##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, DC 20549
 FORM 10-K/A
 Amendment No. 1
 (Mark One)
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the fiscal Year Ended December 31, 2004
or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
 For the transition period from to .
 Commission file number 0-6835
 IRWIN FINANCIAL CORPORATION
 (Exact name of Corporation as Specified in its Charter)
 Indiana
(State or Other Jurisdiction of
Incorporation or Organization)
    
    35-1286807
(I.R.S. Employer
Identification No.)500 Washington Street Columbus, Indiana
(Address of Principal Executive Offices)
    
    47201
(Zip Code)(812) 376-1909
(Corporations Telephone Number, Including Area Code)
    
    www.irwinfinancial.com
(Web Site)
 Securities registered pursuant to Section 12(b) of the Act: 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.
 o þ
 o þ
 þ o
 þ
 þ o
 o þ
   *
 Documents Incorporated by Reference
 Selected Portions of the Following Documents
    
    Part of Form 10-K Into Which IncorporatedDefinitive Proxy Statement for Annual Meeting
    
    Part IIIShareholders to be held April 7, 2005Exhibit Index on Pages 121 through 123




---



##### 



EXPLANATORY NOTE
   TABLE OF CONTENTS
 Part IItem 1
    
    
    
    Business
    
    
    3Item 2
    
    
    
    Properties
    
    
    14Item 3
    
    
    
    Legal Proceedings
    
    
    15Item 4
    
    
    
    Submission of Matters to a Vote of Security Holders
    
    
    19Part IIItem 5
    
    
    
    Market for Corporations Common Equity and Related Stockholder Matters
    
    
    20Item 6
    
    
    
    Selected Financial Data
    
    
    21Item 7
    
    
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    22Item 7A
    
    
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    64Item 8
    
    
    
    Financial Statements and Supplementary Data
    
    
    64Item 9
    
    
    
    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    99Item 9A
    
    
    
    Controls and Procedures
    
    
    99Item 9B
    
    
    
    Other Information
    
    
    101Part IIIItem 10
    
    
    
    Directors and Executive Officers of the Corporation
    
    
    102Item 11
    
    
    
    Executive Compensation
    
    
    102Item 12
    
    
    
    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    102Item 13
    
    
    
    Certain Relationships and Related Transactions
    
    
    102Item 14
    
    
    
    Principal Accountant Fees and Services
    
    
    102Part IVItem 15
    
    
    
    Exhibits, Financial Statement Schedules
    
    
    103SIGNATURES
    
    
    
    
    
    
    106Computation of Earnings Per ShareComputation of Earnings to Fixed ChargesRevised Consent of Registered Public Accounting FirmCertification by the CEOCertification by the CFOCertification of the CEOCertification of the CFO
  2




---



##### Table of Contents



PART I
 
 Item 1. Business
 General
    http://www.irwinfinancial.com.
  Major Lines of Business
 Mortgage Banking
   3




---



##### Table of Contents



Commercial Banking
  
    
    Irwin Union Bank and Trust Company headquartered in Columbus, Indiana and organized in
1871, is a full service Indiana state-chartered commercial bank with offices currently
located throughout nine counties in central and southern Indiana, as well as in Kalamazoo,
Grandville (near Grand Rapids), Traverse City and Lansing, Michigan; Carson City and Las
Vegas, Nevada; and Salt Lake City, Utah.
    
    Irwin Union Bank, F.S.B. headquartered in Louisville, Kentucky, is a full-service
federal savings bank that began operations in December 2000. Currently we have offices
located in Clayton, Missouri (near St. Louis); Louisville, Kentucky; Milwaukee Wisconsin;
Phoenix, Arizona; and, Sacramento, California.
   Home Equity Lending
    Commercial Finance
    4




---



##### Table of Contents



Venture Capital
     Customer Base
  Competition
     Financial Information About Geographic Areas
  5




---



##### Table of Contents



Supervision and Regulation
 General
      Bank Holding Company Regulation
  Minimum Capital Requirements
   
    
    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 $164 million qualified as Tier 1 capital
as of December 31, 2004); and
    
    minority interests in the common equity accounts of consolidated subsidiaries;
 6




---



##### Table of Contents



less
    
    goodwill;
    
    credit-enhancing interest-only strips (certain amounts only); and
    
    specified intangible assets (including $19 million of disqualified Mortgage Servicing
Assets (MSRs) as of December 31, 2004).Tier 2 capital, or supplementary capital, consists of:
    
    allowance for loan and lease losses;
    
    perpetual preferred stock and related surplus;
    
    hybrid capital instruments (including Trust Preferred securities, of which $69 million
qualified as Tier 2 capital as of December 31, 2004);
    
    unrealized holding gains on equity securities;
    
    perpetual debt and mandatory convertible debt securities;
    
    term subordinated debt, including related surplus; and
    
    intermediate-term preferred stock, including related securities.
    Expansion
  7




---



##### Table of Contents



Dividends
    Sarbanes-Oxley Act of 2002
  Bank and Thrift Regulation
      Mortgage Banking and Residential Lending Regulation
  8




---



##### Table of Contents



Capital Requirements
 Bank Holding
Company Regulation  Minimum Capital Requirements.
     Insurance of Deposit Accounts
   9




---



##### Table of Contents



Dividend Limitations
    Interstate Banking and Branching
   Community Reinvestment
  Other Safety and Soundness Regulations
  10




---



##### Table of Contents



Brokered Deposits
  Gramm-Leach-Bliley Act
  Anti-Money Laundering Laws
  Compliance with Consumer Protection Laws
  
    
    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
 11




---



##### Table of Contents




    
    prescribe possible penalties for violations of the requirements of consumer protection statutes and regulations.
  Equal Credit Opportunity Act
  Fair Housing Act
   Home Mortgage Disclosure Act
   12




---



##### Table of Contents



Real Estate Settlement Procedures Act
  Truth in Lending Act
   State Consumer Protection Laws
  Employees and Labor Relations
  Executive Officers
  Richard Barbercheck
 Elena Delgado
 13




---



##### Table of Contents



Gregory F. Ehlinger
 Paul D. Freudenthaler
 Jose M. Gonzalez
 Robert H. Griffith
 Bradley J. Kime
 Joseph R. LaLeggia
 Matthew F. Souza
 Thomas D. Washburn
 
 Item 2. Properties
  Irwin Mortgage
  Irwin Union Bank and Trust
  Irwin Union Bank, F.S.B.
  Irwin Home Equity
  14




---



##### Table of Contents



Irwin Commercial Finance Corporation
  
 Item 3. Legal Proceedings
 Culpepper v. Inland Mortgage Corporation
      15




---



##### Table of Contents



United States ex rel. Paranich v. Sorgnard et al.
  McIntosh v. Irwin Home Equity Corporation
    Stamper v. A Home of Your Own
  Silke v. Irwin Mortgage Corporation
  16




---



##### Table of Contents



Gutierrez v. Irwin Mortgage Corporation
  Cohens v. Inland Mortgage Corporation
  Litigation in Connection with Loans Purchased from Community Bank of Northern Virginia
  Hobson v. Irwin Union Bank and Trust Company Hobson Hobson Hobson
 Kossler v. Community Bank of Northern Virginia Kossler
 Hobson Kossler Hobson, Hobson
 Hobson Kossler Hobson Hobson Kossler
 (Chatfield v. Irwin Union Bank and Trust Company, et al. Ransom v. Irwin
Union Bank and Trust Company, et al.)
 17




---



##### Table of Contents



Hobson, Chatfield and Ransom.
 Hobson, Chatfield Ransom Kossler
  Litigation Related to NorVergence, Inc.
  Exquisite Caterers, LLC et al. v.
Popular Leasing et al. Exquisite
Caterers
 Delanco
Board of Education et al. v. IFC Credit Corporation, Exquisite Caterers,
 Sterling
Asset & Equity Corp. et al. v. Preferred Capital, Inc. et al.
  18




---



##### Table of Contents



(State of Florida v. Commerce Commercial Leasing,
LLC et al.).
    
 Item 4. Submission of Matters to a Vote of Security Holders
  19




---



##### Table of Contents



PART II
 
 Item 5. Market for Corporations Common Equity and Related Stockholder Matters
  Stock Prices and Dividends:
 TotalPrice Range
    
    
    Quarter
    
    
    Cash
    
    
    DividendsHigh
    
    
    Low
    
    
    End
    
    
    Dividends
    
    
    For Year2003First quarter
    
    
    20.12
    
    
    
    15.95
    
    
    
    19.49
    
    
    $
    0.07Second quarter
    
    
    26.50
    
    
    
    19.26
    
    
    
    25.90
    
    
    $
    0.07Third Quarter
    
    
    25.81
    
    
    
    20.90
    
    
    
    24.30
    
    
    $
    0.07Fourth Quarter
    
    
    32.15
    
    
    
    25.30
    
    
    
    31.40
    
    
    $
    0.07
    
    
    $
    0.282004First quarter
    
    
    36.17
    
    
    
    26.63
    
    
    
    26.98
    
    
    $
    0.08Second quarter
    
    
    27.43
    
    
    
    23.10
    
    
    
    26.40
    
    
    $
    0.08Third Quarter
    
    
    27.58
    
    
    
    25.05
    
    
    
    25.82
    
    
    $
    0.08Fourth Quarter
    
    
    28.85
    
    
    
    23.80
    
    
    
    28.39
    
    
    $
    0.08
    
    
    $
    0.32
  Sales of Unregistered Securities:
  20




---



##### Table of Contents



Item 6. Selected Financial Data
 Five-Year Selected Financial Data
 At or For Year Ended December 31,2004
    
    
    2003
    
    
    2002
    
    
    2001
    
    
    2000(Dollars in thousands except per share data)(Restated)For the year:Net revenues
    
    $
    521,412
    
    
    $
    530,445
    
    
    $
    403,788
    
    
    $
    387,019
    
    
    $
    290,626Noninterest expense
    
    
    407,235
    
    
    
    412,043
    
    
    
    317,557
    
    
    
    312,819
    
    
    
    231,095Income before income taxes
    
    
    114,177
    
    
    
    118,402
    
    
    
    86,231
    
    
    
    74,200
    
    
    
    59,531Provision for income taxes
    
    
    45,732
    
    
    
    45,585
    
    
    
    33,398
    
    
    
    28,859
    
    
    
    23,865Income before cumulative effect of change in accounting principle
    
    
    68,445
    
    
    
    72,817
    
    
    
    52,833
    
    
    
    45,341
    
    
    
    35,666Cumulative effect of change in accounting principle, net of tax
    
    
    
    
    
    
    
    
    
    
    495
    
    
    
    175
    
    
    
    Net income
    
    $
    68,455
    
    
    $
    72,817
    
    
    $
    53,328
    
    
    $
    45,516
    
    
    $
    35,666Mortgage loan originations
    
    $
    13,093,082
    
    
    $
    22,669,246
    
    
    $
    11,411,875
    
    
    $
    9,225,991
    
    
    $
    4,091,573Home equity loan originations
    
    
    1,442,314
    
    
    
    1,133,316
    
    
    
    1,067,227
    
    
    
    1,149,410
    
    
    
    1,225,955Common Share Data:Earnings per share:(1)Basic
    
    $
    2.42
    
    
    $
    2.61
    
    
    $
    1.99
    
    
    $
    2.15
    
    
    $
    1.70Diluted
    
    
    2.28
    
    
    
    2.45
    
    
    
    1.89
    
    
    
    2.00
    
    
    
    1.67Cash dividends per share
    
    
    0.32
    
    
    
    0.28
    
    
    
    0.27
    
    
    
    0.26
    
    
    
    0.24Book value per share
    
    
    17.61
    
    
    
    15.36
    
    
    
    12.98
    
    
    
    10.81
    
    
    
    8.92Dividend payout ratio
    
    
    13.24
    %
    
    
    10.76
    %
    
    
    14.01
    %
    
    
    12.13
    %
    
    
    14.13
    %Weighted average shares  basic
    
    
    28,274
    
    
    
    27,915
    
    
    
    26,823
    
    
    
    21,175
    
    
    
    20,973Weighted average shares  diluted
    
    
    31,278
    
    
    
    30,850
    
    
    
    29,675
    
    
    
    24,173
    
    
    
    21,593Shares outstanding  end of period
    
    
    28,452
    
    
    
    28,134
    
    
    
    27,771
    
    
    
    21,305
    
    
    
    21,026At year end:Assets
    
    $
    5,235,820
    
    
    $
    4,988,359
    
    
    $
    4,910,392
    
    
    $
    3,446,602
    
    
    $
    2,425,690Residual interests
    
    
    56,101
    
    
    
    71,491
    
    
    
    157,514
    
    
    
    199,071
    
    
    
    152,614Loans held for sale
    
    
    890,711
    
    
    
    883,895
    
    
    
    1,314,849
    
    
    
    502,086
    
    
    
    579,788Loans and leases
    
    
    3,450,440
    
    
    
    3,161,054
    
    
    
    2,815,276
    
    
    
    2,137,822
    
    
    
    1,234,922Allowance for loan and lease losses
    
    
    44,443
    
    
    
    64,285
    
    
    
    50,936
    
    
    
    22,283
    
    
    
    13,129Servicing assets
    
    
    367,032
    
    
    
    380,123
    
    
    
    174,935
    
    
    
    228,624
    
    
    
    130,627Deposits
    
    
    3,395,263
    
    
    
    2,899,662
    
    
    
    2,693,810
    
    
    
    2,308,962
    
    
    
    1,442,589Short-term borrowings
    
    
    237,277
    
    
    
    429,758
    
    
    
    993,124
    
    
    
    487,963
    
    
    
    476,928Collateralized debt
    
    
    547,477
    
    
    
    590,131
    
    
    
    391,425
    
    
    
    
    
    
    
    Other long-term debt(2)
    
    
    270,172
    
    
    
    270,184
    
    
    
    30,070
    
    
    
    30,000
    
    
    
    30,000Trust preferred securities(2)
    
    
    
    
    
    
    
    
    
    
    233,000
    
    
    
    198,500
    
    
    
    153,500Shareholders equity
    
    
    501,185
    
    
    
    432,260
    
    
    
    360,555
    
    
    
    231,665
    
    
    
    188,870Managed mortgage banking servicing portfolio
    
    
    26,196,627
    
    
    
    29,640,122
    
    
    
    16,792,669
    
    
    
    12,875,532
    
    
    
    9,196,513Selected Financial Data:Performance Ratios:Return on average assets
    
    
    1.3
    %
    
    
    1.4
    %
    
    
    1.3
    %
    
    
    1.5
    %
    
    
    1.8
    %Return on average equity
    
    
    14.5
    
    
    
    18.4
    
    
    
    16.7
    
    
    
    21.8
    
    
    
    20.8Net interest margin(3)
    
    
    5.46
    
    
    
    5.82
    
    
    
    6.01
    
    
    
    5.35
    
    
    
    5.36Noninterest income to revenues(4)
    
    
    52.9
    
    
    
    53.0
    
    
    
    52.3
    
    
    
    64.8
    
    
    
    69.9Efficiency ratio(5)
    
    
    76.0
    
    
    
    71.3
    
    
    
    70.9
    
    
    
    78.1
    
    
    
    78.6Loans and leases and loans held for sale to deposits(6)
    
    
    91.4
    
    
    
    94.1
    
    
    
    89.9
    
    
    
    79.1
    
    
    
    85.6Average interest-earning assets to average interest-bearing
liabilities
    
    
    132.4
    
    
    
    132.2
    
    
    
    121.7
    
    
    
    117.2
    
    
    
    113.5Asset Quality Ratios:Allowance for loan and lease losses to:Total loans and leases
    
    
    1.3
    %
    
    
    2.0
    %
    
    
    1.8
    %
    
    
    1.0
    %
    
    
    1.1
    %Non-performing loans and leases
    
    
    131.9
    
    
    
    144.9
    
    
    
    163.6
    
    
    
    116.3
    
    
    
    181.8Net charge-offs to average loans and leases
    
    
    0.7
    
    
    
    1.1
    
    
    
    0.7
    
    
    
    0.7
    
    
    
    0.3Non-performing assets to total assets
    
    
    0.9
    
    
    
    1.1
    
    
    
    0.8
    
    
    
    0.7
    
    
    
    0.4Non-performing assets to total loans and leases and other real
estate owned
    
    
    1.3
    
    
    
    1.7
    
    
    
    1.3
    
    
    
    1.1
    
    
    
    0.8Ratio of Earnings to Fixed Charges:Including deposit interest
    
    
    2.2
    x
    
    
    2.2
    x
    
    
    1.9
    x
    
    
    1.6
    x
    
    
    1.6
    xExcluding deposit interest
    
    
    3.4
    
    
    
    3.1
    
    
    
    3.0
    
    
    
    2.5
    
    
    
    2.5Capital Ratios:Average shareholders equity to average assets
    
    
    9.0
    %
    
    
    7.6
    %
    
    
    8.0
    %
    
    
    6.7
    %
    
    
    8.5
    %Tier 1 capital ratio
    
    
    13.0
    
    
    
    11.4
    
    
    
    9.3
    
    
    
    6.8
    
    
    
    8.9Tier 1 leverage ratio
    
    
    11.6
    
    
    
    11.2
    
    
    
    9.7
    
    
    
    9.4
    
    
    
    12.4Total risk-based capital ratio
    
    
    15.9
    
    
    
    15.1
    
    
    
    13.2
    
    
    
    10.8
    
    
    
    13.6
 
 (1)
    
    Earnings per share of common stock before cumulative effect of change in accounting principle
related to SFAS 142, Goodwill and Other Intangible Assets, for the year ended December 31,
2002 was $1.97 basic and $1.87 diluted. Earnings per share of common stock before cumulative
effect of change in accounting principle related to SFAS 133, Accounting for Derivative
Instruments and Hedging Activities, for the year ended December 31, 2001 was $2.14 basic and
$1.99 diluted. 21




---



##### Table of Contents



(2)
    
    At December 31, 2004 and 2003, the Trusts holding trust preferred securities were not
consolidated in accordance with FASB Interpretation No. 46, Consolidation of Variable
Interest Entities. See Collateralized and Other Long-Term Debt and footnote 1 to the
consolidated financial statements for further discussion.(3)
    
    Net interest income divided by average interest-earning assets.(4)
    
    Revenues consist of net interest income plus noninterest income.(5)
    
    Noninterest expense divided by net interest income plus noninterest income.(6)
    
    Excludes first (but not second) mortgage loans held for sale and loans collateralizing
secured financings. 
 Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
 About Forward-looking Statements
   
    
    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.
  
    
    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;
 22




---



##### Table of Contents




    
    deterioration in the carrying value of our other assets, including securities;
    
    difficulties in delivering products to the secondary market as planned;
    
    difficulties in expanding our businesses or raising capital and other funding sources as needed;
    
    competition from other financial service providers for experienced managers as well as for customers;
    
    changes in the value of companies in which we invest;
    
    changes in variable compensation plans related to the performance and valuation of lines
of business where we tie compensation systems to line-of-business performance;
    
    unanticipated outcomes in litigation;
    
    legislative or regulatory changes, including changes in tax laws or regulations, changes
in the interpretation of regulatory capital rules, changes in consumer or commercial lending
rules or rules affecting corporate governance, and the availability of resources to address
these rules;
    
    changes in applicable accounting policies or principles or their application to our business;
    
    or governmental changes in monetary or fiscal policies.
  Strategy
  
    
    Identify underserved niches.We focus on product or market niches in financial services
that we believe are underservedand 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 managerswho 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 growthover
the long term.
    
    Diversify capital and earnings risk.We diversifyour revenuesand allocate our capital
across complementary lines of business as a key part of our risk management. Our lines of
business are cyclical, but when combined in an appropriate mix, we believe they provide
sources of diversification and opportunities for growth in a variety of economic conditions.
For example, both the origination and servicing of residential mortgage loans are very
cyclical businesses, which normally respond in opposite ways to changes in interest rates
and show generally opposite effects in certain economic environments. We believe our
participation in these markets has been profitable over time due to our dedication to
participating in both segments of the mortgage banking business, rather than one or the
other.
    
