IRWIN FINANCIAL COR.

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, 2008


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	Smaller reporting company o
		(Do not check if a smaller reporting company)

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 31, 2008, there were outstanding 29,677,125 common shares, no par value, of the Registrant.

About Forward-Looking Statements

This report contains 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. We 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, views, expectations, assumptions, estimates, forecasts, outlook and projections or similar language, or that indicate events we believe could, would, should, may or will occur (or will not 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 asset quality (particularly with regard to loans or other exposures including loan repurchase risk, in sectors in which we deal in real estate or residential mortgage lending), loan delinquencies, charge-offs, reserves, asset valuations, capital ratios or financial performance measures;

	•		our plans and strategies, including the expected results or costs and impact of implementing or changing such plans and strategies;

	•		potential litigation developments and the anticipated impact of potential outcomes of pending legal matters;

	•		predictions about conditions in the national or regional economies, housing markets, industries associated with housing, mortgage markets or mortgage industry;

	•		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.

We qualify any forward-looking statements entirely by these and the following cautionary factors.

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

	•		potential deterioration or effects of general economic conditions, particularly in sectors relating to real estate and/or mortgage lending or small business-based manufacturing and services;

	•		potential effects related to the Corporation’s decision to suspend the payment of dividends on its common, preferred and trust preferred securities.

	•		difficulties in completing the transactions for the disposition of our home equity and equipment leasing businesses including: selling or otherwise reducing risk associated with home equity loans on our balance sheet; selling the assets or platform of our small-ticket equipment leasing business, including the completion of due diligence satisfactory to the purchaser; obtaining third party consents for the transfer of assets, platforms or servicing; satisfying conditions necessary to release purchase price proceeds from escrow in the home equity and equipment leasing transactions; obtaining the desired tax treatment for any dispositions associated with the home equity and equipment leasing transactions; or encountering regulatory constraints;

	•		potential changes in direction, volatility and relative movement (basis risk) of interest rates, which may affect consumer and commercial demand for our products and the management and success of our interest rate risk management strategies;

	•		competition from other financial service providers for experienced managers as well as for customers;

	•		staffing fluctuations in response to product demand or the implementation of corporate strategies that affect our work force and potential associated charges;

	•		the relative profitability of our lending and deposit operations;

	•		the valuation and management of our portfolios, including the use of external and internal modeling assumptions we embed in the valuation of those portfolios and short-term swings in the valuation of such portfolios;

	•		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 or collectibility of our loan and lease assets, including deterioration resulting from the effects of natural disasters;

	•		difficulties in accurately estimating any future repurchases of residential mortgage, home equity, or other loans or leases due to alleged violations of representations and warranties we made when selling these loans and leases to the secondary market or in securitizations;

	•		unanticipated deterioration or changes in estimates of the carrying value of our other assets, including securities;

	•		difficulties in delivering products to the secondary market as planned;

	•		difficulties in expanding our businesses and obtaining or retaining deposit or other funding sources as needed;

	•		changes in the value of our lines of business, subsidiaries, or 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;

	•		unanticipated lawsuits or outcomes in litigation;

	•		legislative or regulatory changes, including changes in laws, rules or regulations that affect tax, consumer or commercial lending, corporate governance and disclosure requirements, and other laws, rules or regulations affecting the rights and responsibilities of our Corporation, bank or thrift;

	•		regulatory actions that impact our Corporation, bank or thrift,;

	•		the application of or changes in the interpretation of regulatory capital or other rules;

	•		the availability of resources to address changes in laws, rules or regulations or to respond to regulatory actions;

	•		changes in applicable accounting policies or principles or their application to our business or final audit adjustments, including additional guidance and interpretation on accounting issues and details of the implementation of new accounting methods;

	•		the final disposition of the remaining assets and obligations of our discontinued mortgage banking segment, and, after completion of transactions involving the recent sale of assets, our home equity and small-ticket leasing segments; or

	•		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).

PART I. FINANCIAL INFORMATION.

Item 1. Financial Statements.

