IRWIN FINANCIAL CORP,.

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 September 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 October 30, 2006, there were outstanding 29,825,825 common shares, no par value, of the Registrant.

FORM 10-Q


		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		25
Item 3	Quantitative and Qualitative Disclosures About Market Risk		59
Item 4	Controls and Procedures		59
PART II	OTHER INFORMATION
Item 1	Legal Proceedings		59
Item 6	Exhibits		61
	Signatures		64
Certification by the CEO
Certification by the CFO
Section 906 Certification of the CEO
Section 906 Certification of the CFO

PART I. FINANCIAL INFORMATION.

Item 1. Financial Statements.

IRWIN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Unaudited)


	September 30,			December 31,
	2006			2005
	(Dollars in thousands)
Assets:
Cash and cash equivalents	$	131,177		$	155,417
Interest-bearing deposits with financial institutions		50,734			44,430
Residual interests		10,344			22,116
Investment securities- held-to-maturity (Fair value: $17,506 at September 30, 2006 and $17,031 at December 31, 2005)		17,858			17,046
Investment securities- available-for-sale		114,104			100,296
Loans held for sale		175,531			513,554
Loans and leases, net of unearned income — Note 4		5,101,135			4,477,943
Less: Allowance for loan and lease losses — Note 5		(70,635	)		(59,223	)

		5,030,500			4,418,720
Servicing assets — Note 6		32,017			34,445
Accounts receivable — Note 2		216,801			83,369
Accrued interest receivable		25,063			21,925
Premises and equipment		36,132			29,721
Other assets		81,750			86,572
Assets held for sale — Note 2		74,484			1,118,913

Total assets	$	5,996,495		$	6,646,524

Liabilities and Shareholders’ Equity:
Deposits
Noninterest-bearing	$	713,668		$	754,778
Interest-bearing		1,684,682			1,921,369
Certificates of deposit over $100,000		1,391,850			1,222,846

		3,790,200			3,898,993
Short-term borrowings — Note 7		264,239			997,444
Collateralized debt — Note 8		1,042,952			668,984
Other long-term debt — Note 9		233,892			270,160
Other liabilities		142,157			210,773
Liabilities held for sale — Note 2		—			87,836

Total liabilities		5,473,440			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 29,794,221 shares as of September 30, 2006 and 29,612,080 as of December 31, 2005; 993,643 shares in treasury as of December 31, 2005		114,689			112,000
Additional paid-in capital		—			—
Deferred compensation		—			(759	)
Accumulated other comprehensive income, net of deferred income tax benefit of $185 at September 30, 2006 and liability of $71 as of December 31, 2005		3,970			3,448
Retained earnings		404,396			418,784

		523,055			533,473
Less treasury stock, at cost		—			(21,139	)

Total shareholders’ equity		523,055			512,334

Total liabilities and shareholders’ equity	$	5,996,495		$	6,646,524

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

IRWIN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)


	Three Months Ended September 30,
	2006			2005
	(Dollars in thousands, except per share)
Interest income:
Loans and leases	$	113,923		$	85,550
Loans held for sale		7,075			10,726
Residual interests		279			1,491
Investment securities		2,422			1,961
Federal funds sold		89			56

Total interest income		123,788			99,784

Interest expense:
Deposits		34,322			21,780
Short-term borrowings		4,114			2,769
Collateralized debt		14,306			8,550
Other long-term debt		5,520			7,323

Total interest expense		58,262			40,422

Net interest income		65,526			59,362
Provision for loan and lease losses — Note 5		9,135			5,955

Net interest income after provision for loan and lease losses		56,391			53,407
Other income:
Loan servicing fees		6,207			11,060
Amortization of servicing assets — Note 6		(5,338	)		(9,037	)
(Impairment) recovery of servicing assets — Note 6		(5	)		886

Net loan administration income		864			2,909
Gain from sales of loans		1,640			6,131
Trading gains		968			333
Derivative losses, net		(2,302	)		(2,036	)
Other		6,177			6,981

		7,347			14,318

Other expense:
Salaries		25,903			27,513
Pension and other employee benefits		6,586			6,476
Office expense		2,413			2,178
Premises and equipment		5,040			5,091
Marketing and development		614			710
Professional fees		2,479			2,441
Other		7,829			4,560

		50,864			48,969

Income before income taxes from continuing operations		12,874			18,756
Provision for income taxes		3,641			5,520

Net income from continuing operations		9,233			13,236

(Loss) income from discontinued operations, net of $8,976 tax benefit and $3,562 income tax expense, respectively — Note 2		(13,440	)		5,257

