during 2002. Net charge-offs in 2001 were
$8.2 million or 0.7% of average loans. At December 31,
2003, the allowance for loan and lease losses was 2.0% of
outstanding loans and leases, compared to 1.8% at year-end 2002,
and 1.0% at year-end 2001. The increase in charge-offs and
allowance is a result of the new balance sheet retention of home
equity loans as well as loan growth. As mentioned earlier, the
home equity business began recognizing charge-offs and recording
an allowance for loan losses in late 2001 as the line of
business moved away from gain-on-sale accounting for
securitizations and recorded its loans on the balance sheet both
before and after they have been securitized. Included in the
2002 and 2001 charge-offs were approximately $3.9 million
and $2.3 million, respectively, of charge-offs at the home
equity lending line of business not charged against the
allowance for loan and lease losses account. Instead, these
charge-offs were previously taken through a lower of cost or
market valuation allowance that was established in late 2001.
This allowance was established under generally accepted
accounting principles when we transferred approximately
$38 million of home equity loans held for sale to the held
for investment category at fair value. This valuation allowance
account was depleted during the third quarter of 2002. We now
reserve for these same loans through our provision for loan and
lease losses.

Total nonperforming loans and leases at
December 31, 2003, were $44.4 million, compared to
$31.1 million at December 31, 2002, and
$19.2 million at December 31, 2001. Nonperforming
loans and leases as a percent of total loans and leases at
December 31, 2003 were 1.4%, compared to 1.1% at
December 31, 2002, and 0.9% in 2001. The 2003 increase
occurred primarily at the commercial banking line of business
where nonperforming loans increased to $25.6 million at
December 31, 2003, compared to $15.1 million at the
end of 2002. The majority of this increase relates to two
credits totaling $8 million that were added to
nonperforming loans late in 2003 at the commercial banking line
of business.

Other real estate we owned totaled
$6.4 million at December 31, 2003, up from
$5.3 million at December 31, 2002, which was up from
$4.4 million at the same date in 2001. The increase in 2003
relates to the commercial banking and home equity lending lines
of business. The increase in 2002 and 2001 was primarily

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attributable to both the home equity lending and
mortgage banking lines of business. Total nonperforming assets
at December 31, 2003 were $52.5 million, or 1.1% of
total assets. Nonperforming assets at December 31, 2002,
totaled $37.6 million, or 0.8% of total assets, compared to
$25.1 million, or 0.7%, in 2001.


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

|                                                                        |                                              |                                       |                   |        |       |        |           |       |       |        |           |       |       |       |           |       |     |       |         |     |     |       | 
|----------------------------------------------------------------------- | -------------------------------------------- | ------------------------------------- | ----------------- | ------ | ----- | ------ | --------- | ----- | ----- | ------ | --------- | ----- | ----- | ----- | --------- | ----- | --- | ----- | ------- | --- | --- | ----- | 
|                                                                        |                                              |                                      
|                                                                        |                                              | At or For the Year Ended December 31,
|                                                                        |                                              |                                      
|                                                                        |                                              | 2003                                  |                   | 2002   |       | 2001   |           | 2000  |       | 1999  
|                                                                        |                                              |                                       |                   |        |       |        |           |       |       |       
|                                                                        |                                              |                                      
|                                                                        |                                              | (Dollars in thousands)               
|Loans and leases outstanding at end of year, net
    of unearned income |                                              | $                                     | 3,161,054         |        |       | $      | 2,815,276 |       |       | $      | 2,137,822 |       |       | $     | 1,234,922 |       |     | $     | 733,424 |    
|                                                                        |                                              |                                       |                   |        |       |        |           |       |       |        |           |       |       |       |           |       |     |       |         |    
|Average loans and leases for the year, net of
    unearned income       |                                              | $                                     | 3,168,776         |        |       | $      | 2,620,428 |       |       | $      | 1,533,261 |       |       | $     | 960,848   |       |     | $     | 642,435 |    
|                                                                        |                                              |                                       |                   |        |       |        |           |       |       |        |           |       |       |       |           |       |     |       |         |    
|Allowance for loan and lease losses:                                    |                                              |                                       |                   |        |       |        |           |       |       |        |           |       |       |       |           |       |     |       |         |    
|Balance beginning of year                                               |                                              | $                                     | 50,936            |        |       | $      | 22,283    |       |       | $      | 13,129    |       |       | $     | 8,555     |       |     | $     | 9,888   |    
|Charge-offs:                                                            |                                              |                                       |                   |        |       |        |           |       |       |        |           |       |       |       |           |       |     |       |         |    
|                                                                        | Commercial, financial and agricultural loans |                                       |                   | 4,263  |       |        |           | 3,666 |       |        |           | 1,638 |       |       |           | 1,210 |     |       |         | 646 |    
|                                                                        | Real estate mortgage loans                   |                                       |                   | 23,522 |       |        |           | 7,130 |       |        |           | 600   |       |       |           |      |     |       |         |    |    
|                                                                        | Consumer loans                               |                                       |                   | 765    |       |        |           | 800   |       |        |           | 1,489 |       |       |           | 818   |     |       |         | 813 |    
|                                                                        | Lease financing:                             |                                       |                   |        |       |        |           |       |       |        |           |       |       |       |           |       |     |       |         |     |    
|                                                                        |                                              | Domestic                              |                   |        | 6,172 |        |           |       | 5,158 |        |           |       | 3,624 |       |           |       | 363 |       |         |     | 772 |      
|                                                                        |                                              | Canadian                              |                   |        | 2,590 |        |           |       | 1,476 |        |           |       | 2,402 |       |           |       | 777 |       |         |     |    |      
|                                                                        |                                              |                                       |                   |        |       |        |           |       |       |        |           |       |       |       |           |       |     |       |         |    
|                                                                        |                                              |                                       | Total charge-offs |        |       | 37,312 |           |       |       | 18,230 |           |       |       | 9,753 |           |       |     | 3,168 |         |     |     | 2,231 | 
|                                                                        |                                              |                                       |                   |        |       |        |           |       |       |        |           |       |       |       |           |       |     |       |         |    
|Recoveries:                                                             |                                              |                                       |                   |        |       |        |           |       |       |        |           |       |       |       |           |       |     |       |         |    
|                                                                        | Commercial, financial and agricultural loans |                                       |                   | 68     |       |        |           | 435   |       |        |           | 144   |       |       |           | 76    |     |       |         | 32  |    
|                                                                        | Real estate mortgage loans                   |                                       |                   | 2,198  |       |        |           | 1,002 |       |        |           |      |       |       |           |      |     |       |         |    |    
|                                                                        | Consumer loans                               |                                       |                   | 248    |       |        |           | 252   |       |        |           | 193   |       |       |           | 221   |     |       |         | 307 |    
|                                                                        | Lease financing:                             |                                       |                   |        |       |        |           |       |       |        |           |       |       |       |           |       |     |       |         |     |    
|                                                                        |                                              | Domestic                              |                   |        | 448   |        |           |       | 523   |        |           |       | 334   |       |           |       | 84  |       |         |     | 164 |      
|                                                                        |                                              | Canadian                              |                   |        | 449   |        |           |       | 658   |        |           |       | 877   |       |           |       | 85  |       |         |     |    |      
|                                                                        |                                              |                                       |                   |        |       |        |           |       |       |        |           |       |       |       |           |       |     |       |         |    
|                                                                        |                                              |                                       | Total recoveries  |        |       | 3,411  |           |       |       | 2,870  |           |       |       | 1,548 |           |       |     | 466   |         |     |     | 503   | 
|                                                                        |                                              |                                       |                   |        |       |        |           |       |       |        |           |       |       |       |           |       |     |       |         |    
|Net charge-offs                                                         |                                              |                                       | (33,901           | )      |       |        | (15,360   | )     |       |        | (8,205    | )     |       |       | (2,702    | )     |     |       | (1,728  | )  
|Acquisition of Onset Capital                                            |                                              |                                       |                  |        |       |        |          |       |       |        |          |       |       |       | 1,908     |       |     |       |        |    
|Reduction due to sale of loans                                          |                                              |                                       | (474              | )      |       |        |          |       |       |        | (6        | )     |       |       |          |       |     |       | (3,126  | )  
|Reduction due to reclassification of loans                              |                                              |                                       | (456              | )      |       |        |          |       |       |        |          |       |       |       | (16       | )     |     |       | (922    | )  
|Foreign currency adjustment                                             |                                              |                                       | 597               |        |       |        | 17        |       |       |        | (140      | )     |       |       | (19       | )     |     |       |        |    
|Provision charged to expense                                            |                                              |                                       | 47,583            |        |       |        | 43,996    |       |       |        | 17,505    |       |       |       | 5,403     |       |     |       | 4,443   |    
|                                                                        |                                              |                                       |                   |        |       |        |           |       |       |        |           |       |       |       |           |       |     |       |         |    
|Balance end of year                                                     |                                              | $                                     | 64,285            |        |       | $      | 50,936    |       |       | $      | 22,283    |       |       | $     | 13,129    |       |     | $     | 8,555   |    
|                                                                        |                                              |                                       |                   |        |       |        |           |       |       |        |           |       |       |       |           |       |     |       |         |    

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|                                                                                |                                              |                                       |        |        |       |        |     |        |       |        |     |        |       |        |     |       |       |        |     |       |     |       |  
|------------------------------------------------------------------------------- | -------------------------------------------- | ------------------------------------- | ------ | ------ | ----- | ------ | --- | ------ | ----- | ------ | --- | ------ | ----- | ------ | --- | ----- | ----- | ------ | --- | ----- | --- | ----- | -
|                                                                                |                                              |                                      
|                                                                                |                                              | At or For the Year Ended December 31,
|                                                                                |                                              |                                      
|                                                                                |                                              | 2003                                  |        | 2002   |       | 2001   |     | 2000   |       | 1999  
|                                                                                |                                              |                                       |        |        |       |        |     |        |       |       
|                                                                                |                                              |                                      
|                                                                                |                                              | (Dollars in thousands)               
|Allowance for loan and lease losses by
    category:                            |                                              |                                       |        |        |       |        |     |        |       |        |     |        |       |        |     |       |       |        |     |      
|                                                                                | Commercial, financial and agricultural loans |                                       | $      | 20,571 |       |        | $   | 17,942 |       |        | $   | 11,198 |       |        | $   | 4,370 |       |        | $   | 5,634 |    
|                                                                                | Real estate mortgage loans                   |                                       |        | 31,445 |       |        |     | 23,150 |       |        |     | 2,872  |       |        |     | 2,462 |       |        |     | 1,194 |    
|                                                                                | Consumer loans                               |                                       |        | 809    |       |        |     | 2,067  |       |        |     | 2,309  |       |        |     | 2,226 |       |        |     | 1,270 |    
|                                                                                | Lease financing:                             |                                       |        |        |       |        |     |        |       |        |     |        |       |        |     |       |       |        |     |       |    
|                                                                                |                                              | Domestic                              |        |        | 8,443 |        |     |        | 5,953 |        |     |        | 4,527 |        |     |       | 2,325 |        |     |       | 457 |      
|                                                                                |                                              | Canadian                              |        |        | 3,017 |        |     |        | 1,824 |        |     |        | 1,377 |        |     |       | 1,746 |        |     |       |    |      
|                                                                                |                                              |                                       |        |        |       |        |     |        |       |        |     |        |       |        |     |       |       |        |     |      
|                                                                                |                                              |                                       | Totals |        | $     | 64,285 |     |        | $     | 50,936 |     |        | $     | 22,283 |     |       | $     | 13,129 |     |       | $   | 8,555 |  
|                                                                                |                                              |                                       |        |        |       |        |     |        |       |        |     |        |       |        |     |       |       |        |     |      
|Percent of loans and leases to total loans and
    leases by category to total: |                                              |                                       |        |        |       |        |     |        |       |        |     |        |       |        |     |       |       |        |     |      
|                                                                                | Commercial, financial and agricultural loans |                                       |        | 47     | %     |        |     | 48     | %     |        |     | 49     | %     |        |     | 55    | %     |        |     | 61    | %  
|                                                                                | Real estate mortgage loans                   |                                       |        | 37     |       |        |     | 39     |       |        |     | 36     |       |        |     | 28    |       |        |     | 32    |    
|                                                                                | Consumer loans                               |                                       |        | 1      |       |        |     | 1      |       |        |     | 2      |       |        |     | 4     |       |        |     | 7     |    
|                                                                                | Lease financing:                             |                                       |        |        |       |        |     |        |       |        |     |        |       |        |     |       |       |        |     |       |    
|                                                                                |                                              | Domestic                              |        |        | 9     |        |     |        | 8     |        |     |        | 9     |        |     |       | 8     |        |     |       |    |      
|                                                                                |                                              | Canadian                              |        |        | 6     |        |     |        | 4     |        |     |        | 4     |        |     |       | 5     |        |     |       |    |      
|                                                                                |                                              |                                       |        |        |       |        |     |        |       |        |     |        |       |        |     |       |       |        |     |      
|                                                                                |                                              |                                       | Totals |        |       | 100    | %   |        |       | 100    | %   |        |       | 100    | %   |       |       | 100    | %   |       |     | 100   | %
|                                                                                |                                              |                                       |        |        |       |        |     |        |       |        |     |        |       |        |     |       |       |        |     |      
|Ratios:                                                                         |                                              |                                       |        |        |       |        |     |        |       |        |     |        |       |        |     |       |       |        |     |      
|Net charge-offs to average loans and
    leases(1)                              |                                              |                                       | 1.1    | %      |       |        | 0.7 | %      |       |        | 0.7 | %      |       |        | 0.3 | %     |       |        | 0.3 | %    
|Allowance for loan and lease losses to loans and
    leases outstanding         |                                              |                                       | 2.0    | %      |       |        | 1.8 | %      |       |        | 1.0 | %      |       |        | 1.1 | %     |       |        | 1.2 | %    



---



|    |                                                                                                                                                                                                                                                           
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Included in 2002 and 2001 charge-offs were
    $3.9 million and $2.3 million, respectively, of
    charge-offs at the home equity lending line of business not
    charged against the allowance for loan and lease losses. See
    discussion on page 62.

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

|                                                             |          |                                      |        |       |        |      |        |       |        |      |        |       |        |   |       |       |        |   |       |    |        | 
|------------------------------------------------------------ | -------- | ------------------------------------ | ------ | ----- | ------ | ---- | ------ | ----- | ------ | ---- | ------ | ----- | ------ | - | ----- | ----- | ------ | - | ----- | -- | ------ | 
|                                                             |          |                                     
|                                                             |          | December 31,                        
|                                                             |          |                                     
|                                                             |          | 2003                                 |        | 2002  |        | 2001 |        | 2000  |        | 1999
|                                                             |          |                                      |        |       |        |      |        |       |        |     
|                                                             |          |                                     
|                                                             |          | (Dollars in thousands)              
|Accruing loans past due 90 days or
    more:                 |          |                                      |        |       |        |      |        |       |        |      |        |       |        |   |       |       |        |   |       |   
|Commercial, financial and agricultural loans                 |          | $                                    | 4,172  |       |        | $    | 30     |       |        | $    | 1,146  |       |        | $ | 324   |       |        | $ | 58    |   
|Real estate mortgages                                        |          |                                      |       |       |        |      |       |       |        |      |       |       |        |   |      |       |        |   |      |   
|Consumer loans                                               |          |                                      | 226    |       |        |      | 688    |       |        |      | 157    |       |        |   | 510   |       |        |   | 89    |   
|Lease financing:                                             |          |                                      |        |       |        |      |        |       |        |      |        |       |        |   |       |       |        |   |       |   
|                                                             | Domestic |                                      |        | 159   |        |      |        | 220   |        |      |        | 1,624 |        |   |       | 627   |        |   |       |   |       
|                                                             | Canadian |                                      |        | 70    |        |      |        | 143   |        |      |        | 68    |        |   |       |      |        |   |       |   |       
|                                                             |          |                                      |        |       |        |      |        |       |        |      |        |       |        |   |       |       |        |   |       |   
|                                                             |          |                                      | 4,627  |       |        |      | 1,081  |       |        |      | 2,995  |       |        |   | 1,461 |       |        |   | 147   |   
|                                                             |          |                                      |        |       |        |      |        |       |        |      |        |       |        |   |       |       |        |   |       |   
|Nonaccrual loans and leases:                                 |          |                                      |        |       |        |      |        |       |        |      |        |       |        |   |       |       |        |   |       |   
|Commercial, financial and agricultural loans                 |          |                                      | 20,447 |       |        |      | 13,798 |       |        |      | 5,066  |       |        |   | 752   |       |        |   | 748   |   
|Real estate mortgages                                        |          |                                      | 14,663 |       |        |      | 11,308 |       |        |      | 8,115  |       |        |   | 1,922 |       |        |   | 3,250 |   
|Consumer loans                                               |          |                                      | 769    |       |        |      | 454    |       |        |      | 708    |       |        |   | 918   |       |        |   | 273   |   
|Lease financing:                                             |          |                                      |        |       |        |      |        |       |        |      |        |       |        |   |       |       |        |   |       |   
|                                                             | Domestic |                                      |        | 1,916 |        |      |        | 3,415 |        |      |        | 1,180 |        |   |       | 960   |        |   |       | 88 |       
|                                                             | Canadian |                                      |        | 1,943 |        |      |        | 1,077 |        |      |        | 1,088 |        |   |       | 1,209 |        |   |       |   |       
|                                                             |          |                                      |        |       |        |      |        |       |        |      |        |       |        |   |       |       |        |   |       |   
|                                                             |          |                                      | 39,738 |       |        |      | 30,052 |       |        |      | 16,157 |       |        |   | 5,761 |       |        |   | 4,359 |   
|                                                             |          |                                      |        |       |        |      |        |       |        |      |        |       |        |   |       |       |        |   |       |   
|                                                             |          | Total nonperforming loans and leases |        |       | 44,365 |      |        |       | 31,133 |      |        |       | 19,152 |   |       |       | 7,222  |   |       |    | 4,506  | 
|                                                             |          |                                      |        |       |        |      |        |       |        |      |        |       |        |   |       |       |        |   |       |   
|Nonperforming loans held for sale not guaranteed             |          |                                      | 1,695  |       |        |      | 1,201  |       |        |      | 1,562  |       |        |   | 3,959 |       |        |   | 3,580 |   
|Other real estate owned                                      |          |                                      | 6,431  |       |        |      | 5,272  |       |        |      | 4,388  |       |        |   | 2,833 |       |        |   | 3,752 |   
|                                                             |          |                                      |        |       |        |      |        |       |        |      |        |       |        |   |       |       |        |   |       |   
|                                                             |          | Total nonperforming assets           |        | $     | 52,491 |      |        | $     | 37,606 |      |        | $     | 25,102 |   |       | $     | 14,014 |   |       | $  | 11,838 | 
|                                                             |          |                                      |        |       |        |      |        |       |        |      |        |       |        |   |       |       |        |   |       |   
|Nonperforming loans and leases to total loans and
    leases |          |                                      | 1.4    | %     |        |      | 1.1    | %     |        |      | 0.9    | %     |        |   | 0.6   | %     |        |   | 0.6   | % 
|                                                             |          |                                      |        |       |        |      |        |       |        |      |        |       |        |   |       |       |        |   |       |   
|Nonperforming assets to total assets                         |          |                                      | 1.1    | %     |        |      | 0.8    | %     |        |      | 0.7    | %     |        |   | 0.6   | %     |        |   | 0.7   | % 
|                                                             |          |                                      |        |       |        |      |        |       |        |      |        |       |        |   |       |       |        |   |       |   

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

Loans that are past due 90 days or more are
placed on nonaccrual status unless, in managements
opinion, there is sufficient collateral value to offset both
principal and interest. The $52.5 million of nonperforming
assets at December 31, 2003, were concentrated at our lines
of business as follows:

|                      |  |   |      | 
|--------------------- |  | - | ---- | 
| Mortgage banking    |  | $ | 6.8  | 
| Commercial banking  |  |   | 26.6 | 
| Home equity lending |  |   | 15.0 | 
| Commercial finance  |  |   | 4.1  | 

Interest income of approximately
$2.9 million would have been recorded during 2003 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 2003 on nonaccrual and restructured loans was
approximately $0.9 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 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 via daily interaction with the lines of
business and periodic liquidity planning sessions. Since loans
are generally 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, 2003, the ratio of loans and loans held for
sale to total deposits was 139%. 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 first mortgage loans carry an interest
rate at or near current market rates for first mortgage loans
and are generally sold within a short period. The loans and
leases financed through matched-term secured financings are not
subject to meaningful liquidity risk. Excluding these two items,
our loans to deposit ratio at December 31, 2003 was 94%.

As disclosed in the footnotes to the Consolidated
Financial Statements, we have certain obligations to make future
payments under contracts. At December 31, 2003, the
aggregate contractual obligations are:

|                                   |       |                        |           |                  |  |           |           |               |  |   |         |         |  |   |         |         | 
|---------------------------------- | ----- | ---------------------- | --------- | ---------------- |  | --------- | --------- | ------------- |  | - | ------- | ------- |  | - | ------- | ------- | 
|                                   |       |                       
|                                   |       | Payments Due by Period
|                                   |       |                       
|Contractual Obligations            |       | Total                  |           | Less Than 1 Year |  | 1-5 Years |           | After 5 Years
|                                   |       |                        |           |                  |  |           |           |              
|                                   |       |                       
|                                   |       | (Dollars in thousands)
|Deposits with contractual maturity |       | $                      | 907,578   |                  |  | $         | 582,905   |               |  | $ | 309,644 |         |  | $ | 15,029  |        
|Deposits without a stated maturity |       |                        | 1,992,084 |                  |  |           | 1,992,084 |               |  |   |        |         |  |   |        |        
|Short-term borrowings              |       |                        | 429,758   |                  |  |           | 428,758   |               |  |   |        |         |  |   | 1,000   |        
|Collateralized borrowing           |       |                        | 590,131   |                  |  |           | 233,524   |               |  |   | 325,489 |         |  |   | 31,118  |        
|Other long-term debt               |       |                        | 270,184   |                  |  |           | 59        |               |  |   |        |         |  |   | 270,125 |        
|Operating leases                   |       |                        | 62,522    |                  |  |           | 17,243    |               |  |   | 35,640  |         |  |   | 9,639   |        
|                                   |       |                        |           |                  |  |           |           |               |  |   |         |         |  |   |         |        
|                                   | Total |                        | $         | 4,252,257        |  |           | $         | 3,254,573     |  |   | $       | 670,773 |  |   | $       | 326,911 | 
|                                   |       |                        |           |                  |  |           |           |               |  |   |         |         |  |   |         |        

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 suggests 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
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 2003, the home equity lending line of
business produced $1.1 billion and the sum of home equity
loan sales and secured financings totaled $1.0 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 and 2003 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 and escrow account deposits. Non-maturity transaction
account deposits are generated by our commercial banking line of
business and include deposits made 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 remain for much longer. At
December 31, 2003, these deposit types totaled
$1.1 billion, an increase of $0.2 billion from
December 31, 2002.

Certificates of deposit (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. As of December 31, 2003, CDs
issued directly to customers totaled $0.5 billion, which
was level with December 31, 2002. Brokered CDs are
typically considered to have higher liquidity 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, 2003, and had an average remaining life of
18 months as compared to $0.3 billion outstanding with
a 22 month average remaining life at December 31, 2002.

Escrow account deposits are related to the
servicing of our originated 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, 2003, these escrow
balances totaled $0.6 billion, which was level with
December 31, 2002.

Short-term borrowings consist of borrowings from
several sources. Our largest borrowing source is the Federal
Home Loan Bank of Indianapolis (FHLBI), of which we are an
active member. We utilize their collateralized borrowing
programs to help fund qualifying first mortgage, home equity and
commercial real estate loans. As of December 31, 2003,
FHLBI borrowings outstanding totaled $0.3 billion, a
$0.2 billion decrease from December 31, 2002. We had
sufficient collateral pledged to FHLBI at December 31, 2003
to borrow an additional $0.4 billion, if needed.

