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The businesses of holding company Irwin Financial Corporation engage in consumer and small business lending. The community bank, founded more than 130 years ago, was eclipsed by a mortgage banking business acquired in 1981 and then expanded outside Indiana. The company entered into home equity loan origination to help balance out the company's revenue flow during downturns in the real estate market. About 40 percent of the holding company is owned by the company's chairman, a member of the founding family.
Indiana Roots Running Deep: 1870s-1970s
Twenty-two-year-old Joseph Ireland Irwin already had a decade of work experience under his belt before he left the farm and family in 1846. In Columbus, Indiana, Irwin would use $150 saved from his job in a dry goods store plus a $500 loan to strike out on his own. Real estate activities allowed him to pay off the loan, the only loan made in his lifetime, and buy a mercantile store in 1850.
As he grew the dry goods business he gained a reputation for honesty among his fellow merchants, who, in the early 1860s, began asking him to hold their money in his safe. Upon this bedrock, he established an informal banking business out of the store. He founded Irwin's Bank in 1871 after a local bank failed, a common occurrence in the post-Civil War years. Decades before federal deposit insurance, Irwin's personal funds backed deposits made in the bank.
Irwin completed renovations on the building housing the bank and store in 1882. In 1889, his son, William G. Irwin (W. G.) came aboard as a cashier. In 1895, the family exited the dry goods business, concentrating solely on the banking operation. By the start of the 20th century, assets totaled $690,000, "an immense sum of money" for 1900, according to the Indiana Business Magazine.
Upon his father's death, W. G. took over the presidency of the bank in 1910 and used the business to help Columbus move into the industrial age. In 1919, he backed local inventor Clessie Cummins, who would found Cummins Engine Company. In the 1920s, he helped bring Indianapolis-based Noblitt-Sparks Industries (later Arvin Industries) to Columbus.
W. G. also drove the 1928 merger between Irwin's Bank and Union Trust, creating Irwin-Union Trust Company. The deal reduced the family ownership to about 50 percent. The Columbus entity remained solvent as others around it folded following the 1929 stock market crash: W.G. had the foresight to convert investment portfolios to cash. In 1937, Irwin-Union held deposits of slightly less than $4.2 million and netted $40,000 in earnings, during a time when many banks still struggled to stay afloat.
W.G. Irwin died in 1943. He was succeeded by his nephew Hugh Miller as bank president. Hugh's tenure was short. His death put son J. Irwin Miller at the helm in 1947, when net earnings were $105,000. The younger Miller pulled double duty, continuing to hold his management role with the Cummins Engine Co.
During the 1950s, the bank introduced a range of innovative services. A growing commercial banking business prompted a name change in 1954, to Irwin Union Bank and Trust Company. In 1956, the purchase of another bank pushed total deposits to more than $36 million.
Total assets more than doubled in the 1960s, reaching $100 million in 1969. Anticipating new directions, in 1972, holding company Irwin Union Corporation was formed. Later, during 1979, a small business investment company was created.
The banking family continued to make its mark on the town of Columbus as well. "Like his great uncle W.G., J. Irwin was a visionary but also a philanthropist and patron of the arts. In 1957 he spearheaded the campaign to cover architectural fees of public buildings," Bill Beck wrote for Indiana Business Magazine. The move would put Columbus on the map in terms of architecture and earned Miller the accolades of Esquire magazine in 1967.
Mortgage Business Fueling Growth: 1980s-90s
With total assets of $280 million in 1981, the holding company purchased Inland Mortgage Corporation. Inland had one office in Indianapolis and held a servicing portfolio of $140 million, according to the Indianapolis Business Journal.
During 1985, Indiana granted banks the right to operate in more than one county in the state. But quickly the company recognized that its greater opportunity laid with expanding the mortgage business. By 1990, Inland Mortgage operated in 14 states, originating $1.2 billion in mortgages annually.
William I. Miller, the fifth generation to own Irwin, bought out the family in 1990. Miller joined the board of the holding company, Irwin Union Corporation, in 1985, during which time he was also president of Irwin Management Corp., a family business not affiliated with the bank. The holding company, with revenues of $43 million, net income of $4.6 million, 700 employees, and offices in 11 states, changed its name in 1990 to Irwin Financial Corporation.
The mortgage concern, Inland, had benefited from the savings and loan collapse, as consumers turned to mortgage bankers for home loans in affected markets such as Arizona. The servicing portfolio, those mortgages on which Inland collected payments, climbed to $2.7 billion by the end of 1991, up from $1.9 billion a year earlier. Even though the mortgage origination business was operating at a loss, the profitable servicing business took up the slack. The company retained the servicing rights on about two-thirds of the residential mortgages it originated.
Inland Mortgage, closing in on the earnings generated by Irwin Union Bank, was instrumental in driving up the holding company's price per share during 1991. Credited for its good management, the company also had benefited from declining long-term interest rates, which brought more people in seeking home loans.
Irwin's success and the trend toward consolidation in the industry fueled talk of a sale. But according to the Indianapolis Business Journal, Miller believed that both Inland Mortgage and Irwin Union Bank still had growth potential. Moreover, the company looked to complementary businesses for sources of revenue and earnings. The company established a small investment firm in 1984 and a leaser of small ticket medical equipment in 1990. Miller held about 47 percent of the company's stock.
