SECURITIES AND EXCHANGE
COMMISSION Washington,
D. C. 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 March 31, 1995
OR
[ ] 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 registrant as specified in its charter)
INDIANA 35-1286807
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification
No.)
500 Washington Street, Columbus, IN 47201
(Address of principal executive offices)
(Zip Code)
812/376-1020
__________________________________________
Registrant's telephone number, including area code)
(Former name, former address and former fiscal year
if changed since last report)
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.
Yes X No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Sections 12, 13, or
15(d) of the Securities Exchange Act of 1934 subsequent to the
distribution of securities under a plan confirmed by a court.
Yes No
As of April 30, 1995, there were outstanding 5,622,693 common
shares, no par value, of the Registrant.
<PAGE> 1
Part I. Financial Information
Item I. Financial Statements
<TABLE>
<CAPTION>
IRWIN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<S> <C> <C>
March 31, December 31,
1995 1994
------------ ------------
ASSETS
Cash and due from banks $ 37,249,404 $36,840,452
Federal funds sold 0 14,000,000
------------ ------------
Cash and cash equivalents 37,249,404 50,840,452
Interest-bearing deposits with financial
institutions 11,168,575 12,164,206
Investment securities (Market value:
$67,172,723 in 1995 and $76,387,652 in
1994) - Note 2 67,128,792 77,356,575
Mortgage loans held for sale - Note 3 175,127,864 154,964,484
Loans and leases, net of unearned income
- Note 4 336,580,012 308,411,082
Less: Allowance for possible loan and
lease losses - Note 5 (3,923,417) (3,863,223)
------------- -------------
332,656,595 304,547,859
Purchased Mortgage Servicing Rights 19,272,300 18,252,968
Accrued interest receivable 2,994,145 3,117,400
Premises and equipment 14,666,245 13,838,677
Other assets 32,929,785 24,587,879
------------- ------------
$693,193,705 $659,670,500
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Noninterest-bearing $182,706,118 $154,081,893
Interest-bearing 263,051,243 264,361,775
Certificates of deposits over $100,000 21,422,509 21,474,306
------------- ------------
467,179,870 439,917,974
Short-term borrowings - Note 6 97,714,297 93,981,072
Long-term debt - Note 7 21,827,726 24,029,410
Other liabilities 21,591,765 20,638,098
------------- ------------
Total liabilities 608,313,658 578,566,554
------------- ------------
Shareholders' equity
Preferred stock, no par value--authorized
50,000 shares; none issued 0 0
Common stock, no par value -- authorized 29,965,287 29,965,287
7,500,000 shares; issued 5,850,520 shares
in 1995 and 1994; including 229,830
shares in treasury in 1995 and 220,732
in 1994.
Additional paid-in capital 15,391 0
Unrealized loss on investment securities (106,771) (279,063)
Retained earnings 60,956,351 57,080,536
--------------------------
90,830,258 86,766,760
Less treasury stock, at cost 5,950,211 5,662,814
--------------------------
Total shareholders' equity 84,880,047 81,103,946
--------------------------
$693,193,705 $659,670,500
==========================
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements
<PAGE> 2
<TABLE>
<CAPTION>
IRWIN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME Three Months Ended
March 31,
1995 1994
<S> <C> <C>
Interest income: ----------- -----------
Loans and Leases $ 7,439,890 $5,747,969
Investment securities:
Taxable 1,224,666 1,213,972
Tax-exempt 113,134 121,397
Loans held for sale 2,744,381 4,789,402
Federal funds sold 616,782 338,617
------------------------
Total interest income 12,138,853 2,211,357
-------------------------
Interest expense:
Deposits 2,951,718 2,030,442
Short-term borrowings 1,354,639 2,320,804
Long-term debt 395,778 252,432
-----------------------
Total interest expense 4,702,135 4,603,678
-----------------------
Net interest income 7,436,718 7,607,679
Provision for possible loan and lease losses 650,000 325,000
-----------------------
Net interest income after provision for
possible loan and lease losses 6,786,718 7,282,679
----------- -----------
Other income:
Mortgage loan origination fees 3,334,506 8,727,446
Mortgage loan servicing fees 8,765,504 7,599,955
Gain on sale of mortgage servicing 9,275,544 4,102,483
Brokerage fees and commissions 661,761 554,271
Trust and advisory fees 575,274 684,384
Service charges on deposit accounts 230,075 211,474
Insurance commissions, fees and premiums 315,429 265,555
Investment security gains 0 9,374
Other 1,837,435 427,295
----------- ----------
24,995,528 22,582,237
----------- ----------
Other expense:
Salaries 12,290,692 12,483,752
Pension and other employee benefits 2,608,793 2,216,653
Office expense 1,776,266 1,170,224
Occupancy 1,210,391 1,056,874
Equipment, maintenance, & repair 1,359,900 1,021,853
Amortization of purchased mortgage loan
servicing 555,000 800,000
Communications 534,657 443,326
Travel & business development 602,607 566,311
Other 2,879,065 3,120,529
----------- -----------
23,817,371 22,879,522
----------- -----------
Income before income taxes 7,964,875 6,985,394
Federal income taxes 2,706,000 2,216,000
State income taxes 765,000 580,000
----------- -----------
Net income $ 4,493,875 $ 4,189,394
=========== ===========
Net income per share of Common Stock-Note 1 $0.78 $0.71
=========== ===========
Dividends per share of Common Stock $ 0.11 $ 0.09
=========== ===========
Average shares of Common Stock outstanding 5,742,372 5,914,468
=========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements
<PAGE> 3
<TABLE>
<CAPTION>
IRWIN FINANCIAL CORPORATION March 31, March 31,
CONSOLIDATED STATEMENT OF CASH FLOWS 1995 1994
------------------------
<S> <C> <C>
Net income $ 4,493,875 $4,189,394
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization 1,625,710 1,537,063
Provision for possible loan and lease
losses 650,000 325,000
Amortization of premiums, less accretion
of discounts:
Held-to-maturity (54,913) (42,556)
Available-for-sale 9,251 (173,678)
Mortgage loan originations (476,877,763) (858,714,372)
Sales of mortgage loans 456,714,383 948,621,706
Gain on sale of mortgage servicing (9,275,544) (4,102,483)
Other, net (7,476,938) (5,356,259)
------------ ------------
Net cash provided (used) by operating
activities (30,191,939) 86,283,815
Lending and investing activities:
Proceeds from maturities/calls of
investment securities:
Held-to-maturity 11,523,225 7,791,058
Available-for-sale 7,004,762 20,040,357
Proceeds from sales of investment securities:
Available-for-sale 0 2,029,289
Purchase of investment securities:
Held-to maturity (3,000,000) (5,876,165)
Available-for-sale (5,254,542) (3,815,720)
Net decrease in interest-bearing
deposits with financial institutions 995,631 13,559,367
Net increase in loans (28,758,736) (8,243,608)
Net additions to premises and equipment (1,514,032) (1,103,619)
Purchase of mortgage servicing (3,850,035) (5,911,201)
Proceeds from sale of mortgage servicing 11,551,247 8,244,484
------------- ------------
Net cash provided (used) by lending and
investing activities (11,302,480) 26,714,242
Financing activities:
Net increase (decrease) in deposits 27,261,896 (15,985,273)
Net increase (decrease) in short-term
borrowings 3,733,225 (82,147,107)
Proceeds (repayment) of long-term debt (2,201,684) 2,142,397
Purchase of treasury stock (474,248) 0
Proceeds from sale of stock 202,243 713,643
Dividends paid (618,061) (524,982)
------------ -----------
Net cash provided (used) by financing
activities 27,903,371 (95,801,322)
------------ -----------
Net increase in cash and cash equivalents (13,591,048) 17,196,735
Cash and cash equivalents at beginning
of year 50,840,452 76,110,552
------------ -----------
Cash and cash equivalents at end of year $37,249,404 $93,307,287
=========== ===========
Supplemental disclosures of cash flow
information:
Cash paid during the period:
Interest $ 4,493,671 $4,584,087
=========== ============
Income taxes $ 619,990 $ 204,945
=========== ============
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements
<PAGE> 4
IRWIN FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
Consolidation:
Irwin Financial Corporation and its subsidiaries, principally
Inland Mortgage Corporation, Irwin Union Bank and Trust Company,
Irwin Union Investor Services, Inc., Affiliated Capital Corp., and
Irwin Home Equity Corporation provide financial services to the
domestic market. Significant accounting policies followed by
Irwin Financial Corporation and its subsidiaries are consistent
with those followed for annual financial reporting. The
information herein furnished reflects all adjustments which are,
in the opinion of management, necessary for a fair presentation of
the results of interim periods.
Income per share:
Income per share computations are based on the weighted average
number of shares outstanding during the quarter.
NOTE 2 - INVESTMENT SECURITIES
The carrying amounts of investment securities, including net
unrealized losses on available-for-sale securities of $177,951 at
March 31, 1995 and $465,103 at December 31, 1994, are summarized
as follows:
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
----------- -----------
<S> <C> <C>
Held-to-Maturity
U.S. Treasury and Government obligations $37,312,591 $41,826,087
Obligations of states and political
subdividions 7,237,216 7,548,613
Mortgage-backed securities 7,338,748 9,982,166
Corporate obligations 0 1,000,000
----------- ----------
Total Held-to-Maturity 51,888,555 60,356,866
----------- -----------
Available-for-Sale
U.S. Treasury and Government obligations 15,240,237 13,833,515
Mortgage-backed securities 0 3,166,194
----------- ----------
Total Available-for-Sale 15,240,237 16,999,709
----------- ----------
Total Investments $67,128,792 $77,356,575
=========== ===========
</TABLE>
Securities which the Corporation has the positive intent and
ability to hold until maturity are classified as "held-to-
maturity" and are stated at cost adusted for amortization of
premium and accretion of discount. Securities that might be sold
prior to maturity are classified as "available-for-sale" and are
stated at fair value. Unrealized gains and losses, net of the
future tax impact, are reported as a separate component of
shareholders' equity until realized.
<PAGE> 5
IRWIN FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3 - MORTGAGE LOANS HELD FOR SALE
Mortgage loans held for sale are stated at the lower of cost or
market as of the balance sheet date.
NOTE 4 - LOANS AND LEASES
Loans and leases are summarized as follows:
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
------------ -------------
<S> <C> <C>
Commercial, financial and agricultural $149,228,366 $136,082,836
Real estate-construction 27,990,290 21,960,246
Real estate-mortgage 50,465,260 47,422,827
Consumer 60,438,400 55,322,568
Direct finance leases 58,852,892 58,348,603
Unearned income (10,395,196) (10,725,998)
-------------------------
$336,580,012 $308,411,082
============ ============
</TABLE>
NOTE 5 - ALLOWANCE FOR POSSIBLE LOAN AND LEASE LOSSES
Changes in the allowance for possible loan and lease losses are
summarized as follows:
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
---------- -----------
<S> <C> <C>
Balance at beginning of year $3,863,223 $3,293,402
Provision for possible loan and lease
losses 650,000 1,727,000
Recoveries 75,876 408,821
Charge-offs (665,682) (1,566,000)
---------- ------------
Balance at end of period $3,923,417 $3,863,223
========== ==========
</TABLE>
<PAGE> 6
IRWIN FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6 - SHORT-TERM BORROWINGS
Short-term borrowings are summarized as follows:
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
----------- -----------
<S> <C> <C>
Repurchase agreements and drafts payable related
to mortgage loan closings $71,063,403 $75,943,986
Commercial Paper 19,746,046 15,538,086
Federal funds 6,623,000 199,000
Other 281,848 2,300,000
----------- ---------
$97,714,297 $93,981,072
=========== ===========
</TABLE>
Repurchase agreements at March 31, 1995 and December 31, 1994
include $28,819,776 and $47,476,177, respectively, in mortgage
loans sold under agreements to repurchase which are used to fund
mortgage loans prior to sale in the secondary market. These
repurchase agreements are collateralized by mortgage loans held
for sale.
Drafts payable related to mortgage loan closings totaled
$32,980,672 and $23,422,309 at March 31, 1995 and December 31,
1994, respectively. These borrowings are related to mortgage
closings at the end of the period which have not been presented to
the banks for payment. When presented for payment these
borrowings will be funded internally or by borrowing from lines of
credit.
The Corporation has lines of credit available to fund mortgage
loans held for sale. Interest is payable monthly at variable rates
ranging from 6.38% to the lenders' prime rate.
NOTE 7 -- LONG-TERM DEBT
Long-term debt at March 31, 1995 of $21,827,726 consists of
various notes payable at annual interest rates ranging from 6.0%
to 9.6% and maturity dates ranging from August 5, 1996 through
April 30, 2000. Long-term debt as of December 31, 1994 was
$24,029,410 and consisted of various notes payable at annual
interest rates ranging from 6.0% to 9.6% and maturity dates
ranging from August 5,1996 to March 30, 2000.
<PAGE> 7
PART I
Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
Net income for the first quarter ended March 31, 1995, was
$4,493,875, up 7.3% from the first quarter 1994 net income of
$4,189,394. Net income per share was $0.78 for the first quarter of
1995 as compared to $0.71 for the same period in 1994. Return on
equity for the first quarter of 1995 was 22.35%, down from 23.82% in
1994.
Lines of Business
Irwin Financial Corporation has seven subsidiaries, of which
five constitute the principal lines of business of the Corporation:
- -Mortgage banking (includes Inland Mortgage Corporation and the
related activities of Irwin Union Bank and Trust)
- -Community banking (Irwin Union Bank and Trust)
- -Investor services (includes Irwin Union Investor Services and the
trust activities of Irwin Union Bank and Trust)
- -Equipment leasing (includes Affiliated Capital Corp. and the
related activities of Irwin Union Bank and Trust)
- -Home equity lending (includes Irwin Home Equity and the related
activities of Irwin Union Bank and Trust)
In addition, the Corporation has two other less active lines of
business:
- -Credit insurance (Irwin Union Credit Insurance Corporation)
- -Venture capital (White River Capital Corporation)
In an effort to report more effectively on the Corporation's
operations, the results of the activities of Irwin Union Bank which
provide funding and invest in assets generated by other Irwin
Financial companies have been included with the results of the
other asset-generating companies. Results for 1994 have been
restated to conform to the 1995 presentation.
<PAGE> 8
Listed below are the earnings by line of business for the
three months ended March 31, 1995, as compared to the similar
period in 1994:
<TABLE>
<CAPTION>
Three Months
Ended March 31,
1995 1994
---------- ----------
<S> <C> <C>
Mortgage banking $4,647,097 $3,626,561
Community banking 821,769 577,682
Investor services 134,029 (25,827)
Equipment leasing (118,455) 205,591
Home equity lending (992,580) 0
Credit insurance 3,354 14,914
Venture capital 0 0
Parent (including consolidating
entries) (1,339) (209,527)
---------- ----------
$4,493,875 $4,189,394
========== ==========
</TABLE>
<TABLE>
<CAPTION>
Mortgage Banking
Selected Financial Data (shown in thousands):
Three months
ended March 31,
1995 1994
------- -------
Selected Income Statement Data:
<S> <C> <C>
Net interest revenue $ 2,516 $3,123
Loan origination fees 3,933 7,254
Secondary marketing gains/(losses) (639) 1,405
Loan servicing fees 8,766 7,600
Gain on sale of servicing 9,276 4,102
Other income 1,027 152
Operating expense 17,025 17,501
-------- --------
Income before tax 7,854 6,135
Income tax 3,207 2,508
-------- --------
Net income $ 4,647 $ 3,627
======== ========
Mortgage loan closings $476,878 $858,714
======== ========
</TABLE>
<PAGE> 9
<TABLE>
<CAPTION>
Selected Operating Data: March 31, December 31,
1995 1994
--------- -------------
<S> <C> <C>
Servicing portfolio $8,637,390 $8,818,502
Mortgage loans held for sale 142,147 67,373
Net capitalized servicing 21,301 20,302
</TABLE>
Net income for the first quarter was $4,647,097, up 28.1% from
the same period in 1994. Mortgage loan originations of $476.9
million declined 44.5% compared with the first quarter of 1994. A
significant factor in this decline was the reduction in refinancing
of mortgage loans. Refinanced loans originated in the first quarter
of 1995 totaled $15.7 million, a decrease of $277.1 million or 94.6%
compared with the amount of refinances originated during the same
period in 1994.
The flattening of the yield curve (a reduction in the
difference between short- and long-term interest rates) and
increased competition in the pricing of loans led to secondary
marketing losses of $0.6 million during the first quarter of 1995
compared with marketing gains of $1.4 million a year earlier.
During the first quarter of 1995, $483.9 million of mortgage
servicing rights were sold, up from first quarter 1994 servicing
sales of $378.0 million. The revenues generated by the servicing
sale helped, in part, to offset expenses relating to Inland
Mortgage's expansion of it production system. Inland opened new
offices in Washington, Texas, Oklahoma, New Jersey, and California,
in addition to adding the offices acquired from All Pacific Mortgage
Company in January 1995.
Due to the size of the servicing sale relative to the
quarter's production, the servicing portfolio declined 2.0% during
the quarter from December 31, 1994 to March 31, 1995. This decline
was mitigated by a slow-down in the run-off rate of the portfolio
from an annualized rate of 17.7% in the first quarter of 1994 to
6.0% in 1995. The portfolio totaled $8.6 billion as of March 31,
1995, compared to $8.8 billion at December 31, 1994 and $8.1 million
at March 31, 1994. Revenue from servicing loans increased 15.3% over
1994 to $8.8 million.
As a result of the decrease in mortgage loan closings from
the same quarter in 1994, net interest income at Inland was down in
the first quarter. Net interest income for the three months ended
March 31, 1995 was $2.5 million, down 19.4% from the first
quarter 1994.
Operating expenses were down $0.5 million, or 2.7% from the
first quarter of 1994. The major contributor to this was the
salaries and benefits category which was down $0.7 million, or 6.2%
from 1994. This decrease reflects the reduced loan origination
activity in the first quarter of 1995.
<PAGE> 10
<TABLE>
<CAPTION>
Community Banking
Selected Financial Data (shown in thousands):
Three months
ended March 31,
1995 1994
-------- ----------
Selected Income Statement Data:
<S> <C> <C>
Net interest revenue $4,170 $3,355
Provision for loan and lease losses (433) (234)
Other income 817 810
Operating expense 3,290 3,046
------- -------
Income before tax 1,264 885
Income tax 442 307
------- -------
Net income $ 822 $ 578
======= =======
</TABLE>
<TABLE>
<CAPTION>
March 31, December 31,
Selected Balance Sheet Data: 1995 1994
--------- ---------
<S> <C> <C>
Cash and investments $ 96,157 $104,676
Loans and leases 277,669 255,719
Allowance for loan and lease losses (3,319) (3,417)
All other assets 13,036 13,046
--------- ---------
Total assets $383,543 $370,024
========= =========
Interest-bearing deposits $277,998 $274,319
Noninterest-bearing deposits 59,639 66,283
All other liabilities 19,600 3,738
--------- --------
Total liabilities $357,237 $344,340
========= ========
Shareholder's equity $ 26,306 $ 25,684
========= ========
</TABLE>
Community banking activities are conducted by Irwin Union Bank
through locations in five counties in south-central Indiana. Net
income was up $244.1 thousand from 1994, or 42.3%. For the first
quarter, net interest income improved $815.6 thousand, or 24.3%,
from 1994. The provision for loan and lease losses was $433.0 thousand,
up $199.3 thousand from a year earlier. The increased net interest
income and provision for loan and lease losses is reflective of a
21.5% increase on average in the loan and lease portfolio from the
first quarter of 1994. The growth results from Irwin Union Bank's
continued penetration of new markets in south-central Indiana.
<PAGE> 11
Following is an analysis of net interest income and net
interest margin computed on a tax equivalent basis:
<TABLE>
For the Three Months
ended March 31,
<CAPTION>
1995 1994
--------------------------------------------------------
(In thousands) Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
--------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest -
earning assets $344,727 $ 7,257 8.54% $306,329 $ 5,409 7.16%
Interest - bearing
liabilities $278,869 $ 2,964 4.31% $251,640 $ 1,949 3.14%
-------- --------
Net interest income - $ 4,293 - 0 $ 3,460 -
Net interest margin - - 5.05% - - 4.58%
</TABLE>
Other income in the first quarter was up modestly to $815.7
thousand from $809.7 in 1994. Other expenses increased 8.0% or
$244.0 thousand from the first quarter of 1994. The increase was
due to increased salaries and benefits associated with personnel
costs for expanded operations.
Investor Services
Earnings for investor services were $134,029 in the first
quarter of 1995 compared to a net loss of $25,827 in the same period
a year earlier. The improvement was largely the result of a 72.9%
increase in CD placement fees over the first quarter of 1994, during
which time placements were negatively affected by a sharp rise in
short-term interest rates. CD placement fees totaled $558.1
thousand in the first quarter of 1995, compared to $322.7 thousand
in 1994.
Trust and advisory revenues increased 3.9% in the first
quarter of 1995 to $672.1 thousand. The increase is consistent with
the increase in trust client assets which totaled $301.4 million at
March 31, 1995, up 2.4% from a year earlier.
Since January 1, 1995, retail securities brokerage activities
have been managed by and reported as a part of the community bank
instead of investor services to align more effectively the
management of this business unit with its primary geographic market.
Reflecting this change, other expenses declined $215.4 thousand, or
16.9%, from 1994.
Equipment Leasing
The equipment leasing business recorded a net loss of
$118,455, compared to net income of $205,591 in the first quarter
1994, reflecting lower yields due to more intense price competition
and increased funding costs. Net interest revenue was down $466.5
thousand, or 44.3% year-over-year. The decline was due to a parent
company decision to fund equipment leases with short-term variable
rate liabilities to offset a consolidated positive interest rate gap
for the Corporation. Please see the section on interest rate
sensitivity for further discussion.
<PAGE> 12
Lease volume of $6.3 million in the first quarter increased
3.4% from 1994. Operating expenses were up 5.6% to $966.4 thousand.
Home Equity Lending
The Corporation's home equity lending business was begun in
1994 with the incorporation of Irwin Home Equity Corporation. It
has a single production and servicing office located in San Ramon,
California. In 1995, the business began marketing home equity
variable rate lines of credit in eleven states by means of direct
mail and telemarketing.
The home equity lending business recorded a $1.0 million pre-
tax loss during its first quarter of operations. Total loan
originations in the first quarter were $1.9 million. The first
quarter's results were in line with management's expectations for
this start-up business.
Parent Company (including Consolidating Entries)
Parent Company net income for the first quarter of 1995 was a
loss of $1,339 compared to a loss of $209,527 in 1994. The
improvement is due to the income tax credits generated at the home
equity lending business which are recorded on the parent's books,
partially offset by increased stock appreciation rights expense
resulting from an increase in the Corporation's stock price.
Consolidated Income Statement Analysis
As previously discussed, 1994 net income computed in accordance
with Generally Accepted Accounting Principles (GAAP) was $4,493,875
for the first quarter of 1995, compared to $4,189,394 in the first
quarter of 1994. An alternative method of measuring the results of
operations would be to add to reported GAAP earnings the income that
would have been produced by the sale of mortgage loan servicing
rights in an amount equal to the net addition or deduction to
servicing rights during the quarter. This alternative measure is
referred to as "economic earnings". As illustrated below, on a
consolidated basis, using an assumed pre-tax value of 1.5% of the
principal amount of servicing added or deducted in the quarter, the
economic earnings during the first quarter 1995 were $2,612,942,
down 47.6% from 1994.
<TABLE>
<CAPTION>
For the Three Months Ended
March 31, 1995 1994 Percent Change
---------- ---------- --------------
<S> <C> <C> <C>
Reported GAAP earnings $4,493,875 $4,189,394 7.3%
Increase in estimated
value of the off-balance
sheet servicing rights (1,880,933) 797,405 -335.9%
---------- ---------- ---------
Total economic earnings $2,612,942 $4,986,799 -47.6%
========== ==========
</TABLE>
<PAGE> 13
The decline in servicing value was due to the fact that the
combination of servicing sales during the quarter and run-off more
than offset additions from new originations. The decline in total
economic earnings reflects the lower refinance volumes and reduced
secondary marketing revenues experienced in the mortgage banking
business in 1995.
Net interest income for the first quarter of 1995 totaled $7.4
million, down 2.2% from the first quarter of 1994. The decline was
due to a combination of a decline in mortgage loans held for sale in
the mortgage banking business and increased pricing competition in
the equipment leasing business. These declines were partially
offset by higher net interest income in community banking resulting
from additions to the loan and lease portfolio.
The loan and lease loss provision was $650.0 thousand for the
first quarter of 1995, as compared to $325.0 thousand for the same
period in 1994. This increase reflects the growth in the community
bank loans outstanding and additions to the lease loss reserve to
account for recent charge-off experience for a lease product which
was discontinued during the first quarter.
Other income was up 10.7% in the first quarter of 1995 to $25.0
million. This increase was driven primarily by mortgage banking
activities. Total fees from mortgage originations, servicing, and
the sale of servicing were $21.3 million for the first quarter, up
$1.0 million from the first quarter of 1994.
Other expense also increased in 1994 as the first quarter was
up $0.9 million or 4.1% from 1994. Costs associated with the start-
up of the home equity lending business and the opening of new
mortgage banking offices accounted for this increase.
The effective income tax rate for the Corporation increased in
1995 to 43.6% from 40.0% in 1994. The 1995 rate reflects an
adjustment made in the first quarter to increase income tax
accruals. The Corporation's on-going effective income tax rate is
expected to be closer to the 1994 rate.
Consolidated Balance Sheet Analysis
Total assets of Irwin Financial Corporation at March 31, 1995,
were $693,193,705, an increase of 5.1% from December 31, 1994 total
assets of $659,670,500. The increase was attributed to an increase
in mortgage loans held for sale of $20.2 million and an increase in
the loan and lease portfolio of $28.2 million.
The increase in assets was accompanied by an increase in
deposits of $27.3 million or 6.2%. A portion of noninterest bearing
deposits is associated with escrow accounts held on loans in the
servicing portfolio of Inland Mortgage. These escrow accounts
totaled $124.9 million at March 31, 1995, up from $88.8 million at
December 31, 1994.
Shareholders' equity grew to $84,880,047, or $15.10 per share,
a 4.7% increase over the $81,103,946, or $14.41 per share at the end
of 1994. Irwin Financial's equity to assets ratio ended the quarter
at 12.24%, compared to 12.29% at the end of 1994.
The mortgage loan servicing portfolio represents substantial
economic value which is not recorded on the balance sheet. The
following table demonstrates the estimated after-tax value for the
current quarter as well as the past two year ends.
<PAGE> 14
<TABLE>
<CAPTION>
(In thousands) March 31, Dec. 31, Dec. 31,
1995 1994 1993
------------ ------------ ----------
<S> <C> <C> <C>
Servicing portfolio balance $8,637,390 $8,818,502 $7,922,299
---------- ---------- ----------
Value @1.5% $ 129,561 $ 132,278 $118,834
Less: purchased servicing 19,272 18,834 11,505
excess servicing 1,447 1,467 1,794
---------- ---------- ----------
Tax liability at 40% 43,536 44,790 42,214
---------- ---------- ----------
Net value $ 65,305 $ 67,187 $ 63,321
========== ========== ========
Per share of common stock $ 11.62 $ 11.93 $ 10.90
========== ========== ========
</TABLE>
Credit Risk
The assumption of credit risk is a key source of earnings for
the community banking, home equity lending, and equipment leasing
businesses. In addition, the mortgage banking business assumes some
credit risk despite the fact that the mortgages are typically
secured.
The community banking and home equity lending businesses manage
credit risk through the use of lending policies, credit analysis and
approval procedures, and personal contact with the borrowers. Loans
over a certain size are reviewed prior to approval by a Loan
Committee. The equipment leasing business manages credit risk in a
similar manner through the use of lending policies, credit analysis
procedures, and personal contact with lessees.
Management reviews various ratios as measurements of asset
quality; however, the two most significant areas are delinquent loan
and lease ratios and the adequacy of the allowance for possible loan
and lease losses.
The adequacy of the allowance for possible loan and lease
losses is critical to the fair valuation of net loans and leases
recorded on the Corporation's balance sheet. Management evaluates
the creditworthiness of significant borrowers, past loan and lease
loss experience, and current and anticipated economic conditions.
The allowance for possible loan and lease losses is reduced by loans
and leases which, in the opinion of management, are deemed to be
uncollectible. The allowance is increased by provisions against
income. The ending allowance at any reporting period reflects
management's opinion of the possible future loss potential of all
loans and leases currently recorded on the Corporation's books.
<PAGE> 15
As of March 31, 1995, the allowance for possible loan and
lease losses as a percentage of total loans and leases was 1.17%,
compared to 1.25% at December 31, 1994. For the three months ended March
31, 1995, the provision for possible loan and lease losses totaled
$650.0 thousand, twice the amount recorded in the first quarter of
1994. The higher 1995 provision was caused by growth in the loan
and lease portfolio and additions to the lease loss reserve to
account for recent charge-off experience for a lease product which
was discontinued during the first quarter. Net charge-offs for the
quarter were $589.8 thousand as compared to $217.5 thousand in 1994.
The Corporation's percentage of nonperforming assets (loans 90
days past due, nonaccrual, and owned real estate) to total assets
declined slightly from levels experienced in 1994. As of March 31,
1995, this ratio was 0.47% as compared to 0.50% at December 31,
1994. Although this ratio has declined from 1994, the Corporation
continues to monitor the loans and property included in this total
in evaluating the status of the current reserve.
<TABLE>
<CAPTION>
Nonperforming Assets
(In Thousands) March 31, December 31, December 31,
1995 1994 1993
--------- ------------ ------------
<S> <C> <C> <C>
Accruing loans past due
90 days or more:
Commercial $ 328 $ 113 $ 800
Leasing 0 0 0
Real Estate 0 0 141
Consumer 158 93 88
------ ------ ------
Subtotal 486 206 1,029
------ ------ ------
Nonaccrual loans:
Commercial 1,357 1,523 1,373
Leasing 437 363 242
Real Estate 685 689 848
Consumer 0 0 39
------ ------ ------
Subtotal 2,479 2,575 2,502
------ ------ -----
Total nonperforming loans 2,965 2,781 3,531
------ ------ -------
Other real estate owned 288 489 623
------ ------ -------
Total nonperforming
assets $3,253 $3,270 $ 4,154
====== ====== =======
Nonperforming assets to
total assets 0.47% 0.50% 0.47%
======= ======= ========
</TABLE>
Liquidity
Liquidity is the availability of funds to meet the daily
requirements of the business. For financial institutions, demand
for funds comes principally from extensions of credit and withdrawal
of deposits. Liquidity is provided by asset maturities, sales of
investment securities, or short-term borrowings. Seasonal
fluctuations in deposit levels and loan demand require differing
levels of liquidity at various times during the year. Liquidity
measures are formally reviewed by management monthly, and they
continue to show adequate liquidity in all areas of the
organization.
<PAGE> 16
Interest Rate Sensitivity
Interest rate sensitivity refers to the potential for changes in
market rates of interest to cause changes in net interest income. Since
net interest income is the major source of income, it is extremely
important that potential changes are managed prudently. The following
table presents the consolidated interest rate sensitivity, or gap, as of
March 31, 1995.
<TABLE>
<CAPTION>
Within Three Months After
Three Months to One Year One Year
----------- ----------- --------
(In Thousands)
<S> <C> <C> <C>
Interest-earning assets:
Interest-bearing deposits
with banks $ 1,986 $ 5,788 $ 3,395
Federal funds sold 0 0 0
Taxable investment securities 10,478 12,920 36,493
Tax-exempt investment securities 45 1,061 6,131
Mortgages held for sale 175,128 0 0
Loans, net of unearned income 136,576 34,596 165,408
-------- -------- --------
Total interest-earning as 324,213 54,365 211,427
-------- -------- --------
Interest-bearing liabilities:
Money Market checking 17,063 0 51,189
Money Market savings 3,417 0 10,252
Regular savings 31,222 2,325 21,980
Time deposits 77,224 32,364 37,438
Short-term borrowings 97,714 0 0
Long-term debt 1,942 4,914 14,972
-------- -------- --------
Total interest-bearing
liabilities 228,582 39,603 135,831
-------- -------- --------
Interest sensitivity gap 95,631 14,762 75,596
-------- -------- --------
Cumlative interest
sensitivity gap $ 95,631 $110,393 $185,989
======== ======== ========
</TABLE>
As the above table shows, the consolidated one-year gap at March 31,
1995 was a positive $110.4 million. This compares to a positive gap
of $116.6 million at December 31, 1994. The large positive gaps at
March 31, 1994 and December 31, 1993 are related to escrow deposits
from the servicing portfolio of Inland Mortgage. These deposits are
generally held in noninterest bearing accounts at Irwin Union Bank.
However, they are invested in earning assets with the rate
maturities of less than one year, including mortgage loans held for
sale.
<PAGE> 17
Since the gap was positive at March 31, 1994, it means that the
Corporation was positioned to benefit from rising rates, or to be
harmed by declining rates. The consensus outlook of economists for
interest rates does not place a high probability on declines. However,
if rates do decline, we would expect the resulting declines in net
interest revenue to be offset by increased mortgage loan production
revenue. This has been our experience in previous years. Management
is monitoring this exposure and will hedge the risk if the outlook for
interest rates and mortgage activity changes so as to exacerbate the exposure.
In addition, the static one-year gap is not a reliable measure of
actual changes in market interest rates. Consequently, management
uses simulations of the behavior of net interest revenue to
determine exposure and to develop hedging strategies.
Capital Adequacy
Capital is a major focus of regulatory attention, with the
riskbased capital standard being the principal capital adequacy
measure. Based on this standard, financial institutions are
currently required to have a risk-based capital ratio of at least
8.0%. In addition to the minimum requirements for the risk-based
capital ratio, Tier I capital of at least 4.0% of total assets must
be maintained. Equity and risk-based capital ratios for the
Corporation are as follows:
<TABLE>
<CAPTION>
March 31, December 31, December31,
1995 1994 1993
<S> <C> <C> <C>
Equity to Assets 12.24% 12.29% 7.95%
Risk-Based Capital Ratio 17.62% 19.18% 15.68%
Tier I Capital Ratio 16.79% 18.31% 14.97%
</TABLE>
The Corporation's capital ratios are adequate and above regulatory
minimums.
<PAGE> 18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
IRWIN FINANCIAL CORPORATION
By: s/Thomas D. Washburn
-----------------------
Thomas D. Washburn
Chief Financial Officer
By: s/Marie C. Strack
------------------------
Marie C. Strack
Corporate Controller
(Chief Accounting Officer)
<PAGE> 19
PART II
Item 6
(a) Exhibits to Form 10-Q
Number Assigned Sequential
Numbering
In Regulation S-K System Page Number
Item 601 Description of Exhibit
(2) No Exhibit
(4) No Exhibit
(11) Computation of
Earnings per Share
(15) No Exhibit
(18) No Exhibit
(19) No Exhibit
(20) No Exhibit
(23) No Exhibit
(24) No Exhibit
(25) No Exhibit
(28) No Exhibit
(b) Reports on Form 8-K
None
Exhibit 11
IRWIN FINANCIAL CORPORATION AND SUBSIDIARIES
<TABLE>
Three Months Ended
March 31,
1995 1994
---- ----
<CAPTION>
PRIMARY
<S> <C> <C>
Average number of shares outstanding 5,618,688 5,826,996
Assumed exercise of stock options 123,684 87,472
---------- ----------
Total shares 5,742,372 5,914,468
========== ==========
Net income $4,493,875 $4,189,394
========== ==========
Net income per share $ 0.78 $ 0.71
========== ==========
FULLY DILUTED
Average number of share outstanding 5,618,688 5,826,996
Assumed exercise of stock options 127,737 87,472
(Note 1) ---------- ----------
Total shares 5,746,425 5,914,468
========== ==========
Net income $4,493,875 $4,189,394
========== ==========
Net income per share $0.78 $0.71
========== ==========
</TABLE>
(1) The dilutive effect of stock options is based on the
treasury stock method using the higher of the average market price
for the period or the period-end market price.
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000052617
<NAME> IRWIN FINANCIAL CORP
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<CASH> 37,249
<INT-BEARING-DEPOSITS> 11,169
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 15,240
<INVESTMENTS-CARRYING> 51,889
<INVESTMENTS-MARKET> 51,933
<LOANS> 336,580
<ALLOWANCE> (3,923)
<TOTAL-ASSETS> 693,194
<DEPOSITS> 467,180
<SHORT-TERM> 97,714
<LIABILITIES-OTHER> 21,592
<LONG-TERM> 21,828
<COMMON> 29,965
0
0
<OTHER-SE> 54,915
<TOTAL-LIABILITIES-AND-EQUITY> 693,194
<INTEREST-LOAN> 7,440
<INTEREST-INVEST> 1,338
<INTEREST-OTHER> 3,361
<INTEREST-TOTAL> 12,139
<INTEREST-DEPOSIT> 2,952
<INTEREST-EXPENSE> 4,702
<INTEREST-INCOME-NET> 7,437
<LOAN-LOSSES> 650
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 23,817
<INCOME-PRETAX> 7,965
<INCOME-PRE-EXTRAORDINARY> 7,965
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,494
<EPS-PRIMARY> .78<F1>
<EPS-DILUTED> .78<F1>
<YIELD-ACTUAL> .05<F1>
<LOANS-NON> 2,479
<LOANS-PAST> 486
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3,863
<CHARGE-OFFS> 666
<RECOVERIES> 76
<ALLOWANCE-CLOSE> 3,923
<ALLOWANCE-DOMESTIC> 2,745
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,178
<FN>
<F1>Information not in 1,000
</FN>
</TABLE>
