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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q/A
Amendment No. 1
(Mark One)
     
þ   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 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
(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 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). Yes  o  No  o
As of July 25, 2005, there were 28,547,237 outstanding common shares, no par value, of the Registrant.
 
 

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EXPLANATORY NOTE
     This Report on Form 10-Q/A amends the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2005, as initially filed with the Securities and Exchange Commission on July 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 June 30, 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     21  
Item 3
  Quantitative and Qualitative Disclosures About Market Risk     57  
Item 4
  Controls and Procedures     57  
PART II
  OTHER INFORMATION        
Item 1
  Legal Proceedings     59  
Item 4
  Submission of Matters to a Vote of Security Holders     60  
Item 6
  Exhibits     61  
 
  Signatures     64  
  Certification of the CEO
  Certification of the CFO
  Certification of the CEO
  Certification of the CFO

2

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PART I. FINANCIAL INFORMATION.
Item 1. Financial Statements.
IRWIN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Unaudited)
                 
    June 30,     December 31,  
    2005     2004  
    (Dollars in thousands)  
    (Restated)     (Restated)  
Assets:
               
Cash and cash equivalents
  $ 173,416     $ 97,101  
Interest-bearing deposits with financial institutions
    78,038       58,936  
Residual interests
    44,122       56,101  
Investment securities- held-to-maturity (Fair value: $4,673 at June 30, 2005 and $4,952 at December 31, 2004)
    4,664       4,942  
Investment securities- available-for-sale
    103,049       103,280  
Loans held for sale
    1,047,446       890,711  
Loans and leases, net of unearned income — Note 3
    4,076,511       3,450,440  
Less: Allowance for loan and lease losses — Note 4
    (50,935 )     (44,443 )
 
           
 
    4,025,576       3,405,997  
Servicing assets — Note 5
    287,390       367,032  
Accounts receivable
    150,763       122,131  
Accrued interest receivable
    18,402       15,428  
Premises and equipment
    30,803       30,240  
Other assets
    115,447       83,921  
 
           
Total assets
  $ 6,079,116     $ 5,235,820  
 
           
Liabilities and Shareholders’ Equity:
               
Deposits
               
Noninterest-bearing
  $ 1,091,352     $ 975,925  
Interest-bearing
    1,899,589       1,774,727  
Certificates of deposit over $100,000
    850,022       644,611  
 
           
 
    3,840,963       3,395,263  
Short-term borrowings — Note 6
    402,491       237,277  
Collateralized debt — Note 7
    809,673       547,477  
Other long-term debt
    270,166       270,172  
Other liabilities
    265,247       284,446  
 
           
Total liabilities
    5,588,540       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 June 30, 2005 and December 31, 2004, including 1,059,448 and 1,159,684, shares in treasury as of June 30, 2005 and December 31, 2004, respectively
    112,000       112,000  
Additional paid-in capital
    —       383  
Deferred compensation
    (677 )     (660 )
Accumulated other comprehensive income, net of deferred income tax benefits of $197 at June 30, 2005 and $129 as of December 31, 2004
    2,022       2,454  
Retained earnings
    399,986       412,027  
 
           
 
    513,331       526,204  
Less treasury stock, at cost
    (22,755 )     (25,019 )
 
           
Total shareholders’ equity
    490,576       501,185  
 
           
Total liabilities and shareholders’ equity
  $ 6,079,116     $ 5,235,820  
 
           
The accompanying notes are an integral part of the consolidated financial statements.

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IRWIN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
                 
    For the Three Months Ended June 30,  
    2005     2004  
    (Dollars in thousands, except per share)  
    (Restated)     (Restated)  
Interest income:
               
Loans and leases
  $ 71,940     $ 58,425  
Loans held for sale
    21,595       22,212  
Residual interests
    1,994       3,285  
Investment securities
    1,836       1,153  
Federal funds sold
    178       21  
 
           
Total interest income
    97,543       85,096  
 
           
Interest expense:
               
Deposits
    18,124       10,058  
Short-term borrowings
    4,158       2,193  
Collateralized debt
    4,483       2,914  
Other long-term debt
    5,933       5,675  
 
