SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
(Mark One)
_x_ Annual report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 (Fee Required)
For the fiscal year ended December 31, 1995 or
Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 (No Fee Required)
For the transition period from to
------- --------
Commission file number 0-6835
IRWIN FINANCIAL CORPORATION
(Exact Name of Registrant as Specified in its Charter)
Indiana 35-1286807
- ------- ----------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
500 Washington Street
Columbus, Indiana 47201
(Address of Principal Executive Offices) (Zip Code)
(812) 376-1020
--------------
(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Shares
- --------------
(Title of Class)
Indicate by check mark whether the registrant: (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes x No ---
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained
herein, and will not be contained, to the best of
registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [x]
The aggregate market value of the voting stock held by non-
affiliates of the Registrant was $120,323,493.75 as of March
12, 1996. As of March 12, 1996, there were outstanding
5,670,586 common shares of the Registrant.
DOCUMENTS INCORPORATED BY REFERENCE
Selected Portions of Part of Form 10-K Into
the Following Documents Which Incorporated
- ----------------------- -----------------------
Annual Report to Shareholders Part I, Part II
for the year ended December 31, 1995
Definitive Proxy Statement for Part III
Annual Meeting of Shareholders
to be held April 30, 1996
Exhibit Index on Pages 11 through 14 Page 1
Total Pages in This Filing: 124
====
<PAGE 2>
FORM 10-K TABLE OF CONTENTS
Part I
Item 1 - Business 3
Item 2 - Properties 7
Item 3 - Legal Proceedings 8
Item 4 - Submission of Matters to a Vote of Security
Holders 8
Part II
Item 5 - Market for Registrant's Common Equity and
Related Security Holder Matters 8
Item 6 - Selected Financial Data 9
Item 7 - Management's Discussion and Analysis of
Financial Condition and Results of
Operations 9
Item 8 - Financial Statements and Supplementary Data 9
Item 9 - Changes in and Disagreements with
Accountants on Accounting and Financial
Disclosure 10
Part III
Item 10 - Directors and Executive Officers of the
Registrant 10
Item 11 - Executive Compensation 10
Item 12 - Security Ownership of Certain Beneficial
Owners and Management 10
Item 13 - Certain Relationships and Related
Transactions 10
Part IV
Item 14 - Exhibits, Financial Statement Schedules
and Reports on Form 8-K 11
Signatures 15
<PAGE 3>
PART I
Item 1 Business
--------
General
- -------
Irwin Financial Corporation (the "Registrant") is a
diversified financial services company organized as an
Indiana bank holding company in May, 1972. The Registrant's
principal subsidiaries are Inland Mortgage Corporation
("Inland Mortgage"), a mortgage banking company; Irwin Union
Bank and Trust Company ("Irwin Union Bank"), a commercial
bank; Irwin Union Investor Services, Inc. ("Investor
Services"), an investment and financial counseling company;
Affiliated Capital Corp. ("Affiliated"), an equipment
leasing company; Irwin Home Equity Corporation ("Home
Equity"), a consumer home equity lending company; White
River Capital Corporation, a small venture capital company;
and Irwin Union Credit Insurance Corporation, a credit
insurance company.
Business of Subsidiaries
- ------------------------
Inland Mortgage originates, purchases and services
conventional or government agency backed (i.e., FHA and VA)
residential mortgage loans. Substantially all mortgages are
either insured by an agency of the federal government, or in
the case of a conventional mortgage, meet requirements for
resale to the Federal National Mortgage Association or the
Federal Home Loan Mortgage Corporation. Periodically,
Inland Mortgage sells loans to private investors pursuant to
their requirements. Inland also originates a small amount
of commercial mortgages.
Inland Mortgage sells mortgage loans to institutional
investors but may retain servicing rights to mortgage loans
that it originates or purchases from correspondents. Inland
Mortgage collects and accounts for the monthly payments on
each loan serviced and pays the real estate taxes and
insurance necessary to protect the integrity of the mortgage
lien, for which it receives a servicing fee. Inland
Mortgage operates 101 production and satellite offices in 27
states. During 1995, Inland Mortgage established offices in
Flagstaff, Phoenix, Prescott, and Scottsdale, Arizona;
Covina, Orange, Porterville, and Richmond, California;
LaPorte, Indiana; Lexington, Kentucky; Baton Rouge,
Louisiana; Cape May, New Jersey; Santa Fe, New Mexico; Las
Vegas, Nevada; Tulsa, Oklahoma; Dallas, Houston, North
Houston, and Plano, Texas; Bellevue and Orting, Washington.
During 1995, Inland Mortgage closed offices in Hanford and
Mill Valley, California; Colorado Springs and Woodland Park,
Colorado; Floyds Knobs, Indiana; Troy, Michigan; Creve
Coeur, Missouri; Anacortes, Washington.
Irwin Union Bank, organized in 1871, is a full service
commercial bank offering a wide variety of services to
individual, business, institutional, and governmental
customers. Irwin Union Bank's services include personal and
commercial checking accounts, savings and time deposit
accounts, personal and business loans, credit card services,
money transfer, property and casualty insurance agency
services, trust services, securities brokerage and safe
deposit facilities. Irwin Union Bank is the largest of nine
financial institutions operating in Bartholomew County,
Indiana with eight locations throughout the county. Irwin
Union Bank also has branch facilities in Seymour (Jackson
County - 2), Shelbyville (Shelby County - 2), Bloomington
(Monroe County), Franklin (Johnson County), and Greensburg
(Decatur County), Indiana. The Greensburg branch was opened
in 1995. One of the branch locations
in Bartholomew County closed in 1995. Irwin Union Bank has
two trust custodial offices in Indianapolis, Indiana.
Investor Services engages in investment services activities
including certificate of deposit placement services,
consumer financial counseling services through its wholly
owned subsidiary, Irwin Union Advisory Services, Inc., and
securities brokerage services through its wholly owned
subsidiary, Irwin Union Securities, Inc. Investor Services
operates three offices in three states.
Affiliated, acquired in 1990 and located in Northbrook,
Illinois, is engaged in the small-ticket equipment leasing
and commercial lending business. Affiliated offers non-
recourse, non-operating, full payout
<PAGE 4>
leases and commercial lines of credit to physicians, medical
clinics, veterinarians, dentists and chiropractors.
Home Equity was formed in 1994 and is located in San Ramon,
California. Home Equity originates and services home equity
lines of credit.
White River Capital Corporation ("White River"), a venture
capital company, is located in Columbus, Indiana and
currently holds one investment but has suspended making new
investments.
Irwin Union Credit Insurance Corporation is located in
Columbus, Indiana and provides credit life insurance to
consumer loan customers of Irwin Union Bank.
No single part of the business of the Registrant is
dependent upon a single customer or upon a very few
customers and the loss of any one customer would not have a
materially adverse effect upon the business of the
Registrant. Inland Mortgage is registered as a Foreign
Financial Institution in Mexico but has no foreign
operations or export sales.
Competition
- -----------
Inland Mortgage originates and services residential first
mortgage loans from 101 production and satellite offices in
Arizona, California, Colorado, Delaware, Florida, Georgia,
Hawaii, Illinois, Indiana, Kentucky, Louisiana, , Minnesota,
Missouri, Montana, New Jersey, New Mexico, Nevada, North
Carolina, Ohio, Oklahoma, Oregon, Pennsylvania, Texas,
Washington, Wisconsin and the Washington, D.C. metropolitan
area, including offices in Maryland and Virginia. In each
of these locations, competition for mortgage loans is
vigorous, coming from other national, regional and local
mortgage banking companies as well as commercial banks,
savings banks and savings & loan associations. Inland
Mortgage purchases mortgage loans from correspondents in
these and other states as well.
The commercial banking business for Irwin Union Bank in the
Bartholomew, Decatur, Jackson, Johnson, Monroe and Shelby
County areas is very competitive. Within these counties, in
addition to the commercial banks, there are a number of
savings banks, savings & loan associations and credit unions
competing for deposits and loans. Irwin Union Bank also
competes for the provision of banking services with banks
located elsewhere in Indiana, primarily in southern Indiana,
and with a number of nonbank companies located throughout
the United States, including insurance companies, retailers,
brokerage firms, companies offering money market accounts,
and national credit card companies. As of December 31,
1995, Irwin Union Bank ranked first among commercial banking
and savings bank institutions on the basis of Bartholomew
County deposits. In addition to the above mentioned
counties, Irwin Union Bank derives its business from several
other counties in southern Indiana. In November, 1995,
Irwin Union Bank opened an office in Greensburg, Indiana.
Investor Services provides securities brokerage and
financial counseling services to corporate and individual
customers. Investor Services also offers on an agency
basis, a brokered deposit program for clients who wish to
invest in insured certificates of deposit and oversees other
investor related services. Investor Services' primary
competitors include branch offices of regional and national
securities brokerage firms located in Bartholomew County as
well as other regional and national financial institutions
which operate similar cash management and financial
counseling programs.
Affiliated provides, primarily, medical equipment leasing
and commercial credit services to medical clinics, small
groups of physicians, individual practitioners,
chiropractors, dentists and veterinarians. Affiliated's
primary competitors include other equipment leasing
companies with operations that are national in scope, banks
and other financial institutions which offer commercial
credit products. Such competitors may be headquartered
anywhere in the country.
Home Equity provides home equity lines of credit to private
home owners in several states. Home Equity's primary
competitors include banks, thrifts, credit unions and other
home equity lenders with
<PAGE 5>
operations that are either national, regional or local in
scope. Such competitors may be headquartered anywhere in
the country.
Supervision and Regulation
- --------------------------
The Registrant is a bank holding company within the meaning
of the Bank Holding Company Act of 1956, as amended, and is
registered with, regulated and examined by the Board of
Governors of the Federal Reserve System (the "Board of
Governors").
Subject to certain exceptions, a bank holding company is
prohibited from acquiring direct or indirect ownership or
control of more than five percent of the voting shares of
any company which is not a bank and from engaging directly
or indirectly in activities unrelated to banking or managing
or controlling banks. One exception to this prohibition
permits activities by a bank holding company or its
subsidiary which the Board of Governors determines to be so
closely related to banking or managing or controlling banks
as to be a proper incident thereto. The Board of Governors
has adopted regulations prescribing those activities it
presently regards as permissible which include the
activities engaged in by Registrant and its subsidiaries.
The Bank Holding Company Act, the Federal Reserve Act and
the Federal Deposit Insurance Act also subject bank holding
companies and their subsidiaries to certain restrictions on
extensions of credit by subsidiary banks to the bank holding
company or any of its subsidiaries, or investments in the
securities thereof, and on the taking of such securities as
collateral for loans to any borrower. Further, the Bank
Holding Company Act and the regulations of the Board of
Governors thereunder, prohibit a bank holding company and
its subsidiaries from engaging in certain tie-in
arrangements in connection with any extension of credit,
sale or lease of any property or furnishing of services.
In addition to the regulation of the Registrant, Irwin Union
Bank is subject to extensive regulation and periodic
examination, principally by the Indiana Department of
Financial Institutions and the Federal Deposit Insurance
Corporation. Inland Mortgage is subject to audit and
examination oversight by the federal department of Housing
and Urban Development as well as the Government National
Mortgage Association, the Federal National Mortgage
Association, and the Federal Home Loan Mortgage Corporation.
The insurance subsidiary of the Registrant and the insurance
subsidiary of Irwin Union Bank are dependent upon state
licenses and upon franchise agreements with private
corporations for their continued existence. The home equity
subsidiary of the Registrant is also dependent upon state
licenses for its ability to extend credit in certain states.
Finally, the securities brokerage activities of Investor
Services are regulated and examined by the Securities and
Exchange Commission, the Indiana Securities Division, the
securities divisions of the various states in which Investor
Services operates, and the National Association of
Securities Dealers.
Employees and Labor Relations
- -----------------------------
As of December 31, 1995, the Registrant and its subsidiaries
had a total of 1,790 employees, including full-time and part-
time employees. The Registrant continues a commitment of
equal employment opportunity for all job applicants and
staff members and management regards its relations with its
employees as satisfactory.
Further Information
- -------------------
The following information responsive to Guide 3 promulgated
under the Securities Exchange Act of 1934, is contained in
the "Management's Discussion and Analysis of Financial
Conditions and Results of Operations" section of the Annual
Report to Shareholders for the year ending December 31, 1995
and is incorporated herein by reference: "Daily Average
Consolidated Balance Sheet, Interest Rates and Interest
Differential" (p. 80), "Investment Securities" (p. 68),
"Short-Term Borrowings" (p. 69), "Summary of Net Interest
Income Changes" (p. 65), "Deposits" (p. 68), "Loans and
Leases" (p. 66), "Five-Year Selected Financial Data" (p.
32), and the discussion and tabular information under the
<PAGE 6>
caption "Credit Risk" on pages 72 to 76 of "Management's
Discussion and Analysis of Financial Conditions and Results
of Operations".
Executive Officers of the Registrant
- ------------------------------------
The Executive Officers of the Registrant are elected
annually by the Board of Directors and serve for a term of
one year or until their successors are elected and
qualified. There are no arrangements or understandings
between any Executive Officer and any other person pursuant
to which the Officer was or is to be selected as an Officer.
Robert P. Albert (45) is President of Affiliated Capital
Corp. since February 28, 1990.
Claude E. Davis (35) is President of Irwin Union Bank since
January 2, 1996. He has been an officer since 1988.
Elena Delgado (40) is President of Irwin Home Equity
Corporation since September 4, 1994. From March through
August, 1994 Ms. Delgado was an independent consultant to
Irwin Financial Corporation. From 1990 to 1993 Ms. Delgado
was Vice President, Second Mortgage Lending of First Deposit
Corporation.
Gregory F. Ehlinger (33) is Vice President and Treasurer of
the Registrant since August of 1992. From 1988 to 1992, Mr.
Ehlinger was employed by Irwin Management Company, Inc. (A
private management company). From 1986 to 1988, Mr. Ehlinger
attended the University of Virginia, Darden School of
Business.
David C. Fulton (66) retired from the Presidency of Inland
Mortgage on December 31, 1995. He was an officer since
1985.
Jose M. Gonzalez (37) is Vice President and Director of
Internal Audit of the Registrant since October of 1995.
From 1993 to 1995 Mr. Gonzalez was Senior Vice President,
Audit & Compliance Services of Premier Bank and Trust. From
1991 to 1993 Mr. Gonzalez was Vice President and Senior
Compliance Officer at First Empire State Corporation. From
1980 to 1991 Mr. Gonzalez was Vice President and Senior
Auditing Officer at Southeast Banking Corporation.
Theresa L. Hall (43) is Vice President of the Registrant,
since 1988, and from 1984 to 1990 was Vice President-Human
Resources of Irwin Union Bank. She has been an officer
since 1980.
Robert S. Kaspar (37) is President and Treasurer of Investor
Services. From 1987 to 1989 Mr. Kaspar was Controller of
the Registrant. From 1984 to 1987, Mr. Kaspar was
Controller of Irwin Union Bank. He has been an officer
since 1985.
Rick L. McGuire, (43) is President of Inland Mortgage since
January 1, 1996. He has been an officer since 1978.
William I. Miller (39) is Chairman of the Board, since 1990,
and has been a Director of the Registrant since 1985. Prior
to 1990, he was President of Irwin Management Company, Inc.
Mr. Miller continues to serve as Chairman of Tipton Lakes
Company (a real estate development concern), and the non-
executive Chairman of the Board of Irwin Management Company.
John A. Nash (58) is Chairman of the Executive Committee,
since 1990, and President, since 1985, of the Registrant.
He has been an officer and Director of the Registrant since
1972.
Michael F. Ryan (50) is Vice President-Community Relations
of the Registrant since January 2, 1996. He was President
of Irwin Union Bank from 1980-1995. He has been an officer
since 1976.
<PAGE 7>
Matthew F. Souza (39) is Vice President and Secretary of the
Registrant. He has been an officer since 1985.
Marie C. Strack (33) is Vice President and Controller of the
Registrant since May of 1992. From 1985 to 1992, Ms. Strack
was employed by the public accounting firm of Coopers &
Lybrand L.L.P., as Audit Manager.
Thomas D. Washburn (49) is Senior Vice President and Chief
Financial Officer, since 1980, of the Registrant. He has
been an officer since 1976. From 1980 to 1987, Mr. Washburn
was Senior Vice President of Irwin Union Bank.
Item 2. Properties
----------
The location and general character of the materially
important physical properties of the Registrant and its
subsidiaries are as follows:
The main office of Inland Mortgage, where administrative and
servicing activities are centered, is located at 9265
Counselor's Row, Indianapolis, Indiana. Inland Mortgage
also has loan production and satellite offices, including
offices acquired on January 1, 1995, located in Flagstaff,
Phoenix (3), Prescott, Mesa, Scottsdale, Tempe, and Tucson,
Arizona; Antioch, Bakersfield, Concord, Covina, Fresno, Lake
Forest, Long Beach, Montclair, Morgan Hill, Orange,
Pasadena, Pleasanton, Porterville, Richmond, Sacramento,
Salinas, San Francisco, San Mateo, Santa Rosa, Selma,
Ventura, Visalia, Walnut Creek, Westlake Village, and Yuba
City, California; Castle Rock, Denver, Englewood, and Fort
Collins , Colorado; Bethany Beach and Newark, Delaware;
Orlando, Florida; Atlanta, Georgia; Aiea, Honolulu, Kailua,
and Maui, Hawaii; Decatur and Tinley Park, Illinois;
Indianapolis (5), Ft. Wayne, Lafayette, LaPorte, South
Bend, and Warsaw, Indiana; Lexington and Louisville,
Kentucky; Baton Rouge, Louisiana; Columbia, Crofton,
Rockville, and Towson, Maryland; Arden Hills, Bloomington,
Burnsville, and Minneapolis, Minnesota; St. Louis, Missouri;
Kalispell, Montana; Las Vegas, Nevada; Cape May, New Jersey;
Santa Fe (2), New Mexico; Cary, Charlotte, Greensboro, and
Raleigh, North Carolina; Dayton, Ohio; Tulsa, Oklahoma;
Beaverton and Clackamas, Oregon; West Chester, Pennsylvania;
Corpus Christi, Dallas, El Paso, Houston, North Houston, and
Plano, Texas; Fredericksburg, Gloucester, Richmond,
Springfield, Suffolk, and Woodbridge, Virginia; Bellevue,
Battleground, Everett, Orting, Seattle, and Vancouver,
Washington; and Madison, Wisconsin. All offices occupied by
Inland Mortgage are leased.
The main office of Irwin Union Bank is located in four
connected buildings all at 500 Washington Street, Columbus,
Indiana. These buildings and one branch building are owned
in fee by Irwin Union Realty Corporation, a wholly-owned
subsidiary of Irwin Union Bank, and are leased by Irwin
Union Bank. Irwin Union Bank owns in fee three of its other
thirteen relatively small branch banking premises. The
other branch offices are leased. None of the properties
owned by Irwin Union Bank are subject to any major
encumbrances.
The main office of Investor Services is located at 520
Washington Street, Columbus, Indiana, in a building owned in
fee by Investor Services. This property is not subject to
any major encumbrance. Investor Services has additional
leased offices in Columbus, Indiana, Columbus, Ohio and
Raleigh, North Carolina.
The main office of Affiliated, where administrative and
lease servicing activities are centered, is located at 707
Skokie Boulevard, Northbrook, Illinois. This office
location is leased.
The main office of Irwin Home Equity is located at 2400
Camino Ramon, Suite 375, San Ramon, California. This office
location is leased.
<PAGE 8>
The main offices of the Registrant and of White River
Capital Corporation and Irwin Union Credit Insurance
Corporation are located at 500 Washington Street, Columbus,
Indiana in space leased from Irwin Union Bank.
Item 3. Legal Proceedings
-----------------
As a part of the ordinary course of business, the Registrant
and its subsidiary companies are parties to litigation
involving claims to the ownership of funds in particular
accounts, the collection of delinquent accounts, challenges
to security interests in collateral, and foreclosure
interests, that is incidental to their regular business
activities.
