Conference call 1:00 EDT
May 3, 2004
(866) 868-1109
Replay
(passcode: 8930213)
(877) 213-9653
COLUMBUS, Indiana -- May 3, 2004 -- Irwin Financial Corporation (NYSE: IFC), a bank holding company focusing on mortgage banking, small business and home equity lending, today announced net income for the first quarter of 2004 of $20.3 million or $0.67 per diluted share. This compares with net income of $11.8 million or $0.41 per diluted share during the same period in 2003. The increase largely reflects the improvement in credit quality in the home equity segment, which swung from a loss of $9.5 million a year earlier to a profit in the first quarter of $6.6 million. Declines in production in the first mortgage unit were partially offset by an increase in the net of mortgage servicing valuation changes and gains on derivatives used to hedge this exposure. Consolidated annualized returns on average equity and average assets were 18.4 percent and 1.7 percent, respectively.
"As we anticipated in our outlook for 2004, we have begun to benefit from both lower credit costs as the economy continues to recover and from the investment we made during 2001 through 2003 in our mortgage servicing portfolio," said Will Miller, Chairman and CEO. "Our strategy is to balance the impact of changes in interest rates and economic conditions on our mortgage banking production with investments in our credit portfolio lines of business and in mortgage servicing. Although we caution that our balanced revenue model is best judged over longer periods such as a year or more, it once again created good results in spite of a turbulent interest rate environment in the first quarter. And, while the interest rate environment has made it difficult to determine the appropriate level of staffing in our mortgage business, we think we have made progress in adjusting from the refinance boom of 2001-2003. We believe that mortgage originations over the next 180 days are unlikely to reach the unprecedented levels achieved in the same period in 2003. However, as happened in the first quarter, we also believe our credit portfolios and the significant investment we made in the servicing asset over the past few years have us well-positioned to counterbalance the year-over-year decline in anticipated mortgage production. We continue to expect 2004 earnings to exceed those of 2003."
Financial highlights for the period include:
Consolidated Results
$ in millions, except EPS 1Q 1Q Percent 4Q Percent
2004 2003 Change 2003 Change
Net Interest Income After
Provision for Losses $51 $55 -7% $50 2%
Non-Interest Income 82 63 31 75 9
Total Consolidated
Net Revenues 134 118 13 125 7
Non-Interest Expense 100 99 2 99 2
Net Income 20.3 11.8 73 16.7 22
Earning per Share (diluted) 0.67 0.41 63 0.56 20
Loans and Leases 3,222 2,987 8 3,161 2
Mortgage Loans Held for Sale 996 1,632 -39 884 13
Deposits 3,309 3,026 9 2,900 14
Shareholders' Equity 453 371 22 432 5
Total Risk-Based
Capital Ratio 15.3% 13.4% 15.1%
Return on Average Equity 18.4 13.2 14.7
As noted in the table above, net revenues increased 7 percent on a sequential quarter basis. Net revenues increased in each of our credit portfolio lines of business, successfully offsetting a decline in net revenue in our mortgage bank. Mortgage banking revenues declined on a sequential quarter basis principally due to reduced recovery, net of derivative gains, in the impairment valuation reserve of our servicing asset and lower net interest income while loans were in warehouse.
Our loan and lease portfolio totaled $3.2 billion as of March 31, 2004, up 2 percent from the end of the year and 8 percent from a year earlier. Our mortgage loans held for sale totaled $1.0 billion at quarter end, up modestly from $0.9 billion at year-end.
Deposits totaled $3.3 billion at March 31, a $0.4 billion or 14 percent increase since year-end, principally reflecting increases in mortgage escrow deposits. Average core deposits rose at an annualized rate of 11 percent during the first quarter.
We had $453 million or $16.04 per share in common shareholders' equity as of March 31, 2004. At quarter end, our Tier 1 Leverage Ratio and Total Risk- based Capital Ratio were 11.8 percent and 15.3 percent, respectively, compared to 11.2 percent and 15.1 percent as of December 31, 2003.
Our consolidated loan and lease loss provision totaled $8 million, a $2 million or 18 percent decrease compared with the fourth quarter of 2003, principally reflecting declines in required provision for our on-balance sheet home equity loan and commercial lending portfolios.