           
Total interest expense
    32,698       20,840  
 
           
Net interest income
    64,845       64,256  
Provision for loan and lease losses — Note 4
    8,872       1,794  
 
           
Net interest income after provision for loan and lease losses
    55,973       62,462  
Other income:
               
Loan servicing fees
    34,230       33,855  
Amortization of servicing assets — Note 5
    (26,377 )     (29,656 )
(Impairment) recovery of servicing assets — Note 5
    (50,275 )     71,950  
 
           
Net loan administration (loss) income
    (42,422 )     76,149  
Gain from sales of loans
    21,538       39,274  
Gain on sale of mortgage servicing assets
    5,471       1,928  
Trading gains
    2,229       6,669  
Derivative gains (losses), net
    23,934       (53,815 )
Other
    7,663       6,314  
 
           
 
    18,413       76,519  
Other expense:
               
Salaries
    40,336       54,783  
Pension and other employee benefits
    8,726       10,938  
Office expense
    3,495       4,942  
Premises and equipment
    8,613       10,339  
Marketing and development
    2,284       3,932  
Professional Fees
    3,282       5,459  
Other
    13,180       17,364  
 
           
 
    79,916       107,757  
 
           
(Loss) income before income taxes
    (5,530 )     31,224  
Provision for income taxes
    (2,119 )     12,942  
 
           
Net (loss) income
  $ (3,411 )   $ 18,282  
 
           
Earnings per share: — Note 9
               
Basic
  $ (0.12 )   $ 0.65  
 
           
Diluted
  $ (0.12 )   $ 0.61  
 
           
Dividends per share
  $ 0.10     $ 0.08  
 
           
The accompanying notes are an integral part of the consolidated financial statements.

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IRWIN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
                 
    For the Six Months Ended June 30,  
    2005     2004  
    (Dollars in thousands, except per share)  
    (Restated)     (Restated)  
Interest income:
               
Loans and leases
  $ 137,431     $ 119,671  
Loans held for sale
    40,166       36,285  
Residual interests
    4,334       6,543  
Investment securities
    3,551       2,362  
Federal funds sold
    228       38  
 
           
Total interest income
    185,710       164,899  
 
           
Interest expense:
               
Deposits
    32,798       19,548  
Short-term borrowings
    7,267       3,815  
Collateralized debt
    8,798       6,719  
Other long-term debt
    11,789       11,358  
 
           
Total interest expense
    60,652       41,440  
 
           
Net interest income
    125,058       123,459  
Provision for loan and lease losses — Note 4
    12,163       9,940  
 
           
Net interest income after provision for loan and lease losses
    112,895       113,519  
Other income:
               
Loan servicing fees
    69,173       66,903  
Amortization of servicing assets — Note 5
    (53,696 )     (61,343 )
(Impairment) recovery of servicing assets — Note 5
    (17,874 )     24,567  
 
           
Net loan administration (loss) income
    (2,397 )     30,127  
Gain from sales of loans
    56,062       92,043  
Gain on sale of mortgage servicing assets
    6,656       8,417  
Trading gains
    3,609       11,342  
Derivative (losses) gains, net
    (23,348 )     3,256  
Other
    13,872       12,414  
 
           
 
    54,454       157,599  
Other expense:
               
Salaries
    88,532       104,616  
Pension and other employee benefits
    20,770       22,685  
Office expense
    7,315       9,679  
Premises and equipment
    18,912       20,794  
Marketing and development
    5,100       7,567  
Professional Fees
    7,895       9,303  
Other
    28,506       33,549  
 
           
 
    177,030       208,193  
 
           
Income before income taxes
    (9,681 )     62,925  
Provision for income taxes
    (3,724 )     24,741  
 
           
Net income
  $ (5,957 )   $ 38,184  
 
           
Earnings per share: — Note 9
               
Basic
  $ (0.21 )   $ 1.35  
 
           
Diluted
  $ (0.21 )   $ 1.27  
 
           
Dividends per share
  $ 0.20     $ 0.16  
 
           
The accompanying notes are an integral part of the consolidated financial statements.