As of December 31, 1995, Inland Mortgage was a defendant to
a class action lawsuit initiated in the state of Minnesota.
The case is currently pending before a federal Multidistrict
Litigation Panel in Chicago. Plaintiffs allege that they
represent a nationwide class of persons who have or had
mortgage escrow accounts allegedly improperly managed by
Inland Mortgage. This case is among a series of class
action cases commenced against a number of mortgage
servicers in several states challenging the practices used
in connection with the administration of escrow accounts for
single family residential mortgages. The litigation is
still at an early stage and it is impossible to predict the
likelihood of an unfavorable outcome or to establish
possible extent or amount of liability or potential loss
exposure, if any, to which Inland Mortgage might be exposed.
As of December 31, 1995, Inland Mortgage was a defendant to
a class action lawsuit initiated in the state of Indiana.
The case is currently pending before the Marion County
Superior Court. Plaintiffs allege that lenders do not have
the right to require borrowers to pay premiums for private
mortgage insurance. This case is among a series of class
action cases commenced against a number of mortgage lenders
in several states challenging the right of mortgage lenders
to collect private mortgage insurance payments from
borrowers. The litigation is still at an early stage and it
is impossible to predict the likelihood of an unfavorable
outcome or to establish possible extent or amount of
liability or potential loss exposure, if any, to which
Inland Mortgage might be exposed.
As of December 31, 1995, the Registrant, Home Equity and
certain officers of Home Equity were defendants to a
preliminary injunction action initiated in the State of
California. The case is currently pending in the Superior
Court of the State of California in and for the City and
County of San Francisco. The plaintiff alleges that
defendants misappropriated trade secrets of plaintiff due to
the employment by Home Equity of former officers and
employees of plaintiff. The litigation has not reached the
preliminary injunction hearing stage and it is impossible to
predict the likelihood of an unfavorable outcome or to
establish possible extent or amount of liability or
potential loss exposure, if any, to which Home Equity and
the other named defendants might be exposed.
Except as described above, there is no material pending
litigation in which the Registrant or any of its
subsidiaries is involved or of which any of their property
is the subject. Furthermore, there is no pending legal
proceeding that is adverse to the Registrant in which any
director, officer or affiliate of the Registrant, or any
associate of any such director or officer, is a party, or
has a material interest.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
No matters were submitted during the fourth quarter of 1995,
to a vote of security holders of the Registrant, through the
solicitation of proxies or otherwise.
PART II
Item 5. Market for Registrant's Common Equity and Related
---------------------------------------------------
Stockholder Matters
- -------------------
The Common Stock of the Registrant is quoted on the National
Association of Securities Dealers Automated Quotation System
National Market System (NASDAQ-NMS - trading symbol, IRWN).
<PAGE 9>
The following table sets forth certain information regarding
trading in, and cash dividends paid with respect to, the
shares of the Registrant's Common Stock in each quarter of
the two most recent calendar years. The Common Stock was
approved for quotation in NASDAQ-NMS commencing on September
15, 1992. Accordingly, fourth quarter 1992 stock prices
reflect high and low sale transactions. All other stock
prices reflect interdealer quotations reported by NASDAQ
prior to the commencement of National Market System trading,
without retail mark-up, mark-down or conversion, and may not
necessarily represent actual transactions. All data have
been adjusted for stock splits. The approximate number of
shareholders of record on March 12, 1996 was 1,443.
Stock Prices and Dividends:
<TABLE>
<CAPTION>
High Low Quarter Cash Total
$ $ End Dividend Dividends
$ $ For Year
$
1994
<S> <C> <C> <C> <C> <C>
First Quarter 25 1/2 21 3/4 22 3/4 0.090
Second Quarter 23 3/4 20 1/2 22 1/4 0.090
Third Quarter 28 21 27 1/4 0.090
Fourth Quarter 27 3/4 25 1/2 26 3/4 0.090 0.36
1995
First Quarter 31 3/4 27 1/2 31 0.110
Second Quarter 35 1/4 31 34 1/2 0.110
Third Quarter 36 1/2 34 1/2 35 1/2 0.110
Fourth Quarter 40 1/4 35 1/4 39 7/8 0.110 0.44
</TABLE>
The Registrant expects to continue its policy of paying
regular cash dividends, although there is no assurance as to
future dividends because they are dependent on future
earnings, capital requirements, and financial condition. On
February 21, 1995, the Registrant's Board of Directors
approved an increase in the Registrant's quarterly dividend
to $.11 per share which dividend rate was unchanged as of
December 31, 1995. Dividends paid by Irwin Union Bank to
the Registrant are restricted by banking law. See Note 14
of Notes to the Consolidated Financial Statements in the
attached Annual Report to Shareholders.
Item 6. Selected Financial Data
-----------------------
The information contained in the Annual Report to
Shareholders for the year ended December 31, 1995, under the
caption "Five-Year Selected Financial Data", is incorporated
herein by reference in response to this item.
Item 7. Management's Discussion and Analysis of Financial
-------------------------------------------------
Condition and Results of Operations
- -----------------------------------
The information set forth under the caption "Management's
Discussion and Analysis of Financial Condition and Results
of Operations" in the Annual Report to Shareholders for the
year ended December 31, 1995, is incorporated herein by
reference in response to this item.
Item 8. Financial Statements and Supplementary Data
-------------------------------------------
Consolidated financial statements of the Registrant and its
subsidiaries are contained in the Annual Report to
Shareholders for the year ending December 31, 1995, under
the caption "1995 Financial Statements and Other Financial
Information", and are incorporated herein by reference in
response to this item. The financial statement schedules
required under Regulation S-X are filed as "Financial
Statement Schedules" pursuant to Item 14 hereof.
<PAGE 10>
Item 9. Changes in and Disagreements With Accountants on
-----------------------------------------------
Accounting and Financial Disclosure
- -----------------------------------
In connection with the audits of the Registrant for the two
most recent fiscal years ended December 31, 1995, the
Registrant has not changed its independent certified public
accountants nor have there been any disagreements (as
defined in Instruction 4 to Item 304 of Regulation S-K) with
such accountants on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope
or procedure.
PART III
Item 10. Directors and Executive Officers of the Registrant
--------------------------------------------------
The information contained in the proxy statement of the
Registrant for the 1996 Annual Meeting of Shareholders under
the caption "Election of Directors", on pages 4 through 6,
inclusive, is incorporated herein by reference in response
to this item.
Item 11. Executive Compensation
----------------------
The information contained in the proxy statement of the
Registrant for the 1996 Annual Meeting of Shareholders under
the captions "Election of Directors - Outside Director
Restricted Stock Compensation Plan", "Executive Compensation
and Other Information" and "Board Compensation Committee
Report on Executive Compensation" on pages 7 through 17,
inclusive, is incorporated herein by reference in response
to this item.
Item 12. Security Ownership of Certain Beneficial Owners
-----------------------------------------------
and Management
- --------------
The information contained in the proxy statement of the
Registrant for the 1996 Annual Meeting of Shareholders,
under the captions "Voting Securities and Principal Holders"
and "Security Ownership of Management", on pages 2 and 3,
inclusive, is incorporated herein by reference in response
to this item.
Item 13. Certain Relationships and Related Transactions
----------------------------------------------
The information contained in the proxy statement of the
Registrant for the 1996 Annual Meeting of Shareholders under
the caption "Interest of Management in Certain Transactions"
on pages 18 and 19, is incorporated herein by reference in
response to this item.
<PAGE 11>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form
-------------------------------------------------------------
8-K
---
Page #
a. Documents filed as a part of this Report: Form Annual
10-K Report
1. Financial Statements:
--------------------
A. Irwin Financial Corporation and
Subsidiaries:
Report of Coopers & Lybrand L.L.P.,
Independent Accountants 17
Consolidated Statement of Income
for the years ended December 31, 1995,
1994, and 1993 89
Consolidated Balance Sheet as of
December 31, 1995, and 1994 90
Consolidated Statement of Changes in
Shareholders' Equity for the years
ended December 31, 1995, 1994 and
1993 91
Consolidated Statement of Cash Flows
for the years ended December 31, 1995,
1994, and 1993 92
Notes to Consolidated Financial Statements 93
The above listed report, financial statements, and the notes
thereto, set forth on pages 89 through 93 of the
Registrant's 1995 Annual Report to Shareholders are
incorporated herein by reference.
2. Financial Statement Schedules
-----------------------------
Report of Independent Accountants,
Coopers & Lybrand L.L.P. 17
Schedule I - Indebtedness to
Related Parties 18
Schedules other than that listed above are omitted because
they are not required or the information is included in the
Notes to Consolidated Financial Statements.
<PAGE 12>
3. Exhibits
--------
A. Exhibits to Form 10-K
Sequential
Number Assigned Numbering
in Regulation System Page
S-K Item 601 Description of Exhibit Number of
- ------------ ---------------------- Exhibit
-------
(2) No exhibit.
(3) (i) 3(a) Amended Articles of
Incorporation, dated
December 29, 1972.
(Incorporated by
reference to Exhibit 3(a)
to Form 10-K Report for
year ended December 31,
1985, File No. 0-6835.)
3(b) Articles of Amendment,
dated March 30, 1973.
(Incorporated by
reference to Exhibit 3(b)
to Form 10-K Report for
year ended December 31,
1985, File No. 0-6835.)
3(c) Articles of Amendment,
dated September 4, 1990.
(Incorporated by
reference to Exhibit 3(d)
to Form 10-K Report for
year ended December 31,
1990, File No. 0-6835.)
3(d) Articles of Amendment,
dated April 30, 1992.
(Incorporated by
reference to Exhibit 3(d)
to Form 10-K Report for
year ended December 31,
1992, File No. 0-6835.)
3(e) Articles of Amendment,
dated April 26, 1994.
(Incorporated by
reference to Exhibit 3(e)
to Form 10-K Report for
year ended December 31,
1994, File No. 0-6835.)
(ii) 3(a) Code of By-Laws as 19
amended to date.
(4) 4(a) Specimen stock
certificate.
(Incorporated by
reference to Exhibit 4(a)
to Form 10-K Report for
year ended December 31,
1994, File No. 0-6835.)
<PAGE 13>
4(b) Certain instruments
defining the rights of
the holders of long-term
debt of the Registrant
and certain of its
subsidiaries, none of
which authorize a total
amount of indebtedness in
excess of 10% of the
total assets of the
Registrant and its
subsidiaries on a
consolidated basis, have
not been filed as
Exhibits. The Registrant
hereby agrees to furnish
a copy of any of these
agreements to the
Commission upon request.
(9) No exhibit.
(10) 10(a) Amended 1986 Stock Option
Plan. (Incorporated by
reference to Exhibit
10(b) to Form 10-K Report
for year ended December
31, 1991, File No. 0-
6835.)
10(b) Amended and Restated
Management Bonus Plan.
(Incorporated by
reference to Exhibit
19(a) to Form 10-K Report
for year ended December
31, 1986, File No. 0-
6835.)
10(c) Long-Term Management
Performance Plan.
(Incorporated by
reference to Exhibit
10(d) to Form 10-K Report
for year ended December
31, 1986, File No. 0-
6835.)
10(d) Long-Term Incentive Plan
- Summary of Terms.
(Incorporated by
reference to Exhibit
10(e) to Form 10-K Report
for year ended December
31, 1986, File No. 0-
6835.)
10(e) Irwin Financial
Corporation Employees'
Stock Purchase Plan.
(Incorporated by
reference to Exhibit
10(f) to Form 10-K Report
for year ended December
31, 1991, File No. 0-
6835.)
10(f) Employee Stock Purchase
Plan II. (Incorporated
by reference to Exhibit
10(f) to Form 10-K Report
for year ended December
31, 1994, File No. 0-
6835.)
10(g) Amended Irwin Financial
Corporation Outside
Directors Restricted
Stock Compensation Plan.
(Incorporated by
reference to Exhibit
10(g) to Form 10-K Report
for year ended December
31, 1991, File No. 0-
6835.)
10(h) Irwin Financial
Corporation 1992 Stock
Option Plan.
(Incorporated by
reference to Exhibit
10(h) to Form 10-K report
for year ended December
31, 1992, File No. 0-
6835.)
<PAGE 14>
10(i) Amended Irwin Financial 34
Corporation Outside
Director Restricted Stock
Compensation Plan.
(11) 11(a) Computation of Earnings 43
Per Share.
(12) No exhibit.
(13) 13(a) Registrant's 1995 Annual 44
Report to Shareholders.
This exhibit contains
such portions thereof
that have been
incorporated by reference
into this Report.
(16) No exhibit.
(18) No exhibit.
(21) 21(a) Subsidiaries of the 122
Registrant.
(22) No exhibit.
(23) 23(a) Consent of Independent 123
Accountants.
(24) No exhibit.
(27) Financial Data Schedule. 124
(28) No exhibit.
(99) 99(a) Annual Report on Form 11-
K for the Irwin Union
Corporation Employees'
Savings Plan for the year
ending December 31,
1995.*
99(b) Annual Report on Form 11-
K for the Inland Mortgage
Corporation Employees'
Savings Plan for the year
ending December 31,
1995.*
* To be filed by amendment pursuant to Rule 15d-21.
b. Reports on Form 8-K
-------------------
None.
<PAGE 15>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the
Undersigned, thereunto duly authorized.
IRWIN FINANCIAL CORPORATION
Date: March 25, 1996 By: William I. Miller
-------------------------
William I. Miller,
Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report on Form 10-K has been signed below by
the following persons on behalf of the Registrant and in the
capacities on the dates indicated.
Capacity with
Signature Registrant Date
--------- ---------- ----
Sally A. Dean Director March 25, 1996
- -----------------------
Sally A. Dean
David W. Goodrich Director March 25, 1996
- -----------------------
David W. Goodrich
John T. Hackett Director March 25, 1996
- -----------------------
John T. Hackett
William H. Kling Director March 25, 1996
- -----------------------
William H. Kling
John C. McGinty, Jr. Director March 25, 1996
- -----------------------
John C. McGinty, Jr.
Irwin Miller Director March 25, 1996
- -----------------------
Irwin Miller
William I. Miller Director, Chairman March 25, 1996
- ----------------------- of the Board
William I. Miller (Principal
Executive Officer)
John A. Nash Director, Chairman March 25, 1996
- ----------------------- of the Executive
John A. Nash Committee
<PAGE 16>
Lance R. Odden Director March 25, 1996
- -----------------------
Lance R. Odden
James T. Sakai Director March 25, 1996
- -----------------------
James T. Sakai
Theodore M. Solso Director March 25, 1996
- -----------------------
Theodore M. Solso
Thomas D. Washburn Senior Vice March 25, 1996
- ----------------------- President
Thomas D. Washburn (Principal
Financial Officer)
Marie C. Strack Vice President and March 25, 1996
- ----------------------- Controller
Marie C. Strack (Principal
Accounting
Officer)
<PAGE 19>
CODE OF BY-LAWS
IRWIN FINANCIAL CORPORATION
ARTICLE 1
Definitions
8.21.90
1.01. Corporation. As used in this Code of
By-Laws, the term "Corporation" means IRWIN FINANCIAL
CORPORATION.
1.02. Act. As used in this Code of By-Laws, the
term "Act" means The Indiana General Corporation Act.
1.03. Articles of Incorporation. As used in this
Code of By-Laws, the term "Articles of Incorporation" means
the Articles of Incorporation of the Corporation, as amended
from time to time.
1.04. By-Laws. As used in this Code of By-Laws,
the term "By-Laws" means the Code of By-Laws of the
Corporation, as amended from time to time.
ARTICLE 2
Identification
8.20.90
2.01. Name. The name of the Corporation is IRWIN
FINANCIAL CORPORATION.
2.02. Principal Office and Resident Agent --
Power to Change. The post-office address of the principal
office of the Corporation is 500 Washington Street,
Columbus, Indiana 47201, and the post -office address of its
Resident Agent in charge of such office is John A. Nash, 500
Washington Street, Columbus, Indiana 47201. The location of
its principal office, or the designation of its Resident
Agent, or both, may be changed at any time or from time to
time, when authorized by the Board of Directors, by filling
with the Secretary of State of the State of Indiana, on or
before the day any such change is to take effect, or within
five (5) days after the death of the Resident Agent or other
unforeseen termination of his agency, a certificate signed
by the President or a Vice President, and the Secretary or
an Assistant Secretary, of the Corporation, and Verified
under oath by one of such officers signing the same, stating
the change to be made and reciting that such change is made
pursuant to authorization by the Board of Directors.
2.03. Seal. The seal of the Corporation shall
be circular in form and mounted upon a metal die, suitable
for impressing the same upon paper. About the upper
periphery of the seal shall appear the name of the
Corporation, and about the lower periphery thereof the word
<Page 20>
"Indiana". In the center of the seal shall appear the words
"Seal" or " Corporate Seal".
2.04. Fiscal Year. The fiscal year of the
Corporation shall be the calendar year.
ARTICLE 3
Shares
3.01. Consideration for Shares. The Board of
Directors shall cause the Corporation to issue the Shares of
the Corporation for such consideration as may be fixed by
such Board pursuant to the provisions of the Articles of
Incorporation.
3.02. Subscription for Shares. Subscriptions for
Shares of Corporation shall be paid to the Treasurer at such
time or times, in such installments or calls, and upon such
terms, as shall be determined, from time to time, by the
board of Directors. Any call made by the Board of Directors
for payment on subscriptions shall be uniform as to all
shares of the same class or to all Shares of the same
series, as the case may be.
3.03. Payment for Shares. Subject to the provisions
of the Articles of Incorporation, the consideration for the
issuance of Shares of the Corporation may be paid, in whole
or in part, in money, in other property, tangible or
intangible, or in labor actually performed for, or services
actually rendered to, the Corporation; provided, however,
that the part of the surplus of the Corporation which is
transferred to stated capital upon the issuance of Shares as
a Share dividend shall be deemed to be the consideration for
the issuance of such Shares. When payment of the
consideration for which a Share was authorized to be issued
shall have been received by the Corporation, or when surplus
shall have been transferred to stated capital upon the
issuance of a Share dividend, such Share shall be declared
and taken to be fully paid and not liable to any further
call or assessment, and the holder thereof shall not be
liable for any further payments thereon. In the absence of
actual fraud in the transaction, the judgment of the Board
of Directors as to the value of such property, labor, or
services received as consideration, or the value placed by
the Board of Directors upon the corporate assets in the
event of a Share dividend, shall be conclusive. Promissory
notes, uncertified checks, or future services shall not be
accepted in payment or part payment of any of the capital
stock of the Corporation.
3.04. Certificates for Shares. Each Shareholder of
the Corporation shall be entitled to a certificate, signed
by the President or a vice-president, and the Secretary or
an Assistant Secretary of the Corporation stating the name
of the registered holder, the number of Shares represented
thereby and the kind and class thereof, the par value of
each Share have been fully paid and are nonassessable. If
such certificate is countersigned by the written signature
or a registrar other than the Corporation of its employee,
the signatures of the transfer agent and the officers of the
Corporation may be facsimiles. In case any officer,
transfer agent, or registrar who has signed or whose
facsimile signature has been placed upon a certificate shall
<PAGE 21>
have ceased to be such officer, transfer agent, or registrar
before such certificate is issued, it may be issued by the
Corporation with the same effect as if he were such officer,
transfer agent or registrar at the date of its issue. Such
certificates shall be in such form as the board of Directors
may, from time to time, by resolution approve.
3.05. Transfer of Shares. The Shares of the
Corporation shall be transferable only on the books of the
Corporation upon surrender of the certificate or
certificates representing the same, provided:
3.051. Endorsement. The certificate is
properly endorsed by the registered holder or his
duly authorized attorney;
3.052. Witnessing. The endorsement or
endorsements are witnessed by one witness unless
this requirement is waived in writing upon the
form of endorsement by the President, a Vice-
President, or the Secretary of the Corporation;
3.053. Adverse Claims. The Corporation has
no notice of any adverse claims or has discharged
any duty to inquire into any such claims; and
3.054. Collection and Taxes. Any applicable
law related to the collection of taxes has been
complied with.
