Irwin Financial Corporation amends its 10Q filed for the Quarter ending
September 30, 1997. The amended entries are flagged with an *.
Mortgage Banking
Selected Financial Data (shown in thousands):
Three Months Nine Months
Ended September 30, Ended September 30,
1997 1996 1997 1996
Selected Income Statement
Data:
Loan servicing fees $13,039 $11,442 $37,619 $32,620
Loan origination fees 11,300 10,681 30,350 33,354
Gain on sale of servicing 10,397 4,411 24,065 8,941
Gain from sales of loans 5,781 7,464 13,900 23,818
Net interest income 4,819 4,002 13,060 12,854
Provision for loan losses (914) (160) (1,621) (602)
Other income 380 277 969 720
Operating expense (33,372) (29,442) (91,728) (84,061)
Income before tax 11,430 8,675 26,614 27,644
Income tax (4,550) (3,593) (10,740) (11,271)
Net income $6,880 $5,082 $15,874 $16,373
Return on average equity 39.20% 33.90% 30.10% 36.40%
Mortgage loan originations $1,518,506 $1,216,781 $3,912,526 $3,803,631
Selected Operating Data: September December
30, 31,
1997 1996
Servicing portfolio $10,647,802 $10,810,988
Mortgage loans held for sale 379,813 371,058
Mortgage servicing asset 77,125 70,551
Net income for the third quarter was $6.9 million, up 35.4%
from the same period in 1996. Year to date, net income was $15.9
million compared to $16.4 million in 1996.
Mortgage loan originations of $1.5 billion (including $98.9
million of brokered loans) were 24.8% above the third quarter of
1996. For the year, originations totaled $3.9 billion, up 2.9%
from 1996. Refinances accounted for 22.1% of loan production in
the third quarter of 1997 and 18.9% year to date. This compares to
11.0% and 20.1%, respectively, in 1996. Improved third quarter
production caused mortgage loan origination income to increase 5.8%
for the quarter to $11.3 million. However, year to date was down
9.0% to $30.4 million. Mortgage loans held for sale and
applications in process totaled $1.8 billion at September 30, 1997,
up 2.7% from a year earlier.
Gains on the sale of loans decreased 22.5% in the third
quarter to $5.8 million. Year to date, gains on the sale of loans
totaled $13.9 million compared with $23.8 million in 1996.
Mortgage servicing fees increased 14.0% in the third quarter
and 15.3% year to date to $13.0 million and $37.6 million,
respectively. The increase is reflective of a more profitable mix
of types of loans serviced by the company. The servicing portfolio
totaled $10.6 billion at September 30, 1997, down 2.1% from a year
earlier and 1.5% from December 31, 1996. Mortgage servicing assets
totaled $77.1 million at September 30, 1997, up 9.3% from December
31, 1996.
Revenues from the sale of mortgage servicing were up 135.7%
from the third quarter of 1996 to $10.4 million. Included in the
third quarter 1997 gain is $2.2 million of revenue recognized from
a change in the estimate of reserves required for previous
servicing sales. *When the mortgage bank sells servicing, it does
not receive a portion of the sales price (generally 10%) unless
final documents are delivered to the purchaser within time frames
called for by the sales contracts. Accordingly, the mortgage bank
records a reserve to estimate the portion of servicing sale
revenues that will not be received as a result of not meeting these
deadlines. During the third quarter of 1997, this reserve was
reduced to reflect management's estimate of its ability to meet
purchasers' deadlines based on historical performance and current
expectations of document delivery. Year to date servicing sale
revenues totaled $24.1 million, up from $8.9 million in 1996.
As a result of the increase in mortgage loan closings from
1996, net interest income was up in the third quarter and year to
date. Net interest income for the three months ended September 30,
1997 was $4.8 million, up 20.4% from the third quarter 1996. Year
to date, net interest income totaled $13.1 million, compared to
$12.9 million in 1996. The provision for loan losses increased to
$0.9 million in the third quarter of 1997, up from $0.2 million a
year earlier. Year to date, the provision for loan losses totaled
$1.6 million as compared to $0.6 million in 1996. *In providing
for loan losses, management reviews each loan individually to
assess expected future losses based on information about the
borrower and the underlying collateral.
*The increase in the provision for loan losses corresponds to
increased levels of nonperforming loans on the books of the
mortgage bank which totaled $3.8 million at September 30, 1997
compared to $2.2 million at December 31, 1996. The mortgage bank
has had an increase in the number of loans it has repurchased from
the government-sponsored agencies that support the secondary
mortgage market. These agencies have recently become more
stringent in their adherence to their right to seek recourse from
the originator of loans. The mortgage bank seeks to cure the
underwriting defect in these loans and resell them to the agencies
or sell them to alternative investors.
Operating expenses were up $3.9 million, or 13.3% from the
third quarter of 1996 and $7.7 million or 9.1% year to date.
Included in third quarter operating expenses is $4.0 million of
amortization expense relating to mortgage servicing assets, an
increase of $0.2 million from 1996. Year to date amortization
expense totaled $10.9 million, up $1.1 million from the previous
year. The increase in other operating expense reflects the
significant investments in technology being made by this line of
business in order to remain competitive in the current environment
of the industry. *During 1997 the mortgage bank converted to a new
loan origination system, installed personal computer based networks
at branch locations and provided its loan originators with laptop
computers. The business has adopted a strategy of leasing all of
its systems and related equipment. As a result, 1997 operating
expenses include lease expense related to these technological
improvements.
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.
March 19, 1998 Irwin Financial Corporation
/s/ Marie C. Strack
Corporate Controller
(Chief Accounting Officer)
