UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q/A

(Mark One)

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2005

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                     to                    .

Commission File Number: 0-6835

IRWIN FINANCIAL CORPORATION

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)

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

þ Yes           o No

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act

þ Yes           o No

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes           o No

As of April 25, 2005, there were outstanding 28,536,435 common shares, no par value, of the Registrant.

 

 

EXPLANATORY NOTE

     This Report on Form 10-Q/A amends the Company’s Quarterly Report on Form 10-Q for the period ended March 31, 2005, as initially filed with the Securities and Exchange Commission on April 29, 2005. This restatement, which we announced on November 4, 2005, is a result of our correcting the accounting for incentive servicing fees as mortgage servicing rights rather than derivative instruments. See Note 2 — “Restatement of Financials” for additional information regarding this restatement and a summary of the impact of this restatement on our financial statements. Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations has been amended to reflect the impact of the restatement. Item 4 — Controls and Procedures has also been amended to acknowledge the existence of a material weakness in our internal controls over financial reporting. In light of the restatement, we have made other adjusting entries to change the period in which the reversal of certain tax reserves were recorded from the first quarter of 2005 to the proper periods in 2004. In addition, a reduction to a contingent liability in the first quarter of 2005 was removed to reflect settlement of the lawsuit involved in the third quarter of 2005. These tax reserve and contingent liability adjustments were considered immaterial prior to the restatement. The Form 10-Q has not been amended in any other respect except for certain minor conforming changes and the provision of updated certifications and signatures.

     The financial statements and related financial information for the affected periods contained in our Quarterly Report on Form 10-Q for the period ended March 31, 2005 should no longer be relied upon.

FORM 10-Q/A
TABLE OF CONTENTS

				PAGE
				NO.
PART I		FINANCIAL INFORMATION
Item 1		Financial Statements			3
Item 2		Management’s Discussion and Analysis of Financial Condition and Results of Operations			18
Item 3		Quantitative and Qualitative Disclosures About Market Risk			52
Item 4		Controls and Procedures			52
PART II		OTHER INFORMATION
Item 1		Legal Proceedings			54
Item 6		Exhibits			55
		Signatures			58
Certification of the CEO
Certification of the CFO
Certification of the CEO
Certification of the CFO

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			$	97,101
Interest-bearing deposits with financial institutions			80,209				58,936
Residual interests			51,582				56,101
Investment securities- held-to-maturity (Fair value: $4,818 at March 31, 2005 and $4,952 at December 31, 2004)			4,810				4,942
Investment securities- available-for-sale			103,081				103,280
Loans held for sale			1,053,871				890,711
Loans and leases, net of unearned income — Note 3			3,487,697				3,450,440
Less: Allowance for loan and lease losses — Note 4			(45,428	)			(44,443	)
			3,442,269				3,405,997
Servicing assets — Note 5			387,287				367,032
Accounts receivable			125,641				122,131
Accrued interest receivable			15,261				15,428
Premises and equipment			29,460				30,240
Other assets			104,573				83,921
Total assets		$	5,551,781			$	5,235,820
Liabilities and Shareholders’ Equity:
Deposits
Noninterest-bearing		$	1,076,818			$	975,925
Interest-bearing			1,848,340				1,774,727
Certificates of deposit over $100,000			845,257				644,611
			3,770,415				3,395,263
Short-term borrowings — Note 6			224,700				237,277
Collateralized debt — Note 7			515,578				547,477
Other long-term debt			270,169				270,172
Other liabilities			274,698				284,446
Total liabilities			5,055,560				4,734,635
Commitments and contingencies — Note 11
Shareholders’ equity
Preferred stock, no par value — authorized 4,000,000 shares; none issued			—				—
Common stock, no par value — authorized 40,000,000 shares; issued 29,612,080 shares as of 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				112,000
Additional paid-in capital			—				383
Deferred 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				2,454
Retained earnings			406,406				412,027
			519,763				526,204
Less treasury stock, at cost			(23,542	)			(25,019	)
Total shareholders’ equity			496,221				501,185
Total liabilities and shareholders’ equity		$	5,551,781			$	5,235,820

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

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			$	61,246
Loans held for sale			18,571				14,072
Residual interests			2,340				3,258
Investment securities			1,715				1,209
Federal funds sold			49				18
Total interest income			88,166				79,803
Interest expense:
Deposits			14,674				9,489
Short-term borrowings			3,108				1,623
Collateralized debt			4,315				3,805
Other long-term debt			5,856				5,683
Total interest expense			27,953				20,600
Net interest income			60,213				59,203
Provision for loan and lease losses — Note 4			3,291				8,146
Net interest income after provision for loan and lease losses			56,922				51,057
Other income:
Loan servicing fees			34,944				33,048
Amortization 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				52,769
Gain on sale of mortgage servicing assets			1,185				6,489
Trading gains			1,380				4,673
Derivative (losses) gains, net			(47,282	)			57,071
Other			6,208				6,101
			36,041				81,080
Other expense:
Salaries			48,196				49,834
Pension and other employee benefits			12,045				11,747
Office expense			3,820				4,737
Premises and equipment			10,299				10,455
Marketing and development			2,815				3,634
Professional fees			4,612				3,844
Other			15,326				16,185
			97,113				100,436
Income before income taxes			(4,150	)			31,701
Provision for income taxes			(1,605	)			11,799
Net income		$	(2,545	)		$	19,902
Earnings per share: — Note 9
Basic		$	(0.09	)		$	0.71
Diluted		$	(0.09	)		$	0.66
Dividends per share		$	0.10			$	0.08

