LOSS REFLECTS COSTS RELATED TO STRATEGIC RESTRUCTURING COLUMBUS,
Ind., Aug. 7 /PRNewswire-FirstCall/ -- Irwin Financial Corporation
(NYSE:IFC), a bank holding company, today announced a loss of $107
million or $3.64 per diluted share during the second quarter of
2008, reflecting charges associated with the strategic
restructuring of the company to focus on small business lending and
banking services to its local communities. The charges associated
with the restructuring announced on July 25 drove the loss. Losses
from the leasing and home equity businesses the Corporation is
exiting as part of the restructuring totaled approximately $94
million after-tax, while proceeds from the sale of the leasing
asset sales generated approximately $325 million in net additional
liquidity which the Bank received in late July. "In these very
difficult times for the entire banking industry, we think three
things are most important: liquidity, capital, and returning to
profitability. The asset transactions we announced two weeks ago
brought in substantial liquidity. Removing these assets from our
balance sheet in July will provide meaningful support to our
capital ratios, keeping us above the regulatory standards for a
'well-capitalized' bank. While the losses we will book in 2008 from
these asset sales and exit costs are large, the restructuring will
allow us to return to profitability in 2009," said Will Miller,
Chairman and CEO of Irwin Financial. "Through asset sales and
significantly reducing our exposure to home equity credit losses,
management and the Board are re-focusing the Corporation on our
core services to small business and local branch-based customers,"
Miller continued. "With the remaining home equity portfolio in
run-off mode, we have capped our exposure to the national home
equity industry while we exit this business. In addition, we have
exited the small-ticket leasing business. On July 30, we
successfully closed the sale of our small-ticket leasing assets to
Scotia Group in Canada and to Equilease in the U.S. These two
transactions alone netted approximately $325 million in additional
liquidity for the Bank. "We believe we can return to profitability
in 2009 by simplifying our business, returning to the principles
that have driven our success for the past 137 years: serving small
businesses and consumers in our branch communities and our
franchisee customers nationally," said Miller. "With the
transactions we announced on July 25, we have begun restructuring
the organization. Overall, we expect to incur significant costs to
exit and restructure these businesses; approximately $105 million
was recognized in the second quarter, and a like amount will be
recorded in coming months, mostly in the third quarter. Thus, we
expect the bulk of the restructuring costs to be recognized by year
end. The restructuring losses will be counter balanced by
approximately $415 million in transaction proceeds (inclusive of
the $325 million already received) and the reduction of
approximately $1.6 billion in our assets from these transactions.
The exit from these businesses put us on the road to operating
improvement and a return to profitability in 2009. "Accounting
rules required that we take charges in the second quarter for
assets we sold in July, without simultaneously removing the assets
from the balance sheet. On a pro forma basis, however, capital
ratios will increase as assets sold in July and August are removed
from the balance sheet in the third quarter. Compared to the
applicable regulatory standard of 10.0% for a 'well capitalized
bank,' total capital to risk weighted assets, which ended the
second quarter at 10.7 percent, would have increased to 12.1
percent on that same date if the loans being sold in these
transactions were also removed from the balance sheet and the
estimated additional exit costs were included," Miller concluded.