    Reinvest in new opportunities.We reinveston 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.
 23




---



##### Table of Contents



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.
  Critical Accounting Policies/Management Judgments and Accounting Estimates
  Valuation of Mortgage Servicing Rights
  Allowance for Loan and Lease Losses
    24




---



##### Table of Contents



Valuation of Residual Interests
  Accounting for Deferred Taxes
  Incentive Servicing Fees
  Consolidated Overview
 2004
    
    
    % Change
    
    
    2003
    
    
    % Change
    
    
    2002(Restated)Net income (millions)
    
    $
    68.4
    
    
    
    (6.0
    )%
    
    $
    72.8
    
    
    
    36.5
    %
    
    $
    53.3Basic earnings per share(1)
    
    
    2.42
    
    
    
    (7.3
    )
    
    
    2.61
    
    
    
    31.2
    
    
    
    1.99Diluted earnings per share(1)
    
    
    2.28
    
    
    
    (6.9
    )
    
    
    2.45
    
    
    
    29.6
    
    
    
    1.89Return on average equity
    
    
    14.5
    %
    
    
    
    
    
    
    18.4
    %
    
    
    
    
    
    
    16.7
    %Return on average assets
    
    
    1.3
    
    
    
    
    
    
    
    1.4
    
    
    
    
    
    
    
    1.3
 
 (1)
    
    Earnings per share of common stock before cumulative effect of change in accounting principle
related to SFAS 142, Goodwill and Other Intangible Assets, for the year ended December 31,
2002 was $1.97 basic and $1.87 diluted. Consolidated Income Statement Analysis
 Net Income
  25




---



##### Table of Contents



Net Interest Income
  December 31,2004
    
    
    2003
    
    
    2002Average
    
    
    
    
    
    
    Yield/
    
    
    Average
    
    
    
    
    
    
    Yield/
    
    
    Average
    
    
    
    
    
    
    Yield/Balance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    Rate(Dollars in thousands)AssetsInterest-earning assets:Interest-bearing deposits with financial institutions
    
    $
    85,304
    
    
    $
    794
    
    
    
    0.93
    %
    
    $
    74,216
    
    
    $
    550
    
    
    
    0.74
    %
    
    $
    25,859
    
    
    $
    311
    
    
    
    1.20
    %Federal funds sold
    
    
    15,340
    
    
    
    173
    
    
    
    1.13
    
    
    
    10,824
    
    
    
    118
    
    
    
    1.10
    
    
    
    12,582
    
    
    
    104
    
    
    
    0.83Residual interests
    
    
    67,544
    
    
    
    12,509
    
    
    
    18.52
    
    
    
    108,351
    
    
    
    20,651
    
    
    
    19.06
    
    
    
    186,947
    
    
    
    34,164
    
    
    
    18.27Investment securities(2)
    
    
    88,254
    
    
    
    4,536
    
    
    
    5.14
    
    
    
    68,602
    
    
    
    3,723
    
    
    
    5.43
    
    
    
    39,923
    
    
    
    2,809
    
    
    
    7.04Loans held for sale
    
    
    1,034,032
    
    
    
    80,003
    
    
    
    7.74
    
    
    
    1,237,963
    
    
    
    104,350
    
    
    
    8.43
    
    
    
    668,522
    
    
    
    55,336
    
    
    
    8.28Loans and leases, net of unearned income(1)
    
    
    3,324,333
    
    
    
    246,288
    
    
    
    7.41
    
    
    
    3,168,776
    
    
    
    241,592
    
    
    
    7.62
    
    
    
    2,620,428
    
    
    
    218,718
    
    
    
    8.35Total interest earning assets
    
    $
    4,614,807
    
    
    $
    344,303
    
    
    
    7.46
    %
    
    
    4,668,732
    
    
    $
    370,984
    
    
    
    7.95
    %
    
    
    3,554,261
    
    
    $
    311,442
    
    
    
    8.76
    %Noninterest-earning assets:Cash and due from banks
    
    
    104,115
    
    
    
    
    
    
    
    
    
    
    
    103,581
    
    
    
    
    
    
    
    
    
    
    
    100,259Premises and equipment, net
    
    
    31,219
    
    
    
    
    
    
    
    
    
    
    
    32,644
    
    
    
    
    
    
    
    
    
    
    
    34,041Other assets (Restated 2004)
    
    
    582,978
    
    
    
    
    
    
    
    
    
    
    
    440,164
    
    
    
    
    
    
    
    
    
    
    
    354,296Less allowance for loan and lease losses
    
    
    (56,311
    )
    
    
    
    
    
    
    
    
    
    
    (57,986
    )
    
    
    
    
    
    
    
    
    
    
    (37,054
    )Total assets (Restated 2004)
    
    $
    5,276,808
    
    
    
    
    
    
    
    
    
    
    $
    5,187,135
    
    
    
    
    
    
    
    
    
    
    $
    4,005,803Liabilities and Shareholders EquityInterest-bearing liabilities:Money market checking
    
    $
    333,772
    
    
    $
    4,487
    
    
    
    1.34
    %
    
    $
    169,674
    
    
    $
    913
    
    
    
    0.54
    %
    
    $
    132,351
    
    
    $
    664
    
    
    
    0.50
    %Money market savings
    
    
    1,071,617
    
    
    
    15,127
    
    
    
    1.41
    
    
    
    866,241
    
    
    
    11,085
    
    
    
    1.28
    
    
    
    648,706
    
    
    
    10,253
    
    
    
    1.58Regular savings
    
    
    60,800
    
    
    
    873
    
    
    
    1.44
    
    
    
    62,756
    
    
    
    1,249
    
    
    
    1.99
    
    
    
    58,204
    
    
    
    1,586
    
    
    
    2.72Time deposits
    
    
    907,736
    
    
    
    24,000
    
    
    
    2.64
    
    
    
    992,954
    
    
    
    29,118
    
    
    
    2.93
    
    
    
    1,027,045
    
    
    
    41,858
    
    
    
    4.08Short-term borrowings
    
    
    307,929
    
    
    
    9,583
    
    
    
    3.11
    
    
    
    595,243
    
    
    
    14,889
    
    
    
    2.50
    
    
    
    600,821
    
    
    
    15,003
    
    
    
    2.50Collateralized debt
    
    
    534,660
    
    
    
    15,259
    
    
    
    2.85
    
    
    
    578,656
    
    
    
    15,369
    
    
    
    2.66
    
    
    
    215,128
    
    
    
    5,932
    
    
    
    2.76Other long-term debt
    
    
    270,178
    
    
    
    22,896
    
    
    
    8.47
    
    
    
    30,060
    
    
    
    2,325
    
    
    
    7.74
    
    
    
    31,985
    
    
    
    2,699
    
    
    
    8.44Trust preferred securities distributions(3)
    
    
    
    
    
    
    
    
    
    
    n/a
    
    
    
    236,823
    
    
    
    24,151
    
    
    
    10.20
    
    
    
    205,400
    
    
    
    19,800
    
    
    
    9.64Total interest- bearing liabilities
    
    $
    3,486,692
    
    
    $
    92,225
    
    
    
    2.65
    %
    
    $
    3,532,407
    
    
    $
    99,099
    
    
    
    2.81
    %
    
    
    2,919,640
    
    
    $
    97,795
    
    
    
    3.35
    %Noninterest-bearing liabilities:Demand deposits
    
    
    1,006,558
    
    
    
    
    
    
    
    
    
    
    
    1,042,403
    
    
    
    
    
    
    
    
    
    
    
    577,409Other liabilities (Restated 2004)
    
    
    311,017
    
    
    
    
    
    
    
    
    
    
    
    216,111
    
    
    
    
    
    
    
    
    
    
    
    188,738Shareholders equity (Restated 2004)
    
    
    472,541
    
    
    
    
    
    
    
    
    
    
    
    396,214
    
    
    
    
    
    
    
    
    
    
    
    320,016Total liabilities and shareholders equity (Restated 2004)
    
    $
    5,276,808
    
    
    
    
    
    
    
    
    
    
    $
    5,187,135
    
    
    
    
    
    
    
    
    
    
    $
    4,005,803Net interest income
    
    
    
    
    
    $
    252,078
    
    
    
    
    
    
    
    
    
    
    $
    271,885
    
    
    
    
    
    
    
    
    
    
    $
    213,647Net interest income to average interest earning assets
    
    
    
    
    
    
    
    
    
    
    5.46
    %
    
    
    
    
    
    
    
    
    
    
    5.82
    %
    
    
    
    
    
    
    
    
    
    
    6.01
    %
 
 (1)
    
    For purposes of these computations, nonaccrual loans are included in daily average loan
amounts outstanding.(2)
    
    We do not show interest income on a tax equivalent basis because it is immaterial(3)
    
    These securities were re-classified in 2004 to Other long-term debt.   For the Year Ended December 31,2004 Over 2003
    
    
    2003 Over 2002Volume
    
    
    Rate
    
    
    Total
    
    
    Volume
    
    
    Rate
    
    
    Total(Dollars and thousands)Interest IncomeLoans and leases
    
    $
    11,860
    
    
    $
    (7,164
    )
    
    $
    4,696
    
    
    $
    45,769
    
    
    $
    (22,895
    )
    
    $
    22,874Mortgage loans held for sale
    
    
    (17,189
    )
    
    
    (7,158
    )
    
    
    (24,347
    )
    
    
    47,134
    
    
    
    1,880
    
    
    
    49,014Investment securities
    
    
    1,066
    
    
    
    (253
    )
    
    
    813
    
    
    
    2,018
    
    
    
    (1,104
    )
    
    
    914Residual interests
    
    
    (7,777
    )
    
    
    (365
    )
    
    
    (8,142
    )
    
    
    (14,363
    )
    
    
    850
    
    
    
    (13,513
    )Interest bearing deposits with financial institutions
    
    
    82
    
    
    
    162
    
    
    
    244
    
    
    
    581
    
    
    
    (342
    )
    
    
    239Federal funds sold
    
    
    50
    
    
    
    5
    
    
    
    55
    
    
    
    (15
    )
    
    
    29
    
    
    
    14
 26




---



##### Table of Contents



For the Year Ended December 31,2004 Over 2003
    
    
    2003 Over 2002Volume
    
    
    Rate
    
    
    Total
    
    
    Volume
    
    
    Rate
    
    
    Total(Dollars and thousands)Total
    
    
    (11,908
    )
    
    
    (14,773
    )
    
    
    (26,681
    )
    
    
    81,124
    
    
    
    (21,582
    )
    
    
    59,542Interest ExpenseMoney market checking
    
    
    883
    
    
    
    2,691
    
    
    
    3,574
    
    
    
    187
    
    
    
    62
    
    
    
    249Money market savings
    
    
    2,628
    
    
    
    1,414
    
    
    
    4,042
    
    
    
    3,438
    
    
    
    (2,606
    )
    
    
    832Regular savings
    
    
    (39
    )
    
    
    (337
    )
    
    
    (376
    )
    
    
    124
    
    
    
    (461
    )
    
    
    (337
    )Time deposits
    
    
    (2,499
    )
    
    
    (2,619
    )
    
    
    (5,118
    )
    
    
    (1,389
    )
    
    
    (11,351
    )
    
    
    (12,740
    )Short-term borrowings
    
    
    (7,187
    )
    
    
    1,881
    
    
    
    (5,306
    )
    
    
    (139
    )
    
    
    25
    
    
    
    (114
    )Collateralized debt
    
    
    (1,169
    )
    
    
    1,059
    
    
    
    (110
    )
    
    
    10,024
    
    
    
    (587
    )
    
    
    9,437Other long-term debt
    
    
    18,575
    
    
    
    1,996
    
    
    
    20,571
    
    
    
    (162
    )
    
    
    (212
    )
    
    
    (374
    )Trust preferred securities distribution
    
    
    (24,151
    )
    
    
    0
    
    
    
    (24,151
    )
    
    
    3,029
    
    
    
    1,322
    
    
    
    4,351Total
    
    
    (12,959
    )
    
    
    6,085
    
    
    
    (6,874
    )
    
    
    15,112
    
    
    
    (13,808
    )
    
    
    1,304Net Interest Income
    
    $
    1,051
    
    
    $
    (20,858
    )
    
    $
    (19,807
    )
    
    $
    66,012
    
    
    $
    (7,774
    )
    
    $
    58,238
  Provision for Loan and Lease Losses
  Noninterest Income
  Noninterest Expense
  Consolidated Balance Sheet Analysis
  Loans Held For Sale
  27




---



##### Table of Contents



Loans and Leases
  December 31,2004
    
    
    2003
    
    
    2002
    
    
    2001
    
    
    2000(Dollars in thousands)Commercial, financial and agricultural
    
    $
    1,697,651
    
    
    $
    1,503,619
    
    
    $
    1,347,962
    
    
    $
    1,055,307
    
    
    $
    677,066Real estate construction
    
    
    287,496
    
    
    
    306,669
    
    
    
    314,851
    
    
    
    287,228
    
    
    
    220,485Real estate mortgage
    
    
    808,875
    
    
    
    859,541
    
    
    
    777,865
    
    
    
    490,186
    
    
    
    122,301Consumer
    
    
    31,166
    
    
    
    27,370
    
    
    
    27,857
    
    
    
    38,489
    
    
    
    56,785Commercial financing:Franchise financing
    
    
    330,496
    
    
    
    207,341
    
    
    
    130,247
    
    
    
    47,447
    
    
    
    Domestic leasing
    
    
    174,035
    
    
    
    157,072
    
    
    
    161,464
    
    
    
    185,080
    
    
    
    116,867Canadian leasing
    
    
    265,780
    
    
    
    207,355
    
    
    
    133,784
    
    
    
    91,816
    
    
    
    72,864Unearned income:Franchise financing
    
    
    (86,638
    )
    
    
    (56,837
    )
    
    
    (34,494
    )
    
    
    (11,497
    )
    
    
    Domestic leasing
    
    
    (23,924
    )
    
    
    (22,038
    )
    
    
    (24,793
    )
    
    
    (32,686
    )
    
    
    (21,570
    )Canadian leasing
    
    
    (34,497
    )
    
    
    (29,038
    )
    
    
    (19,467
    )
    
    
    (13,548
    )
    
    
    (9,876
    )Total
    
    $
    3,450,440
    
    
    $
    3,161,054
    
    
    $
    2,815,276
    
    
    $
    2,137,822
    
    
    $
    1,234,922
 28




---



##### Table of Contents



After OneWithin One
    
    
    But Within
    
    
    AfterYear
    
    
    Five Years
    
    
    Five Years
    
    
    Total(Dollars in thousands)Commercial, financial and agricultural
    
    $
    736,322
    
    
    $
    693,360
    
    
    $
    267,969
    
    
    $
    1,697,651Real estate construction
    
    
    192,868
    
    
    
    74,690
    
    
    
    19,938
    
    
    
    287,496Real estate mortgage
    
    
    42,137
    
    
    
    71,423
    
    
    
    695,315
    
    
    
    808,875Consumer
    
    
    20,715
    
    
    
    8,546
    
    
    
    1,905
    
    
    
    31,166Commercial financing:Franchise financing
    
    
    10,445
    
    
    
    46,611
    
    
    
    186,802
    
    
    
    243,858Domestic leasing
    
    
    10,745
    
    
    
    138,129
    
    
    
    1,237
    
    
    
    150,111Canadian leasing
    
    
    11,349
    
    
    
    205,401
    
    
    
    14,533
    
    
    
    231,283Total
    
    $
    1,024,581
    
    
    $
    1,238,160
    
    
    $
    1,187,699
    
    
    $
    3,450,440Loans due after one year with:Fixed interest rates
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    1,060,852Variable interest rates
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,365,007Total
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    2,425,859
 Allowance for Loan and Lease Losses
  December 31,2004
    
    
    2003
    
    
    2002(Dollars in thousands)Balance at beginning of year
    
    $
    64,285
    
    
    $
    50,936
    
    
    $
    22,283Provision for loan and lease losses
    
    
    14,195
    
    
    
    47,583
    
    
    
    43,996Charge-offs
    
    
    (28,180
    )
    
    
    (37,312
    )
    
    
    (18,230
    )Recoveries
    
    
    5,335
    
    
    
    3,420
    
    
    
    2,870Reduction due to sale of loans and leases and other
    
    
    (627
    )
    
    
    (234
    )
    
    
    Reduction due to reclassification of loans
    
    
    (10,808
    )
    
    
    (690
    )
    
    
    Foreign currency adjustment
    
    
    243
    
    
    
    582
    
    
    
    17Balance at end of period
    
    $
    44,443
    
    
    $
    64,285
    
    
    $
    50,936
  Investment Securities
  December 31,2004
    
    
    2003
    
    
    2002(Dollars in thousands)U.S. Treasury and government obligations
    
    $
    3,556
    
    
    $
    20,994
    
    
    $
    14,992Obligations of states and political subdivisions
    
    
    3,746
    
    
    
    3,960
    
    
    
    4,210Mortgage-backed securities
    
    
    31,556
    
    
    
    2,039
    
    
    
    1,738Other
    
    
    69,364
    
    
    
    65,532
    
    
    
    47,008Total
    
    $
    108,222
    
    
    $
    92,525
    
    
    $
    67,948
 29




---



##### Table of Contents



Mortgage-backedSecurities andAfter Five
    
    
    
    
    
    
    FHLB & FederalWithin
    
    
    But Within
    
    
    After Ten
    
    
    Reserve BankOne Year
    
    
    Ten Years
    
    
    Years
    
    
    Stock
    
    
    Total(Dollars in thousands)U.S. Treasury and government obligations
    
    $
    
    
    
    $
    
    
    
    $
    3,556
    
    
    $
    
    
    
    $
    3,556Obligations of states and political subdivisions
    
    
    
    
    
    
    530
    
    
    
    3,216
    
    
    
    
    
    
    
    3,746Other
    
    
    3,134
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,134Total
    
    
    3,134
    
    
    
    530
    
    
    
    6,772
    
    
    
    
    
    
    
    10,436Mortgage-backed securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    31,556
    
    
    
    31,556FHLB & Federal Reserve Bank stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    66,230
    
    
    
    66,230$
    3,134
    
    
    $
    530
    
    
    $
    6,772
    
    
    $
    97,786
    
    
    $
    108,222Weighted Average Yield Held-to-maturity
    
    
    
    
    
    
    5.18
    %
    
    
    5.17
    %
    
    
    5.30
    %Available-for-sale
    
    
    3.98
    %
    
    
    
    
    
    
    5.36
    %
    
    
    4.64
    %
  Deposits
    December 31,2004
    
    
    2003
    
    
    2002(Dollars in thousands)Under 3 months
    
    $
    266,200
    
    
    $
    284,095
    
    
    $
    241,7223 to 6 months
    
    
    117,339
    
    
    
    60,786
    
    
    
    116,1196 to 12 months
    
    
    91,276
    
    
    
    98,746
    
    
    
    63,742after 12 months
    
    
    169,796
    
    
    
    252,743
    
    
    
    280,287Total CDs
    
    $
    644,611
    
    
    $
    696,370
    
    
    $
    701,870Brokered deposits
    
    $
    278,993
    
    
    $
    339,417
    
    
    $
    337,431Mortgage banking escrow deposits
    
    $
    680,812
    
    
    $
    566,956
    
    
    $
    582,626Commercial banking core deposits
    
    $
    2,197,671
    
    
    $
    1,752,758
    
    
    $
    1,516,812
 Short-Term Borrowings
   30




---



##### Table of Contents



Collateralized and Other Long-Term Debt
   Capital
   December 31,2004
    
    
    2003
    
    
    2002(Dollars in thousands)(Restated)Tier 1 capital
    
    $
    637,875
    
    
    $
    556,793
    
    
    $
    462,064Tier 2 capital
    
    
    143,612
    
    
    
    183,738
    
    
    
    196,092Total risk-based capital
    
    $
    781,487
    
    
    $
    740,531
    
    
    $
    658,156Risk-weighted assets
    
    $
    4,908,012
    
    
    $
    4,917,622
    
    
    $
    4,996,891Risk-based ratios:Tier 1 capital
    
    
    13.0
    %
    
    
    11.4
    %
    
    
    9.3
    %Total capital
    
    
    15.9
    
    
    
    15.1
    
    
    
    13.2Tier 1 leverage ratio
    
    
    11.6
    
    
    
    11.2
    
    
    
    9.7Ending shareholders equity to assets
    
    
    9.6
    
    
    
    8.7
    
    
    
    7.4Average shareholders equity to assets
    
    
    9.0
    
    
    
    7.6
    
    
    
    8.0
 Other Safety and
Soundness Regulations
  31




---



##### Table of Contents



Interest RateatOrigination
    
    December 31,
    
    Maturity
    
    $ Amount inName
    
    Date
    
    2004
    
    Date
    
    Thousands
    
    Dividend
    
    OtherIFC Capital Trust II
    
    Nov 2000
    
    
    10.50
    %
    
    Sep 2030
    
    $
    51,750
    
    
    quarterlyIFC Capital Trust III
    
    Nov 2000
    
    
    8.75
    
    
    Sep 2030
    
    
    51,707
    
    
    quarterly
    
    Initial conversion ratio of
1.261 shares of common
stock to 1 convertible
preferred security,
currently callable at 10%
premiumIFC Capital Trust IV
    
    Jul 2001
    
    
    10.25
    
    
    Jul 2031
    
    
    15,000
    
    
    semiannualIFC Capital Trust V
    
    Nov 2001
    
    
    9.95
    
    
    Nov 2031
    
    
    30,000
    
    
    semiannualIFC Capital Trust VI
    
    Oct 2002
    
    
    8.70
    
    
    Sep 2032
    
    
    34,500
    
    
    quarterlyIFC Statutory Trust VII
    
    Nov 2003
    
    
    5.46
    
    
    Nov 2033
    
    
    50,000
    
    
    quarterly
    
    Rate changes quarterly at
three month LIBOR plus 290
basis points$
    232,957
    Inflation
  Cash Flow Analysis
  Earnings Outlook
   32




---



##### Table of Contents



33




---



##### Table of Contents



Summary of Quarterly Financial Information
 2004Fourth
    
    
    Third
    
    
    Second
    
    
    FirstQuarter
    
    
    Quarter
    
    
    Quarter
    
    
    Quarter(In thousands)(Restated)
    
    
    (Restated)
    
    (Restated)
    
    (Restated)Summary Income InformationInterest income
    
    $
    89,439
    
    
    $
    89,965
    
    
    $
    85,096
    
    
    $
    79,803Interest expense
    
    
    (26,480
    )
    
    
    (24,305
    )
    
    
    (20,840
    )
    
    
    (20,600
    )Provision for loan and lease losses
    
    
    (2,357
    )
    
    
    (1,898
    )
    
    
    (1,794
    )
    
    
    (8,146
    )Non-interest income
    
    
    60,016
    
    
    
    65,913
    
    
    
    76,519
    
    
    
    81,081Non-interest expense
    
    
    (96,550
    )
    
    
    (102,492
    )
    
    
    (107,757
    )
    
    
    (100,436
    )Income taxes
    
    
    (10,132
    )
    
    
    (10,858
    )
    
    
    (12,942
    )
    
    
    (11,800
    )Net income
    
    $
    13,936
    
    
    $
    16,325
    
    
    $
    18,282
    
    
    $
    19,902Earnings per share of common stock:Basic(1)
    
    $
    0.49
    
    
    $
    0.58
    
    
    $
    0.65
    
    
    $
    0.71Diluted(1)
    
    
    0.47
    
    
    
    0.54
    
    
    
    0.61
    
    
    
    0.66
 2003Fourth
    
    
    Third
    
    
    Second
    
    
    FirstQuarter
    
    
    Quarter
    
    
    Quarter
    
    
    Quarter(In thousands)Summary Income InformationInterest income
    
    $
    84,372
    
    
    $
    98,880
    
    
    $
    98,851
    
    
    $
    88,882Interest expense
    
    
    (24,472
    )
    
    
    (23,247
    )
    
    
    (26,890
    )
    
    
    (24,490
    )Provision for loan and lease losses
    
    
    (9,928
    )
    
    
    (14,778
    )
    
    
    (13,634
    )
    
    
    (9,243
    )Non-interest income
    
    
    80,407
    
    
    
    105,024
    
    
    
    74,269
    
    
    
    69,599Non-interest expense
    
    
    (103,603
    )
    
    
    (114,767
    )
    
    
    (111,230
    )
    
    
    (105,600
    )Income taxes
    
    
    (10,080
    )
    
    
    (19,994
    )
    
    
    (8,139
    )
    
    
    (7,372
    )Net income
    
    $
    16,696
    
    
    $
    31,118
    
    
    $
    13,227
    
    
    $
    11,776Earnings per share of common stock:Basic(1)
    
    $
    0.60
    
    
    $
    1.11
    
    
    $
    0.47
    
    
    $
    0.42Diluted(1)
    
    
    0.56
    
    
    
    1.03
    
    
    
    0.45
    
    
    
    0.41
 
 (1)
    
    Our quarterly earnings per share are based on actual quarterly data and may not add up
exactly to year-to-date earnings per share due to rounding. Earnings by Line of Business
  
    
    Mortgage Banking
    
    Commercial Banking
    
    Home Equity Lending
    
    Commercial Finance
    
    Venture Capital
 34




---



##### Table of Contents



Year Ended December 31,2004
    
    
    2003
    
    
    2002(Dollars in thousands)Net income (loss):Mortgage Banking
    
    $
    20,266
    
    
    $
    78,100
    
    
    $
    44,543Commercial Banking
    
    
    23,424
    
    
    
    22,477
    
    
    
    16,085Home Equity Lending (Restated 2004)
    
    
    28,067
    
    
    
    (19,890
    )
    
    
    1,005Commercial Finance
    
    
    3,217
    
    
    
    1,793
    
    
    
    (58
    )Venture Capital
    
    
    (397
    )
    
    
    (1,708
    )
    
    
    (2,483
    )Other (including consolidating entries) (Restated)
    
    
    (6,132
    )
    
    
    (7,955
    )
    
