UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
For the quarterly period ended June 30, 2004
[ ] 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
| Indiana | 35-1286807 | |
| (State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) | |
| 500 Washington Street Columbus, Indiana | 47201 | |
| (Address of Principal Executive Offices) | (Zip Code) | |
| (812) 376-1909 | www.irwinfinancial.com | |
| (Corporation’s Telephone Number, Including Area Code) | (Web Site) |
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
[ X ]
|
Yes | [ ] | No |
Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act)
[ X ]
|
Yes | [ ] | No |
As of July 26, 2004, there were 28,305,866 outstanding common shares, no par value, of the Registrant.
FORM 10-Q
TABLE OF CONTENTS
2
PART I. FINANCIAL INFORMATION.
Item 1. Financial Statements.
IRWIN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Unaudited)
| June 30, | December 31, | |||||||
| 2004 |
2003 |
|||||||
| (In thousands, except for shares) | ||||||||
Assets: |
||||||||
Cash and cash equivalents |
$ | 149,206 | $ | 140,810 | ||||
Interest-bearing deposits with financial institutions |
88,588 | 81,166 | ||||||
Residual interests |
74,390 | 71,491 | ||||||
Investment
securities - held-to-maturity (Market value: $ 45,267 at June 30, 2004 and $24,971 at December 31, 2003) |
45,267 | 24,956 | ||||||
Investment
securities - available-for-sale |
76,325 | 67,569 | ||||||
Loans held for sale |
1,196,130 | 883,895 | ||||||
Loans and
leases, net of unearned income - Note 2 |
3,203,279 | 3,161,054 | ||||||
Less:
Allowance for loan and lease losses - Note 3 |
(53,837 | ) | (64,285 | ) | ||||
| 3,149,442 | 3,096,769 | |||||||
Servicing
assets - Note 4 |
397,828 | 380,123 | ||||||
Accounts receivable |
77,121 | 62,045 | ||||||
Accrued interest receivable |
15,191 | 15,502 | ||||||
Premises and equipment, net |
31,263 | 32,208 | ||||||
Other assets |
124,421 | 131,825 | ||||||
Total assets |
$ | 5,425,172 | $ | 4,988,359 | ||||
Liabilities and Shareholders’ Equity: |
||||||||
Deposits |
||||||||
Noninterest-bearing |
$ | 1,032,054 | $ | 850,529 | ||||
Interest-bearing |
1,622,087 | 1,352,763 | ||||||
Certificates of deposit over $100,000 |
707,123 | 696,370 | ||||||
| 3,361,264 | 2,899,662 | |||||||
Short-term
borrowings - Note 5 |
655,860 | 429,758 | ||||||
Collateralized debt - Note 6 |
292,457 | 590,131 | ||||||
Other
long-term debt - Note 7 |
270,178 | 270,184 | ||||||
Other liabilities |
375,927 | 366,364 | ||||||
Total liabilities |
4,955,686 | 4,556,099 | ||||||
Commitments
and contingencies - Note 11 |
||||||||
Shareholders’ equity |
||||||||
Preferred
stock, no par value - authorized 4,000,000 shares; none issued |
— | — | ||||||
Common
stock, no par value - authorized 40,000,000 shares;
issued 29,612,080 shares as of June 30, 2004 and December 31, 2003;
including 1,328,534, and 1,477,778 shares in treasury as of
June 30, 2004 and December 31, 2003, respectively |
112,000 | 112,000 | ||||||
Additional paid-in capital |
579 | 1,264 | ||||||
Deferred compensation |
(538 | ) | (504 | ) | ||||
Accumulated other comprehensive income, net of deferred income tax liability
of $47 and $120 as of June 30, 2004, and December 31, 2003, respectively |
71 | 182 | ||||||
Retained earnings |
386,410 | 352,647 | ||||||
| 498,522 | 465,589 | |||||||
Less treasury stock, at cost |
(29,036 | ) | (33,329 | ) | ||||
Total shareholders’ equity |
469,486 | 432,260 | ||||||
Total liabilities and shareholders’ equity |
$ | 5,425,172 | $ | 4,988,359 | ||||
The accompanying notes are an integral part of the consolidated financial statements.