Financial highlights for the period are presented in the table
below. Of the $158 million Provision for Loan Losses, $132 million
was recorded in the home equity and small ticket segments and was
related to the restructuring. The remaining $26 million of Loan
Loss Provision relates to the commercial banking line of business
(approximately $24 million) and the franchise segment
(approximately $2 million). Percent $in millions, except EPS 2Q
2008 1Q 2008 Change 2Q 2007 Net Interest Income $62 $64 (4)% $66
Provision for Losses (158) (45) 255 % (19) Non-Interest Income 7
(4) NM 10 Total Consolidated Net Revenues (89) 15 (679)% 56
Non-Interest Expense 44 52 (15)% 47 Net Loss From Continuing
Operations (107) (22) 382 % 5 Discontinued Operations N/A N/A N/A
(6) Net Loss (107) (22) 382 % (0) Earning (Loss) per Share from
Continuing Operations (diluted) (3.64) (0.77) 373 % 0.17 Loan and
Lease Portfolio 5,455 5,586 (2)% 5,539 Deposits 3,505 3,399 3 %
3,318 Shareholders' Equity 330 436 (24)% 508 Total Risk-Based
Capital Ratio 10.7 % 12.5 % 13.3 % Net interest income of $62
million decreased modestly on a sequential quarter and
year-over-year basis, reflecting a reduced loan and lease
portfolio. Non-interest expense decreased from the first quarter of
2008 and the prior year reflecting cost reductions taken in light
of operating performance and down-sizing of operations. The
consolidated net interest margin declined modestly to 4.38 percent
as compared to 4.44 percent during the first quarter due to
competitive conditions and funding mix. Reflecting a strategy to
reduce future credit risk, the consolidated loan and lease
portfolio declined 10 percent annualized during the quarter,
totaling $5.5 billion as of June 30. The Corporation had $330
million or $10.75 per share in common shareholders' equity as of
June 30. At quarter-end, the Tier 1 Leverage Ratio and Total
Risk-based Capital Ratio were 7.2 percent and 10.7 percent,
respectively, compared to 9.8 percent and 12.5 percent as of March
31, 2008. The capital ratios of Irwin Union Bank and Trust were 8.8
percent and 11.0 percent, respectively for the Tier 1 Leverage and
Total Risk-based Capital ratios at June 30, 2008. On a pro forma
basis reflecting the effect of both the removal of assets from the
balance sheet and an estimate of additional exit costs to be booked
in future quarters related to the transactions announced on July
25, the Corporation's total capital to risk-weighted assets would
have been approximately 12.1 percent. Reflecting economic
conditions, the Corporation's allowance for loan and lease losses
increased substantially during the quarter. The allowance totaled
$216 million as of June 30, up from $159 million at the end of
March. The ratio of allowance for loan and lease losses to
nonperforming loans and leases was 203 percent at June 30, compared
to 160 percent at March 31. Other real estate owned, which is
carried at lower of cost or fair value, totaled $18 million at June
30, up from $17 million at March 31. Nonperforming loans and leases
totaled $106 million or 2.07 percent of total loans and leases as
of June 30, 2008, up from $99 million or 1.78 percent of loans and
leases at March 31, 2008. Thirty-day and greater delinquencies
(30+DPD) and the ratios of Allowance for Loan and Lease Losses
(ALLL) to Loans, ALLL to Nonperforming Loans (NPLs), and Loan Loss
Provision (LLP) to charge-offs (C/Os) are shown in the next table.
2Q 2008 1Q 2008 ALLL ALLL LLP ALLL ALLL LLP 30+ to to to 30+ to to
to DPD Loans NPLs C/Os DPD Loans NPLs C/Os Commercial Banking 0.87
% 1.75 % 86 % 175 % 1.07 % 1.36 % 84 % 334 % Commercial Finance
0.83 % 1.02 % 132 % 83 % 1.06 % 1.52 % 181 % 170 % Franchise
Finance channel 0.27 % 0.96 % 124 % 103 % 0.55 % 1.04 % 178 % 254 %
Home Equity 6.06 % 11.63 % 382 % 297 % 5.66 % 7.07 % 241 % 131 %
Total 2.20 % 4.20 % 203 % 157 % 2.30 % 2.84 % 160 % 147 % Segment
Results Net loss by line of business is shown below. Additional
detail for each segment is available in the Form 10-Q. Percent Net
Income(loss) ($ in millions) 2Q 2008 1Q 2008 Change 2Q 2007
Commercial Banking ($9) $1 NM $6 Commercial Finance ($23) $4 NM $3
Franchise Finance $2 $5 (65)% $3 Small ticket Leasing (exiting)
(25) (0) NM (0) Home Equity (44) (16) 176 % (2) Subtotal, Operating
Segments (77) (11) 625 % 7 Other Segments, Including Parent (30)
(12) 160 % (2) Net Income (Loss) From Continuing Operations (107)
(22) 382 % 5 Income (Loss) From Discontinued Operations - Mortgage
Banking N/A N/A N/A (6) Consolidated Net Income (Loss) (107) (22)
382 % (0) The commercial banking segment lost $8.8 million during
the second quarter, primarily reflecting increases in loss
provisions for commercial real estate related loans in western
markets. The segment added $10.5 million to loan loss reserves in
excess of quarterly charge-offs of $14.0 million, for a total loan
loss provision of $24.5 million. The segment's allowance for losses
grew to 1.75 percent of loans as of June 30, up from 1.36 percent