    
    (5,764
    )$
    68,445
    
    
    $
    72,817
    
    
    $
    53,328
 Mortgage Banking
  Year Ended December 31,2004
    
    
    2003
    
    
    2002
    
    
    2001
    
    
    2000(Dollars in thousands)Selected Income Statement Data:Net interest income
    
    $
    40,825
    
    
    $
    72,311
    
    
    $
    41,545
    
    
    $
    30,261
    
    
    $
    15,401Recovery of (provision for) loan losses
    
    
    278
    
    
    
    (664
    )
    
    
    (354
    )
    
    
    31
    
    
    
    357Noninterest income
    
    
    197,971
    
    
    
    326,000
    
    
    
    207,177
    
    
    
    185,251
    
    
    
    118,293Total net revenue
    
    
    239,074
    
    
    
    397,647
    
    
    
    248,368
    
    
    
    215,543
    
    
    
    134,051Operating expense
    
    
    (204,205
    )
    
    
    (267,880
    )
    
    
    (175,277
    )
    
    
    (153,706
    )
    
    
    (112,506
    )Income before taxes
    
    
    34,869
    
    
    
    129,767
    
    
    
    73,091
    
    
    
    61,837
    
    
    
    21,545Income taxes
    
    
    (14,603
    )
    
    
    (51,667
    )
    
    
    (28,548
    )
    
    
    (23,912
    )
    
    
    (8,539
    )Net income before cumulative effect of change in
accounting principle
    
    
    20,266
    
    
    
    78,100
    
    
    
    44,543
    
    
    
    37,925
    
    
    
    13,006Cumulative effect of change in accounting principle
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    175
    
    
    
    Net income
    
    $
    20,266
    
    
    $
    78,100
    
    
    $
    44,543
    
    
    $
    38,100
    
    
    $
    13,006Selected Balance Sheet Data at End of Period:Total assets
    
    $
    1,238,136
    
    
    $
    1,258,641
    
    
    $
    1,631,406
    
    
    $
    926,946
    
    
    $
    522,349Mortgage loans held for sale
    
    
    662,832
    
    
    
    679,360
    
    
    
    1,239,309
    
    
    
    502,086
    
    
    
    249,580Mortgage servicing assets
    
    
    319,225
    
    
    
    348,174
    
    
    
    146,398
    
    
    
    211,201
    
    
    
    121,555Deposits
    
    
    680,812
    
    
    
    567,047
    
    
    
    581,425
    
    
    
    360,523
    
    
    
    158,416Short-term borrowing
    
    
    133,150
    
    
    
    214,877
    
    
    
    809,921
    
    
    
    385,640
    
    
    
    215,826Shareholders equity
    
    
    123,265
    
    
    
    122,671
    
    
    
    100,069
    
    
    
    63,150
    
    
    
    47,828Selected Operating Data:Mortgage loan originations
    
    $
    13,093,082
    
    
    $
    22,669,246
    
    
    $
    11,411,875
    
    
    $
    9,225,991
    
    
    $
    4,091,573Servicing portfolio:Balance at end of period
    
    
    26,196,627
    
    
    
    29,640,122
    
    
    
    16,792,669
    
    
    
    12,875,532
    
    
    
    9,196,513Weighted average coupon rate
    
    
    5.75
    %
    
    
    5.83
    %
    
    
    6.59
    %
    
    
    7.23
    %
    
    
    7.76
    %Weighted average servicing fee
    
    
    0.35
    
    
    
    0.33
    
    
    
    0.37
    
    
    
    0.45
    
    
    
    0.43Servicing sold as a % of originations
    
    
    74.2
    
    
    
    6.2
    
    
    
    31.1
    
    
    
    29.9
    
    
    
    108.0
 Overview
   35




---



##### Table of Contents



Strategy
  
    
    We manage our loan production activities through the expansion or contraction of existing
channels in geographic markets and demographic groups that support our strategy and by
serving intermediaries (such as some brokers, correspondents and credit unions) that value
our mortgage banks service-oriented approach to lending.
    
    We focus on increasing profit margins by reducing fixed costs associated with the
mortgage cycle. This initiative includes redesigning our work flow as to how we process,
underwrite, and close loans.
    
    We are more likely to retain servicing rights in periods of declining interest rates and
more likely to sell these servicing rights during periods of increasing interest rates. This
strategy gives us the flexibility to invest in servicing rights during periods of relatively
high production when servicing values tend to decrease and sell the servicing during periods
of lower production when servicing values tend to increase.
 36




---



##### Table of Contents



Net Income
   Year Ended December 31,2004
    
    
    2003
    
    
    2002(Dollars in thousands)Total originations
    
    $
    13,093,082
    
    
    $
    22,669,246
    
    
    $
    11,411,875Percent retail loans
    
    
    20
    %
    
    
    26
    %
    
    
    34
    %Percent wholesale loans
    
    
    34
    
    
    
    42
    
    
    
    59Percent correspondent
    
    
    35
    
    
    
    28
    
    
    
    1Percent brokered(1)
    
    
    11
    
    
    
    4
    
    
    
    6Percent refinances
    
    
    52
    
    
    
    67
    
    
    
    61
 
 (1)
    
    Brokered loans are loans we originate for which we receive loan origination fees, but which
are funded, closed and owned by unrelated third parties.  Net Revenue
  Year Ended December 31,2004
    
    
    2003
    
    
    2002(Dollars in thousands)Selected Income Statement Data:Net interest income
    
    $
    40,825
    
    
    $
    72,311
    
    
    $
    41,545Recovery of (provision for) loan losses
    
    
    278
    
    
    
    (664
    )
    
    
    (354
    )Gain on sales of loans
    
    
    151,172
    
    
    
    327,864
    
    
    
    200,204Servicing fees
    
    
    104,500
    
    
    
    83,124
    
    
    
    58,316Amortization expense
    
    
    (95,721
    )
    
    
    (118,920
    )
    
    
    (55,097
    )Recovery (impairment) of servicing assets
    
    
    (4,204
    )
    
    
    45,456
    
    
    
    (143,376
    )Gain (loss) on derivatives
    
    
    18,889
    
    
    
    (21,307
    )
    
    
    125,586Gain (loss) on sales of servicing assets
    
    
    16,681
    
    
    
    (305
    )
    
    
    14,842Other income
    
    
    6,654
    
    
    
    10,088
    
    
    
    6,702Total net revenue
    
    $
    239,074
    
    
    $
    397,647
    
    
    $
    248,368
  37




---



##### Table of Contents




    
    the valuation of newly-created mortgage servicing rights;
    
    net loan origination fees which are recognized when loans are pooled and sold into the secondary mortgage market; and,
    
    changes in fair value of forward contracts and interest rate lock commitments.
       38




---



##### Table of Contents



Operating Expenses
  Year Ended December 31,2004
    
    
    2003
    
    
    2002(Dollars in thousands)Salaries and employee benefits
    
    $
    77,209
    
    
    $
    81,589
    
    
    $
    61,418Incentive and commission pay
    
    
    41,230
    
    
    
    79,956
    
    
    
    47,137Other expenses
    
    
    85,766
    
    
    
    106,335
    
    
    
    66,722Total operating expenses
    
    $
    204,205
    
    
    $
    267,880
    
    
    $
    175,277Number of employees at period end(1)
    
    
    1,675
    
    
    
    2,175
    
    
    
    1,858
 
 (1)
    
    On a full time equivalent basis.  Mortgage Servicing
  Year Ended December 31,2004
    
    
    2003
    
    
    2002(Portfolio in billions)Beginning servicing portfolio
    
    $
    29.6
    
    
    $
    16.8
    
    
    $
    12.9Mortgage loan closings(1)
    
    
    11.7
    
    
    
    21.9
    
    
    
    10.8Sales(1)
    
    
    (8.3
    )
    
    
    (0.6
    )
    
    
    (2.9
    )Run-off(2)
    
    
    (6.8
    )
    
    
    (8.5
    )
    
    
    (4.0
    )Ending servicing portfolio
    
    $
    26.2
    
    
    $
    29.6
    
    
    $
    16.8Number of loans (end of period)
    
    
    205,463
    
    
    
    229,983
    
    
    
    137,738Average loan size
    
    $
    127,500
    
    
    $
    128,880
    
    
    $
    121,917Weighted average coupon
    
    
    5.75
    %
    
    
    5.83
    %
    
    
    6.59
    %Percent Government National Mortgage Association (GNMA)
and state housing programs
    
    
    30
    
    
    
    26
    
    
    
    37Percent conventional and other
    
    
    70
    
    
    
    74
    
    
    
    63Delinquency ratio
    
    
    4.6
    
    
    
    4.6
    
    
    
    5.3Mortgage servicing assets to related servicing portfolio(3)
    
    
    1.20
    
    
    
    1.19
    
    
    
    0.88
 
 (1)
    
    Excludes brokered loans that are closed, funded and owned by unrelated third parties.(2)
    
    Run-off is primarily the reduction in principal balance of the servicing portfolio due to
regular principal payments made by mortgagees and early repayments of entire loans. 39




---



##### Table of Contents



(3)
    
    For this calculation, deferred service release premiums on warehouse loans are excluded from
mortgage servicing assets and loans held for sale (i.e. warehouse loans) are excluded from the
servicing portfolio.   Commercial Banking
  Year Ended December 31,2004
    
    
    2003
    
    
    2002
    
    
    2001
    
    
    2000(Dollars in thousands)Selected Income Statement Data:Interest income
    
    $
    127,029
    
    
    $
    112,679
    
    
    $
    110,107
    
    
    $
    104,514
    
    
    $
    82,680Interest expense
    
    
    (37,412
    )
    
    
    (33,663
    )
    
    
    (40,253
    )
    
    
    (53,515
    )
    
    
    (44,268
    )Net interest income
    
    
    89,617
    
    
    
    79,016
    
    
    
    69,854
    
    
    
    50,999
    
    
    
    38,412Provision for loan and lease losses
    
    
    (3,307
    )
    
    
    (5,913
    )
    
    
    (9,812
    )
    
    
    (7,900
    )
    
    
    (2,933
    )Other income
    
    
    18,316
    
    
    
    21,070
    
    
    
    16,081
    
    
    
    14,981
    
    
    
    12,006Total net revenue
    
    
    104,626
    
    
    
    94,173
    
    
    
    76,123
    
    
    
    58,080
    
    
    
    47,485Operating expense
    
    
    (65,450
    )
    
    
    (56,699
    )
    
    
    (50,029
    )
    
    
    (43,482
    )
    
    
    (35,805
    )Income before taxes
    
    
    39,176
    
    
    
    37,474
    
    
    
    26,094
    
    
    
    14,598
    
    
    
    11,680Income taxes
    
    
    (15,752
    )
    
    
    (14,997
    )
    
    
    (10,009
    )
    
    
    (5,680
    )
    
    
    (4,590
    )Net income
    
    $
    23,424
    
    
    $
    22,477
    
    
    $
    16,085
    
    
    $
    8,918
    
    
    $
    7,090Selected Balance Sheet Data at End of Period:Assets
    
    $
    2,622,877
    
    
    $
    2,203,965
    
    
    $
    1,969,956
    
    
    $
    1,648,294
    
    
    $
    1,167,559Securities and short-term investments
    
    
    327,664
    (1)
    
    
    107,668
    
    
    
    44,433
    
    
    
    43,278
    
    
    
    27,287Loans and leases
    
    
    2,223,474
    
    
    
    1,988,633
    
    
    
    1,823,304
    
    
    
    1,514,957
    
    
    
    1,067,980Allowance for loan and lease losses
    
    
    (22,230
    )
    
    
    (22,055
    )
    
    
    (20,725
    )
    
    
    (14,644
    )
    
    
    (9,228
    )Deposits
    
    
    2,390,839
    
    
    
    1,964,274
    
    
    
    1,733,864
    
    
    
    1,456,376
    
    
    
    998,855Shareholders equity
    
    
    143,580
    
    
    
    162,050
    
    
    
    154,423
    
    
    
    129,179
    
    
    
    68,539Daily Averages:Assets
    
    $
    2,476,835
    
    
    $
    2,119,944
    
    
    $
    1,802,896
    
    
    $
    1,402,589
    
    
    $
    956,744Loans and leases
    
    
    2,094,190
    
    
    
    1,914,608
    
    
    
    1,693,426
    
    
    
    1,276,003
    
    
    
    879,875Allowance for loan and lease losses
    
    
    (22,304
    )
    
    
    (21,895
    )
    
    
    (17,823
    )
    
    
    (11,038
    )
    
    
    (8,133
    )Deposits
    
    
    2,258,538
    
    
    
    1,894,406
    
    
    
    1,583,926
    
    
    
    1,253,725
    
    
    
    851,386Shareholders equity
    
    
    147,759
    
    
    
    147,886
    
    
    
    140,249
    
    
    
    85,312
    
    
    
    57,214Shareholders equity to assets
    
    
    5.97
    %
    
    
    6.98
    %
    
    
    7.78
    %
    
    
    6.08
    %
    
    
    5.98
    %
 
 (1)
    
    Includes $293 million of inter-company investments, the result of excess liquidity at the
commercial banking line of business related to deposit growth in excess of its asset
deployment needs. The funds have been redeployed in earning assets at our other lines of
business. Overview
  40




---



##### Table of Contents



Strategy
  
    
    the market is a metropolitan area with attractive business demographics and
diversification displaying evidence of sustainable growth;
    
    recent banking merger and acquisition activity has occurred in the market and management
believes that the acquiror is viewed by customers as an outsider and/or not responsive to
local small business needs; and
    
    we are able to attract experienced, senior banking staff to manage the new market.
     December 31,2004
    
    
    2003
    
    
    2002Loans
    
    
    Percent
    
    
    Loans
    
    
    Percent
    
    
    Loans
    
    
    PercentOutstanding
    
    
    of Total
    
    
    Outstanding
    
    
    of Total
    
    
    Outstanding
    
    
    of Total(Dollars in thousands)Southern Indiana
    
    $
    456,672
    
    
    
    20.5
    %
    
    $
    423,213
    
    
    
    21.3
    %
    
    $
    407,493
    
    
    
    22.3
    %Other Midwest Markets
    
    
    1,227,848
    
    
    
    55.2
    
    
    
    1,134,489
    
    
    
    57.0
    
    
    
    1,092,759
    
    
    
    59.9Western Markets
    
    
    538,954
    
    
    
    24.2
    
    
    
    430,931
    
    
    
    21.7
    
    
    
    323,052
    
    
    
    17.7Total
    
    $
    2,223,474
    
    
    
    100.0
    %
    
    $
    1,988,633
    
    
    
    100.0
    %
    
    $
    1,823,304
    
    
    
    100.0
    %
 41




---



##### Table of Contents



Core
    
    
    Percent
    
    
    Core
    
    
    Percent
    
    
    Core
    
    
    PercentDeposits
    
    
    of Total
    
    
    Deposits
    
    
    of Total
    
    
    Deposits
    
    
    of TotallSouthern Indiana
    
    $
    943,869
    
    
    
    42.9
    %
    
    $
    835,552
    
    
    
    47.7
    %
    
    $
    763,531
    
    
    
    50.3
    %Other Midwest Markets
    
    
    663,492
    
    
    
    30.2
    
    
    
    556,831
    
    
    
    31.8
    
    
    
    482,489
    
    
    
    31.8Western Markets
    
    
    590,310
    
    
    
    26.9
    
    
    
    360,375
    
    
    
    20.6
    
    
    
    270,792
    
    
    
    17.9Total
    
    $
    2,197,671
    
    
    
    100.0
    %
    
    $
    1,752,758
    
    
    
    100.0
    %
    
    $
    1,516,812
    
    
    
    100.0
    %
 Net Income
  Net Interest Income
  Year Ended December 31,2004
    
    2003
    
    2002(Dollars in thousands)Net interest income
    
    $
    89,617
    
    
    $
    79,016
    
    
    $
    69,854Average interest earning assets
    
    
    2,392,049
    
    
    
    2,046,658
    
    
    
    1,745,816Net interest margin
    
    
    3.75
    %
    
    
    3.86
    %
    
    
    4.00
    %
  Provision for Loan and Lease Losses
  Noninterest Income
  Year Ended December 31,2004
    
    
    2003
    
    
    2002(Dollars in thousands)Trust fees
    
    $
    1,902
    
    
    $
    1,817
    
    
    $
    1,933Service charges on deposit accounts
    
    
    5,071
    
    
    
    5,095
    
    
    
    4,775Insurance commissions, fees and premiums
    
    
    2,143
    
    
    
    2,009
    
    
    
    1,705Gain from sales of loans
    
    
    2,947
    
    
    
    7,814
    
    
    
    5,167Loan servicing fees
    
    
    1,374
    
    
    
    1,237
    
    
    
    945Amortization of servicing assets
    
    
    (1,559
    )
    
    
    (2,705
    )
    
    
    (1,609
    )Recovery (impairment) of servicing assets
    
    
    582
    
    
    
    744
    
    
    
    (1,574
    )Brokerage fees
    
    
    1,465
    
    
    
    1,264
    
    
    
    1,236Other
    
    
    4,391
    
    
    
    3,795
    
    
    
    3,503Total noninterest income
    
    $
    18,316
    
    
    $
    21,070
    
    
    $
    16,081
  42




---



##### Table of Contents



Operating Expenses
  Year Ended December 31,2004
    
    
    2003
    
    
    2002(Dollars in thousands)Salaries and employee benefits
    
    $
    40,422
    
    
    $
    34,853
    
    
    $
    29,896Other expenses
    
    
    25,028
    
    
    
    21,846
    
    
    
    20,133Total operating expenses
    
    $
    65,450
    
    
    $
    56,699
    
    
    $
    50,029Efficiency ratio
    
    
    60.6
    %
    
    
    56.7
    %
    
    
    58.2
    %Number of employees at period end(1)
    
    
    525
    
    
    
    493
    
    
    
    454
 
 (1)
    
    On a full time equivalent basis  Balance Sheet
  Credit Quality
  December 31,2004
    
    
    2003
    
    
    2002(Dollars in thousands)Nonperforming loans
    
    $
    21,247
    
    
    $
    25,614
    
    
    $
    14,970Other real estate owned
    
    
    1,533
    
    
    
    995
    
    
    
    96Total nonperforming assets
    
    $
    22,780
    
    
    $
    26,609
    
    
    $
    15,066Nonperforming assets to total assets
    
    
    0.87
    %
    
    
    1.21
    %
    
    
    0.76
    %Allowance for loan losses
    
    $
    22,230
    
    
    $
    22,055
    
    
    $
    20,725Allowance for loan losses to total loans
    
    
    1.00
    %
    
    
    1.11
    %
    
    
    1.14
    %For the Period Ended:Provision for loan losses
    
    $
    3,307
    
    
    $
    5,913
    
    
    $
    9,812Net charge-offs
    
    
    3,133
    
    
    
    4,583
    
    
    
    3,731Net charge-offs to average loans
    
    
    0.15
    %
    
    
    0.24
    %
    
    
    0.22
    %
 43




---



##### Table of Contents



Home Equity Lending
  Year Ended December 31,2004
    
    
    2003
    
    
    2002
    
    
    2001
    
    
    2000(Dollars in thousands)(Restated)Selected Income Statement Data:Net interest income
    
    $
    98,983
    
    
    $
    106,545
    
    
    $
    94,068
    
    
    $
    61,803
    
    
    $
    35,864Provision for loan and lease losses
    
    
    (4,369
    )
    
    
    (29,575
    )
    
    
    (25,596
    )
    
    
    (2,320
    )
    
    
    (461
    )Noninterest income
    
    
    67,847
    
    
    
    (19,525
    )
    
    
    11,791
    
    
    
    64,786
    
    
    
    68,044Total net revenues
    
    
    162,461
    
    
    
    57,445
    
    
    
    80,263
    
    
    
    124,269
    
    
    
    103,447Operating expenses
    
    
    (114,779
    )
    
    
    (90,538
    )
    
    
    (78,588
    )
    
    
    (97,189
    )
    
    
    (72,623
    )Income (loss) before taxes
    
    
    47,682
    
    
    
    (33,093
    )
    
    
    1,675
    
    
    
    27,080
    
    
    
    30,824Income taxes
    
    
    (19,615
    )
    
    
    13,203
    
    
    
    (670
    )
    
    
    (10,832
    )
    
    
    (12,330
    )Net income (loss)
    
    $
    28,067
    
    
    $
    (19,890
    )
    
    $
    1,005
    
    
    $
    16,248
    
    
    $
    18,494Selected Balance Sheet Data:Total assets
    
    $
    992,979
    
    
    $
    1,070,634
    
    
    $
    939,494
    
    
    $
    602,226
    
    
    $
    550,526Home equity loans and lines of credit(1)
    
    
    590,175
    
    
    
    692,637
    
    
    
    626,355
    
    
    
    346,192
    
    
    
    4,510Allowance for loan losses
    
    
    (11,330
    )
    
    
    (29,251
    )
    
    
    (21,689
    )
    
    
    (2,220
    )
    
    
    (500
    )Home equity loans held for sale
    
    
    227,740
    
    
    
    202,627
    
    
    
    75,540
    
    
    
    
    
    
    
    330,208Residual interests
    
    
    51,542
    
    
    
    70,519
    
    
    
    157,065
    
    
    
    199,071
    
    
    
    152,614Mortgage servicing assets
    
    
    44,000
    
    
    
    28,425
    
    
    
    26,444
    
    
    
    15,265
    
    
    
    7,708Short-term borrowings
    
    
    359,902
    
    
    
    368,640
    
    
    
    201,328
    
    
    
    138,527
    
    
    
    163,732Collateralized debt
    
    
    352,625
    
    
    
    460,535
    
    
    
    391,425
    
    
    
    
    
    
    
    Shareholders equity
    
    
    136,260
    
    
    
    128,555
    
    
    
    155,831
    
    
    
    135,493
    
    
    
    99,586Selected Operating Data:Loan volume:Lines of credit
    
    $
    508,287
    
    
    $
    324,094
    
    
    $
    443,323
    
    
    $
    317,579
    
    
    $
    629,906Loans
    
    
    934,027
    
    
    
    809,222
    
    
    
    623,903
    
    
    
    831,830
    
    
    
    596,049Total managed portfolio balance
    
    
    1,147,137
    
    
    
    1,513,289
    
    
    
    1,830,339
    
    
    
    2,064,542
    
    
    
    1,625,719Delinquency ratio(2)
    
    
    4.8
    %
    
    
    5.9
    %
    
    
    6.0
    %
    
    
    5.1
    %
    
    
    4.4
    %Total managed portfolio balance including credit risk sold
    
    
    2,807,367
    
    
    
    2,568,356
    
    
    
    2,502,685
    
    
    
    2,317,975
    
    
    
    1,825,527Weighted average coupon rate: Lines of credit
    
    
    9.18
    %
    
    
    9.71
    %
    
    
    10.79
    %
    
    
    11.11
    %
    
    
    14.04
    %Loans
    
    
    11.87
    
    
    
    12.07
    
    
    
    13.50
    
    
    
    13.38
    
    
    
    13.09Gain on sale of loans to loans sold
    
    
    2.24
    
    
    
    3.81
    
    
    
    4.70
    
    
    
    8.47
    
    
    
    6.06Net home equity charge-offs to average managed portfolio
    
    
    2.48
    
    
    
    4.37
    
    
    
    2.87
    
    
    
    1.82
    
    
    
    0.57
 
 (1)
    
    Includes $361.1 million, $478.7 million and $392.4 million of collateralized loans at
December 31, 2004, 2003 and 2002, respectively, as part of securitized financings.(2)
    
    Nonaccrual loans are included in the delinquency ratio. Overview
  Strategy
  44




---



##### Table of Contents



Portfolio Mix
  State
    
    2004
    
    2003California
    
    
    15.4
    %
    
    
    16.2
    %Florida
    
    
    7.4
    
    
    
    7.5Washington
    
    
    6.1
    
    
    
    5.3Michigan
    
    
    6.0
    
    
    
    3.9Arizona
    
    
    5.6
    
    
    
    6.0All other states
    
    
    59.5
    
    
    
    61.1Total
    
    
    100.0
    %
    
    
    100.0
    %
  WeightedAverageAmount
    
    
    % of Total
    
    
    Coupon(Dollars in thousands)Home equity loans <= 100% CLTV
    
    $
    182,817
    
    
    
    15.94
    %
    
    
    9.79
    %Home equity lines of credit < = 100% CLTV
    
    
    384,547
    
    
    
    33.52
    
    
    
    7.82Total <= 100% CLTV
    
    
    567,364
    
    
    
    49.46
    
    
    
    8.46Home equity loans > 100% CLTV
    
    
    349,791
    
    
    
    30.49
    
    
    
    13.27Home equity lines of credit > 100% CLTV
    
    
    175,082
    
    
    
    15.26
    
    
    
    11.70Total > 100% CLTV
    
    
    524,873
    
    
    
    45.75
    
    
    
    12.75First mortgages
    
    
    36,694
    
    
    
    3.20
    
    
    
    7.18Other (including discontinued products)
    
    
    18,206
    
    
    
    1.59
    
    
    
    13.88Total managed portfolio(1)
    
    $
    1,147,137
    
    
    
    100.00
    %
    
    
    10.46
    %
 
 (1)
    
    We define our Managed Portfolio as the portfolio of loans ($1.1 billion) that we service
and on which we carry credit risk. At December 31, 2004, we also serviced another $1.7 billion
of loans for which the credit risk is held by others. 45




---



##### Table of Contents



Securitizations
  
    
    As off balance sheet, SFAS 140, structures where both the loans and securitization
liabilities are off balance sheet. We record a gain on sale of loans at the time of
securitization, retain a residual interest and record subsequent trading gains/losses
throughout the life of the loans as our assumptions of future performance change. We engaged
in such securitizations from 1995 through 2001.
    
