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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2004

[  ] 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.

[ X ] Yes             [   ] No

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

[ X ] Yes             [   ] No

As of October 25, 2004, there were 28,350,990 outstanding common shares, no par value, of the Registrant.

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Table of Contents

FORM 10-Q
TABLE OF CONTENTS

             
        PAGE
        NO.
  FINANCIAL INFORMATION        
  Financial Statements     3  
  Management's Discussion and Analysis of Financial Condition and Results of Operations     22  
  Quantitative and Qualitative Disclosures About Market Risk     56  
  Controls and Procedures     57  
  OTHER INFORMATION        
  Legal Proceedings     58  
  Exhibits     61  
 
   Signatures     64  
 302 Certification of Chief Executive Officer
 302 Certification of Chief Financial Officer
 906 Certification of Chief Executive Officer
 906 Certification of Chief Financial Officer

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PART I. FINANCIAL INFORMATION.

Item 1. Financial Statements.

IRWIN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Unaudited)

                 
    September 30,   December 31,
    2004
   2003
    (Dollars in thousands)
Assets:
                
Cash and cash equivalents
   $ 213,458     $ 140,810  
Interest-bearing deposits with financial institutions
     58,450       81,166  
Residual interests
     70,968       71,491  
Investment securities- held-to-maturity (Market value: $30,175 at September 30, 2004 and $24,971 at December 31, 2003)
     30,152       24,956  
Investment securities- available-for-sale
     77,516       67,569  
Loans held for sale
     971,357       883,895  
Loans and leases, net of unearned income — Note 2
     3,401,643       3,161,054  
Less: Allowance for loan and lease losses — Note 3
     (47,796 )     (64,285 )
 
    
 		      
 		  
 
     3,353,847       3,096,769  
Servicing assets — Note 4
     389,171       380,123  
Accounts receivable
     84,018       62,045  
Accrued interest receivable
     16,208       15,502  
Premises and equipment, net
     31,444       32,208  
Other assets
     118,982       131,825  
 
    
 		      
 		  
Total assets
   $ 5,415,571     $ 4,988,359  
 
    
 		      
 		  
Liabilities and Shareholders’ Equity:
                
Deposits
                
Noninterest-bearing
   $ 981,327     $ 850,529  
Interest-bearing
     1,777,900       1,352,763  
Certificates of deposit over $100,000
     727,230       696,370  
 
    
 		      
 		  
 
     3,486,457       2,899,662  
Short-term borrowings — Note 5
     132,691       429,758  
Collateralized debt — Note 6
     667,797       590,131  
Other long-term debt — Note 7
     270,175       270,184  
Other liabilities
     372,104       366,364  
 
    
 		      
 		  
Total liabilities
     4,929,224       4,556,099  
 
    
 		      
 		  
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 September 30, 2004 and December 31, 2003, respectively; including 1,277,059 and 1,477,778, shares in treasury as of September 30, 2004 and December 31, 2003, respectively
     112,000       112,000  
Additional paid-in capital
     557       1,264  
Deferred compensation
     (516 )     (504 )
Accumulated other comprehensive loss, net of deferred income tax expense of $540 and $120 as of September 30, 2004, and December 31, 2003, respectively
     810       182  
Retained earnings
     401,338       352,647  
 
    
 		      
 		  
 
     514,189       465,589  
Less treasury stock, at cost
     (27,842 )     (33,329 )
 
    
 		      
 		  
Total shareholders’ equity
     486,347       432,260  
 
    
 		      
 		  
Total liabilities and shareholders’ equity
   $ 5,415,571     $ 4,988,359  
 
    
 		      
 		  

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)

                 
    Three Months Ended September 30,
    2004
   2003
    (Dollars in thousands, except per share)
Interest income:
                
Loans and leases
   $ 62,088     $ 59,626  
Loans held for sale
     23,112       33,978  
Residual interests
     3,350       4,131  
Investment securities
     1,371       1,125  
Federal funds sold
     44       20  
 
    
 		      
 		  
Total interest income
     89,965       98,880  
 
    
 		      
 		  
Interest expense:
                
Deposits
     11,984       9,873  
Short-term borrowings
     2,796       3,383  
Collateralized debt
     3,782       4,045  
Other long-term debt - Note 7
     5,743       419  
Preferred securities distribution - Note 7
     —       5,527  
 
    
 		      
 		  
Total interest expense
     24,305       23,247  
 
    
 		      