3
IRWIN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
| For the Three Months Ended June 30, |
||||||||
| 2004 |
2003 |
|||||||
| (In thousands, except per share) | ||||||||
Interest income: |
||||||||
Loans and leases |
$ | 58,425 | $ | 61,708 | ||||
Loans held for sale |
22,212 | 29,926 | ||||||
Residual interests |
3,285 | 6,006 | ||||||
Investment securities |
1,153 | 1,148 | ||||||
Federal funds sold |
21 | 62 | ||||||
Total interest income |
85,096 | 98,850 | ||||||
Interest expense: |
||||||||
Deposits |
10,058 | 11,557 | ||||||
Short-term borrowings |
2,193 | 4,603 | ||||||
Collateralized debt |
2,914 | 4,540 | ||||||
Other long-term debt |
5,675 | 662 | ||||||
Preferred securities distribution |
— | 5,527 | ||||||
Total interest expense |
20,840 | 26,889 | ||||||
Net interest income |
64,256 | 71,961 | ||||||
Provision for loan and lease losses |
1,794 | 13,634 | ||||||
Net interest income after provision for loan and lease losses |
62,462 | 58,327 | ||||||
Other income: |
||||||||
Loan servicing fees |
33,621 | 24,817 | ||||||
Amortization of servicing assets — Note 4 |
(29,656 | ) | (37,239 | ) | ||||
Recovery (impairment) of servicing assets — Note 4 |
71,950 | (40,577 | ) | |||||
Net loan administration income (loss) |
75,915 | (52,999 | ) | |||||
Gain from sales of loans |
39,274 | 124,000 | ||||||
Gain (loss) on sale of mortgage servicing assets |
1,928 | (4 | ) | |||||
Trading gains (losses) |
6,669 | (33,131 | ) | |||||
Derivative (losses) gains, net |
(53,994 | ) | 18,616 | |||||
Other |
6,314 | 7,039 | ||||||
| 76,106 | 63,521 | |||||||
Other expense: |
||||||||
Salaries |
54,783 | 58,208 | ||||||
Pension and other employee benefits |
10,938 | 11,033 | ||||||
Office expense |
4,942 | 5,679 | ||||||
Premises and equipment |
10,339 | 8,916 | ||||||
Marketing and development |
3,932 | 4,063 | ||||||
Professional fees |
5,459 | 2,878 | ||||||
Other |
17,462 | 9,705 | ||||||
| 107,855 | 100,482 | |||||||
Income before income taxes |
30,713 | 21,366 | ||||||
Provision for income taxes |
12,769 | 8,139 | ||||||
Net income |
$ | 17,944 | $ | 13,227 | ||||
Earnings per share: — Note 9 |
||||||||
Basic |
$ | 0.64 | $ | 0.47 | ||||
Diluted |
$ | 0.60 | $ | 0.45 | ||||
Dividends per share |
$ | 0.08 | $ | 0.07 | ||||
The accompanying notes are an integral part of the consolidated financial statements.
