UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
     
þ   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2006
     
o   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                      .
Commission File Number: 0-6835
IRWIN FINANCIAL CORPORATION
(Exact Name of Corporation as Specified in its Charter)
     
Indiana   35-1286807
     
(State or Other Jurisdiction of Incorporation or Organization)   (I.R.S. Employer Identification No.)
     
500 Washington Street Columbus, Indiana   47201
     
(Address of Principal Executive Offices)   (Zip Code)
     
(812) 376-1909   www.irwinfinancial.com
     
(Corporation’s Telephone Number, Including Area Code)   (Web Site)
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 a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act (Check one):
               Large accelerated filer o   Accelerated filer þ   Non-accelerated filer o                
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
o Yes þ No
As of July 28, 2006, there were outstanding 29,757,943 common shares, no par value, of the Registrant.
 
 

FORM 10-Q
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     23  
Item 3
  Quantitative and Qualitative Disclosures About Market Risk     58  
Item 4
  Controls and Procedures     58  
PART II
  OTHER INFORMATION        
Item 1
  Legal Proceedings     58  
Item 4
  Submission of Matters to a Vote of Security Holders     59  
Item 6
  Exhibits     60  
 
  Signatures     63  
  Irwin Financial Corporation Amended and Restated Short Term Incentive Plan
  Irwin Commercial Finance Amended and Restated Short Term Incentive Plan
  Irwin Home Equity Amended and Restated Short Term Incentive Plan
  Irwin Union Bank and Trust Company Amended and Restated Short Term Incentive Plan
  Certification Pursuant to Section 302 - CEO
  Certification Pursuant to Section 302 - CFO
  Certification of the CEO under Section 906
  Certification of the CFO under Section 906

2

PART I. FINANCIAL INFORMATION.
Item 1. Financial Statements.
IRWIN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Unaudited)
                 
    June 30,     December 31,  
    2006     2005  
    (Dollars in thousands)  
Assets:
               
Cash and cash equivalents
  $ 154,619     $ 155,417  
Interest-bearing deposits with financial institutions
    45,226       44,430  
Residual interests
    15,036       22,116  
Investment securities- held-to-maturity (Fair value: $17,245 at June 30, 2006 and $17,031 at December 31, 2005)
    17,579       17,046  
Investment securities- available-for-sale
    111,010       100,296  
Loans held for sale
    148,561       513,554  
Loans and leases, net of unearned income — Note 4
    4,909,930       4,477,943  
Less: Allowance for loan and lease losses — Note 5
    (66,921 )     (59,223 )
     
 
    4,843,009       4,418,720  
Servicing assets — Note 6
    33,308       34,445  
Accounts receivable
    38,557       83,369  
Accrued interest receivable
    21,993       21,925  
Premises and equipment
    32,542       29,721  
Other assets
    96,850       86,572  
Assets held for sale — Note 2
    957,701       1,118,913  
     
Total assets
  $ 6,515,991     $ 6,646,524  
     
Liabilities and Shareholders’ Equity:
               
Deposits
               
Noninterest-bearing
  $ 801,861     $ 754,778  
Interest-bearing
    1,766,501       1,921,369  
Certificates of deposit over $100,000
    1,299,991       1,222,846  
     
 
    3,868,353       3,898,993  
Short-term borrowings — Note 7
    753,880       997,444  
Collateralized debt — Note 8
    854,233       668,984  
Other long-term debt — Note 9
    249,360       270,160  
Other liabilities
    173,721       210,773  
Liabilities held for sale — Note 2
    86,863       87,836  
     
Total liabilities
    5,986,410       6,134,190  
     
Commitments and contingencies — Note 14
               
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 29,748,973 shares as of June 30, 2006 and 29,612,080 as of December 31, 2005; 993,643 shares in treasury as of December 31, 2005
    113,890       112,000  
Additional paid-in capital
    —       —  
Deferred compensation
    —       (759 )
Accumulated other comprehensive income, net of deferred income tax credit of $144 at June 30, 2006 and liability of $71 as of December 31, 2005
    4,037       3,448  
Retained earnings
    411,654       418,784  
     
 
    529,581       533,473  
Less treasury stock, at cost
    —       (21,139 )
     
Total shareholders’ equity
    529,581       512,334  
     
Total liabilities and shareholders’ equity
  $ 6,515,991     $ 6,646,524  
     
The accompanying notes are an integral part of the consolidated financial statements.