    As on balance sheet structures (secured financings) where the loans are left on balance
sheet and the securitization liabilities are brought on balance sheet as collateralized
debt. We then report net interest income on an accrual basis over the life of the loans. We
have used these structures since 2001.
  Home Equity Servicing
    46




---



##### Table of Contents



December 31,2004
    
    
    2003(Dollars in thousands)Managed PortfolioTotal Loans
    
    $
    1,147,137
    
    
    $
    1,513,28930 days past due
    
    
    4.76
    %
    
    
    5.87
    %90 days past due
    
    
    1.60
    
    
    
    2.43Net Chargeoff Rate
    
    
    2.48
    
    
    
    4.37Unsold LoansTotal Loans(1)
    
    $
    814,595
    
    
    $
    897,22730 days past due
    
    
    1.93
    %
    
    
    2.91
    %90 days past due
    
    
    0.78
    
    
    
    1.25Net Chargeoff Rate
    
    
    1.28
    
    
    
    2.49Loan Loss Reserve
    
    $
    11,330
    
    
    $
    29,251Owned ResidualTotal Loans
    
    $
    332,542
    
    
    $
    616,06230 days past due
    
    
    11.71
    %
    
    
    10.18
    %90 days past due
    
    
    3.61
    
    
    
    4.15Net Chargeoff Rate
    
    
    5.00
    
    
    
    6.40Residual Undiscounted Losses
    
    $
    19,126
    
    
    $
    64,598Credit Risk Sold, Potential Incentive Servicing Fee
Retained PortfolioTotal Loans
    
    $
    1,286,282
    
    
    $
    849,26430 days past due
    
    
    2.54
    %
    
    
    2.44
    %90 days past due
    
    
    0.87
    
    
    
    0.72
 
 (1)
    
    Excludes deferred fees and costs.  Net Income
  Net Revenue
   47




---



##### Table of Contents



Year Ended December 31,2004
    
    
    2003
    
    
    2002(Dollars in thousands)Net interest income
    
    $
    98,983
    
    
    $
    106,545
    
    
    $
    94,068Provision for loan losses
    
    
    (4,369
    )
    
    
    (29,575
    )
    
    
    (25,596
    )Gain on sales of loans
    
    
    29,180
    
    
    
    26,069
    
    
    
    29,887Loan servicing fees (Restated 2004)
    
    
    29,774
    
    
    
    21,835
    
    
    
    13,528Amortization of servicing assets
    
    
    (19,863
    )
    
    
    (13,894
    )
    
    
    (5,485
    )Recovery (impairment) of servicing assets
    
    
    1,148
    
    
    
    (1,684
    )
    
    
    (1,420
    )Trading gains (losses)
    
    
    25,176
    
    
    
    (52,209
    )
    
    
    (26,032
    )Other income (Restated 2004)
    
    
    2,432
    
    
    
    358
    
    
    
    1,313Total net revenue (Restated 2004)
    
    $
    162,461
    
    
    $
    57,445
    
    
    $
    80,263
         48




---



##### Table of Contents



Operating Expenses
  Year Ended December 31,2004
    
    
    2003
    
    
    2002(Dollars in thousands)Salaries and employee benefits
    
    $
    75,649
    
    
    $
    52,074
    
    
    $
    46,548Other
    
    
    39,130
    
    
    
    38,464
    
    
    
    32,040Total operating expenses
    
    $
    114,779
    
    
    $
    90,538
    
    
    $
    78,588Number of employees at period end(1)
    
    
    642
    
    
    
    663
    
    
    
    692
 
 (1)
    
    On a full time equivalent basis.  49




---



##### Table of Contents



Commercial Finance
 Year Ended December 31,2004
    
    
    2003
    
    
    2002
    
    
    2001
    
    
    2000(Dollars in thousands)Selected Income Statement Data:Net interest income
    
    $
    28,084
    
    
    $
    22,766
    
    
    $
    15,140
    
    
    $
    9,481
    
    
    $
    3,196Provision for loan and lease losses
    
    
    (6,798
    )
    
    
    (11,308
    )
    
    
    (8,481
    )
    
    
    (6,939
    )
    
    
    (1,513
    )Noninterest income
    
    
    6,275
    
    
    
    5,868
    
    
    
    4,397
    
    
    
    1,695
    
    
    
    799Total net revenue
    
    
    27,561
    
    
    
    17,326
    
    
    
    11,056
    
    
    
    4,237
    
    
    
    2,482Operating expense
    
    
    (18,782
    )
    
    
    (15,072
    )
    
    
    (12,122
    )
    
    
    (8,424
    )
    
    
    (5,045
    )Income (loss) before taxes
    
    
    8,779
    
    
    
    2,254
    
    
    
    (1,066
    )
    
    
    (4,187
    )
    
    
    (2,563
    )Income taxes
    
    
    (5,562
    )
    
    
    (461
    )
    
    
    513
    
    
    
    1,309
    
    
    
    945Income (loss) before cumulative effect of change in accounting principle
    
    
    3,217
    
    
    
    1,793
    
    
    
    (553
    )
    
    
    (2,878
    )
    
    
    (1,618
    )Cumulative effect of change in accounting principle
    
    
    
    
    
    
    
    
    
    
    495
    
    
    
    
    
    
    
    Net income (loss)
    
    $
    3,217
    
    
    $
    1,793
    
    
    $
    (58
    )
    
    $
    (2,878
    )
    
    $
    (1,618
    )Selected Balance Sheet Data at End of Period:Total assets
    
    $
    636,604
    
    
    $
    474,915
    
    
    $
    343,384
    
    
    $
    266,670
    
    
    $
    159,773Loans and leases
    
    
    625,140
    
    
    
    463,423
    
    
    
    345,844
    
    
    
    264,827
    
    
    
    154,934Allowance for loan and lease losses
    
    
    (9,624
    )
    
    
    (11,445
    )
    
    
    (7,657
    )
    
    
    (4,587
    )
    
    
    (2,441
    )Shareholders equity
    
    
    55,993
    
    
    
    44,255
    
    
    
    29,236
    
    
    
    18,741
    
    
    
    21,346Selected Operating Data:Net charge-offs
    
    $
    8,235
    
    
    $
    7,868
    
    
    $
    5,401
    
    
    $
    4,653
    
    
    $
    961Net interest margin
    
    
    5.33
    %
    
    
    5.63
    %
    
    
    5.07
    %
    
    
    4.64
    %
    
    
    4.50
    %Total funding of loans and leases
    
    $
    366,545
    
    
    $
    272,685
    
    
    $
    207,087
    
    
    $
    190,716
    
    
    $
    113,323
 Overview
  Strategy
  Net Income
  Net Interest Income
  Year Ended December 31,2004
    
    
    2003
    
    
    2002(Dollars in thousands)Net interest income
    
    $
    28,084
    
    
    $
    22,766
    
    
    $
    15,140Average interest earning assets
    
    
    526,754
    
    
    
    404,089
    
    
    
    298,854Net interest margin
    
    
    5.33
    %
    
    
    5.63
    %
    
    
    5.07
    %
  50




---



##### Table of Contents



Provision for Loan and Lease Losses
  Noninterest Income
  Year Ended December 31,2004
    
    
    2003
    
    
    2002(Dollars in thousands)Gain from sales of loans
    
    $
    1,796
    
    
    $
    2,630
    
    
    $
    1,374Derivative losses, net
    
    
    (536
    )
    
    
    (803
    )
    
    
    Other
    
    
    5,015
    
    
    
    4,041
    
    
    
    3,023Total noninterest income
    
    $
    6,275
    
    
    $
    5,868
    
    
    $
    4,397
  Operating Expenses
  Year Ended December 31,2004
    
    
    2003
    
    
    2002(Dollars in thousands)Salaries and employee benefits
    
    $
    14,333
    
    
    $
    11,606
    
    
    $
    9,482Other
    
    
    4,449
    
    
    
    3,466
    
    
    
    2,640Total operating expenses
    
    $
    18,782
    
    
    $
    15,072
    
    
    $
    12,122Number of employees at period end(1)
    
    
    162
    
    
    
    133
    
    
    
    134
 
 (1)
    
    On a full time equivalent basis  51




---



##### Table of Contents



Credit Quality
   December 31,2004
    
    
    2003
    
    
    2002(Dollars in thousands)Nonperforming loans
    
    $
    3,936
    
    
    $
    4,083
    
    
    $
    4,855Allowance for loan losses
    
    
    9,624
    
    
    
    11,445
    
    
    
    7,657Allowance for loan losses to total loans
    
    
    1.54
    %
    
    
    2.47
    %
    
    
    2.21
    %For the Period Ended:Provision for loan losses
    
    $
    6,798
    
    
    $
    11,308
    
    
    $
    8,481Net charge-offs
    
    
    8,235
    
    
    
    7,868
    
    
    
    5,401Net charge-offs to average loans
    
    
    1.59
    %
    
    
    1.97
    %
    
    
    1.81
    %
  December 31,2004
    
    
    2003(Dollars in thousands)Domestic franchise loans
    
    $
    243,859
    
    
    $
    150,505Weighted average yield
    
    
    8.11
    %
    
    
    8.45
    %Delinquency ratio
    
    
    0.35
    
    
    
    0.45Domestic leases
    
    $
    149,999
    
    
    $
    134,602Weighted average yield
    
    
    8.95
    %
    
    
    9.54
    %Delinquency ratio
    
    
    1.09
    
    
    
    1.32Canadian leases(1)
    
    $
    231,282
    
    
    $
    178,316Weighted average yield
    
    
    9.77
    %
    
    
    10.12
    %Delinquency ratio
    
    
    0.82
    
    
    
    0.89
 
 (1)
    
    In U.S. dollars. 52




---



##### Table of Contents



Venture Capital
  Year Ended December 31,2004
    
    
    2003
    
    
    2002(Dollars in thousands)Selected Income Statement Data:Net interest income
    
    $
    (11
    )
    
    $
    (210
    )
    
    $
    43Mark-to-market adjustment on investments
    
    
    (852
    )
    
    
    (2,954
    )
    
    
    (4,187
    )Noninterest income
    
    
    649
    
    
    
    886
    
    
    
    501Total net revenues
    
    
    (214
    )
    
    
    (2,278
    )
    
    
    (3,643
    )Operating expense
    
    
    (440
    )
    
    
    (548
    )
    
    
    (495
    )Loss before taxes
    
    
    (654
    )
    
    
    (2,826
    )
    
    
    (4,138
    )Income tax benefit
    
    
    257
    
    
    
    1,118
    
    
    
    1,655Net loss
    
    $
    (397
    )
    
    $
    (1,708
    )
    
    $
    (2,483
    )Selected Balance Sheet Data at End of Period:Investment in portfolio companies (cost)
    
    $
    14,717
    
    
    $
    14,601
    
    
    $
    12,620Mark-to-market adjustment
    
    
    (11,929
    )
    
    
    (11,077
    )
    
    
    (8,123
    )Carrying value of portfolio companies
    
    $
    2,788
    
    
    $
    3,524
    
    
    $
    4,497
 Overview
     Parent and Other
   53




---



##### Table of Contents



Risk Management
  
    
    Credit risk
    
    Liquidity risk
    
    Interest rate risk
    
    Operational risk
    Credit Risk.
    54




---



##### Table of Contents



At or For the Year Ended December 31,2004
    
    
    2003
    
    
    2002
    
    
    2001
    
    
    2000(Dollars in thousands)Loans and leases outstanding at end of period, net of unearned income
    
    $
    3,450,440
    
    
    $
    3,161,054
    
    
    $
    2,815,276
    
    
    $
    2,137,822
    
    
    $
    1,234,922Average loans and leases for the period, net of unearned income
    
    $
    3,324,333
    
    
    $
    3,168,776
    
    
    $
    2,620,428
    
    
    $
    1,533,261
    
    
    $
    960,848Allowance for loan and lease losses:Balance beginning of period
    
    $
    64,285
    
    
    $
    50,936
    
    
    $
    22,283
    
    
    $
    13,129
    
    
    $
    8,555Charge-offs:Commercial, financial and agricultural loans
    
    
    3,262
    
    
    
    4,263
    
    
    
    3,666
    
    
    
    1,638
    
    
    
    1,210Real estate mortgage loans
    
    
    15,381
    
    
    
    23,522
    
    
    
    7,130
    
    
    
    600
    
    
    
    Consumer loans
    
    
    351
    
    
    
    765
    
    
    
    800
    
    
    
    1,489
    
    
    
    818Commercial Financing:Franchise Financing
    
    
    88
    
    
    
    146
    
    
    
    19
    
    
    
    
    
    
    
    Domestic Leasing
    
    
    6,581
    
    
    
    6,026
    
    
    
    5,139
    
    
    
    3,624
    
    
    
    363Canadian Leasing
    
    
    2,517
    
    
    
    2,590
    
    
    
    1,476
    
    
    
    2,402
    
    
    
    777Total charge-offs
    
    
    28,180
    
    
    
    37,312
    
    
    
    18,230
    
    
    
    9,753
    
    
    
    3,168Recoveries:Commercial, financial and agricultural loans
    
    
    318
    
    
    
    77
    
    
    
    435
    
    
    
    144
    
    
    
    76Real estate mortgage loans
    
    
    3,899
    
    
    
    2,198
    
    
    
    1,002
    
    
    
    
    
    
    
    Consumer loans
    
    
    169
    
    
    
    248
    
    
    
    252
    
    
    
    193
    
    
    
    221Commercial Financing:Franchise Financing
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Domestic Leasing
    
    
    626
    
    
    
    448
    
    
    
    523
    
    
    
    334
    
    
    
    84Canadian Leasing
    
    
    323
    
    
    
    449
    
    
    
    658
    
    
    
    877
    
    
    
    85Total recoveries
    
    
    5,335
    
    
    
    3,420
    
    
    
    2,870
    
    
    
    1,548
    
    
    
    466Net charge-offs
    
    
    (22,845
    )
    
    
    (33,892
    )
    
    
    (15,360
    )
    
    
    (8,205
    )
    
    
    (2,702
    )Acquisition of Onset Capital
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,908Reduction due to sale of loans
    
    
    (627
    )
    
    
    (234
    )
    
    
    
    
    
    
    (6
    )
    
    
    Reduction due to reclassification of loans
    
    
    (10,808
    )
    
    
    (690
    )
    
    
    
    
    
    
    
    
    
    
    (16
    )Foreign currency adjustment
    
    
    243
    
    
    
    582
    
    
    
    17
    
    
    
    (140
    )
    
    
    (19
    )Provision charged to expense
    
    
    14,195
    
    
    
    47,583
    
    
    
    43,996
    
    
    
    17,505
    
    
    
    5,403Balance end of period
    
    $
    44,443
    
    
    $
    64,285
    
    
    $
    50,936
    
    
    $
    22,283
    
    
    $
    13,129Allowance for loan and lease losses by category:Commercial, financial and agricultural loans
    
    $
    18,126
    
    
    $
    20,571
    
    
    $
    17,942
    
    
    $
    11,198
    
    
    $
    4,370Real estate mortgage loans
    
    
    12,332
    
    
    
    31,445
    
    
    
    23,150
    
    
    
    2,872
    
    
    
    2,462Consumer loans
    
    
    4,242
    
    
    
    809
    
    
    
    2,067
    
    
    
    2,309
    
    
    
    2,226Commercial Financing:Franchise Financing
    
    
    3,728
    
    
    
    2,158
    
    
    
    1,327
    
    
    
    204
    
    
    
    Domestic Leasing
    
    
    2,926
    
    
    
    6,285
    
    
    
    4,626
    
    
    
    4,323
    
    
    
    2,325Canadian Leasing
    
    
    3,089
    
    
    
    3,017
    
    
    
    1,824
    
    
    
    1,377
    
    
    
    1,746Totals
    
    $
    44,443
    
    
    $
    64,285
    
    
    $
    50,936
    
    
    $
    22,283
    
    
    $
    13,129Percent of loans and leases to total loans and leases by category:Commercial, financial and agricultural loans
    
    
    49
    %
    
    
    47
    %
    
    
    48
    %
    
    
    49
    %
    
    
    55
    %Real estate mortgage loans
    
    
    32
    
    
    
    37
    
    
    
    39
    
    
    
    36
    
    
    
    28Consumer loans
    
    
    1
    
    
    
    1
    
    
    
    1
    
    
    
    2
    
    
    
    4Commercial Financing:Franchise Financing
    
    
    7
    
    
    
    5
    
    
    
    3
    
    
    
    2
    
    
    
    Domestic Leasing
    
    
    4
    
    
    
    4
    
    
    
    5
    
    
    
    7
    
    
    
    8Canadian Leasing
    
    
    7
    
    
    
    6
    
    
    
    4
    
    
    
    4
    
    
    
    5Ratios:Net charge-offs to average loans and leases
    
    
    0.7
    %
    
    
    1.1
    %
    
    
    0.7
    %
    
    
    0.7
    %
    
    
    0.3
    %Allowance for possible loans and leases to loans and leases outstanding
    
    
    1.3
    %
    
    
    2.0
    %
    
    
    1.8
    %
    
    
    1.0
    %
    
    
    1.1
    %
   55




---



##### Table of Contents



December 31,2004
    
    
    2003
    
    
    2002
    
    
    2001
    
    
    2000(Dollars in thousands)Accruing loans past due 90 days or more:Commercial, financial and agricultural loans
    
    $
    
    
    
    $
    4,172
    
    
    $
    30
    
    
    $
    1,146
    
    
    $
    324Real estate mortgages
    
    
    219
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Consumer loans
    
    
    426
    
    
    
    226
    
    
    
    688
    
    
    
    157
    
    
    
    510Commercial Financing:Franchise Financing
    
    
    
    
    
    
    151
    
    
    
    43
    
    
    
    
    
    
    
    Domestic Leasing
    
    
    
    
    
    
    8
    
    
    
    177
    
    
    
    1,624
    
    
    
    627Canadian Leasing
    
    
    12
    
    
    
    70
    
    
    
    143
    
    
    
    68
    
    
    
    657
    
    
    
    4,627
    
    
    
    1,081
    
    
    
    2,995
    
    
    
    1,461Nonaccrual loans and leases:Commercial, financial and agricultural loans
    
    
    20,394
    
    
    
    20,447
    
    
    
    13,798
    
    
    
    5,066
    
    
    
    752Real estate mortgages
    
    
    8,590
    
    
    
    14,663
    
    
    
    11,308
    
    
    
    8,115
    
    
    
    1,922Consumer loans
    
    
    128
    
    
    
    769
    
    
    
    454
    
    
    
    708
    
    
    
    918Commercial Financing:Franchise Financing
    
    
    1,193
    
    
    
    552
    
    
    
    
    
    
    
    
    
    
    
    Domestic Leasing
    
    
    1,029
    
    
    
    1,364
    
    
    
    3,415
    
    
    
    1,180
    
    
    
    960Canadian Leasing
    
    
    1,702
    
    
    
    1,943
    
    
    
    1,077
    
    
    
    1,088
    
    
    
    1,20933,036
    
    
    
    39,738
    
    
    
    30,052
    
    
    
    16,157
    
    
    
    5,761Total nonperforming loans and leases
    
    
    33,693
    
    
    
    44,365
    
    
    
    31,133
    
    
    
    19,152
    
    
    
    7,222Nonperforming loans held for sale not guaranteed
    
    
    2,066
    
    
    
    1,695
    
    
    
    1,201
    
    
    
    1,562
    
    
    
    3,959Other real estate owned
    
    
    9,427
    
    
    
    6,431
    
    
    
    5,272
    
    
    
    4,388
    
    
    
    2,833Total nonperforming assets
    
    $
    45,186
    
    
    $
    52,491
    
    
    $
    37,606
    
    
    $
    25,102
    
    
    $
    14,014Nonperforming loans and leases to total loans and leases
    
    
    1.0
    %
    
    
    1.4
    %
    
    
    1.1
    %
    
    
    0.9
    %
    
    
    0.6
    %Nonperforming assets to total assets
    
    
    0.9
    %
    
    
    1.1
    %
    
    
    0.8
    %
    
    
    0.7
    %
    
    
    0.4
    %
   
    
    Mortgage banking
    
    $
    8.5
    
    Commercial banking
    
    
    22.8
    
    Home equity lending
    
    
    10.0
    
    Commercial finance
    
    
    3.9
   Liquidity Risk.
  56




---



##### Table of Contents



Payments Due by PeriodLess than
    
    
    One to
    
    
    AfterTotal
    
    
    One Year
    
    
    Five Years
    
    
    Five Years(Dollars in thousands)Deposits with contractual maturity
    
    $
    849,853
    
    
    $
    596,997
    
    
    $
    250,626
    
    
    $
    2,230Deposits without a stated maturity
    
    
    2,545,411
    
    
    
    2,545,411
    
    
    
    
    
    
    
    Short-term borrowings
    
    
    237,277
    
    
    
    235,451
    
    
    
    
    
    
    
    1,826Collateralized debt
    
    
    547,477
    
    
    
    247,189
    
    
    
    262,474
    
    
    
    37,814Other long-term debt
    
    
    270,172
    
    
    
    47
    
    
    
    
    
    
    
    270,125Operating leases
    
    
    65,435
    
    
    
    20,259
    
    
    
    30,720
    
    
    
    14,456Total
    
    $
    4,515,625
    
    
    $
    3,645,354
    
    
    $
    543,820
    
    
    $
    326,451
       57




---



##### Table of Contents




    
    Warehouse lines of credit to fund first mortgages and home equity loans: none outstanding
on a $300 million borrowing facility, of which $150 million is committed
    
    Warehouse borrowing facilities to fund first mortgage loans: none outstanding on a $150
million committed borrowing facility
    
    Lines of credit with correspondent banks, including fed funds lines: none outstanding out
of $165 million available but not committed
    
    Line of credit with a correspondent bank collateralized by mortgage servicing rights:
none outstanding out of $50 million committed borrowing facility
    
    Warehouse lines of credit to fund Canadian sourced small ticket leases: $166 million
outstanding on $283 million of borrowing facilities
  
    
    Committed warehouse sale facility: $343 million unsettled on a $600 million facility
    
    Uncommitted warehouse sale facility: none unsettled on a $150 million facility
    
    Investor warehouse sale facility: $81 million unsettled
 Interest Rate Risk.
   58




---



##### Table of Contents




    
    the type of risk we are trying to mitigate;
    
    offsetting factors elsewhere in the Corporation;
    
    the level of current capital above our target minimums;
    
    time remaining in the quarter (i.e., days until quarter end);
    
    current level of derivative gain or loss relative to accounting and economic basis;
    
    basis risk: the degree to which the interest rates underlying our derivative instruments
might not move parallel to the interest rate driving our asset valuation; and
    
    convexity: the degree to which asset values, or risk management derivative instrument
values, do not change in a linear fashion as interest rates change; and
    
    volatility: the level of volatility in market interest rates and the related impact on
our asset values and derivatives instrument values.
      59




---



##### Table of Contents




    
    The net asset value sensitivities do not necessarily represent the changes in the lines
of business net asset value that would actually occur under the given interest rate
scenarios, as sensitivities do not reflect changes in value of the companies as a going
concern, nor consider potential rebalancing or other management actions that might be taken
in the future under asset/liability management as interest rates change.
    
