##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, DC 20549
 FORM 10-Q/A
 Amendment No. 1
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
 For the quarterly period endedMarch 31, 2005
 o
    
    TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the transition period fromto.
 Commission File Number:0-6835
 IRWIN FINANCIAL CORPORATION
 (Exact Name of Corporation as Specified in its Charter)
 Indiana
    
    35-1286807(State or Other Jurisdiction of Incorporation or Organization)
    
    (I.R.S. Employer Identification No.)500 Washington Street Columbus, Indiana
    
    47201(Address of Principal Executive Offices)
    
    (Zip Code)(812) 376-1909
    
    www.irwinfinancial.com(Corporations Telephone Number, Including Area Code)
    
    (Web Site)
  þ o
  þ o
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##### Table of Contents



EXPLANATORY NOTE
   TABLE OF CONTENTS
 PAGENO.PART I
    
    FINANCIAL INFORMATIONItem 1
    
    Financial Statements
    
    
    3Item 2
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    18Item 3
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    52Item 4
    
    Controls and Procedures
    
    
    52PART II
    
    OTHER INFORMATIONItem 1
    
    Legal Proceedings
    
    
    54Item 6
    
    Exhibits
    
    
    55Signatures
    
    
    58Certification of the CEOCertification of the CFOCertification of the CEOCertification of the CFO
 2




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##### Table of Contents



PART I. FINANCIAL INFORMATION.
 
 Item 1. Financial Statements.
 IRWIN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Unaudited)
 March 31,
    
    
    December 31,2005
    
    
    2004(Dollars in thousands)(Restated)
    
    
    (Restated)Assets:Cash and cash equivalents
    
    $
    153,737
    
    
    $
    97,101Interest-bearing deposits with financial institutions
    
    
    80,209
    
    
    
    58,936Residual interests
    
    
    51,582
    
    
    
    56,101Investment securities- held-to-maturity (Fair value: $4,818 at March 31,
2005 and $4,952 at December 31, 2004)
    
    
    4,810
    
    
    
    4,942Investment securities- available-for-sale
    
    
    103,081
    
    
    
    103,280Loans held for sale
    
    
    1,053,871
    
    
    
    890,711Loans and leases, net of unearned income  Note 3
    
    
    3,487,697
    
    
    
    3,450,440Less: Allowance for loan and lease losses  Note 4
    
    
    (45,428
    )
    
    
    (44,443
    )3,442,269
    
    
    
    3,405,997Servicing assets  Note 5
    
    
    387,287
    
    
    
    367,032Accounts receivable
    
    
    125,641
    
    
    
    122,131Accrued interest receivable
    
    
    15,261
    
    
    
    15,428Premises and equipment
    
    
    29,460
    
    
    
    30,240Other assets
    
    
    104,573
    
    
    
    83,921Total assets
    
    $
    5,551,781
    
    
    $
    5,235,820Liabilities and Shareholders Equity:DepositsNoninterest-bearing
    
    $
    1,076,818
    
    
    $
    975,925Interest-bearing
    
    
    1,848,340
    
    
    
    1,774,727Certificates of deposit over $100,000
    
    
    845,257
    
    
    
    644,6113,770,415
    
    
    
    3,395,263Short-term borrowings  Note 6
    
    
    224,700
    
    
    
    237,277Collateralized debt  Note 7
    
    
    515,578
    
    
    
    547,477Other long-term debt
    
    
    270,169
    
    
    
    270,172Other liabilities
    
    
    274,698
    
    
    
    284,446Total liabilities
    
    
    5,055,560
    
    
    
    4,734,635Commitments and contingencies  Note 11Shareholders 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 March 31, 2005 and December 31, 2004, including
1,093,032 and 1,159,684, shares in treasury as of March 31, 2005 and
December 31, 2004, respectively
    
    
    112,000
    
    
    
    112,000Additional paid-in capital
    
    
    
    
    
    
    383Deferred compensation
    
    
    (679
    )
    
    
    (660
    )Accumulated other comprehensive income, net of deferred income tax
benefit of $326 at March 31, 2005 and $129 as of December 31, 2004
    
    
    2,036
    
    
    
    2,454Retained earnings
    
    
    406,406
    
    
    
    412,027519,763
    
    
    
    526,204Less treasury stock, at cost
    
    
    (23,542
    )
    
    
    (25,019
    )Total shareholders equity
    
    
    496,221
    
    
    
    501,185Total liabilities and shareholders equity
    
    $
    5,551,781
    
    
    $
    5,235,820
  3




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IRWIN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
 For the Three Months Ended March 31,2005
    
    
    2004(Dollars in thousands, except per share)(Restated)
    
    
    (Restated)Interest income:Loans and leases
    
    $
    65,491
    
    
    $
    61,246Loans held for sale
    
    
    18,571
    
    
    
    14,072Residual interests
    
    
    2,340
    
    
    
    3,258Investment securities
    
    
    1,715
    
    
    
    1,209Federal funds sold
    
    
    49
    
    
    
    18Total interest income
    
    
    88,166
    
    
    
    79,803Interest expense:Deposits
    
    
    14,674
    
    
    
    9,489Short-term borrowings
    
    
    3,108
    
    
    
    1,623Collateralized debt
    
    
    4,315
    
    
    
    3,805Other long-term debt
    
    
    5,856
    
    
    
    5,683Total interest expense
    
    
    27,953
    
    
    
    20,600Net interest income
    
    
    60,213
    
    
    
    59,203Provision for loan and lease losses  Note 4
    
    
    3,291
    
    
    
    8,146Net interest income after provision for loan and lease losses
    
    
    56,922
    
    
    
    51,057Other income:Loan servicing fees
    
    
    34,944
    
    
    
    33,048Amortization of servicing assets  Note 5
    
    
    (27,319
    )
    
    
    (31,688
    )Recovery (impairment) of servicing assets  Note 5
    
    
    32,400
    
    
    
    (47,383
    )Net loan administration income (loss)
    
    
    40,025
    
    
    
    (46,023
    )Gain from sales of loans
    
    
    34,525
    
    
    
    52,769Gain on sale of mortgage servicing assets
    
    
    1,185
    
    
    
    6,489Trading gains
    
    
    1,380
    
    
    
    4,673Derivative (losses) gains, net
    
    
    (47,282
    )
    
    
    57,071Other
    
    
    6,208
    
    
    
    6,10136,041
    
    
    
    81,080Other expense:Salaries
    
    
    48,196
    
    
    
    49,834Pension and other employee benefits
    
    
    12,045
    
    
    
    11,747Office expense
    
    
    3,820
    
    
    
    4,737Premises and equipment
    
    
    10,299
    
    
    
    10,455Marketing and development
    
    
    2,815
    
    
    
    3,634Professional fees
    
    
    4,612
    
    
    
    3,844Other
    
    
    15,326
    
    
    
    16,18597,113
    
    
    
    100,436Income before income taxes
    
    
    (4,150
    )
    
    
    31,701Provision for income taxes
    
    
    (1,605
    )
    
    
    11,799Net income
    
    $
    (2,545
    )
    
    $
    19,902Earnings per share:  Note 9Basic
    
    $
    (0.09
    )
    
    $
    0.71Diluted
    
    $
    (0.09
    )
    
    $
    0.66Dividends per share
    
    $
    0.10
    
    
    $
    0.08
  4




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IRWIN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY (Unaudited)
For the Three Months Ended March 31, 2005, and 2004
 AccumulatedOther
    
    
    
    
    
    
    AdditionalRetained
    
    
    Comprehensive
    
    
    Deferred
    
    
    Paid in
    
    
    Common
    
    
    TreasuryTotal
    
    
    Earnings
    
    
    Income
    
    
    Compensation
    
    
    Capital
    
    
    Stock
    
    
    Stock(Dollars in thousands)Balance at January 1,
2005 (Restated)
    
    $
    501,185
    
    
    $
    412,027
    
    
    $
    2,454
    
    
    $
    (660
    )
    
    $
    383
    
    
    $
    112,000
    
    
    $
    (25,019
    )Net loss
    
    
    (2,545
    )
    
    
    (2,545
    )Unrealized loss on
investment securities net
of $198 tax benefit
    
    
    (297
    )
    
    
    
    
    
    
    (297
    )Foreign currency adjustment
    
    
    (121
    )
    
    
    
    
    
    
    (121
    )Total comprehensive
income (Restated)
    
    
    498,222Deferred Compensation
    
    
    (19
    )
    
    
    
    
    
    
    
    
    
    
    (19
    )Cash dividends
    
    
    (2,851
    )
    
    
    (2,851
    )Tax benefit on stock option
exercises
    
    
    499
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    499Treasury stock:Purchase of 37,139 shares
    
    
    (908
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (908
    )Sales of 103,791 shares
    
    
    1,278
    
    
    
    (225
    )
    
    
    
    
    
    
    
    
    
    
    (882
    )
    
    
    
    
    
    
    2,385Balance at March 31, 2005
(Restated)
    
    $
    496,221
    
    
    $
    406,406
    
    
    $
    2,036
    
    
    $
    (679
    )
    
    $
    
    
    
    $
    112,000
    
    
    $
    (23,542
    )Balance at January 1, 2004
    
    $
    432,260
    
    
    $
    352,647
    
    
    $
    182
    
    
    $
    (504
    )
    
    $
    1,264
    
    
    $
    112,000
    
    
    $
    (33,329
    )Net income (Restated)
    
    
    19,902
    
    
    
    19,902Unrealized gain on
investment securities net
of $43 tax liability
    
    
    64
    
    
    
    
    
    
    
    64Unrealized gain on interest
rate cap net of $56 tax
benefit
    
    
    (81
    )
    
    
    
    
    
    
    (81
    )Foreign currency adjustment
    
    
    (75
    )
    
    
    
    
    
    
    (75
    )Total comprehensive
income (Restated)
    
    
    19,810Deferred Compensation
    
    
    (36
    )
    
    
    
    
    
    
    
    
    
    
    (36
    )Cash dividends
    
    
    (2,260
    )
    
