Irwin Financial Corporation Loses $107M

Irwin Financial Corporation (NYSE:IFC), a bank holding company, announced Thursday a loss of $107 million, including the commercial finance line of business loss of $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.

July 7 Leasing News reported that Irwin Commercial Finance, formerly known as Irwin Business Finance, was leaving the indirect leasing business.

One of the brokers affected told Leasing News,

Further, despite approval expirations going far beyond this month, they are only honoring their approvals through July 18th.

This gave discounters 18 days, including the July 4th weekend, to get transactions through the process. Many were unhappy as they had approvals good for another month with equipment being delivered after July 18th.

Only July 22, Irwin Commercial Finance let all their sales representatives go. The US operation was closing down, with all funding to be completed by July 31, many were told. Commissions would be paid on these transactions. There would be no new transactions after this date from the United States.

On May 7, 2008 Irwin Financial Corporation (NYSE:IFC) announced a loss of $22.2 million.

In the May 23 Irwin Commercial Finance press release:

Our business has certainly flourished as part of the Irwin group and this will truly be an exceptional opportunity for our company to reach new heights. The cultural synergy is a definite fit for our people," remarked Mr. LaLeggia. He added that, "The strength of Scotiabank and Roynat Inc. will allow us to expand our capabilities in new markets as well as deepen our penetration in current market segments.

What was not divulged is what will actually happen to Mr. LaLeggia and his management team. It appears to many sources their role is to take care of the current assets and operation until the operation is taken over by the Scotiabank Group at the close of the agreement.

Mr. LaLeggia had no comment to make to Leasing News and referred us to the press release for any official statement.

It should be noted in Thursday’s announcement,

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.

“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.

Full press release here.

Disclosure: none