    Specifically, the volume of derivative contracts entered into to manage the risk of MSRs
fluctuates from quarter to quarter and within a given quarter, depending upon market
conditions, the size of our MSR portfolio and various additional factors. We monitor
derivative positions frequently and rebalance them as needed. Therefore, our derivative
positions, shown in the table below as of December 31, 2004, may or may not be
representative of our risk position during the succeeding quarter. Additionally, it is
unlikely that the volume of derivative positions would remain constant over large
fluctuations in interest rates, although the tables below assume they do. MSR risk
management derivative contracts appear under the category Interest Sensitive Financial
Derivatives in the tables below.
    
    The tables below show modeled changes in interest rates for individual asset classes.
Asset classes in our portfolio have interest rate sensitivity tied to different underlying
indices or instruments. While the rate sensitivity of individual asset classes presented
below is our best estimate of changes in value due to interest rate changes, the total
potential change figures are subject to basis risk between value changes of individual
assets and liabilities which has not been included in the model.
    
    Finally, few of the asset classes shown react to interest rate changes in a linear
fashion. That is, the point estimates we have made at Current and +/2% and +/1% are
good estimates at those amounts of rate change, but it may not be accurate to interpolate
linearly between those points. This is most evident in products that contain optionality in
payment timing or pricing such as mortgage servicing or nonmaturity transaction deposits.
 60




---



##### Table of Contents



Economic Value Change Method
 Present Value at December 31, 2004Change in Interest Rates of:-2%
    
    
    -1%
    
    
    Current
    
    
    +1%
    
    
    +2%(In thousands)Interest Sensitive AssetsLoans and other assets
    
    $
    3,689,368
    
    
    $
    3,655,587
    
    
    $
    3,622,103
    
    
    $
    3,588,543
    
    
    $
    3,554,672Loans held for sale
    
    
    907,873
    
    
    
    902,133
    
    
    
    895,700
    
    
    
    888,352
    
    
    
    880,530Mortgage servicing rights
    
    
    184,880
    
    
    
    232,037
    
    
    
    372,034
    
    
    
    521,421
    
    
    
    588,866Residual interests
    
    
    60,925
    
    
    
    58,777
    
    
    
    56,101
    
    
    
    53,354
    
    
    
    49,918Interest sensitive financial derivatives
    
    
    44,392
    
    
    
    41,244
    
    
    
    552
    
    
    
    (121,791
    )
    
    
    (279,384
    )Total interest sensitive assets
    
    
    4,887,438
    
    
    
    4,889,778
    
    
    
    4,946,490
    
    
    
    4,929,879
    
    
    
    4,794,602Interest Sensitive LiabilitiesDeposits
    
    
    (3,373,289
    )
    
    
    (3,351,765
    )
    
    
    (3,335,683
    )
    
    
    (3,320,655
    )
    
    
    (3,306,159
    )Short-term borrowings(1)
    
    
    (399,886
    )
    
    
    (399,558
    )
    
    
    (399,233
    )
    
    
    (398,911
    )
    
    
    (398,593
    )Long-term debt
    
    
    (649,428
    )
    
    
    (643,364
    )
    
    
    (636,749
    )
    
    
    (629,307
    )
    
    
    (615,370
    )Total interest sensitive liabilities
    
    
    (4,422,603
    )
    
    
    (4,394,687
    )
    
    
    (4,371,665
    )
    
    
    (4,348,873
    )
    
    
    (4,320,122
    )Net market value as of December 31, 2004
    
    $
    464,835
    
    
    $
    495,091
    
    
    $
    574,825
    
    
    $
    581,006
    
    
    $
    474,480Change from current
    
    $
    (109,990
    )
    
    $
    (79,734
    )
    
    $
    
    
    
    $
    6,181
    
    
    $
    (100,345
    )Net market value as of December 31, 2003
    
    $
    531,596
    
    
    $
    567,923
    
    
    $
    575,450
    
    
    $
    645,981
    
    
    $
    635,791Potential change
    
    $
    (43,854
    )
    
    $
    (7,527
    )
    
    $
    
    
    
    $
    70,531
    
    
    $
    60,341
 
 (1)
    
    Includes certain debt which is categorized as collateralized debt in other sections of this
document. GAAP-Based Value Change Method
 Present Value at December 31, 2004Change in Interest Rates of:-2%
    
    
    -1%
    
    
    Current
    
    
    +1%
    
    
    +2%(In thousands)Interest Sensitive AssetsLoans and other assets(1)
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Loans held for sale
    
    
    890,711
    
    
    
    890,711
    
    
    
    890,711
    
    
    
    883,364
    
    
    
    875,541Mortgage servicing rights
    
    
    181,366
    
    
    
    228,111
    
    
    
    367,032
    
    
    
    406,627
    
    
    
    414,743Residual interests
    
    
    60,925
    
    
    
    58,777
    
    
    
    56,101
    
    
    
    53,354
    
    
    
    49,918Interest sensitive financial derivatives
    
    
    44,392
    
    
    
    41,244
    
    
    
    552
    
    
    
    (121,791
    )
    
    
    (279,384
    )Total interest sensitive assets
    
    
    1,177,394
    
    
    
    1,218,843
    
    
    
    1,314,396
    
    
    
    1,221,554
    
    
    
    1,060,818Interest Sensitive LiabilitiesDeposits(1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Short-term borrowings(1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Long-term debt(1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total interest sensitive liabilities(1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net market value as of December 31, 2004
    
    $
    1,177,394
    
    
    $
    1,218,843
    
    
    $
    1,314,396
    
    
    $
    1,221,554
    
    
    $
    1,060,818Potential change
    
    $
    (137,002
    )
    
    $
    (95,553
    )
    
    $
    
    
    
    $
    (92,842
    )
    
    $
    (253,578
    )Net market value as of December 31, 2003
    
    $
    1,260,307
    
    
    $
    1,303,782
    
    
    $
    1,313,410
    
    
    $
    1,279,691
    
    
    $
    1,222,645Potential change
    
    $
    (53,103
    )
    
    $
    (9,628
    )
    
    $
    
    
    
    $
    (33,719
    )
    
    $
    (90,765
    )
 
 (1)
    
    Value does not change in GAAP presentation. Operational risk.
   61




---



##### Table of Contents



Off-Balance Sheet Instruments
   Derivative Financial Instruments
    62




---



##### Table of Contents




    
    In two instances, this funding mismatch is lessened by a combination of amortizing
interest rate caps and Eurodollar futures contracts. The interest rate caps have a strike
price of 5% and provide protection against a large increase in short-term interest rates. As
of December 31, 2004, the notional value and 2004 loss on the interest rate caps were $26
million and $43 thousand, respectively. As of December 31, 2004, the total notional amount
and year-to-date gain on the Eurodollar futures were $95 million and $40 thousand,
respectively.
    
    Beginning in the fourth quarter of 2003, on several occasions we have delivered fixed
rate leases into a second commercial paper conduit. Although the leases and funding were in
Canadian dollars (CAD), the interest rate mismatch is similar in nature to that described
above. To lessen the repricing mismatch between fixed rate CAD-denominated leases and
floating rate CAD commercial paper, a series of four amortizing CAD interest rate swaps have
been executed, although Irwin is only a counterparty on three of the swaps. The fourth swap
is between the commercial paper conduit and an outside party, but affects the conduit
funding cost that is charged to Irwin. For the first and second of the three swaps on
Irwins books, we pay a fixed rate of interest and receive a floating rate. For the third
swap, we pay a floating rate of interest and receive a fixed rate. The U.S.
dollar-equivalents of the CAD-based notional and year-to-date losses on these swaps at
December 31, 2004 were $176.4 million and $0.6 million, respectively.
      63




---



##### Table of Contents



Item 7A. Quantitative and Qualitative Disclosures about Market Risk
  
 Item 8. Financial Statements and Supplementary Data
 Management Report on Responsibility for Financial Reporting
     /s/ William I. Miller
    
    
    
    /s/ Gregory F. EhlingerWilliam I. Miller
    
    
    
    Gregory F. EhlingerChairman and
    
    
    
    Senior Vice President andChief Executive Officer
    
    
    
    Chief Financial Officer
 64




---



##### Table of Contents



65




---



##### Table of Contents



66




---



##### Table of Contents



IRWIN FINANCIAL CORPORATION AND SUBSIDIARIES
 CONSOLIDATED BALANCE SHEETS
 December 31,2004
    
    
    2003(Dollars in thousands)(Restated)Assets:Cash and cash equivalents  Note 3
    
    $
    97,101
    
    
    $
    140,810Interest-bearing deposits with financial institutions
    
    
    58,936
    
    
    
    81,166Residual interests  Note 4
    
    
    56,101
    
    
    
    71,491Investment securities  held-to-maturity (Fair value: $4,952 in 2004 and
$24,971 in 2003)  Note 5
    
    
    4,942
    
    
    
    24,956Investment securities  available-for-sale  Note 5
    
    
    103,280
    
    
    
    67,569Loans held for sale
    
    
    890,711
    
    
    
    883,895Loans and leases, net of unearned income  Note 6
    
    
    3,450,440
    
    
    
    3,161,054Less: Allowance for loan and lease losses  Note 7
    
    
    (44,443
    )
    
    
    (64,285
    )Loans and leases, net
    
    
    3,405,997
    
    
    
    3,096,769Servicing assets  Note 8
    
    
    367,032
    
    
    
    380,123Accounts receivable
    
    
    122,131
    
    
    
    62,045Accrued interest receivable
    
    
    15,428
    
    
    
    15,502Premises and equipment  Note 9
    
    
    30,240
    
    
    
    32,208Other assets
    
    
    83,921
    
    
    
    131,825Total assets
    
    $
    5,235,820
    
    
    $
    4,988,359Liabilities and Shareholders Equity:DepositsNoninterest-bearing
    
    $
    975,925
    
    
    $
    850,529Interest-bearing
    
    
    1,774,727
    
    
    
    1,352,763Certificates of deposit over $100,000
    
    
    644,611
    
    
    
    696,3703,395,263
    
    
    
    2,899,662Short-term borrowings  Note 11
    
    
    237,277
    
    
    
    429,758Collateralized debt  Note 12
    
    
    547,477
    
    
    
    590,131Other long-term debt  Note 13
    
    
    270,172
    
    
    
    270,184Other liabilities
    
    
    284,446
    
    
    
    366,364Total liabilities
    
    
    4,734,635
    
    
    
    4,556,099Commitments and contingencies  Notes 14, 15 and 16Shareholders equityPreferred stock, no par value  authorized 4,000,000 shares; none issued
    
    
    
    
    
    
    Common stock, no par value  authorized 40,000,000 shares; issued
29,612,080 shares as of December 31, 2004 and 2003; including 1,159,684
and 1,477,778, shares in treasury as of December 31, 2004 and 2003,
respectively
    
    
    112,000
    
    
    
    112,000Additional paid-in capital
    
    
    383
    
    
    
    1,264Deferred compensation
    
    
    (660
    )
    
    
    (504
    )Accumulated other comprehensive income, net of deferred income tax
benefit of $129 and expense of $120 as of December 31, 2004 and 2003,
respectively
    
    
    2,454
    
    
    
    182Retained earnings
    
    
    412,027
    
    
    
    352,647526,204
    
    
    
    465,589Less treasury stock, at cost
    
    
    (25,019
    )
    
    
    (33,329
    )Total shareholders equity
    
    
    501,185
    
    
    
    432,260Total liabilities and shareholders equity
    
    $
    5,235,820
    
    
    $
    4,988,359
  67




---



##### Table of Contents



IRWIN FINANCIAL CORPORATION AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF INCOME
 For the Year Ended December 31,2004
    
    
    2003
    
    
    2002(Dollars in thousands,except per share)(Restated)Interest income:Loans and leases
    
    $
    246,288
    
    
    $
    241,592
    
    
    $
    218,718Loans held for sale
    
    
    80,003
    
    
    
    104,350
    
    
    
    55,336Residual interests
    
    
    12,509
    
    
    
    20,651
    
    
    
    34,164Investment securities
    
    
    5,330
    
    
    
    4,273
    
    
    
    3,120Federal funds sold
    
    
    173
    
    
    
    118
    
    
    
    104Total interest income
    
    
    344,303
    
    
    
    370,984
    
    
    
    311,442Interest expense:Deposits
    
    
    44,487
    
    
    
    42,365
    
    
    
    54,361Short-term borrowings
    
    
    9,583
    
    
    
    14,889
    
    
    
    15,003Collateralized debt
    
    
    15,259
    
    
    
    15,369
    
    
    
    5,932Other long-term debt
    
    
    22,896
    
    
    
    2,325
    
    
    
    2,699Preferred securities distribution
    
    
    
    
    
    
    24,151
    
    
    
    19,800Total interest expense
    
    
    92,225
    
    
    
    99,099
    
    
    
    97,795Net interest income
    
    
    252,078
    
    
    
    271,885
    
    
    
    213,647Provision for loan and lease losses  Note 7
    
    
    14,195
    
    
    
    47,583
    
    
    
    43,996Net interest income after provision for loan and lease losses
    
    
    237,883
    
    
    
    224,302
    
    
    
    169,651Other income:Loan servicing fees
    
    
    136,557
    
    
    
    106,966
    
    
    
    73,505Amortization of servicing assets  Note 8
    
    
    (117,143
    )
    
    
    (135,519
    )
    
    
    (62,191
    )Recovery (impairment) of servicing assets  Note 8
    
    
    (2,474
    )
    
    
    44,516
    
    
    
    (146,370
    )Net loan administration income (loss)
    
    
    16,940
    
    
    
    15,963
    
    
    
    (135,056
    )Gain from sales of loans
    
    
    184,913
    
    
    
    364,644
    
    
    
    237,729Gain (loss) on sale of mortgage servicing assets
    
    
    16,681
    
    
    
    (271
    )
    
    
    14,842Trading gains (losses), net
    
    
    25,209
    
    
    
    (52,242
    )
    
    
    (26,032
    )Derivative gains (losses), net
    
    
    16,643
    
    
    
    (44,142
    )
    
    
    124,615Other
    
    
    23,143
    
    
    
    22,191
    
    
    
    18,039283,529
    
    
    
    306,143
    
    
    
    234,137Other expense:Salaries
    
    
    213,826
    
    
    
    225,348
    
    
    
    165,564Pension and other employee benefits
    
    
    45,037
    
    
    
    42,079
    
    
    
    33,928Office expense
    
    
    17,677
    
    
    
    21,804
    
    
    
    18,225Premises and equipment
    
    
    41,558
    
    
    
    41,746
    
    
    
    34,392Marketing and development
    
    
    13,799
    
    
    
    15,132
    
    
    
    12,296Professional fees
    
    
    19,356
    
    
    
    12,417
    
    
    
    9,611Other
    
    
    55,982
    
    
    
    53,517
    
    
    
    43,541407,235
    
    
    
    412,043
    
    
    
    317,557Income before income taxes
    
    
    114,177
    
    
    
    118,402
    
    
    
    86,231Provision for income taxes
    
    
    45,732
    
    
    
    45,585
    
    
    
    33,398Income before cumulative effect of change in accounting principle
    
    
    68,445
    
    
    
    72,817
    
    
    
    52,833Cumulative effect of change in accounting principle, net of tax
    
    
    
    
    
    
    
    
    
    
    495Net income
    
    $
    68,445
    
    
    $
    72,817
    
    
    $
    53,328Earnings per share before cumulative effect of change in
accounting principle:  Note 21Basic
    
    $
    2.42
    
    
    $
    2.61
    
    
    $
    1.97Diluted
    
    $
    2.28
    
    
    $
    2.45
    
    
    $
    1.87Earnings per share:  Note 21Basic
    
    $
    2.42
    
    
    $
    2.61
    
    
    $
    1.99Diluted
    
    $
    2.28
    
    
    $
    2.45
    
    
    $
    1.89Dividends per share
    
    $
    0.32
    
    
    $
    0.28
    
    
    $
    0.27
  68




---



##### Table of Contents



IRWIN FINANCIAL CORPORATION AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY
 AccumulatedOtherComprehensive
    
    
    
    
    
    
    AdditionalRetained
    
    
    Income
    
    
    Deferred
    
    
    Paid in
    
    
    Common
    
    
    Preferred
    
    
    TreasuryTotal
    
    
    Earnings
    
    
    (Loss)
    
    
    Compensation
    
    
    Capital
    
    
    Stock
    
    
    Stock
    
    
    Stock(Dollars in thousands)Balance at January 1, 2002
    
    $
    231,665
    
    
    $
    241,725
    
    
    $
    (325
    )
    
    $
    (449
    )
    
    $
    4,426
    
    
    $
    29,965
    
    
    $
    1,386
    
    
    $
    (45,063
    )Net income
    
    
    53,328
    
    
    
    53,328Unrealized loss on investment securities net of $115 tax
benefit
    
    
    (172
    )
    
    
    
    
    
    
    (172
    )Unrealized loss on interest rate cap net of $49 tax benefit
    
    
    (73
    )
    
    
    
    
    
    
    (73
    )Foreign currency adjustment
    
    
    67
    
    
    
    
    
    
    
    67Minimum SERP liability
    
    
    (639
    )
    
    
    
    
    
    
    (639
    )Total comprehensive income
    
    
    52,511Other adjustments
    
    
    287
    
    
    
    78
    
    
    
    
    
    
    
    209Cash dividends
    
    
    (7,469
    )
    
    
    (7,469
    )Sale of 6,210,000 shares of common stock
    
    
    82,035
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    82,035Conversion of preferred stock to 120,441 shares common
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,386
    )
    
    
    1,386Tax benefit on stock option exercises
    
    
    516
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    516Treasury stock:Purchase of 58,635 shares
    
    
    (1,176
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,176
    )Sales of 194,518 shares
    
    
    2,186
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,336
    )
    
    
    
    
    
    
    
    
    
    
    3,522Balance at December 31, 2002
    
    $
    360,555
    
    
    $
    287,662
    
    
    $
    (1,142
    )
    
    $
    (240
    )
    
    $
    3,606
    
    
    $
    112,000
    
    
    $
    
    
    
    $
    (41,331
    )Net income
    
    
    72,817
    
    
    
    72,817Unrealized loss on investment securities net of $17 tax
benefit
    
    
    (25
    )
    
    
    
    
    
    
    (25
    )Unrealized loss on interest rate cap net of $46 tax benefit
    
    
    (69
    )
    
    
    
    
    
    
    (69
    )Foreign currency adjustment
    
    
    1,136
    
    
    
    
    
    
    
    1,136Minimum SERP liability net of $188 tax liability
    
    
    282
    
    
    
    
    
    
    
    282Total comprehensive income
    
    
    74,141Deferred compensation
    
    
    (264
    )
    
    
    
    
    
    
    
    
    
    
    (264
    )Cash dividends
    
    
    (7,832
    )
    
    
    (7,832
    )Tax benefit on stock option exercises
    
    
    2,032
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,032Treasury stock:Purchase of 170,940 shares
    
    
    (4,201
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,201
    )Sales of 533,785 shares
    
    
    7,829
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,374
    )
    
    
    
    
    
    
    
    
    
    
    12,203Balance at December 31, 2003
    
    $
    432,260
    
    
    $
    352,647
    
    
    $
    182
    
    
    $
    (504
    )
    
    $
    1,264
    
    
    $
    112,000
    
    
    $
    
    
    
    $
    (33,329
    )Net income (Restated)
    
    
    68,445
    
    
    
    68,445Unrealized gain on investment securities net of $86 tax
liability
    
    
    129
    
    
    
    
    
    
    
    129Unrealized gain on interest rate cap net of $131 tax
liability
    
    
    197
    
    
    
    
    
    
    
    197Foreign currency adjustment
    
    
    1,843
    
    
    
    
    
    
    
    1,843Minimum SERP liability net of $69 tax liability
    
    
    103
    
    
    
    
    
    
    
    103Total comprehensive income (Restated)
    
    
    70,717Deferred compensation
    
    
    (156
    )
    
    
    
    
    
    
    
    
    
    
    (156
    )Cash dividends
    
    
    (9,065
    )
    
    
    (9,065
    )Tax benefit on stock option exercises
    
    
    1,044
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,044Treasury stock:Purchase of 12,718 shares
    
    
    (407
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (407
    )Sales of 330,812 shares
    
    
    6,792
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,925
    )
    
    
    
    
    
    
    
    
    
    
    8,717Balance at December 31, 2004 (Restated)
    
    $
    501,185
    
    
    $
    412,027
    
    
    $
    2,454
    
    
    $
    (660
    )
    
    $
    383
    
    
    $
    112,000
    
    
    $
    
    
    