    
    (2,260
    )Tax benefit on stock option
exercises
    
    
    661
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    661Treasury stock: Purchase of
9,907 shares
    
    
    (333
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (333
    )Sales of 131,627 shares
    
    
    2,644
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,330
    )
    
    
    
    
    
    
    3,974Balance at March 31, 2004
(Restated)
    
    $
    452,746
    
    
    $
    370,289
    
    
    $
    90
    
    
    $
    (540
    )
    
    $
    595
    
    
    $
    112,000
    
    
    $
    (29,688
    )
  5




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IRWIN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
 For the Three Months Ended March 31,2005
    
    
    2004(Dollars in thousands)Net (loss) income (Restated)
    
    $
    (2,545
    )
    
    $
    19,902Adjustments to reconcile net income to cash provided (used) by
operating activities:Depreciation, amortization, and accretion, net
    
    
    3,109
    
    
    
    1,582Amortization and (recovery) impairment of servicing assets
    
    
    (5,081
    )
    
    
    79,070Provision for loan and lease losses
    
    
    3,291
    
    
    
    8,146Gain on sale of mortgage servicing assets
    
    
    (1,185
    )
    
    
    (6,489
    )Gain from sales of loans held for sale
    
    
    (34,525
    )
    
    
    (52,769
    )Originations and purchases of loans held for sale
    
    
    (3,287,612
    )
    
    
    (3,304,377
    )Proceeds from sales and repayments of loans held for sale
    
    
    3,134,320
    
    
    
    3,163,639Proceeds from sale of mortgage servicing assets
    
    
    10,171
    
    
    
    15,606Net decrease in residuals
    
    
    4,519
    
    
    
    1,720Net increase in accounts receivable
    
    
    (3,510
    )
    
    
    (3,774
    )Other, net (Restated)
    
    
    (31,730
    )
    
    
    (36,463
    )Net cash used by operating activities
    
    
    (210,778
    )
    
    
    (114,207
    )Lending and investing activities:Proceeds from maturities/calls of investment securities:Held-to-maturity
    
    
    1,293
    
    
    
    20,279Available-for-sale
    
    
    
    
    
    
    1,074Purchase of investment securities:Held-to-maturity
    
    
    
    
    
    
    (30,897
    )Available-for-sale
    
    
    (1,480
    )
    
    
    (639
    )Net (increase) decrease in interest-bearing deposits
    
    
    (21,273
    )
    
    
    14,558Net increase in loans, excluding sales
    
    
    (57,467
    )
    
    
    (83,437
    )Proceeds from sale of loans
    
    
    18,400
    
    
    
    13,886Other, net
    
    
    (1,234
    )
    
    
    (308
    )Net cash used by lending and investing activities
    
    
    (61,761
    )
    
    
    (65,484
    )Financing activities:Net increase in deposits
    
    
    375,152
    
    
    
    409,345Net decrease in short-term borrowings
    
    
    (12,577
    )
    
    
    (132,742
    )Repayments of long-term debt
    
    
    (3
    )
    
    
    (3
    )Proceeds from issuance of collateralized borrowings
    
    
    35,448
    
    
    
    112,000Repayments of collateralized borrowings
    
    
    (67,347
    )
    
    
    (174,703
    )Purchase of treasury stock for employee benefit plans
    
    
    (908
    )
    
    
    (333
    )Proceeds from sale of stock for employee benefit plans
    
    
    1,777
    
    
    
    3,305Dividends paid
    
    
    (2,851
    )
    
    
    (2,260
    )Net cash provided by financing activities
    
    
    328,691
    
    
    
    214,609Effect of exchange rate changes on cash
    
    
    484
    
    
    
    (24
    )Net increase in cash and cash equivalents
    
    
    56,636
    
    
    
    34,894Cash and cash equivalents at beginning of period
    
    
    97,101
    
    
    
    140,810Cash and cash equivalents at end of period
    
    $
    153,737
    
    
    $
    175,704Supplemental disclosures of cash flow information:Cash flow during the period:Interest paid
    
    $
    26,436
    
    
    $
    20,916Income taxes
    
    $
    2,456
    
    
    $
    (21,026
    )Noncash transactions:Liability for loans held for sale eligible for repurchase
    
    $
    1,766
    
    
    $
    78,004
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Note 1  Summary of Significant Accounting Policies
 Consolidation:
 Use of Estimates:
 Cash and Cash Equivalents Defined:
 Residual Interests:
 Allowance for Loan and Lease Losses:
  Servicing Assets:
  7




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Incentive Servicing Fees:
 Stock-Based Employee Compensation:
 For the Three Months Ended March 31,2005
    
    
    2004(Dollars in thousands)(Restated)
    
    
    (Restated)Net income as reported
    
    $
    (2,545
    )
    
    $
    19,902Deduct: Total
stock-based employee
compensation expense
determined under fair
value based method for
all awards, net of
related tax effects
    
    
    (531
    )
    
    
    (632
    )Pro forma net income
    
    $
    (3,076
    )
    
    $
    19,270Basic earnings per shareAs reported
    
    $
    (0.09
    )
    
    $
    0.71Pro forma
    
    $
    (0.11
    )
    
    $
    0.68Diluted earnings per shareAs reported
    
    $
    (0.09
    )
    
    $
    0.66Pro forma
    
    $
    (0.11
    )
    
    $
    0.64
 Income Taxes:
 Recent Accounting Developments:
 8




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Reclassifications:
 Note 2  Restatement of Financials
    For the three months endedMarch 31, 2005
    
    March 31, 2004As Reported
    
    Restated
    
    As Reported
    
    Restated(Dollars in thousands)Loan servicing fees
    
    $
    34,619
    
    
    $
    34,944
    
    
    $
    32,577
    
    
    $
    33,048Derivative gains (losses), net
    
    
    (36,778
    )
    
    
    (47,282
    )
    
    
    58,915
    
    
    
    57,071Salaries
    
    
    50,017
    
    
    
    48,196
    
    
    
    49,834
    
    
    
    49,834Other expense
    
    
    14,491
    
    
    
    15,326
    
    
    
    16,185
    
    
    
    16,185Provision for income taxes
    
    
    1,418
    
    
    
    (1,605
    )
    
    
    12,734
    
    
    
    11,799Net (loss) income
    
    
    3,625
    
    
    
    (2,545
    )
    
    
    20,341
    
    
    
    19,902Earnings per share basic
    
    $
    0.13
    
    
    $
    (0.09
    )
    
    $
    0.72
    
    
    $
    0.71Earnings per share diluted
    
    
    0.13
    
    
    
    (0.09
    )
    
    
    0.67
    
    
    
    0.66
 Selected Balance Sheet Data:
 March 31, 2005
    
    December 31, 2004As Reported
    
    Restated
    
    As Reported
    
    Restated(Dollars in thousands)Total assets
    
    $
    5,565,481
    
    
    $
    5,551,781
    
    
    $
    5,239,341
    
    
    $
    5,235,820Total equity
    
    
    503,849
    
    
    
    496,221
    
    
    
    502,644
    
    
    
    501,185
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Note 3  Loans and Leases
  March 31,
    
    
    December 31,2005
    
    
    2004(Dollars in thousands)Commercial, financial and agricultural
    
    $
    1,782,178
    
    
    $
    1,697,651Real estate-construction
    
    
    254,274
    
    
    
    287,496Real estate-mortgage
    
    
    769,481
    
    
    
    808,875Consumer
    
    
    37,693
    
    
    
    31,166Commercial financingFranchise financing
    
    
    337,198
    
    
    
    330,496Domestic leasing
    
    
    183,458
    
    
    
    174,035Canadian leasing
    
    
    270,068
    
    
    
    265,780Unearned incomeFranchise financing
    
    
    (87,022
    )
    
    
    (86,638
    )Domestic leasing
    
    
    (25,407
    )
    
    
    (23,924
    )Canadian leasing
    
    
    (34,224
    )
    
    
    (34,497
    )Total
    
    $
    3,487,697
    
    
    $
    3,450,440
 Note 4  Allowance for Loan and Lease Losses
  March 31,
    
    
    December 31,2005
    
    
    2004(Dollars in thousands)Balance at beginning of year
    
    $
    44,443
    
    
    $
    64,285Provision for loan and lease losses
    
    
    3,291
    
    
    
    14,195Charge-offs
    
    
    (4,033
    )
    
    
    (28,180
    )Recoveries
    
    
    1,918
    
    
    
    5,335Reduction due to sale of loans and leases and other
    
    
    (240
    )
    
    
    (627
    )Reduction due to reclassification of loans
    
    
    (12
    )
    
    
    (10,808
    )Foreign currency adjustment
    
    
    61
    
    
    
    243Balance at end of period
    
    $
    45,428
    
    
    $
    44,443
 Note 5  Servicing Assets
  March 31,
    
    
    December 31,2005
    
    
    2004(Dollars in thousands)Balance at beginning of year
    
    $
    367,032
    
    
    $
    380,123Additions
    
    
    24,160
    
    
    
    142,689Amortization
    
    
    (27,319
    )
    
    
    (117,143
    )(Impairment), recovery of impairment
    
    
    32,400
    
    
    
    (2,474
    )Reduction for servicing sales
    
    
    (8,986
    )
    
    
    (36,163
    )Balance at end of period
    
    $
    387,287
    
    
    $
    367,032
 10




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##### Table of Contents



March 31,
    
    
    December 31,2005
    
    
    2004Balance at beginning of year
    
    $
    54,134
    
    
    $
    76,869Impairment, (recovery of impairment)
    
    
    (32,400
    )
    
    
    2,474Reclass for sales of servicing
    
    
    
    
    
    
    (18,210
    )Other than temporary impairment (1)
    
    
    
    
    
    
    (6,999
    )Balance at end of period
    
    $
    21,734
    
    
    $
    54,134
 
  Note 6  Short-Term Borrowings
  March 31,
    
    
    December 31,2005
    
    
    2004(Dollars in thousands)Federal Home Loan Bank borrowings
    
    $
    21,822
    
    
    $
    71,826Drafts payable related to mortgage loan closings
    
    
    91,333
    
    
    