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

IRWIN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited)
For the Three Months Ended March 31, 2005, and 2004

										Accumulated
										Other								Additional
						Retained				Comprehensive				Deferred				Paid in				Common				Treasury
		Total				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)			498,222
Deferred Compensation			(19	)											(19	)
Cash dividends			(2,851	)			(2,851	)
Tax benefit on stock option exercises			499																499
Treasury stock:
Purchase of 37,139 shares			(908	)																							(908	)
Sales of 103,791 shares			1,278				(225	)											(882	)							2,385
Balance 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				19,902
Unrealized gain on investment securities net of $43 tax liability			64								64
Unrealized gain on interest rate cap net of $56 tax benefit			(81	)							(81	)
Foreign currency adjustment			(75	)							(75	)
Total comprehensive income (Restated)			19,810
Deferred Compensation			(36	)											(36	)
Cash dividends			(2,260	)			(2,260	)
Tax benefit on stock option exercises			661																661
Treasury stock: Purchase of 9,907 shares			(333	)																							(333	)
Sales of 131,627 shares			2,644																(1,330	)							3,974
Balance at March 31, 2004 (Restated)		$	452,746			$	370,289			$	90			$	(540	)		$	595			$	112,000			$	(29,688	)

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

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	)		$	19,902
Adjustments to reconcile net income to cash provided (used) by operating activities:
Depreciation, amortization, and accretion, net			3,109				1,582
Amortization and (recovery) impairment of servicing assets			(5,081	)			79,070
Provision for loan and lease losses			3,291				8,146
Gain 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				3,163,639
Proceeds from sale of mortgage servicing assets			10,171				15,606
Net decrease in residuals			4,519				1,720
Net 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				20,279
Available-for-sale			—				1,074
Purchase of investment securities:
Held-to-maturity			—				(30,897	)
Available-for-sale			(1,480	)			(639	)
Net (increase) decrease in interest-bearing deposits			(21,273	)			14,558
Net increase in loans, excluding sales			(57,467	)			(83,437	)
Proceeds from sale of loans			18,400				13,886
Other, net			(1,234	)			(308	)
Net cash used by lending and investing activities			(61,761	)			(65,484	)
Financing activities:
Net increase in deposits			375,152				409,345
Net decrease in short-term borrowings			(12,577	)			(132,742	)
Repayments of long-term debt			(3	)			(3	)
Proceeds from issuance of collateralized borrowings			35,448				112,000
Repayments 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				3,305
Dividends paid			(2,851	)			(2,260	)
Net cash provided by financing activities			328,691				214,609
Effect of exchange rate changes on cash			484				(24	)
Net increase in cash and cash equivalents			56,636				34,894
Cash and cash equivalents at beginning of period			97,101				140,810
Cash and cash equivalents at end of period		$	153,737			$	175,704
Supplemental disclosures of cash flow information:
Cash flow during the period:
Interest paid		$	26,436			$	20,916
Income taxes		$	2,456			$	(21,026	)
Noncash transactions:
Liability for loans held for sale eligible for repurchase		$	1,766			$	78,004

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 — Summary of Significant Accounting Policies

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

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

     Cash and Cash Equivalents Defined: For purposes of the statement of cash flows, we consider cash and due from banks and federal funds sold to be cash equivalents.

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

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

     Within the allowance, there are specific and expected loss components. The specific loss component is assessed for loans we believe to be impaired in accordance with SFAS 114. We have defined impairment as nonaccrual loans. For loans determined to be impaired, we measure the level of impairment by comparing the loan’s carrying value to fair value using one of the following fair value measurement techniques: present value of expected future cash flows, observable market price, or fair value of the associated collateral. An allowance is established when the fair value implies a value that is lower than the carrying value of that loan. In addition to establishing allowance levels for specifically identified higher risk graded loans, management determines an allowance for all other loans in the portfolio for which historical experience indicates that certain losses exist. These loans are segregated by major product type, and in some instances, by aging, with an estimated loss ratio applied against each product type and aging category. The loss ratio is generally based upon historic loss experience for each loan type as adjusted for certain environmental factors management believes to be relevant.

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

     In determining servicing value impairment, the servicing portfolio is stratified into its predominant risk characteristics, principally by interest rate and product type. Each stratum is valued using market prices under comparable servicing sale contracts when

available, or alternatively, using the same model as was used originally to determine the fair value at origination using current market assumptions. The calculated value is then compared with the book value of each stratum to determine the required reserve for impairment. The impairment reserve fluctuates as interest rates change and, therefore, no reasonable estimate can be made as to future increases or declines in impaired reserve levels. We also compare actual cash collections to projected cash collections and adjust our models as appropriate. In addition, we periodically have independent valuations performed on the portfolio. Other than temporary impairment is recorded to reflect our view that the originally recorded value of certain servicing rights and subsequent impairment associated with those rights is unlikely to be recovered in market value. There is no related direct impact on net income as this other than temporary impairment affects only balance sheet accounts. However, a write-down will result in a reduction of amortization expense and potentially reduced recovery of impairment in future periods.