    $
    (25,019
    )
  69




---



##### Table of Contents



IRWIN FINANCIAL CORPORATION AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 For the Years Ended December 31,2004
    
    
    2003
    
    
    2002(Dollars in thousands)Net income (Restated 2004)
    
    $
    68,445
    
    
    $
    72,817
    
    
    $
    53,328Adjustments to reconcile net income to cash provided (used) by
operating activities:Depreciation, amortization, and accretion, net
    
    
    8,987
    
    
    
    9,433
    
    
    
    11,451Amortization and impairment of servicing assets
    
    
    119,617
    
    
    
    91,003
    
    
    
    208,561Provision for loan and lease losses
    
    
    14,195
    
    
    
    47,583
    
    
    
    43,996Deferred income tax (Restated 2004)
    
    
    12,185
    
    
    
    43,259
    
    
    
    (55,171
    )(Gain) loss on sale of mortgage servicing assets
    
    
    (16,681
    )
    
    
    271
    
    
    
    (14,842
    )Gain from sales of loans held for sale
    
    
    (184,913
    )
    
    
    (364,644
    )
    
    
    (237,729
    )Originations and purchases of loans held for sale
    
    
    (14,780,501
    )
    
    
    (24,393,534
    )
    
    
    (12,226,408
    )Proceeds from sales and repayments of loans held for sale
    
    
    14,814,198
    
    
    
    25,005,632
    
    
    
    11,469,245Proceeds from sale of mortgage servicing assets
    
    
    52,844
    
    
    
    89
    
    
    
    40,597Net decrease in residual interests
    
    
    15,390
    
    
    
    86,023
    
    
    
    41,558Net increase in accounts receivable
    
    
    (60,086
    )
    
    
    (6,118
    )
    
    
    (14,100
    )Other, net (Restated 2004)
    
    
    (48,074
    )
    
    
    5,097
    
    
    
    32,657Net cash provided (used) by operating activities
    
    
    15,606
    
    
    
    596,911
    
    
    
    (646,857
    )Lending and investing activities:Proceeds from maturities/calls of investment securities:Held-to-maturity
    
    
    118,063
    
    
    
    682
    
    
    
    716Available-for-sale
    
    
    1,583
    
    
    
    78,886
    
    
    
    5,665Purchase of investment securities:Held-to-maturity
    
    
    (98,395
    )
    
    
    (21,333
    )
    
    
    Available-for-sale
    
    
    (36,791
    )
    
    
    (82,868
    )
    
    
    (35,660
    )Net decrease (increase) in interest-bearing deposits
    
    
    22,230
    
    
    
    (46,748
    )
    
    
    (20,690
    )Net increase in loans, excluding sales
    
    
    (367,303
    )
    
    
    (422,569
    )
    
    
    (718,319
    )Proceeds from sale of loans
    
    
    45,592
    
    
    
    45,454
    
    
    
    27,024Other, net
    
    
    (5,642
    )
    
    
    (7,484
    )
    
    
    (4,931
    )Net cash used by lending and investing activities
    
    
    (320,663
    )
    
    
    (455,980
    )
    
    
    (746,195
    )Financing activities:Net increase in deposits
    
    
    495,601
    
    
    
    205,851
    
    
    
    385,382Net (decrease) increase in short-term borrowings
    
    
    (192,481
    )
    
    
    (563,366
    )
    
    
    505,161(Repayments of) proceeds from the issuance of long-term debt
    
    
    (12
    )
    
    
    (11
    )
    
    
    70Proceeds from issuance of collateralized debt
    
    
    514,223
    
    
    
    443,989
    
    
    
    434,968Repayments of collateralized debt
    
    
    (554,445
    )
    
    
    (242,327
    )
    
    
    (43,543
    )Proceeds from issuance of trust preferred securities
    
    
    
    
    
    
    50,000
    
    
    
    34,500Redemption of trust preferred securities
    
    
    
    
    
    
    (50,000
    )
    
    
    Proceeds from the sale of stock for equity offering
    
    
    
    
    
    
    
    
    
    
    82,035Purchase of treasury stock for employee benefit plans
    
    
    (407
    )
    
    
    (4,201
    )
    
    
    (1,176
    )Proceeds from sale of stock for employee benefit plans
    
    
    7,836
    
    
    
    9,777
    
    
    
    2,702Dividends paid
    
    
    (9,065
    )
    
    
    (7,832
    )
    
    
    (7,469
    )Net cash provided (used) by financing activities
    
    
    261,250
    
    
    
    (158,120
    )
    
    
    1,392,630Effect of exchange rate changes on cash
    
    
    98
    
    
    
    228
    
    
    
    (30
    )Net decrease in cash and cash equivalents
    
    
    (43,709
    )
    
    
    (16,961
    )
    
    
    (452
    )Cash and cash equivalents at beginning of period
    
    
    140,810
    
    
    
    157,771
    
    
    
    158,223Cash and cash equivalents at end of period
    
    $
    97,101
    
    
    $
    140,810
    
    
    $
    157,771Supplemental disclosures of cash flow information:Cash flow during the period:Interest paid
    
    $
    93,319
    
    
    $
    102,459
    
    
    $
    104,461Income taxes paid
    
    $
    15,184
    
    
    $
    43,007
    
    
    $
    49,185Noncash transactions:Liability for loans held for sale eligible for repurchase  Note 1
    
    $
    47,692
    
    
    $
    115,948
    
    
    $
    Conversion of trust preferred and preferred stock to common stock
    
    $
    
    
    
    $
    83
    
    
    $
    1,386
  70




---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Note 1  Summary of Significant Accounting Policies
 Consolidation:
 Use of Estimates:
 Foreign Currency:
 Investment Securities:
 Residual Interests:
  Loans Held For Sale:
 Loans:
 71




---



##### Table of Contents



Direct Financing Leases:
 Allowance for Loan and Lease Losses:
  Servicing Assets:
  Incentive Servicing Fees:
 Derivative Instruments:
 72




---



##### Table of Contents



Premises and Equipment:
 Venture Capital Investments:
 Other Assets:
 Income Taxes:
 Cash and Cash Equivalents:
 Stock-Based Employee Compensation:
 2004
    
    
    2003
    
    
    2002(Dollars in thousands,except per share)(Restated)Net income as reported
    
    $
    68,445
    
    
    $
    72,817
    
    
    $
    53,328Deduct: Total stock-based employee compensation expense
determined under fair value based method for all awards,
net of related tax effects
    
    
    (2,578
    )
    
    
    (2,683
    )
    
    
    (2,639
    )Pro forma net income
    
    $
    65,867
    
    
    $
    70,134
    
    
    $
    50,689Basic earnings per shareAs reported
    
    $
    2.42
    
    
    $
    2.61
    
    
    $
    1.99Pro forma
    
    $
    2.33
    
    
    $
    2.51
    
    
    $
    1.89Diluted earnings per shareAs reported
    
    $
    2.28
    
    
    $
    2.45
    
    
    $
    1.89Pro forma
    
    $
    2.19
    
    
    $
    2.36
    
    
    $
    1.80
  73




---



##### Table of Contents



Recent Accounting Developments:
   Reclassifications:
 Note 2  Restatement of Financials
    74




---



##### Table of Contents



For the twelve months endedDecember 31, 2004AsReported
    
    Restated(Dollars in thousands)Loan servicing fees
    
    $
    135,608
    
    
    $
    136,557Derivative gains (losses), net
    
    
    21,113
    
    
    
    16,643Provision for income taxes
    
    
    47,794
    
    
    
    45,732Net income
    
    
    69,904
    
    
    
    68,445Earnings per share basic
    
    $
    2.47
    
    
    $
    2.42Earnings per share diluted
    
    
    2.32
    
    
    
    2.28Total assets
    
    
    5,239,341
    
    
    
    5,235,820
  Note 3  Restrictions on Cash
  Note 4  Sales of Receivables
    75




---



##### Table of Contents



Home Equity Loans and Lines of Credit(Dollars in thousands)Balance sheet carrying value of residual interests  fair
value
    
    $
    51,542Weighted-average life (in years)
    
    
    0.92Prepayment speed assumptions (annual rate)
    
    
    37.61
    %Impact on fair value of 10% adverse change
    
    $
    (62
    )Impact on fair value of 25% adverse change
    
    
    (266
    )Expected credit losses (annual rate)
    
    
    7.65
    %Impact on fair value of 10% adverse change
    
    $
    (1,712
    )Impact on fair value of 25% adverse change
    
    
    (4,220
    )Residual cash flows discount rate (annual rate)
    
    
    18.81
    %Impact on fair value of 10% adverse change
    
    $
    (581
    )Impact on fair value of 25% adverse change
    
    
    (1,428
    )
   2004
    
    
    2003
    
    
    2002(Dollars in thousands)Proceeds from new securitizations
    
    $
    
    
    
    $
    
    
    
    $
    31,708Servicing fees received
    
    
    5,763
    
    
    
    8,686
    
    
    
    14,479Net cash flows received on residual interests(1)
    
    
    61,958
    
    
    
    55,272
    
    
    
    53,626Other cash flows paid
    
    
    (8,705
    )
    
    
    (1,878
    )
    
    
    (692
    )Total
    
    $
    59,016
    
    
    $
    62,080
    
    
    $
    99,121
 
 (1)
    
    Cash flows received on residual interests are net of $2.1 million and $4.8 million in, 2003,
and 2002, respectively, used to over-collateralize the trusts. There was no
overcollateralization in 2004.Delinquency amounts for the managed portfolio are set forth below: Total Principal Amount
    
    
    
    
    
    
    
    
    
    
    Credit Lossesof Loans at
    
    
    Delinquent Principal Over 30
    
    
    Delinquency
    
    
    on ManagedDecember 31, 2004
    
    
    Days at 12/31/2004(2)
    
    
    Percentage
    
    
    Portfolio(Dollars in thousands)Managed loans comprised of:Loans held for investment
    
    $
    590,340
    
    
    $
    13,922
    
    
    
    2.4
    %
    
    $
    11,482Loans held for sale
    
    
    224,255
    
    
    
    1,792
    
    
    
    0.8
    
    
    
    575Loans securitized, servicing
and residual retained(1)
    
    
    332,542
    
    
    
    38,936
    
    
    
    11.7
    
    
    
    22,380Total managed portfolio
    
    $
    1,147,137
    
    
    $
    54,650
    
    
    
    4.8
    %
    
    $
    34,437
 
 (1)
    
    Represents the principal amount of the loan. Residual interests held for securitized assets
are excluded from this table because they are recognized separately.(2)
    
    Nonaccrual loans included in delinquencies. 76




---



##### Table of Contents



Note 5  Investment Securities
  Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    Fair
    
    
    CarryingCost
    
    
    Gains
    
    
    Losses
    
    
    Value
    
    
    Value(Dollars in thousands)Held-to-Maturity:U.S. Treasury and government obligations
    
    $
    161
    
    
    $
    
    
    
    $
    (1
    )
    
    $
    160
    
    
    $
    161Obligations of states and political subdivisions
    
    
    3,746
    
    
    
    4
    
    
    
    
    
    
    
    3,750
    
    
    
    3,746Mortgage-backed securities
    
    
    1,035
    
    
    
    7
    
    
    
    
    
    
    
    1,042
    
    
    
    1,035Total held-to-maturity
    
    
    4,942
    
    
    
    11
    
    
    
    (1
    )
    
    
    4,952
    
    
    
    4,942Available-for-Sale:U.S. Treasury and government obligations
    
    
    3,330
    
    
    
    65
    
    
    
    
    
    
    
    3,395
    
    
    
    3,395Mortgage-backed securities
    
    
    30,453
    
    
    
    68
    
    
    
    
    
    
    
    30,521
    
    
    
    30,521Other
    
    
    69,396
    
    
    
    
    
    
    
    (32
    )
    
    
    69,364
    
    
    
    69,364Total available-for-sale
    
    
    103,179
    
    
    
    133
    
    
    
    (32
    )
    
    
    103,280
    
    
    
    103,280Total investment securities
    
    $
    108,121
    
    
    $
    144
    
    
    $
    (33
    )
    
    $
    108,232
    
    
    $
    108,222
  Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    Fair
    
    
    CarryingCost
    
    
    Gains
    
    
    Losses
    
    
    Value
    
    
    Value(Dollars in thousands)Held-to-Maturity:U.S. Treasury and government obligations
    
    $
    19,997
    
    
    $
    
    
    
    $
    
    
    
    $
    19,997
    
    
    $
    19,997Obligations of states and political subdivisions
    
    
    3,960
    
    
    
    8
    
    
    
    
    
    
    
    3,968
    
    
    
    3,960Mortgage-backed securities
    
    
    866
    
    
    
    7
    
    
    
    
    
    
    
    873
    
    
    
    866Other
    
    
    133
    
    
    
    
    
    
    
    
    
    
    
    133
    
    
    
    133Total held-to-maturity
    
    
    24,956
    
    
    
    15
    
    
    
    
    
    
    
    24,971
    
    
    
    24,956Available-for-Sale:U.S. Treasury and government obligations
    
    
    998
    
    
    
    
    
    
    
    (1
    )
    
    
    997
    
    
    
    997Mortgage-backed securities
    
    
    1,208
    
    
    
    
    
    
    
    (35
    )
    
    
    1,173
    
    
    
    1,173Other
    
    
    65,433
    
    
    
    
    
    
    
    (34
    )
    
    
    65,399
    
    
    
    65,399Total available-for-sale
    
    
    67,639
    
    
    
    
    
    
    
    (70
    )
    
    
    67,569
    
    
    
    67,569Total investment securities
    
    $
    92,595
    
    
    $
    15
    
    
    $
    (70
    )
    
    $
    92,540
    
    
    $
    92,525
   Amortized
    
    
    FairCost
    
    
    Value(Dollars in thousands)Held-to-Maturity:Due after five years through ten years
    
    $
    530
    
    
    $
    531Due after ten years
    
    
    3,377
    
    
    
    3,3793,907
    
    
    
    3,910Mortgage-backed securities
    
    
    1,035
    
    
    
    1,0424,942
    
    
    
    4,952Available-for-Sale:Due in one year or less
    
    
    3,166
    
    
    
    3,134Due after ten years
    
    
    3,330
    
    
    
    3,3956,496
    
    
    
    6,529Mortgage-backed securities
    
    
    30,453
    
    
    
    30,521FHLB & Federal Reserve Bank Stock
    
    
    66,230
    
    
    
    66,230103,179
    
    
    
    103,280Total investment securities
    
    $
    108,121
    
    
    $
    108,232
  Note 6  Loans and Leases
 77




---



##### Table of Contents



December 31,2004
    
    
    2003(Dollars in thousands)Commercial, financial and agricultural
    
    $
    1,697,651
    
    
    $
    1,503,619Real estate-construction
    
    
    287,496
    
    
    
    306,669Real estate-mortgage
    
    
    808,875
    
    
    
    859,541Consumer
    
    
    31,166
    
    
    
    27,370Commercial financingFranchise financing
    
    
    330,496
    
    
    
    207,341Domestic leasing
    
    
    174,035
    
    
    
    157,072Canadian leasing
    
    
    265,780
    
    
    
    207,355Unearned incomeFranchise financing
    
    
    (86,638
    )
    
    
    (56,837
    )Domestic leasing
    
    
    (23,924
    )
    
    
    (22,038
    )Canadian leasing
    
    
    (34,497
    )
    
    
    (29,038
    )Total
    
    $
    3,450,440
    
    
    $
    3,161,054
     Note 7  Allowance for Loan and Lease Losses and Nonperforming Loans and Leases
  December 31,2004
    
    
    2003
    
    
    2002(Dollars in thousands)Balance at beginning of year
    
    $
    64,285
    
    
    $
    50,936
    
    
    $
    22,283Provision for loan and lease losses
    
    
    14,195
    
    
    
    47,583
    
    
    
    43,996Charge-offs
    
    
    (28,180
    )
    
    
    (37,312
    )
    
    
    (18,230
    )Recoveries
    
    
    5,335
    
    
    
    3,420
    
    
    
    2,870Reduction due to sale of loans and leases and
other
    
    
    (627
    )
    
    
    (234
    )
    
    
    Reduction due to reclassification of loans
    
    
    (10,808
    )
    
    
    (690
    )
    
    
    Foreign currency adjustment
    
    
    243
    
    
    
    582
    
    
    
    17Balance at end of period
    
    $
    44,443
    
    
    $
    64,285
    
    
    $
    50,936
  78




---



##### Table of Contents



December 31,2004
    
    
    2003(Dollars in thousands)Impaired loans with specific valuation reserve
    
    $
    9,623
    
    
    $
    9,564Impaired loans with no specific valuation reserve
    
    
    10,771
    
    
    
    10,884Total impaired loans
    
    $
    20,394
    
    
    $
    20,448Valuation reserve on impaired loans
    
    $
    4,584
    
    
    $
    2,801
   December 31,2004
    
    
    2003(Dollars in thousands)Accruing loans past due 90 days or more
    
    $
    657
    
    
    $
    4,627Nonaccrual loans and leases
    
    
    33,036
    
    
    
    39,738Total nonperforming loans and leases
    
    $
    33,693
    
    
    $
    44,365
 Note 8  Servicing Assets
  December 31,2004
    
    
    2003(Dollars in thousands)Beginning balance
    
    $
    380,123
    
    
    $
    174,935Additions
    
    
    142,689
    
    
    
    296,551Amortization
    
    
    (117,143
    )
    
    
    (135,519
    )(Impairment) recovery of impairment
    
    
    (2,474
    )
    
    
    44,516Reduction for servicing sales
    
    
    (36,163
    )
    
    
    (360
    )$
    367,032
    
    
    $
    380,123
  December 31,2004
    
    
    2003
    
    
    2002(Dollars in thousands)Balance at beginning of year
    
    $
    76,869
    
    
    $
    159,865
    
    
    $
    13,495Impairment (recovery of impairment)
    
    
    2,474
    
    
    
    (44,516
    )
    
    
    146,370Reclass for sales of servicing
    
    
    (18,210
    )
    
    
    
    
    
    
    Other than temporary impairment(1)
    
    
    (6,999
    )
    
    
    (38,480
    )
    
    
    Balance at end of year
    
    $
    54,134
    
    
    $
    76,869
    
    
    $
    159,865
 
 (1)
    
    Other than temporary impairment was recorded to reflect our view that the originally recorded
value of certain servicing rights and subsequent impairment associated with those rights is
unlikely to be recovered in market value. There was no related direct impact on net income as
this other than temporary impairment affected only balance sheet accounts. However, the
write-down does result in a reduction of amortization expense and potentially reduced recovery
of impairment in future periods.  Carrying amount of mortgage servicing assets
    
    $
    367,032Constant prepayment speed
    
    
    13.10
    %Impact on fair value of 10% adverse change
    
    $
    (18,765
    )
 79




---



##### Table of Contents



Impact on fair value of 20% adverse change
    
    
    (35,294
    )Discount rate
    
    
    11.25
    %Impact on fair value of 10% adverse change
    
    $
    (9,762
    )Impact on fair value of 20% adverse change
    
    
    (18,982
    )
   Prepayment rates
    
    
    5.10-46.67
    %(1)Discount rates
    
    
    8.50-14.00
    %(1)
 
 (1)
    
    The mortgage banking component of consolidated servicing assets was 87%. The prepayment rates
range from 5.10% to 11.12% and discount rates range from 8.5% to 14.0% at this line of
business. Note 9  Premises and Equipment
  December 31,2004
    
    
    2003
    
    
    Useful Lives(Dollars in thousands)Land
    
    $
    2,630
    
    
    $
    2,135
    
    
    
    n/aBuilding and leasehold improvements
    
    
    24,975
    
    
    
    22,840
    
    
    7-40 yearsFurniture and equipment
    
    
    53,659
    
    
    
    52,096
    
    
    3-10 years81,264
    
    
    
    77,071Less accumulated depreciation
    
    
    (51,024
    )
    
    
    (44,863
    )Total
    
    $
    30,240
    
    
    $
    32,208
  Note 10  Lease Obligations
   80




---



##### Table of Contents



Year ended December 31:
    
    (Dollars in thousands)2005
    
    $
    20,3782006
    
    
    15,2802007
    
    
    9,2472008
    
    
    5,1812009
    
    
    4,111Thereafter
    
    
    11,420Total minimum rental payments
    
    $
    65,617
 Note 11  Short-Term Borrowings
  December 31,2004
    
    
    2003(Dollars in thousands)Federal Home Loan Bank borrowings
    
    $
    71,826
    
    
    $
    286,000Drafts payable related to mortgage loan closings
    
    
    53,254
    
    
    
    72,686Lines of credit and other
    
    
    2,197
    
    
    
    1,057Federal funds
    
    
    110,000
    
    
    
    53,600Commercial paper
    
    
    
    
    
    
    16,415Total
    
    $
    237,277
    
    
    $
    429,758Weighted average interest rate
    
    
    1.64
    %
    
    
    1.61
    %
    Note 12  Collateralized Debt
  81




---



##### Table of Contents



Interest Rate atContractual
    
    
    December 31,
    
    
    December 31,Maturity
    
    
    2004
    
    
    2004
    
    
    2003(Dollars in thousands)Commercial finance line of business2003 domestic asset backed note
    
    
    7/2010
    
    
    
    3.38
    
    
    $
    29,050
    
    
    $
    51,6942003 Canadian asset backed note
    
    
    8/2005-10/2009
    
    
    
    3.89
    
    
    
    165,802
    
    
    
    77,902Home equity line of business2004-1 asset backed notes:Combined variable rate senior note
    
    
    12/2024-12/2034
    
    
    
    2.53
    
    
    
    327,850
    
    
    
    Combined variable rate subordinate note
    
    
    12/2034
    
    
    
    3.38
    
    
    
    24,775
    
    
    
    2003-1 asset backed notes:Combined variable rate senior note
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    160,874Combined variable rate subordinate note
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    61,763Unamortized premium/discount
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,4462002-1 asset backed notes:Combined variable rate senior note
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    156,699Combined variable rate subordinate note
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    72,551Unamortized premium/discount
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,202Total
    
    
    
    
    
    
    
    
    
    $
    547,477
    
    
    $
    590,131
 Note 13  Other Long-Term Debt
   Subordinated DebtInterest Rate at
    
    
    
    
    December 31,Origination
    
    December 31,
    
    
    MaturityName
    
    Date
    
    2004
    
    
    Date
    
    2004
    
    
    2003
    
    
    Other(Dollars in thousands)IFC Capital Trust II
    
    Nov 2000
    
    
    10.50
    %
    
    Sep 2030
    
    $
    53,351
    
    
    $
    53,351IFC Capital Trust III
    
    Nov 2000
    
    
    8.75
    
    
    Sep 2030
    
    
    53,268
    
    
    
    53,268
    
    
    initial conversion ratio of1.261 shares of common stockto 1 convertible preferredsecurity, currently callableat 10%IFC Capital Trust IV
    
    Jul 2001
    
    
    10.25
    
    
    Jul 2031
    
    
    15,464
    
    
    
    15,464IFC Capital Trust V
    
    Nov 2001
    
    
    9.95
    
    
    Nov 2031
    
    
    30,928
    
    
    
    30,928IFC Capital Trust VI
    
    Oct 2002
    
    
    8.70
    
    
    Sep 2032
    
    
    35,567
    
    
    
    35,567IFC Statutory Trust VII
    
    Nov 2003
    
    
    5.46
    
    
    Nov 2033
    
    
    51,547
    
    
    
    51,547
    
    
    rate changes quarterly atthree month LIBOR plus 290basis points$
    240,125
    
    
    $
    240,125
 Note 14  Commitments and Contingencies
 Culpepper v. Inland Mortgage Corporation
   82




---



##### Table of Contents



United States ex rel. Paranich v. Sorgnard et al.
  McIntosh v. Irwin Home Equity Corporation
    83




---



##### Table of Contents



Stamper v. A Home of Your Own
  Silke v. Irwin Mortgage Corporation
  Gutierrez v. Irwin Mortgage Corporation
  Cohens v. Inland Mortgage Corporation
  Litigation in Connection with Loans Purchased from Community Bank of Northern Virginia
  Hobson v. Irwin Union Bank and Trust Company Hobson Hobson Hobson
 Kossler v. Community Bank of Northern Virginia Kossler
 84




---



##### Table of Contents



Hobson Kossler Hobson, Hobson
 Hobson Kossler Hobson Hobson Kossler
 (Chatfield v. Irwin Union Bank and Trust Company, et al. and Ransom v. Irwin
Union Bank and Trust Company, et al.)
 Hobson, Chatfield and Ransom.
 Hobson, Chatfield Ransom Kossler
  Litigation Related to NorVergence, Inc.
  Exquisite Caterers, LLC et al. v. Popular Leasing et al. Exquisite Caterers
 85




---



##### Table of Contents



Delanco
Board of Education et al. v. IFC Credit Corporation, Exquisite Caterers,
 Sterling
Asset & Equity Corp. et al. v. Preferred Capital, Inc. et al.
  (State of Florida v. Commerce Commercial Leasing,
LLC et al.)
    86




---



##### Table of Contents



Note 15  Financial Instruments With Off-Balance Sheet Risk
   Note 16  Derivative Financial Instruments
      
    
    In two instances, this funding mismatch is lessened by a combination of amortizing
interest rate caps and Eurodollar futures contracts. The interest rate caps have a strike
price of 5% and provide protection against a large increase in short-term interest rates. As
of December 31, 2004, the notional value and 2004 loss on the interest rate caps were $26
million and $43 thousand,
 87




---



##### Table of Contents



respectively. As of December 31, 2004, the total notional amount and year-to-date gain on the
Eurodollar futures were $95 million and $40 thousand, respectively.
    