    53,254Lines of credit and other
    
    
    2,345
    
    
    
    2,197Federal funds
    
    
    109,200
    
    
    
    110,000Total
    
    $
    224,700
    
    
    $
    237,277Weighted average interest rate
    
    
    2.09
    %
    
    
    1.64
    %
    Note 7  Collateralized Debt
  11




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##### Table of Contents



WeightedAverageInterest Rate atMarch 31,
    
    
    March 31,
    
    
    December 31,Maturity
    
    
    2005
    
    
    2005
    
    
    2004(Dollars in thousands)Commercial finance line of businessDomestic asset backed note
    
    
    7/2010
    
    
    
    4.50
    
    
    $
    24,653
    
    
    $
    29,050Canadian asset backed notes
    
    
    5/2005-4/2010
    
    
    
    3.60
    
    
    
    183,974
    
    
    
    165,802Home equity line of business2004-1 asset backed notes:Combined variable rate senior note
    
    
    12/2024-12/2034
    
    
    
    3.00
    
    
    
    282,176
    
    
    
    327,850Combined variable rate subordinate note
    
    
    12/2034
    
    
    
    3.85
    
    
    
    24,775
    
    
    
    24,775Total
    
    
    
    
    
    
    
    
    
    $
    515,578
    
    
    $
    547,477
  Note 8  Employee Retirement Plans
  For the Three Months Ended March 31,2005
    
    
    2004(Dollars in thousands)Service cost
    
    $
    681
    
    
    $
    494Interest cost
    
    
    416
    
    
    
    455Expected return on plan assets
    
    
    (446
    )
    
    
    (405
    )Amortization of transition obligation
    
    
    
    
    
    
    3Amortization of prior service cost
    
    
    9
    
    
    
    10Amortization of actuarial loss
    
    
    164
    
    
    
    175Net periodic benefit cost
    
    $
    824
    
    
    $
    732
  Note 9  Earnings Per Share
  Basic
    
    
    
    
    
    
    Effect of
    
    
    DilutedEarnings
    
    
    Effect of
    
    
    Convertible
    
    
    EarningsPer Share
    
    
    Stock Options
    
    
    Shares
    
    
    Per Share(Dollars in thousands, except per share amounts)(Restated)
    
    
    
    
    
    
    
    
    
    
    (Restated)Period ended March 31, 2005Net income available to common shareholders
    
    $
    (2,545
    )
    
    $
    
    
    
    $
    
    
    
    $
    (2,545
    )Shares
    
    
    28,462
    
    
    
    329
    
    
    
    
    
    
    
    28,791Per-share amount
    
    $
    (0.09
    )
    
    $
    
    
    
    $
    
    
    
    $
    (0.09
    )Period ended March 31, 2004Net income available to common shareholders
    
    $
    19,902
    
    
    $
    
    
    
    $
    678
    
    
    $
    20,580Shares
    
    
    28,191
    
    
    
    492
    
    
    
    2,607
    
    
    
    31,290Per-share amount
    
    $
    0.71
    
    
    $
    (0.01
    )
    
    $
    (0.04
    )
    
    $
    0.66
  12




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##### Table of Contents



Note 10  Industry Segment Information
   Mortgage
    
    
    Commercial
    
    
    Home Equity
    
    
    CommercialBanking
    
    
    Banking
    
    
    Lending
    
    
    Finance
    
    
    Other
    
    
    Consolidated(Dollars in thousands)(Restated)
    
    
    
    
    
    
    (Restated)
    
    
    
    
    
    
    (Restated)
    
    
    (Restated)For the Three Months
Ended March 31, 2005Net interest income
    
    $
    9,806
    
    
    $
    24,392
    
    
    $
    25,010
    
    
    $
    5,937
    
    
    $
    (8,223
    )
    
    $
    56,922Intersegment interest
    
    
    (1,894
    )
    
    
    (832
    )
    
    
    (4,949
    )
    
    
    (435
    )
    
    
    8,110
    
    
    
    Other revenue
    
    
    17,838
    
    
    
    4,315
    
    
    
    12,525
    
    
    
    1,908
    
    
    
    (545
    )
    
    
    36,041Intersegment revenues
    
    
    24
    
    
    
    66
    
    
    
    
    
    
    
    
    
    
    
    (90
    )
    
    
    Total net revenues
    
    
    25,774
    
    
    
    27,941
    
    
    
    32,586
    
    
    
    7,410
    
    
    
    (748
    )
    
    
    92,963Other expense
    
    
    41,637
    
    
    
    18,326
    
    
    
    28,440
    
    
    
    5,993
    
    
    
    2,717
    
    
    
    97,113Intersegment expenses
    
    
    841
    
    
    
    429
    
    
    
    727
    
    
    
    193
    
    
    
    (2,190
    )
    
    
    Income (loss) before taxes
    
    
    (16,704
    )
    
    
    9,186
    
    
    
    3,419
    
    
    
    1,224
    
    
    
    (1,275
    )
    
    
    (4,150
    )Income taxes
    
    
    (6,446
    )
    
    
    3,717
    
    
    
    1,374
    
    
    
    528
    
    
    
    (778
    )
    
    
    (1,605
    )Net income (loss)
    
    $
    (10,258
    )
    
    $
    5,469
    
    
    $
    2,045
    
    
    $
    696
    
    
    $
    (497
    )
    
    $
    (2,545
    )Assets at March 31, 2005
    
    $
    1,368,894
    
    
    $
    2,894,662
    
    
    $
    1,055,478
    
    
    $
    657,679
    
    
    $
    (424,932
    )
    
    $
    5,551,781For the Three Months Ended
March 31, 2004Net interest income
    
    $
    9,193
    
    
    $
    18,556
    
    
    $
    21,177
    
    
    $
    5,601
    
    
    $
    (3,470
    )
    
    $
    51,057Intersegment interest
    
    
    (424
    )
    
    
    790
    
    
    
    (2,380
    )
    
    
    
    
    
    
    2,014
    
    
    
    Other revenue
    
    
    59,867
    
    
    
    4,646
    
    
    
    16,905
    
    
    
    448
    
    
    
    (786
    )
    
    
    81,080Intersegment revenues
    
    
    
    
    
    
    130
    
    
    
    (624
    )
    
    
    
    
    
    
    494
    
    
    
    Total net revenues
    
    
    68,636
    
    
    
    24,122
    
    
    
    35,078
    
    
    
    6,049
    
    
    
    (1,748
    )
    
    
    132,137Other expense
    
    
    51,603
    
    
    
    14,634
    
    
    
    24,662
    
    
    
    4,025
    
    
    
    5,512
    
    
    
    100,436Intersegment expenses
    
    
    866
    
    
    
    449
    
    
    
    724
    
    
    
    173
    
    
    
    (2,212
    )
    
    
    Income (loss) before taxes
    
    
    16,167
    
    
    
    9,039
    
    
    
    9,692
    
    
    
    1,851
    
    
    
    (5,048
    )
    
    
    31,701Income taxes
    
    
    6,435
    
    
    
    3,622
    
    
    
    3,883
    
    
    
    2,144
    
    
    
    (4,285
    )
    
    
    11,799Net income (loss)
    
    $
    9,732
    
    
    $
    5,417
    
    
    $
    5,809
    
    
    $
    (293
    )
    
    $
    (763
    )
    
    $
    19,902Assets at March 31, 2004
    
    $
    1,330,505
    
    
    $
    2,311,816
    
    
    $
    1,106,614
    
    
    $
    487,769
    
    
    $
    (91,908
    )
    
    $
    5,144,796
 Note 11  Commitments and Contingencies
 Culpepper v. Inland Mortgage Corporation
   13




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##### Table of Contents



United States ex rel. Paranich v. Sorgnard et al.
  Stamper v. A Home of Your Own
 [Note on Subsequent Event in Connection with This Amended Report: On September 14, 2005, the parties settled this case.
In light of the restatement of financials in this Form 10-Q/A for the period ended March 31, 2005,
we also made a change to reflect the liability associated with the settlement of this case.]
 14




---



##### Table of Contents



Silke 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
 15




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##### Table of Contents



(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
 Delanco
Board of Education et al. v. IFC Credit Corporation, Exquisite Caterers,
 Sterling
Asset & Equity Corp. et al. v. Preferred Capital, Inc. et al.
 16




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##### Table of Contents



(State of Florida v. Commerce Commercial Leasing, LLC et al.),
     17




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##### Table of Contents



Item 2. 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; and
    
    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 residual, servicing and derivative 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;
    
    unanticipated 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;
 18




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##### Table of Contents




    
    changes in variable compensation plans related to the performance and valuation of lines
of business where we tie compensation systems to line-of-business performance;
    
    legislative or regulatory changes, including changes in tax laws, changes in the
interpretation of regulatory capital rules, disclosure or consumer 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; and
    
    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 four 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. 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.
  19




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##### Table of Contents



Critical Accounting Policies
  Incentive Servicing Fees
 Incentive Servicing Fees:
 Consolidated Overview
 For the three months ended March 31,2005
    
    2004(Restated)
    
    (Restated)Net income (millions)
    
    $
    (2.5)
    
    
    $
    19.9Basic earnings per share
    
    
    (0.09)
    
    
    
    0.71Diluted earnings per share
    
    
    (0.09)
    
    
    
    0.66Return on average equity
    
    
    (2.0)%
    
    
    
    18.0%Return on average assets
    
    
    (0.2)
    
    
    
    1.6
 Consolidated Income Statement Analysis
 Net Income
  Net Interest Income
  20




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##### Table of Contents



For the Three Months Ended March 31,2005
    
    
    2004Annualized
    
    
    
    
    
    
    
    
    
    
    AnnualizedAverage
    
    
    
    
    
    
    Yield/
    
    
    Average
    
    
    
    
    
    
    Yield/Balance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    Rate(Dollars in thousands)AssetsInterest-earning assets:Interest-bearing deposits with financial institutions
    
    $
    64,886
    
    
    $
    278
    
    
    
    1.74
    %
    
    $
    75,276
    
    
    $
    137
    
    
    