     Incentive Servicing Fees: For whole loan sales of certain home equity loans, in addition to our normal servicing fee, we have the right to an incentive servicing fee (ISF) that will provide cash payments to us if a pre-established return for the certificate holders and certain structure-specific loan credit and servicing performance metrics are met. These ISF arrangements are accounted for in accordance with SFAS 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.” When ISF agreements are entered into simultaneously with the whole loan sales, the fair value of the ISFs is estimated and considered when determining the initial gain or loss on sale. That allocated fair value of the ISF is periodically evaluated for impairment and amortized in accordance with SFAS 140. Consistent with the treatment of all of the Corporation’s servicing assets, ISFs are accounted for on a lower of cost or market (LOCOM) basis. Therefore, if the fair value of the ISFs in subsequent periods exceeds cost basis, then revenue is recognized as preestablished performance metrics are met and cash is due. When ISF agreements are entered into subsequent to the whole loan sale, these assets are assigned a zero value and revenue is recognized on a contingent basis as pre-established performance metrics are met and cash is due.

     Stock-Based Employee Compensation: We have three stock-based employee compensation plans. We use the intrinsic value method to account for our plans under the recognition and measurement principles of APB Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations. No stock-based employee compensation cost is reflected in net income for any of the periods presented, as all options granted under these plans had an exercise price equal to the market value of the underlying common stock on the date of grant. The following table illustrates the effect on net income and earnings per share if we had applied the fair value recognition provisions of SFAS 123, “Accounting for Stock-Based Compensation,” to stock-based employee compensation:

		For the Three Months Ended March 31,
		2005				2004
		(Dollars in thousands)
		(Restated)				(Restated)
Net income as reported		$	(2,545	)		$	19,902
Deduct: 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	)		$	19,270
Basic earnings per share
As reported		$	(0.09	)		$	0.71
Pro forma		$	(0.11	)		$	0.68
Diluted earnings per share
As reported		$	(0.09	)		$	0.66
Pro forma		$	(0.11	)		$	0.64

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

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

     Reclassifications: Certain amounts in the 2004 consolidated financial statements have been reclassified to conform to the 2005 presentation. These changes had no impact on previously reported net income or shareholders’ equity.

Note 2 — Restatement of Financials

     Management and the Audit & Risk Management Committee (the “Audit Committee”) of the Board of Directors of the Corporation determined in November, 2005 that the initial filings of our interim financial statements included in the Corporation’s Quarterly Reports on Form 10-Q for the periods ended March 31, 2005 and June 30, 2005 and the annual financial statements for the year ended December 31, 2004 should no longer be relied upon and should be restated.

     For whole loan sales of certain home equity loans, we enter into contracts that provide for incentive servicing fees (ISFs) that may be earned in addition to the fees received as servicer of the loans sold. Under ISF contracts, we receive cash payments from buyers of certain of our home equity loans if our servicing of the sold loans meets specific performance targets. Our historical practice had been to account for ISFs as derivative instruments under Statement of Financial Accounting Standards No. 133 “Accounting for Derivative Instruments and Hedging Activity” (SFAS 133). As part of our review and preparation of our financial statements for the quarter ended September 30, 2005, and based on additional interpretive input, we determined that incentive servicing fees should be treated in accordance with SFAS 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.” Therefore, for ISFs entered into simultaneously with the whole loan sales, the fair value of the ISFs will be estimated and considered when determining the initial gain or loss on sale. Consistent with the treatment of all of the Corporation’s servicing assets, ISFs are accounted for on a lower of cost or market basis. Therefore, if the fair value of the ISFs in subsequent periods exceeds cost basis, then revenue is recognized as preestablished performance metrics are met and cash is due. When ISF contracts are entered into subsequent to the whole loan sale, we will assign a zero value and record revenue only when performance metrics have been met and cash is received. The cumulative impact of this error was an overstatement of income (after tax) of $2.1 million during 2004 and $7.1 million for the first two quarters of 2005. In addition to the restatement for ISF contracts, management has also reduced certain salary accruals for the June 30, 2005 and March 31, 2005 periods associated with incentive salary plans that are calculated based upon earnings. This filing is undertaken as part of this restatement of ISFs.

     In light of the restatement of financial statements for full year 2004 and the first and second quarters of 2005, the Corporation has made other adjusting entries to record a reduction in tax reserves in the proper periods in 2004 instead of the first quarter of 2005. These tax reserve adjustments, which were considered immaterial prior to the restatement, had the effect of increasing 2004 net income by $0.7 million and reducing 2005 net income by the same amount. In addition, a $1.1 million (pre-tax) reduction of a contingent liability in the first quarter of 2005 was removed to reflect settlement of the lawsuit involved in the third quarter of 2005. The tables below outline the impact of these adjustments on previously reported periods:

		For the three months ended
		March 31, 2005								March 31, 2004
		As Reported				Restated				As Reported				Restated
		(Dollars in thousands)
Loan servicing fees		$	34,619			$	34,944			$	32,577			$	33,048
Derivative gains (losses), net			(36,778	)			(47,282	)			58,915				57,071
Salaries			50,017				48,196				49,834				49,834
Other expense			14,491				15,326				16,185				16,185
Provision for income taxes			1,418				(1,605	)			12,734				11,799
Net (loss) income			3,625				(2,545	)			20,341				19,902
Earnings per share basic		$	0.13			$	(0.09	)		$	0.72			$	0.71
Earnings per share diluted			0.13				(0.09	)			0.67				0.66

Selected Balance Sheet Data:

		March 31, 2005								December 31, 2004
		As Reported				Restated				As Reported				Restated
						(Dollars in thousands)
Total assets		$	5,565,481			$	5,551,781			$	5,239,341			$	5,235,820
Total equity			503,849				496,221				502,644				501,185

Note 3 — Loans and Leases

     Loans and leases are summarized as follows:

		March 31,				December 31,
		2005				2004
		(Dollars in thousands)
Commercial, financial and agricultural		$	1,782,178			$	1,697,651
Real estate-construction			254,274				287,496
Real estate-mortgage			769,481				808,875
Consumer			37,693				31,166
Commercial financing
Franchise financing			337,198				330,496
Domestic leasing			183,458				174,035
Canadian leasing			270,068				265,780
Unearned income
Franchise 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

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

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

Note 5 — Servicing Assets

     Included on the consolidated balance sheet at March 31, 2005 and December 31, 2004 are $387 million and $367 million, respectively, of capitalized servicing assets. These amounts relate to the principal balances of mortgage loans serviced by us for investors. Changes in our capitalized servicing assets, net of valuation allowance, are shown below:

		March 31,				December 31,
		2005				2004
		(Dollars in thousands)
Balance at beginning of year		$	367,032			$	380,123
Additions			24,160				142,689
Amortization			(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

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

		March 31,				December 31,
		2005				2004
Balance at beginning of year		$	54,134			$	76,869
Impairment, (recovery of impairment)			(32,400	)			2,474
Reclass for sales of servicing			—				(18,210	)
Other than temporary impairment (1)			—				(6,999	)
Balance at end of period		$	21,734			$	54,134

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

Note 6 — Short-Term Borrowings

     Short-term borrowings are summarized as follows:

		March 31,				December 31,
		2005				2004
		(Dollars in thousands)
Federal Home Loan Bank borrowings		$	21,822			$	71,826
Drafts payable related to mortgage loan closings			91,333				53,254
Lines of credit and other			2,345				2,197
Federal funds			109,200				110,000
Total		$	224,700			$	237,277
Weighted average interest rate			2.09	%			1.64	%

     Federal Home Loan Bank borrowings are collateralized by loans and loans held for sale.

     Drafts payable related to mortgage loan closings are related to mortgage closings that have not been presented to the banks for payment. When presented for payment, these borrowings will be funded internally or by borrowing from the lines of credit.

     We also have lines of credit available to fund loan originations and operations with variable rates ranging from 3.2% to 4.0% at March 31, 2005.

Note 7 — Collateralized Debt

     We pledge or sell loans structured as secured financings at our home equity and commercial finance lines of business. Sale treatment is precluded on these transactions because we fail the true-sale requirements of SFAS 140 as we maintain effective control over the loans and leases securitized. This type of structure results in cash being received, debt being recorded, and the establishment of an allowance for credit losses. The notes associated with these transactions are collateralized by $0.5 billion in home equity loans, home equity lines of credit, and leases. The principal and interest on these debt securities are paid using the cash flows from the underlying loans and leases. Accordingly, the timing of the principal payments on these debt securities is dependent on the payments received on the underlying collateral. The interest rates on the bonds are at a floating rate.

     Collateralized debt is summarized as follows:

						Weighted
						Average
						Interest Rate at
						March 31,				March 31,				December 31,
		Maturity				2005				2005				2004
						(Dollars in thousands)
Commercial finance line of business
Domestic asset backed note			7/2010				4.50			$	24,653			$	29,050
Canadian asset backed notes			5/2005-4/2010				3.60				183,974				165,802
Home equity line of business
2004-1 asset backed notes:
Combined variable rate senior note			12/2024-12/2034				3.00				282,176				327,850
Combined variable rate subordinate note			12/2034				3.85				24,775				24,775
Total										$	515,578			$	547,477

     For the Canadian asset backed notes, we are subject to compliance with certain financial covenants set forth in this facility including, but not limited to consolidated tangible net worth, return on average assets, nonperforming loans, loan loss reserve, Tier 1 leverage ratio, and risk-based capital ratio. Due to our low level of net income in the first quarter, we requested and obtained a waiver with respect to the return on average assets ratio covenant. As a result of this waiver, we are in compliance with all applicable covenants as of March 31, 2005.

Note 8 — Employee Retirement Plans

     Components of net periodic cost of pension benefit:

		For the Three Months Ended March 31,
		2005				2004
		(Dollars in thousands)
Service cost		$	681			$	494
Interest cost			416				455
Expected return on plan assets			(446	)			(405	)
Amortization of transition obligation			—				3
Amortization of prior service cost			9				10
Amortization of actuarial loss			164				175
Net periodic benefit cost		$	824			$	732

     As of March 31, 2005, we have not made any contributions to our pension plan in the current year and currently do not expect to contribute to this plan in 2005 .