 		  
Net interest income
     65,660       75,633  
Provision for loan and lease losses
     1,898       14,778  
 
    
 		      
 		  
Net interest income after provision for loan and lease losses
     63,762       60,855  
Other income:
                
Loan servicing fees
     34,423       28,523  
Amortization of servicing assets - Note 4
     (28,070 )     (34,064 )
(Impairment) recovery of servicing assets - Note 4
     (18,358 )     41,665  
 
    
 		      
 		  
Net loan administration (loss) income
     (12,005 )     36,124  
Gain from sales of loans
     48,626       91,569  
Gain on sale of mortgage servicing assets
     440       7  
Trading gains (losses)
     4,326       (1,403 )
Derivative gains (losses), net
     21,045       (28,046 )
Other
     5,503       6,412  
 
    
 		      
 		  
 
     67,935       104,663  
Other expense:
                
Salaries
     53,986       62,220  
Pension and other employee benefits
     12,127       9,573  
Office expense
     3,271       5,330  
Premises and equipment
     10,096       9,533  
Marketing and development
     3,103       3,400  
Professional fees
     5,132       2,980  
Other
     14,777       21,370  
 
    
 		      
 		  
 
     102,492       114,406  
 
    
 		      
 		  
Income before income taxes
     29,205       51,112  
Provision for income taxes
     12,011       19,994  
 
    
 		      
 		  
Net income
   $ 17,194     $ 31,118  
 
    
 		      
 		  
Earnings per share: - Note 9
                
Basic
   $ 0.61     $ 1.11  
 
    
 		      
 		  
Diluted
   $ 0.57     $ 1.03  
 
    
 		      
 		  
Dividends per share
   $ 0.08     $ 0.07  
 
    
 		      
 		  

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)

                 
    Nine Months Ended September 30,
    2004
   2003
    (Dollars in thousands, except per share)
Interest income:
                
Loans and leases
   $ 181,759     $ 179,460  
Loans held for sale
     59,397       86,800  
Residual interests
     9,893       17,100  
Investment securities
     3,733       3,134  
Federal funds sold
     82       119  
 
    
 		      
 		  
Total interest income
     254,864       286,613  
 
    
 		      
 		  
Interest expense:
                
Deposits
     31,532       32,679  
Short-term borrowings
     6,611       12,053  
Collateralized debt
     10,501       11,569  
Other long-term debt — Note 7
     17,101       1,745  
Preferred securities distribution — Note 7
     —       16,581  
 
    
 		      
 		  
Total interest expense
     65,745       74,627  
 
    
 		      
 		  
Net interest income
     189,119       211,986  
Provision for loan and lease losses
     11,838       37,655  
 
    
 		      
 		  
Net interest income after provision for loan and lease losses
     177,281       174,331  
Other income:
                
Loan servicing fees
     100,620       75,231  
Amortization of servicing assets — Note 4
     (89,413 )     (102,112 )
Recovery (impairment) of servicing assets — Note 4
     6,210       (1,966 )
 
    
 		      
 		  
Net loan administration income (loss)
     17,417       (28,847 )
Gain from sales of loans
     140,669       311,081  
Gain on sale of mortgage servicing assets
     8,857       7  
Trading gains (losses)
     15,668       (52,323 )
Derivative gains (losses), net
     25,869       (15,904 )
Other
     17,917       16,982  
 
    
 		      
 		  
 
     226,397       230,996  
Other expense:
                
Salaries
     158,602       176,851  
Pension and other employee benefits
     34,813       31,431  
Office expense
     12,950       16,200  
Premises and equipment
     30,890       28,751  
Marketing and development
     10,670       11,157  
Professional fees
     14,436       8,664  
Other
     48,325       40,646  
 
    
 		      
 		  
 
     310,686       313,700  
 
    
 		      
 		  
Income before income taxes
     92,992       91,627  
Provision for income taxes
     37,513       35,505  
 
    
 		      
 		  
Net income
   $ 55,479     $ 56,122  
 
    
 		      
 		  
Earnings per share: — Note 9
                
Basic
   $ 1.96     $ 2.01  
 
    
 		      
 		  
Diluted
   $ 1.84     $ 1.89  
 
    
 		      
 		  
Dividends per share
   $ 0.24     $ 0.21  
 
    
 		      
 		  

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)
Three Months Ended September 30, 2004, and 2003