    0.73
    %Federal funds sold
    
    
    8,143
    
    
    
    49
    
    
    
    2.44
    %
    
    
    8,526
    
    
    
    18
    
    
    
    0.85
    %Residual interests
    
    
    53,201
    
    
    
    2,340
    
    
    
    17.84
    %
    
    
    70,716
    
    
    
    3,258
    
    
    
    18.53
    %Investment securities (1)
    
    
    108,054
    
    
    
    1,437
    
    
    
    5.39
    %
    
    
    77,952
    
    
    
    1,072
    
    
    
    5.53
    %Loans held for sale
    
    
    1,013,964
    
    
    
    18,571
    
    
    
    7.43
    %
    
    
    803,267
    
    
    
    14,072
    
    
    
    7.05
    %Loans and leases, net of unearned income (2)
    
    
    3,474,331
    
    
    
    65,491
    
    
    
    7.64
    %
    
    
    3,225,210
    
    
    
    61,246
    
    
    
    7.64
    %Total interest earning assets
    
    
    4,722,579
    
    
    $
    88,166
    
    
    
    7.57
    %
    
    
    4,260,947
    
    
    $
    79,803
    
    
    
    7.53
    %Noninterest-earning assets:Cash and due from banks
    
    
    102,426
    
    
    
    
    
    
    
    
    
    
    
    105,906Premises and equipment, net
    
    
    30,003
    
    
    
    
    
    
    
    
    
    
    
    31,595Other assets (Restated)
    
    
    602,884
    
    
    
    
    
    
    
    
    
    
    
    552,837Less allowance for loan and lease losses
    
    
    (44,955
    )
    
    
    
    
    
    
    
    
    
    
    (64,447
    )Total assets (Restated)
    
    $
    5,412,937
    
    
    
    
    
    
    
    
    
    
    $
    4,886,838Liabilities and
Shareholders EquityInterest-bearing liabilities:Money market checking
    
    $
    469,674
    
    
    $
    2,120
    
    
    
    1.83
    %
    
    $
    224,708
    
    
    $
    423
    
    
    
    0.76
    %Money market savings
    
    
    1,113,345
    
    
    
    5,499
    
    
    
    2.00
    %
    
    
    977,262
    
    
    
    2,954
    
    
    
    1.22
    %Regular savings
    
    
    61,728
    
    
    
    210
    
    
    
    1.38
    %
    
    
    59,368
    
    
    
    235
    
    
    
    1.59
    %Time deposits
    
    
    923,920
    
    
    
    6,845
    
    
    
    3.00
    %
    
    
    911,719
    
    
    
    5,877
    
    
    
    2.59
    %Short-term borrowings
    
    
    290,668
    
    
    
    3,108
    
    
    
    4.34
    %
    
    
    273,488
    
    
    
    1,623
    
    
    
    2.39
    %Collateralized debt
    
    
    520,738
    
    
    
    4,315
    
    
    
    3.36
    %
    
    
    563,049
    
    
    
    3,805
    
    
    
    2.72
    %Other long-term debt
    
    
    270,171
    
    
    
    5,856
    
    
    
    8.79
    %
    
    
    270,183
    
    
    
    5,683
    
    
    
    8.46
    %Total interest-bearing liabilities
    
    $
    3,650,244
    
    
    $
    27,953
    
    
    
    3.11
    %
    
    $
    3,279,777
    
    
    $
    20,600
    
    
    
    2.53
    %Noninterest-bearing liabilities:Demand deposits
    
    
    966,653
    
    
    
    
    
    
    
    
    
    
    
    866,721Other liabilities (Restated)
    
    
    292,407
    
    
    
    
    
    
    
    
    
    
    
    296,541Shareholders equity (Restated)
    
    
    503,633
    
    
    
    
    
    
    
    
    
    
    
    443,799Total liabilities and shareholders equity (Restated)
    
    $
    5,412,937
    
    
    
    
    
    
    
    
    
    
    $
    4,886,838Net interest income
    
    
    
    
    
    $
    60,213
    
    
    
    
    
    
    
    
    
    
    $
    59,203Net interest income to average interest earning
assets
    
    
    
    
    
    
    
    
    
    
    5.17
    %
    
    
    
    
    
    
    
    
    
    
    5.59
    %
 
 (1)
    
    We do not show interest income on a tax equivalent basis because it is immaterial.(2)
    
    For purposes of these computations, nonaccrual loans are included in daily average loan amounts
outstanding. Provision for Loan and Lease Losses
  Noninterest Income
  21




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##### Table of Contents



Noninterest Expense
  Income Tax Provision
  Consolidated Balance Sheet Analysis
  Investment Securities
  March 31,
    
    
    December 31,2005
    
    
    2004(Dollars in thousands)U.S. Treasury and government obligations
    
    $
    160
    
    
    $
    3,556Obligations of states and political subdivisions
    
    
    5,799
    
    
    
    3,746Mortgage-backed securities
    
    
    33,600
    
    
    
    31,556Other
    
    
    68,332
    
    
    
    69,364Total
    
    $
    107,891
    
    
    $
    108,222
 Loans Held For Sale
  Loans and Leases
  March 31,
    
    
    December 31,2005
    
    
    2004(Dollars in thousands)Commercial, financial and agricultural
    
    $
    1,782,178
    
    
    $
    1,697,651Real estate-construction
    
    
    254,274
    
    
    
    287,496Real estate-mortgage
    
    
    769,481
    
    
    
    808,875Consumer
    
    
    37,693
    
    
    
    31,166Commercial financingFranchise financing
    
    
    337,198
    
    
    
    330,496Domestic leasing
    
    
    183,458
    
    
    
    174,035Canadian leasing
    
    
    270,068
    
    
    
    265,780Unearned incomeFranchise financing
    
    
    (87,022
    )
    
    
    (86,638
    )Domestic leasing
    
    
    (25,407
    )
    
    
    (23,924
    )Canadian leasing
    
    
    (34,224
    )
    
    
    (34,497
    )Total
    
    $
    3,487,697
    
    
    $
    3,450,440
 Allowance for Loan and Lease Losses
 22




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##### Table of Contents



March 31,
    
    
    December 31,2005
    
    
    2004(Dollars in thousands)Balance at beginning of year
    
    $
    44,443
    
    
    $
    64,285Provision for loan and lease losses
    
    
    3,291
    
    
    
    14,195Charge-offs
    
    
    (4,033
    )
    
    
    (28,180
    )Recoveries
    
    
    1,918
    
    
    
    5,335Reduction due to sale of loans and leases and other
    
    
    (240
    )
    
    
    (627
    )Reduction due to reclassification of loans
    
    
    (12
    )
    
    
    (10,808
    )Foreign currency adjustment
    
    
    61
    
    
    
    243Balance at end of period
    
    $
    45,428
    
    
    $
    44,443
  Deposits
   Short-Term Borrowings
   Collateralized and Other Long-Term Debt
   23




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##### Table of Contents



Capital
   March 31,
    
    
    December 31,2005
    
    
    2004(Dollars in thousands)(Restated)
    
    
    (Restated)Tier 1 capital
    
    $
    647,296
    
    
    $
    637,875Tier 2 capital
    
    
    144,543
    
    
    
    143,612Total risk-based capital
    
    $
    791,839
    
    
    $
    781,487Risk-weighted assets
    
    $
    5,283,754
    
    
    $
    4,908,012Risk-based ratios:Tier 1 capital
    
    
    12.3
    %
    
    
    13.0
    %Total capital
    
    
    15.0
    
    
    
    15.9Tier 1 leverage ratio
    
    
    11.8
    
    
    
    11.6Ending shareholders equity to assets
    
    
    8.9
    
    
    
    9.6Average shareholders equity to assets
    
    
    9.3
    
    
    
    9.0
  Cash Flow Analysis
  Earnings Outlook
   24




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##### Table of Contents



Earnings by Line of Business
  
    
    Mortgage Banking
    
    Commercial Banking
    
    Home Equity Lending
    
    Commercial Finance
 25




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##### Table of Contents



Three Months Ended March 31,2005
    
    
    2004(Dollars in thousands)Net income (loss):Mortgage Banking (Restated)
    
    $
    (10,258
    )
    
    $
    9,732Commercial Banking
    
    
    5,469
    
    
    
    5,417Home Equity Lending (Restated)
    
    
    2,045
    
    
    
    5,809Commercial Finance
    
    
    696
    
    
    
    (293
    )Other (including consolidating entries) (Restated)
    
    
    (497
    )
    
    
    (763
    )$
    (2,545
    )
    
    $
    19,902
 Mortgage Banking
  Three Months Ended March 31,2005
    
    
    2004(Dollars in thousands)(Restated)Selected Income Statement Data:Net interest income
    
    $
    7,723
    
    
    $
    8,662Recovery of loan loss
    
    
    189
    
    
    
    107Noninterest income
    
    
    17,862
    
    
    
    59,867Total net revenue
    
    
    25,774
    
    
    
    68,636Operating expense
    
    
    (42,478
    )
    
    
    (52,469
    )(Loss) income before taxes
    
    
    (16,704
    )
    
    
    16,167Income taxes
    
    
    6,446
    
    
    
    (6,435
    )Net (loss) income
    
    $
    (10,258
    )
    
    $
    9,732Selected Operating Data:Mortgage loan originations
    
    $
    2,812,411
    
    
    $
    2,930,716Servicing sold as a % of originations
    
    
    108.7
    %
    
    
    50.6
    %
 March 31,
    
    December 31,2005
    
    2004(Dollars in thousands)Selected Balance Sheet Data at End of Period:Total assets
    
    $
    1,368,894
    
    
    $
    1,238,136Mortgage loans held for sale
    
    
    727,310
    
    
    
    662,832Mortgage servicing assets
    
    
    336,555
    
    
    
    319,225Deposits
    
    
    745,901
    
    
    
    680,812Short-term borrowing
    
    
    165,962
    
    
    
    133,150Shareholders equity (Restated)
    
    
    135,581
    
    
    
    123,265Selected Operating Data:Servicing portfolio:Balance at end of period
    
    
    24,458,656
    
    
    