Note 9 — Earnings Per Share

     Earnings Per Share calculations are summarized as follows:

		Basic								Effect of				Diluted
		Earnings				Effect of				Convertible				Earnings
		Per Share				Stock Options				Shares				Per Share
		(Dollars in thousands, except per share amounts)
		(Restated)												(Restated)
Period ended March 31, 2005
Net income available to common shareholders		$	(2,545	)		$	—			$	—			$	(2,545	)
Shares			28,462				329				—				28,791
Per-share amount		$	(0.09	)		$	—			$	—			$	(0.09	)
Period ended March 31, 2004
Net income available to common shareholders		$	19,902			$	—			$	678			$	20,580
Shares			28,191				492				2,607				31,290
Per-share amount		$	0.71			$	(0.01	)		$	(0.04	)		$	0.66

     At March 31, 2005 and 2004, 943,792 and 4,000 shares, respectively, related to stock options, were not included in the dilutive earnings per share calculation because they had exercise prices below the stock price as of the respective dates.

     Also at March 31, 2005, 2,607,040 shares and $678,136 of interest related to convertible securities were not included in the dilutive earnings per share calculation because they had an antidilutive effect on earnings per share.

Note 10 — Industry Segment Information

     We have four principal segments that provide a broad range of financial services. The mortgage banking line of business originates, sells, and services residential first mortgage loans. The commercial banking line of business provides commercial banking services. The home equity lending line of business originates, purchases, sells and services home equity loans. The commercial finance line of business originates leases and loans against commercial equipment and real estate. Our other segment primarily includes the parent company, our private equity portfolio, and eliminations.

     The accounting policies of each segment are the same as those described in the “Summary of Significant Accounting Policies.” Below is a summary of each segment’s revenues, net income, and assets for three months ended March 31, 2005, and 2004:

		Mortgage				Commercial				Home Equity				Commercial
		Banking				Banking				Lending				Finance				Other				Consolidated
										(Dollars in thousands)
		(Restated)								(Restated)								(Restated)				(Restated)
For the Three Months Ended March 31, 2005
Net interest income		$	9,806			$	24,392			$	25,010			$	5,937			$	(8,223	)		$	56,922
Intersegment interest			(1,894	)			(832	)			(4,949	)			(435	)			8,110				—
Other revenue			17,838				4,315				12,525				1,908				(545	)			36,041
Intersegment revenues			24				66				—				—				(90	)			—
Total net revenues			25,774				27,941				32,586				7,410				(748	)			92,963
Other expense			41,637				18,326				28,440				5,993				2,717				97,113
Intersegment 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	)		$	5,551,781
For the Three Months Ended March 31, 2004
Net interest income		$	9,193			$	18,556			$	21,177			$	5,601			$	(3,470	)		$	51,057
Intersegment interest			(424	)			790				(2,380	)			—				2,014				—
Other revenue			59,867				4,646				16,905				448				(786	)			81,080
Intersegment revenues			—				130				(624	)			—				494				—
Total net revenues			68,636				24,122				35,078				6,049				(1,748	)			132,137
Other expense			51,603				14,634				24,662				4,025				5,512				100,436
Intersegment expenses			866				449				724				173				(2,212	)			—
Income (loss) before taxes			16,167				9,039				9,692				1,851				(5,048	)			31,701
Income taxes			6,435				3,622				3,883				2,144				(4,285	)			11,799
Net income (loss)		$	9,732			$	5,417			$	5,809			$	(293	)		$	(763	)		$	19,902
Assets 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

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

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

     The 11th Circuit subsequently decided all of the RESPA cases pending in that court. In one of those cases, the 11th Circuit concluded that the trial court had abused its discretion in certifying a class action under RESPA. Further, in that decision, the 11th Circuit expressly recognized it was, in effect, overruling its previous decision upholding class certification in our case. In March 2003, Irwin Mortgage filed a motion to decertify the class and the plaintiffs filed a renewed motion for summary judgment. On October 2, 2003 the case was reassigned to another U.S. district court judge. In response to an order from the court, the parties met and submitted a joint status report at the end of October 2003. On June 14, 2004, at the court’s request, the parties engaged in mediation, which was unsuccessful. The court then reassigned this case to a new judge. Pursuant to the court’s order on March 17, 2005, Irwin Mortgage filed a motion for summary judgment and updated its motion to decertify the class; the plaintiffs updated their motion for summary judgment.

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

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

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

     In January 2001, we and Irwin Leasing Corporation (formerly Affiliated Capital Corp.), our indirect subsidiary, and Irwin Equipment Finance Corporation, our direct subsidiary (together, the Irwin companies), were served as defendants in an action filed in the United States District Court for the Middle District of Pennsylvania. The suit alleges that a manufacturer/importer of certain medical devices made misrepresentations to health care professionals and to government officials to improperly obtain Medicare reimbursement for treatments using the devices, and that the Irwin companies, through Affiliated Capital’s financing activities, aided in making the alleged misrepresentations. On August 10, 2001, the court dismissed Irwin Financial and Irwin Equipment Finance as defendants in the suit. The Irwin companies prevailed on a motion for summary judgment in the district court on October 8, 2003, and the plaintiff appealed. The Court of Appeals for the 3rd Circuit heard oral argument on plaintiff’s appeal on September 27, 2004. On January 28, 2005, the court of appeals affirmed the district court’s dismissal of plaintiff’s action. The period during which the plaintiff can petition to the United States Supreme Court for writ of certiorari expires on April 28, 2005.

