Irwin Financial Corp., a small-business lender and mortgage banker, took further steps in the second quarter to reduce its earnings volatility, its chief financial officer said.
The $6.5 billion-asset Columbus, Ind., company said that last quarter it began restructuring its home equity business to reduce retail loan originations and focus on broker and correspondent channels.
In its second-quarter earnings report Wednesday, Irwin said it took a pretax charge of $3.9 million in April for severance and other related charges.
In January it announced that it would look to sell its mortgage unit to focus on building its commercial business through two units - Irwin Commercial Finance and Irwin Union Bank.
The company has not announced a deal, but Greg Ehlinger, its CFO, said Wednesday that it expects to announce plans for the mortgage unit "shortly."
For the quarter, Irwin Financial reported a net profit of $2.9 million or 9 cents a share, versus a $3.4 million loss a year earlier
The company's earnings have been hampered in recent quarters by lower mortgage production, impairments to servicing rights, and lower gain-on-sale spreads. It also restated earnings for 2004 and the first half of 2005, because it had incorrectly accounted for certain incentive servicing fees.
Though the results were "still not back to the level we believe we can achieve, we continue to think the decision we made to sustain our resources and capital into growing our commercial lines of business, as well as the restructuring we've undertaken at our home equity lines of business, will result in improved consolidated results," Mr. Ehlinger said during an earnings conference call.
Income from continued operations totaled $8.1 million, Irwin said. Earnings per share from continued operations fell 6.9% from the first quarter but rose 50% from a year earlier, to 27 cents.
Only one analyst submitted a second-quarter earnings estimate, 37 cents a share, according to Thomson Financial.
Irwin counted its mortgage banking business as discontinued operations and said the unit recorded a loss of $5.2 million to reflect $7.5 million of higher-than-expected hedging losses and impairment charges related to mortgage servicing, as well as other expenses related to the planned sale of the unit.
Mortgage originations fell 15.4% from a year earlier, to $2.2 billion. Loan servicing fees fell 45.2%, to $3 million.
On a positive note, Irwin's commercial banking and commercial finance businesses did well. Total loans and leases rose 21%, to $4.9 billion. Deposits rose 1% from a year earlier but fell 5% from the first quarter, to $3.9 billion, as the company let certain higher-cost wholesale deposits run off in the quarter.
The net interest margin for the commercial bank unit was unchanged from the first quarter and rose 18 basis points from a year earlier, to 3.98%.
On the call Wednesday, Ross Demmerle, an analyst at J.J.B. Hilliard, W.L. Lyons Inc., asked whether Irwin thinks it may regret its decision to sell the mortgage business two years from now.
In response, Will Miller, Irwin's chief executive officer, reiterated that the decision to sell "isn't about timing." The unit is "just no longer a good strategic fit."
Irwin's shares fell 1%.