IRWIN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Unaudited)


	June 30,			December 31,
	2008			2007
	(Dollars in thousands)
Assets:
Cash and cash equivalents — Note 1	$	155,371		$	78,212
Interest-bearing deposits with financial institutions		30,043			31,841
Residual interests		9,476			12,047
Investment securities- held-to-maturity (Fair value: $18,640
June 30, 2008 and $18,134 at December 31, 2007) — Note 2		18,168			18,123
Investment securities- available-for-sale — Note 2		37,064			59,684
Investment securities- other — Note 2		62,588			62,588
Loans and leases held for sale — Note 3		324,836			6,134
Loans and leases, net of unearned income — Note 4		5,130,212			5,696,230
Less: Allowance for loan and lease losses — Note 5		(215,714	)		(144,855	)

		4,914,498			5,551,375
Servicing assets — Note 6		21,573			23,234
Accounts receivable		32,848			38,710
Accrued interest receivable		21,462			26,291
Premises and equipment		35,005			38,178
Other assets		269,234			215,874
Assets held for sale		—			3,814

Total assets	$	5,932,166		$	6,166,105

Liabilities and Shareholders’ Equity:
Deposits
Noninterest-bearing	$	326,348		$	306,820
Interest-bearing		2,525,679			2,357,050
Certificates of deposit over $100,000		652,759			661,618

		3,504,786			3,325,488
Other borrowings — Note 8		633,410			802,424
Collateralized debt — Note 9		1,111,422			1,213,139
Other long-term debt		233,868			233,873
Other liabilities		118,789			131,881

Total liabilities		5,602,275			5,706,805

Commitments and contingencies — Note 14 and Note 15
Shareholders’ equity
Preferred stock, no par value — authorized 4,000,000 shares;		—			—
Noncumulative perpetual preferred stock - 15,000 authorized and issued;		14,441			14,441
Common stock, no par value — authorized 40,000,000 shares; issued 29,898,290 as of June 30, 2008 and 29,896,464 as of December 31, 2007; 563,757 and 670,169 shares in treasury as of June 30, 2008 and December 31, 2007, respectively		116,582			116,542
Additional paid-in capital		2,364			2,557
Accumulated other comprehensive (loss) income, net of deferred income tax benefit of
$6,205 and $4,367 as of June 30, 2008 and December 31, 2007		(1,382	)		1,032
Retained earnings		208,626			337,524

		340,631			472,096
Less treasury stock, at cost		(10,740	)		(12,796	)

Total shareholders’ equity		329,891			459,300

Total liabilities and shareholders’ equity	$	5,932,166		$	6,166,105

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 June 30,
	2008			2007
	(Dollars in thousands, except per share)
Interest income:
Loans and leases	$	109,503		$	124,198
Loans and leases held for sale		8			1,136
Residual interests		195			280
Investment securities		2,035			2,562
Federal funds sold		161			787

Total interest income		111,902			128,963

Interest expense:
Deposits		26,521			34,980
Short-term borrowings		5,926			7,096
Collateralized debt		13,702			17,113
Other long-term debt		3,879			3,930

Total interest expense		50,028			63,119

Net interest income		61,874			65,844
Provision for loan and lease losses — Note 5		157,829			19,454

Net interest income after provision for loan and lease losses		(95,955	)		46,390
Other income:
Loan servicing fees		2,833			5,116
(Amortization) and recovery (impairment) of servicing assets — Note 6		1,939			(2,288	)
Gain from sales of loans and loans held for sale		1,172			3,268
Trading (losses) gains		(1,120	)		256
Derivative gains (losses), net		3,003			(3,252	)
Other than temporary impairment — Note 2		(6,838	)		—
Other		5,532			6,481

		6,521			9,581
Other expense:
Salaries		20,006			23,538
Pension and other employee benefits		5,966			6,696
Office expense		2,024			2,539
Premises and equipment		5,289			5,288
Marketing and development		1,207			1,368
Professional fees		3,328			2,681
Other		6,177			4,954

		43,997			47,064

(Loss) income before income taxes from continuing operations		(133,431	)		8,907

Provision for income taxes		(26,699	)		3,436

Net (loss) income from continuing operations		(106,732	)		5,471
Loss from discontinued operations, net of $3,968 income tax benefit		—			(5,860	)

Net loss	$	(106,732	)	$	(389	)


Earnings per share from continuing operations: — Note 12
Basic	$	(3.64	)	$	0.18

Diluted	$	(3.64	)	$	0.17


Earnings per share: — Note 12
Basic	$	(3.64	)	$	(0.02	)

Diluted	$	(3.64	)	$	(0.03	)

Dividends per share	$	—		$	0.12

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

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


	For the Six Months Ended June 30,
	2008			2007
	(Dollars in thousands, except per share)
Interest income:
Loans and leases	$	226,846		$	243,547
Loans held for sale		154			6,078
Residual interests		469			549
Investment securities		4,325			5,019
Federal funds sold		199			807