    Beginning in the fourth quarter of 2003, on several occasions we have delivered fixed
rate leases into a second commercial paper conduit. Although the leases and funding were in
Canadian dollars (CAD), the interest rate mismatch is similar in nature to that described
above. To lessen the repricing mismatch between fixed rate CAD-denominated leases and
floating rate CAD commercial paper, a series of four amortizing CAD interest rate swaps have
been executed, although Irwin is only a counterparty on three of the swaps. The fourth swap
is between the commercial paper conduit and an outside party, but affects the conduit
funding cost that is charged to Irwin. For the first and second of the three swaps on
Irwins books, we pay a fixed rate of interest and receive a floating rate. For the third
swap, we pay a floating rate of interest and receive a fixed rate. The U.S.
dollar-equivalents of the CAD-based notional and year-to-date losses on these swaps at
December 31, 2004 were $176.4 million and $0.6 million, respectively.
      Note 17  Guarantees
   88




---



##### Table of Contents



Note 18  Regulatory Matters
  89




---



##### Table of Contents



Other Safety and Soundness
Regulations
 90




---



##### Table of Contents



Adequately
    
    WellActual
    
    Capitalized
    
    CapitalizedAmount
    
    Ratio
    
    Amount
    
    Ratio
    
    Amount
    
    Ratio(Dollars in thousands)As of December 31, 2004 (Restated)Total Capital (to Risk-Weighted Assets):Irwin Financial Corporation
    
    $
    781,487
    
    
    
    15.9
    %
    
    $
    392,641
    
    
    
    8.0
    %
    
    $
    490,801
    
    
    
    10.0
    %Irwin Union Bank and Trust
    
    
    644,345
    
    
    
    14.6
    
    
    
    352,500
    
    
    
    8.0
    
    
    
    440,625
    
    
    
    10.0Irwin Union Bank, F.S.B
    
    
    40,880
    
    
    
    14.3
    
    
    
    22,922
    
    
    
    8.0
    
    
    
    28,652
    
    
    
    10.0Tier I Capital (to Risk-Weighted Assets):Irwin Financial Corporation
    
    
    637,875
    
    
    
    13.0
    
    
    
    196,320
    
    
    
    4.0
    
    
    
    294,481
    
    
    
    6.0Irwin Union Bank and Trust
    
    
    571,372
    
    
    
    13.0
    
    
    
    176,250
    
    
    
    4.0
    
    
    
    264,375
    
    
    
    6.0Irwin Union Bank, F.S.B
    
    
    39,636
    
    
    
    13.8
    
    
    
    N/A
    
    
    
    
    
    
    
    17,191
    
    
    
    6.0Tier I Capital (to Average Assets):Irwin Financial Corporation
    
    
    637,875
    
    
    
    11.6
    
    
    
    222,094
    
    
    
    4.0
    
    
    
    277,618
    
    
    
    5.0Irwin Union Bank and Trust
    
    
    571,372
    
    
    
    11.3
    
    
    
    202,986
    
    
    
    4.0
    
    
    
    253,732
    
    
    
    5.0Core Capital (to Adjusted Tangible Assets)Irwin Union Bank, F.S.B
    
    
    39,636
    
    
    
    10.6
    
    
    
    14,984
    
    
    
    4.0
    
    
    
    18,730
    
    
    
    5.0Tangible Capital (to Tangible Assets)Irwin Union Bank, F.S.B
    
    
    39,636
    
    
    
    10.6
    
    
    
    5,619
    
    
    
    1.5
    
    
    
    N/AAs of December 31, 2003Total 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
    
    
    
    10.0Irwin Union Bank, F.S.B
    
    
    41,459
    
    
    
    19.1
    
    
    
    17,333
    
    
    
    8.0
    
    
    
    21,666
    
    
    
    10.0Tier I Capital (to Risk-Weighted Assets):Irwin Financial Corporation
    
    
    556,793
    
    
    
    11.4
    
    
    
    195,652
    
    
    
    4.0
    
    
    
    293,478
    
    
    
    6.0Irwin Union Bank and Trust
    
    
    520,996
    
    
    
    12.1
    
    
    
    172,756
    
    
    
    4.0
    
    
    
    259,134
    
    
    
    6.0Irwin Union Bank, F.S.B
    
    
    40,432
    
    
    
    18.7
    
    
    
    N/A
    
    
    
    
    
    
    
    13,000
    
    
    
    6.0Tier I Capital (to Average Assets):Irwin Financial Corporation
    
    
    556,793
    
    
    
    11.2
    
    
    
    199,620
    
    
    
    4.0
    
    
    
    249,524
    
    
    
    5.0Irwin Union Bank and Trust
    
    
    520,996
    
    
    
    11.2
    
    
    
    186,481
    
    
    
    4.0
    
    
    
    233,101
    
    
    
    5.0Core Capital (to Adjusted Tangible Assets)Irwin Union Bank, F.S.B
    
    
    40,432
    
    
    
    8.7
    
    
    
    18,565
    
    
    
    4.0
    
    
    
    23,206
    
    
    
    5.0Tangible Capital (to Tangible Assets)Irwin Union Bank, F.S.B
    
    
    40,432
    
    
    
    8.7
    
    
    
    6,962
    
    
    
    1.5
    
    
    
    N/A
 Note 19  Fair Values of Financial Instruments
  Cash and cash equivalents:
 Interest-bearing deposits with financial institutions, Deposit liabilities, Short-term
borrowings, and Long-term and collateralized debt:
 Loans and leases and loans held for sale:
 Residual interests:
 Servicing assets:
 Investment securities:
 Derivative instruments:
 91




---



##### Table of Contents



2004
    
    2003Carrying
    
    Estimated Fair
    
    Carrying
    
    Estimated FairAmount
    
    Value
    
    Amount
    
    Value(Dollars in thousands)Financial assets:Cash and cash equivalents
    
    $
    97,101
    
    
    $
    97,101
    
    
    $
    140,810
    
    
    $
    140,810Interest-bearing deposits with financial
institutions
    
    
    58,936
    
    
    
    58,755
    
    
    
    81,166
    
    
    
    81,365Residual interests
    
    
    56,101
    
    
    
    56,101
    
    
    
    71,491
    
    
    
    71,491Investment securities
    
    
    108,222
    
    
    
    108,232
    
    
    
    92,525
    
    
    
    92,540Loans held for sale
    
    
    890,711
    
    
    
    895,840
    
    
    
    883,895
    
    
    
    884,803Loans and leases, net of unearned
discount
    
    
    3,450,440
    
    
    
    3,480,603
    
    
    
    3,161,054
    
    
    
    3,224,674Servicing asset
    
    
    367,032
    
    
    
    371,887
    
    
    
    380,123
    
    
    
    393,540Derivatives
    
    
    6,400
    
    
    
    6,400
    
    
    
    12,809
    
    
    
    12,809Financial liabilities:Deposits
    
    
    3,395,263
    
    
    
    3,337,705
    
    
    
    2,899,662
    
    
    
    2,880,075Short-term borrowings
    
    
    237,277
    
    
    
    237,312
    
    
    
    429,758
    
    
    
    429,759Collateralized debt
    
    
    547,477
    
    
    
    529,383
    
    
    
    590,131
    
    
    
    581,862Other long-term debt
    
    
    270,172
    
    
    
    280,674
    
    
    
    270,184
    
    
    
    279,704Derivatives
    
    
    996
    
    
    
    996
    
    
    
    29,851
    
    
    
    29,851
   Note 20  Shareholders Equity
    92




---



##### Table of Contents



2004
    
    
    2003
    
    
    2002Weighted
    
    
    
    
    
    
    Weighted
    
    
    
    
    
    
    WeightedNumber of
    
    
    average
    
    
    Number of
    
    
    average
    
    
    Number of
    
    
    averageshares
    
    
    exercise price
    
    
    shares
    
    
    exercise price
    
    
    shares
    
    
    exercise priceOutstanding at the
beginning of the
year
    
    
    2,170,791
    
    
    $
    19.28
    
    
    
    2,083,156
    
    
    $
    17.22
    
    
    
    1,673,908
    
    
    $
    17.02Granted
    
    
    374,501
    
    
    
    24.44
    
    
    
    574,421
    
    
    
    22.36
    
    
    
    532,180
    
    
    
    16.10Exercised
    
    
    (249,175
    )
    
    
    19.15
    
    
    
    (420,118
    )
    
    
    13.30
    
    
    
    (100,701
    )
    
    
    7.19Canceled
    
    
    (67,711
    )
    
    
    21.75
    
    
    
    (66,668
    )
    
    
    19.18
    
    
    
    (22,231
    )
    
    
    20.91Outstanding at the end
of the year
    
    
    2,228,406
    
    
    
    20.08
    
    
    
    2,170,791
    
    
    
    19.28
    
    
    
    2,083,156
    
    
    
    17.22Exercisable at the end
of the year
    
    
    1,609,867
    
    
    $
    19.27
    
    
    
    1,428,465
    
    
    $
    18.70
    
    
    
    1,410,766
    
    
    $
    16.89
  OPTIONS OUTSTANDING
    
    
    OPTIONS EXERCISABLEWeightedNumber
    
    
    Average
    
    
    Weighted
    
    
    Number
    
    
    WeightedOutstanding as of
    
    
    Remaining
    
    
    Average
    
    
    Exercisable as of
    
    
    AverageRange of Exercise Prices
    
    December 31, 2004
    
    
    Contractual Life
    
    
    Exercise Price
    
    
    December 31, 2004
    
    
    Exercise Price$7.84 - $15.31
    
    
    260,466
    
    
    
    1.56
    
    
    $
    11.11
    
    
    
    260,466
    
    
    $
    11.11$15.31 - $18.69
    
    
    576,363
    
    
    
    6.51
    
    
    
    16.27
    
    
    
    476,363
    
    
    
    16.34$18.69 - $21.38
    
    
    269,785
    
    
    
    6.63
    
    
    
    21.01
    
    
    
    244,858
    
    
    
    21.15$21.38 - $23.43
    
    
    500,011
    
    
    
    8.14
    
    
    
    22.54
    
    
    
    276,461
    
    
    
    22.61$23.43 - $31.44
    
    
    621,781
    
    
    
    7.25
    
    
    
    25.00
    
    
    
    351,719
    
    
    
    25.35$7.84 - $31.44
    
    
    2,228,406
    
    
    
    6.52
    
    
    $
    20.08
    
    
    
    1,609,867
    
    
    $
    19.27
 Note 21  Earnings Per Share
  Basic
    
    
    Effect of
    
    
    Effect of
    
    
    Effect of
    
    
    DilutedEarnings
    
    
    Stock
    
    
    Preferred
    
    
    Convertible
    
    
    EarningsPer Share
    
    
    Options
    
    
    Shares
    
    
    Shares
    
    
    Per Share(Dollars in thousands, except per share amounts)Year ended December 31,2004Net income available to common
Shareholders (Restated)
    
    $
    68,445
    
    
    $
    
    
    
    $
    
    
    
    $
    2,712
    
    
    $
    71,157Shares
    
    
    28,274
    
    
    
    397
    
    
    
    
    
    
    
    2,607
    
    
    
    31,278Per-share amount (Restated)
    
    $
    2.42
    
    
    $
    (0.03
    )
    
    $
    
    
    
    $
    (0.11
    )
    
    $
    2.282003Net income available to common
shareholders
    
    $
    72,817
    
    
    $
    
    
    
    $
    
    
    
    $
    2,715
    
    
    $
    75,532Shares
    
    
    27,915
    
    
    
    325
    
    
    
    
    
    
    
    2,610
    
    
    
    30,850Per-share amount
    
    $
    2.61
    
    
    $
    (0.03
    )
    
    $
    
    
    
    $
    (0.13
    )
    
    $
    2.452002Net income available to common
shareholders
    
    $
    52,833
    
    
    $
    
    
    
    $
    
    
    
    $
    2,801
    
    
    $
    55,634Shares
    
    
    26,829
    
    
    
    164
    
    
    
    72
    
    
    
    2,610
    
    
    
    29,675Per-share amount
    
    
    1.97
    
    
    
    (0.01
    )
    
    
    (0.01
    )
    
    
    (0.08
    )
    
    
    1.87Cumulative effect of change in accounting
principle
    
    
    495
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    495Per-share amount
    
    
    0.02
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.02Net income
    
    
    53,328
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    56,129Per-share amount
    
    $
    1.99
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    1.89
  Note 22  Income Taxes
  93




---



##### Table of Contents



2004
    
    
    2003
    
    
    2002(Dollars in thousands)(Restated)Current:Federal
    
    $
    23,530
    
    
    $
    (254
    )
    
    $
    71,309State
    
    
    6,378
    
    
    
    384
    
    
    
    17,260Foreign
    
    
    3,639
    
    
    
    2,196
    
    
    
    33,547
    
    
    
    2,326
    
    
    
    88,569Deferred:Federal
    
    
    10,126
    
    
    
    36,627
    
    
    
    (44,551
    )State
    
    
    2,414
    
    
    
    8,732
    
    
    
    (10,620
    )Foreign
    
    
    (355
    )
    
    
    (2,100
    )
    
    
    12,185
    
    
    
    43,259
    
    
    
    (55,171
    )Income tax expense:Federal
    
    
    33,656
    
    
    
    36,373
    
    
    
    26,758State
    
    
    8,792
    
    
    
    9,116
    
    
    
    6,640Foreign
    
    
    3,284
    
    
    
    96
    
    
    
    $
    45,732
    
    
    $
    45,585
    
    
    $
    33,398
  2004
    
    
    2003
    
    
    2002(Dollars in thousands)(Restated)Income taxes computed at the statutory rate
    
    $
    39,962
    
    
    $
    41,441
    
    
    $
    30,181Increase (decrease) resulting from:Nontaxable interest from investment securities and
loans
    
    
    (107
    )
    
    
    (115
    )
    
    
    (127
    )State tax, net of federal benefit
    
    
    5,714
    
    
    
    5,926
    
    
    
    4,316Taxes related to foreign operations
    
    
    1,860
    
    
    
    (1,112
    )
    
    
    Other items, net
    
    
    (1,697
    )
    
    
    (555
    )
    
    
    (972
    )$
    45,732
    
    
    $
    45,585
    
    
    $
    33,398
  December 31,2004
    
    
    2003(Dollars in thousands)Deferred tax assets:
    
    (Restated)Deferred securitization income
    
    $
    
    
    
    $
    5,406Allowance for loan and lease losses
    
    
    24,247
    
    
    
    34,348Deferred origination fees and costs
    
    
    
    
    
    
    1,326Deferred compensation
    
    
    8,929
    
    
    
    5,542Retirement benefits
    
    
    331
    
    
    
    Mark to market
    
    
    4,746
    
    
    
    4,921Net operating loss carryforward
    
    
    227
    
    
    
    4,907Other, net
    
    
    4,836
    
    
    
    3,69943,316
    
    
    
    60,149Deferred tax liabilities:Mortgage servicing
    
    
    (134,414
    )
    
    
    (142,485
    )Deferred securitization income
    
    
    (1,433
    )
    
    
    Deferred origination fees and costs
    
    
    (1,525
    )
    
    
    Retirement benefits
    
    
    
    
    
    
    (284
    )Fixed assets
    
    
    (4,556
    )
    
    
    (3,807
    )(141,928
    )
    
    
    (146,576
    )Net deferred tax liability
    
    $
    (98,612
    )
    
    $
    (86,427
    )
 Note 23  Employee Retirement Plans
   94




---



##### Table of Contents



December 31,2004
    
    
    2003(Dollars in thousands)Change in benefit obligation:Benefit obligation at January 1,
    
    $
    24,321
    
    
    $
    19,317Service cost
    
    
    2,127
    
    
    
    1,395Interest cost
    
    
    1,488
    
    
    
    1,295Actuarial loss
    
    
    2,040
    
    
    
    2,861Benefits paid
    
    
    (628
    )
    
    
    (547
    )Benefit obligation at December 31,
    
    
    29,348
    
    
    
    24,321Change in plan assets:Fair value plan assets at January 1,
    
    
    20,552
    
    
    
    15,963Actual return on plan assets
    
    
    2,383
    
    
    
    4,236Benefits paid
    
    
    (628
    )
    
    
    (547
    )Employer contributions
    
    
    2,100
    
    
    
    900Fair value plan assets at December 31,
    
    
    24,407
    
    
    
    20,552Funded status
    
    
    (4,941
    )
    
    
    (3,769
    )Unrecognized prior service cost
    
    
    310
    
    
    
    347Unrecognized net actuarial loss
    
    
    9,459
    
    
    
    8,834Net amount recognized as prepaid pension cost
    
    $
    4,828
    
    
    $
    5,412
   2004
    
    
    2003
    
    
    2002(Dollars in thousands)Service cost
    
    $
    2,127
    
    
    $
    1,395
    
    
    $
    1,122Interest cost
    
    
    1,488
    
    
    
    1,295
    
    
    
    1,149Expected return on plan assets
    
    
    (1,605
    )
    
    
    (1,252
    )
    
    
    (1,112
    )Amortization of prior service cost
    
    
    37
    
    
    
    37
    
    
    
    52Amortization of actuarial loss
    
    
    638
    
    
    
    684
    
    
    
    396Net pension cost
    
    $
    2,685
    
    
    $
    2,159
    
    
    $
    1,607
  2004
    
    
    2003To determine benefit obligations at December 31, Discount rate
    
    
    5.75
    %
    
    
    6.00
    %Rate of average compensation increase
    
    
    3.83
    
    
    
    3.83To determine net periodic cost for the years ended December 31,
Discount rate
    
    
    6.00
    %
    
    
    6.75
    %Return on plan assets
    
    
    8.00
    
    
    
    8.00Rate of average compensation increase
    
    
    3.83
    
    
    
    3.83
  Plan Assets
  95




---



##### Table of Contents



Percentage ofPlan AssetsTargetAsset Category
    
    2004
    
    
    2003
    
    
    2005Equity securitiesDomestic
    
    
    51
    %
    
    
    55
    %
    
    
    50-65
    %International
    
    
    23
    
    
    
    23
    
    
    
    15-25
    %Corporate bonds
    
    
    17
    
    
    
    16
    
    
    
    15-25
    %Cash equivalents
    
    
    9
    
    
    
    6
    
    
    
    0-10
    %100
    %
    
    
    100
    %
   Cash Flows
   2005
    
    $
    7622006
    
    
    7802007
    
    
    8232008
    
    
    9382009
    
    
    1,076Years 2010-2014
    
    
    8,005
 Note 24  Industry Segment Information
  96




---



##### Table of Contents



Mortgage
    
    
    Commercial
    
    
    Home Equity
    
    
    Commercial
    
    
    VentureBanking
    
    
    Banking
    
    
    Lending
    
    
    Finance
    
    
    Capital
    
    
    Other
    
    
    Consolidated(Dollars in thousands)(Restated)
    
    
    
    
    
    
    
    
    
    
    (Restated)
    
    
    (Restated)2004Net interest income
    
    $
    42,120
    
    
    $
    84,318
    
    
    $
    110,601
    
    
    $
    21,286
    
    
    $
    11
    
    
    $
    (20,453
    )
    
    $
    237,883Intersegment interest
    
    
    (1,017
    )
    
    
    1,992
    
    
    
    (15,987
    )
    
    
    
    
    
    
    (22
    )
    
    
    15,034
    
    
    
    Other revenue
    
    
    197,954
    
    
    
    17,749
    
    
    
    67,847
    
    
    
    6,275
    
    
    
    (803
    )
    
    
    (5,493
    )
    
    
    283,529Intersegment revenues
    
    
    17
    
    
    
    567
    
    
    
    
    
    
    
    
    
    
    
    600
    
    
    
    (1,184
    )
    
    
    Total net revenues
    
    
    239,074
    
    
    
    104,626
    
    
    
    162,461
    
    
    
    27,561
    
    
    
    (214
    )
    
    
    (12,096
    )
    
    
    521,412Other expense
    
    
    200,693
    
    
    
    63,656
    
    
    
    111,856
    
    
    
    18,091
    
    
    
    439
    
    
    
    12,500
    
    
    
    407,235Intersegment expenses
    
    
    3,512
    
    
    
    1,794
    
    
    
    2,923
    
    
    
    691
    
    
    
    
    
    
    
    (8,920
    )
    
    
    Income (loss) before taxes
    
    
    34,869
    
    
    
    39,176
    
    
    
    47,682
    
    
    
    8,779
    
    
    
    (653
    )
    
    
    (15,676
    )
    
    
    114,177Income taxes
    
    
    14,603
    
    
    
    15,752
    
    
    
    19,615
    
    
    
    5,562
    
    
    