In addition to borrowings from the FHLBI, we use
other lines of credit as needed. At December 31, 2003, 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                                            
|
| |  | Warehouse borrowing facilities to fund first
    mortgage loans: $1 million outstanding on a
    $150 million borrowing facility  committed
    facility renewed in February 2004
|
| |  | Lines of credit with correspondent banks,
    including fed funds lines: $54 million outstanding out of
    $205 million available                                                
|
| |  | Line of credit with a correspondent bank
    collateralized by mortgage servicing rights: none outstanding
    out of $75 million committed borrowing facility                    

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In addition to short term borrowings from the
aforementioned credit lines, sale facilities are used to effect
sale of Government Sponsored Enterprise (GSE) conforming first
mortgage loans before scheduled GSE settlement dates. The first
two of these sale facilities listed below have specific dollar
limits as noted. The size of the third facility is limited only
by the amount of mortgage-backed securities we can package for
purchase by the facility provider. At December 31, 2003,
the amount unsettled by the GSE on these facilities and the
total facility amount were as follows:



| |   |                                                                                                                                 
| | - | --------------------------------------------------------------------------------------------------------------------------------
| |  | Warehouse sale facility: $229 million
    unsettled on a $600 million facility  committed
    facility renewed in February 2004
|
| |  | Uncommitted warehouse sale facility:
    $42 million unsettled on a $150 million facility                                       
|
| |  | Investor warehouse sale facility: none 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 can
also arise when fixed rate assets are funded with variable rate
liabilities or vice versa. 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 monitors the repricing structure
of assets, liabilities and off-balance sheet items and uses a
financial simulation model to measure interest rate risk over
multiple interest rate scenarios. Our parent company ALMC
oversees the interest rate risk profile of all of our lines of
business as a whole and is represented on each of the line of
business ALMCs. We incorporate many factors into the financial
model, including prepayment speeds, net interest margin, 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 pricing structure of their loans and leases, and manage
this risk by adjusting the duration of their interest sensitive
liabilities and through the use of derivative instruments.

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 the time
we lock a loan rate to the customer and the time we sell the
loan, the mortgage banking line of business enters into
derivatives in the form of commitments to deliver loans at a
fixed price. Since not all rate-locks result in loans, we only
hedge the percentage of rate locks that we believe will result
in loan originations. Our home equity business originates a much
smaller volume of first mortgage loans than our mortgage banking
line of business, but has begun to use derivative instruments to
manage its funded first mortgage originations from the time of
origination until a price to sell the loan is locked-in.

Our mortgage, commercial banking and home equity
lending lines of business also are exposed to the risk that
interest rates will decline, 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 differences
between the recognition of gains or losses on financial
derivatives and the realization of economic gains or losses on
certain offsetting exposures (e.g., strong production
operations), our decisions on the degree to which we manage risk
with derivative instruments to insulate against short-term price
volatility depends on a variety of factors, including:



| |   |                                                                  
| | - | -----------------------------------------------------------------
| |  | the type of risk we are trying to mitigate;                      
|
| |  | offsetting factors elsewhere in the Corporation;                 
|
| |  | the level of current capital above our target
    minimums;      
|
| |  | time remaining in the quarter (i.e., days until
    quarter-end);

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| |   |                                                                                                                                                                               
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | current level of derivative gain or loss relative
    to accounting and economic basis;                                                                                       
|
| |  | basis risk: the degree to which the interest
    rates underlying our derivative instruments might not move
    parallel to the interest rate driving our asset valuation; 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.             

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, 2003. 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, 2003, although certain accounts
such as Official Checks and Due From 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 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 dynamic hedging actions that
might be taken in the future under asset/liability management.

Specifically, the volume of derivative contracts
used to manage the risk of mortgage servicing assets fluctuates,
depending upon market conditions, the size of our mortgage
servicing asset portfolio and various additional factors. We
monitor derivative positions frequently and rebalance them as
needed. It is unlikely that the volume of derivative positions
would remain constant over large fluctuations in interest rates,
although the tables below assume they do. Mortgage servicing
asset risk management derivative contracts appear under the
category Interest Sensitive Financial Derivatives in
the tables below. As can be seen in the tables, the interest
sensitivity of MSAs, net of the impact of Financial Derivatives,
dominates the Corporations interest rate risk profile.
Therefore, it is important to reiterate that our mortgage
servicing asset risk management strategy is dynamic in that we
adjust our derivative instruments as we deem appropriate,
whereas the tables below reflect derivative instruments as if
they will remain static over all interest rate scenarios.

Modeling the change in the market value of equity
value based upon interest rate changes requires many other
assumptions and modeling choices as well. For the tables below,
which use the December 31, 2003 balance sheet, we have
implemented changes in several aspects of our modeling as
compared to the December 31, 2002 summary figures, which
are shown at the bottom of each table. The two most significant
changes are as follows:



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1. Expected cash flows for commercial loans
    and unsold, unsecuritized home equity loans are now valued
    assuming no defaults occur and utilize a discount factor which
    approximates a full credit spread over the Swap/ LIBOR curve.
    Previously, these loans were modeled with default assumptions,
    but with cash flows discounted at lower rates. We believe the
    new methodology more accurately reflects our interest rate risk.

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| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 2. In order to model non-maturity
    transaction deposit accounts such as Checking, Savings and Money
    Market accounts, we are required to forecast the rates that will
    be paid on these accounts as interest rates rise and fall. We
    have refocused our rate forecasting methodology with an
    increased emphasis on the current market environment and
    expected spread relationships between short-term benchmark
    rates, such as the Fed Funds rate, Treasury Bills or LIBOR, and
    our deposit rates. The current methodology reflects larger
    changes in deposit values as interest rates rise and fall as
    compared to the methodology applied at December 31, 2002.

In addition to the changes discussed in item 1
above, we have implemented many other less significant
improvements to our valuation model. One further example applies
to home equity loans. We now utilize prepayment speed estimates
provided by an outside vendor that we believe better estimate
expected prepayment speeds at various interest rate levels. Also
related to prepayment speed forecasting, we have enhanced our
interest rate risk modeling to better capture prepayment premium
income that we collect when certain home equity loans prepay.

Economic Value Change Method

|                                         |  |                                     |            |     |  |         |            |     |  |     |            |   |  |   |            |   |  |   |            |  
|---------------------------------------- |  | ----------------------------------- | ---------- | --- |  | ------- | ---------- | --- |  | --- | ---------- | - |  | - | ---------- | - |  | - | ---------- | -
|                                         |  |                                    
|                                         |  | Present Value at December 31, 2003,
|                                         |  | Change in Interest Rates of:       
|                                         |  |                                    
|                                         |  | -2%                                 |            | -1% |  | Current |            | +1% |  | +2%
|                                         |  |                                     |            |     |  |         |            |     |  |    
|                                         |  |                                    
|                                         |  | (Dollars in thousands)             
|Interest Sensitive Assets                |  |                                     |            |     |  |         |            |     |  |     |            |   |  |   |            |   |  |   |            |  
|Loans and other assets                   |  | $                                   | 3,453,288  |     |  | $       | 3,421,142  |     |  | $   | 3,385,040  |   |  | $ | 3,350,354  |   |  | $ | 3,313,207  |  
|Loans held for sale                      |  |                                     | 894,933    |     |  |         | 891,342    |     |  |     | 884,803    |   |  |   | 880,037    |   |  |   | 873,035    |  
|Mortgage servicing rights                |  |                                     | 173,392    |     |  |         | 237,872    |     |  |     | 390,804    |   |  |   | 540,952    |   |  |   | 611,907    |  
|Residual interests                       |  |                                     | 75,161     |     |  |         | 73,922     |     |  |     | 71,491     |   |  |   | 68,829     |   |  |   | 65,212     |  
|Interest sensitive financial derivatives |  |                                     | 127,687    |     |  |         | 108,975    |     |  |     | (22,099    | ) |  |   | (90,356    | ) |  |   | (153,868   | )
|                                         |  |                                     |            |     |  |         |            |     |  |     |            |   |  |   |            |   |  |   |            |  
|Total interest sensitive assets          |  |                                     | 4,724,461  |     |  |         | 4,733,253  |     |  |     | 4,710,039  |   |  |   | 4,749,816  |   |  |   | 4,709,493  |  
|                                         |  |                                     |            |     |  |         |            |     |  |     |            |   |  |   |            |   |  |   |            |  
|Interest Sensitive Liabilities           |  |                                     |            |     |  |         |            |     |  |     |            |   |  |   |            |   |  |   |            |  
|Deposits                                 |  |                                     | (2,907,674 | )   |  |         | (2,890,246 | )   |  |     | (2,871,552 | ) |  |   | (2,853,904 | ) |  |   | (2,836,736 | )
|Short-term borrowings(1)                 |  |                                     | (531,830   | )   |  |         | (531,723   | )   |  |     | (531,298   | ) |  |   | (530,877   | ) |  |   | (530,456   | )
|Long-term debt                           |  |                                     | (753,361   | )   |  |         | (743,361   | )   |  |     | (731,739   | ) |  |   | (719,054   | ) |  |   | (706,510   | )
|                                         |  |                                     |            |     |  |         |            |     |  |     |            |   |  |   |            |   |  |   |            |  
|Total interest sensitive liabilities     |  |                                     | (4,192,865 | )   |  |         | (4,165,330 | )   |  |     | (4,134,589 | ) |  |   | (4,103,835 | ) |  |   | (4,073,702 | )
|                                         |  |                                     |            |     |  |         |            |     |  |     |            |   |  |   |            |   |  |   |            |  
|Net market value as of December 31, 2003 |  | $                                   | 531,596    |     |  | $       | 567,923    |     |  | $   | 575,450    |   |  | $ | 645,981    |   |  | $ | 635,791    |  
|                                         |  |                                     |            |     |  |         |            |     |  |     |            |   |  |   |            |   |  |   |            |  
|Change from current                      |  | $                                   | (43,854    | )   |  | $       | (7,527     | )   |  | $   |           |   |  | $ | 70,531     |   |  | $ | 60,341     |  
|                                         |  |                                     |            |     |  |         |            |     |  |     |            |   |  |   |            |   |  |   |            |  
|Net market value as of December 31, 2002 |  | $                                   | 449,493    |     |  | $       | 444,059    |     |  | $   | 456,510    |   |  | $ | 518,260    |   |  | $ | 534,107    |  
|                                         |  |                                     |            |     |  |         |            |     |  |     |            |   |  |   |            |   |  |   |            |  
|Potential change                         |  | $                                   | (7,017     | )   |  | $       | (12,451    | )   |  | $   |           |   |  | $ | 61,750     |   |  | $ | 77,597     |  
|                                         |  |                                     |            |     |  |         |            |     |  |     |            |   |  |   |            |   |  |   |            |  



---



|    |                                                                                                          
|--- | ---------------------------------------------------------------------------------------------------------
|(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, 2003,
|                                         |  | Change in Interest Rates of:       
|                                         |  |                                    
|                                         |  | -2%                                 |           | -1% |  | Current |           | +1% |  | +2%
|                                         |  |                                     |           |     |  |         |           |     |  |    
|                                         |  |                                    
|                                         |  | (Dollars in thousands)             
|Interest Sensitive Assets                |  |                                     |           |     |  |         |           |     |  |     |           |   |  |   |           |   |  |   |           |  
|Loans and other assets(1)                |  | $                                   |          |     |  | $       |          |     |  | $   |          |   |  | $ |          |   |  | $ |          |  
|Loans held for sale                      |  |                                     | 883,895   |     |  |         | 883,895   |     |  |     | 883,895   |   |  |   | 879,151   |   |  |   | 872,168   |  
|Mortgage servicing rights                |  |                                     | 173,564   |     |  |         | 236,989   |     |  |     | 380,123   |   |  |   | 422,066   |   |  |   | 439,133   |  
|Residual interests                       |  |                                     | 75,161    |     |  |         | 73,923    |     |  |     | 71,491    |   |  |   | 68,830    |   |  |   | 65,212    |  
|Interest sensitive financial derivatives |  |                                     | 127,687   |     |  |         | 108,975   |     |  |     | (22,099   | ) |  |   | (90,356   | ) |  |   | (153,868  | )
|                                         |  |                                     |           |     |  |         |           |     |  |     |           |   |  |   |           |   |  |   |           |  
|Total interest sensitive assets          |  |                                     | 1,260,307 |     |  |         | 1,303,782 |     |  |     | 1,313,410 |   |  |   | 1,279,691 |   |  |   | 1,222,645 |  
|                                         |  |                                     |           |     |  |         |           |     |  |     |           |   |  |   |           |   |  |   |           |  
|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, 2003 |  | $                                   | 1,260,307 |     |  | $       | 1,303,782 |     |  | $   | 1,313,410 |   |  | $ | 1,279,691 |   |  | $ | 1,222,645 |  
|                                         |  |                                     |           |     |  |         |           |     |  |     |           |   |  |   |           |   |  |   |           |  
|Change from current                      |  | $                                   | (53,103   | )   |  | $       | (9,628    | )   |  | $   |          |   |  | $ | (33,719   | ) |  | $ | (90,765   | )
|                                         |  |                                     |           |     |  |         |           |     |  |     |           |   |  |   |           |   |  |   |           |  
|Net market value as of December 31, 2002 |  | $                                   | 1,618,460 |     |  | $       | 1,629,506 |     |  | $   | 1,656,461 |   |  | $ | 1,722,027 |   |  | $ | 1,715,012 |  
|                                         |  |                                     |           |     |  |         |           |     |  |     |           |   |  |   |           |   |  |   |           |  
|Potential change                         |  | $                                   | (38,001   | )   |  | $       | (26,955   | )   |  | $   |          |   |  | $ | 65,566    |   |  | $ | 58,551    |  
|                                         |  |                                     |           |     |  |         |           |     |  |     |           |   |  |   |           |   |  |   |           |  



---



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

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

Our Board of Directors has ultimate
accountability for the level of operational risk assumed by us.
The Board guides management by approving our business strategy
and significant policies. Our management and Board have also
established and continue to improve a control environment that
encourages a high degree of awareness and 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 new
enterprise-wide operational risk oversight function reports to
the Audit and Risk Management Committee of our Board of
Directors and to our Enterprise-Wide Risk Management Committee,
which is led by the Chairman of the Board of Directors. We
recently established an enterprise-wide compliance oversight
function to devote increased attention and resources to banking
regulatory compliance as we have grown more complex and as our
home equity, commercial finance and mortgage banking businesses
are now all being conducted under Irwin Union Bank and Trust
Company. The compliance oversight function

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reports to our Chief Risk Officer, who in turn
reports to the Audit and Risk Management Committee of the Board
of Directors.


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

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, 2003 and 2002, respectively,
were $546.5 million and $495.6 million. These loan
commitments include $418.6 million of floating rate loan
commitments and $127.9 million of fixed rate loan
commitments. We had $30.8 million and $24.6 million in
irrevocable standby letters of credit outstanding at
December 31, 2003 and 2002, 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 consolidated income statements. While we do not seek hedge
accounting treatment for the assets that these instruments are
hedging, the economic purpose of these instruments is to manage
the risk inherent in existing exposures to either interest rate
risk or foreign currency risk.

We 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, 2003. 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 gain of $0.3 million included in other income
during the year ended December 31, 2003 related to this
swap.

We enter into forward contracts to protect
against interest rate fluctuations from the date of mortgage
loan commitment until the loans are sold. At December 31,
2003, we designated the portion of these transactions hedging
the closed mortgage loans as hedges that qualify for hedge
accounting treatment under SFAS 133. The notional amount of
our forward contracts (which does not represent the amount at
risk) totaled $0.9 billion and $2.2 billion at
December 31, 2003 and 2002, respectively. 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, 2003 was
$3.2 million and the hedge

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ineffectiveness for the year then ended was a
loss of $16.2 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 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 and are
recorded at fair value. We value these commitments at period end
based upon the current secondary market value of securities with
similar characteristics. A net decrease in fair value of these
derivatives totaling $27.6 million was recorded in 2003 as
gain from sale of loans. At December 31, 2003, we had a
notional amount of rate lock commitments outstanding totaling
$0.7 billion with a fair value of $3.8 million.
Notional amounts do not represent the amount of risk.

Our commercial finance line of business has, on
four occasions in 2003, delivered fixed rate leases into
conduits that fund them using floating rate commercial paper,
which creates an interest rate risk mismatch.



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | In two instances, this funding mismatch is hedged
    with 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 year end, the
    notional value and year-to-date loss on the interest rate caps
    were $47.8 million and $0.1 million, respectively. In
    addition, we also used Eurodollar futures contracts to hedge
    rate risk in this structure. As of December 31, 2003, the
    total notional amount and year-to-date gain on the Eurodollar
    futures were $120.0 million and $0.1 million,
    respectively.
|
| |  | In the fourth quarter of 2003, we delivered fixed
    rate leases into a second commercial paper conduit. Although the
    leases and funding were in Canadian dollars (CAD), the interest
    rate mismatch was similar in nature to that described above. To
    hedge the mismatch between fixed rate CAD-denominated leases and
    floating rate CAD commercial paper, we entered into an
    amortizing CAD interest rate swap in which we pay a fixed rate
    of interest and receive a floating rate. The
    U.S. dollar-equivalents of the CAD-based notional and
    year-to-date gain on these swaps at December 31, 2003 were
    $74.5 million and $33 thousand, respectively.               

Our home equity line of business originates a
relatively small amount of first mortgage loans. We enter into
forward commitments to protect against interest rate fluctuation
between the date of origination until a sale price is locked in.
These loans are typically sold within a month of origination. As
of year end, we had outstanding commitments with a notional
amount of $2.4 million. We recorded a derivative loss on
this activity of $0.2 million in 2003.

Certain of our home equity fixed rate residual
interests are funded with floating rate liabilities. To manage
such mismatches, we own three interest rate caps, which had a
fair value of $0.4 million and a notional amount of
$57.4 million at December 31, 2003. We classify
interest rate caps as other assets on the consolidated balance
sheets and carry them at their fair values. Two of the interest
rate caps qualify for cash flow hedge accounting treatment under
SFAS 133. As a result, a negative adjustment to fair value
of $25 thousand net of tax on these cash flow derivatives
was recorded through accumulated other comprehensive income in
2003. We record adjustments to fair value for the third interest
rate cap, which does not qualify for hedge accounting, as other
income on the consolidated income statements. For the year ended
December 31, 2003, we recorded a $14 thousand loss
related to this derivative product.

We manage the interest rate risk associated with
our mortgage servicing rights through the use of Eurodollar
futures contracts and interest rate options. The financial
instrument underlying the Eurodollar futures contracts is based
on the three-month LIBOR rate. For the year ended
December 31, 2003, we recorded losses of $0.3 million
on these derivatives. Both the futures contracts and options
were marked-to-market and included in other assets with changes
in value recorded in the consolidated income statements as
derivative gains. At December 31, 2003, we held
$8 billion in notional amount of Eurodollar contracts, with
expirations that ranged from the first quarter of 2004 to the
fourth quarter of 2009. We also held open swaption positions
with a notional value totaling $10 billion at
December 31, 2003, with a final maturity of January 2,
2004. For the year ended December 31, 2003, we recorded
losses on swaptions, including premiums paid, totaling
$21.2 million. The size and mix of these positions change
during the year, so period-end

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positions may not be indicative of our net risk
exposure throughout the year. Notional amounts do not represent
the amount at risk.


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 $79.1 million in
forward contracts outstanding as of December 31, 2003. For
the year ended December 31, 2003, we recognized losses on
these contracts of $23.0 million. These contracts are
marked-to-market with gains and losses included in other expense
on the consolidated income statements. The foreign currency
transaction gain on the intercompany loans was
$22.2 million during the year ended December 31, 2003.






|         |                                                               
|-------- | --------------------------------------------------------------
|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 65 through 69.






|        |                     
|------- | --------------------
|Item 8. | Financial Statements



| |                                                                
| | ---------------------------------------------------------------
| | 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 certified public
accountants. Management has made available to
PricewaterhouseCoopers 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 during its audit were valid and
appropriate.

Our management has established and maintains a
system of internal control that provides reasonable, but not
absolute, assurance as to the integrity and reliability of the
financial statements, the protection of assets from unauthorized
use or disposition, and the prevention and detection of
fraudulent financial reporting. Assessments of the system of
internal control are based on criteria for effective internal
control over financial reporting described in Internal
Control-Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission. Management
continually monitors the system of internal control for
compliance. Management has developed Risk and Control Summaries
(RACs) for all significant operating and reporting processes in
the Corporation. These RACs describe and address the risk
controls we have in place and identify areas of potential
weakness. The RACs form the basis of our efforts to assess
internal controls as required under Sarbanes-Oxley
section 404a. Irwin Financial maintains an internal
auditing program that independently (reporting directly to the
Audit Risk and Management Committee of the Board of Directors)
assesses the effectiveness of the internal controls and
recommends possible improvements. In addition, as part of its
audit of our financial statements, PricewaterhouseCoopers
completed an assessment of selected internal accounting controls
to establish a basis for reliance on these controls in
determining the nature, timing, and extent of audit-tests to be
applied. Management has considered the internal auditors
and PricewaterhouseCoopers recommendations concerning our
system of internal control and has taken actions to respond
appropriately to these recommendations that we believe are cost
effective in the circumstances. Management believes that our
system of internal control is adequate to accomplish the
objectives discussed herein.

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Management also recognized 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 AUDITORS

To the Shareholders and Board of Directors of

Irwin Financial Corporation


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, 2003 and 2002, and the results of their
operations and their cash flows for each of the three years in
the period ended December 31, 2003 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
auditing standards generally accepted in the United States of
America, which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.