Stamper v. A Home of Your Own

     Our indirect subsidiary, Irwin Mortgage Corporation, is a defendant in a case filed in August 1998 in the Baltimore, Maryland, City Circuit Court. On January 25, 2002, a jury in this case awarded the plaintiffs damages of $1.434 million jointly and severally against defendants, including Irwin Mortgage. The nine plaintiff borrowers alleged that a home rehabilitation company defrauded the plaintiffs by selling them defective homes at inflated prices and that Irwin Mortgage, which provided the plaintiff borrowers mortgage loans on the home purchases, participated in the fraud. Irwin Mortgage filed an appeal with the Maryland Court of Special Appeals and oral argument was held on January 7, 2003. On February 27, 2004, the Court of Special Appeals ruled against Irwin Mortgage and remanded the case to the trial court for a partial retrial on whether the plaintiffs are entitled to punitive damages. Irwin Mortgage petitioned the Maryland Court of Appeals for a writ of certiorari on April 12, 2004. The Court of Appeals granted Irwin Mortgage’s petition and heard oral argument on November 4, 2004. On February 4, 2005, the Court of Appeals affirmed in part and reversed in part the judgment of the Court of Special Appeals, remanding the case as follows: to modify the judgment for all plaintiffs by striking the award of $145,000 per plaintiff for non-economic damages; for further proceedings concerning one plaintiff as to non-economic damages; and for a new trial as to punitive damages. We have reserved for this case based upon SFAS 5 guidance. [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.]

Silke v. Irwin Mortgage Corporation

     In April 2003, our indirect subsidiary, Irwin Mortgage Corporation, was named as a defendant in a class action lawsuit filed in the Marion County, Indiana, Superior Court. The complaint alleges that Irwin Mortgage charged a document preparation fee in violation of Indiana law for services performed by clerical personnel in completing legal documents related to mortgage loans. Irwin Mortgage filed an answer on June 11, 2003 and a motion for summary judgment on October 27, 2003. On June 18, 2004, the court certified a plaintiff class consisting of Indiana borrowers who were allegedly charged the fee by Irwin Mortgage any time after April 17, 1997. This date was later clarified by stipulation of the parties to be April 14, 1997. In November 2004, the court heard arguments on Irwin Mortgage’s motion for summary judgment and plaintiffs’ motion seeking to send out class notice. We are unable at this time to form a reasonable estimate of the amount of potential loss, if any, that Irwin Mortgage could suffer. We have not established any reserves for this case.

Cohens v. Inland Mortgage Corporation

     In October 2003, our indirect subsidiary, Irwin Mortgage Corporation (formerly Inland Mortgage Corporation), was named as a defendant, along with others, in an action filed in the Supreme Court of New York, County of Kings. The plaintiffs, a mother and two children, allege they were injured from lead contamination while living in premises allegedly owned by the defendants. The suit seeks approximately $41 million in damages and alleges negligence, breach of implied warranty of habitability and fitness for intended use, loss of services and the cost of medical treatment. Because the case is in the early stages of litigation, we are unable at this time to form a reasonable estimate of the amount of potential loss, if any, that Irwin Mortgage could suffer. The parties agreed to delay the filing of an answer in this case until April 29, 2005. We are attempting to obtain a voluntary dismissal based on our belief that there is insufficient nexus between the cause of the alleged injuries and Irwin Mortgage. We have not established any reserves for this case.

Litigation in Connection with Loans Purchased from Community Bank of Northern Virginia

     Our subsidiary, Irwin Union Bank and Trust Company, is a defendant in several actions in connection with loans Irwin Union Bank purchased from Community Bank of Northern Virginia (Community).

     Hobson v. Irwin Union Bank and Trust Company was filed on July 30, 2004 in the United States District Court for the Northern District of Alabama. As amended on August 30, 2004, the Hobson complaint, seeks certification of both a plaintiffs’ and a defendants’ class, the plaintiffs’ class to consist of all persons who obtained loans from Community and whose loans were purchased by Irwin Union Bank. Hobson alleges that defendants violated the Truth-in-Lending Act (TILA), the Home Ownership and Equity Protection Act (HOEPA), the Real Estate Settlement Procedures Act (RESPA) and the Racketeer Influenced and Corrupt Organizations Act (RICO). On October 12, 2004, Irwin filed a motion to dismiss the Hobson claims as untimely filed and substantively defective. On March 4, 2005, the court held a hearing on Irwin’s motion to dismiss.

     Kossler v. Community Bank of Northern Virginia was originally filed in July 2002 in the United States District Court for the Western District of Pennsylvania. Irwin Union Bank and Trust was added as a defendant in December 2004. The Kossler complaint seeks certification of a plaintiffs’ class and seeks to void the mortgage loans as illegal contracts. Plaintiffs also seek recovery against Irwin for alleged RESPA violations and for conversion.