Total interest income		231,993			256,000

Interest expense:
Deposits		55,459			68,431
Short-term borrowings		13,162			14,902
Collateralized debt		28,873			32,928
Other long-term debt		8,190			7,768

Total interest expense		105,684			124,029

Net interest income		126,309			131,971
Provision for loan and lease losses — Note 5		202,350			42,662

Net interest income after provision for loan and lease losses		(76,041	)		89,309
Other income:
Loan servicing fees		5,291			11,028
Amortization and impairment of servicing assets — Note 6		(2,280	)		(7,237	)
Gain (loss) from sales of loans and loans held for sale		8,003			(2,639	)
Trading losses		(2,177	)		(8	)
Derivative gains (losses), net		2,046			(4,341	)
Other than temporary impaiment — Note 2		(19,995	)		—
Other		11,177			11,964

		2,065			8,767

Other expense:
Salaries		42,635			49,273
Pension and other employee benefits		13,674			14,434
Office expense		4,235			4,876
Premises and equipment		11,055			10,915
Marketing and development		2,340			2,577
Professional fees		5,426			4,767
Other		16,586			12,507

		95,951			99,349

Loss before income taxes from continuing operations		(169,927	)		(1,273	)
Provision for income taxes		(41,029	)		(650	)

Loss from continuing operations		(128,898	)		(623	)
Loss from discontinued operations, net of $6,710 income tax benefit		—			(9,895	)

Net loss	$	(128,898	)	$	(10,518	)


Earnings per share from continuing operations: — Note 12
Basic	$	(4.40	)	$	(0.04	)

Diluted	$	(4.40	)	$	(0.06	)


Earnings per share: — Note 12
Basic	$	(4.40	)	$	(0.38	)

Diluted	$	(4.40	)	$	(0.39	)

Dividends per share	$	—		$	0.24

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 Six Months Ended June 30, 2008, and 2007


							Accumulated Other Comprehensive Income
																Defined			Additional								Perpetual
				Retained			Foreign			Unrealized Gain/Loss						Benefit			Paid in			Common		Treasury			Preferred
	Total			Earnings			Currency			Securities			Derivatives			Plans			Capital			Stock		Stock			Stock
	(Dollars in thousands)
Balance at January 1, 2008	$	459,300		$	337,524		$	9,158		$	(1,445	)	$	(1,576	)	$	(5,105	)	$	2,557		$	116,542	$	(12,796	)	$	14,441
Net loss		(128,898	)		(128,898	)
Unrealized loss on investment securities net of $214 tax benefit		(322	)								(322	)
Unrealized loss on derivatives net of $573 tax benefit		(860	)											(860	)
Foreign currency adjustment		(1,232	)					(1,232	)

Other comprehensive loss		(2,414	)

Total comprehensive loss		(131,312	)
Stock compensation expense		1,356																		1,356
Stock:
Purchase of 3,747 shares		(50	)																						(50	)
Sales of 110,159 shares		597																		(1,549	)		40		2,106

Balance at June 30, 2008	$	329,891		$	208,626		$	7,926		$	(1,767	)	$	(2,436	)	$	(5,105	)	$	2,364		$	116,582	$	(10,740	)	$	14,441


Balance at January 1, 2007	$	530,502		$	405,835		$	2,884		$	(344	)	$	(30	)	$	(6,874	)	$	1,583		$	116,192	$	(3,262	)	$	14,518
Net loss		(10,518	)		(10,518	)
Unrealized loss on investment securities net of $307 tax benefit		(461	)								(461	)
Unrealized gain on derivatives net of $355 tax liability		533												533
Foreign currency adjustment		3,360						3,360

Other comprehensive income		3,432

Total comprehensive income		(7,086	)
Cash dividends — common stock		(7,033	)		(7,033	)
Cash dividends — preferred stock		(678	)		(678	)
FAS 156 adoption		1,743			1,743
Tax benefit on stock option exercises		114																		114
Stock compensation expense		986									&n


	PAGE
	NO.
About Forward-Looking Statements		3
PART I FINANCIAL INFORMATION		5
Item 1 Financial Statements		5
Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations		25
Item 3 Quantitative and Qualitative Disclosures About Market Risk		55
Item 4 Controls and Procedures		55
PART II OTHER INFORMATION		56
Item 1 Legal Proceedings		56
Item 1A Risk Factors		57
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds		58
Item 4 Submission of Matters to a Vote of Security Holders		58
Item 6 Exhibits		59
Signatures		62
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2

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