    26,196,627Weighted average coupon rate
    
    
    5.72
    %
    
    
    5.75
    %Weighted average servicing fee
    
    
    0.36
    
    
    
    0.35
 Overview
  26




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27




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##### Table of Contents



Originations
  Three Months Ended March 31,2005
    
    2004(Dollars in thousands)Total originations
    
    $
    2,812,411
    
    
    $
    2,930,716Percent retail loans
    
    
    16
    %
    
    
    23
    %Percent wholesale loans
    
    
    36
    
    
    
    43Percent correspondent
    
    
    37
    
    
    
    25Percent brokered (1)
    
    
    11
    
    
    
    9Percent refinances
    
    
    54
    
    
    
    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 Income
  Net Revenue
  Three Months Ended March 31,2005
    
    
    2004(Dollars in thousands)Selected Income Statement Data:Net interest income
    
    $
    7,723
    
    
    $
    8,662Recovery of loan losses
    
    
    189
    
    
    
    107Gain on sales of loans
    
    
    24,973
    
    
    
    42,782Servicing fees
    
    
    25,625
    
    
    
    25,899Amortization expense
    
    
    (21,210
    )
    
    
    (27,310
    )Recovery (impairment) of servicing assets
    
    
    32,489
    
    
    
    (48,184
    )Gain (loss) on derivatives
    
    
    (47,384
    )
    
    
    58,352Gain on sales of servicing assets
    
    
    1,185
    
    
    
    6,489Other income
    
    
    2,184
    
    
    
    1,839Total net revenue
    
    $
    25,774
    
    
    $
    68,636
   
    
    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.
 28




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29




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##### Table of Contents



Operating Expenses
  Three Months Ended March 31,2005
    
    
    2004(Dollars in thousands)Salaries and employee benefits
    
    $
    17,181
    
    
    $
    19,740Incentive and commission pay
    
    
    6,687
    
    
    
    9,788Other expenses (Restated)
    
    
    18,610
    
    
    
    22,941Total operating expenses (Restated)
    
    $
    42,478
    
    
    $
    52,469Number of employees at period end (1)
    
    
    1,222
    
    
    
    2,022
 
 (1)
    
    On a full time equivalent basis  Mortgage Servicing
  March 31,
    
    
    December 31,2005
    
    
    2004(Portfolio in billions)Beginning servicing portfolio
    
    $
    26.2
    
    
    $
    29.6Mortgage loan closings(1)
    
    
    2.5
    
    
    
    11.7Bulk sales(1)
    
    
    (1.3
    )
    
    
    (4.0
    )Flow sales(1)
    
    
    (1.5
    )
    
    
    (4.3
    )Run-off(2)
    
    
    (1.4
    )
    
    
    (6.8
    )Ending servicing portfolio
    
    $
    24.5
    
    
    $
    26.2Number of loans (end of period)
    
    
    203,342
    
    
    
    205,463Average loan size
    
    $
    120,283
    
    
    $
    127,500Weighted average coupon
    
    
    5.72
    %
    
    
    5.75
    %Percent Government National Mortgage Association (GNMA) and state housing programs
    
    
    32
    
    
    
    30Percent conventional and other
    
    
    68
    
    
    
    70Delinquency ratio
    
    
    3.5
    
    
    
    4.6Mortgage servicing assets to related servicing portfolio(3)
    
    
    1.36
    
    
    
    1.20
 
 (1)
    
    Excludes brokered loans that are closed, funded and owned by unrelated third parties.(2)
    
    Run-off is primarily the reduction in principal balance of the servicing portfolio due to
regular principal payments made by mortgagees and early repayments of entire loans.(3)
    
    For this calculation, deferred service release premiums on warehouse loans are excluded from
mortgage servicing assets and loans held for sale (i.e. warehouse loans) are excluded from the
servicing portfolio.  30




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##### Table of Contents



Commercial Banking
  Three Months Ended March 31,2005
    
    
    2004(Dollars in thousands)Selected Income Statement Data:Interest income
    
    $
    38,048
    
    
    $
    28,385Interest expense
    
    
    (13,488
    )
    
    
    (7,839
    )Net interest income
    
    
    24,560
    
    
    
    20,546Provision for loan and lease losses
    
    
    (1,000
    )
    
    
    (1,200
    )Other income
    
    
    4,381
    
    
    
    4,776Total net revenue
    
    
    27,941
    
    
    
    24,122Operating expense
    
    
    (18,755
    )
    
    
    (15,083
    )Income before taxes
    
    
    9,186
    
    
    
    9,039Income taxes
    
    
    (3,717
    )
    
    
    (3,622
    )Net income
    
    $
    5,469
    
    
    $
    5,417
 March 31,
    
    
    December 31,2005
    
    
    2004(Dollars in thousands)Selected Balance Sheet Data at End of Period:Assets
    
    $
    2,894,662
    
    
    $
    2,622,877Securities and short-term investments (1)
    
    
    493,251
    
    
    
    327,664Loans and leases
    
    
    2,279,907
    
    
    
    2,223,474Allowance for loan and lease losses
    
    
    (22,819
    )
    
    
    (22,230
    )Deposits
    
    
    2,684,457
    
    
    
    2,390,839Shareholders equity
    
    
    132,471
    
    
    
    143,580Daily Averages:Assets
    
    $
    2,756,210
    
    
    $
    2,476,835Loans and leases
    
    
    2,246,704
    
    
    
    2,094,190Allowance for loan and lease losses
    
    
    (22,574
    )
    
    
    (22,304
    )Deposits
    
    
    2,259,114
    
    
    
    2,258,538Shareholders equity
    
    
    139,047
    
    
    
    147,759Shareholders equity to assets
    
    
    5.04
    %
    
    
    5.97
    %
 
 (1)
    
    Includes $338 million and $293 million of inter-company investments at March 31, 2005 and
December 31, 2004, respectively, that are eliminated in consolidation and are 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
  Net Income
  31




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##### Table of Contents



Net Interest Income
  Three Months Ended March 31,2005
    
    2004(Dollars in thousands)Net interest income
    
    $
    24,560
    
    
    $
    20,546Average interest earning assets
    
    
    2,658,100
    
    
    
    2,178,870Net interest margin
    
    
    3.75
    %
    
    
    3.79
    %
  Provision for Loan and Lease Losses
  Noninterest Income
  Three Months Ended March 31,2005
    
    
    2004(Dollars in thousands)Trust fees
    
    $
    533
    
    
    $
    518Service charges on deposit accounts
    
    
    996
    
    
    
    1,459Insurance commissions, fees and premiums
    
    
    533
    
    
    
    665Gain from sales of loans
    
    
    808
    
    
    
    862Loan servicing fees
    
    
    354
    
    
    
    328Amortization of servicing assets
    
    
    (318
    )
    
    
    (401
    )Recovery (impairment) of servicing assets
    
    
    214
    
    
    
    (139
    )Brokerage fees
    
    
    301
    
    
    
    430Other
    
    
    960
    
    
    
    1,054Total noninterest income
    
    $
    4,381
    
    
    $
    4,776
  32




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##### Table of Contents



Operating Expenses
  Three Months Ended March 31,2005
    
    
    2004(Dollars in thousands)Salaries and employee benefits
    
    $
    11,947
    
    
    $
    9,322Other expenses
    
    
    6,808
    
    
    
    5,761Total operating expenses
    
    $
    18,755
    
    
    $
    15,083Efficiency ratio
    
    
    64.8
    %
    
    
    59.6
    %Number of employees at period end(1)
    
    
    547
    
    
    
    480
 
 (1)
    
    On a full time equivalent basis.  Balance Sheet
  Credit Quality
  March 31,
    
    
    December 31,2005
    
    
    2004(Dollars in thousands)Nonperforming loans
    
    $
    15,456
    
    
    $
    21,247Other real estate owned
    
    
    4,946
    
    
    
    1,533Total nonperforming assets
    
    $
    20,402
    
    
    $
    22,780Nonperforming assets to total assets
    
    
    0.70
    %
    
    
    0.87
    %Allowance for loan losses
    
    $
    22,819
    
    
    $
    22,230Allowance for loan losses to total loans
    
    
    1.00
    %
    
    
    1.00
    %
 March 31,2005
    
    2004For the Period Ended:Provision for loan losses
    
    $
    1,000
    
    
    $
    1,200Net charge-offs
    
    
    412
    
    
    
    1,170Net charge-offs to average loans
    
    
    0.07
    %
    
    
    0.24
    %
 33




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##### Table of Contents



Home Equity Lending
  Three Months Ended March 31,2005
    
    
    2004(Dollars in thousands)(Restated)
    
    
    (Restated)Selected Income Statement Data:Net interest income
    
    $
    20,432
    
    
    $
    24,696Provision for loan and lease losses
    
    
    (371
    )
    
    
    (5,899
    )Noninterest income
    
    
    12,525
    
    
    
    16,282Total net revenues
    
    
    32,586
    
    
    
    35,079Operating expenses
    
    
    (29,167
    )
    
    
    (25,387
    )Income before taxes
    
    
    3,419
    
    
    
    9,692Income taxes
    
    
    (1,374
    )
    
    
    (3,883
    )Net income
    
    $
    2,045
    
    
    $
    5,809Selected Operating Data:Loan volume:Lines of credit
    
    $
    92,326
    
    
    $
    94,825Loans
    
    
    337,288
    
    
    
    212,052Gain on sale of loans to loans sold
    
    
    2.57
    %
    
    
    4.29
    %
 March 31,
    
    
    December 31,2005
    
    
    2004(Dollars in thousands)Selected Balance Sheet Data:Total assets (Restated)
    
    $
    1,055,478
    
    
    $
    992,979Home equity loans and lines of credit(1)
    
    
    553,310
    
    
    
    590,175Allowance for loan losses
    
    
    (11,364
    )
    
    
    (11,330
    )Home equity loans held for sale
    
    
    325,719
    
    
    
    227,740Residual interests
    
    
    45,900
    
    
    
    51,542Mortgage servicing assets
    
    
    46,765
    
    
    
