Irwin Financial Corporation reported first quarter results today, and it wasn't exactly pretty: a $6.1 million loss from continuing operations, attributed to "conditions in secondary market, increased competition for loans and deposits, and higher credit costs." Of course, the results were worse once both continued and discontinued operations were accounted for -- a $10.1 million loss. The CEO of the company had a mouthful to say about the company's poor performance:
"This was clearly a very disappointing quarter after we took meaningful actions last year to improve our results. We have been negatively affected by three factors: the loss at home equity, an impaired commercial credit involving what we believe was misrepresentation of collateral, and slow loan and deposit growth in commercial banking" said Will Miller, Chairman and CEO of Irwin Financial. "We believe we have action plans to address each issue. The disruption in the consumer mortgage market has been dramatic and protracted. In response, we have made significant product modifications to reduce our exposure to changing secondary market requirements. As a result of the market disruption, there are fewer active buyers in the secondary market, and those that are active are offering prices that are not reflective of the underlying economics of our loans. Given the uncertainty about how long these conditions will exist, our capital strength allowed us to transfer loans we had originated for sale into our portfolio. The mark-to-market and additional reserve requirements for our portfolio, combined with the fact that a relatively small portion of the loans were delinquent, caused us to book a significant expense associated with this transfer. It is important to note, however, that the loans we targeted for our portfolio in prior quarter originations have been performing in line with expectations. "While we cannot predict how long the disruption in the secondary markets will continue, we believe the consumer mortgage markets will be much more rational in the future when conditions normalize as a result of reduced competition. We continue to believe that we can achieve targeted profitability in this line of business in the long run due to the product changes we have been making over the past couple months. While disruptive to our turnaround in the short term, this swing in the real estate and mortgage cycle affords us competitive opportunities and plays well to our long-term strategy in the mortgage market."
I particularly liked the characterization of the secondary market as lacking rationality at the moment. I suppose rationality is now effectively in the eye of the beholder, right?