Net (loss) income	$	(4,207	)	$	18,493


Earnings per share from continuing operations: — Note 11
Basic	$	0.31		$	0.46

Diluted	$	0.31		$	0.46


Earnings per share: — Note 11
Basic	$	(0.14	)	$	0.65

Diluted	$	(0.14	)	$	0.64

Dividends per share	$	0.11		$	0.10

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

IRWIN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)


	Nine Months Ended September 30,
	2006			2005
	(Dollars in thousands, except per share)
Interest income:
Loans and leases	$	316,904		$	222,670
Loans held for sale		28,285			28,722
Residual interests		1,409			5,824
Investment securities		6,129			5,513
Federal funds sold		137			284

Total interest income		352,864			263,013

Interest expense:
Deposits		98,621			54,578
Short-term borrowings		11,613			5,282
Collateralized debt		37,013			17,348
Other long-term debt		14,641			15,741

Total interest expense		161,888			92,949

Net interest income		190,976			170,064
Provision for loan and lease losses — Note 5		25,154			18,402

Net interest income after provision for loan and lease losses		165,822			151,662
Other income:
Loan servicing fees		25,164			30,824
Amortization of servicing assets — Note 6		(17,866	)		(23,253	)
Recovery of servicing assets — Note 6		978			1,153

Net loan administration income		8,276			8,724
Gain from sales of loans		816			20,218
Trading gains		751			3,942
Derivative gains (losses), net		1,138			(1,686	)
Other		19,408			19,586

		30,389			50,784

Other expense:
Salaries		81,632			83,820
Pension and other employee benefits		21,985			20,394
Office expense		6,698			6,363
Premises and equipment		15,513			15,972
Marketing and development		2,004			3,484
Professional fees		7,346			7,979
Other		19,794			20,367

		154,972			158,379

Income before income taxes from continuing operations		41,239			44,067
Provision for income taxes		14,347			15,903

Net income from continuing operations		26,892			28,164

Loss from discontinued operations, net of $20,056 and $10,545 income tax benefit, respectively — Note 2		(30,086	)		(15,628	)

Net (loss) income	$	(3,194	)	$	12,536

Earnings per share from continuing operations: — Note 11
Basic	$	0.91		$	0.99

Diluted	$	0.90		$	0.98


Earnings per share: — Note 11
Basic	$	(0.11	)	$	0.44

Diluted	$	(0.12	)	$	0.44

Dividends per share	$	0.33		$	0.30

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 September 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 July 1, 2006	$	529,581		$	411,654		$	4,361		$	(747	)	$	697		$	(274	)	$	—		$	—		$	113,890	$	—
Net loss		(4,207	)		(4,207	)
Unrealized gain on investment securities net of $199 tax liability		299									299
Unrealized loss on derivative net of $212 tax benefit		(318	)											(318	)
Foreign currency adjustment		(48	)					(48	)

Other comprehensive loss		(67	)

Total comprehensive loss		(4,274	)
Deferred compensation		(63	)		(63	)														—
Cash dividends		(3,277	)		(3,277	)
Tax benefit on stock option exercises		30																					30
Stock option expense		312																					312
Stock:
Purchase of 2,674 shares		(52	)																									(52	)
Sales of 47,922 shares		798			289																		(342	)		799		52

Balance at September 30, 2006	$	523,055		$	404,396		$	4,313		$	(448	)	$	379		$	(274	)	$	—		$	—		$	114,689	$	—


Balance at July 1, 2005	$	490,575		$	399,985		$	2,319		$	(72	)	$	29		$	(254	)	$	(677	)	$	—		$	112,000	$	(22,755	)
Net income		18,493			18,493
Unrealized loss on investment securities net of $61 tax benefit		(90	)								(90	)
Unrealized gain on derivative net of $394 tax liability		590												590
Foreign currency adjustment		983						983

Other comprehensive income		1,483

Total comprehensive income		19,976
Deferred compensation		(150	)																	(150	)
Cash dividends		(2,859	)		(2,859	)
Tax benefit on stock option exercises		89																					89
Treasury stock:
Purchase of 6,544 shares		(137	)																									(137	)
Sales of 53,938 shares		885			(339	)																	(89	)				1,313

Balance at September 30, 2005	$	508,379		$	415,280		$	3,302		$	(162	)	$	619		$	(254	)	$	(827	)	$	—		$	112,000	$	(21,579	)

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 Nine Months Ended September 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 loss		(3,194	)		(3,194	)
Unrealized loss on investment securities net of $50 tax benefit		(75	)							(75	)
Unrealized loss on derivative net of $250 tax benefit		(375	)