    44,000Short-term borrowings
    
    
    514,942
    
    
    
    359,902Collateralized debt
    
    
    306,951
    
    
    
    352,625Shareholders equity (Restated)
    
    
    128,354
    
    
    
    136,260Selected Operating Data:Total managed portfolio balance
    
    
    1,159,076
    
    
    
    1,147,137Delinquency ratio(2)
    
    
    3.7
    %
    
    
    4.8
    %Total managed portfolio balance Including credit risk sold
    
    
    2,948,104
    
    
    
    2,807,367Weighted average coupon rate: Lines of credit
    
    
    9.54
    %
    
    
    9.18
    %Loans
    
    
    10.92
    
    
    
    11.87Net home equity annualized charge-offs to average managed portfolio
    
    
    0.87
    
    
    
    1.85
 
 (1)
    
    Includes $317 million and $361 million of collateralized loans at March 31,2005 and December
31, 2004, respectively, as part of securitized financings.(2)
    
    Nonaccrual loans are included in the delinquency ratio. Overview
   34




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##### Table of Contents



WeightedAverageAmount
    
    
    % of Total
    
    
    Coupon(Dollars in thousands)Home equity loans < = 100% CLTV
    
    $
    236,547
    
    
    
    20.41
    %
    
    
    8.58
    %Home equity lines of credit < = 100% CLTV
    
    
    347,519
    
    
    
    29.98
    
    
    
    8.09Total <= 100% CLTV
    
    
    584,066
    
    
    
    50.39
    
    
    
    8.29Home equity loans > 100% CLTV
    
    
    345,636
    
    
    
    29.82
    
    
    
    13.04Home equity lines of credit > 100% CLTV
    
    
    170,347
    
    
    
    14.70
    
    
    
    12.08Total > 100% CLTV
    
    
    515,983
    
    
    
    44.52
    
    
    
    12.72First mortgages
    
    
    43,017
    
    
    
    3.71
    
    
    
    6.80Other (including discontinued products)
    
    
    16,010
    
    
    
    1.38
    
    
    
    13.79Total managed portfolio(1)
    
    $
    1,159,076
    
    
    
    100.00
    %
    
    
    10.28
    %
 
  Loan Volume
  Three Months Ended March 31,Product
    
    2005
    
    2004(Funding amount in thousands)First mortgage loansFunding Amount
    
    $
    31,726
    
    
    $
    18,719Weighted Average Disposable Income
    
    
    4,576
    
    
    
    4,654Weighted Average FICO score
    
    
    689
    
    
    
    692Weighted Average Coupon
    
    
    6.51
    %
    
    
    7.11
    %Home equity loans up to 100% CLTVFunding Amount
    
    $
    140,663
    
    
    $
    48,507Weighted Average Disposable Income
    
    
    5,478
    
    
    
    5,030Weighted Average FICO score
    
    
    724
    
    
    
    690Weighted Average Coupon
    
    
    7.08
    %
    
    
    8.79
    %Home equity loans up to 125% CLTVFunding Amount
    
    $
    164,900
    
    
    $
    144,826Weighted Average Disposable Income
    
    
    4,215
    
    
    
    4,203Weighted Average FICO score
    
    
    689
    
    
    
    680Weighted Average Coupon
    
    
    11.78
    %
    
    
    11.50
    %
 35




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##### Table of Contents



Three Months Ended March 31,Product
    
    2005
    
    2004(Funding amount in thousands)Home equity lines of credit up to 100% CLTVFunding Amount
    
    $
    79,618
    
    
    $
    71,737Weighted Average Disposable Income
    
    
    6,052
    
    
    
    5,942Weighted Average FICO score
    
    
    691
    
    
    
    683Weighted Average Coupon
    
    
    7.41
    %
    
    
    6.76
    %Home equity lines of credit up to 125% CLTVFunding Amount
    
    $
    12,708
    
    
    $
    23,088Weighted Average Disposable Income
    
    
    4,590
    
    
    
    4,500Weighted Average FICO score
    
    
    697
    
    
    
    696Weighted Average Coupon
    
    
    11.44
    %
    
    
    10.21
    %All ProductsFunding Amount
    
    $
    429,614
    
    
    $
    306,877Weighted Average Disposable Income
    
    
    5,086
    
    
    
    4,789Weighted Average FICO score
    
    
    701
    
    
    
    684Weighted Average Coupon
    
    
    9.03
    %
    
    
    9.60
    %
 Net Income
  Net Revenue
    Three Months Ended March 31,2005
    
    
    2004(Dollars in thousands)Net interest income
    
    $
    20,432
    
    
    $
    24,696Provision for loan losses
    
    
    (371
    )
    
    
    (5,899
    )Gain on sales of loans
    
    
    8,268
    
    
    
    8,689Loan servicing fees (Restated)
    
    
    8,835
    
    
    
    6,572Amortization of servicing assets
    
    
    (5,789
    )
    
    
    (3,977
    )Recovery (impairment) of servicing assets
    
    
    (303
    )
    
    
    940Trading gains
    
    
    480
    
    
    
    4,641Derivative gains (Restated)
    
    
    577
    
    
    
    (635
    )Other income
    
    
    457
    
    
    
    52Total net revenue (Restated)
    
    $
    32,586
    
    
    $
    35,079
    36




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##### Table of Contents



Operating Expenses
  Three Months Ended March 31,2005
    
    
    2004(Dollars in thousands)(Restated)Salaries and employee benefits
    
    $
    19,248
    
    
    $
    16,126Other
    
    
    9,919
    
    
    
    9,260Total operating expenses
    
    $
    29,167
    
    
    $
    25,386Number of employees at period end (1)
    
    
    651
    
    
    
    607
 37




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##### Table of Contents



(1)
    
    On a full time equivalent basis .  Home Equity Servicing
    March 31,
    
    
    December 31,2005
    
    
    2004(Dollars in thousands)Managed PortfolioTotal Loans
    
    $
    1,159,076
    
    
    $
    1,147,13730 days past due
    
    
    3.69
    %
    
    
    4.76
    %90 days past due
    
    
    1.44
    
    
    
    1.60Annualized QTD Net Chargeoff Rate
    
    
    0.87
    
    
    
    1.85Unsold LoansTotal Loans (1)
    
    $
    872,847
    
    
    $
    814,59530 days past due
    
    
    1.82
    %
    
    
    1.93
    %90 days past due
    
    
    0.75
    
    
    
    0.78Annualized QTD Net Chargeoff Rate
    
    
    0.15
    
    
    
    0.79Loan Loss Reserve
    
    $
    11,364
    
    
    $
    11,330Owned ResidualTotal Loans
    
    $
    286,229
    
    
    $
    332,54230 days past due
    
    
    9.38
    %
    
    
    11.71
    %90 days past due
    
    
    3.53
    
    
    
    3.61Annualized QTD Net Chargeoff Rate
    
    
    2.98
    
    
    
    4.48Residual Undiscounted Losses
    
    $
    7,260
    
    
    $
    11,323Credit Risk Sold, Potential IncentiveServicing Fee Retained PortfolioTotal Loans
    
    $
    919,830
    
    
    $
    1,023,58530 days past due
    
    
    2.87
    %
    
    
    3.11
    %90 days past due
    
    
    1.17
    
    
    
    1.10
 38




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##### Table of Contents



(1)
    
    Excludes deferred fees and costs.  Commercial Finance
  Three Months Ended March 31,2005
    
    
    2004(Dollars in thousands)Selected Income Statement Data:Net interest income
    
    $
    7,612
    
    
    $
    6,754Provision for loan and lease losses
    
    
    (2,110
    )
    
    
    (1,153
    )Noninterest income
    
    
    1,908
    
    
    
    448Total net revenue
    
    
    7,410
    
    
    
    6,049Operating expense
    
    
    (6,186
    )
    
    
    (4,198
    )Income before taxes
    
    
    1,224
    
    
    
    1,851Income taxes
    
    
    (528
    )
    
    
    (2,144
    )Net income (loss)
    
    $
    696
    
    
    $
    (293
    )Selected Operating Data:Net charge-offs
    
    $
    1,368
    
    
    $
    1,294Net interest margin
    
    
    4.85
    %
    
    
    5.74
    %Total funding of loans and leases
    
    $
    83,362
    
    
    $
    71,652Loans sold
    
    
    12,403
    
    
    
    7,694
 March 31,
    
    
    December 31,2005
    
    
    2004(Dollars in thousands)Selected Balance Sheet Data at End of Period:Total assets
    
    $
    657,679
    
    
    
    $636,177Loans and leases
    
    
    644,020
    
    
    
    625,140Allowance for loan and lease losses
    
    
    (10,186
    )
    
    
    (9,624)Shareholders equity
    
    
    55,415
    
    
    
    54,935
 Overview
   Net Income
  39




---



##### Table of Contents



Net Interest Income
  Three Months Ended March 31,2005
    
    2004(Dollars in thousands)Net interest income
    
    $
    7,612
    
    
    $
    6,754Average interest earning assets
    
    
    635,996
    
    
    
    472,883Net interest margin
    
    
    4.85
    %
    
    
    5.74
    %
   Provision for Loan and Lease Losses
  Noninterest Income
  Three Months Ended March 31,2005
    
    
    2004(Dollars in thousands)Gain from sales of loans
    
    
    679
    
    
    
    387Derivative losses, net
    
    
    (146
    )
    
    
    (946
    )Other
    
    
    1,375
    
    
    
    1,007Total noninterest income
    
    $
    1,908
    
    
    $
    448
  Operating Expenses
  Three Months Ended March 31,2005
    
    
    2004(Dollars in thousands)Salaries and employee benefits
    
    $
    3,948
    
    
    $
    3,362Other
    
    
    2,238
    
    
    
    836Total operating expenses
    
    $
    6,186
    
    
    $
    4,198Number of employees at period end (1)
    
    
    172
    
    
    
    137
 
 (1)
    
    On a full time equivalent basis. 40




---



##### Table of Contents



Credit Quality
   March 31,
    
    December 31,2005
    
    2004(Dollars in thousands)Nonperforming loans
    
    $
    4,058
    
    
    