3.06. Lost, Stolen, or Destroyed Certificates.
The Corporation may issue a new certificate for Shares of
the Corporation in the place of any certificate theretofore
issued where the holder of record of the certificate:
3.061. Claim. Makes proof in affidavit form
that it has been lost, destroyed, or wrongfully
taken;
3.062. Timely Request. Timely Requests the
issue of a new certificate before the Corporation
has notice that the certificate has been acquired
by a purchaser for value in good faith and without
notice of any adverse claim;
3.063. Bond. Gives a bond in such form, and
with such surety or sureties, with fixed or open
penalty, as the Corporation may direct, to
indemnify the Corporation against any claim that
may be made on account of the alleged loss,
destruction, or theft of the certificates; and
3.064. Other Requirements.
Satisfies any other reasonable requirements
imposed by the Corporation for the transfer or for
a new certificate.
<Page 22>
When a certificate has been lost, apparently destroyed, or
wrongfully taken and the holder of record fails to notify
the Corporation within a reasonable time after he has notice
of it, and the Corporation registers a transfer of Shares
represented by the Certificate before receiving such
notification, the holder of record is precluded from making
any claim against the Corporation for the transfer or for a
new certificate.
3.07. Closing of Books or Fixing of Record Dates.
For the purpose of determining Shareholders entitled to
receive payment of any dividend or in order to make a
determination of Shareholders for any other proper purpose,
except as otherwise provided in section 4.069 of these By-
Laws, the Board of Directors may provide that the share
transfer books shall be closed for a stated period, but not
to exceed, in any case, fifty (50) days, or may fix in
advance a record date for such purpose, such date in any
case not to be more than fifty (50) days prior to the date
in which the action requiring such determination of
Shareholders, is to be taken. If the share transfer books
are not closed and no record date is fixed for the
determination of Shareholders entitled to receive payment of
a dividend, the end of the day on which the resolution of
the Board of Directors declaring such dividend is adopted
shall be the record date for such determination.
ARTICLE 4
Meetings of Shareholders
4.01. Place of Meetings. All meetings of
Shareholders of the Corporation shall be held at such place,
within or without the State of Indiana, as may be specified
in the respective notices or waivers of notice thereof, or
proxies to represent Shareholders thereat.
12.20.94
4.02. Annual Meeting. The annual meeting of the
Shareholders for the election of Directors and for the
transaction of such other business as may properly come
before the meeting, shall be on or before the last day of
May of each year, the date to be set by the Board of
Directors of the Corporation. Failure to hold the annual
meeting at the designated time shall not work any forfeiture
or a dissolution of the Corporation.
4.03. Special Meeting. Special meetings of the
Shareholders may be called by the President, by the Board of
Directors, or by Shareholders holding of record not less
than one-fourth (1/4/) of all of the Shares outstanding and
entitled by the Articles of Incorporation to vote on the
business proposed to be transacted thereat.
4.04. Notice of Meetings. A written or printed
notice, stating the place, day and hour of the meeting, and
in case of a special meeting, or when required by any other
provision of the Act, or the Articles of Incorporation, or
By-Laws, the purpose or purposes for which the meeting is
called, shall be delivered or mailed by the Secretary, or by
the officers or persons calling the meeting, to each
Shareholder of record entitled by the Articles of
Incorporation and by the Act to vote as such meeting, at
such address as
<Page 23>
appears upon the records of the Corporation,
at least ten (10) days before the date of the meeting.
Notice of any such meeting may be waived in writing by any
Shareholder, if the waiver sets forth in reasonable detail
the purpose or purposes for which the meeting is called, and
the time and place thereof. Attendance at any meeting in
person, or by proxy when the instrument of proxy sets forth
in reasonable detail the purpose for which the meeting is
called, shall constitute a waiver of notice of such meeting.
Each Shareholder, who has in the manner above provided
waived notice of a Shareholders' meeting, or who personally
attends a Shareholders' meeting, or is represented thereat
by a proxy authorized to appear by an instrument of proxy
complying with the requirements above set forth, shall be
conclusively presumed to have been given due notice of such
meeting.
4.05. Addresses of Shareholders. The address of
any Shareholder appearing upon the records of the
Corporation shall be deemed to be (i) the latest address of
such Shareholder appearing on the records maintained by the
transfer agent or registrar, as the case may be, for the
class of Shares held by such Shareholder, if the Corporation
has a transfer agent or registrar for such class of Shares
and the Board of Directors has provided in the resolutions
appointing the transfer agent or registrar that notices of
change of address shall be given to one of such agents by
Shareholders of such class; or (i) the latest address of
such Shareholder appearing on the records maintained by the
Secretary for the class of Shares held by such Shareholder,
if the Corporation has no transfer agent or registrar for
such class of Shares but the resolutions appointing the
transfer agent or registrar for such class of Shares but the
resolutions appointing the transfer agent or registrar do
not provide that notice of change of address shall be given
to one of such agents by Shareholders of such class of
Shares.
4.06. Voting at Meetings.
4.061. Common Shares. Except as otherwise
provided by law or by the provisions of the
Articles of the Incorporation, every holder of
Common Shares of the Corporation shall have the
right, at every Shareholders' meeting, to one vote
for each Common Share standing in his name on the
books of the Corporation. Cumulative voting shall
not be permitted.
4.062. Prohibition Against Voting Certain Shares.
No Share shall be voted at any meeting upon which
any installment is due and unpaid or which belongs
to the Corporation.
4.063. Voting of Shares Owned by Other
Corporations. Shares of the Corporation standing
in the name of another corporation may be voted by
such officer, agent or proxy as the board of
directors of such other corporation may appoint,
or as the by-laws of such other corporations may
prescribe.
<Page 24>
4.064. Voting of Shares owned by Fiduciaries.
Shares held by fiduciaries may be voted by the
fiduciaries in such manner as the instrument or
order appointing such fiduciaries may direct. In
the absence of such direction or the inability of
the fiduciaries to act in accordance therewith,
the following provisions shall apply:
4.0641. Joint Fiduciaries. Where
Shares are held jointly by three (3) or more
fiduciaries, such Shares shall be voted in
accordance with the majority.
4.0642. Equally Divided Fiduciaries.
Where the fiduciaries, or majority of them, cannot
agree, or where they are equally divided,
upon the question of voting such Shares, any
court of general equity jurisdiction may,
upon petition filed by any of such
fiduciaries, or by any party in interest,
direct the voting of such Shares as it may
deem for the best interests of the
beneficiaries, and such Shares shall be voted
in accordance with such direction.
4.0643. Proxy of Fiduciary.
The general proxy of a fiduciary shall be
given the same weight and effect as the
general proxy of an individual or
corporation.
4.065. Voting of Pledged Shares. Shares
that are pledged may, unless otherwise provided in
the agreement of pledge, be voted by the
Shareholder pledging the same until the Shares
shall have been transferred to the pledgee on the
books of the Corporation, and thereafter they may
be voted by the pledgee.
4.066. Proxies. A Shareholder may vote,
either in person or by proxy executed in writing
by the Shareholder, or a duly authorized attorney-
in-fact. No proxy shall be valid after eleven
(11) months from the date of its execution, unless
a longer time is expressly provided therein.
4.067. Quorum. At any meeting of the
Shareholders, a majority of the Common Shares
outstanding and entitled to vote, represented in
person or by proxy, shall constitute a quorum.
4.068. Voting Lists. The officer or agent
having charge of the share transfer books shall
make, at least five (5) days before each election
of directors, a complete list of the Shareholders
entitled by the Articles of Incorporation to vote
at such election, arranged in alphabetical order,
with the address and number of Shares so entitled
to vote held by each, which list shall be on file
at the principal office of the Corporation and
subject to inspection by any
<Page 25>
Shareholder. Such
list shall be produced and kept open at the time
and place of election and subject to the
inspection of any Shareholder during the holding
of such election. The original share register or
transfer book or duplicate thereof, kept in the
State of Indiana, Shall be the examine such list,
or share register or transfer book, or to vote at
any meeting of the Shareholders.
4.069. Fixing of Record Date to Determine
Shareholders Entitled to Vote. For the
purpose of determining Shareholders entitled to
vote at any meeting of Shareholders or any
adjournment thereof, the Board of Directors, may
fix in advance a date as the record date for any
such determination of Shareholders, such date in
any case to be not more than fifty (50) days prior
to the date of such meeting. In the absence of
such a determination by the Board of Directors,
such date shall be ten (10) days prior to the date
of such meeting. Any person who acquires title to
a Share after the record date shall upon written
request to the Shareholder of record be entitled
to receive from the Shareholder of record a proxy,
with power of substitution, to vote that Share.
4.07. Taking Action by Consent. Any action
which may be taken at a meeting of the Shareholders, may be
taken without a meeting if, prior to such action, a consent
in writing, setting forth the action so taken, shall be
signed by all of the Shareholders entitled to vote with
respect to the subject matter thereof, and such written
consent is filed with the minutes of the proceedings of the
Shareholders.
4.08. Order of Business. The order of business at
annual meetings, and so far as practicable, at all other meetings
of Shareholders shall be:
Proof of due notice of meeting;
Reading and disposal of any unapproved minutes;
Annual reports of officers and committees;
Election of directors;
New business;
Adjournment
ARTICLE 5
The Board of Directors
2.21.95
5.01. Election and Qualification.
At the first annual meeting of the Shareholders, and at each
annual meeting thereafter, directors shall be elected by the
Shareholders entitled by the Articles of Incorporation to
elect directors, for a term of one year; and they shall hold
office until their respective successors are chosen and
qualified. The Board shall consist of eleven (11)
directors. Directors need not be Shareholders of the
Corporation. At least a majority of the director of the
directors shall be citizens of the United States. The
number of directors may be increased or decreased from time
to time
<Page 26>
by amendment to the By-Laws, but no decrease shall
have the effect of shortening the term of any incumbent
director.
5.02. Vacancies. Any vacancy occurring in the
Board of Directors caused by resignation, death or other
incapacity, or increase in the number of directors may be
filled by a majority vote of the remaining members of the
Board of Directors, until the next annual or special meeting
of the Shareholders or, at the discretion of the Board of
Directors, such vacancy may be filled by vote of the
Shareholders at a special meeting called for the purpose.
Until any such vacancy is so filled, the existing directors
shall constitute the Board of Directors. Shareholders shall
be notified of any increase in the number of directors and
the name, address, principle occupation, and other pertinent
information about any director elected by the Board of
Directors to fill any vacancy.
5.03. Annual Meeting. The Board of
Directors shall meet each year after the annual meeting of
Shareholders (either within or without the State of
Indiana), for the purpose of organization, election of
officers and consideration of any other business that may
properly be brought before the meeting. The time of this
meeting shall be no later than the first regular or special
meeting of the Board of Directors, at which a quorum shall
be present, held after the annual meeting of Shareholders.
No additional notice of any kind to either old or new
members of the Board of Directors shall be necessary.
5.04. Regular Meetings. Regular
meetings of the Board of Directors may be held with notice
by letter, telegram, cable, radiogram, telephone, or
radiophone, or without any notice whatever, and at such
place and times, as may be fixed from time to time by
resolution of the Board of Directors.
5.05. Special Meetings. Special
meetings of the Board of Directors may be called at any time
by the Chairman of the Board, President or any Vice-
President, and shall be called on the written request of one-
fourth (1/4) of the directors. Notice of such a special
meeting shall be sent by the Secretary or an Assistant
Secretary to each director at his residence or usual place
of business by letter, telegram, cable or radiogram,
delivered for transmission not later than the second day
immediately preceding the day for the meeting, or by word of
mouth, telephone, or radiophone received not later than
during the day immediately preceding the day for the
meeting. In lieu of such notice, a director may sign a
written waiver of notice either before the time of the
meeting, at the time of the meeting, or after the time of
the meeting. Neither the business to be transacted at, nor
the purpose of, any meeting of the Board of Directors need
be specified in the notice or waiver of notice of the
meeting. Any meeting of the Board of Directors for which
notice is required shall be a legal meeting, without notice
thereof having been given, if all the directors, who have
not waived notice thereof in writing, shall be present in
person.
5.06. Place of Meetings. The directors
may hold their meetings, have one or more offices, and keep
the books of the Corporation, except as may be provided by
law, within or without the State of Indiana, at any office
or offices of the Corporation, or at any other place, as
they may form time to time by resolution determine. If the
resolution
<Page 27>
of the Board of Directors calling a regular
meeting or the written request calling a special meeting
expressly provides, a meeting of the Board of Directors may
be held by conference telephone call or any other medium
which allows each director to participate in discussions and
to hear the views of the other directors. If a meeting is
held, the directors connected to the conference telephone
call or other medium shall be counted as present for the
purpose of determining a quorum.
5.07. Quorum. One-third (1/3) of the actual
number of directors elected and qualified, from time to
time, shall be necessary to constitute a quorum for the
transaction of any business except the filling of vacancies,
and the act of a majority of the directors present at a
meeting, at which a quorum is present, shall be the act of
the Board of Directors, unless the act of a greater number
is required by the Act, by the Articles of Incorporation, or
by the By-Laws. A director who is present at a meeting of
the Board of Directors at which action on any corporate
matter is taken, shall be conclusively presumed to have
assented to the action taken, unless (i) his dissent shall
be affirmatively stated by him at and before the adjournment
of such meeting (in which event the fact of such dissent
shall be entered by the secretary of the meeting in the
minutes of the meeting, or (ii) he shall forward such
dissent by registered mail to the Secretary of the
Corporation immediately after the adjournment of the
meeting. The right of dissent provided for by either clause
(i) or clause (ii) of the immediately preceding sentence
shall not be available, in respect of any matter acted upon
at any meeting, to a director who voted at the meeting in
favor of such matter and did not change his vote prior to
the time that the result of the vote on such matter was
announced by the chairman of such meeting.
5.08. Action by Consent. Any action required or
permitted to be taken at any meeting of the Board of
Directors or of any committee thereof may be taken without a
meeting, if prior to such action a written consent to such
action is signed by all members of the Board of such
committees as the case may be, and such written consent is
filed with the minutes of proceedings of the Board or
committee.
5.09. Removal. Any or all of the directors
may be removed, with or without cause, at a meeting of the
Shareholders called expressly for that purpose by a vote of
the holders of a majority of the Shares then entitled to
vote at an election of directors.
5.10. Powers of Directors. The Board
of Directors shall exercise all the powers of the
Corporation, subject to the restrictions imposed by law, by
the Articles of Incorporation, or by these By-Laws.
5.11. Dividends. The Board of Directors shall
have power, subject to any restrictions contained in the
Articles of Incorporation, to declare and pay dividends upon
the outstanding Shares of the Corporation, out of the
unreserved and unrestricted capital and earned surplus of
the Corporation. Dividends may be paid in cash, in
property, or in Shares of the Corporation, but no dividend
payable in cash or property shall be paid out of surplus due
to or arising from unrealized appreciation in value or from
revaluation of assets.
<Page 28>
5.12. Compensation of Directors. The Board of
Directors is empowered and authorized to fix and determine
the compensation of directors as directors, and any
additional compensation for such additional services any
such directors may perform for the Corporation.
5.13. Resignation. A director may resign at any
time by filing his written resignation with the Chairman of
the Board, the President or the Secretary of the
Corporation, or with the Board of Directors, and such
resignation shall become effective upon such filing.
5.14. Reliance on Corporation Records. Each Director
shall be fully protected in relying in good faith upon the books
of account and records of the Corporation or upon statements
prepared by any of its officers or employees.
ARTICLE 6
Executive Committee
6.01. Designation of Executive Committee.
The Board of Directors may, by resolution adopted by a majority
of the actual number of directors elected and qualified, from time to
time, designate two (2) or more of its number to constitute
an executive committee which committee to the extent
provided in such resolution, shall have and exercise all of
the authority of the Board of Directors but the designation
of such committee and the delegation thereto of authority
shall not operate to relieve the Board of Directors, or any
member thereof, of any responsibility imposed upon it or him
by law. No member of the executive committee shall continue
to be a member thereof after he ceases to be a director of
the Corporation. The Board of Directors shall have the
power at any time to increase or diminish the number of
members of the executive committee, to fill vacancies
thereon, to change any member thereof, ant to change the
functions or terminate the existence thereof.
6.02. Powers of the Executive Committee. During the
intervals between meetings of the Board of Directors, and
subject to such limitations as may be required by law or by
resolution of the Board of Directors, the executive
committee shall have and may exercise all of the powers of
the Board of Directors in the management of the business and
affairs of the Corporation, including power to authorize the
seal of the Corporation to affixed to all papers which may
require it . The executive committee may also from time to
time formulate and recommend to the Board of Directors for
approval general policies regarding the management of the
business and affairs of the Corporation. All minutes of the
meetings of the executive committee shall be submitted to
the next succeeding meeting of the Board of Directors for
approval; but the Corporation upon authorization by the
executive committee prior to the time at which the same
should have been, or were, submitted as above provided. The
executive committee shall not have the authority of the
Board of Directors in reference to amending the Articles of
Incorporation,
<Page 29>
adopting an agreement or plan of merger or
consolidation, proposing a Special Corporate Transaction as
defined in the Act, recommending to the Shareholders a
voluntary dissolution of the Corporation or a revocation
thereof, or amending these By-Laws.
6.03. Procedure; Meetings; Quorum. The chairman of
the executive committee of the Corporation shall, if present,
act as chairman at all meetings of the executive committee,
and the Secretary of the Corporation shall, if present, act
as secretary of the meeting. In case of the absence from any
meeting of the executive committee of the chairman of the executive
committee or the Secretary of the Corporation, the executive
committee shall appoint a chairman or secretary, as the case
may be, of the meeting. The executive committee shall keep
a record of its acts and proceedings. Regular meetings of
the executive committee, of which no notice shall be held on
such days and at such places as shall be fixed by resolution
adopted by majority of the executive committee shall be
called at the request of any member of the executive
committee. Written notice of each special meeting of the
executive committee shall be sent by the Secretary or an
Assistant Secretary to each member of the executive
committee at his residence or usual place of business by
letter, telegram, cable or radiogram, delivered for
transmission not later than during the day immediately
preceding the day for the meeting, or by word any such
meeting need not be given to any member of the executive
committee who has waived such notice either before or after
such meeting, or who shall be present at the meeting. Any
meeting of the executive committee shall be a legal meeting,
without notice thereof having been given, if all members of
the executive committee who have not waived notice thereof
in writing or by telegram, cable or radiogram shall be
present in person. Neither the business to be transacted
at, nor the purpose of, any meeting of the executive
committee need be specified in the notice or waiver of
notice of the meeting. The executive committee may hold its
meetings within or without the State of Indiana, as it may
from time to time by resolution determine. If the
resolution of the executive committee calling a regular
meeting or the written request calling a special meeting
expressly provides, a meeting of the executive committee may
be held by the conference telephone call or any other medium
which allows each member to participate in discussion and to
hear the views of the other members. If a meeting is held,
the members connected to the conference telephone call or
other medium shall be counted as present for the purpose of
determining a quorum. A majority of the executive
committee, from time to time, shall be necessary to
constitute a quorum for the transaction of any business, and
the act of a majority of the members present shall be the
act of the executive committee. The members of the
executive committee shall act only as a committee, and the
individual member shall have no power as such. The Board of
Directors may vote to the members of the executive committee
a reasonable fee as compensation for attendance at meetings
of such committee.
6.04. Other Committees. From time to time the
Board of Directors, by the affirmative vote of a majority of
the actual number of directors elected and qualified, may
appoint, form among their number, other committees for any
purpose or purposes, and each such committee shall have such
powers as shall be conferred by the resolution of
appointment.
