By Boris Ladwig, The Republic
bladwig@therepublic.com
Cummins Inc. has agreed to invest up to $25 million in the struggling Irwin Financial Corp. if the Columbusbased financial services corporation cannot raise $50 million through its previously announced stock offering.
IFC on Tuesday also issued an agreement it has reached with state and federal regulators to assure its return to government-required fiscal health.
Cummins said it has agreed to potentially purchase a share in IFC, because it wants to make a profit and because it wants to make sure that the restructuring of an important local company succeeds.
Irwin Financial Corp., which employs just over 300 in Bartholomew County, has posted significant losses in the last few quarters, including a $107 million loss in the second quarter.
At the annual meeting in May, Chairman and Chief Executive Officer Will Miller said executives want to return the company to its roots through restructuring, which included exiting the leasing and home equity businesses, which accounted for about 88 percent of the second-quarter loss.
IFC has sold its small-ticket leasing business to RoyNat Inc. in Canada and to Equilease Financial Services Inc. in the U.S. for $600 million before associated costs.
However, a deal to sell $1 billion of its home equity portfolio to New York-based Roosevelt Management Co. fell through. IFC said Tuesday it still is trying to sell the portfolio.
The restructuring was prompted by heavy losses in the mortgage division beginning in 2005, and later in the home equity business. Last year, IFC posted its first fullyear loss in its 17-year history: $55 million.
Though the corporation expects more losses, particularly in this quarter, Miller has said he anticipates returning to profitability in 2009.
IFC will try to raise the $50 million through a rights offering, a process that allows existing shareholders to purchase shares at a reduced price to retain their current percentage of company ownership.
How many shares IFC will issue will depend on the price at which they will be sold. IFC expects to set the price in early- to mid-November provided that the Securities and Exchange Commission approves the registration statement IFC has filed.
For example: If IFC sets the price at $1 per share, it would issue no more than 50 million shares.
If the corporation raises less than $50 million, Cummins will purchase up to $25 million of those shares, while the Miller family and former Cummins CEO Henry Schacht will obtain another $6 million.
"We continue to make progress executing our strategic restructuring plan to reduce our exposure to the national mortgage lending industry and return to our traditional focus on delivering banking services to small businesses and local communities where we have branches," Miller said.
"Our restructuring process, while costly in the current difficult economic environment, is critical to our plan to restore profitability. The capital raised by this rights offering will help us continue to maintain required capital levels while we complete this initiative."
Agreement
IFC also filed an agreement with Federal Reserve Bank of Chicago and Indiana Department of Financial Institutions that covers such items as board oversight, management review and funds management.
Miller said that the agreement allows IFC and government regulators to clarify the issues with which IFC is dealing and agree on how to address them.
He said the agreement allows IFC and the agencies to formalize the expectations.
Troy Pogue, public information officer for DFI, said that regulators use written agreements, among other tools, to address items they believe need attention to prevent any problems from getting worse.
Pogue said state law prohibits him from addressing specific cases.
However, he said an agreement between a regulators and a financial services company does not mean that the company is going to fail.
He also said that regulators could, in more severe cases, step in and mandate that certain steps be taken. The frequency of these agreements has increased, Pogue said.
The IFC agreement, among other things, will require that:
IFC's board of directors submit to the Fed and the DFI "a joint written plan to strengthen board oversight."
Irwin Union Bank "shall submit ... a report prepared by (an) independent consultant ... regarding its assessment of the bank's management, including the qualifications and performance of all senior bank management" and based on the report, the board of directors "shall take steps ... to hire additional or replacement officers as are needed to properly manage the bank."
IFC submit capital and liquidity/funds management plans.
Irwin Union Bank "charge off all assets classified 'loss' unless otherwise approved in writing by the Reserve Bank and the DFI."
IFC cannot declare or pay dividends without written approval of government regulators.
IFC shares on Tuesday closed at $3.12, up 3 cents or 0.97 percent.
1850: Joseph I. Irwin opened a mercantile store in Columbus, providing a safe where fellow residents could store their money. 1871: Joseph Irwin applied for a charter to establish a private bank in a corner of his store at 94 Washington St.
1874: Irwin sold his dry goods business, and the bank and store moved to a new location on the northeast corner of Third and Washington streets.
1910: William G. Irwin, son of Joseph Irwin, assumed presidency of the bank. 1922: People's Bank and the Farmers Trust Co. merged to form Union Trust at Fourth and Washington streets. 1928: Irwin's Bank and Union Trust merged to form Irwin Union Trust Co.
1947: J. Irwin Miller became president of the bank upon the death of his father, Hugh Th. Miller, who had succeeded his brother-in-law, William Irwin, in 1943.
1954: The bank's name was changed to Irwin Union Bank and Trust Co.
1956: The bank acquired the assets of the Hope State Bank.
1971: Bank observes its centennial, having expanded to six offices in Bartholomew County.
1979: John Nash is named chairman of the Irwin Union Corp.
1981: Irwin Union Corp. announced the formation of a new subsidiary (Irwin Union Mortgage Corp.) and acquired the assets of Inland Mortgage Co. of Indianapolis.
1982: A subsidiary, White River Capital Corp., was created to finance small businesses that would not qualify for traditional bank financing.
1985: Officials announced the intention to purchase Midwest National Bank of Indianapolis, the first merger following the enactment of legislation allowing cross-county banking.
1987: Irwin Union Corp. sold the assets of Midwest National Bank, including a portfolio that incurred more than $3.2 million in loan losses related to the credit card business.
1990: The name of Irwin Union Corp. is changed to Irwin Financial Corp., and Will Miller is elected as corporate chairman.
1993: IFC announced the third of three stock splits executed in the space of less than two years. 1995: Inland Mortgage Corp. bought All Pacific Mortgage Co. Inland had expanded into 20 states. 1997: Irwin Union Bank and Trust Co. opened two branches on the north side of Indianapolis. 1998: IFC selected as one of the top 50 performing stocks of the 1990s, with an annualized gain since 1982 or 38.4 percent. The stock reached a high of $36 a share in July. 2000: IFC established a venture capital subsidiary and invested in high-tech startups on the west and east coasts. 2001: IFC switched from Nasdaq to the New York Stock Exchange. 2003: The home equity division lost $20 million in 2003 but the corporation composed of five businesses enjoyed its 14th-straight record-setting year. 2005: The 14-year streak of record profits ended, and IFC cut 500 employees of Irwin Mortgage Corp.
2006: IFC sold its conventional first mortgage loan production assets, including Irwin Mortgage Corp.'s mortgage loans, to Freedom Mortgage Corp for $275 million.
2008: Losses of $55 million were reported for 2007.
2008: The board of directors suspended quarterly dividends.
2008: Shares in IFC dropped to about $2.
2008: Officers announced a $50 million stock offering and a standby purchase agreement by Cummins Inc., members of the Miller family and former Cummins Chairman Henry Schacht to buy $31 million should the offering fall short.