as of March 31. Thirty-day and greater delinquencies decreased from
1.07 percent at March 31 to 0.87 percent at June 30. The commercial
banking segment's loan portfolio declined modestly during the
quarter. Net interest margin was 3.66 percent during the quarter,
down from 3.76 percent during the first quarter, reflecting
competitive deposit conditions. The commercial finance line of
business lost $23.4 million in the second quarter of 2008, down
from earnings of $4.4 million in the first quarter. The loss
reflected the required mark-to-market taken on the small-ticket
lease portfolio sold in late July. The franchise finance channel,
which is unaffected by the strategic restructuring, earned $1.7
million. The commercial finance loan and lease portfolio totaled
$1.2 billion as of June 30. Franchise finance loan sales totaled
$12 million, down from $61 million in the first quarter. Net gains
on sales of franchise loans were $0.7 million or 5.8 percent of
loans sold. Net interest margin was 4.24 percent, down from 4.44
percent in the first quarter, due to funding costs which did not
decline in line with variable loan rates. Credit quality in the
franchise finance portfolio was stable as 30 day and greater
delinquencies improved (0.27 percent at June 30 compared with 0.55
percent at March 31) while non-performing loans increased (0.78
percent of the portfolio at June 30 versus 0.58 percent as of March
31). For the entire commercial finance portfolio (including the
lease portfolio sold subsequent to quarter-end), thirty-day and
greater delinquencies decreased to 0.83 percent at quarter-end,
compared to 1.06 percent at March 31. The home equity segment lost
$44 million during the second quarter, compared to a loss of $16
million during the first quarter. The increased loss reflects
increased loan loss provisions. As noted above, with the July 25
announcement of the sale and securitization of substantially all
the home equity portfolio, the Corporation will be exiting this
segment. The segment's portfolio of loans totaled $1.3 billion as
of June 30, compared to $1.4 billion at the end of first quarter.
After the sale of certain residual interests which occurred in late
July, the segment's portfolio will total approximately $316
million. Through securitization structures and existing reserves,
the Corporation's loss exposure on this portfolio will be capped at
approximately $150 million, pre-tax(1). Thirty-day and greater
delinquencies on the total portfolio increased from 5.66 percent at
March 31 to 6.06 percent at June 30. Thirty-day and greater
delinquencies on the $316 million of loans being retained after the
July asset sales totaled 8.50 percent at June 30. Loan loss
reserves on the portfolio to be retained totaled $60 million or 19
percent of the portfolio at June 30. The other bank and non-bank
consolidating entities lost $30 million during the second quarter,
compared to a loss of $12 million in the first quarter. The loss
was primarily due to a deferred tax valuation allowance of $25
million and other-than-temporary impairment of $4 million net of
tax on a portion of the securities portfolio. This deferred tax
valuation allowance will reverse over time if sufficient
profitability is restored. About Irwin Financial Irwin(R) Financial
Corporation (http://www.irwinfinancial.com/) is a bank holding
company with a history tracing to 1871. The Corporation provides a
broad range of banking services to small businesses and consumers
in selected markets. About Forward-Looking Statements This press
release contains forward-looking statements that are based on
management's expectations, estimates, projections, and assumptions.
These statements and estimates include but are not limited to
earnings estimates and projections of financial performance and
profitability, and projections of business strategies and future
activities. Forward-looking statements involve inherent risks and
uncertainties that are difficult to predict and are not guarantees
of future performance. In addition, our past results of operations
do not necessarily indicate our future results. Words that convey
our beliefs, views, expectations, assumptions, estimates,
forecasts, outlook and projections or similar language, or that
indicate events we believe could, would, should, may or will occur
(or will not or might not occur) or are likely (or unlikely) to
occur, and similar expressions, are intended to identify
forward-looking statements, which may include, among other things:
-- statements and assumptions relating to projected growth or
decline in our earnings and profitability, -- statements and
assumptions relating to projected trends or potential changes in
our risk profile, asset quality, reserves, asset valuations,
liquidity and capital positions; -- statements about the effects of
the restructuring transactions including expected restructuring
costs; and -- any other statements that are not historical facts.