3

IRWIN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
                 
    Three Months Ended June 30,  
    2006     2005  
    (Dollars in thousands, except per share)  
Interest income:
               
Loans and leases
  $ 105,096     $ 71,794  
Loans held for sale
    9,804       9,781  
Residual interests
    321       1,994  
Investment securities
    1,711       1,403  
Federal funds sold
    21       178  
 
           
Total interest income
    116,953       85,150  
 
           
Interest expense:
               
Deposits
    34,619       18,124  
Short-term borrowings
    3,393       2,555  
Collateralized debt
    11,596       4,484  
Other long-term debt
    4,130       4,168  
 
           
Total interest expense
    53,738       29,331  
 
           
Net interest income
    63,215       55,819  
Provision for loan and lease losses — Note 5
    6,826       8,966  
 
           
Net interest income after provision for loan and lease losses
    56,389       46,853  
Other income:
               
Loan servicing fees
    10,849       10,445  
Amortization of servicing assets — Note 6
    (6,052 )     (8,108 )
Recovery of servicing assets — Note 6
    409       356  
 
           
Net loan administration income
    5,206       2,693  
(Loss) gain from sales of loans
    (3,591 )     4,535  
Trading (losses) gains
    (492 )     2,316  
Derivative gains, net
    672       248  
Other
    5,910       5,877  
 
           
 
    7,705       15,669  
 
               
Other expense:
               
Salaries
    28,372       26,479  
Pension and other employee benefits
    7,627       6,540  
Office expense
    2,190       2,196  
Premises and equipment
    5,398       5,031  
Marketing and development
    722       1,445  
Professional fees
    2,444       2,078  
Other
    4,062       9,239  
 
           
 
    50,815       53,008  
 
           
Income before income taxes from continuing operations
    13,279       9,514  
Provision for income taxes
    5,221       4,245  
 
           
Net income from continuing operations
    8,058       5,269  
 
           
Loss from discontinued operations, net of $3,447 and $6,364 income tax credit, respectively — Note 2
    (5,187 )     (8,680 )
 
           
Net income (loss)
  $ 2,871     $ (3,411 )
 
           
 
               
Earnings per share from continuing operations: — Note 11
               
Basic
  $ 0.27     $ 0.18  
 
           
Diluted
  $ 0.27     $ 0.18  
 
           
 
               
Earnings per share: — Note 11
               
Basic
  $ 0.10     $ (0.12 )
 
           
Diluted
  $ 0.09     $ (0.12 )
 
           
Dividends per share
  $ 0.11     $ 0.10  
 
           
The accompanying notes are an integral part of the consolidated financial statements.

4

IRWIN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
                 
    Six Months Ended June 30,  
    2006     2005  
    (Dollars in thousands, except per share)  
Interest income:
               
Loans and leases
  $ 202,981     $ 137,120  
Loans held for sale
    21,210       17,996  
Residual interests
    843       4,333  
Investment securities
    3,039       2,633  
Federal funds sold
    48       228  
 
           
Total interest income
    228,121       162,310  
 
           
Interest expense:
               
Deposits
    64,299       32,798  
Short-term borrowings
    7,499       3,986  
Collateralized debt
    22,707       8,798  
Other long-term debt
    9,121       8,418  
 
           
Total interest expense
    103,626       54,000  
 
           
Net interest income
    124,495       108,310  
Provision for loan and lease losses — Note 5
    16,019       12,447  
 
           
Net interest income after provision for loan and lease losses
    108,476       95,863  
Other income:
               
Loan servicing fees
    18,957       19,763  
Amortization of servicing assets — Note 6
    (12,528 )     (14,216 )
Recovery of servicing assets — Note 6
    983       267  
 
           
Net loan administration income
    7,412       5,814  
(Loss) gain from sales of loans
    (823 )     14,087  
Trading (losses) gains
    (265 )     2,796  
Derivative gains, net
    3,439       350  
Other
    11,404       10,801  
 
           
 
    21,167       33,848  
 
               
Other expense:
               
Salaries
    54,902       55,473  
Pension and other employee benefits
    15,400       13,919  
Office expense
    4,284       4,185  
Premises and equipment
    10,394       10,801  
Marketing and development
    1,390       2,774  
Professional fees
    4,818       5,488  
Other
    11,966       15,807  
 
           
 
    103,154       108,447  
 
           
Income before income taxes from continuing operations
    26,489       21,264  
Provision for income taxes
    9,955       8,764  
 