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

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

     Irwin Union Bank and Trust Company is also a defendant, along with Community, in two individual actions (Chatfield v. Irwin Union Bank and Trust Company, et al. and Ransom v. Irwin Union Bank and Trust Company, et al.) filed on June 9, 2004 in the Circuit Court of Frederick County, Maryland, involving mortgage loans Irwin Union Bank purchased from Community. On July 16, 2004, both of these lawsuits were removed to the United States District Court for the District of Maryland. The complaints allege that the plaintiffs did not receive disclosures required under HOEPA and TILA. The lawsuits also allege violations of Maryland law because the plaintiffs were allegedly charged or contracted for a prepayment penalty fee. Irwin believes the plaintiffs received the required disclosures and that Community, a Virginia-chartered bank, was permitted to charge prepayment fees to Maryland borrowers. Under the loan purchase agreements between Irwin and Community, Irwin has the right to demand repurchase of the mortgage loans and to seek indemnification from Community for the claims in these lawsuits. On September 17, 2004, Irwin made a demand for indemnification and a defense to Hobson, Chatfield and Ransom. Community denied this request as premature.

     On December 22, 2004, Irwin filed a motion with the Judicial Panel On Multidistrict Litigation requesting a transfer of Hobson, Chatfield and Ransom to the Western District of Pennsylvania for coordinated or consolidated proceedings with the Kossler action. On March 31, 2005, the Judicial Panel On Multidistrict Litigation held a hearing on Irwin’s motion.

     At this early stage, we are unable to form a reasonable estimate of the amount of potential loss, if any, that Irwin could suffer. We have established a reserve for the Community litigation based upon SFAS 5 and the advice of legal counsel.

Litigation Related to NorVergence, Inc.

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

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

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

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

     In connection with investigations by various state attorneys general, Irwin Business Finance and other lenders were asked to produce information about their relationships with NorVergence and to refrain from enforcing NorVergence leases. Irwin Business Finance is pursuing discussions with all states in which it has customers who executed agreements with NorVergence and has discontinued collection activities while discussions are in progress. Although negotiations are ongoing in the following states, Irwin believes it has reached agreements in principle with: the Attorney General of California for recovery of 15% of outstanding balances on California leases as of July 15, 2004; the Attorney General of Florida, entitling Irwin to lease payments through January 31, 2005; and the Attorney General of New Jersey for recovery on a staggered scale based on the contract price, with full forgiveness for gross a contract price of $17,999 or less, to 75% forgiveness for a gross contract price of $30,000 or more. Irwin also is participating in negotiations with a multi-state group of attorneys general, which appears to be progressing towards an agreement that would require NorVergence lessees in their states to pay all amounts due through July 30, 2004, with the lenders, including Irwin, entitled to 15% of the then-outstanding balance.

     Prosecution of the suit filed on October 21, 2004, by the Attorney General of Florida against twelve lenders, including Irwin Business Finance, in the Circuit Court of the Second Judicial Circuit, Leon County, Florida (State of Florida v. Commerce Commercial Leasing, LLC et al.), has been stayed by agreement of the parties while they discuss resolution of the concerns expressed by the Florida Attorney General. The complaint alleges that the agreements assigned by NorVergence to the lenders are unconscionable under the Florida Deceptive and Unfair Trade Practices Act. The suit seeks to prohibit collection activities by the lenders and asks for repayment of revenues, rescission of the agreements, restitution, recovery of actual damages, and civil money penalties.

     The individual lawsuit filed against Irwin Business Finance in September 2004 in the Superior Court of Massachusetts has been put on hold pending discussions with the multi-state group of attorneys general, of which the Attorney General of Massachusetts is a participant.

     On April 5, 2005, Irwin Business Finance received an informal request for information and documents from the Federal Trade Commission. Irwin is in the process of responding to this request.

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

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

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

About Forward-looking Statements

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

     Forward-looking statements are based on management’s expectations, estimates, projections, and assumptions. These statements involve inherent risks and uncertainties that are difficult to predict and are not guarantees of future performance. In addition, our past results of operations do not necessarily indicate our future results. Words that convey our beliefs, expectations, assumptions, estimates, forecasts, outlook and projections or similar language, or that indicate events we believe could, would, should, may or will occur (or might not occur) or are likely (or unlikely) to occur, and similar expressions, are intended to identify forward-looking statements. These may include, among other things, statements and assumptions about:

	•		our projected revenues, earnings or earnings per share, as well as management’s short-term and long-term performance goals;
	•		projected trends or potential changes in our asset quality, loan delinquencies, asset valuations, capital ratios or financial performance measures;
	•		our plans and strategies, including the expected results or impact of implementing such plans and strategies;
	•		potential litigation developments and the anticipated impact of potential outcomes of pending legal matters;
	•		the anticipated effects on results of operations or financial condition from recent developments or events; and
	•		any other projections or expressions that are not historical facts.

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

	•		potential changes in and volatility of interest rates, which may affect consumer demand for our products and the management and success of our interest rate risk management strategies;
	•		staffing fluctuations in response to product demand;
	•		the relative profitability of our lending operations;
	•		the valuation and management of our 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;

	•		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.