    $3,936Allowance for loan losses
    
    
    10,186
    
    
    
    9,624Allowance for loan losses to total loans
    
    
    1.58
    %
    
    
    1.54
    %
 March 31,For the Period Ended:
    
    2005
    
    
    2004(Dollars in thousands)Provision for loan losses
    
    
    $ 2,110
    
    
    
    $ 1,153Net charge-offs
    
    
    1,368
    
    
    
    1,294Annualized net charge-offs to average loans
    
    
    0.88
    %
    
    
    1.11
    %
  March 31,
    
    
    December 31,2005
    
    
    2004(Dollars in thousands)Domestic franchise loans
    
    $
    250,176
    
    
    
    $243,859Weighted average yield
    
    
    8.63%
    
    
    
    8.11%Delinquency ratio
    
    
    0.77
    
    
    
    0.35Domestic leases
    
    $
    158,000
    
    
    
    $149,999Weighted average yield
    
    
    8.50%
    
    
    
    8.95%Delinquency ratio
    
    
    0.88
    
    
    
    1.09Canadian leases (1)
    
    $
    235,844
    
    
    
    $231,282Weighted average yield
    
    
    9.09%
    
    
    
    9.77%Delinquency ratio
    
    
    1.58
    
    
    
    0.82
 
 (1)
    
    In U.S. dollars . Parent and Other
   41




---



##### Table of Contents



Risk Management
  
    
    Credit risk
    
    Liquidity risk
    
    Interest rate risk
    
    Operational risk
    Credit Risk
     42




---



##### Table of Contents



March 31,
    
    
    December 31,2005
    
    
    2004(Dollars in thousands)Accruing loans past due 90 days or more:Commercial, financial and agricultural loans
    
    $
    181
    
    
    $
    Real estate mortgages
    
    
    
    
    
    
    219Consumer loans
    
    
    223
    
    
    
    426Commercial financingFranchise financing
    
    
    27
    
    
    
    Domestic leasing
    
    
    
    
    
    
    Foreign leasing
    
    
    150
    
    
    
    12581
    
    
    
    657Nonaccrual loans and leases:Commercial, financial and agricultural loans
    
    
    14,151
    
    
    
    20,394Real estate mortgages
    
    
    8,376
    
    
    
    8,590Consumer loans
    
    
    902
    
    
    
    128Commercial financingFranchise financing
    
    
    1,128
    
    
    
    1,193Domestic leasing
    
    
    1,081
    
    
    
    1,029Foreign leasing
    
    
    1,671
    
    
    
    1,70227,309
    
    
    
    33,036Total nonperforming loans and leases
    
    
    27,890
    
    
    
    33,693Nonperforming loans held for sale not guaranteed
    
    
    741
    
    
    
    2,066Other real estate owned
    
    
    12,846
    
    
    
    9,427Total nonperforming assets
    
    $
    41,477
    
    
    $
    45,186Nonperforming loans and leases to total loans and leases
    
    
    0.8
    %
    
    
    1.0
    %Nonperforming assets to total assets
    
    
    0.8
    %
    
    
    0.9
    %
  43




---



##### Table of Contents



March 31,2005 Mortgage banking
    
    
    $ 6 Commercial banking
    
    
    20 Home equity ending
    
    
    11 Commercial finance
    
    
    4
  Liquidity Risk
       44




---



##### 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 $100
million committed borrowing facility
    
    Lines of credit with correspondent banks, including fed funds lines: $109 million
outstanding out of $215 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 and conduits to fund Canadian sourced small ticket leases: $184
million outstanding on $281 million of borrowing facilities
  
    
    Committed warehouse sale facility: $75 million unsettled on a $600 million facility
    
    Uncommitted warehouse sale facility: $37 million unsettled on a $150 million facility
    
    Investor warehouse sale facility: $121 million unsettled
 45




---



##### Table of Contents



Interest Rate Risk
       
    
    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;
    
    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.
 46




---



##### Table of Contents



1.
    
    provide adequate hedge coverage for falling rates;2.
    
    minimize premium costs to establish hedge positions;3.
    
    provide a moderate amount of net impairment recapture if interest rates rise;4.
    
    when near or above the MSR LOCOM cap, maintain an acceptable range over which interest rates
may rise without causing hedge losses to significantly exceed accounting gains
       
    
    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 or 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 reposition them as needed. Therefore, our derivative
positions, shown in the table below as of March 31, 2005, may or may not be representative
of our risk position during the succeeding quarter. Additionally, it is unlikely that the
volume and strike prices 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.
 47




---



##### Table of Contents




    
    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.
    
    Finally, the tables show theoretical outcomes for dramatic changes in interest rates
which do not consider potential rebalancing or repositioning of hedges.
 Economic Value Change Method
 Present Value at March 31, 2005Change in Interest Rates of:-2%
    
    
    -1%
    
    
    Current
    
    
    +1%
    
    
    +2%(In Thousands)Interest Sensitive AssetsLoans and other assets
    
    $
    3,858,892
    
    
    $
    3,823,572
    
    
    $
    3,787,124
    
    
    $
    3,751,702
    
    
    $
    3,717,408Loans held for sale
    
    
    1,072,121
    
    
    
    1,065,718
    
    
    
    1,056,879
    
    
    
    1,046,290
    
    
    
    1,035,142Mortgage servicing rights
    
    
    193,923
    
    
    
    262,501
    
    
    
    416,562
    
    
    
    529,366
    
    
    
    582,794Residual interests
    
    
    55,250
    
    
    
    53,381
    
    
    
    51,582
    
    
    
    49,045
    
    
    
    45,393Interest sensitive financial derivatives
    
    
    21,285
    
    
    
    23,366
    
    
    
    4,816
    
    
    
    (87,742
    )
    
    
    (220,323
    )Total interest sensitive assets
    
    
    5,201,471
    
    
    
    5,228,538
    
    
    
    5,316,963
    
    
    
    5,288,661
    
    
    
    5,160,414Interest Sensitive LiabilitiesDeposits
    
    
    (3,709,934
    )
    
    
    (3,689,539
    )
    
    
    (3,670,970
    )
    
    
    (3,652,809
    )
    
    
    (3,636,430
    )Short-term borrowings (1)
    
    
    (514,031
    )
    
    
    (513,696
    )
    
    
    (513,366
    )
    
    
    (513,038
    )
    
    
    (512,713
    )Long-term debt
    
    
    (598,543
    )
    
    
    (591,312
    )
    
    
    (582,375
    )
    
    
    (572,497
    )
    
    
    (560,031
    )Total interest sensitive liabilities
    
    $
    (4,822,508
    )
    
    $
    (4,794,547
    )
    
    $
    (4,766,711
    )
    
    $
    (4,738,344
    )
    
    $
    (4,709,174
    )Net market value as of March 31, 2005
    
    $
    378,963
    
    
    $
    433,991
    
    
    $
    550,252
    
    
    $
    550,317
    
    
    $
    451,240Change from current
    
    $
    (171,289
    )
    
    $
    (116,261
    )
    
    $
    
    
    
    $
    65
    
    
    $
    (99,012
    )Net market value as of December 31, 2004
    
    $
    464,835
    
    
    $
    495,091
    
    
    $
    574,825
    
    
    $
    581,006
    
    
    $
    474,480Potential change
    
    $
    (109,990
    )
    
    $
    (79,734
    )
    
    $
    
    
    
    $
    6,181
    
    
    $
    (100,345
    )
 
 (1)
    
    Includes certain debt which is categorized as collateralized borrowings in other sections
of this document GAAP-Based Value Change Method
 Present Value at March 31, 2005Change in Interest Rates of:-2%
    
    
    -1%
    
    
    Current
    
    
    +1%
    
    
    +2%(In Thousands)Interest Sensitive AssetsLoans and other assets (1)
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Loans held for sale
    
    
    1,053,871
    
    
    
    1,053,872
    
    
    
    1,053,871
    
    
    
    1,043,283
    
    
    
    1,032,135Mortgage servicing rights
    
    
    190,948
    
    
    
    258,585
    
    
    
    387,287
    
    
    
    396,559
    
    
    
    402,350Residual interests
    
    
    55,250
    
    
    
    53,381
    
    
    
    51,582
    
    
    
    49,045
    
    
    
    45,393Interest sensitive financial derivatives
    
    
    21,285
    
    
    
    23,366
    
    
    
    4,816
    
    
    
    (87,742
    )
    
    
    (220,323
    )Total interest sensitive assets
    
    
    1,321,354
    
    
    
    1,389,204
    
    
    
    1,497,556
    
    
    
    1,401,145
    
    
    
    1,259,555Interest Sensitive LiabilitiesDeposits (1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Short-term borrowings (1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Long-term debt (1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total interest sensitive liabilities (1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net market value as of March 31, 2005
    
    $
    1,321,354
    
    
    $
    1,389,204
    
    
    $
    1,497,556
    
    
    $
    1,401,145
    
    
    $
    1,259,555Potential change
    
    $
    (176,202
    )
    
    $
    (108,352
    )
    
    $
    
    
    
    $
    (96,411
    )
    
    $
    (238,001
    )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
    )
 
 (1)
    
    Value does not change in GAAP presentation 48




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##### Table of Contents



Operational Risk
      Off-Balance Sheet Instruments
   49




---



##### Table of Contents



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 March 31, 2005, the notional value and first quarter 2005 gain on the interest rate caps
were $21 million and $2 thousand, respectively. As of March 31, 2005, the total notional
amount and year-to-date gain on the Eurodollar futures were $70 million and $0.1 million,
respectively.
    