<Page 30>
6.05. Audit Committee. The Board of Directors
shall by resolution adopted by a majority of the actual
number of directors elected and qualified, from time to
time, designate two or more of its members who are not
officers, to constitute an Audit Committee of the Board of
Directors. The Audit Committee shall have, and may exercise
the authority of the Board of Directors to the extent
provided in such resolutions, as to matters relating to the
appointment of independent certified public accountants, the
reliability of financial statements, the adequacy of
financial controls, the conduct of audits. And such
investigations of other financial or operational matters
related to the Company as the Board of Directors shall
direct. The Audit related recommendations to the Board,
(which reports may be relied upon by members of the Board of
Directors who are not members of the Audit Committee's
designated authority, if the director reasonably feels the
Committee merits confidence and has no knowledge concerning
the matter in question that would cause such reliance to be
unwarranted). A member of the Board of Directors who is not
a member of the Audit Committee shall not be liable for any
action taken by the Committee if the member has acted in
good faith and in a manner reasonably believed to be in the
best interests of the Corporation.
ARTICLE 7
The Officers
7.01. Number. The officers of the
Corporation shall consist of the Chairman of the Board of
Directors, if elected, the president, one or more Vice-
Presidents, if elected, (to be classified as determined by
the Board of Directors, as Executive Vice-Presidents, Senior
Vice-Presidents, Vice Presidents or Assistant Vice
Presidents), the Treasurer, the Secretary, and such other
officers (included a controller) and assistants as the board
of Directors may appoint. Any two or more offices may be
held by the same person, except that the duties of the
7.02. Election, Term of Office and
Qualifications. The officers shall be chosen annually by
the Board of Directors. Each officers shall hold office
until his successor is chosen and qualified, or until his
death, or until he shall have resigned, or shall have been
removed in the manner hereinafter provided.
7.03. Removal. Any officer may be removed,
either with or without cause, at any time, by the vote of a
majority of the actual number of directors elected and
qualified, from time to time, at any regular or special
meeting of the Board of Directors.
7.04. Resignations. Any officer may resign at any
time by giving written notice to the Board of Directors, or
the President or the Secretary. Such resignation shall take
effect at the time specified therein, and unless otherwise
specified therein, the acceptance of such resignation shall
not be necessary to make it effective.
<Page 31>
7.05. Vacancies. Any vacancy in any office
because of death, resignation, removal or any other cause
may be filled for the unexpired portion of the term in the
manner prescribed in the By-Laws for election or appointment
to such office.
7.06. The Chairman of the Board. The Chairman of
the Board, if elected, who shall be chosen from among the
directors, shall preside at all meetings of the Board of
Directors and the Shareholders and shall perform such other
duties as the Board of Directors may from time to time
assign to him.
7.07. The President. The President shall
be chief executive and administrative officer of the
Corporation. In the absence of the Chairman of the Board he
shall preside at all meetings o f the Shareholders and at
meetings of the Board of Directors. He shall exercise such
duties as customarily pertain to the office of the President
and shall have general and active supervision over the
property, business and affairs of the Corporation and over
its several Officers. He may appoint officers, agents or
employees other than those appointed by the Board of
Directors and shall perform such other duties as may be
prescribed from time to time by the Board of Directors or by
the By-Laws.
7.08. The Vice-Presidents. The Vice-
Presidents (including Executive Vice-Presidents, Senior Vice-
Presidents and Assistant Vice-Presidents) shall have such
powers and perform such duties as the Board of directors may
from time to time prescribe or as the President may from
time to time delegate to them. At the request of the
President, one such officer may, in the case of the absence
or inability to act of the President, temporarily act in his
place. In case of the death of the President, or in the
case of his absence or inability to act without having
designated an officer to act temporarily in his place, the
officer so to perform the duties of the President shall be
designated by the Chairman of the Board.
7.09. The Secretary. The Secretary shall have the
custody and care of the Corporate seal, records, minutes and
share books of the Corporation. He shall attend all
meetings of the Shareholders and of the Board of Directors,
and shall keep, or cause to be kept in a book provided for
the purpose, a true and complete record of the proceedings
of such meetings, and shall perform a like duty for all
standing committees appointed by the Board of Directors,
when of required. He shall attend to the giving and serving
of all notices of the Corporation, shall file and take
charge of all papers and documents belonging to the
Corporation and shall perform such other duties as these By-
Laws may require or the Board of Directors may prescribe.
7.10. The Treasurer. The Treasurer shall be the
financial officers of the Corporation; shall have charge and
custody of, and such funds in the name of the Corporation in
such banks, trust companies or other depositaries as shall
be selected by the Board of Directors; shall receive, and
give receipts for , moneys due and payable to the
Corporation from any source whatsoever; and, in general,
shall perform all duties as, from time to time, may be
assigned to him by the Board of Directors or by the
President. The Treasurer shall render to the President and
the Board of Directors, whenever the same
<Page 32>
shall be required,
and account of all of his transactions as Treasurer and of
the financial condition of the Corporation.
7.11. The Controller. The Controller, if a
controller is elected, shall be responsible to the Board of
Directors and the President for all financial control and
internal audit of the Corporation and its subsidiaries. He
shall perform such other duties as may be assigned to him by
the Board of Directors or the President.
7.12. The Assistant Secretaries. The Assistant
Secretaries, as directed by the President or the Board of
Directors, shall perform the duties of the Secretary during
the absence or inability of the Secretary to perform such
duties, or any of them. They shall perform such other
duties as the President or the Board may prescribe.
7.13. The Assistant Treasurers. The Assistant
Treasurers as directed by the President or the Board of
Directors, shall perform the duties of the Treasurer during
the absence or inability of the Treasurer to perform such
duties as the President and the Board may prescribe.
7.14. Other Offices. The Board of Directors may create
such other offices as it may from time to time deem desirable
with such duties as it may determine.
ARTICLE 8
Corporate Acts
8.01. Execution of Deeds, Contracts, etc. All
deeds and mortgages made by the Corporation and all other
written contracts and agreements to which the Corporation
shall be a party shall be (i) executed in its name by the
Chairman of the Board, the President or a Vice President and
(ii) attested by any officer of the Corporation other than
the officer executing the document.
8.02. Execution of Checks, Notes, etc. All checks,
drafts, notes, bonds, bills of exchange and orders for the
payment of money by the Corporation as the Board of
Directors from time to time may authorize and direct.
8.03. Execution of Certain Securities. All assignments
or endorsements of stock certificates, registered bonds, or
other securities owned by the Corporation shall, unless,
otherwise directed by the Board of Directors, or unless
otherwise required by law, be (I) signed by the Chairman of
the Board, the President or a Vice President and (ii)
attested by any officer of the Corporation other than the
officer signing the security. The Board of Directors may,
however, authorize any one of such officers to sign any of
such instruments, for and on behalf of the Corporation,
without the necessity of counter-signatures; may designate
officers or employees of the Corporation, other than those
named above, who may, in the name of the Corporation, sign
such instruments; and may authorize the use of facsimile
signatures of any of such persons.
<Page 33>
8.04. Voting of Shares Owned by Corporation.
Subject always to the further orders and directions of the
Board of Directors, any share or shares issued by any other
corporation and owned or controlled by the Corporation may
be voted at any shareholders' meeting of such other
corporation by the Chairman of the Board, or in his absence
by any Vice-President of the Corporation who may be present.
Whenever, in the judgment of the Chairman of he Board or, in
his absence, the President, it is desirable for the
Corporation to execute a proxy or give a shareholders'
consent in respect to any share or shares issued by any
other corporation and owned by the Corporation, such proxy
or consent shall be executed in the name of the Corporation
by the Chairman of the Board, the President or a Vice-
President of the Corporation and shall be attested by the
Secretary or an Assistant Secretary of the corporate seal.
Any person or persons designated in the manner above stated
as the proxy or proxies of the Corporation shall have full
right, power and authority to vote the share or shares
issued by such other corporation and owned by the
Corporation, the same as such share or shares might be voted
by the Corporation.
ARTICLE 9
Amendments
The power to make, alter, amend or repeal these By-Laws is
vested in the Board of Directors, but the affirmative vote
of a majority of the actual number of directors elected and
qualified from time to time, shall be necessary to effect
any alteration, amendment or repeal of these By-Laws.
ARTICLE 10
Miscellaneous
4.26.90
10.01. Control Share Opt-Out. Chapter 42 of the Indiana
Business Corporation Law, as amended (the "IBCL"), shall not
apply to " control share acquisitions" (as defined in the IBCL)
of shares of the Corporation.
<Page 34>
IRWIN FINANCIAL CORPORATION
OUTSIDE DIRECTOR RESTRICTED STOCK COMPENSATION PLAN
(Adopted February 21, 1989 by the Board of Directors; approved by shareholders
April 18, 1989; amended by the Board of Directors effective May 1, 1992 and
restated to include shares resulting from stock splits September 8, 1989 and
December 30, 1991; amended by the Board of Directors effective November 15,
1994, and restated to include shares resulting from stock splits September 2,
1992 and September 2, 1993, and to conform with changes to Section 16 of the
Securities Exchange Act of 1934.)
1. Purpose. The purpose of this Plan is to encourage ownership of the
Common Shares of Irwin Financial Corporation by Outside Directors of the
Corporation and its subsidiary companies in order to provide such Outside
Directors with a more direct and proprietary interest in the welfare and
success of the Company and to encourage their continuation as directors of the
Company. The Plan is further intended to increase the incentive to promote
the welfare of the Company by those who are primarily responsible for shaping
and carrying out the long-term plans and objectives of the Company, thereby
furthering and securing the Company's continued growth and financial success.
2 Definitions. The following terms shall have the meaning hereinafter set
forth:
(a) "Affiliate" means a corporation which is a parent or subsidiary
corporation of the Company.
(b) "Board of Directors" means the board of directors of the Company as it
shall exist from time to time.
(c) "Common Shares" means the Common Shares, $5.00 par value, of the
Company.
(d) "Company" means Irwin Financial Corporation, an Indiana Corporation.
(e) "Election" means an election by an Outside Director to receive a grant
of Common Shares under the Plan as further described in paragraph 6(c)
hereof.
<Page 35>
(f) "Market Value" means the average of the bid and asked prices, or the
average of the high and low sale prices, as the case may be, on the last
trading day prior to the effective date of an Election, or on such other
date as may be designated by the Plan Committee, as reported by the
National Association of Securities Dealers, Inc. or, if not so reported,
by such other source as the Plan Committee shall designate.
(g) "Nominating Committee" means the Nominating Committee of the Board of
Directors of the Company.
(h) "Outside Director" means any director of the Company or an Affiliate who
is not employed by the Company or any Affiliate in any capacity.
(i) "Plan" means this Irwin Financial Corporation Outside Director
Restricted Stock Compensation Plan.
(j) "Plan Committee" means the individual or group of individuals
responsible for administration of the Plan.
(k) "Plan Year" means the twelve month period commencing July 1 and ending
on June 30 of each year or such other dates as may be established by the
Plan Committee from time to time.
(l) "Director Fees" means the amount payable to an Outside Director for
services over a period of time fixed by the Plan Committee including any
per meeting or attendance fee paid to an Outside Director.
(m) "Secretary" means the Secretary of the Company.
3. Administration. The Plan shall be administered by the Plan Committee.
The Plan Committee shall have the power to interpret and construe the
provisions of the Plan, and such interpretation or construction shall be final
and binding. The Plan Committee may prescribe, amend and rescind rules and
regulations relative to the Plan or its construction or interpretation. The
initial Plan Committee shall have one member which is the Secretary. The Plan
Committee shall not be liable for any action or determination made in good
faith.
<Page 36>
4. Participation. All those persons who are Outside Directors shall be
eligible to participate in the Plan. Persons who are elected as Outside
Directors subsequent to the adoption of the Plan shall be eligible to
participate in the Plan with respect to the first Plan Year beginning after
such person's election.
5. Shares. The shares to be issued to Outside Directors pursuant to the
Plan shall be the Company's authorized, but unissued, or reacquired Common
Shares. The total number of the Common Shares which may be issued under the
Plan shall not exceed One hundred thirty five thousand (135,000) shares in the
aggregate, except as such number of shares shall be adjusted in accordance
with the provisions set forth in paragraph 6(h) hereof. In the event any
common Shares represented by certificates held by the Secretary pursuant to
the Plan revert to the Company for any reason prior to the end of the period
during which shares may be issued under the Plan, such Common Shares may again
be issued under the Plan. During the term of the Plan, the Company shall
reserve and keep available a sufficient number of Common Shares to satisfy its
obligations hereunder.
6. Operation of the Plan. The Plan shall operate in accordance with and
subject to the following terms and conditions:
(a) Establishment of Director Fees. The Nominating Committee shall
establish the Director Fees for the next succeeding Plan Year or Plan
Years on or before the date of the first regular meeting of the Board of
Directors of the Company in any calendar year and shall notify each
Outside Director of the amount so established. Such Director Fees shall
be a fixed dollar amount which shall be payable for one year's service
by an Outside Director. Such Director Fees shall be inclusive of any
attendance, committee meeting or other fee determined by the Nominating
Committee to be payable to Outside Directors.
(b) Medium and Time of Payment. The Director Fees for each year shall be
payable, at the election of the Outside Director, either (i) in United
States dollars in quarterly installments in the second month of each
calendar quarter in arrears in cash, by check, or in such other manner
as the Company and the Outside Director may agree, or (ii) in the form
of a grant of Common Shares in a number, at a time, and subject to the
terms and conditions set forth in this Plan. The Plan Committee may, in
its sole discretion, require that each Outside Director who elects to
receive payment of his or her Director Fees for any Plan Year in the
form of a grant of Common Shares shall receive at the same time an
additional grant of Common Shares in payment of the Director Fees to
become due to such Outside Director for one or more
<page 37>
subsequent Plan
Years. In that event, the dollar amount of the Director Fees for
purposes of paragraph 6(d)(i) hereof, shall be an amount equal to the
Director Fees established by the Nominating Committee for the first Plan
Year multiplied by the total number of Plan Years included by the Plan
Committee in the issuance of Common Shares for that Plan Year.
(c) Election to Receive Common Shares. Each Outside Director shall elect
the form of payment of the Director Fees due to such Outside Director
for each Plan Year by delivering a written election form to the Plan
Committee at least six months prior to the last day of the Plan Year
immediately preceding the Plan Year to which such election applies.
Each Election made hereunder shall be irrevocable and shall be effective
on the first day of the next succeeding Plan Year. The Plan Committee,
in its sole discretion, may permit Outside Directors to make an Election
later than six months prior to the last day of any Plan Year; provided,
however, that any such late Election shall not be effective until the
first business day following the expiration of six months after the date
the late Election is made. Each Election shall be effective only for
the Plan Year to which such Election relates; provided, however, than an
Election to receive a grant of Common Shares relating to more than one
Plan Year is effective and irrevocable for all Plan Years included in
the grant and no Outside Director making such an Election shall be
required to entitled to make a new election until the first Plan Year
following the expiration of the Plan Years included in the grant.
(d) Determination of Number of Common Shares. The number of Common Shares
to be issued to any Outside Director who makes a timely Election shall
be that whole number of shares determined by dividing (i) the dollar
amount of the Director Fees by (ii) the Market Value of one Common
Share. No fractional shares shall be issued under the Plan and cash
shall be paid in lieu thereof based upon the Market Value of one Common
Share.
(e) Issuance of Certificates; Delivery to Outside Director. (i) As soon as
practicable after the first day of each Plan Year, the Plan Committee
shall cause the Company to issue a share certificate in the name of each
Outside Director who timely elected to receive his or her Director Fees
for such Plan Year or other grant period in Common Shares; provided,
however, that if requested by an Outside Director at the time the
Election is made, the share certificate may be issued jointly to the
Outside Director and any other person or persons. Each certificate
shall represent the number of
<Page 38>
Common Shares which the named Outside
Director is entitled to receive as determined in accordance with
paragraph 6(d) hereof. Each certificate shall be delivered to the
Secretary who shall hold the certificate for the benefit of the Outside
Director for a period of two (2) years, or, if the Common Shares were
issued pursuant to a grant covering more than two years, then until all
Common Shares relating to such grant are vested and have survived
applicable restriction periods. At the expiration of such holding
period, the Secretary shall deliver the certificates to each Outside
Director for whom they are held. (ii) Certificates representing Common
Shares issued in the name of an Outside Director shall be delivered by
the Secretary to the Outside Director as soon as practicable following
the expiration of the holding period as described in paragraph 6(e)(i)
hereof. However, if the certificates were issued in payment of a
Director Fees relating to more than one Plan Year the certificates
delivered to the Outside Director at the expiration of the holding
period shall represent only those Common Shares as to which the Outside
Director is vested on the date of delivery.
(f) Forfeiture. Common Shares granted to an Outside Director with respect
to a single Plan Year shall be forfeitable by the Outside Director until
the end of that Plan Year. Common Shares granted to an Outside Director
with respect to more than one Plan Year shall vest and become
nonforfeitable in equal installments at the end of each Plan Year
included in the grant; provided, however, that at the time of making an
Election to receive a grant of Common Shares relating to more than one
Plan Year, the Outside Director may also elect to defer vesting of all
of the Common Shares granted until the expiration of the last Plan Year
included in the multi-year grant, which election shall be irrevocable.
(g) Cessation of Service as a Director. In the event any Outside Director
ceases to serve as a director of the Company or any Affiliate, all
Common Shares that have not vested as of the effective date of the
cessation of service shall immediately revert to the Company. Upon the
effective date of a cessation of service, the Outside Director shall be
entitled to delivery of certificates representing all vested Common
Shares held for him or her by the Secretary. Notwithstanding the
foregoing, if any cessation of service is due to retirement with the
consent of the Company or is due to permanent and total disability, the
Outside Director shall be entitled to delivery of certificates
representing Common Shares attributable to the Director Fees paid for
the Plan Year in which the Cessation of service occurs at the end of the
two-year period specified in paragraph 6(e)
<Page 39>
hereof; and if the Outside
Director shall die while serving as a director of the Company or an
Affiliate, or following a cessation of service due to retirement with
the consent of the Company or permanent and total disability but prior
to receiving the certificates held by the Secretary as described above,
the Outside Director's personal representative shall be entitled to
delivery of such certificates at such time as they otherwise would have
been delivered to the Outside Director. Whether a cessation of service
is a retirement with the consent of the Company or due to permanent and
total disability, and whether an authorized leave of absence or absence
on military or government service shall be deemed to constitute
cessation of service for the purposes of the Plan, shall be determined
by the Plan Committee in its sole discretion, which determination shall
be final and conclusive.
(h) Recapitalization. The aggregate number of Common Shares which may be
issued hereunder shall be proportionately adjusted for any increase or
decrease in the number of issued and outstanding Common Shares resulting
from a subdivision or consolidation of shares of the Company or any
other capital adjustment of the Company, the payment of a share
dividend, a share split or any other increase or decrease in the Common
Shares effected without receipt of consideration by the Company. In the
event that, prior to the delivery by the Company of certificates
representing Common Shares held by the Secretary pursuant to paragraph
6(e) hereof, there shall be a capital reorganization or reclassification
of the capital of the Company resulting in a substitution of other
shares for the Common Shares, there shall be substituted the number of
substitute shares which would have been issued in exchange for the
Common Shares then held by the Company if such Common shares had been
then issued and outstanding and held by the Outside Director.
(i) Merger, Dissolution. If the Company shall be a party to any merger or
consolidation in which it is not the surviving corporation, or in the
event of a dissolution or liquidation of the Company, any certificates
for Common Shares held by the Secretary pursuant to paragraph 6(e)
hereof shall be delivered to the Outside Directors for whom such Common
Shares are held at such a time and in such a manner as to permit the
Outside Directors to participate with respect to such shares in any
consideration received by shareholders of the Company in such merger,
consolidation, liquidation or dissolution.
(j) Nonassignability. No right to receive shares pursuant to an Election
shall be assignable or transferable except by will
<Page 40>
or under the laws of
descent and distribution. During the lifetime of an Outside Director,
Common Shares to be issued under the Plan shall be issued only to such
Outside Director as set forth in paragraph 6(e) hereof.