In 1992, Inland Mortgage Corp. produced about 80 percent of Irwin's earnings, according to American Banker. Its mortgage activities, atypical among community banks, had helped Irwin become one of the most profitable in the Midwest.
During 1993 its business segments included the $439 million in assets Irwin Union Bank and Trust Co., Inland Mortgage Corp. with a $5.5 billion servicing portfolio, Irwin Union Investor Services, and Affiliated Capital Corp., the leasing business.
By 1995, Inland Mortgage ranked among the nation's 30 largest lenders, originating more than $3 billion in loans annually. Its servicing portfolio had topped $10 billion. Irwin Union Bank and Trust Co.'s 15 branches primarily served nonmetropolitan areas, competing with local banks.
Irwin Home Equity, established in 1995 in San Ramon, California, lost $3.2 million its first year. With three-quarters of revenue derived from mortgage banking, rising interest rates were hurting stock, prompting the company to begin developing new business areas. "Irwin, in many respects, is the bank of the future," Joseph Stieven, analyst with Stifel Nicolaus in St. Louis, said in a Knight Ridder/Tribune Business News article. It believed its success would come from well-developed niches. In 1996, the company sold off part of the investor services business and absorbed the rest into the banking operation.
Inland Mortgage changed its name to Irwin Mortgage Corporation on January 1, 1998. The company originated $9 billion in mortgages during the year, but the home mortgage boom had peaked. By 2000, the company's mortgage generation would fall to half that amount. From 1998 to 2000, the home equity loan niche would be the gainer in revenue and earnings momentum. In 1999 the company established two smaller operations: a reconstitution of the equipment leasing business and a venture capital firm investing in companies involved in technology applicable to financial services.
Niche Player Juggling Many Balls: 2000-05
In 2000, Irwin Financial closed in on $300 million in revenue and achieved an 11th straight year of record earnings. Net income was $35.7 million. The company employed 2,500 people, with offices in all 50 states and in Canada, according to Indiana Business Magazine.
The Columbus-based bank holding company, with more than $2 billion in assets, was regarded as one of the country's top performers. The holding company's return on average equity (ROE) was 20.7 percent in 2000. For nine straight years the ROE had been 20 percent or more. Miller attributed the company's ROE numbers to diversification. The bank brought in 16 percent of revenue, the mortgage business 46 percent, and home equity loans 35 percent. Across the board the company's target markets were small businesses and consumers.
Typically, community banks expanded through adding branches in their service area and adjacent territory. When Indiana banks were allowed to cross county lines, Irwin chose to grow its small business lending instead. The company sought out high growth markets and offered its best commercial bankers a job. Taking advantage of the upheaval in the industry, Irwin recruited good local talent freed up by consolidation. A familiar face gave credibility to the new name in town and brought with it knowledge of the credit risk of the customer base. The strategy put Irwin in cities from Kalamazoo to St. Louis to Phoenix and gave it a toehold for its other businesses.
Irwin's business niches were subject to different economic cycles. While the mortgage banking business focused on first-time buyers, peaking with low interest rates, the home equity loan business served people attempting to manage credit card debt. The commercial banking operation served small businesses overlooked by larger banks.
Under Miller, great-great-grandson of Joseph I. Irwin, the financial services company racked up record earnings. Since 1990, earnings per share grew 23 percent and net income rose from slightly less than $5 million to $35.7 million in 2000.
During 2001, Irwin Financial established Irwin Capital Holdings as its commercial finance line of business, encompassing leasing companies in the United States and Canada and a branded franchise financing operation. The 29-location Irwin Union Bank added a federal savings bank. The holding company moved to the New York Stock Exchange.
When Irwin Financial began securitizing and selling its loans, in the late 1990s, the related interest income boosted stock price, rising to about $25 per share in the summer of 2001. But the scandals that rocked the corporate world had created wary investors. When Irwin moved to raise $75 million in a secondary offering in 2002, potential investors went over the prospectus with a fine-tooth comb, wanting further information about accountant firm changes and downturns in key business areas before handing over the cash.
The U.S. real estate market heated up as interest rates fell to record lows in an effort by the federal government to jumpstart the economy following the September 11, 2001 terrorist attacks. Irwin Mortgage Corp. originated a record $22.7 billion worth of mortgage loans in 2003, driving a record profit.
Excess capacity in the mortgage banking industry, as well as internally, hurt Irwin Financial in 2004. The company closed offices to cut expenses. With just $13.1 billion in loans generated during the year, profits plummeted. Performance of the other three core business areas was solid but not enough to completely offset the decline in the mortgage business.
The overcapacity problem continued to plague Irwin Financial into 2005; moreover, the company believed that its mortgage servicing rights were being undervalued by the market. But as 2005 began to wind down, Irwin Financial began to report improvement in its mortgage banking operation.
Principal Subsidiaries
Irwin Mortgage Corporation; Irwin Home Equity Corporation; Irwin Union Bank and Trust Company; Irwin Union Bank, FSB; Irwin Commercial Finance.
Principal Competitors
Bank of America Corporation; Countrywide Financial Corporation.
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