           
Net income from continuing operations
    16,534       12,500  
 
           
Loss from discontinued operations, net of $10,330 and $12,488 income tax credit, respectively — Note 2
    (15,521 )     (18,457 )
 
           
Net income (loss)
  $ 1,013     $ (5,957 )
 
           
 
               
Earnings per share from continuing operations: — Note 11
               
Basic
  $ 0.56     $ 0.44  
 
           
Diluted
  $ 0.56     $ 0.43  
 
           
 
               
Earnings per share: — Note 11
               
Basic
  $ 0.03     $ (0.21 )
 
           
Diluted
  $ 0.03     $ (0.21 )
 
           
Dividends per share
  $ 0.22     $ 0.20  
 
           
The accompanying notes are an integral part of the consolidated financial statements.

5

IRWIN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited)
For the Three Months Ended June 30, 2006, and 2005
                                                                                 
                    Accumulated Other Comprehensive Income                            
                                            Minimum             Additional              
            Retained     Foreign     Unrealized Gain/Loss     SERP     Deferred     Paid in     Common     Treasury  
    Total     Earnings     Currency     Securities     Derivatives     Liability     Compensation     Capital     Stock     Stock  
    (Dollars in thousands)  
Balance at April 1, 2006
  $ 527,693     $ 411,274     $ 3,188     $ (492 )   $ 748     $ (274 )   $ —     $ —     $ 113,249     $ —  
Net income
    2,871       2,871                                                                  
Unrealized loss on investment securities net of $170 tax benefit
    (255 )                     (255 )                                                
Unrealized loss on derivative net of $34 tax benefit
    (51 )                             (51 )                                        
Foreign currency adjustment
    1,173               1,173                                                          
 
                                                                             
Other comprehensive income
    867                                                                          
 
                                                                             
Total comprehensive income
    3,738                                                                          
Deferred compensation
    (77 )     (77 )                                     —                          
Cash dividends
    (3,273 )     (3,273 )                                                                
Tax benefit on stock option exercises
    —                                                       —                  
Stock option expense
    854                                                       854                  
Stock:
                                                                               
Purchase of 1,253 shares
    (25 )                                                                     (25 )
Sales of 35,231 shares
    671       859                                               (854 )     641       25  
     
Balance at June 30, 2006
  $ 529,581     $ 411,654     $ 4,361     $ (747 )   $ 697     $ (274 )   $ —     $ —     $ 113,890     $ —  
     
 
                                                                               
Balance at April 1, 2005
  $ 496,221     $ 406,406     $ 2,527     $ (237 )   $ —     $ (254 )   $ (679 )   $ —     $ 112,000     $ (23,542 )
Net loss
    (3,411 )     (3,411 )                                                                
Unrealized gain on investment securities net of $110 tax liability
    165                       165                                                  
Unrealized gain on derivative net of $19 tax liability
    29                               29                                          
Foreign currency adjustment
    (208 )             (208 )                                                        
 
                                                                             
Other comprehensive loss
    (14 )                                                                        
 
                                                                             
Total comprehensive loss
    (3,425 )                                                                        
Deferred compensation
    2                                               2                          
Cash dividends
    (2,855 )     (2,855 )                                                                
Tax benefit on stock option exercises
    28                                                       28                  
Treasury stock:
                                                                               
Purchase of 7,240 shares
    (153 )                                                                     (153 )
Sales of 40,824 shares
    758       (154 )                                             (28 )             940  
     
Balance at June 30, 2005
  $ 490,576     $ 399,986     $ 2,319     $ (72 )   $ 29     $ (254 )   $ (677 )   $ —     $ 112,000     $ (22,755 )
     
The accompanying notes are an integral part of the consolidated financial statements.

6

IRWIN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited)
For the Six Months Ended June 30, 2006, and 2005
                                                                                 
                    Accumulated Other Comprehensive Income                            
                                            Minimum             Additional              
            Retained     Foreign     Unrealized Gain/Loss     SERP     Deferred     Paid in     Common     Treasury  
    Total     Earnings     Currency     Securities     Derivatives     Liability     Compensation     Capital     Stock     Stock  
    (Dollars in thousands)  
Balance at January 1, 2006
  $ 512,334     $ 418,784     $ 3,341     $ (373 )   $ 754     $ (274 )   $ (759 )   $ —     $ 112,000     $ (21,139 )
Net income
    1,013       1,013                                                                  
Unrealized loss on investment securities net of