Nonperforming assets (including other real estate owned of $6 million) were $45 million or 0.87 percent of total assets as of March 31, 2004, down from $52 million or 1.05 percent of total assets at the end of the year. Our on-balance sheet allowance for loan and lease losses totaled $64 million as of March 31, unchanged from year-end. The ratio of on-balance sheet allowance for loan and lease losses to nonperforming loans and leases totaled 176 percent at March 31, compared to 145 percent at December 31.
Net charge-offs totaled $8 million, down $2 million from the fourth quarter. The amount of 30-day and greater delinquencies, the ratio of charge- offs to average loans and leases, and the allowance for loans and lease losses to total loans and leases for our principal credit-related portfolios are shown below:
Home Equity Home Equity
Commercial Lending On- Lending Off- Commercial
Banking Balance Sheet Balance Sheet(2) Finance
30-Day and Greater
Delinquencies
* March 31, 2004 0.29% 2.46% 8.65% 0.86%
* December 31, 2003 0.36 2.91 10.18 0.87
* September 30, 2003 0.72 3.29 9.55 1.10
* June 30, 2003 0.38 2.70 8.66 0.91
* March 31, 2003 0.66 2.66 8.05 0.98
Annualized
Charge-offs
* 1Q04 0.24% 2.61% 6.28% 1.12%
* 4Q03 0.30 3.03 7.13 1.19
* 3Q03 0.20 2.45 6.23 1.97
* 2Q03 0.25 2.58 6.05 2.72
* 1Q03 0.21 1.74 4.87 2.06
Allowance to
Loans and Leases
* March 31, 2004 1.10% 4.08% 10.25% 2.29
* December 31, 2003 1.11 4.22 10.47 2.47
* September 30, 2003 1.12 4.17 11.16 2.51
* June 30, 2003 1.13 3.45 11.94 2.59
* March 31, 2003 1.15 3.14 8.16 2.33
Segment Results
Net income by line of business is shown below, with additional detail available in the segment summary tables at the end this release and in the Form 10-Q.
Net Income ($ in millions) 1Q 1Q Percent 4Q Percent
2004 2003 Change 2003 Change
Mortgage Banking $9.7 $19.6 -50% $10.2 -4%
Commercial Banking 5.4 5.2 4 5.4 0
Home Equity 6.6 -9.5 NM 1.4 367
Commercial Finance -0.3 -0.3 -13 2.0 NM
Venture Capital 0.0 -1.3 NM -0.3 NM
Other Segments,
Including Parent -1.1 -1.9 41 -2.0 42
Consolidated Net Income 20.3 11.8 73 16.7 22
Mortgage banking net income declined modestly compared with the fourth quarter. Loan originations totaled $2.9 billion, unchanged from the previous quarter. During the quarter, we recorded $10 million of revenues on gains on servicing asset-related derivatives, net of impairment of the servicing asset. In addition, we also recorded $6 million of gain on sale of servicing. Our mortgage servicing asset in this line of business had a carrying value of $298 million at March 31 or 101 basis points of underlying loan balance, compared with 117 basis points at year-end.
Commercial banking net revenues increased 3 percent sequentially from the fourth quarter, reflecting modest loan and revenue growth and a $0.3 million decline in provision for loan and lease loss, reflecting an improving credit picture. As noted in the table above, thirty-day and greater delinquencies in our commercial banking line of business portfolio totaled 0.29 percent at March 31, compared with 0.36 percent at December 31 and nonperforming assets declined to $21.7 million at quarter-end, compared to $26.6 million at year-end.
Our home equity line of business continues to see improving credit quality. Thirty-day and greater delinquencies in our on-balance sheet portfolio totaled 2.46 percent at March 31, compared with 2.91 percent at December 31, and the thirty-day delinquency ratio on the off- balance sheet portfolio declined to 8.65 percent as compared to 10.18 percent at December 31. This improvement in credit quality led to a reversal of $4.6 million of impairment for our $69 million residual interest portfolio.