(k) Issuance of Shares and Compliance with Securities Laws. The Company may
postpone the issuance and/or delivery of certificates representing
Common Shares until (i) the admission of such shares to listing on any
stock exchange on which shares of the Company of the same class are then
listed and (ii) the completion of such registration or other
qualification of such shares under any state or Federal law, rule or
regulation or the rules and regulations of any exchange upon which the
Common Shares are traded as the Company shall determine to be necessary
or advisable, which registration or other qualification the Company
shall use its best efforts to complete. Any person acquiring Common
Shares pursuant to the Plan may be required to make such representations
and furnish such information as may, in the opinion of counsel for the
Company, be appropriate to permit the Company, in light of the existence
or non-existence with respect to such shares of an effective
registration under the Securities Act of 1933, as amended, or any
similar state statute, to issue the shares in compliance with the
provisions of those or any comparable acts. Certificates representing
Common Shares issued pursuant to the Plan may bear such legends or other
statements concerning restrictions on the transferability of the shares
as the Company may determine to be necessary or advisable to comply with
applicable securities laws.
(l) Rights as a Shareholder. (i) An Outside Director shall have no rights
as a shareholder with respect to Common Shares he/she has elected to
receive under the Plan until the date of issuance of a certificate
representing such shares in the name of the Outside Director. Upon the
issuance of the certificate, the Outside Director shall have the power
to vote all Common Shares represented thereby on all matters presented
to a vote of the shareholders of the Company and shall be entitled to
receive all dividends and other distributions declared or paid by the
Company with respect to such Common Shares. No adjustment will be made
for dividends or other rights for which the record date is prior to the
date such certificate is used. (ii) An Outside Director shall have no
right to sell, convey, transfer, mortgage, pledge, hypothecate, encumber
or otherwise dispose of any Common Shares issued pursuant to the Plan
during the time when certificates representing such Common shares are
held by the Secretary; provided, however, that such Common
<Page 41>
Shares may be
sold during such time to the Company or to any director of the Company
or an Affiliate.
7. Term of Plan. The Plan shall become effective upon the receipt of
approval by the holders of majority of the issued and outstanding Common
Shares voting in person or by proxy at a duly held shareholder's
meeting; provided, however, that the Plan shall become effective only if
approved by such shareholders within twelve (12) months before or after
the date the Plan is adopted by the Board of Directors. The Plan shall
terminate ten (10) years after the later of the date the Plan is adopted
by the Board of Directors or the date the Plan is approved by the
shareholders, or on such earlier date as the Board of Directors may
determine. No Common Shares shall be issued under the Plan after such
termination date.
8. Amendment of the Plan. The Board of Directors of the Company, except
any members participating in the Plan, may from time to time, alter,
amend, suspend or discontinue the Plan with respect to any Common shares
for which certificates have not been issued; provided, however, that the
Board of Directors may not, without further approval by the holders of a
majority of the issued and outstanding Common Shares of the Company:
(a) increase the maximum number of common shares which may be
issued under the Plan (other than to reflect a stock split
or stock dividend);
(b) change the class of shares which maybe issued under the
Plan;
(c) change the designation of the persons or class of persons
eligible to receive Common Shares under the Plan; or
(d) change the provisions of paragraph l(f) concerning the
Market Value.
9. No Right to Reelection. Neither the adoption of the Plan, the issuance
of any Common Shares hereunder, nor any other action taken relating to
the Plan shall impose any obligation on the Company or any Affiliate or
the board of directors of either to nominate any Outside Director for
reelection as a director by the shareholders of the Company or any
Affiliate.
10. Withholdings. The Company shall have the right to require the Outside
Director to remit to the Company amounts
<Page 42>
sufficient to satisfy any
applicable withholding requirements set forth in the Internal Revenue
Code of 1986, as amended, or under state or local law relating to Common
Shares issued to the Outside Director. The Company shall have the
right, to the extent permitted by law, to deduct from any payment of any
kind otherwise due to an Outside Director who receives Common Shares
under the Plan any federal, state or local taxes of any kind required by
law to be withheld with respect to such Common Shares. An Outside
Director may elect to reduce the number of Common shares to be received
by him under the Plan in order to satisfy any federal, state or local
withholding obligation.
<Page 43>
Exhibit 11 (a)
IRWIN FINANCIAL CORPORATION AND SUBSIDIARIES
EXHIBIT 11(a) - COMPUTATION OF EARNINGS PER SHARE
Year Ended December 31, 1995 1994 1993
- ----------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRIMARY SHARES OUTSTANDING:
<S> <C> <C> <C>
Average number of shares
outstanding 5,639,935 5,773,517 5,772,553
Assumed exercise of
stock options 103,193 109,589 87,138
----------- ----------- -----------
Total shares 5,743,128 5,883,106 5,859,691
=========== =========== ===========
NET INCOME $20,083,202 $18,215,539 $15,588,361
=========== =========== ===========
PRIMARY EARNINGS PER SHARE $3.50 $3.10 $2.66
===== ===== =====
FULLY DILUTED SHARES OUTSTANDING:
Average number of shares
outstanding 5,639,935 5,773,517 5,772,553
Assumed exercise of stock
options (Note 1) 116,470 117,303 90,053
----------- ----------- -----------
Total shares 5,756,405 5,890,820 5,862,606
=========== =========== ===========
NET INCOME $20,083,202 $18,215,539 $15,588,361
=========== =========== ===========
FULLY DILUTED EARNINGS
PER SHARE $3.49 $3.09 $2.66
===== ===== =====
</TABLE>
(1) The dilutive effect of stock options is based on the Treasury Stock
method using the higher of the average market price for the year or
the year-end market price.
<Page 44>
1995 Annual Report to Shareholders as referenced in this Report
Table of Contents
Management's Discussion and Analysis of Results
of Operations and Financial Condition:
32 Five-Year Selected Financial Data and Graphs
35 Overview
36 Mortgage Banking
46 Community Banking
52 Investor Services
56 Home Equity Lending
60 Equipment Leasing
64 Other Irwin Financial Businesses
64 Consolidated Income Statement Analysis
66 Consolidated Balance Sheet Analysis
70 Capital
72 Risk Management
72 Credit Risk
77 Liquidity
77 Interest Rate Sensitivity
79 Effects of Inflation
Financial Statements:
87 Report of Management
88 Report of Independent Public Accountants
89 Consolidated Statement of Income
90 Consolidated Balance Sheet
91 Consolidated Statement of Changes in Shareholders'
Equity
92 Consolidated Statement of Cash Flows
93 Notes to Financial Statements
PAGE 31
<Page 45>
<TABLE>
<CAPTION>
Five-Year Selected Financial Data
<S> <C> <C> <C> <C> <C>
(In thousands) 1995 1994 1993 1992 1991
For the year:
Net Revenues $148,364 $116,908 $119,366 $ 94,934 $ 60,005
Other Operating
Expense 115,915 86,844 93,803 73,811 49,216
Net Income 20,083 18,216 15,588 12,866 6,651
Mortgage Loan
Closings 3,559,310 2,812,962 4,273,933 3,441,347 1,926,841
Return on
Average Equity 22.60% 23.91% 24.91% 26.51% 16.93%
Return on
Average Assets 2.28 2.43 2.15 1.97 1.30
Dividend Payout
Ratio 12.36 11.38 11.12 8.88 13.52
Per share:
Net Income $3.50 $3.10 $2.66 $2.23 $1.17
Cash Dividends 0.44 0.36 0.30 0.20 0.16
Book Value 17.51 14.41 12.06 9.64 7.53
Market Value at
December 31, 39.88 26.75 25.00 23.00 8.00
At year end:
Assets $1,038,307 $659,671 $881,864 $602,465 $598,024
Deposits 563,999 439,918 500,370 389,323 337,927
Mortgage Loans
Held for Sale 378,658 154,964 370,755 218,080 264,740
Loans and
Leases, Net 407,904 304,548 252,823 207,138 178,507
Shareholders'
Equity 99,216 81,104 70,093 55,343 42,478
Mortgage Servicing
Portfolio 10,301,914 8,818,502 7,922,299 5,470,505 2,990,808
Equity to
Assets Ratio 9.56% 12.29% 7.95% 9.19% 7.10%
Risk-based
Capital Ratio 14.49 19.18 15.68 16.46 13.24
Leverage Ratio
(Tier one) 10.57 10.82 9.63 8.48 8.05
Averages:
Assets $882,164 $748,981 $725,846 $651,517 $512,498
Equity 88,867 76,178 62,586 48,539 39,295
Shares
Outstanding 5,743 5,883 5,860 5,767 5,670
</TABLE>
PAGE 32
<Page 46>
<TABLE>
<CAPTION>
TOTAL NET REVENUES:
<S> <C> <C> <C> <C> <C>
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
(In Millions) 148.4 116.9 119.4 94.9 60.0
NET INCOME:
(In Millions) 20.1 18.2 15.6 12.9 6.7
RETURN ON AVERAGE EQUITY
(Percent) 22.60% 23.91% 24.91% 26.51% 16.93%
</TABLE>
PAGE 33
<Page 47>
<TABLE>
<CAPTION>
RETURN ON AVERAGE ASSETS:
<S> <C> <C> <C> <C> <C>
1995 1994 1993 1992 1991
----- ---- ---- ---- ----
(Percent) 2.28% 2.43% 2.15% 1.97% 1.30%
INLAND MORTGAGE LOAN CLOSINGS:
(Billions) 3.6 2.8 4.3 3.4 1.9
INLAND MORTGAGE SERVICING PORTFOLIO:
(Billions) 10.3 8.8 7.9 5.5 3.0
</TABLE>
PAGE 34
<Page 48>
Consolidated Overview:
Irwin Financial Corporation earned record net income in 1995.
This performance was helped significantly by a favorable
operating environment for mortgage banking during the second half
of the year. Long-term interest rates, which by the end of the
year were at two-year lows, enabled the Corporation's mortgage
bank to originate $3.6 billion during the year. The Corporation's
mortgage bank also benefited from the implementation of a new
accounting standard which changed the way mortgage servicing
rights are valued. Also contributing to the Corporation's record
results was strong loan growth in community banking. These
increases were offset somewhat by the Corporation's investment in
its new home equity lending business, a loss at its equipment
leasing business, and expansion of the mortgage bank's loan
production system.
Earnings By Line of Business:
Net income for 1995 totaled $20,083,202, up 10.3% from 1994 and
28.8% from 1993. Net income per share in 1995 was $3.50, compared
to $3.10 in 1994 and $2.66 in 1993. Return on average equity for
1995 was 22.60%, compared to 23.91% in 1994 and 24.91% in 1993.
Return on average assets was 2.28% compared to 2.43% in 1994 and
2.15% in 1993.
Irwin Financial Corporation is comprised of six lines of
business:
+ Mortgage banking + Community banking
+ Investor services + Home equity lending
+ Equipment leasing + Credit insurance
To provide an effective report on the Corporation's operations,
the results of the activities of Irwin Union Bank which provide
funding and invest in assets generated by other Irwin Financial
companies have been included with the results of the other asset-
generating companies. These combined figures are reported as the
results of each line of business. Results for previous years have
been restated to conform to the 1995 presentation.
<TABLE>
<CAPTION>
Earnings:
(In thousands) 1995 1994 1993
----- ----- -----
<S> <C> <C> <C>
Mortgage Banking $19,331 $15,728 $13,641
Community Banking 3,501 2,741 2,274
Investor Services 271 68 380
Home Equity Lending (3,220) - -
Equipment Leasing (334) 873 552
Credit Insurance 44 55 51
Parent(including consolidating
entries) 490 (1,249) (1,310)
------- ------- -------
$20,083 $18,216 $15,588
</TABLE>
PAGE 35
<Page 49>
Management's Discussion (continued)
Business Profile:
Mortgage Banking
<TABLE>
<CAPTION>
Selected Financial Data
(In thousands) 1995 1994 1993 1992 1991
----- ----- ----- ----- -----
Selected Income Statement Data:
<S> <C> <C> <C> <C> <C>
Net interest income $13,290 $12,702 $15,067 $15,203 $ 8,208
Loan origination fees 31,871 25,308 37,605 28,548 14,608
Gain on sale of loans 18,020 2,219 14,225 10,337 2,876
Loan servicing fees 36,087 32,426 24,428 15,135 8,887
Gain on sale
of servicing 15,271 17,716 2,979 5,133 8,046
Other income 787 647 550 448 270
------- ------- ------- ------- -------
Total net revenues 115,326 91,018 94,854 74,804 42,895
Operating expense 83,344 64,571 72,140 54,309 33,225
------- ------- ------- ------- -------
Income before tax 31,982 26,447 22,714 20,495 9,670
Tax 12,651 10,719 9,073 8,178 4,122
------- ------- ------- ------- -------
Net income $19,331 $15,728 $13,641 $12,317 $5,548
======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
Selected Balance Sheet Data
at End of Period:
<S> <C> <C> <C> <C> <C>
Mortgage loans held
for sale $309,262 $131,543 $318,453 $179,583 $233,836
Mortgage servicing
rights 51,783 18,834 11,505 10,156 8,045
Total assets 445,129 216,180 452,365 214,411 262,553
Short-term debt 227,021 68,259 215,014 77,731 122,083
Long-term debt 2,300 2,605 2,934 1,178 972
Shareholders' equity $55,811 $53,637 $42,355 $31,105 $20,506
Selected Operating Data:
Mortgage loan
originations $3,559,310 $2,812,962 $4,273,933 $3,441,347$1,926,841
Servicing portfolio: Balance at
December 31 10,301,914 8,818,502 7,922,299 5,470,505 2,990,808
Weighted average coupon
rate 7.83% 7.59% 7.51% 8.37% 9.22%
Servicing fee 0.38 0.38 0.37 0.36 0.36
Servicing sold as a percent of
production 28.4 49.8 5.6 12.3 37.1
</TABLE>
PAGE 36
<Page 50>
Overview & Strategy:
The mortgage banking line of business consists of Inland Mortgage
Corporation and the related funding activities of Irwin Union Bank and Trust.
The business is headquartered in Indianapolis, Indiana and
originates, packages, sells, and services residential mortgage
loans throughout the U.S. Inland Mortgage has offices in 27
states, ranks among the top 30 mortgage loan originators in the
country and is in the top 50 in servicing volume. Essentially all
of the loans originated and serviced are either government-
insured through the Veterans' Administration (VA) or Federal
Housing Administration (FHA) or are conventional loans which
conform to the underwriting guidelines of the two principal
government-sponsored agencies which support the secondary
mortgage markets, the Federal National Mortgage Association
(FNMA) and the Federal Home Loan Mortgage Corporation (FHLMC).
Mortgage loans are originated through both branches (retail) and
third party sources (wholesale). Potential borrowers are
identified principally through relationships maintained with
housing intermediaries including realtors and home builders.
Loans are funded on a short-term basis through credit facilities
provided by commercial banks including Irwin Union Bank. Repurchase
agreements with investment banks are also used. Individual loans
are pooled, securitized, and sold into the secondary mortgage
market. Servicing rights are periodically sold for a variety of
reasons including accounting income, cash flow, and servicing
portfolio management. Over the past five years, servicing rights
have been retained on a total of 76.3% of the loans originated.
1995 Review:
Net income from mortgage banking was $19.3 million in 1995, an
increase of 22.9% over 1994 results of $15.7 million, and 41.7%
over 1993 results of $13.6 million.
Accounting Change:
The Generally Accepted Accounting Principle (GAAP) which covers
accounting for mortgage servicing rights-Statement of Financial
Accounting Standards No. 65 (SFAS 65)-was amended by the Financial Accounting
Standards Board during the second quarter of 1995. The new
standard, SFAS 122, has been adopted by the Corporation for
results beginning April 1, 1995.
PAGE 37
<Page 51>
The new rules require the recognition of all originated or
purchased Mortgage Servicing Rights (MSRs) as assets based on
their fair market value at the time of their origination. The MSR
asset is amortized over the life of the servicing right.
Prior to the adoption of SFAS 122, GAAP treated Originated
Mortgage Servicing Rights (OMSRs) created through the retail
network differently from Purchased Mortgage Servicing Rights
(PMSRs) originated through the wholesale network. The old rules
required the immediate recognition of expenses arising from
OMSRs, whereas certain costs relating to PMSRs were capitalized
and then amortized as the revenue from the servicing rights was
recognized. SFAS 122 eliminates the distinction between OMSRs and
PMSRs.
The Corporation has previously reported an estimate of its
"economic earnings," a calculation which adjusted earnings for
the different treatment of OMSRs and PMSRs. Economic income
reflected GAAP earnings plus an estimate of the unrecorded value
of mortgage servicing rights created during a period. While the
new accounting standard is not identical to the calculation of
economic income, they are similar in that both estimate and
recognize in current income the value of mortgage servicing
rights. Under SFAS 122, the value of servicing rights originated
after March 31, 1995 is reflected in GAAP net income and as an on-
balance sheet asset. The value of servicing rights originated
before this date and accounted for under the old rules will
continue to be an off-balance sheet addition to net worth, as
long as these mortgages remain part of the servicing portfolio.
The change in accounting standards in 1995 resulted in an
increase in after-tax revenues of approximately $11.8 million.
Since SFAS 122 does not permit the restatement of prior periods
to reflect the new accounting change, all results through March
31, 1995 have been reported under the old rules of SFAS 65.
Therefore, it is difficult to compare 1995 results of operations
to those recorded in 1994.
<TABLE>
<CAPTION>
Mortgage Closings:
<S> <C> <C> <C>
(In thousands) 1995 1994 1993
----- ----- -----
Total closings $3,559,310 $2,812,962 $4,273,933
Percent retail loans 50.3% 56.6% 61.6%
Percent wholesale loans 42.5 42.9 38.2
Percent brokered 7.2 0.5 0.2
</TABLE>
PAGE 38
<Page 52>
The steady decline in long-term interest rates in 1995 created an
improving environment for the mortgage banking industry. Total
industry originations in 1995 of $650.1 billion were down 15.9%
from 1994, although by the fourth quarter, year-over-year
originations had increased 200% for the industry. The levels
reached in 1995 were well below the peak of over $1 trillion
reached in 1993 when interest rates were at historically low
levels.
Consistent with the national trend, Inland's originations
increased throughout the year and increased substantially on an
annual basis due to the company's expansion of its production
capacity in late 1994 and in 1995. Annual loan originations in
1995 of $3.6 billion were up 26.5% from 1994, but were down 16.7%
from 1993. Income from mortgage loan originations totaled $31.9
million, which was $6.6 million over 1994 but $5.7 million lower
than 1993.
Gains from the sale of loans totaled $18.0 million in 1995,
compared to $2.2 million in 1994 and $14.2 million in 1993.
Included in 1995 gains is $19.6 million of MSR income relating to
the adoption of SFAS 122. Net revenues from loan sales in 1995
were tempered somewhat by loan pricing concessions which totaled
$3.8 million during 1995, an increase of $3.7 million over 1994.
Mortgage loan applications in process at the end of 1995 totaled
$1.2 billion, compared with $0.5 billion at the end of 1994 and
$0.7 billion at the end of 1993. Refinances accounted for 11.6%
of 1995 loan closings, compared to 15.8% in 1994 and 38.7% in
1993.
The significant expansion of the mortgage production system which
was initiated in 1994 continued in 1995. In late 1994, rights to
service loans totaling $247.0 million were acquired from All
Pacific Mortgage Company of Concord, California, and in early
1995 the production operations and certain related assets were
purchased. Inland's All Pacific division has 44 retail offices in
eight western and northwestern states which originated $0.6
billion in mortgage loans in 1995. The purchase enabled the
business to enter new origination markets. The price paid in
connection with the purchase is not material to the financial
position of the Corporation. In addition to the purchase of All
Pacific, new production offices were opened in California,
Lousiana, Nevada, New Jersey, Oklahoma, Texas, and Washington.