-s- PricewaterhouseCoopers LLP

Chicago, Illinois


February 19, 2004


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IRWIN FINANCIAL CORPORATION AND
SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

|                                                                                                           |                                                                                                                                                                                                                                                                                   |                        |                                            |           |           |           |           |           |           |           |  
|---------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------- | ------------------------------------------ | --------- | --------- | --------- | --------- | --------- | --------- | --------- | -
|                                                                                                           |                                                                                                                                                                                                                                                                                   |                       
|                                                                                                           |                                                                                                                                                                                                                                                                                   | December 31,          
|                                                                                                           |                                                                                                                                                                                                                                                                                   |                       
|                                                                                                           |                                                                                                                                                                                                                                                                                   | 2003                   |                                            | 2002     
|                                                                                                           |                                                                                                                                                                                                                                                                                   |                        |                                            |          
|                                                                                                           |                                                                                                                                                                                                                                                                                   |                       
|                                                                                                           |                                                                                                                                                                                                                                                                                   | (Dollars in thousands)
|Assets:                                                                                                    |                                                                                                                                                                                                                                                                                   |                        |                                            |           |           |           |           |          
|Cash and cash equivalents  Note 2                                                                         |                                                                                                                                                                                                                                                                                   | $                      | 140,810                                    |           |           | $         | 157,771   |          
|Interest-bearing deposits with financial
    institutions                                                  |                                                                                                                                                                                                                                                                                   |                        | 81,166                                     |           |           |           | 34,418    |          
|Residual interests  Note 3                                                                                |                                                                                                                                                                                                                                                                                   |                        | 71,491                                     |           |           |           | 157,514   |          
|Investment securities 
    held-to-maturity (Fair value: $24,971 in 2003 and $5,644 in
    2002)  Note 4 |                                                                                                                                                                                                                                                                                   |                        | 24,956                                     |           |           |           | 5,349     |          
|Investment securities 
    available-for-sale  Note 4                                                    |                                                                                                                                                                                                                                                                                   |                        | 67,569                                     |           |           |           | 62,599    |          
|Loans held for sale                                                                                        |                                                                                                                                                                                                                                                                                   |                        | 883,895                                    |           |           |           | 1,314,849 |          
|Loans and leases, net of unearned
    income  Note 5                                                      |                                                                                                                                                                                                                                                                                   |                        | 3,161,054                                  |           |           |           | 2,815,276 |          
|Less: Allowance for loan and lease
    losses  Note 6                                                     |                                                                                                                                                                                                                                                                                   |                        | (64,285                                    | )         |           |           | (50,936   | )        
|                                                                                                           |                                                                                                                                                                                                                                                                                   |                        |                                            |           |           |           |           |          
|                                                                                                           |                                                                                                                                                                                                                                                                                   |                        | 3,096,769                                  |           |           |           | 2,764,340 |          
|Servicing assets  Note 7                                                                                  |                                                                                                                                                                                                                                                                                   |                        | 380,123                                    |           |           |           | 174,935   |          
|Accounts receivable  Note 2                                                                               |                                                                                                                                                                                                                                                                                   |                        | 62,045                                     |           |           |           | 55,928    |          
|Accrued interest receivable                                                                                |                                                                                                                                                                                                                                                                                   |                        | 15,502                                     |           |           |           | 15,263    |          
|Premises and equipment  Note 8                                                                            |                                                                                                                                                                                                                                                                                   |                        | 32,208                                     |           |           |           | 32,398    |          
|Other assets                                                                                               |                                                                                                                                                                                                                                                                                   |                        | 131,825                                    |           |           |           | 135,028   |          
|                                                                                                           |                                                                                                                                                                                                                                                                                   |                        |                                            |           |           |           |           |          
|                                                                                                           |                                                                                                                                                                                                                                                                                   | Total assets           |                                            | $         | 4,988,359 |           |           | $         | 4,910,392 |          
|                                                                                                           |                                                                                                                                                                                                                                                                                   |                        |                                            |           |           |           |           |          
|Liabilities and Shareholders
    Equity:                                                                  |                                                                                                                                                                                                                                                                                   |                        |                                            |           |           |           |           |          
|Deposits                                                                                                   |                                                                                                                                                                                                                                                                                   |                        |                                            |           |           |           |           |          
|                                                                                                           | Noninterest-bearing                                                                                                                                                                                                                                                               |                        | $                                          | 850,529   |           |           | $         | 821,814   |          
|                                                                                                           | Interest-bearing                                                                                                                                                                                                                                                                  |                        |                                            | 1,352,763 |           |           |           | 1,170,126 |          
|                                                                                                           | Certificates of deposit over $100,000                                                                                                                                                                                                                                             |                        |                                            | 696,370   |           |           |           | 701,870   |          
|                                                                                                           |                                                                                                                                                                                                                                                                                   |                        |                                            |           |           |           |           |          
|                                                                                                           |                                                                                                                                                                                                                                                                                   |                        | 2,899,662                                  |           |           |           | 2,693,810 |          
|Short-term borrowings  Note 10                                                                            |                                                                                                                                                                                                                                                                                   |                        | 429,758                                    |           |           |           | 993,124   |          
|Collateralized debt Note 11                                                                               |                                                                                                                                                                                                                                                                                   |                        | 590,131                                    |           |           |           | 391,425   |          
|Other long-term debt  Note 12                                                                             |                                                                                                                                                                                                                                                                                   |                        | 270,184                                    |           |           |           | 30,070    |          
|Company-obligated mandatorily redeemable
    preferred securities of subsidiary trust  Note 12            |                                                                                                                                                                                                                                                                                   |                        |                                           |           |           |           | 233,000   |          
|Other liabilities                                                                                          |                                                                                                                                                                                                                                                                                   |                        | 366,364                                    |           |           |           | 208,408   |          
|                                                                                                           |                                                                                                                                                                                                                                                                                   |                        |                                            |           |           |           |           |          
|                                                                                                           |                                                                                                                                                                                                                                                                                   |                        | Total liabilities                          |           |           | 4,556,099 |           |           |           | 4,549,837 |  
|                                                                                                           |                                                                                                                                                                                                                                                                                   |                        |                                            |           |           |           |           |          
|Commitments and contingencies  Note 13
    and Note 15                                                    |                                                                                                                                                                                                                                                                                   |                        |                                            |           |           |           |           |          
|Shareholders equity                                                                                       |                                                                                                                                                                                                                                                                                   |                        |                                            |           |           |           |           |          
|                                                                                                           | Preferred stock, no par value 
    authorized 4,000,000 shares; none issued                                                                                                                                                                                                      |                        |                                            |          |           |           |           |          |          
|                                                                                                           | Common stock, no par value  authorized
    40,000,000 shares; issued 29,612,080 shares as of
    December 31, 2003 and December 31, 2002, respectively;
    including 1,477,778 and 1,840,623 shares in treasury as of
    December 31, 2003 and December 31, 2002, respectively |                        |                                            | 112,000   |           |           |           | 112,000   |          
|                                                                                                           | Additional paid-in capital                                                                                                                                                                                                                                                        |                        |                                            | 1,264     |           |           |           | 3,606     |          
|                                                                                                           | Deferred compensation                                                                                                                                                                                                                                                             |                        |                                            | (504      | )         |           |           | (240      | )        
|                                                                                                           | Accumulated other comprehensive income (loss),
    net of deferred income tax liability of $120 and benefit of $336
    in 2003 and 2002, respectively                                                                                                                            |                        |                                            | 182       |           |           |           | (1,142    | )        
|                                                                                                           | Retained earnings                                                                                                                                                                                                                                                                 |                        |                                            | 352,647   |           |           |           | 287,662   |          
|                                                                                                           |                                                                                                                                                                                                                                                                                   |                        |                                            |           |           |           |           |          
|                                                                                                           |                                                                                                                                                                                                                                                                                   |                        | 465,589                                    |           |           |           | 401,886   |          
|                                                                                                           |                                                                                                                                                                                                                                                                                   |                        | Less treasury stock, at cost               |           |           | (33,329   | )         |           |           | (41,331   | )
|                                                                                                           |                                                                                                                                                                                                                                                                                   |                        |                                            |           |           |           |           |          
|                                                                                                           |                                                                                                                                                                                                                                                                                   |                        | Total shareholders equity                 |           |           | 432,260   |           |           |           | 360,555   |  
|                                                                                                           |                                                                                                                                                                                                                                                                                   |                        |                                            |           |           |           |           |          
|                                                                                                           |                                                                                                                                                                                                                                                                                   |                        | Total liabilities and shareholders equity |           | $         | 4,988,359 |           |           | $         | 4,910,392 |  
|                                                                                                           |                                                                                                                                                                                                                                                                                   |                        |                                            |           |           |           |           |          

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,
|                                                                                           |                                       |                                
|                                                                                           |                                       | 2003                            |          | 2002   |         | 2001
|                                                                                           |                                       |                                 |          |        |         |     
|                                                                                           |                                       |                                
|                                                                                           |                                       | (Dollars in thousands,         
|                                                                                           |                                       | except for per share)          
|Interest income:                                                                           |                                       |                                 |          |        |         |      |          |          |         |   |         |       
|Loans and leases                                                                           |                                       | $                               | 241,592  |        |         | $    | 218,718  |          |         | $ | 128,458 |       
|Loans held for sale                                                                        |                                       |                                 | 104,350  |        |         |      | 55,336   |          |         |   | 102,383 |       
|Residual interests                                                                         |                                       |                                 | 20,651   |        |         |      | 34,164   |          |         |   | 32,029  |       
|Investment securities                                                                      |                                       |                                 | 4,273    |        |         |      | 3,120    |          |         |   | 5,155   |       
|Federal funds sold                                                                         |                                       |                                 | 118      |        |         |      | 104      |          |         |   | 257     |       
|                                                                                           |                                       |                                 |          |        |         |      |          |          |         |   |         |       
|                                                                                           |                                       | Total interest income           |          |        | 370,984 |      |          |          | 311,442 |   |         |        | 268,282 | 
|                                                                                           |                                       |                                 |          |        |         |      |          |          |         |   |         |       
|Interest expense:                                                                          |                                       |                                 |          |        |         |      |          |          |         |   |         |       
|Deposits                                                                                   |                                       |                                 | 42,365   |        |         |      | 54,361   |          |         |   | 73,340  |       
|Short-term borrowings                                                                      |                                       |                                 | 14,889   |        |         |      | 15,003   |          |         |   | 29,656  |       
|Collateralized debt                                                                        |                                       |                                 | 15,369   |        |         |      | 5,932    |          |         |   |        |       
|Other long-term debt                                                                       |                                       |                                 | 2,325    |        |         |      | 2,699    |          |         |   | 2,320   |       
|Preferred securities distribution                                                          |                                       |                                 | 24,151   |        |         |      | 19,800   |          |         |   | 15,767  |       
|                                                                                           |                                       |                                 |          |        |         |      |          |          |         |   |         |       
|                                                                                           |                                       | Total interest expense          |          |        | 99,099  |      |          |          | 97,795  |   |         |        | 121,083 | 
|                                                                                           |                                       |                                 |          |        |         |      |          |          |         |   |         |       
|Net interest income                                                                        |                                       |                                 | 271,885  |        |         |      | 213,647  |          |         |   | 147,199 |       
|Provision for loan and lease losses 
    Note 6                                           |                                       |                                 | 47,583   |        |         |      | 43,996   |          |         |   | 17,505  |       
|                                                                                           |                                       |                                 |          |        |         |      |          |          |         |   |         |       
|Net interest income after provision for loan and
    lease losses                          |                                       |                                 | 224,302  |        |         |      | 169,651  |          |         |   | 129,694 |       
|                                                                                           |                                       |                                 |          |        |         |      |          |          |         |   |         |       
|Other income:                                                                              |                                       |                                 |          |        |         |      |          |          |         |   |         |       
|Loan servicing fees                                                                        |                                       |                                 | 106,966  |        |         |      | 73,505   |          |         |   | 67,362  |       
|Amortization of servicing assets  Note
    7                                              |                                       |                                 | (135,519 | )      |         |      | (62,191  | )        |         |   | (38,813 | )     
|Recovery (impairment) of servicing
    assets  Note 7                                     |                                       |                                 | 44,516   |        |         |      | (146,370 | )        |         |   | (11,321 | )     
|                                                                                           |                                       |                                 |          |        |         |      |          |          |         |   |         |       
|                                                                                           | Net loan administration income (loss) |                                 |          | 15,963 |         |      |          | (135,056 | )       |   |         | 17,228 |        
|                                                                                           |                                       |                                 |          |        |         |      |          |          |         |   |         |       
|Gain from sales of loans                                                                   |                                       |                                 | 364,644  |        |         |      | 237,729  |          |         |   | 257,873 |       
|(Loss) gain on sale of mortgage servicing assets                                           |                                       |                                 | (271     | )      |         |      | 14,842   |          |         |   | 8,394   |       
|Trading losses                                                                             |                                       |                                 | (52,242  | )      |         |      | (26,032  | )        |         |   | (38,420 | )     
|Derivative (losses) gains                                                                  |                                       |                                 | (20,986  | )      |         |      | 125,474  |          |         |   | 5,959   |       
|Other                                                                                      |                                       |                                 | 22,191   |        |         |      | 18,039   |          |         |   | 6,291   |       
|                                                                                           |                                       |                                 |          |        |         |      |          |          |         |   |         |       
|                                                                                           |                                       |                                 | 329,299  |        |         |      | 234,996  |          |         |   | 257,325 |       
|                                                                                           |                                       |                                 |          |        |         |      |          |          |         |   |         |       
|Other expense:                                                                             |                                       |                                 |          |        |         |      |          |          |         |   |         |       
|Salaries                                                                                   |                                       |                                 | 225,348  |        |         |      | 165,564  |          |         |   | 170,254 |       
|Pension and other employee benefits                                                        |                                       |                                 | 42,608   |        |         |      | 33,928   |          |         |   | 26,870  |       
|Office expense                                                                             |                                       |                                 | 21,804   |        |         |      | 18,225   |          |         |   | 14,698  |       
|Premises and equipment                                                                     |                                       |                                 | 41,746   |        |         |      | 34,392   |          |         |   | 31,420  |       
|Marketing and development                                                                  |                                       |                                 | 15,132   |        |         |      | 12,296   |          |         |   | 13,618  |       
|Professional fees                                                                          |                                       |                                 | 12,417   |        |         |      | 9,611    |          |         |   | 10,371  |       
|Other                                                                                      |                                       |                                 | 76,144   |        |         |      | 44,400   |          |         |   | 45,588  |       
|                                                                                           |                                       |                                 |          |        |         |      |          |          |         |   |         |       
|                                                                                           |                                       |                                 | 435,199  |        |         |      | 318,416  |          |         |   | 312,819 |       
|                                                                                           |                                       |                                 |          |        |         |      |          |          |         |   |         |       
|Income before income taxes                                                                 |                                       |                                 | 118,402  |        |         |      | 86,231   |          |         |   | 74,200  |       
|Provision for income taxes                                                                 |                                       |                                 | 45,585   |        |         |      | 33,398   |          |         |   | 28,859  |       
|                                                                                           |                                       |                                 |          |        |         |      |          |          |         |   |         |       
|Income before cumulative effect of change in
    accounting principle                      |                                       |                                 | 72,817   |        |         |      | 52,833   |          |         |   | 45,341  |       
|Cumulative effect of change in accounting
    principle, net of tax                        |                                       |                                 |         |        |         |      | 495      |          |         |   | 175     |       
|                                                                                           |                                       |                                 |          |        |         |      |          |          |         |   |         |       
|Net income                                                                                 |                                       | $                               | 72,817   |        |         | $    | 53,328   |          |         | $ | 45,516  |       
|                                                                                           |                                       |                                 |          |        |         |      |          |          |         |   |         |       
|Earnings per share before cumulative effect of
    change in accounting principle: Note 20 |                                       |                                 |          |        |         |      |          |          |         |   |         |       
|                                                                                           | Basic                                 |                                 | $        | 2.61   |         |      | $        | 1.97     |         |   | $       | 2.14   |        
|                                                                                           |                                       |                                 |          |        |         |      |          |          |         |   |         |       
|                                                                                           | Diluted                               |                                 | $        | 2.45   |         |      | $        | 1.87     |         |   | $       | 1.99   |        
|                                                                                           |                                       |                                 |          |        |         |      |          |          |         |   |         |       
|Earnings per share: Note 20                                                                |                                       |                                 |          |        |         |      |          |          |         |   |         |       
|                                                                                           | Basic                                 |                                 | $        | 2.61   |         |      | $        | 1.99     |         |   | $       | 2.15   |        
|                                                                                           |                                       |                                 |          |        |         |      |          |          |         |   |         |       
|                                                                                           | Diluted                               |                                 | $        | 2.45   |         |      | $        | 1.89     |         |   | $       | 2.00   |        
|                                                                                           |                                       |                                 |          |        |         |      |          |          |         |   |         |       
|Dividends per share                                                                        |                                       | $                               | 0.28     |        |         | $    | 0.27     |          |         | $ | 0.26    |       
|                                                                                           |                                       |                                 |          |        |         |      |          |          |         |   |         |       

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

78



---



##### Table of Contents



IRWIN FINANCIAL CORPORATION AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN
SHAREHOLDERS EQUITY

For the Years Ended December 31, 2003,
2002, and 2001


|                                                           |                                                                       |                            |         |          |        |               |         |              |  |            |        |        |   |           |      |          |  |   |       |        |   |   |         |  |  |   |        |   |  |   |         |        |   | 
|---------------------------------------------------------- | --------------------------------------------------------------------- | -------------------------- | ------- | -------- | ------ | ------------- | ------- | ------------ |  | ---------- | ------ | ------ | - | --------- | ---- | -------- |  | - | ----- | ------ | - | - | ------- |  |  | - | ------ | - |  | - | ------- | ------ | - | 
|                                                           |                                                                       |                            |         |          |        | Accumulated   |         |              |  |            |        |        |   |           |      |         
|                                                           |                                                                       |                            |         |          |        | Other         |         |              |  |            |        |        |   |           |      |         
|                                                           |                                                                       |                            |         |          |        | Comprehensive |         |              |  | Additional |        |        |   |           |      |         
|                                                           |                                                                       |                            |         | Retained |        | Income        |         | Deferred     |  | Paid in    |        | Common |   | Preferred |      | Treasury
|                                                           |                                                                       | Total                      |         | Earnings |        | (Loss)        |         | Compensation |  | Capital    |        | Stock  |   | Stock     |      | Stock   
|                                                           |                                                                       |                            |         |          |        |               |         |              |  |            |        |        |   |           |      |         
|                                                           |                                                                       |                           
|                                                           |                                                                       | (Dollars in thousands)    
|Balance January 1, 2001                                    |                                                                       | $                          | 188,870 |          |        | $             | 201,729 |              |  | $          | (459   | )      |   | $         | (503 | )        |  | $ | 4,331 |        |   | $ | 29,965  |  |  | $ | 1,386  |   |  | $ | (47,579 | )     
|                                                           | Net income                                                            |                            |         | 45,516   |        |               |         | 45,516       |  |            |        |        |   |           |      |          |  |   |       |        |   |   |         |  |  |   |        |   |  |   |         |        |  
|                                                           | Unrealized gain on investment securities net of
    $53 tax liability |                            |         | 80       |        |               |         |              |  |            |        | 80     |   |           |      |          |  |   |       |        |   |   |         |  |  |   |        |   |  |   |         |        |  
|                                                           | Foreign currency adjustment net of $221 tax
    benefit               |                            |         | (333     | )      |               |         |              |  |            |        | (333   | ) |           |      |          |  |   |       |        |   |   |         |  |  |   |        |   |  |   |         |        |  
|                                                           | Minimum pension liability net of $257 tax
    liability               |                            |         | 387      |        |               |         |              |  |            |        | 387    |   |           |      |          |  |   |       |        |   |   |         |  |  |   |        |   |  |   |         |        |  
|                                                           |                                                                       |                            |         |          |        |               |         |              |  |            |        |        |   |           |      |          |  |   |       |        |   |   |         |  |  |   |        |   |  |   |         |       
|                                                           |                                                                       | Total comprehensive income |         |          | 45,650 |               |         |              |  |            |        |        |   |           |      |          |  |   |       |        |   |   |         |  |  |   |        |   |  |   |         |        |   | 
|Deferred compensation                                      |                                                                       |                            | 54      |          |        |               |         |              |  |            |        |        |   |           | 54   |          |  |   |       |        |   |   |         |  |  |   |        |   |  |   |         |       
|Cash dividends                                             |                                                                       |                            | (5,520  | )        |        |               | (5,520  | )            |  |            |        |        |   |           |      |          |  |   |       |        |   |   |         |  |  |   |        |   |  |   |         |       
|Tax benefit on stock option exercises                      |                                                                       |                            | 2,451   |          |        |               |         |              |  |            |        |        |   |           |      |          |  |   | 2,451 |        |   |   |         |  |  |   |        |   |  |   |         |       
|Treasury stock:                                            |                                                                       |                            |         |          |        |               |         |              |  |            |        |        |   |           |      |          |  |   |       |        |   |   |         |  |  |   |        |   |  |   |         |       
|                                                           | Purchase of 136,089 shares                                            |                            |         | (3,223   | )      |               |         |              |  |            |        |        |   |           |      |          |  |   |       |        |   |   |         |  |  |   |        |   |  |   |         | (3,223 | )
|                                                           | Sales of 415,261 shares                                               |                            |         | 3,383    |        |               |         |              |  |            |        |        |   |           |      |          |  |   |       | (2,356 | ) |   |         |  |  |   |        |   |  |   |         | 5,739  |  
|                                                           |                                                                       |                            |         |          |        |               |         |              |  |            |        |        |   |           |      |          |  |   |       |        |   |   |         |  |  |   |        |   |  |   |         |       
|Balance December 31, 2001                                  |                                                                       | $                          | 231,665 |          |        | $             | 241,725 |              |  | $          | (325   | )      |   | $         | (449 | )        |  | $ | 4,426 |        |   | $ | 29,965  |  |  | $ | 1,386  |   |  | $ | (45,063 | )     
|                                                           |                                                                       |                            |         |          |        |               |         |              |  |            |        |        |   |           |      |          |  |   |       |        |   |   |         |  |  |   |        |   |  |   |         |       
|                                                           | Net income                                                            |                            |         | 53,328   |        |               |         | 53,328       |  |            |        |        |   |           |      |          |  |   |       |        |   |   |         |  |  |   |        |   |  |   |         |        |  
|                                                           | Unrealized loss on derivatives net of $115 tax
    benefit            |                            |         | (172     | )      |               |         |              |  |            |        | (172   | ) |           |      |          |  |   |       |        |   |   |         |  |  |   |        |   |  |   |         |        |  
|                                                           | Unrealized loss on investment securities net of
    $49 tax benefit   |                            |         | (73      | )      |               |         |              |  |            |        | (73    | ) |           |      |          |  |   |       |        |   |   |         |  |  |   |        |   |  |   |         |        |  
|                                                           | Foreign currency adjustment net of $45 tax
    liability              |                            |         | 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 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 derivatives net of $17 tax
    benefit             |                            |         | (25      | )      |               |         |              |  |            |        | (25    | ) |           |      |          |  |   |       |        |   |   |         |  |  |   |        |   |  |   |         |        |  
|                                                           | Unrealized loss on investment securities net of
    $46 tax benefit   |                            |         | (69      | )      |               |         |              |  |            |        | (69    | ) |           |      |          |  |   |       |        |   |   |         |  |  |   |        |   |  |   |         |        |  
|                                                           | Foreign currency adjustment net of $757 tax
    liability             |                            |         | 1,136    |        |               |         |              |  |            |        | 1,136  |   |           |      |          |  |   |       |        |   |   |         |  |  |   |        |   |  |   |         |        |  
|                                                           | Minimum SERP liability net of $188 tax liability                      |                            |         | 282      |        |               |         |              |  |            |        | 282    |   |           |      |          |  |   |       |        |   |   |         |  |  |   |        |   |  |   |         |        |  
|                                                           |                                                                       |                            |         |          |        |               |         |              |  |            |        |        |   |           |      |          |  |   |       |        |   |   |         |  |  |   |        |   |  |   |         |       
|                                                           |                                                                       | Total comprehensive income |         |          | 74,141 |               |         |              |  |            |        |        |   |           |      |          |  |   |       |        |   |   |         |  |  |   |        |   |  |   |         |        |   | 
|Other adjustments                                          |                                                                       |                            | (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 December 31, 2003                                  |                                                                       | $                          | 432,260 |          |        | $             | 352,647 |              |  | $          | 182    |        |   | $         | (504 | )        |  | $ | 1,264 |        |   | $ | 112,000 |  |  | $ |       |   |  | $ | (33,329 | )     
|                                                           |                                                                       |                            |         |          |        |               |         |              |  |            |        |        |   |           |      |          |  |   |       |        |   |   |         |  |  |   |        |   |  |   |         |       