4
IRWIN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
| For the Six Months Ended June 30, |
||||||||
| 2004 |
2003 |
|||||||
| (In thousands, except for per share) | ||||||||
Interest income: |
||||||||
Loans and leases |
$ | 119,671 | $ | 119,832 | ||||
Loans held for sale |
36,285 | 52,822 | ||||||
Residual interests |
6,543 | 12,969 | ||||||
Investment securities |
2,362 | 2,010 | ||||||
Federal funds sold |
38 | 99 | ||||||
Total interest income |
164,899 | 187,732 | ||||||
Interest expense: |
||||||||
Deposits |
19,548 | 22,806 | ||||||
Short-term borrowings |
3,815 | 8,670 | ||||||
Collateralized debt |
6,719 | 7,525 | ||||||
Other long-term debt |
11,358 | 1,324 | ||||||
Preferred securities distribution |
— | 11,055 | ||||||
Total interest expense |
41,440 | 51,380 | ||||||
Net interest income |
123,459 | 136,352 | ||||||
Provision for loan and lease losses |
9,940 | 22,877 | ||||||
Net interest income after provision for loan and lease losses |
113,519 | 113,475 | ||||||
Other income: |
||||||||
Loan servicing fees |
66,198 | 46,708 | ||||||
Amortization of servicing assets — Note 4 |
(61,343 | ) | (68,048 | ) | ||||
Recovery (impairment) of servicing assets — Note 4 |
24,567 | (43,632 | ) | |||||
Net loan administration income (loss) |
29,422 | (64,972 | ) | |||||
Gain from sales of loans |
92,043 | 219,511 | ||||||
Gain on sale of mortgage servicing assets |
8,417 | — | ||||||
Trading gains (losses) |
11,342 | (50,919 | ) | |||||
Derivative gains, net |
4,922 | 12,142 | ||||||
Other |
12,414 | 10,570 | ||||||
| 158,560 | 126,332 | |||||||
Other expense: |
||||||||
Salaries |
104,616 | 114,631 | ||||||
Pension and other employee benefits |
22,685 | 21,858 | ||||||
Office expense |
9,679 | 10,870 | ||||||
Premises and equipment |
20,794 | 19,218 | ||||||
Marketing and development |
7,567 | 7,757 | ||||||
Professional fees |
9,303 | 5,684 | ||||||
Other |
33,647 | 19,276 | ||||||
| 208,291 | 199,294 | |||||||
Income before income taxes |
63,788 | 40,513 | ||||||
Provision for income taxes |
25,502 | 15,510 | ||||||
Net income |
$ | 38,286 | $ | 25,003 | ||||
Earnings per
share: - Note 9
|
||||||||
Basic |
$ | 1.36 | $ | 0.90 | ||||
Diluted |
$ | 1.27 | $ | 0.86 | ||||
Dividends per share |
$ | 0.16 | $ | 0.14 | ||||
The accompanying notes are an integral part of the consolidated financial statements.
5
IRWIN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited)
For the Three Months Ended June 30, 2004, and 2003
| Accumulated | ||||||||||||||||||||||||||||
| Other | Additional | |||||||||||||||||||||||||||
| Retained | Comprehensive | Deferred | Paid in | Common | Treasury | |||||||||||||||||||||||
| Total |
Earnings |
Income (Loss) |
Compensation |
Capital |
Stock |
Stock |
||||||||||||||||||||||
| (Dollars in thousands, except shares) | ||||||||||||||||||||||||||||
Balance at April 1, 2004 |
$ | 453,185 | $ | 370,728 | $ | 90 | $ | (540 | ) | $ | 595 | $ | 112,000 | $ | (29,688 | ) | ||||||||||||
Net income |
17,944 | 17,944 | ||||||||||||||||||||||||||
Unrealized loss on investment
securities net of $92 tax benefit |
(138 | ) | (138 | ) | ||||||||||||||||||||||||
Unrealized gain on interest rate cap
net of $185 tax liability |
278 | 278 | ||||||||||||||||||||||||||
Foreign currency adjustment
net of $106 tax benefit |
(159 | ) | (159 | ) | ||||||||||||||||||||||||
Total comprehensive income |
17,925 | |||||||||||||||||||||||||||
Deferred compensation |
2 | 2 | ||||||||||||||||||||||||||
Cash dividends |
(2,262 | ) | (2,262 | ) | ||||||||||||||||||||||||
Tax benefit on stock option exercises |
17 | 17 | ||||||||||||||||||||||||||
Treasury stock: |
||||||||||||||||||||||||||||
Purchase of 533 shares |
(14 | ) | (14 | ) | ||||||||||||||||||||||||