PAGE 39
<Page 53>
<TABLE>
<CAPTION>
Mortgage Servicing:
<S> <C> <C> <C>
Servicing Portfolio:
(In billions) 1995 1994 1993
----- ----- -----
Beginning portfolio $ 8.8 $ 7.9 $ 5.5
Add:
Loans originated 1.8 1.6 2.6
Loans purchased 1.8 1.2 1.7
Deduct:
Sale of servicing rights (1.0) (1.4) (0.2)
Run-off* (1.1) (0.5) (1.7)
------- ------- -------
Ending portfolio 10.3 08.8 07.9
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Number of loans 129,270 107,101 100,350
Average loan size $ 82,186 $ 80,038 $ 78,947
Percent GNMA 48% 57% 53%
Percent FHLMC 21 16 18
Percent FNMA 17 20 19
Delinquency ratio: 4.55% 3.25% 2.62%
Capitalized servicing as a percentage of
servicing portfolio 0.50% 0.23% 0.17%
</TABLE>
*Run-off is the reduction in principal balance of the servicing
portfolio due to regular principal payments made by mortgagees
and early repayment of an entire loan.
Strong mortgage loan originations and a decrease in the sale of
mortgage servicing rights allowed for a significant increase in
the mortgage loan servicing portfolio. The servicing portfolio
was $10.3 billion at December 31, 1995, up 16.8% from the same
date in 1994 and 30.0% from 1993. As expected during periods of
declining interest rates, more loans within the servicing
portfolio were refinanced in 1995 leading to an annual portfolio
run-off rate of 10.4%. This is up from the 1994 rate but
significantly lower than the rate experienced in 1993. The
following table sets forth certain information regarding the
interest rates of loans in the servicing portfolio at December
31:
PAGE 40
<Page 54>
<TABLE>
<CAPTION>
Servicing Portfolio by Interest Rate:
1995 1994 1993
----- ----- -----
<S> <C> <C> <C>
Less than 7% 10.3% 20.1% 23.9%
7.00 - 7.99% 39.8 35.3 38.0
8.00 - 8.99% 33.9 30.7 27.6
9% or greater 16.0 13.9 10.5
----- ----- -----
Total 100% 100% 100%
</TABLE>
Under the provisions of SFAS 122, the value of capitalized
servicing rights must be adjusted for impairment which could
result from interest rate changes. Although impairment write-offs
caused by declining interest rates would be accompanied by
increased loan origination fees, management has implemented
hedging alternatives to avoid significant impairment write-offs.
In addition to the owned servicing portfolio, in late 1995 the
business entered into its first contract to subservice $1.9
billion of conventional loans for which it does not own servicing
rights.
<TABLE>
<CAPTION>
Servicing and Other Fees:
<S> <C> <C> <C>
(In thousands) 1995 1994 1993
----- ----- -----
Servicing fees $36,087 $32,426 $24,428
Other fees 787 647 550
------- ------- -------
Total $36,874 $33,073 $24,978
</TABLE>
Servicing fee income is recognized by collecting fees which
normally range between 25 and 44 basis points annually on the
principal amount of the underlying mortgages. The increase in the
size of the servicing portfolio positively affected servicing income which
increased 11.3% from 1994 and 47.7% from 1993.
Sale of Mortgage Servicing:
The mortgage banking business maintains the flexibility to either
sell servicing rights for current income and cash flow or retain
servicing for future income. The decision to sell or retain
servicing is based on current market conditions as well as
financial objectives.
PAGE 41
<Page 55>
Prior to the adoption of SFAS 122 in the second quarter of 1995,
the sale of retail-originated servicing rights created GAAP
income equal to the market value of that servicing. This was an
important factor in decisions to sell servicing. The elimination
of this factor makes it difficult to compare the amount of
servicing sold and income generated by those sales in 1995 to
prior periods.
Servicing rights totaling $1.0 billion were sold in 1995,
generating a $15.3 million pre-tax gain on those sales, net of
any purchased servicing expense which had been capitalized. This
compares to servicing sales of $1.4 billion in 1994 that produced
a $17.7 million pre-tax gain and servicing sales of $0.2 billion
in 1993 that produced a $3.0 million pre-tax gain. Servicing
sales in 1995 represented 28.4% of 1995 closings, versus 1994
sales which were 49.8% of that year's closings and 1993 sales
which were 5.6% of closings.
Net Interest Income:
Net interest income is generated from the interest earned on
mortgage loans before they are sold to investors, less the
interest expense incurred on borrowings to fund the loans. Net
interest income totaled $13.3 million in 1995, compared to $12.7
million in 1994 and $15.1 million in 1993. The increase is due
primarily to the increased loan volume experienced in 1995.
<TABLE>
<CAPTION>
Operating Expenses:
<S> <C> <C> <C>
(In thousands) 1995 1994 1993
----- ----- -----
Salaries $44,827 $36,366 $44,492
Employee benefits 6,910 5,359 5,869
Other expenses $31,607 $22,846 $21,779
------- ------- -------
Total operating expenses $83,344 $64,571 $72,140
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Number of employees at
December 31 1,316 955 1,078
</TABLE>
Total operating expenses increased 29.1% from 1994 and 15.5% from
1993. The increase reflects the expansion of the production
system in 1995, including the opening of new production offices
in seven states and the acquisition of the production operations
of All Pacific Mortgage Company. Salaries and employee benefits
increased 24.0% over 1994 and 2.7% over 1993.
PAGE 42
<Page 56>
1996 Outlook:
The mortgage banking line of business is planning for an
environment in 1996 in which interest rates will remain
relatively stable. It has developed a strategy for continued
growth in both the loan production and loan servicing sides of
the business, focusing on options for expanding market share. The
business is investigating new delivery systems and is
incorporating the increasing role of technology into its plans
for growth.
The adoption of SFAS 122 requires the business to adjust the book
value of servicing rights when they become impaired due to runoff
and higher prepayment speeds. This will cause the business to
continue evaluating strategies to avoid large impairment write-
offs in the event of declining interest rates. Alternatives
include servicing sales as well as hedging with investment
products whose value moves in an opposite direction of the
servicing portfolio due to interest rate changes to manage the
size of the investment in servicing.
Employees:
As of December 31, 1995, the mortgage banking line of business
employed 1,316 people-approximately 74% of the Corporation's total
employee base. Total employment expense in 1995 was $51.7 million
or 62.1% of operating expenses. Significant proportions of
variable pay are used in the business' compensation systems. Of
total salary expense, 28.0% is variable and tied to performance
which allows the business the flexibility to reduce expenses
commensurate with production levels.
PAGE 43
<Page 57>
<TABLE>
<CAPTION>
Inland Mortgage Corporation
Directors
As of March 1, 1996
<S> <S>
John T. Hackett Managing General Partner,
CID Equity Partners
(Venture Capital Partnership)
William H. Kling President,
Minnesota Public Radio
Rick L. McGuire President,
Inland Mortgage Corporation
William I. Miller Chairman,
Irwin Financial Corporation
John A. Nash President,
Irwin Financial Corporation
Lance R. Odden Headmaster,
The Taft School
James T. Sakai Former Chairman,
Contour Hardening, Inc.
(Metals Treatment Company)
Thomas G. Shafran President,
Better Homes Realty
Thomas D. Washburn Senior Vice President,
Irwin Financial Corporation
Darell E. Zink, Jr. Executive Vice President,
Duke Realty Investments, Inc.
(Real Estate Development Company)
</TABLE>
PAGE 44
<Page 58>
<TABLE>
<CAPTION>
Inland Mortgage Corporation
Senior Officers
As of March 1, 1996
<S> <S>
Rick L. McGuire President
Herbert B. Tasker Executive Vice President-All Pacific
Region
T. Lester Acree Senior Vice President-Wholesale Loan
Purchasing
Kenneth R. Block Senior Vice President-Loan Production
Katrina J. Crubaugh Senior Vice President-Human Resources
William M. Meyer Senior Vice President-Loan Servicing
Timothy L. Murphy Senior Vice President-Finance
Erik J. Sorensen Senior Vice President-Secondary
Marketing
Scott G. Beer First Vice President-Secondary
Marketing
Mark E. Braden First Vice President-Information
Technology
Robert H. Griffith, Jr. First Vice President and Legal Counsel
Renee M. Gunderson First Vice
President-Underwriting/Closing Post
Closing
Darla S. Habig First Vice President-Loan Control
Allan D. Karlander First Vice President-Central Region
John F. Macke First Vice President-Management
Information
David P. Matern First Vice President-Loan
Administration
Rachelle Mikosz First Vice President-Office Services
Kevin M. Murphy First Vice President-Accounting
Michael G. Plank First Vice President-Atlantic Coast
Region
Diana M. Rossetter First Vice President-Quality Control
Suzanne C. Samson First Vice President-All Pacific
Region
Sherri K. Sanford First Vice President-Loan
Administration
Lyle E. Shearer First Vice President-All Pacific
Region
Richard E. Skiles First Vice President-Appraisals
Nicholas Vracas First Vice President-Mid-states Region
</TABLE>
PAGE 45
<Page 59>
Management's Discussion (continued)
<TABLE>
<CAPTION>
Business Profile:
Community Banking
Selected Financial Data
(In thousands) 1995 1994 1993 1992 1991
----- ----- ----- ----- -----
Selected Income Statement Data:
<S> <C> <C> <C> <C> <C>
Interest income $31,931 $23,764 $22,230 $20,263 $21,938
Interest expense 14,046 8,818 8,680 8,379 11,999
Provision for loan
and lease losses 2,038 1,344 1,551 1,500 865
------- ------- ------- ------- -------
Net interest income after provision for loan
and lease losses 15,847 13,602 11,999 10,384 9,074
Noninterest income 3,859 3,014 3,683 3,244 2,388
------- ------- ------- ------- -------
Total net revenues 19,706 16,616 15,682 13,628 11,462
Operating expense 14,424 12,582 12,369 10,710 8,960
Income taxes 1,781 1,294 1,039 802 576
------- ------- ------- ------- -------
Net income $3,501 $2,740 $2,274 $2,116 $1,926
======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
Selected Balance Sheet Data at
End of Period:
<S> <C> <C> <C> <C> <C>
Loans and leases,
net $306,415 $252,226 $210,340 $176,958 $160,559
Total assets 438,510 369,295 333,116 317,555 283,483
Deposits 400,149 341,459 298,615 314,773 277,945
Shareholders' equity 28,070 24,097 23,305 19,944 19,820
Daily Averages:
Assets $403,924 $361,166 $301,395 $260,963 $244,587
Deposits 358,343 315,229 275,956 236,641 219,828
Loans and leases, net 281,147 228,544 195,304 166,202 155,966
Shareholders' equity 27,047 24,162 19,794 17,796 17,767
Shareholders' equity
to assets 6.70% 6.69% 6.57% 6.82% 7.26%
</TABLE>
PAGE 46
<Page 60>
Overview & Strategy:
Community banking is conducted by Irwin Union Bank and Trust
Company which is headquartered in Columbus, Indiana. At year-end
1995, it had 15 offices in six counties in south-central Indiana.
It holds a major share of the market in Bartholomew County where
it has operated since 1871. Expansion into surrounding counties
has occurred in recent years and has been on a de novo basis.
During 1995, the community bank entered two new markets, Monroe
and Decatur counties in south-central Indiana. The community
bank's strategy in these and other possible new markets is to
position itself as "the local bank." The objective is to deliver
services in the way customers would expect from a bank
headquartered in that market. This means that every effort is
made to staff the offices with local people and to give those
people the authority to make key customer decisions.
1995 Review:
Community banking net income in 1995 totaled $3.5 million, up
27.7% from 1994 net income of $2.7 million and 54.0% from 1993
net income of $2.3 million. The return on average equity was
12.94% in 1995 as compared to 11.34% in 1994 and 11.49% in 1993.
<TABLE>
<CAPTION>
Net interest revenue:
(In thousands) 1995 1994 1993
----- ----- -----
<S> <C> <C> <C>
Net interest revenue on a
taxable equivalent basis* $ 17,885 $ 14,945 $ 13,550
Average interest earning assets 370,218 312,898 275,820
Net interest margin 4.83% 4.78% 4.91%
</TABLE>
*Reflects what net interest revenue would be if all interest
income was subject to federal and state income taxes.
Net interest revenue on a taxable equivalent basis increased
19.7% from 1994 and 32.0% from 1993 to a total of $17.9 million.
Net interest revenue is the product of net interest margin and
average earning assets.
Net interest margin was up for the year, coming in at 4.83% for
1995, compared to 4.78% in 1994 and 4.91% in 1993. The average
yield on all earning assets was 8.62% compared to 7.59% for 1994
and 7.41% for 1993. In addition, the average cost of all sources
of funding those assets was 4.46% compared to 3.41% in the prior
year and 3.03% in 1993.
PAGE 47
<Page 61>
Provision for Loan and Lease Losses:
The provision for loan and lease losses in 1995 was $2.0 million,
compared to $1.3 million in 1994 and $1.6 million in 1993. The
provision was equal to 0.7% of average loans and leases
outstanding in 1995, compared to 0.6% in 1994 and 0.8% 1993. See
the section on credit risk for additional information on asset
quality and reserve adequacy.
<TABLE>
<CAPTION>
Noninterest Income:
(In thousands) 1995 1994 1993
----- ----- -----
<S> <C> <C> <C>
Service charges on
deposit accounts $1,239 $1,259 $1,286
Insurance commissions, fees,
and premiums 883 763 729
Brokerage fees 571 - -
Mortgage loan origination income 262 236 663
Mortgage servicing fees 210 93 295
Investment security gains 9 12 6
Other 685 651 704
------- ------- -------
Total noninterest income $3,859 $3,014 $3,683
</TABLE>
Noninterest income was up 28.0% from 1994 and 4.8% from 1993. The
increase is partially attributed to brokerage fees earned as a
result of moving the retail securities brokerage operations from
the investor services line of business to the community bank in
1995. In addition, mortgage servicing fees were 125.8% higher in
1995 than 1994, and insurance-related income increased 15.7%.
These increases reflect the community bank's strategy to expand
fee-based services.
<TABLE>
<CAPTION>
Operating Expenses:
(In thousands, except
for number of employees) 1995 1994 1993
----- ----- -----
<S> <C> <C> <C>
Salaries $ 6,602 $5,375 $ 5,177
Employee benefits 1,587 1,433 1,257
Other expenses 6,235 5,774 5,935
------- ------- -------
Total operating expenses $14,424 $12,582 $12,369
======= ======= =======
Number of employees at December 31 254 231 218
</TABLE>
Operating expenses increased 14.6% from 1994 and 16.6% from 1993.
Costs associated with expanding new products and markets as well
as the transfer of retail securities brokerage operations
contributed to increases over the past two years. The community
bank's strategy of expansion on a de novo basis requires
significant initial investments to build for future returns.
PAGE 48
<Page 62>
Partially offsetting the increase in operating expenses was the
receipt of a $221.0 thousand refund of FDIC premiums previously
paid. The refund of premiums was part of the FDIC's restructuring
of deposit insurance premiums to reflect the now fully-funded
position of the insurance fund. Deposit insurance premiums are
based on an individual institution's adequacy of capital. Irwin
Union Bank's capital is currently at a level categorized by the
FDIC as "well-capitalized" which allowed it to take advantage of
the new premium rate of $0.04 per $100 of deposits as compared
with the prior rate of $0.23 per $100.
Balance Sheet:
Total assets averaged $403.9 million in 1995, compared to $361.2
million in 1994 and $301.4 million in 1993. Average earning
assets for the year were $370.2 million, up $57.3 million or
18.3% from 1994 and up $94.4 million or 34.2% from 1993. The most
significant component of the 1995 increase was loans and leases
which were up $52.6 million on average in 1995 as a result of the
community bank's expansion efforts into new markets. Average
deposits were $43.1 million or 13.7% higher in 1995 than 1994 and
$82.4 million or 29.9% than 1993.
The community bank's equity to assets ratio averaged 6.70% for
the year, compared to 6.69% in 1994 and 6.57% in 1993.
1996 Outlook:
During 1996, the community bank plans to investigate attractive
new markets
for possible future expansion. The community bank also plans to
increase its fee-based businesses and to pursue opportunities to
be more capital efficient. This will be accomplished by expanding
areas such as insurance and securities brokerage services and
also by selling or securitizing assets originated. In the past,
the community bank has limited asset sales to mortgage loans.
However, there are also active markets for other types of loans
which the bank intends to pursue.
Employees:
As of December 31, 1995 the community bank employed 254 people.
Total employment expense in 1995 was $8.2 million or 56.9% of
total operating expenses. All employees of the community bank
participate in some form of variable compensation which
represents a target of 7% of their compensation. This provides a
partial offset to any earnings problems and allows the community
bank to share improved performance results with its employees.
PAGE 49
<Page 63>
<TABLE>
<CAPTION>
Irwin Union Bank and Trust Company
Directors
As of March 1, 1996
<S> <S>
Claude E. Davis President,
Irwin Union Bank and Trust Company
John T. Hackett Managing General Partner,
CID Equity Partners
(Venture Capital Partnership)
Robert W. Haddad Chairman and President,
Columbus Container, Inc.
(Manufacturer of Corrugated Shipping
Containers)
Carolyn A. Lickerman Homemaker
John C. McGinty, Jr. President,
Southeastern Indiana Health Management, Inc.
President,
Columbus Regional Hospital
William I. Miller Chairman,
Irwin Financial Corporation
John A. Nash President,
Irwin Financial Corporation
Charles A. Rau, M.D. Physician
John S. Spangler President,
Milestone Contractors, L.P.
Christine M. Vujovich Vice President,
Cummins Engine Company, Inc.
Charles H. Watson President,
Historic Columbus Development, Inc.
(Community Development Organization)
Vice President,
Arvin Industries
(Manufacturer of Components for Consumer
Automotive and Aerospace Industries)
</TABLE>
PAGE 50
<Page 64>
<TABLE>
<CAPTION>
Irwin Union Bank and Trust Company
Senior Officers
As of March 1, 1996
<S> <S>
Claude E. Davis President
Bradley J. Kime Executive Vice President
Kevin P. Barr Senior Vice President and Chief
Financial Officer
William P. Guffey Senior Vice President-Loan
Administration
Diana H. Hamilton Senior Vice President-Brokerage
Services
Albert Roszczyk Senior Vice President-Bartholomew
County
Karen S. Coldiron President-Decatur County
Brian D. Hall President-Monroe County
Robert L. Phillips President-Johnson County
Rick L. Smith President-Jackson County
Gloria C. Bennett Vice President-Investments/Funds
Management
C. William Compton Vice President-Monroe County
Debora L. Cox Vice President-Operations
Patrick K. Crimmins Vice President-Investments
Dyar Forkert Vice President-Decatur County
Joseph Hauersperger Vice President-Shelbyville
Carrie K. Houston Vice President-Human Resources
James D. Keller Vice President-Business Services
Dianne Kelly Vice President-Consumer Banking,
Jackson County
Jay N. Morris Vice President-Business Services,
Johnson County
James D. Parcell Vice President-Business Services
Barbara A. Smitherman Vice President-Downtown Office
Manager
Jill Stanton Vice President-Mortgage Lending
Jerrie H. Suckow Vice President-Investments
</TABLE>
PAGE 51
<Page 65>
Management's Discussion (continued)
Business Profile:
Investor Services
<TABLE>
<CAPTION>
Selected Financial Data
(In thousands, except for
number of employees) 1995 1994 1993 1992 1991
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net interest income 10 (8) (6) 32 77
Brokerage fees 2,221 2,149 2,894 2,649 2,486
Trust and advisory fees 2,807 2,607 2,370 2,045 1,573
------- ------- ------- ------- -------
Total net revenues 5,038 4,748 5,258 4,726 4,136
Operating expenses 4,586 4,635 4,606 4,330 3,750
------- ------- ------- ------- -------
Income before taxes 452 113 652 396 386
Income taxes 181 45 272 158 154
------- ------- ------ ------- -------
Net income $271 $68 $380 $238 $232
======= ======= ======= ======= =======
Certificate of
deposit placements $678,728 $498,549 $734,772 $837,834 $1,589,630
Trust assets $351,599 $293,590 $294,858 $260,053 $198,331
Number of employees
at December 31 57 55 62 53 48
</TABLE>
PAGE 52
<Page 66>
Overview & Strategy:
The investor services line of business includes Irwin Union
Investor Services, Inc. and the trust activities of Irwin Union
Bank. This line of business consists of three distinct
activities:
+ Trust and investment management services
+ Financial advisory services
+ Institutional brokerage services
Trust and investment management services include personal trust
services, employee benefit services, and corporate trust services
provided primarily to clients in markets served by the community
bank. Personal trust services include financial advice,
investment management, asset custody, estate administration, and
guardianship services. Employee benefit services include
investment management, participant accounting, plan creation, and
advice. Corporate trust services include corporate bond
responsibilities such as transfer agent and paying agent
activities. Also, this business unit provides document custody
services for the mortgage banking servicing portfolio.