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

79



---



##### Table of Contents



IRWIN FINANCIAL CORPORATION AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH
FLOWS

|                                                                                         |                                                                  |                                  |             |          |   |      |             |           |   |   |             |          |  
|---------------------------------------------------------------------------------------- | ---------------------------------------------------------------- | -------------------------------- | ----------- | -------- | - | ---- | ----------- | --------- | - | - | ----------- | -------- | -
|                                                                                         |                                                                  |                                 
|                                                                                         |                                                                  | For the Years Ended December 31,
|                                                                                         |                                                                  |                                 
|                                                                                         |                                                                  | 2003                             |             | 2002     |   | 2001
|                                                                                         |                                                                  |                                  |             |          |   |     
|                                                                                         |                                                                  |                                 
|                                                                                         |                                                                  | (Dollars in thousands)          
|Net income                                                                               |                                                                  | $                                | 72,817      |          |   | $    | 53,328      |           |   | $ | 45,516      |         
|Adjustments to reconcile net income to cash
    provided (used) by operating activities: |                                                                  |                                  |             |          |   |      |             |           |   |   |             |         
|Depreciation, amortization, and accretion, net                                           |                                                                  |                                  | 9,433       |          |   |      | 11,451      |           |   |   | 9,097       |         
|Amortization and impairment of servicing assets                                          |                                                                  |                                  | 91,003      |          |   |      | 208,561     |           |   |   | 50,134      |         
|Provision for loan and lease losses                                                      |                                                                  |                                  | 47,583      |          |   |      | 43,996      |           |   |   | 17,505      |         
|Deferred income tax                                                                      |                                                                  |                                  | 43,259      |          |   |      | (55,171     | )         |   |   | 26,245      |         
|Loss (gain) on sale of mortgage servicing assets                                         |                                                                  |                                  | 271         |          |   |      | (14,842     | )         |   |   | (8,394      | )       
|Gain from sales of loans                                                                 |                                                                  |                                  | (364,644    | )        |   |      | (237,729    | )         |   |   | (257,873    | )       
|Originations of loans held for sale                                                      |                                                                  |                                  | (24,393,534 | )        |   |      | (12,226,408 | )         |   |   | (10,375,401 | )       
|Proceeds from sale of mortgage servicing assets                                          |                                                                  |                                  | 89          |          |   |      | 40,597      |           |   |   | 11,979      |         
|Proceeds from the sale of loans held for sale                                            |                                                                  |                                  | 25,005,632  |          |   |      | 11,469,245  |           |   |   | 10,230,049  |         
|Net decrease (increase) in residual interests                                            |                                                                  |                                  | 86,023      |          |   |      | 41,558      |           |   |   | (61,763     | )       
|(Increase) decrease in accounts receivable                                               |                                                                  |                                  | (6,118      | )        |   |      | (14,100     | )         |   |   | 27,228      |         
|Other, net                                                                               |                                                                  |                                  | 5,097       |          |   |      | 32,657      |           |   |   | 14,092      |         
|                                                                                         |                                                                  |                                  |             |          |   |      |             |           |   |   |             |         
|                                                                                         | Net cash provided (used) by operating activities                 |                                  |             | 596,911  |   |      |             | (646,857  | ) |   |             | (271,586 | )
|                                                                                         |                                                                  |                                  |             |          |   |      |             |           |   |   |             |         
|Lending and investing activities:                                                        |                                                                  |                                  |             |          |   |      |             |           |   |   |             |         
|Proceeds from maturities/calls of investment
    securities:                             |                                                                  |                                  |             |          |   |      |             |           |   |   |             |         
|                                                                                         | Held-to-maturity                                                 |                                  |             | 682      |   |      |             | 716       |   |   |             | 4,114    |  
|                                                                                         | Available-for-sale                                               |                                  |             | 78,886   |   |      |             | 5,665     |   |   |             | 2,441    |  
|Purchase of investment securities:                                                       |                                                                  |                                  |             |          |   |      |             |           |   |   |             |         
|                                                                                         | Held-to-maturity                                                 |                                  |             | (21,333  | ) |      |             |          |   |   |             | (437     | )
|                                                                                         | Available-for-sale                                               |                                  |             | (82,868  | ) |      |             | (35,660   | ) |   |             | (7,692   | )
|Net (decrease) increase in interest-bearing
    deposits with financial institutions     |                                                                  |                                  | (46,748     | )        |   |      | (20,690     | )         |   |   | 22,153      |         
|Net increase in loans, excluding sales                                                   |                                                                  |                                  | (422,569    | )        |   |      | (718,319    | )         |   |   | (733,698    | )       
|Proceeds from the sales of loans                                                         |                                                                  |                                  | 45,454      |          |   |      | 27,024      |           |   |   | 149,957     |         
|Other, net                                                                               |                                                                  |                                  | (7,484      | )        |   |      | (4,931      | )         |   |   | (10,760     | )       
|                                                                                         |                                                                  |                                  |             |          |   |      |             |           |   |   |             |         
|                                                                                         | Net cash used by lending and investing activities                |                                  |             | (455,980 | ) |      |             | (746,195  | ) |   |             | (573,922 | )
|                                                                                         |                                                                  |                                  |             |          |   |      |             |           |   |   |             |         
|Financing activities:                                                                    |                                                                  |                                  |             |          |   |      |             |           |   |   |             |         
|Net increase in deposits                                                                 |                                                                  |                                  | 205,851     |          |   |      | 385,382     |           |   |   | 865,688     |         
|Net (decrease) increase in short-term borrowings                                         |                                                                  |                                  | (563,366    | )        |   |      | 505,161     |           |   |   | 12,461      |         
|(Repayments of) proceeds from issuance of
    long-term debt                             |                                                                  |                                  | (11         | )        |   |      | 70          |           |   |   |            |         
|Net proceeds from issuance of collateralized debt                                        |                                                                  |                                  | 443,989     |          |   |      | 434,968     |           |   |   |            |         
|Repayments of collateralized debt                                                        |                                                                  |                                  | (242,327    | )        |   |      | (43,543     | )         |   |   |            |         
|Proceeds from issuance of trust preferred
    securities                                 |                                                                  |                                  | 50,000      |          |   |      | 34,500      |           |   |   | 45,000      |         
|Redemption of trust preferred securities                                                 |                                                                  |                                  | (50,000     | )        |   |      |            |           |   |   |            |         
|Proceeds from sale of stock for equity offering                                          |                                                                  |                                  |            |          |   |      | 82,035      |           |   |   |            |         
|Purchase of treasury stock for employee benefit
    plans                                |                                                                  |                                  | (4,201      | )        |   |      | (1,176      | )         |   |   | (3,223      | )       
|Proceeds from sale of stock for employee benefit
    plans                               |                                                                  |                                  | 9,777       |          |   |      | 2,702       |           |   |   | 5,834       |         
|Dividends paid                                                                           |                                                                  |                                  | (7,832      | )        |   |      | (7,469      | )         |   |   | (5,520      | )       
|                                                                                         |                                                                  |                                  |             |          |   |      |             |           |   |   |             |         
|                                                                                         | Net cash (used) provided by financing activities                 |                                  |             | (158,120 | ) |      |             | 1,392,630 |   |   |             | 920,240  |  
|                                                                                         |                                                                  |                                  |             |          |   |      |             |           |   |   |             |         
|Effect of exchange rate changes on cash                                                  |                                                                  |                                  | 228         |          |   |      | (30         | )         |   |   | (2          | )       
|                                                                                         |                                                                  |                                  |             |          |   |      |             |           |   |   |             |         
|Net (decrease) increase in cash and cash
    equivalents                                 |                                                                  |                                  | (16,961     | )        |   |      | (452        | )         |   |   | 74,730      |         
|Cash and cash equivalents at beginning of year                                           |                                                                  |                                  | 157,771     |          |   |      | 158,223     |           |   |   | 83,493      |         
|                                                                                         |                                                                  |                                  |             |          |   |      |             |           |   |   |             |         
|Cash and cash equivalents at end of year                                                 |                                                                  | $                                | 140,810     |          |   | $    | 157,771     |           |   | $ | 158,223     |         
|                                                                                         |                                                                  |                                  |             |          |   |      |             |           |   |   |             |         
|Supplemental disclosures of cash flow
    information:                                   |                                                                  |                                  |             |          |   |      |             |           |   |   |             |         
|Cash paid during the period:                                                             |                                                                  |                                  |             |          |   |      |             |           |   |   |             |         
|                                                                                         | Interest                                                         |                                  | $           | 102,459  |   |      | $           | 104,461   |   |   | $           | 123,058  |  
|                                                                                         |                                                                  |                                  |             |          |   |      |             |           |   |   |             |         
|                                                                                         | Income taxes                                                     |                                  | $           | 43,007   |   |      | $           | 49,185    |   |   | $           | 7,357    |  
|                                                                                         |                                                                  |                                  |             |          |   |      |             |           |   |   |             |         
|Non-cash transactions:                                                                   |                                                                  |                                  |             |          |   |      |             |           |   |   |             |         
|                                                                                         | Loans sold, eligible for repurchase                              |                                  | $           | 115,948  |   |      | $           |          |   |   | $           |         |  
|                                                                                         |                                                                  |                                  |             |          |   |      |             |           |   |   |             |         
|                                                                                         | Conversion of convertible trust preferred to
    common stock    |                                  | $           | 83       |   |      | $           |          |   |   | $           |         |  
|                                                                                         |                                                                  |                                  |             |          |   |      |             |           |   |   |             |         
|                                                                                         | Conversion of preferred stock to common stock                    |                                  | $           |         |   |      | $           | 1,386     |   |   | $           |         |  
|                                                                                         |                                                                  |                                  |             |          |   |      |             |           |   |   |             |         
|                                                                                         | Mortgage loans held for sale transferred to loans
    and leases |                                  | $           |         |   |      | $           |          |   |   | $           | 327,700  |  
|                                                                                         |                                                                  |                                  |             |          |   |      |             |           |   |   |             |         

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 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. 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 adjusted
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. In
the past, when we sold receivables in securitizations of home
equity loans and lines of credit, we retained residual
interests, a servicing asset, one or more subordinated tranches,
and in some cases a cash reserve account, all of which are
retained interests in the securitized receivables. Gain or loss
on the sale of the receivables depends 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.

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

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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 our judgment applying the
principles of Statement of Financial Accounting Standards
(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 under
SFAS 114. We have defined impairment as nonaccrual loans.
An allowance is established when the collateral value,
observable market price or discounted cash flows of an impaired
loan 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.
Effective as of June 30, 2003, we lowered our lowest
interest rate stratum from 7% to 5% and split our interest
strata by government and conventional loans. We made these
changes in our interest rate and product type strata in response
to significant changes in economic conditions and in our
portfolio that caused a change in predominant risk
characteristics. Because our strata changes were prompted
largely by changes in economic facts and circumstances, they
were accounted for prospectively as a change in estimate. 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 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.

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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. The
adoption of SFAS 133 Accounting for Derivative
Instruments and Hedging Activities, on January 1,
2001 resulted in a cumulative change in accounting principle,
increasing net income by $175 thousand in 2001.

Derivative instruments that are used in our risk
management strategy may qualify for hedge accounting if the
derivatives are designated as fair value or cash flow 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, 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. Other
real estate owned is 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.
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 statement of cash
flows, we consider cash and due from banks to be cash
equivalents.

Stock-Based Employee Compensation:We have two stock-based employee
compensation plans, which are described more fully in Note 19.
We use the intrinsic value method to account for our plans under
the recognition and measurement principles of 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. To date, the Board
of Directors has not chosen to expense stock options. The Board
wishes to analyze new guidance from the Financial Accounting
Standards Board (FASB), Securities and Exchange Commission
(SEC) or other relevant authority regarding the
standardization of valuation methods, should such guidance be
forthcoming. In the absence of a uniform valuation method for
public companies, we will continue to disclose the impact of
expensing stock options, using our valuation method, which is
based on a Black-Scholes model using assumptions management
believes to be reasonable. The following table illustrates the
effect on net income and earnings per share if we

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


|                                                                                                                                                    |             |                        |        |      |  |      |        |      |  |   |        |      | 
|--------------------------------------------------------------------------------------------------------------------------------------------------- | ----------- | ---------------------- | ------ | ---- |  | ---- | ------ | ---- |  | - | ------ | ---- | 
|                                                                                                                                                    |             | 2003                   |        | 2002 |  | 2001
|                                                                                                                                                    |             |                        |        |      |  |     
|                                                                                                                                                    |             |                       
|                                                                                                                                                    |             | (Dollars in thousands)
|Net income as reported                                                                                                                              |             | $                      | 72,817 |      |  | $    | 53,328 |      |  | $ | 45,516 |     
|Deduct: Total stock-based employee compensation
    expense determined under fair value based method for all awards,
    net of related tax effects |             |                        | (2,683 | )    |  |      | (2,639 | )    |  |   | (1,887 | )   
|                                                                                                                                                    |             |                        |        |      |  |      |        |      |  |   |        |     
|Proforma net income                                                                                                                                 |             | $                      | 70,134 |      |  | $    | 50,689 |      |  | $ | 43,629 |     
|                                                                                                                                                    |             |                        |        |      |  |      |        |      |  |   |        |     
|Basic earnings per share                                                                                                                            |             |                        |        |      |  |      |        |      |  |   |        |     
|                                                                                                                                                    | As reported |                        | $      | 2.61 |  |      | $      | 1.99 |  |   | $      | 2.15 | 
|                                                                                                                                                    | Pro forma   |                        | $      | 2.51 |  |      | $      | 1.89 |  |   | $      | 2.06 | 
|Diluted earnings per share                                                                                                                          |             |                        |        |      |  |      |        |      |  |   |        |     
|                                                                                                                                                    | As reported |                        | $      | 2.45 |  |      | $      | 1.89 |  |   | $      | 2.00 | 
|                                                                                                                                                    | Pro forma   |                        | $      | 2.36 |  |      | $      | 1.80 |  |   | $      | 1.92 | 

In determining compensation expense above, the
fair value of each option was estimated to be $9.70, $6.99, and
$11.43 on the date of the grant with the following assumptions
for 2003, 2002, and 2001, respectively: risk free interest rates
of 3.90%, 4.54%, and 5.26%; dividend yield of 1.00% and
volatility of 40% for 2003, 2002 and 2001; and a weighted
average expected life of seven years in 2003 and 2002 and ten
years in 2001.

Recent Accounting Developments:We adopted FASB Interpretation
No. 45 (FIN 45), Guarantors Accounting and
Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others, which elaborates on
the disclosures about certain guarantees that are issued.
Guarantors are required to recognize, at the inception of a
guarantee, a liability for the fair value of the obligation
undertaken in issuing the guarantee. They are also required to
disclose (a) the nature of the guarantee, including the
approximate term, how it arose, and the events that would
require performance under the guarantee; (b) the maximum
potential amount of future payments under the guarantee;
(c) the carrying amount of the liability; and (d) the
nature and extent of any recourse provisions or available
collateral that would enable recovery of any amounts paid under
the guarantee. The initial recognition and measurement
provisions were applicable on a prospective basis to guarantees
issued or modified after December 31, 2002. The disclosure
requirement became effective on December 15, 2002. See Note
16, Guarantees, for a discussion of our guarantees
existing at December 31, 2003. The adoption of this
statement did not have a material effect on our financial
statements.

In January 2003, the FASB issued Interpretation
No. 46 (FIN 46), Consolidation of Variable Interest
Entities which requires existing unconsolidated variable
interest entities to be consolidated by their primary
beneficiaries if the entities do not effectively disperse risks
among parties involved. The primary beneficiary is the party
that absorbs a majority of expected losses, receives a majority
of expected residual returns, or both, as a result of holding
variable interests, which are the ownership, contractual, or
other pecuniary interests in the entity. They are required to
disclose the (a) nature, purpose, size, and activities of
the variable interest entity, (b) the carrying amount and
classification of assets that are collateral, and (c) any lack
of recourse by creditors to the primary beneficiary. If a
primary interest is not held, but a significant variable
interest is held, disclosure requirements include (1) the
nature, purpose, size and activities of the variable interest
entity, (2) exposure to loss, (3) the date and nature
of involvement with the entity. This interpretation applies
immediately to variable interests created or obtained after
January 31, 2003 for interim periods beginning after
June 15, 2003.

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 (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

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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 at
December 31, 2003. Details about the IFC Trusts and
debentures can be found in Note 12, Other Long-Term
Debt.


The Trust Preferred Securities currently qualify
as Tier 1 regulatory capital. The subordinated debentures do not
qualify as Tier 1 regulatory capital, but do qualify for Tier 2
regulatory capital and we believe would continue to be treated
as such should the Federal Reserve modify its capital rules due
to FIN 46. The Federal Reserve Board has not reached final
conclusion on the continued qualification of Trust Preferred
Securities but has indicated that until further notice, Trust
Preferred Securities will continue to count as Tier 1 regulatory
capital. Should the Federal Reserve Board reach a conclusion
that Trust Preferred Securities would cease to qualify as Tier 1
regulatory capital, our Tier 1 regulatory capital would be
reduced by approximately $143 million. Our Total Capital
ratios, including Tier 2 Capital, would remain unchanged and we
would maintain capital levels above our policy limits.

On April 30, 2003 the FASB issued
Statement 149, Amendment of Statement 133 on Derivative
Instruments and Hedging Activities (SFAS 149), which
amends and clarifies financial accounting and reporting for
derivative instruments and for hedging activities under FASB
Statement No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS 149 applies to
mortgage loan commitments entered into or modified after
June 30, 2003. For these commitments we use a risk
management strategy of locking in a price at which we will sell
loans at a future price. Accordingly, these contracts are marked
to market through earnings. We adopted SFAS 149 as of the
effective date and the adoption did not have a material impact
on our financial statements.

In May 2003, the FASB issued Statement
No. 150, Accounting for Certain Financial Instruments
with Characteristics of Both Liabilities and Equity (SFAS
150), which establishes standards for how an issuer
classifies and measures certain financial instruments with
characteristics of both liabilities and equity. SFAS 150 is
effective for financial instruments entered into or modified
after May 31, 2003, and otherwise is effective at the
beginning of the first interim period beginning after
June 15, 2003. It is to be implemented by reporting the
cumulative effect of a change in an accounting principle for
financial instruments created before the issuance date of SFAS
150 and still existing at the beginning of the interim period of
adoption. Restatement is not permitted. The adoption of this
statement did not have a material effect on our Financial
Statements.

In October 2003, the FASB added a project to
its agenda to clarify SFAS 133, as amended by SFAS 137,
SFAS 138 and SFAS 149, with respect to determining the fair
value of interest rate lock commitments (IRLC). Specifically,
the FASB project will address what information should be used to
determine the fair value of an IRLC and whether an IRLC should
ever be reported as an asset by the issuer. In December 2003,
the SEC staff announced that it intends to release a Staff
Accounting Bulletin that will require IRLCs issued after
April 1, 2004, be accounted for as written options that
would be reported as a liability until expiration or termination
of the commitment. Similar to many companies in the mortgage
industry, we currently recognize IRLCs as assets on the date of
interest rate lock commitment. The IRLC asset that was recorded
in other assets and gain on sale of loans at December 31,
2003 was $3.8 million. Neither the FASB nor the SEC have
issued final technical guidance in this area and as such it is
not possible to know for certain the impact of this guidance.
However, we believe that the primary effect will be moving the
recognition of loan sale gain on first mortgages from interest
rate lock commitment date to loan sale date.

Reclassifications:Certain amounts in the 2002 and 2001
consolidated financial statements have been reclassified to
conform to the 2003 presentation. These changes had no impact on
previously reported net income or shareholders equity.

Note 2  Restrictions on Cash and
Interest-Bearing Deposits with Financial Institutions

Irwin Union Bank and Trust Company and Irwin
Union Bank, F.S.B. are required to maintain reserve balances
with the Federal Reserve Bank. The total reserve balance at
December 31, 2003 was $8.6 million. Additionally, we
are required to maintain reserve funds in connection with
certain loan securitization activities. Included in accounts
receivable at December 31, 2003 is $0.1 million of
these reserve funds.

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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, Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities.

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 totaling $70.5 million and
$157.1 million at December 31, 2003 and 2002,
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 are subject to prepayment,
credit, and interest rate risks in the transferred financial
assets.

We recognized pretax gains on sale of
$2.5 million and $91.4 million on the securitization
of home equity loans and lines of credit at our home equity line
of business during 2002 and 2001, respectively. No
securitizations accounted for as gain on sale took place in
2003. No residual interests of this type have been created since
the first quarter of 2002.

In accounting for the residual assets, we analyze
interests on a tranche by tranche basis and perform analysis at
the loan level. Key economic assumptions used in measuring the
fair value of residual interests at the date of securitization
resulting from the one securitization completed during the year
2002 were as follows:

|                                     |  |                                                                      
|------------------------------------ |  | ---------------------------------------------------------------------
|Prepayment speed (annual rate)       |  | 22.00%                                                               
|Weighted-average life (in years)     |  | 2.83                                                                 
|Expected credit losses (annual rate) |  | 1.14%                                                                
|Residual cash flows discounted at    |  | 18.00                                                                
|Interest rates on adjustable notes   |  | LIBOR plus contractual spread ranging from 22 to
    200 basis points

At December 31, 2003, 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 |  | $                                     | 70,519  |  
|Weighted-average life (in years)                                    |  |                                       | 1.21    |  
|Prepayment speed assumptions (annual rate)                          |  |                                       | 37.82   | %
|Impact on fair value of 10% adverse change                          |  | $                                     | (688    | )
|Impact on fair value of 25% adverse change                          |  |                                       | (2,044  | )
|Expected credit losses (annual rate)                                |  |                                       | 8.14    | %
|Impact on fair value of 10% adverse change                          |  | $                                     | (4,905  | )
|Impact on fair value of 25% adverse change                          |  |                                       | (12,129 | )
|Residual cash flows discount rate (annual rate)                     |  |                                       | 18.82   | %
|Impact on fair value of 10% adverse change                          |  | $                                     | (1,356  | )
|Impact on fair value of 25% adverse change                          |  |                                       | (3,304  | )

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

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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.


Static pool credit losses are calculated by
summing the actual and projected future credit losses and
dividing them by the original balance of each pool of assets.
The amount shown here for each year is calculated based on all
securitizations occurring in that year accounted for using
gain-on-sale methodology.

Actual and projected credit losses (%) as of:

|                             |  |                                                      |        |      |  |      |         |      |  |      |         |      |  |      |         |      |  |   |         |   |  |   |           |   |  |   |           |   |  |   |        |  
|---------------------------- |  | ---------------------------------------------------- | ------ | ---- |  | ---- | ------- | ---- |  | ---- | ------- | ---- |  | ---- | ------- | ---- |  | - | ------- | - |  | - | --------- | - |  | - | --------- | - |  | - | ------ | -
|                             |  |                                                     
|                             |  | Home Equity Loans and Lines of Credit Securitized in
|                             |  |                                                     
|                             |  | 1995                                                 |        | 1996 |  | 1997 |         | 1998 |  | 1999 |         | 2000 |  | 2001 |         | 2002
|December 31, 2003            |  |                                                      |        |      |  |      |         |      |  |      |         |      |  |      |         |     
|                             |  |                                                     
|                             |  | (Dollars in thousands)                              
|Actual to date               |  |                                                      | 2.30   | %    |  |      | 1.05    | %    |  |      | 1.27    | %    |  |      | 1.69    | %    |  |   | 4.38    | % |  |   | 6.32      | % |  |   | 5.39      | % |  |   | 4.69   | %
|Projected future cumulative  |  |                                                      |       |      |  |      |        |      |  |      |        |      |  |      | 0.61    |      |  |   | 0.56    |   |  |   | 1.96      |   |  |   | 3.94      |   |  |   | 4.37   |  
|                             |  |                                                      |        |      |  |      |         |      |  |      |         |      |  |      |         |      |  |   |         |   |  |   |           |   |  |   |           |   |  |   |        |  
|Total losses                 |  |                                                      | 2.30   |      |  |      | 1.05    |      |  |      | 1.27    |      |  |      | 2.30    |      |  |   | 4.94    |   |  |   | 8.28      |   |  |   | 9.33      |   |  |   | 9.06   |  
|Original balance securitized |  | $                                                    | 51,584 |      |  | $    | 139,996 |      |  | $    | 229,994 |      |  | $    | 160,470 |      |  | $ | 433,606 |   |  | $ | 1,128,398 |   |  | $ | 1,042,462 |   |  | $ | 31,708 |  

The table below summarizes the cash flows
received from (paid to) securitization trusts during the three
years ended December 31, 2003, where gain-on-sale
accounting was previously applied:

|                                                                            |       |                        |        |        |  |      |         |        |  |   |           |           | 
|--------------------------------------------------------------------------- | ----- | ---------------------- | ------ | ------ |  | ---- | ------- | ------ |  | - | --------- | --------- | 
|                                                                            |       | 2003                   |        | 2002   |  | 2001
|                                                                            |       |                        |        |        |  |     
|                                                                            |       |                       
|                                                                            |       | (Dollars in thousands)
|Proceeds from new securitizations                                           |       | $                      |       |        |  | $    | 31,708  |        |  | $ | 1,072,177 |          
|Collections used by the trust to purchase new
    home equity loan balances |       |                        |       |        |  |      |        |        |  |   | 6,501     |          
|Servicing fees received                                                     |       |                        | 8,686  |        |  |      | 14,479  |        |  |   | 10,741    |          
|Net cash flows received on residual
    interests(1)                        |       |                        | 55,272 |        |  |      | 53,626  |        |  |   | 45,645    |          
|Cash received upon release from reserve accounts                            |       |                        | 136    |        |  |      | 271     |        |  |   | 135       |          
|Purchases of delinquent or foreclosed assets                                |       |                        |       |        |  |      | (75     | )      |  |   | (701      | )        
|Servicing advances                                                          |       |                        | (7,199 | )      |  |      | (13,458 | )      |  |   | (42,483   | )        
|Reimbursements of servicing advances                                        |       |                        | 7,419  |        |  |      | 15,234  |        |  |   | 43,319    |          
|Prepayment interest shortfalls paid out as
    compensating interest        |       |                        | (2,234 | )      |  |      | (2,664  | )      |  |   |          |          
|                                                                            |       |                        |        |        |  |      |         |        |  |   |           |          
|                                                                            | Total |                        | $      | 62,080 |  |      | $       | 99,121 |  |   | $         | 1,135,334 | 
|                                                                            |       |                        |        |        |  |      |         |        |  |   |           |          



---



|    |                                                                                                                                                                                                                                                                                                                                               
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Cash flows received on residual interests are net
    of $2.1 million, $4.8 million and $31.9 million
    in 2003, 2002, and 2001, respectively, used to
    over-collateralize the trusts. During 2002 and 2001,
    respectively, $48 thousand and $6.0 million was paid
    to over-collateralize the trusts at the time of securitization.

Delinquency amounts for the managed portfolio:

|                                                          |  |                        |           |                              |  |             |        |  |  |  |      |  
|--------------------------------------------------------- |  | ---------------------- | --------- | ---------------------------- |  | ----------- | ------ |  |  |  | ---- | -
|                                                          |  | Total Principal Amount |           | Delinquent Principal Over 30 |  |            
|                                                          |  | of Loans at            |           | Days(2)for the Year Ended    |  | Delinquency
|                                                          |  | December 31, 2003      |           | December 31, 2003            |  | Percentage 
|                                                          |  |                        |           |                              |  |            
|                                                          |  |                        |           |                             
|                                                          |  | (Dollars in thousands) |           |                             
|Managed loans comprised of:                               |  |                        |           |                              |  |             |        |  |  |  |      |  
|Loans held for investment                                 |  | $                      | 695,956   |                              |  | $           | 25,926 |  |  |  | 3.7  | %
|Loans held for sale                                       |  | $                      | 201,271   |                              |  |             | 206    |  |  |  | 0.1  |  
|Loans securitized, servicing and residual
    retained(1) |  |                        | 616,062   |                              |  |             | 62,687 |  |  |  | 10.2 |  
|                                                          |  |                        |           |                              |  |             |        |  |  |  |      |  
|Total managed portfolio                                   |  | $                      | 1,513,289 |                              |  | $           | 88,819 |  |  |  | 5.9  |  
|                                                          |  |                        |           |                              |  |             |        |  |  |  |      |  

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---



|    |                                                                                                                                                                         
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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) | Includes bankruptcies, foreclosures and other
    real estate owned.                                                                                                    

Credit Losses for the Managed
Portfolio

Actual credit losses, net of recoveries during
the year ended December 31, 2003 were $72.5 million
related to loans securitized and loans held for investment. Of
this amount, $21.3 million related to unsold loans while
$51.2 million related to securitized loans.