Sales of 28,057 shares |
633 | — | (33 | ) | 666 | |||||||||||||||||||||||
Balance June 30, 2004 |
$ | 469,486 | $ | 386,410 | $ | 71 | $ | (538 | ) | $ | 579 | $ | 112,000 | $ | (29,036 | ) | ||||||||||||
Balance at April 1, 2003 |
$ | 371,480 | $ | 297,490 | $ | (524 | ) | $ | (558 | ) | $ | 3,225 | $ | 112,000 | $ | (40,153 | ) | |||||||||||
Net income |
13,227 | 13,227 | ||||||||||||||||||||||||||
Unrealized loss on investment
securities net of $7 tax benefit |
(10 | ) | (10 | ) | ||||||||||||||||||||||||
Unrealized loss on interest rate cap
net of $28 tax benefit |
(42 | ) | (42 | ) | ||||||||||||||||||||||||
Foreign currency adjustment net of
$346 tax liability |
518 | 518 | ||||||||||||||||||||||||||
Total comprehensive income |
13,693 | |||||||||||||||||||||||||||
Deferred compensation |
69 | 69 | ||||||||||||||||||||||||||
Cash dividends |
(1,957 | ) | (1,957 | ) | ||||||||||||||||||||||||
Tax benefit on stock option exercises |
927 | 927 | ||||||||||||||||||||||||||
Conversion of 1,700 trust preferred
shares to 2,142 common shares |
43 | (1 | ) | 44 | ||||||||||||||||||||||||
Treasury stock: |
||||||||||||||||||||||||||||
Purchase of 109,001 shares |
(2,674 | ) | (2,674 | ) | ||||||||||||||||||||||||
Sales of 242,689 shares |
3,254 | — | (1,729 | ) | 4,983 | |||||||||||||||||||||||
Balance June 30, 2003 |
$ | 384,835 | $ | 308,760 | $ | (58 | ) | $ | (489 | ) | $ | 2,422 | $ | 112,000 | $ | (37,800 | ) | |||||||||||
The accompanying notes are an integral part of the consolidated financial statements.
6
IRWIN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited)
For the Six Months Ended June 30, 2004, and 2003
| Accumulated | ||||||||||||||||||||||||||||
| Other | Additional | |||||||||||||||||||||||||||
| Retained | Comprehensive | Deferred | Paid in | Common | Treasury | |||||||||||||||||||||||
| Total |
Earnings |
Income (Loss) |
Compensation |
Capital |
Stock |
Stock |
||||||||||||||||||||||
| (Dollars in thousands, except shares) | ||||||||||||||||||||||||||||
Balance at January 1, 2004 |
$ | 432,260 | $ | 352,647 | $ | 182 | $ | (504 | ) | $ | 1,264 | $ | 112,000 | $ | (33,329 | ) | ||||||||||||
Net income |
38,286 | 38,286 | ||||||||||||||||||||||||||
Unrealized loss on investment
securities net of $49 tax benefit |
(73 | ) | (73 | ) | ||||||||||||||||||||||||
Unrealized gain on interest rate cap
net of $131 tax liability |
196 | 196 | ||||||||||||||||||||||||||
Foreign currency adjustment net of
$156 tax benefit |
(234 | ) | (234 | ) | ||||||||||||||||||||||||
Total comprehensive income |
38,175 | |||||||||||||||||||||||||||
Deferred compensation |
(34 | ) | (34 | ) | ||||||||||||||||||||||||
Cash dividends |
(4,523 | ) | (4,523 | ) | ||||||||||||||||||||||||
Tax benefit on stock option exercises |
678 | 678 | ||||||||||||||||||||||||||
Treasury stock: |
||||||||||||||||||||||||||||
Purchase of 10,440 shares |
(347 | ) | (347 | ) | ||||||||||||||||||||||||
Sales of 159,684 shares |
3,277 | — | (1,363 | ) | 4,640 | |||||||||||||||||||||||
Balance at June 30, 2004 |
$ | 469,486 | $ | 386,410 | $ | 71 | $ | (538 | ) | $ | 579 | $ | 112,000 | $ | (29,036 | ) | ||||||||||||
Balance at January 1, 2003 |
$ | 360,555 | $ | 287,662 | $ | (1,142 | ) | $ | (240 | ) | $ | 3,606 | $ | 112,000 | $ | (41,331 | ) | |||||||||||
Net income |
25,003 | 25,003 | ||||||||||||||||||||||||||
Unrealized gain on investment
securities net of $8 tax liability |
12 | 12 | ||||||||||||||||||||||||||
Unrealized gain on interest rate
cap net of $48 tax benefit |
(72 | ) | (72 | ) | ||||||||||||||||||||||||
Foreign currency adjustment net of
$593 tax liability |
889 | 889 | ||||||||||||||||||||||||||
Minimum SERP liability net of
$170 tax liability |
255 | 255 | ||||||||||||||||||||||||||