Financial advisory services include a wide range of personal
financial counseling activities. Clients include high income and
high net worth individuals located primarily in the Midwest.
Services include general investment management, estate planning,
retirement planning, tax planning, education funding, debt
analysis, and insurance analysis.
Institutional brokerage services are provided through a wholly-
owned investor services subsidiary, Irwin Union Securities (IUS).
IUS is a registered broker/dealer with the National Association
of Securities Dealers which provides investment advice and
investment securities to institutional clients located primarily
in the Midwest and Eastern states. About 80% of the institutional
revenues are generated from the placement and custody of insured
certificates of deposit. Remaining revenue is produced from the
sales of government guaranteed bonds.
1995 Review:
Investor services recorded net income of $271.2 thousand in 1995,
compared to $68.2 thousand in 1994 and $380.1 thousand in 1993.
Total revenues for the year increased 6.1% from 1994 and declined
4.2% from 1993. The market value of trust assets was $351.6
million at year-end 1995, up $58.0 million from 1994 and $56.7
million from 1993. Brokerage client assets, which include the
outstanding portfolio of certificates of deposit (CDs) placed
through investor services, totaled $923.4 million in 1995,
compared to $1.3 billion in 1994 and $965.6 million in 1993.
PAGE 53
<Page 67>
The improvement in net income in 1995 was in large part due to
increased CD placement fees recognized. Fee income from CD
placements totaled $2.1 million in 1995, compared to $1.4 million
in 1994 and $2.1 million in 1993. A more favorable interest rate
environment in 1995 caused CD placements to increase to $678.7 million
in 1995, compared to $498.5 million in 1994 and $734.8 million in 1993.
In addition, trust and advisory fees were up 7.7% from 1994 and 18.4%
from 1993.
Operating expenses for investor services were down 1.1% from 1994
and 0.4% from 1993 to $4.6 million.
Results for 1995 do not include retail securities brokerage
operations which were transferred to the community bank on
January 1.
1996 Outlook:
Interest rate movements have a significant impact on the investor
services business. When interest rates rise, CD placement volumes
decline as do trust asset values. The opposite is true when rates
decline. Investor services is planning on a stable interest rate
environment in 1996. CD placement activity is expected to
increase as a result of increased sales from existing staff and
new wholesale relationships. The document custody area is
planning on growth corresponding with the growth in the mortgage
banking business. The trust business expects growth from new
business development efforts focused primarily in Irwin Union
Bank's target markets.
Beginning in 1996, management of trust and advisory operations
will be transferred to the community bank. This change reflects
the similarity in products and market strategy of trust and
advisory services with the community bank's primary market and a
desire to focus the efforts of investor services management on
the institutional brokerage business.
Employees:
As of December 31, 1995, investor services employed 57 people.
Total employment expense in 1995 was $2.9 million or 64.1% of
total operating expenses. Approximately 55.0% of total salaries
was variable based on performance.
PAGE 54
<Page 68>
<TABLE>
<CAPTION>
Irwin Union Investor Services, Inc.
Directors and Senior Officers
As of March 1, 1996
Directors
<S> <S>
Claude E. Davis President,
Irwin Union Bank and Trust Company
David W. Goodrich Executive Vice President,
F. C. Tucker Company, Inc.
(Realty Company)
Robert W. Haddad Chairman and President,
Columbus Container, Inc.
(Manufacturer of Corrugated Shipping
Containers)
Robert S. Kaspar President,
Irwin Union Investor Services, Inc.
William I. Miller Chairman,
Irwin Financial Corporation
John A. Nash President,
Irwin Financial Corporation
Charles A. Rau, M.D. Physician
Thomas D. Washburn Senior Vice President,
Irwin Financial Corporation
Senior Officers
Robert S. Kaspar President
David L. Fisher* Senior Vice President-Trust Services
Diana H. Hamilton Senior Vice President-Brokerage
Services
Donald J. Stuart Senior Vice President-Advisory
Services
Cindy L. Allison-Chobot Vice President-Institutional Sales
Carl A. Bright Vice President-Institutional Sales
David S. Brooks* Vice President and Trust Officer
Jeffrey A. Gustin* Vice President and Trust Officer
William A. Helmbrecht* Vice President and Trust Officer
Robert M. Hersch Vice President-Ohio Operations
Christopher Lewis Vice President-CD Program
Robert L. Nagel Vice President-Systems
Joseph H. Stout* Vice President and Trust Officer
</TABLE>
*These officers are employees of Irwin Union Bank
PAGE 55
<Page 69>
<TABLE>
Business Profile:
Home Equity Lending
<CAPTION>
Selected Financial Data
(In thousands, except for number of employees) 1995
-----
<S> <C>
Net interest income $ 1,298
Gain on sale of loans 2,985
Other income 242
-------
Total net revenues 4,525
Operating expenses 7,745
-------
Pre-tax loss ($3,220)
=======
Loan volume $87,420
Home equity loans net of loan loss reserve 36,225
Servicing portfolio 86,691
Weighted average coupon rate 13.61%
Number of employees at December 31, 107
</TABLE>
PAGE 56
<Page 70>
Overview & Strategy:
The home equity line of business includes Irwin Home Equity and
the related activities of Irwin Union Bank and Trust. Irwin Home
Equity is located in San Ramon, California and was incorporated
in late 1994. The company began marketing home equity loans in
early 1995 through direct mail and telemarketing and currently
markets in 14 states. The initial product of the home equity
lending business was a variable rate line of credit. A fixed rate
line of credit product was introduced in late 1995.
The business has the option to either hold loans in portfolio as
is currently done at the community bank and equipment leasing
business, or securitize and service the loans as the mortgage
bank does. If the loans are held in portfolio, many costs
incurred during the period to produce the loans
are expensed immediately, whereas the revenue from the loans
accrues over
the lives of the loans. Alternatively, if the loans are
securitized and sold on the secondary market to investors, a
portion of the present value of the future net revenues from the
loans will be recognized in the current period, helping to offset
the expenses incurred in producing the loans.
1995 Review:
The home equity lending business recorded a pre-tax loss of $3.2
million in its first year of operations. Net interest revenue totaled $1.3
million after the provision for loan losses of $363.0 thousand.
Loan volume for the year reached $87.4 million.
The business securitized $51.6 million of loans in the fourth
quarter, leaving $36.4 million of loans outstanding at December
31, 1995. It will continue to service the sold loans and collect
an annual servicing fee equal to one percent of the outstanding
principal balance of the loans.
A gain of $3.0 million was recorded on the securitization
transaction which helped to offset operating expenses of $7.7
million incurred during
the year.
1996 Outlook:
The coming year will be one of additional investment in the home
equity lending business. During the year, management looks to
develop further its business and increase its loan production
volume. The business will continue to build its infrastructure by
investing in new technology and additional staffing in order to
support further growth. The business plans to continue testing
and developing new telemarketing programs as well as new product
offerings.
PAGE 57
<Page 71>
The business will maintain the flexibility of either holding the
loans it produces in portfolio or securitizing them in order to
accelerate the recognition of income. Management will evaluate
these options throughout the year in light of market conditions
and financial objectives. Decisions about the timing and amount
of securitizations could have a significant effect on the
accounting results reported for this line of business in 1996.
Employees and Directors:
As of December 31, 1995, the home equity business employed 107
people. Total employment expense in 1995 was $3.9 million or
50.9% of total operating expenses. The home equity business uses
significant proportions of variable pay in its compensation
systems. Of total salary expense, 11.5% was variable and tied to
performance which allows the business flexibility to align
expenses with production levels.
PAGE 58
<Page 71>
<TABLE>
<CAPTION>
Irwin Home Equity Corporation
Directors and Senior Officers
As of March 1, 1996
Directors
<S> <C>
Elena Delgado President,
Irwin Home Equity Corporation
William I. Miller Chairman,
Irwin Financial Corporation
John A. Nash President,
Irwin Financial Corporation
Thomas D. Washburn Senior Vice President,
Irwin Financial Corporation
Senior Officers
Elena Delgado President
Spencer J. Carlsen Vice President-Operations
Edwin K. Corbin Vice President-Planning and
Administration
Kathryn J. Diamond Vice President and Chief Credit
Officer
J. Christopher Huseby Vice President-Marketing
P. Susan Simpson Vice President-Human Resources
</TABLE>
PAGE 59
<Page 72>
<TABLE>
<CAPTION>
Business Profile:
Equipment Leasing
Selected Financial Data
(In thousands, except for number
of employees) 1995 1994 1993 1992 1991
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net interest income $1,681 $3,110 $3,207 $2,079 $1,036
Noninterest income 2,028 1,352 478 303 132
------- ------- ------- ------- -------
Total net revenues 3,709 4,462 3,685 2,382 1,168
Operating expenses 4,043 3,589 3,133 2,278 1,699
------- ------- ------- ------- -------
Pre-tax income (loss) $(334) $873 $552 $ 104 $(531)
======= ======= ======= ======= =======
Lease volume $24,951 $23,585 $22,922 $19,140 $15,043
Net leases outstanding $45,765 $42,989 $37,401 $27,738 $17,165
Number of leases
outstanding 7.766 7.209 6.438 5.032 3.042
Average new lease size $9.027 $9.152 $8.663 $8.180 $6.981
Number of employees at
December 31, 35 34 34 25 22
</TABLE>
PAGE 60
<Page 73>
Overview & Strategy:
The equipment leasing line of business is made up of Affiliated
Capital Corp. and the related activities of Irwin Union Bank and
Trust. Affiliated is a small-ticket leasing company headquartered
in Northbrook, Illinois, focused on the medical equipment
industry. The company was started by Irwin Financial in 1990 when
it hired the staff and acquired the rights to the customers and
vendors of the predecessor company which had been in business
since 1983.
The equipment leasing business is modifying its strategy to
concentrate on establishing relationships with manufacturers and
distributors of medical equipment, in addition to placing leases
with medical professionals through the sales representatives of
these vendors. This allows the company to place leases nationwide
despite the fact that all employees are located in Northbrook.
The strategy is based on delivering a superior quality of
services to its vendors and lessees. Both equipment lines and
vendors are carefully selected to ensure that equipment will
perform well for the lessee and maintain value over the lease
term.
The business focuses on relatively low cost (under $50,000)
equipment for health care professionals. In general, this
equipment provides low cost treatment that is often preventative
in nature. Markets covered include both hospitals and alternate
care sites.
1995 Review:
Equipment leasing recorded a pre-tax loss of $333.7 thousand in
1995, down from pre-tax income of $872.6 thousand in 1994 and
$552.0 thousand in 1993. Lease volume increased to $25.0 million
in 1995, up from $23.6 million in 1994 and $22.9 million in 1993.
Despite the increase in volume, net interest income declined $1.4
million or 45.9% from 1994 and $1.5 million or 47.6% from 1993.
Operating expenses were $4.0 million for the year, 12.6% higher
than 1994 and 29.0% higher than 1993.
Although lease volume has grown significantly since its
acquisition in 1990, market changes in the industry in the past
two years have caused the business' growth to slow. In addition,
these changes reduced the spreads the business earns on its lease
portfolio. In response to changing customer needs, during 1995
the company began entering into new private-label financing
agreements with several equipment manufacturers and has launched
a revolving credit product to complement its lease products.
PAGE 61
<Page 74>
1996 Outlook:
We believe the addition of private-label financing agreements and
a revolving credit product, along with the continued offering of
the original lease products, should allow the business to return
to profitability and acceptable rates of growth in 1996.
Employees:
As of December 31, 1995, equipment leasing employed 35 people.
Total employment expense in 1995 was $1.9 million or 46.8% of
total operating expenses. Of total salary expense, 8.8% was
variable based on performance.
PAGE 62
<Page 75>
<TABLE>
<CAPTION>
Affiliated Capital Corp.
Directors and Senior Officers
As of March 1, 1996
Directors
<S> <S>
Robert P. Albert President,
Affiliated Capital Corp.
David E. Levine Senior Vice President,
Affiliated Capital Corp.
William I. Miller Chairman,
Irwin Financial Corporation
John A. Nash President,
Irwin Financial Corporation
Thomas D. Washburn Senior Vice President,
Irwin Financial Corporation
Senior Officers
Robert P. Albert President
David E. Levine Senior Vice President
Vincent F. D'Andrea Vice President and Controller
Stuart A. Simon Vice President-Sales
</TABLE>
PAGE 63
<Page 76>
Other Irwin Financial Businesses
The credit life insurance business is conducted by Irwin Union
Credit Insurance Corporation, a reinsurer of credit life
insurance on consumer loan customers of the community bank. This
line of business had net income of $44.7 thousand in 1995. The
community bank operates a property and casualty agency that
produced $883.0 thousand in fee income which is included in the
operating results of the community bank.
The results of parent company operations netted with
consolidating entries are summarized below:
<TABLE>
(In thousands) 1995 1994 1993
----- ----- -----
<S> <C> <C> <C>
Net revenues $17,986 $7,536 $4,183
Operating expenses (4,068) (3,665) (3,105)
Tax benefit 2,275 238 436
------- ------- -------
16,193 4,109 1,514
Eliminations (15,703) (5,358) (2,824)
------- ------- -------
Net income (loss) $490 $(1,249) $(1,310)
</TABLE>
Dividends from subsidiaries are recorded as parent company
revenues but are eliminated in determining consolidated net
income. Tax benefits result from the operating losses generated
by the home equity and equipment leasing businesses whose results
have been reported pre-tax.
Each subsidiary pays taxes to the parent company at the statutory
rate. Subsidiaries also pay fees to the parent company to cover
direct and indirect services. In addition, services are provided
from one subsidiary to another. Inter-company income and
expenses are calculated on an arm's-length, external market
basis.
Consolidated Income Statement Analysis:
Pre-tax income for 1995 totaled $32.4 million, up 7.9% from 1994
and 26.9% from 1993. The effective income tax rate was 38.1% in
1995, 39.4% in 1994 and 39.0% in 1993. Please see Note 16 of Notes to the
Consolidated Financial Statements for more information on income
taxes.
Net interest revenue for 1995 totaled $35.6 million, up 12.8%
from 1994 and 9.9% from 1993. The increase was largely due to the
increase in net interest income earned in the mortgage banking
business reflecting the higher volume of mortgage loan
originations and, as a result, more interest income earned on
mortgage loans prior to their sale in the secondary markets. Net
interest margin declined to 4.71% from 4.85% in 1994 and 5.13% in
1993.
PAGE 64
<Page 77>
The following table sets forth, for the periods indicated, a
summary of the changes in interest earned and interest paid
resulting from changes in volume and rates for the major
components of interest-earning assets and interest-bearing
liabilities on fully taxable equivalent basis:
<TABLE>
<CAPTION>
1995 Over 1994 1994 Over 1993
-------------- --------------
(In thousands) Volume Rate Total Volume Rate Total
------ ---- ----- ------ ---- -----
<S> <C> <C> <C> <C> <C> <C>
Interest Income:
Loans and leases $8,159 3,103 $11,262 $4,230 $(308) $3,922
Mortgage loans held
for sale 3,931 89 4,020 (3,029) (1,838) (4,867)
Taxable investment
securities (993) 605 (388) 1,624 (351) 1,273
Tax-exempt
securities (76) 82 6 18 3 21
Interest bearing deposits
with financial
institutions (390) 203 (187) (372) (185) (557)
Federal funds
sold (310) 583 273 (130) 499 369
------- ----- ------- ------- ----- ------
Total 10,321 4,665 14,986 2,341 (2,180) 161
- --------------------------------------------------------------------------
Interest Expense:
Money market
checking 60 146 206 104 86 190
Money market
savings (221) 108 (113) (137) 125 (12)
Regular savings (44) 458 414 56 5 61
Time deposits 5,779 (537) 5,242 174 568 742
Short-term
borrowings 2,071 2,884 4,955 (591) (131) (722)
Long-term debt 10 221 231 705 (20) 685
------- ----- ------ ------- ----- ------
Total 7,655 3,280 10,935 311 633 944
------- ----- ------ ------- ----- ------
Net interest
revenue $2,666 $1,385 $4,051 $2,030 $(2,813) $(783)
</TABLE>
Note: Variance not solely due to rate or volume is allocated on
the basis of the absolute relationship between volume variances
and rate variances.
PAGE 65
<Page 78>
The consolidated provision for loan losses for 1995 was $3.1
million, up 77.9% from 1994 and 94.9% from 1993. More information
on this subject is contained in the section on credit risk.
Other income increased 33.0% in 1995 to $115.8 million. This
compares to $87.1 million in 1994 and $88.6 million in 1993. The
most significant increases came in the categories related to
mortgage banking activities which were discussed in the Mortgage
Banking 1995 Review section.
Other expenses in 1995 totaled $115.9 million, up 33.5% from 1994
and 23.6% from 1993. The 1995 increase in consolidated other
expense of $29.1 million was mostly due to operating expenses
associated with the home equity business and an increase in
salaries and other expenses associated with expanded mortgage
loan production activities.
Consolidated Balance Sheet Analysis:
Total assets at year-end 1995 were $1.0 billion, up 57.4% from
1994 and 17.7% from 1993. However, changes in the average balance
sheet are a more accurate reflection of the actual changes in the
level of activity on the balance sheet. Average assets were
$882.2 million in 1995, up 17.8% from 1994 and 21.5% from 1993.
Mortgage loans held for sale increased by $54.4 million, while
loans and leases increased by $89.8 million or 32.2% on average
in 1995.
The Corporation's commercial loans are extended primarily to
local regional businesses and to local farming operations in the
market area of Irwin Union Bank. The Corporation also extends
credit to consumers through installment loans and revolving
credit arrangements. The majority of the remaining portfolio
consists of residential mortgage loans (1-4 family dwellings) and
mortgage loans on commercial property. Loans by major category at
the end of the last five years were as follows:
<TABLE>
<CAPTION>
Loans by Category:
At December 31,
(In thousands) 1995 1994 1993 1992 1991
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Commercial, financial,
and agricultural $150,312 $136,083 $121,024 $108,964 $103,366
Real estate
construction 36,126 21,960 21,258 15,890 8,701
Real estate
mortgage 108,351 47,423 30,805 25,177 24,630
Consumer 67,756 55,323 41,101 30,626 26,931
Direct lease
financing 60,979 58,348 52,555 38,082 22,450
Unearned income (10,999) (10,726) (10,627) (8,380) (5,289)
------- ------- -------- ------- -------
Total $412,525 $308,411 $256,116 $210,359 $180,789
</TABLE>
PAGE 66
<Page 79>
<TABLE>
<CAPTION>
Maturity Distribution of Loans:
At December 31, 1995 (In thousands)
After
One But
Within Within After
One Year Five Years Five Years Total
-------- ---------- ---------- --------
<S> <C> <C> <C> <C>
Commercial, financial,
and agricultural $46,215 $44,132 $59,965 $150,312
Real estate construction 31,447 3,941 737 36,125
Real estate mortgage 13,244 7,575 87,532 108,351
Consumer loans 7,143 57,817 2,796 67,756
Direct lease financing 24,508 36,471 _ 60,979
--------
Total $423,523
========
Loans due after one year with:
Fixed interest rates $147,156
Variable interest rates 153,810
--------
Total $300,966
========
</TABLE>
On average, investment securities decreased $18.3 million in 1995
to $66.7 million. The carrying value of investments at December
31, 1995 includes $16.1 thousand of unrealized losses on
available-for-sale securities.