Our commercial finance line of business had strong operating results with pre-tax income of $1.9 million (compared to a pre-tax loss of $0.6 million a year earlier), loan and lease fundings of $72 million, and a thirty-day and greater delinquency ratio of 0.86 percent. Net income was negatively affected, however, by a one-time tax provision to reflect tax liabilities acquired, but not recorded on the books of the company at the time of our purchase of our Canadian operations from a now bankrupt seller. We believe the line of business tax provision will approximate 45 percent for the remainder of the year.
As noted above, more complete details on operations of each of our lines of business can be found in our Form 10-Q, which was filed today with the SEC.
About Irwin Financial
Irwin® Financial Corporation (www.irwinfinancial.com) is an interrelated group of specialized financial services companies organized as a bank holding company, with a history tracing to 1871. The Corporation, through its major subsidiaries -- Irwin Mortgage Corporation, Irwin Union Bank, Irwin Home Equity Corporation, Irwin Commercial Finance, and Irwin Ventures -- provides a broad range of financial services to consumers and small businesses in selected markets in the United States and Canada.
About Forward-Looking Statements
This press release contains forward-looking statements and estimates that are based on management's expectations, estimates, projections, and assumptions. These statements and estimates include but are not limited to earnings estimates and projections of financial performance and profitability, and projections of business strategies and future activities. These statements involve inherent risks and uncertainties that are difficult to predict and are not guarantees of future performance. 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 might not occur) or are likely (or unlikely) to occur, and similar expressions, are intended to identify forward- looking statements, which may include, among other things:
statements and assumptions relating to projected growth in our earnings, projected loan originations, and the relative performance of our lines of business;
statements and assumptions relating to projected trends or potential changes in our asset quality, loan delinquencies, charge-offs, reserves and asset valuations; and
any other statements that are not historical facts.
We undertake no obligation to update publicly any of these statements in light of future events, except as required in subsequent periodic reports we file with the Securities and Exchange Commission.
Actual future results may differ materially from what is projected due to a variety of factors including: potential changes in and volatility of interest rates, which may affect consumer demand for our products and the success of our interest rate risk management strategies; staffing fluctuations in response to product demand; the relative profitability of our lending operations; the valuation and management of our servicing and derivatives portfolios, including short-term swings in valuation of such portfolios due to quarter-end movements in secondary market interest rates which are inherently volatile; 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 of our loan assets; unanticipated deterioration in or changes in estimates of the carrying value of our other assets; difficulties in delivering loans to the secondary market as planned; difficulties in expanding our business or raising capital and other funding sources as needed; competition from other financial service providers for experienced managers as well as for customers; changes in the value of companies in which we invest; changes in variable compensation plans related to the performance and valuation of lines of business where we have compensation systems tied to line of business performance; estimates of future tax liabilities; legislative or regulatory changes, including changes in the interpretation of regulatory capital rules, changes in consumer or commercial lending rules or rules affecting corporate governance, and the availability of resources to address these rules; changes in applicable accounting policies or principles or their application to our businesses; or governmental changes in monetary or fiscal policies.
Conference call, 1:00 EDT May 3, 2004 866.868.1109
Replay (passcode: 8930213) 877.213.9653
IRWIN FINANCIAL CORPORATION
Selected Consolidated Financial Highlights
($'s in thousands, except per share data)
Q1-2004 Q1-2003 $ Change % Change Q4-2003
Net Interest Income $59,203 $64,391 ($5,188) (8.1) $59,900
Provision for Loan
and Lease Losses ($8,146) ($9,243) 1,097 11.9 ($9,928)
Noninterest Income 82,481 62,811 19,670 31.3 75,351
Total Net Revenues 133,538 117,959 15,579 13.2 125,323
Noninterest Expense 100,463 98,812 1,651 1.7 98,547
Income before
Income Taxes 33,075 19,147 13,928 72.7 26,776
Income Taxes 12,734 7,371 5,363 72.8 10,080
Net Income $20,341 $11,776 $8,565 72.7 $16,696
Dividends on Common Stock $2,260 $1,948 $312 16.0 $1,969
Diluted Earnings Per Share
(31,290 Weighted Average
Shares Outstanding) $0.67 $0.41 0.26 63.4 $0.56
Basic Earnings Per Share
(28,190 Weighted Average
Shares Outstanding) 0.72 0.42 0.30 71.4 0.60
Dividends Per Common Share 0.08 0.07 0.01 14.3 0.07
Common Stock Market Price:
High $36.17 $20.12 $16.05 79.8 $32.15
Low 26.63 15.95 10.68 67.0 25.30
Closing 26.98 19.49 7.49 38.4 31.40
Net Charge-Offs $8,158 $6,127 $2,031 33.1 $9,554
Performance Ratios -
Quarter to Date:
Return on Average Assets 1.7% 1.0% 1.3%
Return on Average Equity 18.4% 13.2% 14.7%
March 31, March 31,
2004 2003 $ Change
Loans Held for Sale $996,219 $1,631,829 ($635,610)
Loans and Leases in
Portfolio 3,222,296 2,987,030 235,266
Allowance for Loan
and Lease Losses (63,681) (54,184) (9,497)
Total Assets 5,146,170 5,365,932 (219,762)
Total Deposits 3,309,007 3,025,604 283,403
Shareholders' Equity 453,185 371,480 81,705
Shareholders' Equity
available to Common
Shareholders (per share) 16.04 13.35 2.69
Average Equity/Average
Assets (YTD) 9.1% 7.6%
Tier I Capital $585,287 $475,308 $109,925
Tier I Leverage Ratio 11.8% 9.8%
Total Risk-based
Capital Ratio 15.3% 13.4%
Nonperforming Assets
to Total Assets 0.87% 0.81%
% December 31,
Change 2003
Loans Held for Sale (39.0) $883,895
Loans and Leases in
Portfolio 7.9 3,161,054
Allowance for Loan
and Lease Losses (17.5) (64,285)
Total Assets (4.1) 4,988,359
Total Deposits 9.4 2,899,662
Shareholders' Equity 22.0 432,260
Shareholders' Equity
available to Common
Shareholders (per share) 20.1 15.36
Average Equity/Average
Assets (YTD) 7.7%
Tier I Capital 23.1 $556,793
Tier I Leverage Ratio 11.2%
Total Risk-based Capital Ratio 15.1%
Nonperforming Assets
to Total Assets 1.05%
MORTGAGE BANKING
Q1-2004 Q1-2003 $ Change
Net Interest Income $8,662 $16,065 ($7,403)
Recovery of (Provision for)
Loan Losses 107 53 54
Gain on Sales of Loans 42,782 91,228 (48,446)
Gain on Sale of Servicing 6,489 4 6,485
Loan Servicing Fees,
Net of Amortization
Expense (1,411) (10,480) 9,069
Recovery (Impairment)
of Servicing Assets,
Net of Hedging 10,168 (1,633) 11,801
Other Revenues 1,839 1,864 (25)
Total Net Revenues 68,636 97,101 (28,465)
Salaries, Pension, and
Other Employee Expense 29,528 41,013 (11,485)
Other Expenses 22,941 24,200 (1,259)
Income Before Income Taxes 16,167 31,888 (15,721)
Income Taxes 6,435 12,249 (5,814)
Net Income $9,732 $19,639 ($9,907)
Total Mortgage Loan
Originations: $2,930,716 $5,477,292 ($2,546,576)
Percent retail 23% 27%
Percent wholesale 43% 50%
Percent brokered 9% 3%
Percent correspondent 25% 21%
Refinancings as a
Percentage of
Total Originations 61% 70%
% Change Q4-2003
Net Interest Income (46.1) $11,017
Recovery of (Provision for)
Loan Losses 101.9 (443)
Gain on Sales of Loans (53.1) 44,349
Gain on Sale of Servicing NM (312)
Loan Servicing Fees,
Net of Amortization
Expense 86.5 (3,957)
Recovery (Impairment)
of Servicing Assets,
Net of Hedging 722.7 23,293
Other Revenues (1.3) 2,061
Total Net Revenues (29.3) 76,008
Salaries, Pension, and
Other Employee Expense (28.0) 30,488
Other Expenses (5.2) 26,096
Income Before Income Taxes (49.3) 19,424
Income Taxes (47.5) 9,240
Net Income (50.4) $10,184
Total Mortgage Loan
Originations: (46.5) $2,904,921
Percent retail 27%
Percent wholesale 40%
Percent brokered 8%
Percent correspondent 25%
Refinancings as a Percentage
of Total Originations 51%
March 31, March 31,
2004 2003 $ Change
Owned Servicing Portfolio
Balance $29,563,330 $20,402,080 $9,161,250
Weighted average
interest rate 5.73% 6.37%
Delinquency ratio (30+ days): 2.74% 4.22%
Conventional 1.57% 1.69%
Government 5.41% 7.77%
Loans held for sale $781,224 $1,517,671 (736,447)
Servicing Asset 298,486 184,789 113,697
% Change December 31,
2003
Owned Servicing Portfolio Balance 44.9 $29,640,122
Weighted average interest rate 5.83%
Delinquency ratio (30+ days): 4.58%
Conventional 2.23%
Government 9.17%
Loans held for sale (48.5) $679,360
Servicing Asset 61.5 348,174
COMMERCIAL BANKING
%
Q1-2004 Q1-2003 $ Change Change Q4-2003
Net Interest Income $20,546 $19,027 $1,519 8.0 $20,434
Provision for Loan
and Lease Losses (1,200) (1,580) 380 24.1 (1,500)
Other Revenues 4,776 5,129 (353) (6.9) 4,553
Total Net Revenues 24,122 22,576 1,546 6.8 23,487
Salaries, Pension, and
Other Employee Expense 9,322 8,925 397 4.4 8,714
Other Expenses 5,761 4,980 781 15.7 5,798
Income Before Income Taxes 9,039 8,671 368 4.2 8,975
Income Taxes 3,622 3,460 162 4.7 3,562
Net Income $5,417 $5,211 $205 3.9 $5,413
Net Charge-offs $1,170 $946 $224 23.7 $1,476
Net Interest Margin 3.79% 4.04% 3.74%
March 31, March 31, December
2004 2003 $ Change % Change 31, 2003
Securities and Short-
Term Investments $210,647 $136,360 $74,287 54.5 $107,668
Loans and Leases 2,007,917 1,849,778 158,139 8.5 1,988,633
Allowance for Loan and
Lease Losses (22,086) (21,359) (727) (3.4) (22,055)
Interest-Bearing
Deposits 1,800,571 1,633,787 166,784 10.2 1,680,480
Noninterest-Bearing
Deposits 281,986 233,386 48,600 20.8 283,794
Commercial Loan
Delinquency Ratio
(30+days): 0.23% 0.66% 0.34%
HOME EQUITY LENDING
$ %
Q1-2004 Q1-2003 Change Change Q4-2003
Residual Asset
Interest Income $3,258 $6,963 ($3,705) (53.2) $3,551
Net Interest Income -
Unsold Loans and Other 21,438 19,449 1,989 10.2 21,705
Provision for Loan Losses (5,899) (4,880) (1,019) (20.9) (5,998)
Trading Gains (Losses) 4,641 (17,789) 22,430 126.1 87
Gain on Sales of Loans,
Including Points and Fees 8,683 1,971 6,712 340.5 7,711
Servicing Income, net 3,064 772 2,292 296.9 2,019
Other Revenues 1,267 65 1,202 1849.2 43
Total Net Revenues 36,452 6,551 29,901 456.5 29,118
Salaries, Pension, and
Other Employee Expense 16,126 13,062 3,064 23.5 13,756
Other Expense 9,260 9,319 (59) (0.6) 12,936
Income Before Income Taxes 11,066 (15,830) 26,896 169.9 2,426
Income Taxes 4,433 (6,332) 10,765 170.0 1,005
Net Income $6,633 ($9,498) $16,131 169.8 $1,421
Loan Volume $306,877 $278,550 $28,327 10.2 $288,197
Loans Sold 202,432 86,068 116,364 135.2 137,803
Net Charge-offs (Loans
Held for Investment) 5,694 3,367 2,327 69.1 6,688