We qualify any forward-looking statements entirely by these
cautionary factors. Actual future results may differ materially
from what is projected due to a variety of factors including:
potential deterioration or effects of general or regional economic
conditions, particularly in sectors relating to real estate and/or
mortgage lending or small business-based manufacturing and
services; potential effects related to the Corporation's decision
to suspend the payment of dividends on its common, preferred and
trust preferred securities; difficulties in completing the
transactions for the disposition of our home equity and equipment
leasing businesses, including selling or otherwise reducing risk
associated with home equity loans on our balance sheet, selling the
assets or platform of our Canadian small-ticket equipment leasing
business and completing due diligence satisfactory to the
purchaser; difficulties in obtaining third-party consents for the
transfer of assets, platforms or servicing and in satisfying
conditions necessary to release purchase price proceeds from escrow
in connection with the home equity or equipment leasing
transactions; difficulties in obtaining the desired tax treatment
for the home equity and equipment leasing transactions; potential
changes in direction, volatility and relative movement (basis risk)
of interest rates, which may affect consumer demand for our
products and the management and success of our interest rate risk
management strategies; competition from other financial service
providers for experienced managers as well as for customers;
staffing fluctuations in response to product demand or the
implementation of corporate strategies that affect our work force
and potential associated charges; the relative profitability of our
lending and deposit operations; the valuation and management of our
portfolios, including the use of external and internal modeling
assumptions we embed in the valuation of those portfolios and
short-term swings in the valuation of such portfolios; borrowers'
refinancing opportunities, which may affect the prepayment
assumptions used in our valuation estimates and which may affect
loan demand; unanticipated deterioration in the credit quality or
collectability of our loan and lease assets, including
deterioration resulting from the effects of natural disasters;
difficulties in accurately estimating the future repurchase risk of
residential mortgage, home equity or other loans or leases due to
alleged violations or representations and warranties we made
marketing sales or securitizations; unanticipated deterioration or
changes in estimates of the carrying value of our other assets,
including securities; difficulties in delivering products to the
secondary market as planned; difficulties in expanding our business
and obtaining or retaining deposit or other funding sources as
needed; changes in the value of our lines of business,
subsidiaries, or companies in which we invest; changes in variable
compensation plans related to the performance and valuation of
lines of business where we tie compensation systems to
line-of-business performance; unanticipated lawsuits or outcomes in
litigation; legislative or regulatory changes, including changes in
laws, rules or regulations that affect tax, consumer or commercial
lending, corporate governance and disclosure requirements, and
other laws, rules or regulations affecting the rights and
responsibilities of our Corporation, bank or thrift; regulatory
actions that impact our Corporation, bank or thrift; the
application of or changes in the interpretation of regulatory
capital or other rules; the availability of resources to address
changes in laws, rules or regulations or to respond to regulatory
actions; changes in applicable accounting policies or principles or
their application to our businesses or final audit adjustments,
including additional guidance and interpretation on accounting
issues and details of the implementation of new accounting methods;
the final disposition of the remaining assets and obligations of
our discontinued mortgage banking segment, and, after completion of
transactions involving the sale of assets, our home equity and
small-ticket leasing segments; or governmental changes in monetary
or fiscal policies. We undertake no obligation to update publicly
any of these statements in light of future events, except as
required in subsequent reports we file with the Securities and
Exchange Commission. The Corporation will host a conference call to
review results on Thursday, August 7, at 1:00 p.m. EDT. Greg
Ehlinger, CFO, Will Miller, CEO, and Jody Littrell, FVP and
Controller, of Irwin Financial Corporation, will be the speakers on
the call. The toll-free number for the call is (800) 559-2403;
please tell the operator you would like to join the Irwin Financial
call, confirmation #22437435. A replay of the call will be
available on the Irwin Financial Corporation website at:
http://www.irwinfinancial.com/investors/index_ir.htm . 1 This
number has been reported in previous SEC filings and press releases
as less than $100 million after tax, which is equivalent.
DATASOURCE: Irwin Financial Corporation CONTACT: Susan Matthews,
Media, +1-317-590-3202, or Suzie Singer, Corporate Communications,
+1-812-376-1917, both of Irwin Financial Corporation Web site:
http://www.irwinfinancial.com/
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