    We deliver 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 two 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 March 31, 2005 were $185
million and $0.3 million, respectively.
  50




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51




---



##### Table of Contents



Ending
    
    
    Change inGNMA
    
    
    GNMA
    
    
    
    
    
    
    Derivative
    
    
    NetRate
    
    
    Rate (in bps)
    
    
    Impairment
    
    
    Gain/(Loss)
    
    
    Impairment2002
    
    
    
    
    
    
    
    
    
    
    
    
    
    (Dollars in millions)Q1 02
    
    
    
    
    
    
    6.66
    %
    
    
    21
    
    
    $
    10.7
    
    
    $
    (8.1
    )
    
    $
    2.6Q2 02
    
    
    
    
    
    
    6.08
    %
    
    
    (58
    )
    
    
    (48.0
    )
    
    
    45.4
    
    
    
    (2.6
    )Q3 02
    
    
    
    
    
    
    5.15
    %
    
    
    (93
    )
    
    
    (86.8
    )
    
    
    81.2
    
    
    
    (5.6
    )Q4 02
    
    
    
    
    
    
    5.02
    %
    
    
    (13
    )
    
    
    (19.4
    )
    
    
    7.1
    
    
    
    (12.3
    )Total 2002
    
    
    
    
    
    
    (143
    )
    
    
    
    
    
    
    
    
    
    $
    (17.9
    )Q1 03
    
    
    
    
    
    
    4.97
    %
    
    
    (5
    )
    
    $
    (2.0
    )
    
    $
    0.3
    
    
    $
    (1.7
    )Q2 03
    
    
    
    
    
    
    4.51
    %
    
    
    (46
    )
    
    
    (40.7
    )
    
    
    28.9
    
    
    
    (11.8
    )Q3 03
    
    
    
    
    
    
    4.99
    %
    
    
    48
    
    
    
    41.8
    
    
    
    (27.6
    )
    
    
    14.2Q4 03
    
    
    
    
    
    
    5.24
    %
    
    
    25
    
    
    
    46.2
    
    
    
    (22.9
    )
    
    
    23.3Total 2003
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22
    
    
    $
    24.0Q1 04
    
    
    
    
    
    
    4.90
    %
    
    
    (34
    )
    
    $
    (48.2
    )
    
    $
    58.4
    
    
    $
    10.2Q2 04
    
    
    
    
    
    
    5.54
    %
    
    
    64
    
    
    
    71.3
    
    
    
    (57.8
    )
    
    
    13.5Q3 04
    
    
    
    
    
    
    5.16
    %
    
    
    (38
    )
    
    
    (17.7
    )
    
    
    22.5
    
    
    
    4.8Q4 04
    
    
    
    
    
    
    5.05
    %
    
    
    (11
    )
    
    
    (9.7
    )
    
    
    (4.2
    )
    
    
    (13.9
    )Total 2004
    
    
    
    
    
    
    (19
    )
    
    
    
    
    
    
    
    
    
    $
    14.7Q1 05
    
    
    
    
    
    
    5.33
    %
    
    
    28
    
    
    $
    32.5
    
    
    $
    (47.4
    )
    
    $
    (14.9
    )
  
 Item 3. Quantitative and Qualitative Disclosures about Market Risk.
  
 Item 4. Controls and Procedures.
 Disclosure Controls and Procedures 
 Identification of Material Weakness 
 52




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Changes in Internal Control Over Financial Reporting 
 53




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##### Table of Contents



PART II. Other Information.
 
 Item 1. Legal Proceedings.
 Since the time we filed our Report on Form 10-K for the year ended December 31, 2004, we
experienced developments as noted in the litigation described below. For a full description of the
litigation, see Note 11, Commitments and Contingencies, in the Notes to Consolidated Financial
Statements, Part I, Item 1, of this Report.
 Culpepper v. Inland Mortgage Corporation
  Cohens v. Inland Mortgage Corporation
  Litigation in Connection with Loans Purchased from Community Bank of Northern Virginia
(Community)
 Hobson v. Irwin Union Bank and Trust Company Hobson Chatfield v. Irwin Union Bank and Trust Company Ransom v. Irwin Union
Bank and Trust Company) Kossler v. Community Bank of Northern Virginia,
 Litigation Related to NorVergence, Inc.
    [Note
on Subsequent Events in connection with This Amended Report: On
September 14, 2005, the parties settled Stamper v. A Home of
Your Own, a lawsuit involving our indirect subsidiary, Irwin
Mortgage Corporation, filed in August 1998 in the Baltimore,
Maryland, City Circuit Court. In light of the restatement of
financials in this Form 10-Q/A for the period ended
March 31, 2005, we also made a change to reflect the
liability associated with the settlement of this case.]
  54




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##### Table of Contents



Item 6.
Revised Index to Exhibits.
 ExhibitNumber
    
    Description of Exhibit3.1
    
    Restated Articles of Incorporation
of Irwin Financial Corporation, as amended April 7, 2005,
previously filed with this Form 10-Q.3.2
    
    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. 0-06835.).4.2
    
    Certain instruments defining the rights of the holders of long-term debt of Irwin Financial Corporation and
certain of its subsidiaries, none of which authorize a total amount of indebtedness in excess of 10% of the
total assets of the Corporation and its subsidiaries on a consolidated basis, have not been filed as Exhibits.
The Corporation hereby agrees to furnish a copy of any of these agreements to the Commission upon request.4.3
    
    Rights Agreement, dated as of March 1, 2001, between Irwin Financial Corporation and Irwin Union Bank and Trust.
(Incorporated by reference to Exhibit 4.1 to Form 8-A filed March 2, 2001, File No. 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.)10.3
    
    *Amendment to Irwin Financial Corporation 1997 Stock Option Plan. (Incorporated by reference to Exhibit 10(i) to
Form 10-Q Report for period ended June 30, 1997, File No. 000-06835.)10.4
    
    *Irwin Financial Corporation Amended and Restated 2001 Stock Plan. (Incorporated by reference to Exhibit 1 to
the Corporations proxy statement for its 2004 Annual Meeting, filed with the Commission on March 18, 2004, File
No. 001-16691.10.5
    
    *Irwin Financial Corporation 1999 Outside Director Restricted Stock Compensation Plan. (Incorporated by
reference to Exhibit 2 to the Corporations proxy statement for its 2004 Annual Meeting, filed with the
Commission on March 18, 2004, File No. 001-16691.)10.6
    
    *Employee Stock Purchase Plan III. (Incorporated by reference to Exhibit 10(a) to Form 10-Q Report for period
ended June 30, 1999, File No. 000-06835.)10.7
    
    *Long-Term Management Performance Plan. (Incorporated by reference to Exhibit 10(a) to Form 10-K Report for year
ended December 31, 1986, File No. 000-06835.)10.8
    
    *Long-Term Incentive Plan-Summary of Terms. (Incorporated by reference to Exhibit 10(a) to Form 10-K Report for
year ended December 31, 1986, File No. 000-06835.)10.9
    
    *Inland Mortgage Corporation Long-Term Incentive Plan. (Incorporated by reference to Exhibit 10(j) to Form 10-K
Report for year ended December 31, 1995, File No. 000-06835.)10.10
    
    *Amended and Restated Management Bonus Plan. (Incorporated by reference to Exhibit 10(a) to Form 10-K Report for
year ended December 31, 1986, File No. 000-06835.)10.11
    
    *Limited Liability Company Agreement of Irwin Ventures LLC. (Incorporated by reference to Exhibit 10(a) to Form
10-Q/A Report for period ended March 31, 2001, File No. 000-06835.)10.12
    
    *Limited Liability Company Agreement of Irwin Ventures Co-Investment Fund LLC, effective as of April 20, 2001.
(Incorporated by reference to Exhibit 10.17 to Form S-1/A filed February 14, 2002, File No. 333-69586.)10.13
    
    *Promissory Note dated January 30, 2002 from Elena Delgado to Irwin Financial Corporation. (Incorporated by
reference to Exhibit 10.19 to Form S-1/A filed February 14, 2002, File No. 333-69586.)
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##### Table of Contents



ExhibitNumber
    
    Description of Exhibit10.14
    
    *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. (Incorporated by reference to Exhibit 10.15 of Form 10-K Report for year
ended December 31, 2004, File No. 001-16691.)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. (Incorporated by reference
to Exhibit 10.16 of Form 10-K Report for year ended December 31, 2004, File No. 001-16691.)10.17
    
    *Deferred Compensation Agreement dated December 22, 2004 between Irwin Home Equity Corporation, Irwin Financial
Corporation and Elena Delgado. (Incorporated by reference to Exhibit 10.17 of Form 10-K Report for year ended
December 31, 2004, File No. 001-16691.)10.18
    
    *Tax Gross-up Agreement dated December 22, 2004 between Irwin Financial Corporation and Elena Delgado as
Shareholder. (Incorporated by reference to Exhibit 10.18 of Form 10-K Report for year ended December 31, 2004,
File No. 001-16691.)10.19
    
    *Amendment No. 1 to Irwin Home Equity Corporation Amendment and Restatement of Shareholder Agreement dated April
7, 2005 between Irwin Home Equity Corporation, Irwin Financial
Corporation and Elena Delgado, previously filed with this Form 10-Q.10.20
    
    *Amendment No. 1 to the Deferred Compensation Agreement dated April 7, 2005 between Irwin Home Equity
Corporation, Irwin Financial Corporation and Elena Delgado, previously filed with this Form 10-Q.10.21
    
    *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.)10.22
    
    *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.)10.23
    
    *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.)10.24
    
    *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.)10.25
    
    *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.)10.26
    
    *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.)10.27
    
    *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.)10.28
    
    *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.)10.29
    
    *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.)10.30
    
    *Onset Capital Corporation Shareholders Agreement (Incorporated by reference to Exhibit 10.29 to Form 10-K
Report for period ended December 31, 2003, File No. 000-06835.)11.1
    
    Computation
of Earnings Per Share is included in the footnotes
to the financial statements, as previously provided.
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##### Table of Contents



ExhibitNumber
    
    Description of Exhibit31.1
    
    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, as previously provided. 57




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##### Table of Contents



SIGNATURES
  IRWIN FINANCIAL CORPORATIONDATE:February 2, 2006
    
    BY:
    
    /s/ Gregory F. EhlingerGREGORY F. EHLINGERCHIEF FINANCIAL OFFICERBY:
    
    /s/ Jody A. LittrellJODY A. LITTRELLCORPORATE CONTROLLER(Chief Accounting Officer)
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