                                                         
                    Accumulated                    
                    Other           Additional        
            Retained   Comprehensive   Deferred   Paid in   Common   Treasury
    Total
   Earnings
   Income (Loss)
   Compensation
   Capital
   Stock
   Stock
    (Dollars in thousands)
Balance at July 1, 2004
   $ 469,486     $ 386,410     $ 71     $ (538 )   $ 579     $ 112,000     $ (29,036 )
Net income
     17,194       17,194                                          
Unrealized gain on investment securities net of $142 tax liability
     212               212                                  
Foreign currency adjustment net of $352 tax liability
     527               527                                  
 
    
 		                                                  
Total comprehensive income
     17,933                                                  
Deferred compensation
     22                       22                          
Cash dividends
     (2,266 )     (2,266 )                                        
Tax benefit on stock option exercises
     100                               100                  
Treasury stock:
                                                        
Purchase of 867 shares
     (23 )                                             (23 )
Sales of 52,342 shares
     1,095       —                       (122 )             1,217  
 
    
 		      
 		      
 		      
 		      
 		      
 		      
 		  
Balance September 30, 2004
   $ 486,347     $ 401,338     $ 810     $ (516 )   $ 557     $ 112,000     $ (27,842 )
 
    
 		      
 		      
 		      
 		      
 		      
 		      
 		  
Balance at July 1, 2003
   $ 384,835     $ 308,760     $ (58 )   $ (489 )   $ 2,422     $ 112,000     $ (37,800 )
Net income
     31,118       31,118                                          
Unrealized loss on investment securities net of $57 tax benefit
     (84 )             (84 )                                
Unrealized loss on interest rate cap net of $17 tax liability
     26               26                                  
Foreign currency adjustment net of $16 tax benefit
     (24 )             (24 )                                
 
    
 		                                                  
Total comprehensive income
     31,036                                                  
Deferred compensation
     68                       68                          
Cash dividends
     (1,959 )     (1,959 )                                        
Tax benefit on stock option exercises
     22                               22                  
Treasury stock:
                                                        
Purchase of 1,321 shares
     (33 )                                             (33 )
Sales of 24,766 shares
     485       —                       (31 )             516  
 
    
 		      
 		      
 		      
 		      
 		      
 		      
 		  
Balance September 30, 2003
   $ 414,454     $ 337,919     $ (140 )   $ (421 )   $ 2,413     $ 112,000     $ (37,317 )
 
    
 		      
 		      
 		      
 		      
 		      
 		      
 		  

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)
Nine Months Ended September 30, 2004, and 2003

                                                         
                    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, 2004
   $ 432,260     $ 352,647     $ 182     $ (504 )   $ 1,264     $ 112,000     $ (33,329 )
Net income
     55,479       55,479                                          
Unrealized gain on investment securities net of $93 tax liability
     139               139                                  
Unrealized gain on interest rate cap net of $131 tax liability
     196               196                                  
Foreign currency adjustment net of $195 tax liability
     293               293                                  
 
    
 		                                                  
Total comprehensive income
     56,107                                                  
Deferred compensation
     (12 )                     (12 )                        
Cash dividends
     (6,788 )     (6,788 )                                        
Tax benefit on stock option exercises
     778                               778                  
Treasury stock:
                                                        
Purchase of 11,307 shares
     (370 )                                             (370 )
Sales of 212,026 shares
     4,372                               (1,485 )             5,857  
 
    
 		      
 		      
 		      
 		      
 		      
 		      
 		  
Balance at September 30, 2004
   $ 486,347     $ 401,338     $ 810     $ (516 )   $ 557     $ 112,000     $ (27,842 )
 
    
 		      
 		      
 		      
 		      
 		      
 		      
 		  
Balance at January 1, 2003
   $ 360,555     $ 287,662     $ (1,142 )   $ (240 )   $ 3,606     $ 112,000     $ (41,331 )
Net income
     56,122       56,122                                          
Unrealized loss on investment securities net of $45 tax benefit
     (72 )             (72 )                                
Unrealized loss on interest rate cap net of $31 tax benefit
     (47 )             (47 )                                
Foreign currency adjustment net of $576 tax liability
     865               865                                  
Minimum SERP liability net of $170 tax liability
     256               256                                  
 
    
 		                                                  
Total comprehensive income
     57,124                                                  
Deferred compensation
     (181 )                     (181 )                        
Cash dividends
     (5,865 )     (5,865 )                                        
Conversion of 1,700 trust preferred shares to 2,142 common shares
    43                               (1 )             44  
Tax benefit on stock option exercises
     1,031                               1,031                  
Treasury stock: