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 June 30, 1996
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 July 31, 1996, there were outstanding 5,691,932 common
shares, no par value, of the Registrant.
XXX PAGE 1 XXX
PART I
Item 1
IRWIN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
------------ ------------
ASSETS:
<S> <C> <C>
Cash and due from banks 50,938,836 $49,256,953
Federal funds sold -- 15,000,000
------------ ------------
Cash and cash equivalents 50,938,836 64,256,953
Interest-bearing deposits with financial
institutions 8,250,362 7,937,740
Investment securities (Market value:
$63,730,794 in 1996 and $61,884,464 in
1995) - Note 2 63,638,543 60,869,413
Mortgage loans held for sale - Note 3 382,583,869 378,658,247
Loans and leases, net of unearned income
- Note 4 514,228,154 412,524,601
Less: Allowance for possible loan and lease
losses - Note 5 (5,724,182) (4,620,167)
------------ ------------
508,503,972 407,904,434
Mortgage servicing rights - Note 6 63,215,098 48,535,326
Accrued interest receivable 5,203,955 4,239,435
Premises and equipment 17,309,460 16,377,889
Other assets 61,144,093 49,527,138
------------ ------------
1,160,788,188 $1,038,306,575
============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY:
Deposits
Noninterest-bearing 210,736,220 $207,379,192
Interest-bearing 319,971,070 302,543,544
Certificates of deposit over $100,000 72,912,777 54,075,911
------------ ------------
603,620,067 563,998,647
Short-term borrowings- Note 7 371,219,363 310,278,659
Long-term debt- Note 8 22,373,588 21,574,792
Other liabilities 55,054,223 43,237,996
------------ ------------
Total liabilities 1,052,267,241 939,090,094
------------ ------------
Shareholders' equity
Preferred stock, no par value - authorized
50,000 shares; none issued 0 0
Common stock; no par value - authorized
40,000,000; issued 5,850,520 shares in 1996
and 1995; including 168,840 and 185,604
shares in treasury in 1996 and 1995,
respectively. 29,965,287 29,965,287
Unrealized loss on investment securities (24,315) (9,657)
Retained earnings 83,526,821 74,647,711
------------ ------------
113,467,793 104,603,341
Less treasury stock, at cost (4,946,846) (5,386,860)
------------ ------------
Total shareholders' equity 108,520,947 99,216,481
----------- ------------
1,160,788,188 $1,038,306,575
============== ==============
</TABLE>
The accompanying notes are an integral
part of the consolidated financial statements.
XXX PAGE 2 XXX
IRWIN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
Three Months Ended
June 30,
INTEREST INCOME: 1996 1995
----------- ----------
<S> <C> <C>
Loans and leases $12,595,850 $8,966,439
Investment securities:
Taxable 1,197,249 1,176,964
Tax-exempt 88,598 114,818
Loans held for sale 7,615,719 3,906,066
Federal funds sold 506,306 549,651
----------- -----------
Total interest income 22,003,722 14,713,938
------------ -----------
INTEREST EXPENSE:
Deposits 4,451,334 3,667,352
Short-term borrowings 5,000,030 1,881,741
Long-term debt 434,483 377,081
----------- -----------
Total interest expense 9,885,847 5,926,174
----------- -----------
Net interest income 12,117,875 8,787,764
Provision for possible loan and lease
losses - Note 5 841,000 580,000
----------- -----------
Net interest income after provision
for possible loan and lease losses 11,276,875 8,207,764
----------- -----------
OTHER INCOME:
Loan origination fees 11,872,588 7,499,446
Gain /(loss) from sales of loans 9,165,037 5,371,416
Loan servicing fees 11,439,912 8,617,483
Gain on sale of mortgage servicing 3,341,621 898,150
Brokerage fees and commissions 484,904 873,395
Trust fees 473,575 563,816
Service charges on deposit accounts 456,391 336,290
Insurance commissions, fees and premiums 399,324 299,141
Other 705,068 315,120
----------- -----------
38,338,420 24,774,257
----------- -----------
OTHER EXPENSE:
Salaries 20,293,042 14,380,873
Pension and other employee benefits 3,288,601 2,746,115
Office Expense 2,691,581 1,520,436
Premises and equipment 3,418,349 3,399,730
Amortization of mortgage servicing rights 3,497,819 675,000
Marketing and development 2,793,655 1,505,721
Other 5,109,511 3,021,701
----------- -----------
41,092,558 27,249,576
----------- -----------
Income before income taxes 8,522,737 5,732,445
Federal income taxes 2,702,000 1,134,000
State income taxes 793,000 346,000
----------- -----------
Net income $5,027,737 $4,252,445
=========== ===========
Net income per share of common stock:
Net income -Note I $0.87 $0.74
=========== ===========
Dividends per share of common stock $0.12 $0.11
=========== ===========
Weighted average shares of common stock
outstanding 5,806,593 5,726,929
=========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
XXX PAGE 3 XXX
IRWIN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
Six Months Ended
June 30,
INTEREST INCOME: 1996 1995
---------- -----------
<S> <C> <C>
Loans and leases $23,473,277 $16,820,026
Investment securities:
Taxable 2,295,069 2,401,630
Tax-exempt 182,476 227,952
Loans held for sale 14,741,348 6,650,447
Federal funds sold 1,127,114 1,166,433
----------- -----------
Total interest income 41,819,284 27,266,488
------------ -----------
INTEREST EXPENSE:
Deposits 8,820,152 6,619,070
Short-term borrowings 9,136,091 3,236,380
Long-term debt 847,724 772,859
----------- -----------
Total interest expense 18,803,967 10,628,309
----------- -----------
Net interest income 23,015,317 16,638,179
Provision for possible loan and lease
losses - Note 5 $1,785,000 1,230,000
----------- -----------
Net interest income after provision
for possible loan and lease losses 21,230,317 15,408,179
----------- -----------
OTHER INCOME:
Loan origination fees 22,841,519 12,269,382
Gain /(loss) from sales of loans 16,776,533 4,732,895
Loan servicing fees 23,295,719 17,382,987
Gain on sale of mortgage servicing 4,529,470 10,173,694
Brokerage fees and commissions 1,312,266 1,535,156
Trust fees 1,033,465 1,139,090
Service charges on deposit accounts 807,014 566,365
Insurance commissions, fees and premiums 816,130 614,570
Other 1,143,769 941,949
----------- -----------
72,555,885 49,356,088
----------- -----------
Other expense:
Salaries 38,568,024 26,671,565
Pension and other employee benefits 6,469,699 5,354,908
Office Expense 5,333,852 3,666,611
Premises and equipment 6,710,144 5,970,021
Amortization of mortgage servicing rights 5,625,473 1,230,000
Marketing and development 5,238,595 2,720,425
Other 8,880,442 5,453,417
----------- -----------
76,826,229 51,066,947
----------- -----------
Income before income taxes 16,959,973 13,697,320
Federal income taxes 5,301,000 3,840,000
State income taxes 1,643,000 1,111,000
----------- -----------
Net income $10,015,973 $8,746,320
=========== ===========
Net income per share of common stock:
Net income -Note I $1.73 $1.53
=========== ===========
Dividends per share of common stock $0.24 $0.22
=========== ===========
Weighted average shares of common stock
outstanding 5,804,806 5,717,533
=========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
XXX PAGE 4 XXX
IRWIN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
June 30, 1996 1995
- -----------------------------------------------------------------------
<S> <C> <C>
Net income $10,015,973 $8,746,320
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization 8,972,432 3,421,924
Provision for possible loan and lease losses 1,785,000 1,230,000
Amortization of premiums, less accretion of
discounts:
Held-to-Maturity 971,610 (140,131)
Available-for-Sale 24,913 51,107
Mortgage loan originations (2,589,187,197) (1,308,209,298)
Sales of mortgage loans 2,585,261,575 1,120,267,520
Gain on sale of mortgage servicing (4,529,470) (10,173,694)
Other, net (2,121,104) (2,253,215)
------------- -----------
Net cash provided (used) by operating
activities 11,193,732 (187,059,467)
------------- --------------
Lending and investing activities:
Proceeds from maturities/calls of investment
securities:
Held-to-Maturity 615,000 39,932,071
Available-for-Sale 28,777,845 7,013,979
Purchase of investment securities:
Held-to-Maturity (5,051,178) (28,000,378)
Available-for-Sale (28,107,320) (5,378,924)
Net decrease (increase) in interest-bearing
deposits with financial institutions (312,622) 2,231,718
Net increase in loans (102,384,538) (64,077,380)
Net additions to premises and equipment (2,598,602) (2,488,133)
Purchase of mortgage servicing (46,552,278) (16,657,777)
Proceeds from sale of mortgage servicing 30,776,503 15,791,507
------------ ------------
Net cash used by lending and investing
activities (124,837,190) (51,633,317)
------------ ------------
Financing activities:
Net increase in deposits 39,621,420 103,816,420
Net increase in short-term borrowings 60,940,704 140,144,015
Proceeds (repayment) of long-term debt 798,796 (2,193,165)
Purchase of treasury stock (235,816) (2,034,598)
Proceeds from sale of stock for stock purchase
plan 562,400 736,529
Dividends paid (1,362,163) (1,238,296)
----------- -----------
Net cash provided by financing activities 100,325,341 239,230,905
----------- -----------
Net increase (decrease) in cash and cash
equivalents (13,318,117) 538,121
Cash and cash equivalents at beginning
of year 64,256,953 50,840,452
----------- -----------
Cash and cash equivalents at end of year $50,938,836 $51,378,573
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period:
Interest $8,933,690 $10,141,054
=========== ===========
Income taxes $750,200 $3,829,990
=========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
XXX PAGE 5 XXX
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
Consolidation: Irwin Financial Corporation and its
subsidiaries (the Corporation) provide financial services
throughout the United States. The Corporation is engaged in
the mortgage banking, commercial banking, home equity
lending, and equipment leasing lines of business.
Intercompany balances and transactions have been eliminated
in consolidation. Significant accounting policies followed
by the Corporation are consistent with those followed for
annual financial reporting. The information 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 common shares outstanding
during the year.
Mortgage banking: The Corporation adopted SFAS No. 122
"Accounting for Mortgage Servicing Rights" in the second
quarter of 1995. This standard prohibits retroactive
application. Accordingly, the 1995 first quarter financial
results were accounted for under the original SFAS No. 65.
Stock-based Compensation: In 1996 the Corporation adopted Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation." The Corporation does not recognize compensation expense
for its employee fixed stock option and employee stock puchase plans.
Had the Corporation recognized stock-based compensation expense
based on the fair value at the grant dates for awards granted
subsequent to December 15, 1994, the Corporation's after-tax
income and earnings per share would have been reduced by the
following amounts:
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
After-tax reduction
in income $290,000 $150,000 $320,000 $170,000
After-tax reduction
in earnings per
share $0.06 $0.02 $0.06 $0.04
</TABLE>
Reclassifications: Certain amounts in the 1995 consolidated
financial statements have been reclassified to conform to
the 1996 presentation.
XXX PAGE 6 XXX
NOTE 2 - INVESTMENT SECURITIES
The carrying amounts of investment securities, including net
unrealized losses of $40,524 and $16,093 on available-for-sale securi
ties at June 30, 1996 and December 31, 1995, respectively, summarized
as follows:
<TABLE>
<CAPTION>
June 30,December 31,
1996 1995
------- -------
<S> <C> <C>
Held-to-Maturity
US Treasury and Government obligations $34,174,436 26,914,375
Obligations of states and political
subdivisions 5,890,000 6,490,223
Mortgage-backed securities 5,663,160 8,858,431
----------- -----------
Total Held-to-Maturity 45,727,596 42,263,029
Available-for-Sale
US Treasury and Government obligations 17,910,947 15,359,438
Mortgage-backed securities -- 3,246,946
---------- ----------
Total Available for Sale 17,910,947 18,606,384
Total Investments $63,638,543 $60,869,413
=========== ===========
</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 adjusted 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.
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>
June 30, December 31,
1996 1995
-------- ---------
<S> <C> <C>
Commercial, financial and agricultural $176,754,298 $150,311,871
Real estate-construction 39,688,280 36,125,577
Real estate-mortgage 191,149,825 108,350,683
Consumer 58,540,485 67,755,702
Lease financing 62,141,688 60,979,310
Unearned income (14,046,422) (10,998,542)
------------ ------------
$514,228,154 $412,524,601
============ ============
</TABLE>
XXX PAGE 7 XXX
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>
June 30, December 31,
1996 1995
-------- ----------
<S> <C> <C>
Balance at beginning of year $4,620,167 $3,863,223
Provision for possible loan and lease losses 1,785,000 3,073,000
Reduction due to sale of loans (193,693) (215,833)
Recoveries 253,690 389,674
Charge-offs (740,982) (2,489,897)
---------- ----------
Balance at end of period $5,724,182 $4,620,167
========== ==========
</TABLE>
NOTE 6- MORTGAGE SERVICING RIGHTS
Included on the consolidated balance sheet at June 30, 1996 and
December 31, 1995 are $63,215,098 and $48,535,326, respectively, of
capitalized mortgage servicing rights. These amounts relate to the
principal balances of mortgage loans serviced by the Corporation for
investors which total $10,717,883,397 and $10,301,914,063 at June 30,
1996 and December 31, 1995, respectively. Although they are not
generally held for purposes of sale, there is an active secondary
market for mortgage servicing rights.
NOTE 7- SHORT-TERM BORROWING
Short-term Borrowings are summarized as follows:
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
-------- ---------
<S> <C> <C>
Repurchase agreements and drafts payable related to
mortgage loan closings $236,639,602 $225,872,594
Commercial paper 26,258,294 21,722,935
Federal funds 82,100,000 40,000,000
Other 26,221,467 22,683,130
---------- ----------
$371,219,363 $310,278,659
============ ============
</TABLE>
Repurchase agreements at June 30, 1996 and December 31, 1995, include
$139,996,251 and $151,104,931, respectively, in mortgage loans sold
under agreements to repurchase which are used to fund mortgage loans
sold prior to sale in the secondary market. These repurchase
agreements are collateralized by mortgage loans held for sale.
XXX PAGE 8 XXX
Drafts payable related to mortgage loan closings totaled
$86,954,101 and $69,395,883 at June 30, 1996 and December
31, 1995. These borrowings are related to mortgage closings
at the end of June which have not been presented to banks
for payment. When presented for payment these borrowings
will be funded internally or by borrowings from the lines of
credit.
The Corporation has lines of credit available to fund
mortgage loans held for sale. Interest on the lines of
credit is payable monthly at variable rates ranging from
6.13% to the lender's prime rate.
NOTE 8 - LONG-TERM DEBT
Long-term debt at June 30, 1996 of $22,373,588 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 September 30, 2001. Long -term debt as of December
31, 1995 was $21,574,792 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 through April
30, 2001.
XXX PAGE 9 XXX
PART I
Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Net income for the second quarter ended June 30, 1996, was
$5,027,737 up 18.2% from the second quarter 1995 net income of
$4,252,445. Net income per share was $0.87 for the second
quarter of 1996 as compared to $0.74 for the same period in 1995.
Return on equity for the second quarter of 1996 was 18.97%
compared to 19.69% in 1995.
For the year to date, the Corporation recorded net income
of $10,015,973, up 14.5% from 1995. Net income per share was
$1.73, up from $1.53 a year earlier. Return on equity for the
year to date was 19.44% as compared to 21.01% for the same period
in 1995.
LINES OF BUSINESS
Irwin Financial Corporation has six lines of business:
- --Mortgage banking (includes Inland Mortgage Corporation and the
related activities of Irwin Union Bank and Trust)
- --Community banking (Irwin Union Bank and Trust and Irwin Union
Advisory Services)
- --Home equity lending (includes Irwin Home Equity and the related
activities of Irwin Union Bank and Trust)
- --Equipment leasing (includes Affiliated Capital Corp. and the
related activities of Irwin Union Bank and Trust)
- --Investor services (Irwin Union Investor Services)
- --Credit insurance (Irwin Union Credit Insurance Corporation)
Listed below are the earnings by line of business for the
quarter and year to date, as compared to the similar periods in
1995:
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Mortgage banking $5,997,922 $3,920,282 $11,291,515 $8,567,379
Community banking 943,710 771,707 2,155,941 1,651,038
Home equity lending (2,106,362) (1,529,039) (4,111,512) (2,521,619)
Equipment leasing 42,890 (33,389) 14,620 (151,844)
Investor services (171,041) 69,891 (108,781) 146,358
Credit insurance (268) (415) 41,665 2,939
Parent (including
consolidating entries) 320,886 1,053,408 732,525 1,052,069
---------- ---------- ----------- ----------
$5,027,737 $4,252,445 $10,015,973 $8,746,320
========== ========== =========== ===========
</TABLE>
XXX PAGE 10 XXX
MORTGAGE BANKING
SELECTED FINANCIAL DATA (shown in thousands):
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
1996 1995 1996 1995
----- ----- ----- ----
Selected Income Statement Data:
<S> <C> <C> <C> <C>
Loan origination fees $11,782 $ 7,663 $22,673 $12,183
Gain (loss) from sales of loans 9,059 5,371 16,355 4,733
Loan servicing fees 10,413 8,617 21,178 17,383
Net interest income 4,641 3,217 8,852 5,734
Gain on sale of servicing 3,342 898 4,529 10,174
Other income 247 120 443 350
Operating expense (29,394) (19,248) (55,061) (36,065)
-------- -------- ------- -------
Income before tax 10,090 6,638 18,969 14,492
Income tax (4,092) (2,718) (7,678) (5,925)
------ ------ ------ -------
Net income $5,998 $3,920 $11,291 $8,567
====== ====== ======= ======
Mortgage loan originations $1,341,623 $831,332 $2,589,187 $1,308,209
========== ======== ========== ==========
</TABLE>
XXX PAGE 11 XXX
<TABLE>
<CAPTION>
SELECTED OPERATING DATA: June 30, December 31,
1996 1995
---------- ------------
<S> <C> <C>
Servicing portfolio $10,717,883 $10,301,914
Mortgage loans held for sale 295,630 309,262
Net capitalized servicing 66,689 51,783
</TABLE>
Net income for the second quarter was $6.0 million, up
53.0% from the same period in 1995. Year to date, net income was
$11.3 million compared to $8.6 million in 1995.
Mortgage loan originations of $1.3 billion (including $82.1
million of brokered loans) were 61.4% above the second quarter of
1995. For the year, originations totaled $2.6 billion, up 97.9%
from 1995. Refinances accounted for 15.1% of loan production in
the second quarter of 1996 and 24.5% year to date. This compares
to 5.6% and 4.8%, respectively, in 1995. Mortgage loan
origination income was up 53.7% in the second quarter to $11.8
million, and year to date was up 82.9% to $22.7 million.
Mortgage loan applications in process totaled $1.7 billion at
June 30, 1996, compared to $1.0 billion a year earlier.
Gains on the sale of loans increased 68.6% in the second
quarter to $9.1 million. Year to date, gains on the sale of
loans totaled $16.4 million compared with $4.7 million in 1995.
The year to date increase is partially due to the adoption of a
new accounting standard in the second quarter of 1995 which
changed the accounting for mortgage loans.
Mortgage servicing fees increased 20.8% in the second
quarter and 21.8% year to date to $10.4 million and $21.2
million, respectively. The increase is reflective of growth in
the servicing portfolio which totaled $10.7 billion at June 30,
1996, up 17.3% from a year earlier and 4.0% from December 31,
1995. Capitalized mortgage servicing rights totaled $66.7
million at June 30, 1996, up 28.8% from December 31, 1995.
Revenues from the sale of mortgage servicing were up 272.1%
from the second quarter of 1995 to $3.3 million. Year to date
servicing sale revenues totaled $4.5 million, down 55.5% from
$10.2 million in 1995.
As a result of the increase in mortgage loan closings from
1995, net interest income was up in the second quarter and year
to date. Net interest income for the three months ended June 30,
1996 was $4.6 million, up 44.2% from the second quarter 1995.
Year to date, net interest income totaled $8.9 million, compared
to $5.7 million in 1995.
Operating expenses were up $10.4 million, or 54.4% from the
second quarter of 1995 and $19.0 million or 52.7% year to date.
Included in second quarter operating expenses is $3.5 million of
amortization expense relating to capitalized mortgage servicing
rights, an increase of $2.8 million over 1995. Year to date
amortization expense totaled $5.6 million, up $4.4 million from
the previous year. The increase in other operating expense
reflects the increased production activity in the mortgage
banking line of business as previously discussed.
XXX PAGE 12 XXX
COMMUNITY BANKING
SELECTED FINANCIAL DATA (shown in thousands):
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June,30
1996 1995 1996 1995
----- ----- ----- -----
Selected Income Statement Data:
<S> <C> <C> <C> <C>
Net interest revenue $4,831 $4,317 $9,380 $8,498
Provision for loan and
lease losses (426) (400) (952) (833)
Other income 2,280 1,616 4,624 3,103
Operating expense (5,202) (4,426) (9,642) (8,294)
------- ------- ------- -------
Income before tax 1,483 1,107 3,410 2,474
Income tax (539) (348) (1,254) (823)
------- ------ -------- ------
Net income $944 $759 $2,156 $1,651
===== ===== ====== ======
</TABLE>
<TABLE>
<CAPTION>
June 30, December 31,
SELECTED BALANCE SHEET DATA: 1996 1995
-------- ------------
<S> <C> <C>
Cash and investments $101,710 $117,361
Loans and leases 331,579 310,083
Allowance for loan and lease (4,245) (3,668)
losses
All other assets 29,512 15,289
-------- ---------
Total assets $458,556 $439,065
========= =========
Deposits $427,373 $400,149
All other liabilities 0 10,846
------- --------
Total liabilities $427,373 $410,995
========= =========
Shareholder's equity $31,183 $28,070
========= =========
</TABLE>
Community banking activities are conducted by Irwin Union
Bank through locations in six counties in south-central Indiana.
Results in each period include the income and expenses of trust
operations and investment advisory services which were
previously reported in the investor services line of business
and are now managed and reported by the community bank. Results
for 1995 have been restated to reflect this change. Net income
was up in the second quarter to $943.7 thousand from $759.1
thousand. Year to date, net income improved $504.9 thousand
from 1995, or 30.6%. The provision for loan and lease losses
increased 6.5% to $426.0 thousand in the second quarter compared
with a provision of $400.0 thousand a year earlier. Year to
date, the provision for loan and lease losses totaled $952.0
thousand, compared to $833.0 thousand in 1995. This increased
provision reflects growth in the loan and lease portfolios which
have increased 16.7% year-over-year.
XXX PAGE 13 XXX
Following is an analysis of net interest income and net interest
margin computed on a tax equivalent basis:
<TABLE>
<CAPTION>
For the Three Months
Ended June 30, 1996 1995
- -----------------------------------------------------------------------------
Average Yield/ Average Yield/Rate
(In thousands) Balance Interest Rate Balance Interest
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest -
earning assets $407,622 $8,693 8.58% $367,160 $8,048 8.79%
Interest -bearing
liabilities $344,469 3,813 4.45% $313,442 3,614 4.68%
------ ------
Not interest income 0 $4,880 0 0 $4,434 0
Net interest margin 0 0 4.82% 0 0 4.84%
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
For the Six Months
Ended June 30, 1996 1995
- -----------------------------------------------------------------------------
Average Yield/ Average Yield/
(In thousands) Balance Interest Rate Balance Interest Rate
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest -
earning assets $405,780 $17,099 8.47% $358,441 $15,188 8.54%
Interest - bearing
liabilities $340,693 7,620 4.50% $303,037 $ 6,578 4.38%
------- -------
Net interest income 0 $ 9,479 0 0 $ 8,610 0
Net interest margin 0 0 4.70% 0 0 4.84%
</TABLE>
Other income in the second quarter was up 40.0% to $2.3
million from $1.6 million in 1995. For the year to date, other
income increased 49.0% to $4.6 million. Loan servicing fees and
service charges on deposit accounts make up the most significant
increases in 1996 other income. Other expenses increased 17.5%
or $776.3 thousand from the second quarter of 1995 to $5.2
million. For the year, these expenses were up $1.3 million to
$9.6 million. The increase was due to the continued expansion of
operations in new markets and trust activities.
XXX PAGE 14 XXX
HOME EQUITY LENDING
SELECTED FINANCIAL DATA (shown in thousands):
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
1996 1995 1996 1995
---- ---- ---- ----
SELECTED INCOME STATEMENT DATA:
<S> <C> <C> <C> <C>
Net interest revenue $1,278 $170 $2,186 $212
Provision for loan and lease
losses (248) (76) (514) (93)
Loan servicing fees 868 0 1,844 0
Other revenue 25 0 38 0
Operating expense (4,029) (1,623) (7,666) (2,640)
-------- ------- ------- -------
Pre-tax loss ($2,106) ($1,529) ($4,112) ($2,521)
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
OTHER SELECTED FINANCIAL DATA: June 30, December 31,
1996 1995
-------- -----------
<S> <C> <C>
Home equity loans, net of allowance $107,873 $36,225
Servicing portfolio 150,414 86,691
</TABLE>
The 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
lines of credit by means of direct mail and telemarketing.
The home equity lending business recorded pre-tax losses of
$2.1 million during the second quarter of 1996 and $4.1 million
year to date. These results are compared to 1995 quarterly and
year to date losses of $1.5 million and $2.5 million,
respectively. Net revenues for the quarter totaled $1.9
million, up from $94.0 thousand a year earlier. Year to date
net revenues increased to $3.6 million from $119.0 thousand in
1995. Included in 1996 net revenues are loan servicing fees
which totaled $867.8 thousand for the quarter and $1.8 million
for the year to date. Operating expenses were $4.0 million in
the second quarter of 1996 compared to $1.6 million in the same
period a year earlier. Year to date, operating expenses were up
$5.0 million to $7.7 million. These increases result from the
business' continued expansion of its production capacity.
The owned portfolio of home equity loans totaled $107.8
million at June 30, 1996, up from $23.6 million a year earlier
and $36.2 million at December 31, 1995. Loan volume for the
second quarter of 1996 was $41.6 million, up from $20.7 million
in 1995. Year to date volume increased 220.5% to $72.5 million.
EQUIPMENT LEASING
The equipment leasing business recorded pre-tax income for
the quarter and for the year of $42.9 thousand and $14.6
thousand, respectively. This compares to a pre-tax loss of
$33.4 thousand and $151.8 thousand in the second quarter and
year to date 1995, respectively. Net revenues were up 6.7% for
the quarter to $1.1 million, and 13.3% year to date to $2.1
million.
Operating expenses totaled $1.0 million in the second
quarter and $2.1 million year to date in 1996, down 1.0% and up
3.9%, respectively, from 1995.
XXX PAGE 15 XXX
In response to changing customer needs, in late 1995 the
business began entering into new private-label financing
agreements with several equipment manufacturers and has launched
a revolving credit product to complement its lease products.
Lease and loan volume of $9.2 million in the second quarter
increased 48.1% from 1995. Year to date, volume
increased 34.3% to $16.9 million.
INVESTOR SERVICES
During the second quarter of 1996, the Corporation
announced its intent to exit the brokered certificate
of deposit and institutional brokerage businesses which
are the sole businesses operated by the investor
services line of business. A sale of selected assets
of the brokered CD program is expected to be completed
in the third quarter, but management does not expect it
to have a material impact on that quarters earnings.
A net loss of $171.0 thousand was recorded in the
second quarter of 1996, $240.9 thousand worse than the
same period in 1995. Year to date, the business
recorded a net loss of $108.8 thousand compared with
net income of $146.4 thousand in 1995. The decline is
principally attributable to declines in brokerage
revenues of 53.8% for the quarter and 27.7% year to
date.
PARENT COMPANY (including Consolidating Entries)
Parent Company net income for the second quarter
of 1995 was $320.9 thousand, compared to $1.1 million
in 1995. Year to date, net income of $732.5 thousand
was recorded, compared to $1.1 million a year earlier.
Included in the parent company's results in the second
quarter of 1996 is a $625.0 thousand charge for Costs
related to the decision to exit the brokered CD and
institutional brokerage businesses. Parent company
results include the tax benefits generated at the home
equity and leasing lines of business. These benefits
totaled $1.0 million in the second quarter of 1996,
compared with $1.7 million in 1995. For the year to
date, the parent has recorded $1.9 million of tax
benefits, even with the amount recorded in 1995.
CONSOLIDATED INCOME STATEMENT ANALYSIS
Net interest income for the second quarter of 1996
totaled $12.1 million, up 44.8% from the second quarter
of 1995. For the year, it increased 45.6% to $23.0
million. The increases are the result of growth in the
community banking, home equity lending and equipment
leasing loan and lease portfolios, combined with higher
originations in the mortgage banking business.
The loan and lease loss provision was $841.0
thousand for the second quarter of 1996, as compared to
$580.0 thousand for the same period in 1995. For the
year, it totaled $1.8 million, up from $1.2 million a
year earlier. This increase reflects the growth in
loan and lease portfolio.
XXX PAGE 16 XXX
Other income was up 51.8% in the second quarter of
1996 to $38.3 million. Year to date other income
increased 44.6% to $72.6 million. This increase was
driven primarily by mortgage banking activities. Total
fees from mortgage loan originations, sales, servicing,
and the sale of servicing were $34.6 million for the
second quarter, up $12.3 million from the second
quarter of 1995. For the year, they totaled $64.7
million, an increase of $20.2 million over 1995.
Other expense also increased in 1996 as the second quarter
was up $13.8 million or 50.8% from 1995. For the year, other
expense increased $25.8 million or 50.4%. Costs associated with
increased production activities in the mortgage banking and home
equity lines of business were the primary reason for the
increases.
The effective income tax rate for the Corporation was 41.0%
in the second quarter of 1996, compared with 25.8% in 1995. The
effective tax rate for the year to date was 40.9%, up from 36.1%
in 1995. The 1995 rates reflect estimates made for certain tax
issues. Rates in 1996 are more consistent with the Corporations
normal annual tax rate.
CONSOLIDATED BALANCE SHEET ANALYSIS
Total assets of Irwin Financial Corporation at June 30,
1996, were $1.2 billion, an increase of 11.8% from December 31,
1995 total assets of $1.0 billion. The increase was attributed
to an increase in the loan and lease portfolio of $101.7 million.
The increase in assets was accompanied by an increase in
short term borrowings of $60.9 million or 19.6% and an increase
in deposits of $39.6 million or 7.0%. 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 $148.4 million at June 30, 1996, up from $143.3
million at December 31, 1995.
Shareholders' equity grew to $108.5 million or $19.10 per
share, a 9.4% increase over the $99.2 million or $17.51 per share
at the end of 1995. The Corporation's equity to assets ratio
ended the quarter at 9.35%, compared to 9.56% at the end of 1995.
Prior to the adoption of new mortgage banking accounting
standards in the second quarter of 1995, mortgage banking
accounting did not allow the full value of mortgage servicing
rights to be reflected on the balance sheet. Since a significant
XXX PAGE 17 XXX
portion of the Corporation's mortgage servicing portfolio was
generated prior to the adoption of the new accounting standards,
it 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.
<TABLE>
<CAPTION>
(In thousands) June 30, Dec. 31, Dec. 31,
1996 1995 1994
--------- ------- --------
<S> <C> <C> <C>
Servicing portfolio balance $10,717,883 $10,301,914 $8,818,502
------------ ----------- ----------
Value @1.5% $160,768 $154,529 $132,278
Less: capitalized servicing 66,020 51,783 20,301
Tax liability at 40% 37,899 41,098 44,790
-------- -------- --------
Net value not on balance sheet $56,849 $61,648 $67,187
========= ======= ========
Per Share of common stock $10.01 $10.88 $11.93
====== ====== ======
</TABLE>
XXX PAGE XXX
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.
As of June 30, 1996, the allowance for possible loan and
lease losses as a percentage of total loans and leases was 1.11%,
compared to 1.12% at December 31, 1995. For the three months
ended June 30, 1996, the provision for possible loan and lease
losses totaled $841.0 thousand, a 45.0% increase over the amount
recorded in the second quarter of 1995. Year to date, the
provision totaled $1.8 million, up from $1.2 million a year
earlier. The higher 1996 provision was caused by growth in the
loan and lease portfolio. Net charge-offs for the quarter were
$304.4 thousand as compared to $514.9 thousand in 1995. Year to
date net charge-offs totaled $487.3 thousand, down from $1.1
million a year earlier.
The Corporation's percentage of nonperforming assets (loans
90 days past due, nonaccrual, and owned real estate) to total
assets increased from levels experienced in 1995. As of June 30,
1996, this ratio was 0.31% as compared to 0.26% at December 31,
1995. The Corporation monitors the loans and property included
in this total in evaluating the status of the current reserve.
XXX PAGE 18 XXX
<TABLE>
<CAPTION>
NONPERFORMING ASSETS June 30, December 31, December 31,
(In Thousands) 1996 1995 1994
-------- ----------- -----------
<S> <C> <C> <C>
Accruing loans past due
90 days or more:
Commercial $403 $418 $113
Leasing 0 0 0
Real Estate 277 0 0
Consumer 122 202 93
----- --- -----
Subtotal 802 620 206
----- ----- -----
Nonaccrual loans:
Commercial 773 670 1,523
Leasing 469 415 363
Real Estate 1,127 694 689
Consumer 0 0 0
------ ---- -----
Subtotal 2,369 1,779 2,575
----- ----- -----
Total nonperforming loans 3,171 2,399 2,781
------ ----- -----
Other real estate owned 418 295 489
------ ------ ------
Total nonperforming assets $3,589 $2,694 $3,270
====== ====== ======
Nonperforming assets to
total assets 0.31% 0.26% 0.50%
====== ====== ======
</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.
XXX PAGE 19 XXX
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 a 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 June 30, 1996.
<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 $861 $1,994 $5,395
Federal funds sold 0 0 0
Taxable investment securities 13,244 10,270 34,234
Tax-exempt investment
securities 192 95 5,603
Mortgages held for sale 382,584 0 0
Loans, net of unearned
income 288,696 79,225 146,307
------- ------- -------
Total interest-earning
assets 685,577 91,584 191,539
Interest-bearing liabilities:
Money Market checking 22,153 0 70,584
Money Market savings 935 0 8,774
Regular savings 27,483 2,225 21,034
Time deposits 131,164 60,578 47,954
Short-term borrowings 366,014 5,205 0
Long-term debt 1,949 7,919 12,506
-------- ------- -------
Total interest-bearing
liabilities 549,698 75,927 160,852
-------- -------- --------
Interest sensitivity gap 135,879 15,657 30,687
Cumulative interest
sensitivity gap $135,879 $151,536 $182,223
========= ========= =========
</TABLE>
As the above table shows, the consolidated one-year gap at
June 30, 1996 was a positive $151.5 million. This compares to a
positive gap of $153.6 million at December 31, 1995. The large
positive gaps at June 30, 1996 and December 31, 1995 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.
Since the gap was positive at June 30, 1996, it means that
the Corporation was positioned to benefit from rising rates, or
to be harmed by declining rates. While traditional interest
rate risk focuses on the changes in net interest income due to
interest rate changes, the Corporation engages in other
activities which are also affected by interest rate changes.
Principal among these are mortgage loan origination and
servicing. For example, if interest rates decline, management
expects an increase in mortgage loan origination income and a
decline in the value of mortgage servicing rights. Management
attempts to monitor this exposure to traditional interest rate
risk as well as interest rate influences on production and
servicing value in a comprehensive manner.
XXX PAGE 20 XXX
In addition, the static one-year gap is not a reliable
measure of the actual effects of 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
risk-based 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>
June 30, December 31, December 31,
1996 1995 1994
------- ------------ ------------
<S> <C> <C> <C>
Equity to Assets 9.35% 9.56% 12.29%
Risk-Based Capital Ratio 12.08% 14.49% 19.18%
Tier I Capital Ratio 11.36% 13.80% 18.31%
</TABLE>
The Corporation's capital ratios are adequate and above
regulatory minimums.
XXX PAGE 21 XXX
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)
XXX PAGE 22 XXX
PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits to Form 10-Q
Number Assigned
In Regulation S-K
Item 601 Description
- -------- ------------
(11) Computation of
Earnings per Share
(27) Financial Data Schedule
(b) Reports on Form S-K
None
XXX PAGE 23 XXX
Exhibit 11
IRWIN FINANCIAL CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
---- ---- ---- ----
PRIMARY
<S> <C> <C> <C> <C>
Average number of shares
outstanding 5,676,653 5,626,769 5,672,816 5,622,751
Assumed exercise of
stock options 129,940 100,160 131,990 94,782
------- ------- --------- -------
Total shares 5,806,593 5,726,929 5,804,806 5,717,533
========= ========= ========= =========
Net income $5,027,737 $4,252,445 $10,015,973 $8,746,320
========== ========= =========== ==========
Net income per share $0.87 $0.74 $1.73 $1.53
===== ===== ===== =====
FULLY DILUTED
Average number of shares
outstanding 5,676,653 5,626,769 5,672,816 5,622,751
Assumed exercise of
stock options (Note 1) 129,940 110,179 131,990 104,626
------- ------- ------- -------
Total shares 5,806,593 5,736,948 5,804,806 5,727,377
========== ========= ========== =========
Net income $5,027,737 $4,252,445 $10,015,973 $8,746,320
========== ========== =========== ==========
Net income per share $0.87 $O.74 $l.73 $l.53
===== ===== ===== =====
</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> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 50,939
<INT-BEARING-DEPOSITS> 8,250
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 17,911
<INVESTMENTS-CARRYING> 45,728
<INVESTMENTS-MARKET> 45,820
<LOANS> 514,228
<ALLOWANCE> 5,724
<TOTAL-ASSETS> 1,160,788
<DEPOSITS> 603,620
<SHORT-TERM> 371,219
<LIABILITIES-OTHER> 55,054
<LONG-TERM> 22,374
0
0
<COMMON> 29,965
<OTHER-SE> 78,556
<TOTAL-LIABILITIES-AND-EQUITY> 1,160,788
<INTEREST-LOAN> 23,473
<INTEREST-INVEST> 2,477
<INTEREST-OTHER> 15,869
<INTEREST-TOTAL> 41,819
<INTEREST-DEPOSIT> 8,820
<INTEREST-EXPENSE> 9,984
<INTEREST-INCOME-NET> 23,015
<LOAN-LOSSES> 1,785
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 76,826
<INCOME-PRETAX> 16,960
<INCOME-PRE-EXTRAORDINARY> 16,960
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,016
<EPS-PRIMARY> 1.73<F1>
<EPS-DILUTED> 0
<YIELD-ACTUAL> .05<F1>
<LOANS-NON> 2,369
<LOANS-PAST> 802
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 4,620
<CHARGE-OFFS> 741
<RECOVERIES> 254
<ALLOWANCE-CLOSE> 5,724
<ALLOWANCE-DOMESTIC> 3,538
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 2,186
<FN>
<F1>information no in 1,000
</FN>
</TABLE>