March 31, March 31, $ % December
2004 2003 Change Change 31, 2003
Home Equity Loans
Held for Sale $213,864 $112,429 $101,435 90.2 $202,627
Home Equity Loans
Held for Investment 721,685 739,399 (17,714) (2.4) 692,637
Allowance for Loan
and Lease Losses (29,456) (23,203) (6,253) (26.9) (29,251)
Residual Asset 68,692 132,020 (63,328) (48.0) 70,519
Servicing Asset 30,870 24,410 6,460 26.5 28,425
Managed Portfolio 1,473,356 1,843,266 (369,910) (20.1) 1,513,289
Delinquency
Ratio (30+days) 4.72% 5.55% 5.87%
Managed Portfolio,
including credit
risk sold $2,610,459 $2,548,166 $42,103 1.6 $2,568,356
Delinquency
Ratio (30+days) 3.76% 4.74% 4.65%
COMMERCIAL FINANCE
%
Q1-2004 Q1-2003 $ Change Change Q4-2003
Net Interest Income $6,754 $4,807 $1,947 40.5 $6,876
Provision for Loan
and Lease Losses (1,153) (2,864) 1,711 59.7 (1,987)
Other Revenues 475 835 560 67.1 1,266
Total Net Revenues 6,076 2,778 4,218 151.8 6,155
Salaries, Pension,
and Other Employee Expense 3,362 2,606 756 29.0 3,340
Other Expenses 863 722 1,061 147.1 598
Taxes 1,851 (550) 2,401 436.5 2,217
Income Taxes 2,144 (290) 2,434 839.3 211
Net Income (Loss) (293) (260) (33) (12.7) 2,006
Net Charge-Offs $1,294 $1,812 ($518) (28.6) $1,363
Loans sold $7,694 $0 $7,694 na $12,240
Net Interest Margin 5.74% 5.47% 5.95%
Total Fundings of Loans
and Leases $71,652 $57,609 $14,043 24.4 $87,097
March 31, March 31, $ % December
2004 2003 Change Change 31, 2003
Investment in Loans
and Leases $479,364 $379,985 $99,379 26.2 $463,423
Allowance for Loan and
Lease Losses (10,962) (8,840) (2,122) (24.0) (11,445)
Weighted Average Yield 9.24% 10.00% 9.41%
Delinquency ratio
(30+days) 0.86% 0.98% 0.87%
VENTURE CAPITAL
$ %
Q1-2004 Q1-2003 Change Change Q4-2003
Net Interest Income after
Provision for Loan Losses ($1) $7 ($8) (114.3) ($1)
Mark to Market Adjustment
on Investments 9 (2,259) 2,268 100.4 (534)
Other Revenues 149 147 2 1.4 148
Total Net Revenues 157 (2,105) 2,262 107.5 (387)
Operating Expenses 128 108 20 18.5 108
Income Taxes 29 (2,213) 2,242 101.3 (495)
Income Tax Expense (Benefit) 11 (885) 896 101.2 (185)
Net Income (Loss) $18 ($1,328) 1,346 101.4 ($310)
March 31, March 31, $ % December
2004 2003 Change Change 31, 2003
Investment in Portfolio
Companies (cost) $14,592 $13,964 628 4.5 $14,601
Mark to Market Adjustment (11,068) (10,381) (687) (6.6) (11,077)
Carrying Value - Portfolio
Companies $3,524 $3,583 ($59) (1.6) $3,524
(1) In light of accelerated filing deadlines for Quarterly Reports on Form 10-Q required by the Sarbanes-Oxley Act beginning this year, the contents of this earnings press release will be condensed as compared to those previously issued by the Corporation. The Corporation's Form 10-Q will be filed on a concurrent basis with the release of this earnings announcement. Readers are encouraged to consult the Form 10-Q for additional information on first quarter performance as it will contain detailed operating and financial performance information for the reporting period.
(2) Off-balance sheet loans underlie our residual interests. These loans have been treated as sold under SFAS 140 and have a reserve methodology that reflects life-of-account loss expectations, whereas our policy for on-balance sheet loans requires that we hold loss reserve coverage sufficient for potential losses inherent in the portfolio at the balance sheet date. The figures for reserves in the column labeled "Home Equity Lending Off-Balance Sheet," therefore, are not balance sheet accounts of "allowance for loan and lease losses," but instead represent the percentage of undiscounted losses assumed in our residual valuation relative to the underlying loan balances supporting the residual interests.