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

Strategy

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

	•		Identify underserved niches. We focus on product or market niches in financial services that we believe are underserved and where we believe customers are willing to pay a premium for value-added services. We don’t believe it is necessary to be the largest or leading market share company in any of our product lines, but we do believe it is important that we are viewed as a preferred provider in niche segments of those product offerings.
	•		Hire exceptional management with niche expertise. We enter niches only when we have attracted senior managers who have proven track records in the niche for which they are responsible. Each of our 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 growth over the long term.
	•		Diversify capital and earnings risk. We diversify our revenues and allocate our capital across complementary lines of business as a key part of our risk management. Our lines of business are cyclical, but when combined in an appropriate mix, we believe they provide sources of diversification and opportunities for growth in a variety of economic conditions. For example, both the origination and servicing of residential mortgage loans are very cyclical businesses, which normally respond in opposite ways to changes in interest rates and show generally opposite effects in certain economic environments. We believe our participation in these markets has been profitable over time due to our dedication to participating in both segments of the mortgage banking business, rather than one or the other.
	•		Reinvest in new opportunities. We reinvest on an ongoing basis in the development of new and existing opportunities. As a result of our attention to long-term value creation, we believe it is important at times to dampen short-term earnings growth by investing for future return. We are biased toward seeking new growth through organic expansion of existing lines of business. At times we will initiate a new line through a start-up, with highly qualified managers we select to focus on a single line of business. Over the past ten years, we have made only a few acquisitions. Those have typically not been in competitive bidding situations.

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

Critical Accounting Policies

     Accounting estimates are an integral part of our financial statements and are based upon our current judgments. Certain accounting estimates are particularly sensitive because of their significance to the financial statements and because of the possibility that future events affecting them may differ from our current judgments or that our use of different assumptions could result in materially different estimates. Our Annual Report of Form 10-K provides a description of the critical accounting policies we apply to material financial statement items, all of which require the use of accounting estimates and/or judgment. In addition, below is our policy for incentive servicing fees. We have added this policy to our list of critical accounting policies due to the nature of the policy (requires accounting estimates and/or judgment) and the financial statement impact.

Incentive Servicing Fees

     Incentive Servicing Fees: For whole loan sales of certain home equity loans, in addition to our normal servicing fee, we have the right to an incentive servicing fee (ISF) that will provide cash payments to us if a pre-established return for the certificate holders and certain structure-specific loan credit and servicing performance metrics are met. These ISF arrangements are accounted for in accordance with SFAS 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.” When ISF agreements are entered into simultaneously with the whole loan sales, the fair value of the ISFs is estimated and considered when determining the initial gain or loss on sale. That allocated fair value of the ISF is periodically evaluated for impairment and amortized in accordance with SFAS 140. As long as the fair value is above the lower of cost or market (LOCOM) cap, revenue is recognized on a cash-due basis. When ISF agreements are entered into subsequent to the whole loan sale, these assets are assigned a zero value and revenue is recognized on a contingent basis as pre-established performance metrics are met and cash is due.

Consolidated Overview

		For the three months ended March 31,
		2005				2004
		(Restated)				(Restated)
Net income (millions)		$	(2.5)			$	19.9
Basic earnings per share			(0.09)				0.71
Diluted earnings per share			(0.09)				0.66
Return on average equity			(2.0)%				18.0%
Return on average assets			(0.2)				1.6

Consolidated Income Statement Analysis

Net Income

     We recorded a net loss of $2.5 million for the three months ended March 31, 2005, down 113% from net income of $19.9 million for the three months ended March 31, 2004. Net loss per share (diluted) was $0.09 for the quarter ended March 31, 2005, down 114% from $0.66 per share for the first quarter of 2004. Return on equity was (2.0)% for the three months ended March 31, 2005 and 18.0% for the same period in 2004.

Net Interest Income

     Net interest income for the three months ended March 31, 2005 totaled $60 million, up 2% from the first quarter 2004 net interest income of $59 million. Net interest margin for the three months ended March 31, 2005 was 5.17% compared to 5.59% for the same period in 2004. The decline in consolidated net interest margin related primarily to two segments due to product mix changes and pricing pressures.

     The following table shows our daily average consolidated balance sheet, interest rates and interest differential at the dates indicated:

		For the Three Months Ended March 31,
		2005												2004
										Annualized												Annualized
		Average								Yield/				Average								Yield/
		Balance				Interest				Rate				Balance				Interest				Rate
		(Dollars in thousands)
Assets
Interest-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												105,906
Premises and equipment, net			30,003												31,595
Other assets (Restated)			602,884												552,837
Less allowance for loan and lease losses			(44,955	)											(64,447	)
Total assets (Restated)		$	5,412,937											$	4,886,838
Liabilities and Shareholders’ Equity
Interest-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												866,721
Other liabilities (Restated)			292,407												296,541
Shareholders’ equity (Restated)			503,633												443,799
Total liabilities and shareholders’ equity (Restated)		$	5,412,937											$	4,886,838
Net interest income						$	60,213											$	59,203
Net interest income to average interest earning assets											5.17	%											5.59	%