Note 4  Investment
Securities

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 | 
|                                                 |                             |                        |        |            |  |            |   |       |  |          |     |     |   |   |        |        |  |   |        |       

The amortized cost, fair value, and carrying
value of investment securities held at December 31, 2002
were as follows:

|                                                 |                             |                        |        |            |  |            |     |       |  |          |    |     |   |   |        |        |  |   |        |        | 
|------------------------------------------------ | --------------------------- | ---------------------- | ------ | ---------- |  | ---------- | --- | ----- |  | -------- | -- | --- | - | - | ------ | ------ |  | - | ------ | ------ | 
|                                                 |                             |                        |        | Gross      |  | Gross      |     |       |  |         
|                                                 |                             | Amortized              |        | Unrealized |  | Unrealized |     | Fair  |  | Carrying
|                                                 |                             | Cost                   |        | Gains      |  | Losses     |     | Value |  | Value   
|                                                 |                             |                        |        |            |  |            |     |       |  |         
|                                                 |                             |                       
|                                                 |                             | (Dollars in thousands)
|Held-to-Maturity:                                |                             |                        |        |            |  |            |     |       |  |          |    |     |   |   |        |        |  |   |        |       
|Obligations of states and political subdivisions |                             | $                      | 4,210  |            |  | $          | 299 |       |  | $        |   |     |   | $ | 4,509  |        |  | $ | 4,210  |       
|Mortgage-backed securities                       |                             |                        | 1,006  |            |  |            |    |       |  |          | (4 | )   |   |   | 1,002  |        |  |   | 1,006  |       
|Other                                            |                             |                        | 133    |            |  |            |    |       |  |          |   |     |   |   | 133    |        |  |   | 133    |       
|                                                 |                             |                        |        |            |  |            |     |       |  |          |    |     |   |   |        |        |  |   |        |       
|                                                 | Total held-to-maturity      |                        |        | 5,349      |  |            |     | 299   |  |          |    | (4  | ) |   |        | 5,644  |  |   |        | 5,349  | 
|                                                 |                             |                        |        |            |  |            |     |       |  |          |    |     |   |   |        |        |  |   |        |       
|Available-for-Sale:                              |                             |                        |        |            |  |            |     |       |  |          |    |     |   |   |        |        |  |   |        |       
|U.S. Treasury and government obligations         |                             |                        | 14,992 |            |  |            |    |       |  |          |   |     |   |   | 14,992 |        |  |   | 14,992 |       
|Mortgage-backed securities                       |                             |                        | 722    |            |  |            | 10  |       |  |          |   |     |   |   | 732    |        |  |   | 732    |       
|Other                                            |                             |                        | 46,883 |            |  |            |    |       |  |          | (8 | )   |   |   | 46,875 |        |  |   | 46,875 |       
|                                                 |                             |                        |        |            |  |            |     |       |  |          |    |     |   |   |        |        |  |   |        |       
|                                                 | Total available-for-sale    |                        |        | 62,597     |  |            |     | 10    |  |          |    | (8  | ) |   |        | 62,599 |  |   |        | 62,599 | 
|                                                 |                             |                        |        |            |  |            |     |       |  |          |    |     |   |   |        |        |  |   |        |       
|                                                 | Total investment securities |                        | $      | 67,946     |  |            | $   | 309   |  |          | $  | (12 | ) |   | $      | 68,243 |  |   | $      | 67,948 | 
|                                                 |                             |                        |        |            |  |            |     |       |  |          |    |     |   |   |        |        |  |   |        |       

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Included within available-for-sale investment
securities is $63 million and $46 million of FHLB and
Federal Reserve Bank stock at December 31, 2003 and 2002,
respectively, for which there is no readily determinable market
value.

The amortized cost and estimated value of
investment securities at December 31, 2003, 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 in one year or less                |                        | $      | 20,250 |  |   | $      | 20,250 | 
|                           | Due after five years through ten years |                        |        | 220    |  |   |        | 223    | 
|                           | Due after ten years                    |                        |        | 3,620  |  |   |        | 3,625  | 
|                           |                                        |                        |        |        |  |   |        |       
|                           |                                        |                        | 24,090 |        |  |   | 24,098 |       
|Mortgage-backed securities |                                        |                        | 866    |        |  |   | 873    |       
|                           |                                        |                        |        |        |  |   |        |       
|                           |                                        | $                      | 24,956 |        |  | $ | 24,971 |       
|                           |                                        |                        |        |        |  |   |        |       
|Available-for-Sale:        |                                        |                        |        |        |  |   |        |       
|                           | Due in one year or less                |                        | $      | 2,957  |  |   | $      | 2,924  | 
|                           | Due after one year through five years  |                        |        | 100    |  |   |        | 98     | 
|                           | Due after ten years                    |                        |        | 63,374 |  |   |        | 63,374 | 
|                           |                                        |                        |        |        |  |   |        |       
|                           |                                        |                        | 66,431 |        |  |   | 66,396 |       
|Mortgage-backed securities |                                        |                        | 1,208  |        |  |   | 1,173  |       
|                           |                                        |                        |        |        |  |   |        |       
|                           |                                        |                        | 67,639 |        |  |   | 67,569 |       
|                           |                                        |                        |        |        |  |   |        |       
|                           | Total investment securities            |                        | $      | 92,595 |  |   | $      | 92,540 | 
|                           |                                        |                        |        |        |  |   |        |       

Investment securities of $1.3 million were
pledged and cannot be repledged by holder, as collateral for
borrowings and for other purposes on December 31, 2003.
During 2003 and 2002, there were no sales or calls on investment
securities. In 2001 there were no sales of
available-for-sale investment securities. In 2001,
held-to-maturity investment securities totaling
$0.3 million were called resulting in an immaterial loss.

Note 5  Loans and Leases

Loans and leases are summarized as follows:

|                                       |       |                        |           |           |         |   |           |           |         |  
|-------------------------------------- | ----- | ---------------------- | --------- | --------- | ------- | - | --------- | --------- | ------- | -
|                                       |       |                       
|                                       |       | December 31,          
|                                       |       |                       
|                                       |       | 2003                   |           | 2002     
|                                       |       |                        |           |          
|                                       |       |                       
|                                       |       | (Dollars in thousands)
|Commercial, financial and agricultural |       | $                      | 1,503,619 |           |         | $ | 1,347,962 |          
|Real estate-construction               |       |                        | 306,669   |           |         |   | 314,851   |          
|Real estate-mortgage                   |       |                        | 859,541   |           |         |   | 777,865   |          
|Consumer                               |       |                        | 27,370    |           |         |   | 27,857    |          
|Direct financing leases                |       |                        |           |           |         |   |           |          
|                                       |       | Domestic               |           |           | 364,413 |   |           |           | 291,711 |  
|                                       |       | Foreign                |           |           | 207,355 |   |           |           | 133,784 |  
|Unearned income                        |       |                        |           |           |         |   |           |          
|                                       |       | Domestic               |           |           | (78,875 | ) |           |           | (59,287 | )
|                                       |       | Foreign                |           |           | (29,038 | ) |           |           | (19,467 | )
|                                       |       |                        |           |           |         |   |           |          
|                                       | Total |                        | $         | 3,161,054 |         |   | $         | 2,815,276 |        
|                                       |       |                        |           |           |         |   |           |          

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At December 31, 2003, we pledged mortgage
loans held for investment with a carrying value of
$0.6 billion as collateral for bonds payable to investors
(See Note 11).

Federal Home Loan Bank borrowings are
collateralized by $1.0 billion in loans and loans held for
sale at December 31, 2003.

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, 2003 were current in payment of principal and
interest. The aggregate dollar amount of these loans outstanding
at December 31, 2003 and 2002 represented less than 1% of
total equity and is considered immaterial.

Note 6  Allowance for Loan and
Lease Losses

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

|                                                        |  |                        |         |      |  |      |         |   |  |   |        |  
|------------------------------------------------------- |  | ---------------------- | ------- | ---- |  | ---- | ------- | - |  | - | ------ | -
|                                                        |  |                       
|                                                        |  | December 31,          
|                                                        |  |                       
|                                                        |  | 2003                   |         | 2002 |  | 2001
|                                                        |  |                        |         |      |  |     
|                                                        |  |                       
|                                                        |  | (Dollars in thousands)
|Balance at beginning of year                            |  | $                      | 50,936  |      |  | $    | 22,283  |   |  | $ | 13,129 |  
|Provision for loan and lease losses                     |  |                        | 47,583  |      |  |      | 43,996  |   |  |   | 17,505 |  
|Reduction due to sale of loans and leases and
    other |  |                        | (234    | )    |  |      |        |   |  |   | (6     | )
|Reduction due to reclassification of loans              |  |                        | (690    | )    |  |      |        |   |  |   |       |  
|Foreign currency adjustment                             |  |                        | 582     |      |  |      | 17      |   |  |   | (140   | )
|Recoveries                                              |  |                        | 3,420   |      |  |      | 2,870   |   |  |   | 1,548  |  
|Charge-offs                                             |  |                        | (37,312 | )    |  |      | (18,230 | ) |  |   | (9,753 | )
|                                                        |  |                        |         |      |  |      |         |   |  |   |        |  
|Balance at end of year                                  |  | $                      | 64,285  |      |  | $    | 50,936  |   |  | $ | 22,283 |  
|                                                        |  |                        |         |      |  |      |         |   |  |   |        |  

At December 31, 2002, we reported impaired
loans totaling $50.5 million which included nonaccrual
loans of $13.8 million and loans classified by management
based upon our internal grading system. This amount included
$36.4 million of impaired loans with $7.0 million of
related allowance and $14.1 million with no related
allowance. At December 31, 2003, impaired loans of
$20.4 million include only nonaccrual loans. The 2003
amount includes $9.6 million of impaired loans with
$2.8 million of related allowance and $10.8 million of
impaired loans with no related allowance. Loans classified by
management but not considered impaired at December 31, 2003
totaled $22.5 million with no related allowance.

For the year ended December 31, 2003, the
average balance of impaired loans was $18.3 million, for
which $0.5 million of interest was recorded. For the years
ended December 31, 2002 and 2001, respectively,
$0.5 million and $2.3 million of interest income was
recorded on average impaired loans balances of
$42.4 million and $16.6 million.

Note 7  Servicing Assets

Included on the consolidated balance sheets at
December 31, 2003 and 2002 were $380.1 million and
$174.9 million, respectively, of capitalized servicing
assets. These amounts relate to the principal balances of 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.

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Mortgage Servicing Asset:

|                                       |  |                        |          |      |  |   |          |  
|-------------------------------------- |  | ---------------------- | -------- | ---- |  | - | -------- | -
|                                       |  |                       
|                                       |  | December 31,          
|                                       |  |                       
|                                       |  | 2003                   |          | 2002
|                                       |  |                        |          |     
|                                       |  |                       
|                                       |  | (Dollars in thousands)
|Beginning balance                      |  | $                      | 174,935  |      |  | $ | 228,624  |  
|Additions                              |  |                        | 296,551  |      |  |   | 180,627  |  
|Amortization                           |  |                        | (135,519 | )    |  |   | (62,191  | )
|Recovery of (provision for) impairment |  |                        | 44,516   |      |  |   | (146,370 | )
|Reduction from servicing sales         |  |                        | (360     | )    |  |   | (25,755  | )
|                                       |  |                        |          |      |  |   |          |  
|                                       |  | $                      | 380,123  |      |  | $ | 174,935  |  
|                                       |  |                        |          |      |  |   |          |  

We have established a valuation allowance to
record servicing assets at their fair market value if less than
the carrying value on a strata-by-strata basis. Changes in the
allowance are summarized below:

|                                       |  |                        |         |      |  |      |         |  |  |   |         |  
|-------------------------------------- |  | ---------------------- | ------- | ---- |  | ---- | ------- |  |  | - | ------- | -
|                                       |  |                       
|                                       |  | December 31,          
|                                       |  |                       
|                                       |  | 2003                   |         | 2002 |  | 2001
|                                       |  |                        |         |      |  |     
|                                       |  |                       
|                                       |  | (Dollars in thousands)
|Balance at beginning of year           |  | $                      | 159,865 |      |  | $    | 13,495  |  |  | $ | 14,204  |  
|Provision for (recovery of) impairment |  |                        | (44,516 | )    |  |      | 146,370 |  |  |   | 11,321  |  
|Other than temporary impairment(1)     |  |                        | (38,480 | )    |  |      |        |  |  |   | (12,030 | )
|                                       |  |                        |         |      |  |      |         |  |  |   |         |  
|Balance at end of year                 |  | $                      | 76,869  |      |  | $    | 159,865 |  |  | $ | 13,495  |  
|                                       |  |                        |         |      |  |      |         |  |  |   |         |  



---



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

The servicing assets had a fair value of
$393.5 million and $180.5 million at December 31,
2003 and 2002, respectively. At December 31, 2003, 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 rights |  | $ | 380,123 |  
|Constant prepayment speed                    |  |   | 8.60    | %
|Impact on fair value of 10% adverse change   |  |   | (16,516 | )
|Impact on fair value of 20% adverse change   |  |   | (31,058 | )
|Discount rate                                |  |   | 9.81    | %
|Impact on fair value of 10% adverse change   |  |   | (8,970  | )
|Impact on fair value of 20% adverse change   |  |   | (17,482 | )

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
$31.8 billion and $18.6 billion at December 31, 2003
and 2002, respectively. Key economic assumptions used in
determining the carrying value of mortgage servicing assets
capitalized in 2003 were as follows:

|                 |  |  |             |      
|---------------- |  |  | ----------- | -----
|Prepayment rates |  |  | 4.34- 23.55 | % (1)
|Discount rates   |  |  | 8.50- 12.00 | % (1)



|    |                                                                                                                                                                                                            
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The mortgage banking component of consolidated
    servicing assets was 93%. The prepayments rates range from 4.34%
    to 14.18% and discount rates range from 8.5% to 11.5% at this
    line of business.

Note 8  Premises and
Equipment

Premises and equipment are summarized as follows:

|                                    |       |                        |         |        |  |              |         |        |  |  |            |  | 
|----------------------------------- | ----- | ---------------------- | ------- | ------ |  | ------------ | ------- | ------ |  |  | ---------- |  | 
|                                    |       |                       
|                                    |       | December 31,          
|                                    |       |                       
|                                    |       | 2003                   |         | 2002   |  | Useful Lives
|                                    |       |                        |         |        |  |             
|                                    |       |                       
|                                    |       | (Dollars in thousands)
|Land                                |       | $                      | 2,135   |        |  | $            | 2,293   |        |  |  | n/a        | 
|Building and leasehold improvements |       |                        | 22,840  |        |  |              | 20,115  |        |  |  | 7-40 years | 
|Furniture and equipment             |       |                        | 52,096  |        |  |              | 52,003  |        |  |  | 3-10 years | 
|                                    |       |                        |         |        |  |              |         |        |  |  |            | 
|                                    |       |                        | 77,071  |        |  |              | 74,411  |        |  |  |            | 
|Less accumulated depreciation       |       |                        | (44,863 | )      |  |              | (42,013 | )      |  |  |            | 
|                                    |       |                        |         |        |  |              |         |        |  |  |            | 
|                                    | Total |                        | $       | 32,208 |  |              | $       | 32,398 |  |  |            |  | 
|                                    |       |                        |         |        |  |              |         |        |  |  |            | 

Amounts charged to other expense for depreciation
amounted to $7.7 million, $7.5 million, and
$5.2 million in 2003, 2002, and 2001, respectively.

Note 9  Lease Obligations

At December 31, 2003, we leased certain
branch locations and office equipment used in our operations.

Operating lease rental expense was
$26.0 million in 2003, $21.6 million in 2002, and
$19.8 million in 2001.

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)
|2004                    |                               | $                      | 17,243 |       
|2005                    |                               |                        | 14,206 |       
|2006                    |                               |                        | 11,160 |       
|2007                    |                               |                        | 6,823  |       
|2008                    |                               |                        | 3,451  |       
|Thereafter              |                               |                        | 9,639  |       
|                        |                               |                        |        |       
|                        | Total minimum rental payments |                        | $      | 62,522 | 
|                        |                               |                        |        |       

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Note 10  Short-Term
Borrowings

Short-term borrowings are summarized as follows:

|                                                 |  |                        |         |      |  |   |         |  
|------------------------------------------------ |  | ---------------------- | ------- | ---- |  | - | ------- | -
|                                                 |  |                       
|                                                 |  | December 31,          
|                                                 |  |                       
|                                                 |  | 2003                   |         | 2002
|                                                 |  |                        |         |     
|                                                 |  |                       
|                                                 |  | (Dollars in thousands)
|Drafts payable related to mortgage loan closings |  | $                      | 72,686  |      |  | $ | 200,701 |  
|Commercial paper                                 |  |                        | 16,415  |      |  |   | 14,121  |  
|Federal Home Loan Bank borrowings                |  |                        | 286,000 |      |  |   | 527,000 |  
|Federal funds                                    |  |                        | 53,600  |      |  |   | 30,000  |  
|Lines of credit and other borrowings             |  |                        | 1,057   |      |  |   | 221,302 |  
|                                                 |  |                        |         |      |  |   |         |  
|                                                 |  | $                      | 429,758 |      |  | $ | 993,124 |  
|                                                 |  |                        |         |      |  |   |         |  
|Weighted average interest rate                   |  |                        | 1.61    | %    |  |   | 2.30    | %

Drafts payable are related to mortgage closings
at the end of December which 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.

Commercial paper is payable to a company
controlled by a significant shareholder and director of the
Corporation.

Federal Home Loan Bank borrowings are
collateralized by $1.0 billion in loans and loans held for
sale at December 31, 2003.

At December 31, 2003 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 1.60% to 2.37%.

Note 11  Collateralized
Borrowings

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 by
failing the true-sale requirements of SFAS 140 as we maintain
effective control over the loans and leases securitized. This
type of structure results in cash being received, debt being
recorded, and the establishment of an allowance for credit
losses. The notes associated with these transactions are
collateralized by $0.6 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. We have an interest
only senior note on both securitizations at the home equity
lending line of business which as of December 31, 2003 had
a combined notional balance of $61.7 million (which does
not represent the amount at risk). These senior notes pay
interest at 10% and mature on December 25, 2004 and
September 25, 2005.

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Collateralized borrowings are summarized as
follows:

|                                    |                                         |                        |           |                        |  |              |      |              |  |   |        |         |         |  |       |         |         | 
|----------------------------------- | --------------------------------------- | ---------------------- | --------- | ---------------------- |  | ------------ | ---- | ------------ |  | - | ------ | ------- | ------- |  | ----- | ------- | ------- | 
|                                    |                                         |                        |           | Interest Rate at       |  |              |      |             
|                                    |                                         |                        |           | December 31,           |  | December 31, |      | December 31,
|                                    |                                         | Contractual Maturity   |           | 2003                   |  | 2003         |      | 2002        
|                                    |                                         |                        |           |                        |  |              |      |             
|                                    |                                         |                       
|                                    |                                         | (Dollars in thousands)
|Commercial finance line of business |                                         |                        |           |                        |  |              |      |              |  |   |        |         |         |  |       |        
|2003 domestic asset backed note     |                                         |                        | 7/4/2010  |                        |  |              | 2.14 | %            |  | $ | 51,694 |         |         |  |       |        
|2003 Canadian asset backed note     |                                         |                        | 11/1/2008 |                        |  |              | 3.63 |              |  |   | 77,902 |         |         |  |       |        
|Home equity line of business        |                                         |                        |           |                        |  |              |      |              |  |   |        |         |         |  |       |        
|2003-1 asset backed notes:          |                                         |                        |           |                        |  |              |      |              |  |   |        |         |         |  |       |        
|                                    | Combined variable rate senior note      |                        |           | 2/28/2028              |  |              |      | 1.66         |  |   |        | 160,874 |         |  |       |         |        
|                                    | Combined variable rate subordinate note |                        |           | 2/28/2028              |  |              |      | 3.18         |  |   |        | 61,763  |         |  |       |         |        
|                                    | Unamortized premium/discount            |                        |           |                        |  |              |      |              |  |   |        | 4,446   |         |  |       |         |        
|2002-1 asset backed notes:          |                                         |                        |           |                        |  |              |      |              |  |   |        |         |         |  |       |        
|                                    | Combined variable rate senior note      |                        |           | 7/25/2023 to 6/25/2029 |  |              |      | 1.40         |  |   |        | 156,699 |         |  |       | 312,997 |        
|                                    | Combined variable rate subordinate note |                        |           | 2/25/2029              |  |              |      | 2.69         |  |   |        | 72,551  |         |  |       | 72,551  |        
|Unamortized premium/discount        |                                         |                        |           |                        |  |              |      |              |  |   | 4,202  |         |         |  | 5,877 |        
|                                    |                                         |                        |           |                        |  |              |      |              |  |   |        |         |         |  |       |        
|                                    |                                         | Total                  |           |                        |  |              |      |              |  |   |        | $       | 590,131 |  |       | $       | 391,425 | 
|                                    |                                         |                        |           |                        |  |              |      |              |  |   |        |         |         |  |       |        

Note 12  Other Long-Term
Debt

At December 31, 2003 and 2002 we had
$270 million and $30 million, respectively, 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 as well as a mortgage note outstanding for
$0.1 million with an interest rate of 8.50% and a maturity
date of April 2008.

We also have obligations represented by
subordinated debentures at December 31, 2003 of
$240 million and trust preferred securities prior to that
date of $233 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 not consolidating
these trusts. Refer to Note 1 for information regarding the
accounting change for these securities. These debentures are the
sole assets of these trusts as of December 31, 2003. All
debentures and securities are callable at par after five years
from origination date. These securities are all Tier 1
qualifying capital at December 31, 2003. In the fourth
quarter of 2003 we redeemed IFC Capital Trust I for
$50 million and issued IFC Statutory Trust VII for
$50 million. In

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connection with this redemption, we wrote off
$1.6 million of unamortized bond issuance costs. Highlights
about these debentures and the related trusts are listed below:


|                        |  |                        |          |                  |  |          |       |              |  |             |          |       |  |   |         |  |  |   |         |  |  |                                                                                              |  | 
|----------------------- |  | ---------------------- | -------- | ---------------- |  | -------- | ----- | ------------ |  | ----------- | -------- | ----- |  | - | ------- |  |  | - | ------- |  |  | -------------------------------------------------------------------------------------------- |  | 
|                        |  |                        |          |                  |  |          |       | Subordinated |  | Securities  |          |      
|                        |  |                        |          |                  |  |          |       | Debt         |  | Outstanding |          |      
|                        |  |                        |          |                  |  |          |       |              |  |             |          |      
|                        |  |                        |          |                  |  |          |       |              |  |            
|                        |  |                        |          | Interest Rate at |  |          |       | December 31, |  |            
|                        |  | Origination            |          | December 31,     |  | Maturity |       |              |  |            
|Name                    |  | Date                   |          | 2003             |  | Date     |       | 2003         |  | 2002        |          | Other
|                        |  |                        |          |                  |  |          |       |              |  |             |          |      
|                        |  |                       
|                        |  | (Dollars in thousands)
|IFC Capital Trust I     |  |                        | Jan 1997 |                  |  |          | 9.25  | %            |  |             | Mar 2027 |       |  | $ |        |  |  | $ | 50,000  |  |  |                                                                                              |  | 
|IFC Capital Trust II    |  |                        | Nov 2000 |                  |  |          | 10.50 |              |  |             | Sep 2030 |       |  |   | 53,351  |  |  |   | 51,750  |  |  |                                                                                              |  | 
|IFC Capital Trust III   |  |                        | Nov 2000 |                  |  |          | 8.75  |              |  |             | Sep 2030 |       |  |   | 53,268  |  |  |   | 51,750  |  |  | initial conversion ratio of 1.261 shares of common stock to 1 convertible preferred security
|IFC Capital Trust IV    |  |                        | Jul 2001 |                  |  |          | 10.25 |              |  |             | Jul 2031 |       |  |   | 15,464  |  |  |   | 15,000  |  |  |                                                                                              |  | 
|IFC Capital Trust V     |  |                        | Nov 2001 |                  |  |          | 9.95  |              |  |             | Nov 2031 |       |  |   | 30,928  |  |  |   | 30,000  |  |  |                                                                                              |  | 
|IFC Capital Trust VI    |  |                        | Oct 2002 |                  |  |          | 8.70  |              |  |             | Sep 2032 |       |  |   | 35,567  |  |  |   | 34,500  |  |  |                                                                                              |  | 
|IFC Statutory Trust VII |  |                        | Nov 2003 |                  |  |          | 4.08  |              |  |             | Nov 2033 |       |  |   | 51,547  |  |  |   |        |  |  | rate changes quarterly at three month LIBOR plus 290 basis points                           
|                        |  |                        |          |                  |  |          |       |              |  |             |          |       |  |   |         |  |  |   |         |  |  |                                                                                              |  | 
|                        |  |                        |          |                  |  |          |       |              |  |             |          |       |  | $ | 240,125 |  |  | $ | 233,000 |  |  |                                                                                              |  | 
|                        |  |                        |          |                  |  |          |       |              |  |             |          |       |  |   |         |  |  |   |         |  |  |                                                                                              |  | 

Note 13  Commitments and
Contingencies

Our indirect subsidiary, Irwin Mortgage
Corporation, is a defendant in a class action lawsuit in the
United States District Court for the Northern District of
Alabama 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 this 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.