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IRWIN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited)
For the Three Months Ended June 30, 2005, and 2004
                                                         
                    Accumulated                            
                    Other             Additional              
            Retained     Comprehensive     Deferred     Paid in     Common     Treasury  
    Total     Earnings     Income (Loss)     Compensation     Capital     Stock     Stock  
    (Dollars in thousands)  
Balance at April 1, 2005 (Restated)
  $ 496,221     $ 406,406     $ 2,036     $ (679 )   $ —     $ 112,000     $ (23,542 )
Net loss (Restated)
    (3,411 )     (3,411 )                                        
Unrealized gain on investment securities net of $110 tax liability
    165               165                                  
Unrealized gain on interest rate hedge net of $19 tax liability
    29               29                                  
Foreign currency adjustment
    (208 )             (208 )                                
 
                                                     
Total comprehensive loss (Restated)
    (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 (Restated)
  $ 490,576     $ 399,986     $ 2,022     $ (677 )   $ —     $ 112,000     $ (22,755 )
 
                                         
Balance at April 1, 2004 (Restated)
  $ 452,746     $ 370,289     $ 90     $ (540 )   $ 595     $ 112,000     $ (29,688 )
Net income (Restated)
    18,282       18,282                                          
Unrealized loss on investment securities net of $92 tax benefit
    (138 )             (138 )                                
Unrealized gain on interest rate cap net of $185 tax liability
    278               278                                  
Foreign currency adjustment
    (159 )             (159 )                                
 
                                                     
Total comprehensive income (Restated)
    18,263                                                  
Deferred compensation
    2                       2                          
Cash dividends
    (2,263 )     (2,263 )                                        
Tax benefit on stock option exercises
    17                               17                  
Treasury stock:
                                                       
Purchase of 533 shares
    (14 )                                             (14 )
Sales of 28,057 shares
    633                               (33 )             666  
 
                                         
Balance at June 30, 2004 (Restated)
  $ 469,384     $ 386,308     $ 71     $ (538 )   $ 579     $ 112,000     $ (29,036 )
 
                                         
The accompanying notes are an integral part of the consolidated financial statements.

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IRWIN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited)
For the Six Months Ended June 30, 2005, and 2004
                                                         
                    Accumulated                            
                    Other             Additional              
            Retained     Comprehensive     Deferred     Paid in     Common     Treasury  
    Total     Earnings     Income (Loss)     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 income (Restated)
    (5,957 )     (5,957 )                                        
Unrealized loss on investment securities net of $87 tax benefit
    (131 )             (131 )                                
Unrealized gain on interest rate hedge net of $19 tax liability
    28               28                                  
Foreign currency adjustment
    (329 )             (329 )                                
 
                                                     
Total comprehensive income (Restated)
    (6,389 )                                                
Deferred compensation
    (17 )                     (17 )                        
Cash dividends
    (5,706 )     (5,706 )                                        
Tax benefit on stock option exercises
    527                               527                  
Treasury stock:
                                                       
Purchase of 44,379 shares
    (1,061 )                                             (1,061 )
Sales of 144,615 shares
    2,037       (378 )                     (910 )             3,325  
 
                                         
Balance at June 30, 2005 (Restated)
  $ 490,576     $ 399,986     $ 2,022     $ (677 )   $ —     $ 112,000     $ (22,755 )
 
                                         
Balance at January 1, 2004
  $ 432,260     $ 352,647     $ 182     $ (504 )   $ 1,264     $ 112,000     $ (33,329 )
Net income (Restated)
    38,184       38,184                                          
Unrealized loss on investment securities net of $49 tax benefit
    (73 )             (73 )                                
Unrealized gain on interest rate cap net of $131 tax liability
    196               196                                  
Foreign currency adjustment
    (234 )             (234 )                                
 
                                                     
Total comprehensive income (Restated)
    38,073                                                  
Deferred compensation
    (34 )                     (34 )                        
Cash dividends
    (4,523 )     (4,523 )                                        
Tax benefit on stock option exercises
    678