    (256
    )
    
    
    (9,544
    )
    
    
    45,732Net income (loss)
    
    $
    20,266
    
    
    $
    23,424
    
    
    $
    28,067
    
    
    $
    3,217
    
    
    $
    (397
    )
    
    $
    (6,132
    )
    
    $
    68,445Assets at December 31,
    
    $
    1,238,136
    
    
    $
    2,622,877
    
    
    $
    992,979
    
    
    $
    636,604
    
    
    $
    6,700
    
    
    $
    (261,476
    )
    
    $
    5,235,8202003Net interest income
    
    $
    80,169
    
    
    $
    78,785
    
    
    $
    84,875
    
    
    $
    12,180
    
    
    $
    (210
    )
    
    $
    (31,497
    )
    
    $
    224,302Intersegment interest
    
    
    (8,522
    )
    
    
    (5,683
    )
    
    
    (7,905
    )
    
    
    (722
    )
    
    
    
    
    
    
    22,832
    
    
    
    Other revenue
    
    
    326,000
    
    
    
    21,071
    
    
    
    (19,525
    )
    
    
    5,868
    
    
    
    (2,668
    )
    
    
    (24,603
    )
    
    
    306,143Intersegment revenues
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    600
    
    
    
    (600
    )
    
    
    Total net revenues
    
    
    397,647
    
    
    
    94,173
    
    
    
    57,445
    
    
    
    17,326
    
    
    
    (2,278
    )
    
    
    (33,868
    )
    
    
    530,445Other expense
    
    
    265,118
    
    
    
    55,196
    
    
    
    87,771
    
    
    
    14,539
    
    
    
    548
    
    
    
    (11,129
    )
    
    
    412,043Intersegment expenses
    
    
    2,762
    
    
    
    1,503
    
    
    
    2,767
    
    
    
    533
    
    
    
    
    
    
    
    (7,565
    )
    
    
    Income (loss) before taxes
    
    
    129,767
    
    
    
    37,474
    
    
    
    (33,093
    )
    
    
    2,254
    
    
    
    (2,826
    )
    
    
    (15,174
    )
    
    
    118,402Income taxes
    
    
    51,667
    
    
    
    14,997
    
    
    
    (13,203
    )
    
    
    461
    
    
    
    (1,118
    )
    
    
    (7,219
    )
    
    
    45,585Net income (loss)
    
    $
    78,100
    
    
    $
    22,477
    
    
    $
    (19,890
    )
    
    $
    1,793
    
    
    $
    (1,708
    )
    
    $
    (7,955
    )
    
    $
    72,817Assets at December 31,
    
    $
    1,258,641
    
    
    $
    2,203,965
    
    
    $
    1,070,634
    
    
    $
    474,915
    
    
    $
    7,345
    
    
    $
    (27,141
    )
    
    $
    4,988,3592002Net interest income
    
    $
    41,330
    
    
    $
    61,348
    
    
    $
    68,472
    
    
    $
    6,661
    
    
    $
    43
    
    
    $
    (8,203
    )
    
    $
    169,651Intersegment interest
    
    
    (139
    )
    
    
    (1,306
    )
    
    
    
    
    
    
    (2
    )
    
    
    
    
    
    
    1,447
    
    
    
    Other revenue
    
    
    207,177
    
    
    
    16,081
    
    
    
    11,791
    
    
    
    4,397
    
    
    
    (4,220
    )
    
    
    (1,089
    )
    
    
    234,137Intersegment revenues
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    534
    
    
    
    (534
    )
    
    
    Total net revenues
    
    
    248,368
    
    
    
    76,123
    
    
    
    80,263
    
    
    
    11,056
    
    
    
    (3,643
    )
    
    
    (8,379
    )
    
    
    403,788Other expense
    
    
    173,162
    
    
    
    48,699
    
    
    
    76,224
    
    
    
    12,122
    
    
    
    495
    
    
    
    6,855
    
    
    
    317,557Intersegment expenses
    
    
    2,115
    
    
    
    1,330
    
    
    
    2,364
    
    
    
    
    
    
    
    
    
    
    
    (5,809
    )
    
    
    Income (loss) before taxes
    
    
    73,091
    
    
    
    26,094
    
    
    
    1,675
    
    
    
    (1,066
    )
    
    
    (4,138
    )
    
    
    (9,425
    )
    
    
    86,231Income taxes
    
    
    28,548
    
    
    
    10,009
    
    
    
    670
    
    
    
    (513
    )
    
    
    (1,655
    )
    
    
    (3,661
    )
    
    
    33,398Net income (loss) before
cumulative effect of
change in accounting
principle
    
    
    44,543
    
    
    
    16,085
    
    
    
    1,005
    
    
    
    (553
    )
    
    
    (2,483
    )
    
    
    (5,764
    )
    
    
    52,833Cumulative effect of
change in accounting
principle
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    495
    
    
    
    
    
    
    
    
    
    
    
    495Net income (loss)
    
    $
    44,543
    
    
    $
    16,085
    
    
    $
    1,005
    
    
    $
    (58
    )
    
    $
    (2,483
    )
    
    $
    (5,764
    )
    
    $
    53,328Assets at December 31,
    
    $
    1,631,406
    
    
    $
    1,969,956
    
    
    $
    939,494
    
    
    $
    343,384
    
    
    $
    4,782
    
    
    $
    21,370
    
    
    $
    4,910,392
 Note 25  Irwin Financial Corporation (Parent Only) Financial Information
  97




---



##### Table of Contents



Condensed Balance Sheets
 December 31,2004
    
    
    2003(Dollars in thousands)(Restated)Assets:Cash and short-term investments
    
    $
    1,111
    
    
    $
    4,723Investment in bank subsidiary
    
    
    624,168
    
    
    
    573,284Investments in non-bank subsidiaries
    
    
    32,279
    
    
    
    98,547Loans to bank subsidiaries
    
    
    82,629
    
    
    
    56,209Loans to non-bank subsidiaries
    
    
    52,813
    
    
    
    33,186Other assets
    
    
    25,976
    
    
    
    26,110$
    818,976
    
    
    $
    792,059Liabilities:Short-term borrowings(1)
    
    $
    28,181
    
    
    $
    89,513Long-term debt
    
    
    270,125
    
    
    
    270,125Other liabilities
    
    
    19,485
    
    
    
    161317,791
    
    
    
    359,799Shareholders equity:Common stock
    
    
    112,000
    
    
    
    112,000Other shareholders equity
    
    
    389,185
    
    
    
    320,260501,185
    
    
    
    432,260$
    818,976
    
    
    $
    792,059
 
 (1)
    
    Includes $28.2 million and $73.1 million payable to our subsidiaries at December 31, 2004 and
2003, respectively. Condensed Statements of Income
 For the Year Ended December 31,2004
    
    
    2003
    
    
    2002(Dollars in thousands)Income:
    
    (Restated)Dividends from non-bank subsidiaries
    
    $
    
    
    
    $
    686
    
    
    $
    66,411Dividends from bank subsidiary
    
    
    66,000
    
    
    
    
    
    
    
    Interest income
    
    
    7,142
    
    
    
    4,964
    
    
    
    1,876Other
    
    
    10,369
    
    
    
    7,721
    
    
    
    5,92883,511
    
    
    
    13,371
    
    
    
    74,215Expenses:Interest expense
    
    
    24,101
    
    
    
    28,917
    
    
    
    24,127Salaries and benefits
    
    
    9,555
    
    
    
    6,491
    
    
    
    3,872Other
    
    
    6,584
    
    
    
    5,056
    
    
    
    4,10840,240
    
    
    
    40,464
    
    
    
    32,107Income before income taxes and equity in undistributed
income of subsidiaries
    
    
    43,271
    
    
    
    (27,093
    )
    
    
    42,108Income tax benefit, less amounts charged to subsidiaries
    
    
    (12,686
    )
    
    
    (13,081
    )
    
    
    (11,732
    )55,957
    
    
    
    (14,012
    )
    
    
    53,840Equity in undistributed income of subsidiaries
    
    
    12,488
    
    
    
    86,829
    
    
    
    (512
    )Net income
    
    $
    68,445
    
    
    $
    72,817
    
    
    $
    53,328
 98




---



##### Table of Contents



Condensed Statements of Cash Flows
 For the Year Ended December 31,2004
    
    
    2003
    
    
    2002(Dollars in thousands)(Restated)Net income
    
    $
    68,445
    
    
    $
    72,817
    
    
    $
    53,328Adjustments to reconcile net income to cash provided by operating activities:Equity in undistributed income of subsidiaries
    
    
    (12,488
    )
    
    
    (86,829
    )
    
    
    512Depreciation and amortization
    
    
    727
    
    
    
    2,529
    
    
    
    732Increase (decrease) in taxes payable
    
    
    18,316
    
    
    
    (13,778
    )
    
    
    1,583Decrease (increase) in interest receivable
    
    
    (247
    )
    
    
    1,208
    
    
    
    356(Decrease) increase in interest payable
    
    
    (62
    )
    
    
    53
    
    
    
    37Net change in other assets and other liabilities
    
    
    2,725
    
    
    
    (11,277
    )
    
    
    (12,124
    )Net cash provided (used) by operating activities
    
    
    77,416
    
    
    
    (35,277
    )
    
    
    44,424Lending and investing activities:Net (increase) decrease in loans to subsidiaries
    
    
    (46,046
    )
    
    
    22,518
    
    
    
    (31,184
    )Investments in subsidiaries
    
    
    (15,575
    )
    
    
    (10,286
    )
    
    
    (116,133
    )Net (purchases) sales of premises and equipment
    
    
    (189
    )
    
    
    (121
    )
    
    
    187Net cash provided (used) by lending and investing activities
    
    
    (61,810
    )
    
    
    12,111
    
    
    
    (147,130
    )Financing activities:Net (decrease) increase in borrowings
    
    
    (17,680
    )
    
    
    28,252
    
    
    
    (9,862
    )Proceeds from long-term debt
    
    
    
    
    
    
    51,547
    
    
    
    36,960Payments of long-term debt
    
    
    
    
    
    
    (51,629
    )
    
    
    Proceeds from common stock offering
    
    
    
    
    
    
    
    
    
    
    82,035Purchase of treasury stock
    
    
    (407
    )
    
    
    (4,201
    )
    
    
    (1,176
    )Proceeds from sale of stock for employee benefit plans
    
    
    7,836
    
    
    
    9,777
    
    
    
    2,702Dividends paid
    
    
    (9,065
    )
    
    
    (7,832
    )
    
    
    (7,469
    )Net cash provided (used) by financing activities
    
    
    (19,316
    )
    
    
    25,914
    
    
    
    103,190Net increase (decrease) in cash and cash equivalents
    
    
    (3,710
    )
    
    
    2,748
    
    
    
    484Effect of exchange rate changes on cash
    
    
    98
    
    
    
    228
    
    
    
    (30
    )Cash and cash equivalents at beginning of year
    
    
    4,723
    
    
    
    1,747
    
    
    
    1,293Cash and cash equivalents at end of year
    
    $
    1,111
    
    
    $
    4,723
    
    
    $
    1,747Supplemental disclosures of cash flow information:Cash paid during the year:Interest
    
    $
    24,039
    
    
    $
    27,709
    
    
    $
    24,091Income tax payments
    
    $
    9,954
    
    
    $
    42,971
    
    
    $
    48,877Non cash transactions:Conversion of preferred stock to common stock
    
    $
    
    
    
    $
    
    
    
    $
    1,386Conversion of trust preferred to common stock
    
    $
    
    
    
    $
    83
    
    
    $
    
 
 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
  
 Item 9A. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
  99




---



##### Table of Contents



Managements Report on Internal Control Over Financial Reporting
  Internal
Control-Integrated Framework.
  Internal Control-Integrated
Framework
  Changes in Internal Control Over Financial Reporting
   100




---



##### Table of Contents



Item 9B. Other Information
  101




---



##### Table of Contents



PART III
 
 Item 10. Directors and Executive Officers of the Corporation
   
    
    Our Code of Conduct (our code of business conduct and ethics), which is applicable to our
directors, officers, and employees, including our Chief Executive Officer (principal
executive officer), our Chief Financial Officer (principal financial officer) and our
Controller (principal accounting officer). Our Code of Conduct is attached as Exhibit 14.1
to this Report on Form 10-K. Amendments to or waivers for executive officers or directors
from our Code of Conduct will be posted on our website.
    
    Our Audit and Risk Management Committee Charter, which is also an attachment to our Proxy Statement.
    
    Our Compensation Committee Charter.
    
    Our Governance (nominating) Committee Charter.
  
 Item 11. Executive Compensation
  
 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
  
 Item 13. Certain Relationships and Related Transactions
  
 Item 14. Principal Accountants Fees and Services.
  102




---



##### Table of Contents



PART IV
 
 Item 15. Exhibits, Financial Statement Schedules
              ExhibitNumber
    
    Description of Exhibit3.1
    
    Restated Articles of Incorporation of Irwin Financial Corporation. (Incorporated by reference to Exhibit 3(a) to
Form 10-K Report for year ended December 31, 2000, File No. 000-06835.)3.2
    
    Articles of Amendment to Restated Articles of Incorporation of Irwin Financial Corporation dated March 2,
2001.(Incorporated by reference to Exhibit 3(b) to Form 10-K Report for year ended December 31, 2000, File No.
000-06835.)3.3
    
    Code of By-laws of Irwin Financial Corporation, as amended, dated April 30, 2004. (Incorporated by reference to
Exhibit 3.3 to Form 10-Q Report for the quarter ended June 30, 2004, File No. 001-16691.)4.1
    
    Specimen Common Stock Certificate. (Incorporated by reference to Exhibit 4(a) to Form 10-K report for year ended
December 31, 1994, File No. 000-06835.)4.2
    
    Certain instruments defining the rights of the holders of long-term debt of Irwin Financial Corporation and
certain of its subsidiaries, none of which authorize a total amount of indebtedness in excess of 10% of the
total assets of the Corporation and its subsidiaries on a consolidated basis, have not been filed as Exhibits.
The Corporation here by agrees to furnish a copy of any of these agreements to the Commission upon request.4.3
    
    Rights Agreement, dated as of March 1, 2001, between Irwin Financial Corporation and Irwin Union Bank and
Trust.(Incorporated by reference to Exhibit 4.1 to Form 8-A filed March 2, 2001, File No. 000-06835.)4.4
    
    Appointment of Successor Rights Agent dated as of May 11,2001 between Irwin Financial Corporation and National
City Bank. (Incorporated by reference to Exhibit 4.5 to Form S-8 filed on September 7, 2001, File No.
333-69156.)10.1
    
    *Irwin Financial Corporation 1992 Stock Option Plan.(Incorporated by reference to Exhibit 10(h) to Form 10-K
Report for year ended December 31, 1992, File No. 000-06835.)10.2
    
    *Irwin Financial Corporation 1997 Stock Option Plan.(Incorporated by reference to Exhibit 10 to Form 10-Q Report for period ended June 30, 1994, File No. 000-06835.)
 103




---



##### Table of Contents



ExhibitNumber
    
    Description of Exhibit10.3
    
    *Amendment to Irwin Financial Corporation 1997 Stock Option Plan. (Incorporated by reference to Exhibit 10(i) to
Form 10-Q Report for period ended June 30, 1997, File No. 000-06835.)10.4
    
    *Irwin Financial Corporation Amended and Restated 2001 Stock Plan. (Incorporated by reference to Exhibit 1 to
the Corporations proxy statement for its 2004 Annual Meeting, filed with the Commission on March 18, 2004, File
No. 001-16691.)10.5
    
    *Irwin Financial Corporation 1999 Outside Director Restricted Stock Compensation Plan. (Incorporated by
reference to Exhibit 2 to the Corporations proxy statement for its 2004 Annual Meeting, filed with the
Commission on March 18, 2004, File No. 001-16691.)10.6
    
    *Employee Stock Purchase Plan III. (Incorporated by reference to Exhibit 10(a) to Form 10-Q Report for period
ended June 30, 1999, File No. 000-06835.)10.7
    
    *Long-Term Management Performance Plan. (Incorporated by reference to Exhibit 10(a) to Form 10-K Report for year
ended December 31, 1986, File No. 000-06835.)10.8
    
    *Long-Term Incentive Plan-Summary of Terms. (Incorporated by reference to Exhibit 10(a) to Form 10-K Report for
year ended December 31, 1986, File No. 000-06835.)10.9
    
    *Inland Mortgage Corporation Long-Term Incentive Plan.(Incorporated by reference to Exhibit 10(j) to Form 10-K
Report for year ended December 31, 1995, File No. 000-06835.)10.10
    
    *Amended and Restated Management Bonus Plan. (Incorporated by reference to Exhibit 10(a) to Form 10-K Report for
year ended December 31, 1986, File No. 000-06835.)10.11
    
    *Limited Liability Company Agreement of Irwin Ventures LLC. (Incorporated by reference to Exhibit 10(a) to Form
10-Q/A Report for period ended March 31, 2001, File No. 000-06835.)10.12
    
    *Limited Liability Company Agreement of Irwin Ventures Co-Investment Fund LLC, effective as of April 20,
2001.(Incorporated by reference to Exhibit 10.17 to Form S-1/A filed February 14, 2002, File No. 333-69586.)10.13
    
    *Promissory Note dated January 30, 2002 from Elena Delgado to Irwin Financial Corporation. (Incorporated by
reference to Exhibit 10.19 to Form S-1/A filed February 14, 2002, File No. 333-69586.)10.14
    
    *Consumer Pledge Agreement dated January 30, 2002 between Elena Delgado and Irwin Financial Corporation.
(Incorporated by reference to Exhibit 10.20 to Form S-1/A filed February 14, 2002, File No. 333-69586.)10.15
    
    *Redemption and Loan Repayment Agreement dated December 22,2004 between Irwin Financial Corporation, Irwin Home
Equity Corporation and Elena Delgado, previously filed with this Form 10-K.10.16
    
    *Irwin Home Equity Corporation Amendment and Restatement of Shareholder Agreement dated December 22, 2004
between Irwin Home Equity Corporation, Irwin Financial Corporation and Elena Delgado, previously filed with this Form 10-K.10.17
    
    *Deferred Compensation Agreement dated December 22, 2004 between Irwin Home Equity Corporation, Irwin Financial
Corporation and Elena Delgado, previously filed with this Form 10-K.10.18
    
    *Tax Gross-up Agreement dated December 22, 2004 between Irwin Financial Corporation and Elena Delgado as
Shareholder, previously filed with this Form 10-K.10.19
    
    *Irwin Financial Corporation Amended and Restated Short Term Incentive Plan effective January 1, 2002.
(Incorporated by reference to Exhibit 3 to the Corporations proxy statement for its 2004 Annual Meeting, filed
with the Commission on March 18, 2004, File No. 001-16691.)10.20
    
    *Irwin Commercial Finance Amended and Restated Short Term Incentive Plan (Incorporated by reference to Exhibit 4
of the Corporations proxy statement for its 2004 Annual Meeting, filed with the Commission on March 18, 2004,
File No. 001-16691.)10.21
    
    *Irwin Home Equity Amended and Restated Short Term Incentive Plan (Incorporated by reference to Exhibit 5 to the
Corporations proxy statement for its 2004 Annual Meeting, filed with the Commission on March 18, 2004, File No.
001-16691.)
 104




---



##### Table of Contents



ExhibitNumber
    
    Description of Exhibit10.22
    
    *Irwin Mortgage Corporation Amended and Restated Short Term Incentive Plan effective January 1, 2002.
(Incorporated by reference to Exhibit 6 of the Corporations proxy statement for its 2004 Annual Meeting, filed
with the Commission on March 18, 2004, File No. 001-16691.)10.23
    
    *Irwin Union Bank and Trust Company Amended and Restated Short Term Incentive Plan effective January 1,
2002.(Incorporated by reference to Exhibit 7 to the Corporations proxy statement for its 2004 Annual Meeting,
filed with the Commission on March 18, 2004, File No. 001-16691.)10.24
    
    *Irwin Capital Holdings Short Term Incentive Plan effective January 1, 2002. (Incorporated by reference to
Exhibit 10.25 to Form 10-Q Report for period ended March 31, 2002, File No. 000-06835.)10.25
    
    *Onset Capital Corporation Employment Agreement.(Incorporated by reference to Exhibit 10.26 to Form 10-Q Report
for period ended June 30, 2002, File No. 000-06835.)10.26
    
    *Irwin Financial Corporation Restated Supplemental Executive Retirement Plan for Named Executives. (Incorporated
by reference to Exhibit 10.27 to Form 10-Q Report for period ended June 30, 2002, File No. 000-06835.)10.27
    
    *Irwin Financial Corporation Supplemental Executive Retirement Plan for Named Executives. (Incorporated by
reference to Exhibit 10.28 to Form 10-Q Report for period ended June 30, 2002, File No. 000-06835.)10.28
    
    *Onset Capital Corporation Shareholders Agreement(Incorporated by reference to Exhibit 10.29 to Form 10-KReport
for period ended December 31, 2003, File No. 000-06835.)11.1
    
    Computation of Earnings Per Share previously filed with this Form 10-K.11.2
    
    Computation of Earnings Per Share, filed herewith.12.1
    
    Computation of Ratio of Earnings to Fixed Charges previously filed with this Form 10-K.12.2
    
    Computation of Earnings to Fixed Charges, filed herewith.14.1
    
    Code of Conduct previously filed with this Form 10-K.21.1
    
    Subsidiaries of Irwin Financial Corporation previously filed with this Form 10-K.23.1
    
    Consent of Registered Public Accounting Firm previously filed with this Form 10-K.23.2
    
    Revised Consent of Registered Public Accounting Firm, filed herewith.31.1
    
    Certification pursuant to 18 U.S.C. Section 302 of the Sarbanes-Oxley Act of 2002 by the Chief Executive Officer, as previously provided.31.2
    
    Certification pursuant to 18 U.S.C. Section 302 of the Sarbanes-Oxley Act of 2002 by the Chief Financial Officer, as previously provided.31.3
    
    Certification pursuant to 18 U.S.C. Section 302 of the Sarbanes-Oxley
Act of 2002 by the Chief Executive Officer, filed herewith.31.4
    
    Certification pursuant to 18 U.S.C. Section 302 of the Sarbanes-Oxley
Act of 2002 by the Chief Financial Officer, filed herewith.32.1
    
    Certification of the Chief Executive Officer under Section 906 of the Sarbanes-Oxley Act of 2002, as previously provided.32.2
    
    Certification of the Chief Financial Officer under Section 906 of the Sarbanes-Oxley Act of 2002, as previously provided.32.3
    
    Certification of the Chief Executive Officer under Section 906
of the Sarbanes-Oxley Act of 2002, filed herewith.32.4
    
    Certification of the Chief Financial Officer under Section 906
of the Sarbanes-Oxley Act of 2002, filed herewith.
 
 *
    
    Indicates management contract or compensatory plan or arrangement 105




---



##### Table of Contents



SIGNATURES
  IRWIN FINANCIAL CORPORATIONDate: February 2, 2006
    By:
    /s/ Gregory F. EhlingerGregory F. Ehlinger,Senior Vice President andChief Financial
Officer