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.

As discussed in prior periodic reports, other
cases filed against our mortgage subsidiary alleging RESPA and
violations similar to those in this case were settled in 2003
for nonmaterial amounts. 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

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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.


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. The Irwin companies filed
a motion to dismiss on February 12, 2001. On August 10,
2001, the court granted our motion in part by dismissing Irwin
Financial and Irwin Equipment Finance as defendants in the suit.
In June, 2003, Irwin Leasing filed a motion for summary
judgment. Oral argument was held on August 27, 2003. On
October 8, 2003, the court granted Irwin Leasings
motion for summary judgment, dismissing the plaintiffs
complaint. On October 22, 2003, the plaintiff filed a
notice of appeal. The appeal is currently in the briefing
process. We have not established any reserves for this case.
Although we believe the trial courts decision is
well-reasoned, we cannot predict at this time whether we will
prevail on appeal.

Our subsidiary, Irwin Union Bank and Trust
Company, is a defendant in a class action lawsuit, filed in the
U.S. District Court in Massachusetts in July 2001. The case
involves loans purchased by Irwin Union Bank and Trust from an
unaffiliated third-party originator. The plaintiffs allege 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 seeks rescission of the loans and other damages.

On September 30, 2002, the court granted
plaintiffs motion for certification of a class, subject to
certain limitations. In October 2002, we filed a motion for
reconsideration with the district court and a petition for
permission to appeal the class certification decision with the
Court of Appeals for the 1st Circuit. In May 2003, the district
court denied our motion for summary judgment and denied in part
our motion for reconsideration of class decertification.
However, the court further restricted membership in the
plaintiff class. In October 2003, the court of appeals denied
our application for appellate review of the district
courts certification of the class.

As originally specified, the plaintiff class was
limited to those borrowers who obtained a mortgage loan
originated with prepayment penalty provisions by the third-party
originator during the three-year period prior to the filing of
the suit. As more recently defined by the court, the class has
been further restricted to those borrowers who refinanced their
loans and paid a prepayment penalty. Only high-rate loans that
are subject to the provisions of the Home Ownership and Equity
Protection Act of 1994 would be included in the class.

Limited discovery on issues pertaining to class
certification and the merits of plaintiffs individual
claim has been conducted. The actual number of plaintiff
borrowers will be determined only after a review of loan files.
Nevertheless, after performing a limited analysis of the
approximately 200 loans acquired directly from the third-party
originator and the approximately 7,800 loans acquired from
others through bulk acquisitions that may include loans from the
third-party originator, we believe that fewer than 100 loans
will qualify for inclusion in the class. Because this case is in
the early stages of litigation, we are unable to form a
reasonable estimate of potential loss, if any, and have not
established any reserves related to this case.

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 $1.4
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

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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 is
considering whether to appeal further. We have reserved for this
case based upon advice of our legal counsel.


In April 2003, our indirect subsidiary, Irwin
Mortgage Corporation, was named as a defendant in an action
filed in the Marion County, Indiana, Circuit 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. The plaintiff is seeking to certify a
class consisting of Indiana borrowers who were charged the fee
during the six-year period prior to the filing of the lawsuit.
Irwin Mortgage filed an answer on June 11, 2003 and a
motion for summary judgment on October 27, 2003. On
November 3, 2003, the court ruled that a determination on
class certification will precede any action on Irwin
Mortgages summary judgment motion. On January 9,
2004, the Plaintiff filed a Supplemental Brief and Submission of
Additional Evidence in Support of Class Certification. A hearing
on plaintiffs summary judgment motion is scheduled for
March 15, 2004. 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. We have not established any reserves for
this case.

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 alleges 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 are seeking to
certify a class consisting of similarly situated borrowers.
Irwin Mortgage filed an answer on July 11, 2003 and
responded to plaintiffs initial discovery requests on
December 19, 2003. 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. We have not established any reserves for
this case.

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 $41,000,000 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. However, 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.

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, based upon the advice
of legal counsel.



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

In the normal course of business 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.

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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, 2003 and 2002 were
$546.5 million and $495.6 million, respectively. These
loan commitments include $418.6 million of floating rate
loan commitments and $127.9 million of fixed rate loan
commitments. We had approximately $30.8 million and
$24.6 million in irrevocable standby letters of credit
outstanding at December 31, 2003 and 2002, 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 consolidated income statements. While we do not seek hedge
accounting treatment for the assets that these instruments are
hedging, the economic purpose of these instruments is to manage
the risk inherent in existing exposures to either interest rate
risk or foreign currency risk.

We 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, 2003. 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 gain of $0.3 million included in other income
during the year ended December 31, 2003 related to this
swap.

We enter into forward contracts to protect
against interest rate fluctuations from the date of mortgage
loan commitment until the loans are sold. At December 31,
2003, we designated the portion of these transactions hedging
the closed mortgage loans as hedges that qualify for hedge
accounting treatment under SFAS 133. The notional amount of
our forward contracts (which does not represent the amount at
risk) totaled $0.9 billion and $2.2 billion at
December 31, 2003 and 2002, respectively. 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, 2003 was
$3.2 million and the hedge ineffectiveness for the year
then ended was a loss of $16.2 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 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 and are
recorded at fair value. We value these commitments at period end
based upon the current secondary market value of securities with
similar characteristics. A net decrease in fair value of these
derivatives totaling $27.6 million was recorded in 2003 as
gain from sale of loans. At December 31, 2003, we had a
notional amount of rate lock commitments outstanding totaling
$0.7 billion with a fair value of $3.8 million.
Notional amounts do not represent the amount at risk.

Our commercial finance line of business has, on
four occasions in 2003, delivered fixed rate leases into
conduits that fund them using floating rate commercial paper,
which creates an interest rate risk mismatch.



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | In two instances, this funding mismatch is hedged
    with 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 year end, the
    notional value and year-to-date loss on the interest rate caps
    were $47.8 million and $0.1 million, respectively. In
    addition, we also used Eurodollar futures contracts to hedge
    rate risk in this structure. As of December 31, 2003, the
    total notional amount and year-to-date gain on the Eurodollar
    futures were $120.0 million and gain of $0.1 million,
    respectively.
|
| |  | In the fourth quarter of 2003, we delivered fixed
    rate leases into a second commercial paper conduit. Although the
    leases and funding were in Canadian dollars (CAD), the interest
    rate mismatch was                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

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| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | similar in nature to that described above. To
    hedge the mismatch between fixed rate CAD-denominated leases and
    floating rate CAD commercial paper, we entered into an
    amortizing CAD interest rate swap in which we pay a fixed rate
    of interest and receive a floating rate. The
    U.S. dollar-equivalents of the CAD-based notional amounts
    and year-to-date gain on these swaps at December 31, 2003
    were $74.5 million and $33 thousand, respectively.

Our home equity line of business originates a
relatively small amount of first mortgage loans. We enter into
forward commitments to protect against interest rate
fluctuations between the date of origination and the date a sale
price is locked in. These loans are typically sold within a
month of origination. As of year end, we had outstanding
commitments with a notional amount of $2.4 million. We
recorded derivative loss on this activity of $0.2 million
in 2003.

Certain of our home equity fixed rate residual
interests are funded with floating rate liabilities. To manage
such mismatches, we own three interest rate caps, which had a
fair value of $0.8 million and a notional amount of
$56.6 million at December 31, 2003. We classify
interest rate caps as other assets on the consolidated balance
sheets and carry them at their fair values. Two of the interest
rate caps qualify for cash flow hedge accounting treatment under
SFAS 133. As a result, a negative adjustment to fair value
of $25 thousand, net of tax, on these cash flow derivatives was
recorded through accumulated other comprehensive income in 2003.
We record adjustments to fair value for the third interest rate
cap, which does not qualify for hedge accounting, as other
income on the consolidated income statements. For the year ended
December 31, 2003, we recorded a $14 thousand loss related
to this derivative product.

We manage the interest rate risk associated with
our mortgage servicing rights through the use of Eurodollar
futures contracts and interest rate options. The financial
instrument underlying the Eurodollar futures contracts is based
on the three-month LIBOR rate. For the year ended
December 31, 2003, we recorded losses of $0.3 million
on these derivatives. Both the futures contracts and options
were marked-to-market and included in other assets with changes
in value recorded in the consolidated income statements as
derivative gains. At December 31, 2003, we held
$8 billion in notional amount of Eurodollar contracts, with
expiration that ranged from the first quarter 2004 to the fourth
quarter of 2009. We also held open swaption positions with a
notional value totaling $10 billion at December 31,
2003, with a final maturity of January 2, 2004. For the
year ended December 31, 2003, we recorded losses on
swaptions, including premiums paid, totaling $21.2 million.
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. Notional amounts do not represent
the amount of risk.

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 $79.1 million in
forward contracts outstanding as of December 31, 2003. For
the year ended December 31, 2003, we recognized losses on
these contracts of $23.0 million. These contracts are
marked to market with gains and losses included in other expense
on the consolidated income statements. The foreign currency
transaction gain on the intercompany loans was
$22.2 million for the year ended December 31, 2003.



|          |           
|--------- | ----------
|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, 2003 and 2002, we had approximately
$21.6 million and $10.8 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,

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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
$22.9 billion in 2003 and $11.0 billion in 2002.


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, 2003 and 2002, respectively, we had
approximately $0.8 million and $0.7 million recorded
as an estimate for losses that may occur as a result of the
guarantees described above based on trends in repurchase and
indemnification requests, actual loss experience, known and
inherent risks in the loans, and current economic conditions.
Total home equity loans sold for which these guarantees apply
were $0.7 billion in 2003 and $0.6 billion in 2002.

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 $49.3 million at
December 31, 2003 and $34.5 million at
December 31, 2002. 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, 2003 and 2002, we
had $2.1 million and $2.2 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, 2003 and
2002, was $0.9 million and $0.6 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 $21.4 million and $28.1 million at
December 31, 2003 and 2002, respectively.

We provide an operating performance guarantee to
a third party on behalf of one of our subsidiaries related to
borrowings to fund Canadian leases. At December 31, 2003,
our subsidiary had borrowings totaling $78 million for
which our guarantee applied.

We provide 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 charges us and credits
its customer. We then pass the charge-back on to the
depositing merchant. If for any reason the merchant is unwilling
or unable to reimburse us for its payment to the credit card
company, we must bear the loss.

We have policies and procedures in place to
evaluate customer creditworthiness prior to offering merchant
processing services to the customer. During 2003 and 2002,
respectively, we accepted approximately $60.2 million and
$53.3 million in merchant deposits and received an
estimated $0.1 million and $0.3 million in
charge-backs. We incurred no losses on these charge-backs. Any
future losses are expected to be immaterial and as such, no loss
accrual has been established.

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|          |                   
|--------- | ------------------
|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, 2003, 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.

As of December 31, 2003, we were categorized
as Well Capitalized under the regulatory framework
for Prompt Corrective Action. To be categorized as well
capitalized Irwin Financial, Irwin Union Bank and Trust, and
Irwin Union Bank, F.S.B. must exceed minimum total risk-based,
Tier I risk-based, and Tier I capital to average
assets ratios. There have been no conditions or events that we
believe have changed this category.

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, 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     |  |  |  |      |  
|As of December 31, 2002                    |                             |                        |   |             |  |             |  |       |   |        |   |         |  |  |  |     |   |  |   |         |  |  |  |     
|Total Capital (to Risk-Weighted Assets):   |                             |                        |   |             |  |             |  |       |   |        |   |         |  |  |  |     |   |  |   |         |  |  |  |     
|                                           | Irwin Financial Corporation |                        | $ | 658,156     |  |             |  | 13.2  | % |        | $ | 399,673 |  |  |  | 8.0 | % |  | $ | 499,592 |  |  |  | 10.0 | %
|                                           | Irwin Union Bank and Trust  |                        |   | 498,978     |  |             |  | 12.4  |   |        |   | 322,303 |  |  |  | 8.0 |   |  |   | 402,879 |  |  |  | 10.0 |  
|                                           | Irwin Union Bank, F.S.B     |                        |   | 28,970      |  |             |  | 21.2  |   |        |   | 10,928  |  |  |  | 8.0 |   |  |   | 13,659  |  |  |  | 10.0 |  

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|                                           |                             |                        |  |             |  |             |  |       |  |        |  |         |  |  |  |     |  |  |  |         |  |  |  |     | 
|------------------------------------------ | --------------------------- | ---------------------- |  | ----------- |  | ----------- |  | ----- |  | ------ |  | ------- |  |  |  | --- |  |  |  | ------- |  |  |  | --- | 
|                                           |                             |                        |  |             |  |             |  |      
|                                           |                             |                        |  | Adequately  |  | Well       
|                                           |                             | Actual                 |  | Capitalized |  | Capitalized
|                                           |                             |                        |  |             |  |            
|                                           |                             | Amount                 |  | Ratio       |  | Amount      |  | Ratio |  | Amount |  | Ratio  
|                                           |                             |                        |  |             |  |             |  |       |  |        |  |        
|                                           |                             |                       
|                                           |                             | (Dollars in thousands)
|Tier I Capital (to Risk-Weighted Assets):  |                             |                        |  |             |  |             |  |       |  |        |  |         |  |  |  |     |  |  |  |         |  |  |  |    
|                                           | Irwin Financial Corporation |                        |  | 462,064     |  |             |  | 9.3   |  |        |  | 199,837 |  |  |  | 4.0 |  |  |  | 299,755 |  |  |  | 6.0 | 
|                                           | Irwin Union Bank and Trust  |                        |  | 418,676     |  |             |  | 10.4  |  |        |  | 161,152 |  |  |  | 4.0 |  |  |  | 241,727 |  |  |  | 6.0 | 
|                                           | Irwin Union Bank, F.S.B     |                        |  | 28,440      |  |             |  | 20.8  |  |        |  | N/A     |  |  |  |     |  |  |  | 8,196   |  |  |  | 6.0 | 
|Tier I Capital (to Average Assets):        |                             |                        |  |             |  |             |  |       |  |        |  |         |  |  |  |     |  |  |  |         |  |  |  |    
|                                           | Irwin Financial Corporation |                        |  | 462,064     |  |             |  | 9.7   |  |        |  | 191,237 |  |  |  | 4.0 |  |  |  | 239,046 |  |  |  | 5.0 | 
|                                           | Irwin Union Bank and Trust  |                        |  | 418,676     |  |             |  | 9.8   |  |        |  | 170,877 |  |  |  | 4.0 |  |  |  | 213,597 |  |  |  | 5.0 | 
|Core Capital (to Adjusted Tangible Assets) |                             |                        |  |             |  |             |  |       |  |        |  |         |  |  |  |     |  |  |  |         |  |  |  |    
|                                           | Irwin Union Bank, F.S.B     |                        |  | 28,440      |  |             |  | 9.0   |  |        |  | 12,598  |  |  |  | 4.0 |  |  |  | 15,748  |  |  |  | 5.0 | 
|Tangible Capital (to Tangible Assets)      |                             |                        |  |             |  |             |  |       |  |        |  |         |  |  |  |     |  |  |  |         |  |  |  |    
|                                           | Irwin Union Bank, F.S.B     |                        |  | 28,440      |  |             |  | 9.0   |  |        |  | 4,724   |  |  |  | 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,
Long-term and collateralized debt, and Company-obligated
mandatorily redeemable preferred securities of subsidiary
trust: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 and servicing assets:The carrying amounts reported in the
consolidated balance sheets for residual interests approximate
those assets fair values. Fair value for residual
interests and servicing assets is calculated using the
methodologies specified in Note 1.

Investment securities:Fair values for investment securities
were based on quoted market prices when available. For
securities which had no quoted market prices, fair values were
estimated by discounting future cash flows using current rates
on similar securities.

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, 2003 and 2002. As of December 31, 2003
and 2002, our loan commitments had a notional amount of
$884.2 million and $495.6 million, respectively. Our
standby letters of credit had a notional amount of
$30.8 million and $24.6 million at December 31,
2003 and 2002, respectively.

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

|                                                                                      |  |                        |           |                |  |          |           |                |  |   |           |  |  |   |           | 
|------------------------------------------------------------------------------------- |  | ---------------------- | --------- | -------------- |  | -------- | --------- | -------------- |  | - | --------- |  |  | - | --------- | 
|                                                                                      |  |                        |           |               
|                                                                                      |  | 2003                   |           | 2002          
|                                                                                      |  |                        |           |               
|                                                                                      |  | Carrying               |           | Estimated Fair |  | Carrying |           | Estimated Fair
|                                                                                      |  | Amount                 |           | Value          |  | Amount   |           | Value         
|                                                                                      |  |                        |           |                |  |          |           |               
|                                                                                      |  |                       
|                                                                                      |  | (Dollars in thousands)
|Financial assets:                                                                     |  |                        |           |                |  |          |           |                |  |   |           |  |  |   |           | 
|Cash and cash equivalents                                                             |  | $                      | 140,810   |                |  | $        | 140,810   |                |  | $ | 157,771   |  |  | $ | 157,771   | 
|Interest-bearing deposits with financial
    institutions                             |  |                        | 81,166    |                |  |          | 81,365    |                |  |   | 34,418    |  |  |   | 35,005    | 
|Trading assets                                                                        |  |                        | 71,491    |                |  |          | 71,491    |                |  |   | 157,514   |  |  |   | 157,514   | 
|Investment securities                                                                 |  |                        | 92,525    |                |  |          | 92,540    |                |  |   | 67,948    |  |  |   | 68,243    | 
|Loans held for sale                                                                   |  |                        | 883,895   |                |  |          | 884,803   |                |  |   | 1,314,849 |  |  |   | 1,317,708 | 
|Loans and leases, net of unearned discount                                            |  |                        | 3,161,054 |                |  |          | 3,224,674 |                |  |   | 2,815,276 |  |  |   | 2,997,778 | 
|Servicing asset                                                                       |  |                        | 380,123   |                |  |          | 393,540   |                |  |   | 174,935   |  |  |   | 180,478   | 
|Derivatives                                                                           |  |                        | 12,809    |                |  |          | 12,809    |                |  |   | 50,017    |  |  |   | 50,017    | 
|Financial liabilities:                                                                |  |                        |           |                |  |          |           |                |  |   |           |  |  |   |           | 
|Deposits                                                                              |  |                        | 2,899,662 |                |  |          | 2,880,075 |                |  |   | 2,693,810 |  |  |   | 2,695,326 | 
|Short-term borrowings                                                                 |  |                        | 429,758   |                |  |          | 429,759   |                |  |   | 993,124   |  |  |   | 1,003,652 | 
|Collateralized debt                                                                   |  |                        | 590,131   |                |  |          | 581,862   |                |  |   | 391,425   |  |  |   | 394,308   | 
|Other long-term debt                                                                  |  |                        | 270,184   |                |  |          | 279,704   |                |  |   | 30,070    |  |  |   | 30,070    | 
|Derivatives                                                                           |  |                        | 29,851    |                |  |          | 29,851    |                |  |   | 15,067    |  |  |   | 15,067    | 
|Company-obligated mandatorily redeemable
    preferred securities of subsidiary trust |  |                        |          |                |  |          |          |                |  |   | 233,000   |  |  |   | 236,619   | 

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 which 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 which provides up to
300,000 shares of our common stock to be used to compensate
Business Development Board members. During 2003 and 2002,
11,289 shares and 11,099 shares were issued at a
weighted average price of $20.27 and $18.48, respectively, as
part of this plan.

We also have a stock plan to compensate our
Directors with our common stock, if so elected, in lieu of cash
for their annual retainer and meeting fees. The number of shares
issued under the plan is based on the current market value of
our common stock. In 2003 and 2002, respectively, we granted
23,776 and 6,360 shares under this plan at a weighted
average fair value of $17.14 and $17.73. 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) which 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 2,000,000 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.

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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 2003, we awarded
8,796 shares of common stock in restricted stock grants at
a weighted average fair value of $25.51 through this plan. We
did not issue any restricted stock grants in 2002.


Activity in the above plans for 2003, 2002, and
2001 is summarized as follows:

|                                         |           |           |           |                |   |           |       |                |  |           |           |                |   |   |       |       |  |  |           |          |   |   |       |       | 
|---------------------------------------- | --------- | --------- | --------- | -------------- | - | --------- | ----- | -------------- |  | --------- | --------- | -------------- | - | - | ----- | ----- |  |  | --------- | -------- | - | - | ----- | ----- | 
|                                         |           |           |           |                |   |          
|                                         |           | 2003      |           | 2002           |   | 2001     
|                                         |           |           |           |                |   |          
|                                         |           |           |           | 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 |           |           | 2,083,156 |                |   | $         | 17.22 |                |  |           | 1,673,908 |                |   | $ | 17.02 |       |  |  | 1,616,259 |          |   | $ | 13.37 |      
|                                         | Granted   |           |           | 574,421        |   |           |       | 22.36          |  |           |           | 532,180        |   |   |       | 16.10 |  |  |           | 416,197  |   |   |       | 22.13 | 
|                                         | Exercised |           |           | (420,118       | ) |           |       | 13.30          |  |           |           | (100,701       | ) |   |       | 7.19  |  |  |           | (329,053 | ) |   |       | 5.25  | 
|                                         | Canceled  |           |           | (60,494        | ) |           |       | 19.08          |  |           |           | (22,231        | ) |   |       | 20.91 |  |  |           | (29,495  | ) |   |       | 20.55 | 
|                                         |           |           |           |                |   |           |       |                |  |           |           |                |   |   |       |       |  |  |           |          |   |   |       |      
|Outstanding at the of the year           |           |           | 2,176,965 |                |   |           | 19.28 |                |  |           | 2,083,156 |                |   |   | 17.22 |       |  |  | 1,673,908 |          |   |   | 17.02 |      
|                                         |           |           |           |                |   |           |       |                |  |           |           |                |   |   |       |       |  |  |           |          |   |   |       |      
|Exercisable at the end of the year       |           |           | 1,428,465 |                |   | $         | 18.70 |                |  |           | 1,410,766 |                |   | $ | 16.89 |       |  |  | 1,162,817 |          |   | $ | 15.46 |      
|                                         |           |           |           |                |   |           |       |                |  |           |           |                |   |   |       |       |  |  |           |          |   |   |       |      

The table below show options outstanding and
exercisable by price range as of December 31, 2003.

|                         |  |                     |           |                     |  |                |      |                   |  |                |       |  |  |  |           |  |  |   |       | 
|------------------------ |  | ------------------- | --------- | ------------------- |  | -------------- | ---- | ----------------- |  | -------------- | ----- |  |  |  | --------- |  |  | - | ----- | 
|                         |  |                     |           |                    
|                         |  | 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, 2003   |           | Contractual Life    |  | Exercise Price |      | December 31, 2003 |  | Exercise Price
|                         |  |                     |           |                     |  |                |      |                   |  |               
|$ 7.84 - $15.31          |  |                     | 312,087   |                     |  |                | 2.67 |                   |  | $              | 11.15 |  |  |  | 312,087   |  |  | $ | 11.15 | 
|$15.65 - $16.50          |  |                     | 399,378   |                     |  |                | 8.10 |                   |  |                | 15.67 |  |  |  | 195,058   |  |  |   | 15.68 | 
|$16.96 - $21.38          |  |                     | 573,766   |                     |  |                | 7.18 |                   |  |                | 19.43 |  |  |  | 449,460   |  |  |   | 19.17 | 
|$21.97 - $22.46          |  |                     | 510,925   |                     |  |                | 9.30 |                   |  |                | 22.46 |  |  |  | 127,075   |  |  |   | 22.45 | 
|$22.63 - $31.44          |  |                     | 380,809   |                     |  |                | 5.77 |                   |  |                | 25.24 |  |  |  | 344,785   |  |  |   | 25.26 | 
|                         |  |                     |           |                     |  |                |      |                   |  |                |       |  |  |  |           |  |  |   |       | 
|$ 7.84 - $31.44          |  |                     | 2,176,965 |                     |  |                | 6.95 |                   |  | $              | 19.28 |  |  |  | 1,428,465 |  |  | $ | 18.70 | 
|                         |  |                     |           |                     |  |                |      |                   |  |                |       |  |  |  |           |  |  |   |       | 

On June 30, 2002 our 96,336 of preferred
shares met the conversion requirements and converted at 1.25x to
common shares.

