Q2 2004 Irwin Financial Earnings Conference Call - Final.

Original Source: FD (FAIR DISCLOSURE) WIRE

OPERATOR: Good afternoon ladies and gentlemen, and welcome to the Irwin Financial Corporation second quarter earnings conference call. At this time, all participants are in a listen-only mode. Later we will conduct a question and answer session. Please note that this conference is being recorded. I would now like to turn the call over to Mr. Greg Ehlinger, Senior Vice President and Chief Financial Officer. Mr. Ehlinger, you may begin.

GREGORY EHLINGER, SVP AND CFO, IRWIN FINANCIAL CORPORATION: Thank you Mrs. Dalla, and welcome to everybody. In our presentation period today and in the course of answering your questions we will be making statements that are forward-looking, statements of our plans, initiatives, expectations, objectives, strategies, arithemats, expected results, beliefs and similar expressions are identified as forward-looking information. These statements are not guaranteed to future performance or that's in our actual accomplishments of the plans were about to discuss with you today involve certain risks and uncertainties that are discussed by us today. Therefore actual future events may differ materially from what we discuss here today. For an explanation of the various factors that may effect our future results we encourage you in our 10-Q that was filed this morning and the factors described in our written press release. I like to turn the call over to Will Miller our Chairman.

WILL MILLER, CHAIRMAN, IRWIN FINANCIAL CORPORATION: Thank you Greg, I going to just start by reiterating the key points we made in the press release. First, commercial loan and commercial finance originations grew nicely in the second quarter with an 18% annualized growth rate in those lines of businesses. Second, our credit cards continued to decline with year-over-year charge-offs declining 54%. Third, we continue to make good progress in increasing the percentage of our total fundings sourced from core deposits. These improvements enabled us produce good balanced earnings notwithstanding the significant decline in first mortgages originations nationally due to the rise in long-term interest rates and the very competitive conditions that have resulted.

Our earnings per share were $0.60 was a 33% year-over-year increase compared with the second quarter of 2003. Although 10% less than in the first quarter due to the mortgage banking environment. Earnings from the first half of this year have totaled $38.3m, or a $1.27 per diluted share compared to $25m, or $ 0.86 per diluted share during the same period in 2003. However, we've seen the environment in the first mortgage business though from record level from 2003 to a lower volume and fiercely competitive market today. Production volumes have dropped as expected but margins are much thinner than we anticipated. As we would expect with our balance revenue model, the increase in interest rates we saw in the quarter materially increased the value of mortgage servicing portfolio, offsetting to a degree this slowdown in production-based income. As we look forward to the remainder of the year, if rates rise is predicted by nationally recognized mortgage economists, we would expect an increase in the value of our servicing portfolio, and improved margins in our commercial and consumer portfolios to offset lower mortgage origination volumes and reduced margins. As such we would expect full year earnings to modestly exceed those produced in 2003. However, should long-term rates not rise as expected, we would anticipate continued price competition in the mortgage markets, but little or no increase in servicing value. In this case we would anticipate that portfolio loan growth and improving credit quality would likely produce earnings for the year in narrow range around those produced in 2003 during the mortgage refinance boom, notwithstanding the difficult environment for our first mortgage originations today. And now I'll turn the call over to Greg for a more detailed review of the quarter.

GREGORY EHLINGER: As we all know that, we are pleased with the good performance we had in each of our segments this quarter, we had a nice balance with good contributions from each of our principle lines of business. Net revenues increased 4% on a sequential-quarter basis, or 16% annualized to $139m. Net revenues increased in each of our credit portfolio lines of business, which successfully offset a decline in net revenues in mortgage banking. On a consolidated basis, our loan in this portfolio totaled $3.2b as of quarter-end, which is unchanged from the end of the first quarter, but up 5% from the year-over-year. Our first and second mortgage loans held for sale totaled $1.2b at quarter-end, up 20% from March 31. Now this moderate increase in portfolio loans but a strong increase in loans held for sale reflect our decision to sell our $205m home equity portfolio during the quarter. Deposits totaled $3.4b on June 30, unchanged from the total from year-over-year but the composition changed meaningfully reflecting an increase core deposits. Average core deposits was $168m during the quarter and annualized rate of 43% …