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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)
|2003 |                                                                           |                                                  |   |           |  |           |   |             |   |           |   |       |   |  |   |       |   |  |   |       
|     | Net income                                                                |                                                  | $ | 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 before cumulative effect of change in
    accounting principle |                                                  | $ | 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   | 
|     |                                                                           |                                                  |   |           |  |           |   |             |   |           |   |       |   |  |   |       |   |  |   |       
|2001 |                                                                           |                                                  |   |           |  |           |   |             |   |           |   |       |   |  |   |       |   |  |   |       
|     | Net income before cumulative effect of change in
    accounting principle |                                                  | $ | 45,341    |  |           | $ |            |   |           | $ |      |   |  | $ | 2,801 |   |  | $ | 48,142 | 
|     | Shares                                                                    |                                                  |   | 21,175    |  |           |   | 292         |   |           |   | 96    |   |  |   | 2,610 |   |  |   | 24,173 | 
|     |                                                                           |                                                  |   |           |  |           |   |             |   |           |   |       |   |  |   |       |   |  |   |       
|     | Per-share amount                                                          |                                                  |   | 2.14      |  |           |   | (0.03       | ) |           |   | (0.01 | ) |  |   | (0.11 | ) |  |   | 1.99   | 
|     |                                                                           |                                                  |   |           |  |           |   |             |   |           |   |       |   |  |   |       |   |  |   |       
|     | Cumulative effect of change in accounting
    principle                   |                                                  |   | 175       |  |           |   |             |   |           |   |       |   |  |   |       |   |  |   | 175    | 
|     |                                                                           |                                                  |   |           |  |           |   |             |   |           |   |       |   |  |   |       |   |  |   |       
|     | Per-share amount                                                          |                                                  |   | 0.01      |  |           |   |             |   |           |   |       |   |  |   |       |   |  |   | 0.01   | 
|     |                                                                           |                                                  |   |           |  |           |   |             |   |           |   |       |   |  |   |       |   |  |   |       
|     | Net income                                                                |                                                  |   | 45,516    |  |           |   |             |   |           |   |       |   |  |   |       |   |  |   | 48,317 | 
|     |                                                                           |                                                  |   |           |  |           |   |             |   |           |   |       |   |  |   |       |   |  |   |       
|     | Per-share amount                                                          |                                                  | $ | 2.15      |  |           |   |             |   |           |   |       |   |  |   |       |   |  | $ | 2.00   | 
|     |                                                                           |                                                  |   |           |  |           |   |             |   |           |   |       |   |  |   |       |   |  |   |       

In 2003, 2002 and 2001, 398,544, 758,030 and
562,764 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. Our
subsidiary, Onset Capital (and related entities) files and pays
taxes to certain Canadian revenue authorities.

105



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


|                    |         |                        |        |        |   |      |         |         |   |   |        |        | 
|------------------- | ------- | ---------------------- | ------ | ------ | - | ---- | ------- | ------- | - | - | ------ | ------ | 
|                    |         | 2003                   |        | 2002   |   | 2001
|                    |         |                        |        |        |   |     
|                    |         |                       
|                    |         | (Dollars in thousands)
|Current:            |         |                        |        |        |   |      |         |         |   |   |        |       
|                    | Federal |                        | $      | (254   | ) |      | $       | 71,309  |   |   | $      | 2,580  | 
|                    | State   |                        |        | 384    |   |      |         | 17,260  |   |   |        | 34     | 
|                    | Foreign |                        |        | 2,196  |   |      |         |        |   |   |        |       | 
|                    |         |                        |        |        |   |      |         |         |   |   |        |       
|                    |         |                        | 2,326  |        |   |      | 88,569  |         |   |   | 2,614  |       
|                    |         |                        |        |        |   |      |         |         |   |   |        |       
|Deferred:           |         |                        |        |        |   |      |         |         |   |   |        |       
|                    | Federal |                        |        | 36,627 |   |      |         | (44,551 | ) |   |        | 22,876 | 
|                    | State   |                        |        | 8,732  |   |      |         | (10,620 | ) |   |        | 3,369  | 
|                    | Foreign |                        |        | (2,100 | ) |      |         |        |   |   |        |       | 
|                    |         |                        |        |        |   |      |         |         |   |   |        |       
|                    |         |                        | 43,259 |        |   |      | (55,171 | )       |   |   | 26,245 |       
|                    |         |                        |        |        |   |      |         |         |   |   |        |       
|Income tax expense: |         |                        |        |        |   |      |         |         |   |   |        |       
|                    | Federal |                        |        | 36,373 |   |      |         | 26,758  |   |   |        | 25,456 | 
|                    | State   |                        |        | 9,116  |   |      |         | 6,640   |   |   |        | 3,403  | 
|                    | Foreign |                        |        | 96     |   |      |         |        |   |   |        |       | 
|                    |         |                        |        |        |   |      |         |         |   |   |        |       
|                    |         | $                      | 45,585 |        |   | $    | 33,398  |         |   | $ | 28,859 |       
|                    |         |                        |        |        |   |      |         |         |   |   |        |       

Our deferred tax assets and liabilities consisted
of the following:

|                          |                                     |                        |          |          |   |   |         |         |  
|------------------------- | ----------------------------------- | ---------------------- | -------- | -------- | - | - | ------- | ------- | -
|                          |                                     |                       
|                          |                                     | December 31,          
|                          |                                     |                       
|                          |                                     | 2003                   |          | 2002    
|                          |                                     |                        |          |         
|                          |                                     |                       
|                          |                                     | (Dollars in thousands)
|Deferred tax assets:      |                                     |                        |          |          |   |   |         |        
|                          | Deferred securitization income      |                        |          | 5,406    |   |   |         |        |  
|                          | Loan and lease loss reserve         |                        |          | 34,348   |   |   |         | 26,836  |  
|                          | Deferred origination fees and costs |                        |          | 1,326    |   |   |         | 4,495   |  
|                          | Deferred compensation               |                        |          | 5,542    |   |   |         | 5,857   |  
|                          | Mark to market                      |                        |          | 4,921    |   |   |         | 2,175   |  
|                          | Net operating loss carryforward     |                        |          | 4,907    |   |   |         |        |  
|                          | Other, net                          |                        |          | 3,699    |   |   |         | 1,023   |  
|                          |                                     |                        |          |          |   |   |         |        
|                          |                                     |                        | 60,149   |          |   |   | 40,386  |        
|                          |                                     |                        |          |          |   |   |         |        
|Deferred tax liabilities: |                                     |                        |          |          |   |   |         |        
|                          | Mortgage servicing                  |                        | $        | (142,485 | ) |   | $       | (55,898 | )
|                          | Deferred securitization income      |                        |          |         |   |   |         | (22,181 | )
|                          | Retirement benefits                 |                        |          | (284     | ) |   |         | (1,078  | )
|                          | Fixed assets                        |                        |          | (3,807   | ) |   |         | (4,397  | )
|                          |                                     |                        |          |          |   |   |         |        
|                          |                                     | $                      | (146,576 | )        |   | $ | (83,554 | )      
|                          |                                     |                        |          |          |   |   |         |        
|                          | Net deferred tax liability          |                        | $        | (86,427  | ) |   | $       | (43,168 | )
|                          |                                     |                        |          |          |   |   |         |        

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

|                                            |                                                              |                        |        |        |   |      |        |       |   |   |        |       |  
|------------------------------------------- | ------------------------------------------------------------ | ---------------------- | ------ | ------ | - | ---- | ------ | ----- | - | - | ------ | ----- | -
|                                            |                                                              | 2003                   |        | 2002   |   | 2001
|                                            |                                                              |                        |        |        |   |     
|                                            |                                                              |                       
|                                            |                                                              | (Dollars in thousands)
|Income taxes computed at the statutory rate |                                                              | $                      | 41,441 |        |   | $    | 30,181 |       |   | $ | 25,969 |      
|Increase (decrease) resulting from:         |                                                              |                        |        |        |   |      |        |       |   |   |        |      
|                                            | Nontaxable interest from investment securities
    and loans |                        |        | (115   | ) |      |        | (127  | ) |   |        | (141  | )
|                                            | State tax, net of federal benefit                            |                        |        | 5,926  |   |      |        | 4,316 |   |   |        | 2,212 |  
|                                            | Foreign operations                                           |                        |        | (1,112 | ) |      |        |      |   |   |        |      |  
|                                            | Other items  net                                            |                        |        | (555   | ) |      |        | (972  | ) |   |        | 819   |  
|                                            |                                                              |                        |        |        |   |      |        |       |   |   |        |      
|                                            |                                                              | $                      | 45,585 |        |   | $    | 33,398 |       |   | $ | 28,859 |      
|                                            |                                                              |                        |        |        |   |      |        |       |   |   |        |      

Note 22  Employee Retirement
Plans

We have contributory retirement and savings plans
which 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, 2003, 2002 and 2001 was
$2.7 million, $2.0 million and $1.5 million,
respectively.

We have a defined benefit plan covering eligible
employees of adopting subsidiaries. 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,  
|                                     |                                               |               
|                                     |                                               | 2003           |        | 2002  
|                                     |                                               |                |        |       
|                                     |                                               |               
|                                     |                                               | (In thousands)
|Change in benefit obligation         |                                               |                |        |        |  |   |        |       
|Benefit obligation at January 1,     |                                               | $              | 19,317 |        |  | $ | 15,501 |       
|Service cost                         |                                               |                | 1,395  |        |  |   | 1,122  |       
|Interest cost                        |                                               |                | 1,295  |        |  |   | 1,149  |       
|Amendments                           |                                               |                |       |        |  |   | 305    |       
|Actuarial loss                       |                                               |                | 2,861  |        |  |   | 1,604  |       
|Benefits paid                        |                                               |                | (547   | )      |  |   | (364   | )     
|                                     |                                               |                |        |        |  |   |        |       
|Benefit obligation at December 31,   |                                               | $              | 24,321 |        |  | $ | 19,317 |       
|                                     |                                               |                |        |        |  |   |        |       
|Change in plan assets:               |                                               |                |        |        |  |   |        |       
|Fair value plan assets at January 1, |                                               | $              | 15,963 |        |  | $ | 13,361 |       
|Actual return on plan assets         |                                               |                | 4,236  |        |  |   | (2,034 | )     
|Benefits paid                        |                                               |                | (547   | )      |  |   | (364   | )     
|Employer contributions               |                                               |                | 900    |        |  |   | 5,000  |       
|                                     |                                               |                |        |        |  |   |        |       
|                                     | Fair value plan assets at December 31,        |                | $      | 20,552 |  |   | $      | 15,963 | 
|                                     |                                               |                |        |        |  |   |        |       
|Funded status                        |                                               |                | (3,769 | )      |  |   | (3,354 | )     
|Unrecognized prior service cost      |                                               |                | 347    |        |  |   | 384    |       
|Unrecognized net actuarial loss      |                                               |                | 8,834  |        |  |   | 9,641  |       
|                                     |                                               |                |        |        |  |   |        |       
|                                     | Net amount recognized as prepaid pension cost |                | $      | 5,412  |  |   | $      | 6,671  | 
|                                     |                                               |                |        |        |  |   |        |       

The accumulated benefit obligation for our plan
was $19.7 million and $15.8 million at
December 31, 2003 and 2002, respectively.

The net pension cost for 2003, 2002 and 2001
included the following components:

|                                   |                  |                |        |       |  |      |        |       |  |   |      |     | 
|---------------------------------- | ---------------- | -------------- | ------ | ----- |  | ---- | ------ | ----- |  | - | ---- | --- | 
|                                   |                  | 2003           |        | 2002  |  | 2001
|                                   |                  |                |        |       |  |     
|                                   |                  |               
|                                   |                  | (In thousands)
|Service cost                       |                  | $              | 1,395  |       |  | $    | 1,122  |       |  | $ | 750  |    
|Interest cost                      |                  |                | 1,295  |       |  |      | 1,149  |       |  |   | 971  |    
|Expected return on plan assets     |                  |                | (1,252 | )     |  |      | (1,112 | )     |  |   | (888 | )  
|Amortization of prior service cost |                  |                | 37     |       |  |      | 52     |       |  |   | 25   |    
|Amortization of actuarial loss     |                  |                | 684    |       |  |      | 396    |       |  |   | 123  |    
|                                   |                  |                |        |       |  |      |        |       |  |   |      |    
|                                   | Net pension cost |                | $      | 2,159 |  |      | $      | 1,607 |  |   | $    | 981 | 
|                                   |                  |                |        |       |  |      |        |       |  |   |      |    

Assumptions:

|                              |                                                                     |                                       |  |      |      |   |  |  |      |  
|----------------------------- | ------------------------------------------------------------------- | ------------------------------------- |  | ---- | ---- | - |  |  | ---- | -
|                              |                                                                     | 2003                                  |  | 2002
|                              |                                                                     |                                       |  |     
|Weighted average assumptions: |                                                                     |                                       |  |      |      |   |  | 
|                              | To determine benefit obligations at
    December 31,                |                                       |  |      |      |   |  |  |     
|                              |                                                                     | Discount rate                         |  |      | 6.00 | % |  |  | 6.75 | %
|                              |                                                                     | Rate of average compensation increase |  |      | 3.83 | % |  |  | 3.83 | %
|                              | To determine net periodic cost for the years
    ended December 31, |                                       |  |      |      |   |  |  |     
|                              |                                                                     | Discount rate                         |  |      | 6.75 | % |  |  | 7.00 | %
|                              |                                                                     | Return on plan assets                 |  |      | 8.00 | % |  |  | 8.50 | %
|                              |                                                                     | Rate of average compensation increase |  |      | 3.83 | % |  |  | 3.83 | %

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To develop the expected long-term rate of return
on plan assets assumption, we considered the historical returns
and the future expectations for returns for each asset class, as
well as the target asset allocation of the pension 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, 2002, and 2003, and target allocation for
2004, by asset category are as follows:

|                  |  |               |     |      |  |  |     |  
|----------------- |  | ------------- | --- | ---- |  |  | --- | -
|                  |  |              
|                  |  | Percentage of
|                  |  | Plan Assets  
|                  |  |              
|Asset Category    |  | 2003          |     | 2002
|                  |  |               |     |     
|Equity securities |  |               | 78  | %    |  |  | 54  | %
|Corporate bonds   |  |               | 16  |      |  |  | 14  |  
|Cash equivalents  |  |               | 6   |      |  |  | 32  |  
|                  |  |               |     |      |  |  |     |  
|                  |  |               | 100 | %    |  |  | 100 | %
|                  |  |               |     |      |  |  |     |  

|                  |               |            |        |        | 
|----------------- | ------------- | ---------- | ------ | ------ | 
|                  |               | Target    
|                  |               | Allocation
|Asset Category    |               | 2004      
|                  |               |           
|Equity securities |               |            |        |       
|                  | Domestic      |            |        | 50-65% | 
|                  | International |            |        | 15-25% | 
|Corporate bonds   |               |            | 15-25% |       
|Cash equivalents  |               |            | 0-10%  |       

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 $0.9 million and $5.0 million
to the plan on December 31, 2003 and 2002, 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, 2003, the percentage of plan assets by
category above is skewed. We currently do not expect to make a
contribution to the pension plan in 2004.

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Estimated future benefit payments (in thousands):

|                |  |   |       | 
|--------------- |  | - | ----- | 
|2004            |  | $ | 682   | 
|2005            |  |   | 762   | 
|2006            |  |   | 779   | 
|2007            |  |   | 814   | 
|2008            |  |   | 909   | 
|Years 2009-2013 |  |   | 6,841 | 

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
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 2003, 2002,
and 2001:

|                       |                         |                        |           |            |  |             |           |            |  |         |           |         |   |              |         |        |  |   |        |        |   |   |         |         |   |   |           |         | 
|---------------------- | ----------------------- | ---------------------- | --------- | ---------- |  | ----------- | --------- | ---------- |  | ------- | --------- | ------- | - | ------------ | ------- | ------ |  | - | ------ | ------ | - | - | ------- | ------- | - | - | --------- | ------- | 
|                       |                         | Mortgage               |           | Commercial |  | Home Equity |           | Commercial |  | Venture |           |         |   |             
|                       |                         | Banking                |           | Banking    |  | Lending     |           | Finance    |  | Capital |           | Other   |   | Consolidated
|                       |                         |                        |           |            |  |             |           |            |  |         |           |         |   |             
|                       |                         |                       
|                       |                         | (Dollars in thousands)
|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   | )       |   |              | 6,671   |        |  |   | (2,668 | )      |   |   | (2,250  | )       |   |   | 329,299   |        
|Intersegment revenues  |                         |                        |          |            |  |             |          |            |  |         |          |         |   |              |        |        |  |   | 600    |        |   |   | (600    | )       |   |   |          |        
|                       |                         |                        |           |            |  |             |           |            |  |         |           |         |   |              |         |        |  |   |        |        |   |   |         |         |   |   |           |        
|                       | Total net revenues      |                        |           | 397,647    |  |             |           | 94,173     |  |         |           | 57,445  |   |              |         | 18,129 |  |   |        | (2,278 | ) |   |         | (11,515 | ) |   |           | 553,601 | 
|Other expense          |                         |                        | 265,118   |            |  |             | 55,196    |            |  |         | 87,771    |         |   |              | 15,342  |        |  |   | 548    |        |   |   | 11,224  |         |   |   | 435,199   |        
|Intersegment expenses  |                         |                        | 2,762     |            |  |             | 1,503     |            |  |         | 2,767     |         |   |              | 533     |        |  |   |       |        |   |   | (7,565  | )       |   |   |          |        
|                       |                         |                        |           |            |  |             |           |            |  |         |           |         |   |              |         |        |  |   |        |        |   |   |         |         |   |   |           |        
|                       | Net income 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  | )       |   |   | (230   | )       |   |   | 234,996   |        
|Intersegment revenues                                   |                                                                       |                        |          |            |  |             |          |            |  |         |        |         |  |              |        |        |   |   | 534     |         |   |   | (534   | )       |   |   |          |        
|                                                        |                                                                       |                        |           |            |  |             |           |            |  |         |         |         |  |              |         |        |   |   |         |         |   |   |        |         |   |   |           |        
|                                                        | Total net revenues                                                    |                        |           | 248,368    |  |             |           | 76,123     |  |         |         | 80,263  |  |              |         | 11,056 |   |   |         | (3,643  | ) |   |        | (7,520  | ) |   |           | 404,647 | 
|Other expense                                           |                                                                       |                        | 173,162   |            |  |             | 48,699    |            |  |         | 76,224  |         |  |              | 12,122  |        |   |   | 495     |         |   |   | 7,714  |         |   |   | 318,416   |        
|Intersegment expenses                                   |                                                                       |                        | 2,115     |            |  |             | 1,330     |            |  |         | 2,364   |         |  |              |        |        |   |   |        |         |   |   | (5,809 | )       |   |   |          |        
|                                                        |                                                                       |                        |           |            |  |             |           |            |  |         |         |         |  |              |         |        |   |   |         |         |   |   |        |         |   |   |           |        
|                                                        | Net income 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    |        
|                                                        |                                                                       |                        |           |            |  |             |           |            |  |         |         |         |  |              |         |        |   |   |         |         |   |   |        |         |   |   |           |        
|                                                        | Income 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 |        
|                                                        |                                                                       |                        |           |            |  |             |           |            |  |         |         |         |  |              |         |        |   |   |         |         |   |   |        |         |   |   |           |        
|2001                                                    |                                                                       |                        |           |            |  |             |           |            |  |         |         |         |  |              |         |        |   |   |         |         |   |   |        |         |   |   |           |        
|Net interest income                                     |                                                                       | $                      | 30,959    |            |  | $           | 43,293    |            |  | $       | 60,756  |         |  | $            | 2,584   |        |   | $ | (404    | )       |   | $ | (7,494 | )       |   | $ | 129,694   |        
|Intersegment interest                                   |                                                                       |                        | (667      | )          |  |             | (194      | )          |  |         | (1,272  | )       |  |              | (42     | )      |   |   |        |         |   |   | 2,175  |         |   |   |          |        
|Other revenue                                           |                                                                       |                        | 185,251   |            |  |             | 14,771    |            |  |         | 64,626  |         |  |              | 1,695   |        |   |   | (10,482 | )       |   |   | 1,464  |         |   |   | 257,325   |        
|Intersegment revenues                                   |                                                                       |                        |          |            |  |             | 210       |            |  |         |        |         |  |              |        |        |   |   | 630     |         |   |   | (840   | )       |   |   |          |        
|                                                        |                                                                       |                        |           |            |  |             |           |            |  |         |         |         |  |              |         |        |   |   |         |         |   |   |        |         |   |   |           |        
|                                                        | Total net revenues                                                    |                        |           | 215,543    |  |             |           | 58,080     |  |         |         | 124,110 |  |              |         | 4,237  |   |   |         | (10,256 | ) |   |        | (4,695  | ) |   |           | 387,019 | 
|Other expense                                           |                                                                       |                        | 152,315   |            |  |             | 40,905    |            |  |         | 96,468  |         |  |              | 8,424   |        |   |   | 590     |         |   |   | 14,117 |         |   |   | 312,819   |        
|Intersegment expenses                                   |                                                                       |                        | 1,391     |            |  |             | 2,577     |            |  |         | 562     |         |  |              |        |        |   |   |        |         |   |   | (4,530 | )       |   |   |          |        
|                                                        |                                                                       |                        |           |            |  |             |           |            |  |         |         |         |  |              |         |        |   |   |         |         |   |   |        |         |   |   |           |        
|                                                        | Net income before taxes                                               |                        |           | 61,837     |  |             |           | 14,598     |  |         |         | 27,080  |  |              |         | (4,187 | ) |   |         | (10,846 | ) |   |        | (14,282 | ) |   |           | 74,200  | 
|Income taxes                                            |                                                                       |                        | 23,912    |            |  |             | 5,680     |            |  |         | 10,832  |         |  |              | (1,309  | )      |   |   | (4,340  | )       |   |   | (5,916 | )       |   |   | 28,859    |        
|                                                        |                                                                       |                        |           |            |  |             |           |            |  |         |         |         |  |              |         |        |   |   |         |         |   |   |        |         |   |   |           |        
|                                                        | Income before cumulative effect of change in
    accounting principle |                        |           | 37,925     |  |             |           | 8,918      |  |         |         | 16,248  |  |              |         | (2,878 | ) |   |         | (6,506  | ) |   |        | (8,366  | ) |   |           | 45,341  | 
|Cumulative effect of change in accounting
    principle |                                                                       |                        | 175       |            |  |             |          |            |  |         |        |         |  |              |        |        |   |   |        |         |   |   |       |         |   |   | 175       |        
|                                                        |                                                                       |                        |           |            |  |             |           |            |  |         |         |         |  |              |         |        |   |   |         |         |   |   |        |         |   |   |           |        
|Net income (loss)                                       |                                                                       | $                      | 38,100    |            |  | $           | 8,918     |            |  | $       | 16,248  |         |  | $            | (2,878  | )      |   | $ | (6,506  | )       |   | $ | (8,366 | )       |   | $ | 45,516    |        
|                                                        |                                                                       |                        |           |            |  |             |           |            |  |         |         |         |  |              |         |        |   |   |         |         |   |   |        |         |   |   |           |        
|Assets at December 31,                                  |                                                                       | $                      | 926,946   |            |  | $           | 1,648,294 |            |  | $       | 602,226 |         |  | $            | 266,670 |        |   | $ | 7,421   |         |   | $ | (4,955 | )       |   | $ | 3,446,602 |        
|                                                        |                                                                       |                        |           |            |  |             |           |            |  |         |         |         |  |              |         |        |   |   |         |         |   |   |        |         |   |   |           |        

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

The condensed financial statements of the parent
company as of December 31, 2003 and 2002, and for the three
years ended December 31, 2003 are presented below:

Condensed Balance Sheets

|                      |                                      |                        |         |         |  |   |         |         | 
|--------------------- | ------------------------------------ | ---------------------- | ------- | ------- |  | - | ------- | ------- | 
|                      |                                      |                       
|                      |                                      | December 31,          
|                      |                                      |                       
|                      |                                      | 2003                   |         | 2002   
|                      |                                      |                        |         |        
|                      |                                      |                       
|                      |                                      | (Dollars in thousands)
|Assets:               |                                      |                        |         |         |  |   |         |        
|                      | Cash and short-term investments      |                        | $       | 4,723   |  |   | $       | 1,747   | 
|                      | Investment in bank subsidiary        |                        |         | 573,284 |  |   |         | 452,474 | 
|                      | Investments in non-bank subsidiaries |                        |         | 98,547  |  |   |         | 170,588 | 
|                      | Loans to bank subsidiaries           |                        |         | 56,209  |  |   |         | 62,740  | 
|                      | Loans to non-bank subsidiaries       |                        |         | 33,186  |  |   |         |        | 
|                      | Other assets                         |                        |         | 26,110  |  |   |         | 17,905  | 
|                      |                                      |                        |         |         |  |   |         |        
|                      |                                      | $                      | 792,059 |         |  | $ | 705,454 |        
|                      |                                      |                        |         |         |  |   |         |        
|Liabilities:          |                                      |                        |         |         |  |   |         |        
|                      | Short-term borrowings(1)             |                        | $       | 89,513  |  |   | $       | 61,261  | 
|                      | Long-term debt                       |                        |         | 270,125 |  |   |         | 270,207 | 
|                      | Other liabilities                    |                        |         | 161     |  |   |         | 13,431  | 
|                      |                                      |                        |         |         |  |   |         |        
|                      |                                      |                        | 359,799 |         |  |   | 344,899 |        
|                      |                                      |                        |         |         |  |   |         |        
|Shareholders equity: |                                      |                        |         |         |  |   |         |        
|                      | Preferred stock                      |                        |         |        |  |   |         |        | 
|                      | Common stock                         |                        |         | 112,000 |  |   |         | 112,000 | 
|                      | Other shareholders equity           |                        |         | 320,260 |  |   |         | 248,555 | 
|                      |                                      |                        |         |         |  |   |         |        
|                      |                                      |                        | 432,260 |         |  |   | 360,555 |        
|                      |                                      |                        |         |         |  |   |         |        
|                      |                                      | $                      | 792,059 |         |  | $ | 705,454 |        
|                      |                                      |                        |         |         |  |   |         |        



---



|    |                                                                                                                          
|--- | -------------------------------------------------------------------------------------------------------------------------
|(1) | Includes $73.1 million and
    $35.4 million payable to our subsidiaries at
    December 31, 2003 and 2002, respectively.

112



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Condensed Statements of Income

|                                                                                  |                                      |                                 |         |        |  |      |         |        |  |   |         |        | 
|--------------------------------------------------------------------------------- | ------------------------------------ | ------------------------------- | ------- | ------ |  | ---- | ------- | ------ |  | - | ------- | ------ | 
|                                                                                  |                                      |                                
|                                                                                  |                                      | For the Year Ended December 31,
|                                                                                  |                                      |                                
|                                                                                  |                                      | 2003                            |         | 2002   |  | 2001
|                                                                                  |                                      |                                 |         |        |  |     
|                                                                                  |                                      |                                
|                                                                                  |                                      | (Dollars in thousands)         
|Income                                                                            |                                      |                                 |         |        |  |      |         |        |  |   |         |       
|                                                                                  | Dividends from non-bank subsidiaries |                                 | $       | 686    |  |      | $       | 66,411 |  |   | $       | 451    | 
|                                                                                  | Dividends from bank subsidiary       |                                 |         |       |  |      |         |       |  |   |         | 10,000 | 
|                                                                                  | Interest income                      |                                 |         | 4,964  |  |      |         | 1,876  |  |   |         | 2,221  | 
|                                                                                  | Other                                |                                 |         | 7,721  |  |      |         | 5,928  |  |   |         | 6,555  | 
|                                                                                  |                                      |                                 |         |        |  |      |         |        |  |   |         |       
|                                                                                  |                                      |                                 | 13,371  |        |  |      | 74,215  |        |  |   | 19,227  |       
|                                                                                  |                                      |                                 |         |        |  |      |         |        |  |   |         |       
|Expenses                                                                          |                                      |                                 |         |        |  |      |         |        |  |   |         |       
|                                                                                  | Interest expense                     |                                 |         | 28,917 |  |      |         | 24,127 |  |   |         | 20,069 | 
|                                                                                  | Salaries and benefits                |                                 |         | 6,491  |  |      |         | 3,872  |  |   |         | 9,111  | 
|                                                                                  | Other                                |                                 |         | 5,056  |  |      |         | 4,108  |  |   |         | 5,874  | 
|                                                                                  |                                      |                                 |         |        |  |      |         |        |  |   |         |       
|                                                                                  |                                      |                                 | 40,464  |        |  |      | 32,107  |        |  |   | 35,054  |       
|                                                                                  |                                      |                                 |         |        |  |      |         |        |  |   |         |       
|Income before income taxes and equity in
    undistributed income of subsidiaries |                                      |                                 | (27,093 | )      |  |      | 42,108  |        |  |   | (15,827 | )     
|Income tax benefit, less amounts charged to
    subsidiaries                      |                                      |                                 | (13,081 | )      |  |      | (11,732 | )      |  |   | (10,738 | )     
|                                                                                  |                                      |                                 |         |        |  |      |         |        |  |   |         |       
|                                                                                  |                                      |                                 | (14,012 | )      |  |      | 53,840  |        |  |   | (5,089  | )     
|Equity in undistributed income of subsidiaries                                    |                                      |                                 | 86,829  |        |  |      | (512    | )      |  |   | 50,605  |       
|                                                                                  |                                      |                                 |         |        |  |      |         |        |  |   |         |       
|Net income                                                                        |                                      | $                               | 72,817  |        |  | $    | 53,328  |        |  | $ | 45,516  |       
|                                                                                  |                                      |                                 |         |        |  |      |         |        |  |   |         |       

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Condensed Statements of Cash Flows

|                                                                                  |                                                            |                                               |                                                                  |         |        |         |        |          |        |          |        |          |        |         |  
|--------------------------------------------------------------------------------- | ---------------------------------------------------------- | --------------------------------------------- | ---------------------------------------------------------------- | ------- | ------ | ------- | ------ | -------- | ------ | -------- | ------ | -------- | ------ | ------- | -
|                                                                                  |                                                            |                                              
|                                                                                  |                                                            | For the Year Ended December 31,              
|                                                                                  |                                                            |                                              
|                                                                                  |                                                            | 2003                                          |                                                                  | 2002    |        | 2001   
|                                                                                  |                                                            |                                               |                                                                  |         |        |        
|                                                                                  |                                                            |                                              
|                                                                                  |                                                            | (Dollars in thousands)                       
|Net income                                                                        |                                                            | $                                             | 72,817                                                           |         |        | $       | 53,328 |          |        | $        | 45,516 |         
|Adjustments to reconcile net income to cash
    provided by operating activities: |                                                            |                                               |                                                                  |         |        |         |        |          |        |          |        |         
|                                                                                  | Equity in undistributed income of subsidiaries             |                                               |                                                                  | (86,829 | )      |         |        | 512      |        |          |        | (50,605  | )     
|                                                                                  | Depreciation and amortization                              |                                               |                                                                  | 2,529   |        |         |        | 732      |        |          |        | 448      |       
|                                                                                  | Increase (decrease) in taxes payable                       |                                               |                                                                  | (13,778 | )      |         |        | 1,583    |        |          |        | 10,130   |       
|                                                                                  | Decrease (increase) in interest receivable                 |                                               |                                                                  | 1,208   |        |         |        | 356      |        |          |        | (360     | )     
|                                                                                  | Increase (decrease) in interest payable                    |                                               |                                                                  | 53      |        |         |        | 37       |        |          |        | (577     | )     
|                                                                                  | Net change in other assets and other liabilities           |                                               |                                                                  | (11,277 | )      |         |        | (12,124  | )      |          |        | 8,268    |       
|                                                                                  |                                                            |                                               |                                                                  |         |        |         |        |          |        |          |        |         
|                                                                                  |                                                            |                                               | Net cash (used) provided by operating
    activities             |         |        | (35,277 | )      |          |        | 44,424   |        |          |        | 12,820  |  
|                                                                                  |                                                            |                                               |                                                                  |         |        |         |        |          |        |          |        |         
|Lending and investing activities:                                                 |                                                            |                                               |                                                                  |         |        |         |        |          |        |          |        |         
|                                                                                  | Net decrease (increase) in loans to subsidiaries           |                                               |                                                                  | 22,518  |        |         |        | (31,184  | )      |          |        | 46,722   |       
|                                                                                  | Investments in subsidiaries                                |                                               |                                                                  | (10,286 | )      |         |        | (116,133 | )      |          |        | (138,314 | )     
|                                                                                  | Net sales of premises and equipment                        |                                               |                                                                  | (121    | )      |         |        | 187      |        |          |        | 72       |       
|                                                                                  |                                                            |                                               |                                                                  |         |        |         |        |          |        |          |        |         
|                                                                                  |                                                            |                                               | Net cash provided (used) by lending and
    investing activities |         |        | 12,111  |        |          |        | (147,130 | )      |          |        | (91,520 | )
|                                                                                  |                                                            |                                               |                                                                  |         |        |         |        |          |        |          |        |         
|Financing activities:                                                             |                                                            |                                               |                                                                  |         |        |         |        |          |        |          |        |         
|                                                                                  | Net increase (decrease) in borrowings                      |                                               |                                                                  | 28,252  |        |         |        | (9,862   | )      |          |        | 36,777   |       
|                                                                                  | Proceeds from long-term debt                               |                                               |                                                                  | 51,547  |        |         |        | 36,960   |        |          |        | 45,000   |       
|                                                                                  | Payments of long-term debt                                 |                                               |                                                                  | (51,629 | )      |         |        |         |        |          |        |         |       
|                                                                                  | Proceeds from common stock offering                        |                                               |                                                                  |        |        |         |        | 82,035   |        |          |        |         |       
|                                                                                  | Purchase of treasury stock                                 |                                               |                                                                  | (4,201  | )      |         |        | (1,176   | )      |          |        | (3,223   | )     
|                                                                                  | Proceeds from sale of stock for employee benefit
    plans |                                               |                                                                  | 9,777   |        |         |        | 2,702    |        |          |        | 5,834    |       
|                                                                                  | Dividends paid                                             |                                               |                                                                  | (7,832  | )      |         |        | (7,469   | )      |          |        | (5,520   | )     
|                                                                                  |                                                            |                                               |                                                                  |         |        |         |        |          |        |          |        |         
|                                                                                  |                                                            |                                               | Net cash provided by financing activities                        |         |        | 25,914  |        |          |        | 103,190  |        |          |        | 78,868  |  
|                                                                                  |                                                            |                                               |                                                                  |         |        |         |        |          |        |          |        |         
|                                                                                  | Net increase in cash and cash equivalents                  |                                               |                                                                  | 2,748   |        |         |        | 484      |        |          |        | 168      |       
|                                                                                  | Effect of exchange rate changes on cash                    |                                               |                                                                  | 228     |        |         |        | (30      | )      |          |        | (2       | )     
|                                                                                  | Cash and cash equivalents at beginning of year             |                                               |                                                                  | 1,747   |        |         |        | 1,293    |        |          |        | 1,127    |       
|                                                                                  |                                                            |                                               |                                                                  |         |        |         |        |          |        |          |        |         
|                                                                                  | Cash and cash equivalents at end of year                   |                                               | $                                                                | 4,723   |        |         | $      | 1,747    |        |          | $      | 1,293    |       
|                                                                                  |                                                            |                                               |                                                                  |         |        |         |        |          |        |          |        |         
|Supplemental disclosures of cash flow information:                                |                                                            |                                               |                                                                  |         |        |         |        |          |        |          |        |         
|                                                                                  | Cash paid during the year:                                 |                                               |                                                                  |         |        |         |        |          |        |          |        |          |       
|                                                                                  |                                                            | Interest                                      |                                                                  | $       | 27,709 |         |        | $        | 24,091 |          |        | $        | 20,646 |        
|                                                                                  |                                                            |                                               |                                                                  |         |        |         |        |          |        |          |        |         
|                                                                                  |                                                            | Income taxes                                  |                                                                  | $       | 42,971 |         |        | $        | 48,877 |          |        | $        | 5,235  |        
|                                                                                  |                                                            |                                               |                                                                  |         |        |         |        |          |        |          |        |         
|                                                                                  | 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

As of December 31, 2003, 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, 2003, to ensure that material information
relating to the Corporation would be made known to them by
others within the Corporation.

There have been no changes since the third
quarter of 2003 in our internal controls that have materially
affected or are reasonably likely to materially affect the
Corporations internal control over financial reporting.
Additionally, in connection with our ongoing risk assessment
review, we continue to make improvements to our wire transfer
control procedures and are enhancing controls over local tax
reporting for our Canadian subsidiary.

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PART III

Item 10.     Directors
and Executive Officers of the Corporation

The information contained in our proxy statement
for the 2004 Annual Meeting of Shareholders under the captions
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 Governance Committee, and
Audit and Risk Management Committee Report is
incorporated herein by reference in response to this item. See
also the Executive Officers section in Part I,
Item 1.

Our Code of Conduct (our code of business conduct
and ethics) 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 to
this Report on Form 10-K and is posted on the Investor Relations
section of our website at www.irwinfinancial.com. Amendments to
or waivers for executive officers or directors from our Code of
Conduct will be posted on our website at www.irwinfinancial.com.
The charters of our Audit and Risk Management Committee,
Compensation Committee, and Governance
(nominating) Committee are also on the Investor Relations
section of our website at www.irwinfinancial.com. Our Audit and
Risk Management Committee charter is an attachment to our Proxy
Statement. 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: Gregory F.
Ehlinger, Irwin Financial Corporation, 500 Washington Street,
Columbus, IN 47201.

Item 11.     Executive
Compensation

The information contained in our proxy statement
for the 2004 Annual Meeting of Shareholders under the captions
Election of Directors  Outside Director
Compensation, Executive Compensation and Other
Information, Compensation Committee Interlocks and
Insider Participation and Board Compensation
Committee Report on Executive Compensation is incorporated
herein by reference in response to this item.



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

The information contained in our proxy statement
for the 2004 Annual Meeting of Shareholders under the captions
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 2004 Annual Meeting of Shareholders under the caption
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 2004 Annual Meeting of Shareholders under the caption
Independent Public Accountants is incorporated
herein by reference in response to this item.

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PART IV

Item 15.     Exhibits,
Financial Statement Schedules, and Reports on
Form 8-K

(a) Documents filed as part of this report.

1. Financial Statements



| |                                                                
| | ---------------------------------------------------------------
| | Management Report on Responsibility for Financial
    Reporting
|
| | Report of Independent Auditors                                 
|
| | Irwin Financial Corporation and Subsidiaries                   



| |                                                                                                       
| | ------------------------------------------------------------------------------------------------------
| | Consolidated Balance Sheets for the years ended
    2003 and 2002                                     
|
| | Consolidated Statements of Income for the years
    ended 2003, 2002 and 2001                         
|
| | Consolidated Statements of Changes in
    Shareholders Equity for the years ended 2003, 2002 and 2001
|
| | Consolidated Statements of Cash Flows for the
    years ended 2003, 2002 and 2001                     



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

2. Financial Statement Schedules

None

3.A. 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. 0-06835.)                                                                                                                                                                                                                                                                           
|        | 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. 0-06835.)                                                                                                                                                                                                                          
|        | 3.3  |                        |  | Code of By-laws of Irwin Financial Corporation.                                                                                                                                                                                                                                                                                                                                                                                                                              
|        | 4.1  |                        |  | Specimen Common Stock Certificate. (Incorporated
    by reference to Exhibit 4(a) to Form 10-K report for
    year ended December 31, 1994, File No. 0-06835.)                                                                                                                                                                                                                                                                                                               
|        | 4.2  |                        |  | Certain instruments defining the rights of the
    holders of long-term debt of Irwin Financial Corporation and
    certain of its subsidiaries, none of which authorize a total
    amount of indebtedness in excess of 10% of the total assets of
    the Corporation and its subsidiaries on a consolidated basis,
    have not been filed as Exhibits. The Corporation hereby agrees
    to furnish a copy of any of these agreements to the Commission
    upon request.
|        | 4.3  |                        |  | Rights Agreement, dated as of March 1, 2001,
    between Irwin Financial Corporation and Irwin Union Bank and
    Trust. (Incorporated by reference to Exhibit 4.1 to
    Form 8-A filed March 2, 2001, File No. 0-06835.)                                                                                                                                                                                                                                                   
|        | 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 |                        |  | *Amended 1986 Stock Option Plan. (Incorporated by
    reference to Exhibit 10(b) to Form 10-K Report for
    year ended December 31, 1991, File No. 0-06835.)                                                                                                                                                                                                                                                                                                                
|        | 10.2 |                        |  | *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. 0-06835.)                                                                                                                                                                                                                                                                                        

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|        |       |                        |  |                                                                                                                                                                                                                                        
|------- | ----- | ---------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |       |                       
|Number  |       | Description of Exhibit
|        |       |                       
|        | 10.3  |                        |  | *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. 0-06835.)                                                       
|        | 10.4  |                        |  | *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. 0-06835.)                                       
|        | 10.5  |                        |  | *Irwin Financial Corporation 2001 Stock Plan.
    (Incorporated by reference to Exhibit 10.18 to
    Form S-1/ A filed February 14, 2002, File
    No. 333-69586.)                                                                     
|        | 10.6  |                        |  | *Amended Irwin Financial Corporation Outside
    Directors Restricted Stock Compensation Plan. (Incorporated by
    reference to Exhibit 10(g) to Form 10-K Report for
    year ended December 31, 1991, File No. 0-06835.)            
|        | 10.7  |                        |  | *Irwin Financial Corporation Outside Directors
    Restricted Stock Compensation Plan. (Incorporated by reference
    to Exhibit 10(i) to Form 10-K Report for year ended
    December 31, 1995, File No. 0-06835.)                    
|        | 10.8  |                        |  | *1999 Outside Director Restricted Stock
    Compensation Plan. (Incorporated by reference to
    Exhibit 10(b) to Form 10-Q Report for period ended
    June 30, 1999, File No. 0-06835.)                                              
|        | 10.9  |                        |  | *Irwin Financial Corporation Employees
    Stock Purchase Plan. (Incorporated by reference to
    Exhibit 10(d) to Form 10-K Report for year ended
    December 31, 1991, File No. 0-06835.)                                          
|        | 10.10 |                        |  | *Employee Stock Purchase Plan II. (Incorporated
    by reference to Exhibit 10(f) to Form 10-K Report for
    year ended December 31, 1994, File No. 0-06835.)                                                                         
|        | 10.11 |                        |  | *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. 0-06835.)                                                                          
|        | 10.12 |                        |  | *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. 0-06835.)                                                               
|        | 10.13 |                        |  | *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. 0-06835.)                                                           
|        | 10.14 |                        |  | *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. 0-06835.)                                                
|        | 10.15 |                        |  | *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. 0-06835.)                                                          
|        | 10.16 |                        |  | *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. 0-06835.)                                         
|        | 10.17 |                        |  | *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.)
|        | 10.18 |                        |  | *Irwin Home Equity Corporation Shareholder
    Agreement and Amendments. (Incorporated by reference to
    Exhibit 10(b) to Form 10-Q/ A Report for period ended
    March 31, 2001, File No. 0-06835.)                                
|        | 10.19 |                        |  | *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.)                        
|        | 10.20 |                        |  | *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.)      
|        | 10.21 |                        |  | *Irwin Financial Corporation Short Term Incentive
    Plan effective January 1, 2002. (Incorporated by reference
    to Exhibit 10.21 to Form 10-Q Report for period ended
    March 31, 2002, File No. 0-06835.)                      

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|        |       |                        |  |                                                                                                                                                                                                                                      
|------- | ----- | ---------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |       |                       
|Number  |       | Description of Exhibit
|        |       |                       
|        | 10.22 |                        |  | *Irwin Union Bank Short Term Incentive Plan
    effective January 1, 2002. (Incorporated by reference to
    Exhibit 10.22 to Form 10-Q Report for period ended
    March 31, 2002, File No. 0-06835.)                               
|        | 10.23 |                        |  | *Irwin Home Equity Short Term Incentive Plan
    effective January 1, 2002. (Incorporated by reference to
    Exhibit 10.23 to Form 10-Q Report for period ended
    March 31, 2002, File No. 0-06835.)                              
|        | 10.24 |                        |  | *Irwin Mortgage Corporation Short Term Incentive
    Plan effective January 1, 2002. (Incorporated by reference
    to Exhibit 10.24 to Form 10-Q Report for period ended
    March 31, 2002, File No. 0-06835.)                     
|        | 10.25 |                        |  | *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. 0-06835.)                         
|        | 10.26 |                        |  | *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. 0-06835.)                                                      
|        | 10.27 |                        |  | *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. 0-06835.)
|        | 10.28 |                        |  | *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. 0-06835.)                                                                 
|        | 10.29 |                        |  | *Onset Capital Corporation Shareholders Agreement                                                                                                                                                                                    
|        | 14.1  |                        |  | Code of Conduct                                                                                                                                                                                                                      
|        | 11.1  |                        |  | Computation of Earnings Per Share.                                                                                                                                                                                                   
|        | 12.1  |                        |  | Computation of Ratio of Earnings to Fixed Charges.                                                                                                                                                                                   
|        | 21.1  |                        |  | Subsidiaries of Irwin Financial Corporation                                                                                                                                                                                          
|        | 23.1  |                        |  | Consent of Independent Auditors.                                                                                                                                                                                                     
|        | 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.

B. Reports on Form 8-K during the last
quarter of the period covered by this report:

|    |  |                   |  |                                                                                                                                   
|--- |  | ----------------- |  | ----------------------------------------------------------------------------------------------------------------------------------
|8-K |  | October 20, 2003  |  | Announcing Third Quarter Earnings Conference Call                                                                                 
|8-K |  | October 22, 2003  |  | Announcing Third Quarter Earnings                                                                                                 
|8-K |  | November 14, 2003 |  | Announcing Issuance of $50 Million of Trust
    Preferred Securities; Plans to Redeem $50 Million of Outstanding
    Debt Due 2027
|8-K |  | December 1, 2003  |  | Announcing Fourth Quarter Dividend                                                                                                
|8-K |  | December 3, 2003  |  | Making Reg FD Disclosure on Presentation Made at
    the Friedman Billings Ramsey Investor Conference on 12/3/2003.               

119



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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, 2004 |  | By: /s/ WILLIAM I. MILLERWilliam 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, 2004 | 
|/s/ DAVID W. GOODRICHDavid W. Goodrich       |  | Director                                                                                     |  |      | March 9, 2004 | 
|/s/ JOHN T. HACKETTJohn T. Hackett           |  | Director                                                                                     |  |      | March 9, 2004 | 
|/s/ R. DAVID HOOVERR. David Hoover           |  | Director                                                                                     |  |      | March 9, 2004 | 
|/s/ WILLIAM H. KLINGWilliam H. Kling         |  | Director                                                                                     |  |      | March 9, 2004 | 
|/s/ BRENDA J. LAUDERBACKBrenda J. Lauderback |  | Director                                                                                     |  |      | March 9, 2004 | 
|/s/ JOHN C. MCGINTY, JRJohn C. McGinty, Jr   |  | Director                                                                                     |  |      | March 9, 2004 | 
|                                            
|/s/ WILLIAM I. MILLERWilliam I. Miller       |  | Director, Chairman of the Board and Chief
    Executive Officer(principal executive officer) |  |      | March 9, 2004 | 
|/s/ LANCE R. ODDENLance R. Odden             |  | Director                                                                                     |  |      | March 9, 2004 | 
|/s/ THEODORE M. SOLSOTheodore M. Solso       |  | Director                                                                                     |  |      | March 9, 2004 | 
|                                            
|/s/ GREGORY F. EHLINGERGregory F. Ehlinger   |  | Senior Vice President and Chief Financial
    Officer(principal financial officer)           |  |      | March 9, 2004 | 
|/s/ JODY A. LITTRELLJody A. Littrell         |  | Vice President and Controller (principal
    accounting officer)                             |  |      | March 9, 2004 | 

120