The book value of investment securities at the end of the last
three years is as follows:
<TABLE>
<CAPTION>
At December 31, (In thousands) 1995 1994 1993
----- ----- -----
<S> <C> <C> <C>
Held-to-Maturity:
U.S. Treasury and Government
obligations $26,914 $41,826 $19,230
Obligations of states and political
subdivisions 6,490 7,549 8,166
Mortgage-backed securities 8,859 9,982 5,556
Corporate obligations - 1,000 5,994
------- ------- -------
Total held-to-maturity 42,263 60,357 38,946
------- ------- -------
Available-for-Sale:
U.S. Treasury and Government
obligations 15,359 13,834 53,247
Mortgage-backed securities 3,247 3,166 3,157
------- ------- -------
Total available-for-sale 18,606 17,000 56,404
------- ------- -------
Total investments $60,869 $77,357 $95,350
</TABLE>
PAGE 67
<Page 80>
Maturity Distribution of Investment Securities:
<TABLE>
At December 31, 1995 (In thousands)
<CAPTION>
After
After Five
One But But
Within Within Within After
One Five Ten Ten
Year Years Years Years
------- -------- -------- --------
<S> <C> <C> <C> <C>
U.S. Treasury and
Government obligations $9,490 $24,643 $ _ $ 8,140
Obligations of states and
political subdivisions 590 3,446 2,184 270
Mortgage-backed securities _ 704 7,674 3,728
------ ------ ------ ------
Total $10,080 $28,793 $9,858 $12,138
======= ======= ======= =======
Weighted Average Yield:
Held-to-maturity 7.21% 6.58% 7.53% 5.85%
Available-for-sale 5.45 5.58 6.60 7.61
</TABLE>
Average yield represents the weighted average yield to maturity.
The yield on state and municipal obligations has been calculated
on a fully taxable equivalent basis, assuming a 34% tax rate.
Deposits averaged $526.1 million during 1995, compared to $467.1
million in 1994 and $449.8 million in 1993. Demand deposits were
down 31.8% on average, or $62.5 million from 1994. A significant
portion of demand deposits is related to deposits at Irwin Union
Bank which are associated with escrow accounts held on loans in
the servicing portfolio of Inland Mortgage. These escrow accounts
averaged $147.4 million in 1995.
Maturities of certificates of deposit of $100 thousand or more
are set forth in the following table:
<TABLE>
<CAPTION>
At December 31, (In thousands) 1995 1994 1993
----- ----- -----
<S> <C> <C> <C>
Under 3 months $27,131 $9,197 $15,397
3 to 6 months 6,299 4,581 4,998
6 to 12 months 14,378 4,248 3,066
After 12 months 6,268 3,448 1,460
------- ------- --------
Total $54,076 $21,474 $24,921
</TABLE>
PAGE 68
<Page 81>
Short-term borrowings averaged $217.3 million in 1995, compared
to $167.8 million in 1994 and $181.7 million in 1993. The
increase in 1995 is due to the increase in mortgage loan closings
in 1995.
The following table shows the distribution of the Corporation's
short-term borrowings and the weighted average rates at the end
of each of the last three years. Also provided are the maximum
borrowings and the average borrowings as well as weighted average
interest rates for the last three years.
<TABLE>
<CAPTION>
Repurchase
Agreements
& Drafts Federal
Payable Home
Related to Loan Bank Other
Mortgage Borrowings Short-
Loan Commercial & Federal Term
Closings Paper Funds Borrowings
--------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Year Ended 1995 $225,873 $21,723 $40,000 $22,683
December 31: 1994 75,944 15,538 199 2,300
1993 250,494 21,159 597 1,550
Weighted average 1995 4.32% 6.32% 6.02% 7.35%
interest rates 1994 4.59 5.65 5.75 8.50
at year end: 1993 4.23 3.84 2.75 5.43
Maximum amount 1995 $271,694 $21,723 $52,448 $38,596
outstanding at 1994 159,650 19,996 26,000 5,600
any month's end: 1993 250,491 21,159 15,078 2,336
Average amount 1995 $155,726 $19,125 $20,497 $6,109
outstanding during1994 146,799 17,372 3,140 507
the year: 1993 158,429 17,507 4,268 1,489
Weighted average 1995 4.12% 6.41% 6.03% 8.06%
interest rate 1994 3.62 4.63 5.71 7.14
during the year: 1993 4.37 4.18 3.14 6.35
</TABLE>
Shareholders' equity averaged $88.9 million in 1995, up 16.7%
from 1994 and 42.0% from 1993. Year-end shareholders' equity of $99.2
million represented book value per share of $17.51, compared to
$14.41 and $12.06 at December 31, 1994 and 1993, respectively.
PAGE 69
<Page 82>
The mortgage loan servicing portfolio represents substantial
economic value which, for loans originated prior to the
implementation of SFAS 122,is not recorded on the balance sheet in its
entirety. The following table demonstrates the estimated off-balance sheet,
after-tax value of the servicing portfolio at December 31:
<TABLE>
<CAPTION>
(In thousands) 1995 1994 1993
----- ----- -----
<S> <C> <C> <C>
Total loans serviced $10,301,914 $8,818,502 $7,922,299
=========== =========== ===========
Value (@ 1.5%) $154,529 $132,278 $118,834
Less capitalized servicing 51,783 20,302 13,299
Tax liability (@ 40%) 41,098 44,791 42,214
----------- ----------- -----------
Net value 61,648 $67,185 $63,321
=========== =========== ===========
Per share of common stock 10.88 $11.93 $10.90
</TABLE>
With the implementation on SFAS 122, this off-balance sheet value
will decline over future years and eventually be reduced to zero.
Total book value per share, including the value of the servicing
portfolio, was $28.39 at December 31, 1995, up from $26.34 and
$22.96 at December 31, 1994 and 1993, respectively.
<TABLE>
<CAPTION>
Capital:
(In thousands) 1995 1994 1993
----- ----- -----
<S> <C> <C> <C>
Tier 1 capital $92,554 $80,966 $69,917
Tier 2 capital 4,620 3,863 3,294
------- ------- -------
Total risk-based capital $97,174 $84,829 $73,211
======= ======= =======
Risk-weighted assets $670,675 $442,315 $466,914
======== ======== ========
Risk-based ratios:
Tier 1 capital 13.80% 18.31% 14.97%
Total capital 14.49 19.18 15.68
Tier 1 leverage ratio 10.57 10.82 9.63
Ending shareholders' equity
to assets 9.56 12.29 7.95
Average shareholders' equity
to assets 10.07 10.17 8.62
</TABLE>
Capital is a major focus of regulatory attention, with both book
and risk-based capital standards used as capital adequacy
measures. Unless an institution has adequate capital in the
opinion of the regulators, they may withhold approval for new
activities or force additions to capital. Therefore, management
considers both the regulator's viewpoint and our own analysis of
the capital structure and leverage amounts that are consistent
with underlying business risks.
PAGE 70
<Page 83>
At year-end 1995, the Corporation's total risk-adjusted capital
ratio was 14.49%, compared to a current regulatory minimum of
8.0%. The Corporation's ending equity to assets ratio for 1995
was 9.56%. However, as previously discussed, temporary conditions
which existed at year end make the average balance sheet ratio a
more accurate measure of capital. The Corporation's average
equity to assets ratio for 1995 was 10.07%.
Stock Pricesand Dividends:
The common stock of the Corporation is quoted on the National
Association of Securities Dealers Automated Quotation System
National Market System (NASDAQ-NMS- trading symbol, IRWN). The
following table sets forth certain information regarding trading
in and cash dividends paid with respect to the shares of the
Corporation's common stock in each quarter of the three most
recent calendar years.
<TABLE>
<CAPTION>
Total
Quarter Cash Dividends
*High *Low *End *Dividends *ForYear
----- ----- ------- ---------- ---------
1993
<S> <C> <C> <C> <C> <C>
First quarter $271/4 $213/8 $26 $0.075
Second quarter 261/4 205/8 211/8 0.075
Third quarter 253/4 21 251/4 0.075
Fourth quarter 27 213/4 25 0.075 $.30
1994
First quarter $251/2 $213/4 $223/4 $0.090
Second quarter 233/4 201/2 221/4 0.090
Third quarter 28 21 271/4 0.090
Fourth quarter 273/4 251/2 263/4 0.090 $0.36
1995
First quarter $313/4 $271/2 $31 $0.110
Second quarter 351/4 31 341/2 0.110
Third quarter 361/2 341/2 351/2 0.110
Fourth quarter 401/4 351/4 397/8 0.110 $0.44
</TABLE>
*Adjusted for stock splits. Stock prices reflect the high and low
transactions.
The Corporation expects to continue its policy of paying regular
cash dividends, although there is no assurance as to future
dividends because they are dependent on future earnings, capital
requirements, and financial condition. On February 28, 1996, the
Corporation's Board of Directors approved an increase in the
first quarter dividend to $0.12 per share, payable in March,
1996. Dividends by Irwin Union Bank to the Corporation are
restricted by banking law. See Note 15 of Notes to the
Consolidated Financial Statements.
PAGE 71
<Page 84>
Risk Management:
As a financial intermediary, the Corporation is engaged in
businesses which involve the assumption of financial risks
including:
+ Credit risk
+ Liquidity risk
+ Interest rate risk
Each line of business that assumes financial risk uses a formal
process to manage this risk. In all cases, the objectives are to
ensure that risk is contained within prudent levels and that we
are adequately compensated for the level of risk assumed. The
Chairman, the President, and the Chief Financial Officer of the
Corporation participate in each subsidiary's risk management
process.
Credit Risk:
The assumption of credit risk is a key source of earnings for the
community bank, home equity lending, and equipment leasing
businesses. In addition,
the mortgage banking business assumes some credit risk despite
the fact that
its mortgages are typically insured. The credit risk in the loan
portfolio of the community bank has the most potential to have a
significant effect on consolidated financial performance.
The community bank and home equity lending business manage credit
risk through the use of lending policies, credit analysis and
approval procedures, periodic loan reviews, and personal contact
with borrowers. Loans over a certain size are reviewed by a loan
committee prior to approval.
The equipment leasing business manages credit risk in a manner
similar to that used by the community bank and the home equity
business. It uses lending policies, credit analysis procedures,
and personal contact with lessees.
An allowance for possible loan and lease losses is established as
an estimate of the potential credit risk of the loans and leases
held by the Corporation.
In determining the adequacy of this allowance, management
evaluates the creditworthiness of significant borrowers, past
loan and lease loss experience, and current and anticipated
economic conditions. The allowance is increased by provisions
against income and recoveries of loans and leases previously
charged off.
PAGE 72
<Page 85>
Loans and leases that are determined by management to be
uncollectible are charged against the allowance. The table on
page 74 analyzes the consolidated allowance for possible loan and
lease losses over the past five years.
Net charge-offs in 1995 were $2.1 million, up 81.5% from 1994,
and 39.6% from 1993. Net charge-offs to average loans and leases
was 0.57%, compared to 0.41% in 1994 and 0.65% in 1993.
The provision for loan and lease losses was $3.1 million, 146.3%
of net charge-offs. The coverage ratio was 149.3% in 1994 and
104.9% in 1993.
At year end, the allowance for possible loan and lease losses was
1.12% of loans and leases, compared to 1.25% in 1994 and 1.29% in
1993.
On January 1, 1995, the Corporation adopted Statement of
Financial Accounting Standards No. 114, ''Accounting by Creditors
for Impairment of a Loan'' (SFAS 114) and Statement of Financial
Accounting Standards No. 118 which amends SFAS 114.These
statements require that certain impaired loans be valued based on
the net present value of expected cash flows discounted at the
loans' effective interest rates. The implementation of these
standards did not have a material effect on the Corporation's
financial position or results of operations.
Total nonperforming loans and leases at year end were $2.4
million, compared to $2.8 million at the end of 1994 and $3.5
million at the end of 1993. Nonperforming loans and leases as a
percent of total loans and leases
were 0.58% at year-end 1995, compared to 0.90% in 1994 and 1.38%
in 1993. Other real estate owned decreased from $0.5 million to
$0.3 million at the end of 1995. Total nonperforming assets were
$2.7 million, or 0.26% of total assets at December 31, 1995, as
compared to $3.3 million, or 0.50%, at year-end 1994 and $4.2
million, or 0.47% at the end of 1993.
PAGE 73
<Page 86>
<TABLE>
<CAPTION>
Analysis of Allowance for Possible Loan and Lease Losses
(In Thousands) 1995 1994 1993 1992 1991
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Loans and leases outstanding
at end of period,
net of unearned income $412,525 $308,411 $256,116 $210,359 $180,789
======== ======== ======== ======== ========
Average loans and leases
for the period,
net of unearned income $369,220 $279,389 $232,898 $195,161 $167,974
======== ======== ======== ======== ========
Allowance for possible loan and lease losses:
Balance beginning
of period $3,863 $3,293 $3,220 $2,282 $1,924
Charge-offs:
Commercial, financial, and
agricultural loans 845 266 1,074 626 420
Real estate mortgage
loans 2 - - - -
Consumer loans 953 543 387 392 374
Lease financing 690 757 323 207 75
-------- -------- -------- -------- --------
Total charge-offs 2,490 1,566 1,784 1,225 869
-------- -------- -------- -------- --------
Recoveries:
Commercial, financial, and
agricultural loans 2 34 82 21 3
Consumer loans 197 180 94 204 159
Lease financing 191 195 104 28 11
-------- -------- -------- -------- --------
Total recoveries 390 409 280 253 173
------- -------- -------- -------- --------
Net charge-offs (2,100) (1,157) (1,504) (972) (696)
Reduction due to
sale of loans (216) - - - -
Provision charged
to expense 3,073 1,727 1,577 1,910 1,054
------- --------- -------- -------- --------
Balance end of period $4,620 $3,863 $3,293 $3,220 $2,282
======== ======== ======== ======== ========
Allowance for possible loan and lease losses:
By category of loans and leases
Commercial, financial, and
agricultural loans $2,349 $2,586 $2,031 $1,635 $1,083
Consumer loans 1,420 767 650 1,122 820
Lease financing 851 510 612 463 379
-------- -------- -------- -------- --------
Total $4,620 $3,863 $3,293 $3,220 $2,282
======== ======== ======== ======== ========
Ratios:
Net charge-offs to average loans
and leases .57% 0.41% 0.65% 0.50% 0.41%
Allowance for possible
loan losses to average
loans and leases 1.25% 1.38% 1.41% 1.65% 1.36%
Allowance for possible
loan losses to loans
and leases outstanding 1.12% 1.25% 1.29% 1.53% 1.26%
</TABLE>
PAGE 74
<Page 87>
<TABLE>
<CAPTION>
Nonperforming Assets
(In thousands) 1995 1994 1993 1992 1991
----- ----- ----- ----- -----
Accruing loans past due 90 days or more:
<S> <C> <C> <C> <C> <C>
Commercial, financial, and
agricultural loans $ 418 $ 113 $ 800 $7 $47
Real estate mortgages - - 141 12 90
Consumer loans 202 93 88 121 104
----- ----- ----- ----- -----
620 206 1,029 140 241
------ ----- ----- ----- -----
Nonaccrual loans and leases:
Commercial, financial, and
agricultural loans 670 1,523 1,373 1,500 105
Real estate mortgages 694 689 848 1,540 563
Consumer loans - - 39 55 64
Lease financing
receivable 415 363 242 299 4
----- ----- ----- ----- -----
1,779 2,575 2,502 3,394 736
----- ----- ----- ----- -----
Total nonperforming loans and
leases 2,399 2,781 3,531 3,534 977
----- ----- ----- ----- -----
Other real estate owned 295 489 623 1,085 200
----- ----- ----- ----- -----
Total nonperforming
assets $2,694 $3,270 $4,154 $4,619 $1,177
====== ====== ====== ====== ======
Nonperforming loans
and leases to total
loans and leases 0.58% 0.90% 1.38% 1.68% 0.54%
====== ====== ====== ====== ======
Nonperforming assets to total
assets 0.26% 0.50% 0.47% 0.77% 0.20%
</TABLE>
Loans which are past due 90 days or more are placed on nonaccrual
status unless, in management's opinion, there is sufficient
collateral value to offset both principal and interest.
PAGE 75
<Page 88>
<TABLE>
<CAPTION>
Renegotiated and Nonaccrual Loans
(In Thousands) 1995 1994 1993
----- ----- -----
<S> <C> <C> <C>
Interest which would have been
recorded under original terms:
Renegotiated $- $- $-
Nonaccrual 178 232 187
------ ------ ------
178 232 187
------ ------ ------
Interest income actually recorded
Renegotiated - - -
Nonaccrual 55 110 87
------- ------- -------
55 110 87
------- ------- -------
Reduction in interest income $123 $122 $100
</TABLE>
No loans were made to foreign borrowers and no loan
concentrations existed of more than 10% of total loans to
borrowers engaged in similar activities that would be similarly
affected by economic or other conditions.
Generally, the accrual of income is discontinued when the full
collection of principal or interest is in doubt, or when the
payment of principal or interest has become contractually 90 days
past due unless the obligation is both well secured and in the
process of collection. Further information regarding the balance
of nonaccrual loans at December 31, 1995 and related payment
information is as follows:
<TABLE>
<CAPTION>
Analysis of Nonaccrual Loans
Cash interest payments
Contractual applied as
Book balance balance ----------------------
December 31, December 31, interest reduction
(In thousands) 1995 1995 income of principal
------------ ------------- ---------- ------------
<S> <C> <C> <C> <C>
Contractually past due with:
+substantial performance $- $- $- $-
+limited performance 466 832 9 43
+no performance 887 975 - -
Contractually current,
however:
+payment in full of
principal or
interest in doubt 426 426 47 19
----------- ----------- ----------- --------
Total $1,779 $2,233 $56 $62
</TABLE>
PAGE 76
<Page 89>
Liquidity:
Liquidity is the availability of funds to meet the daily
requirements of the business. For financial institutions, demand
for funds comes principally from extensions of credit and
withdrawal of deposits. Liquidity is provided by asset maturities
or sales and through short-term borrowings.
The objectives of liquidity management are to ensure that funds
will be available to meet demands and that funds are available at
a reasonable cost. As with other forms of financial risk, liquidity
is managed separately at each of our lines of business. In the case
of the community bank, this occurs at the monthly meeting of the
Asset-Liability Management Committee.
Since loans and leases are substantially less marketable than
securities, the ratio of total loans to total deposits is the traditional
measure of liquidity for banks and bank holding companies. At year-end
1995, this ratio stood at 73.1%. The Corporation is able to maintain this
position of high liquidity without a substantial sacrifice in the
form of a lower net interest margin due to the position in
mortgage loans held for sale. These loans carry an interest rate
equal to the current market rate for mortgage loans. However,
liquidity is significantly improved since all mortgage loans held
for sale are in the process of being securitized and sold. The
holding period for an individual loan typically does not exceed
90 days.
Interest Rate Sensitivity:
Interest rate sensitivity refers to the potential for changes in
market rates of interest to cause changes in net interest income.
Since net interest income is a major source of income, it is
important that potential changes are managed prudently.
The Asset-Liability Management Committee of the community bank
monitors the repricing structure of both assets and liabilities
over various time horizons. Exposure to changes in interest rates
is evaluated by modeling the repricing characteristics of the
community bank's portfolio under multiple rate scenarios. Formal
policies approved by the community bank's Board of Directors
ensure that exposure to changes in net interest revenues is
maintained within acceptable levels.
The mortgage banking business assumes a form of interest rate
sensitivity by entering into commitments to extend loans to
borrowers at a fixed price for
a limited period of time. Loans are also held temporarily until a
pool is formed. Once again, a formal policy ensures that this
risk is controlled. The home equity and equipment leasing
businesses are exposed to potential interest rate risk that is
similar to the lending operations of the community bank.
PAGE 77
<Page 90>
Rate sensitivity at the community bank can typically be managed
by controlling the maturity of loans, securities, and deposits.
The community bank may also use financial futures or interest
rate swaps from time to time. The mortgage bank buys commitments
to deliver loans at a fixed price to manage risk. The equipment
leasing business funds some leases by discounting them with an
external funding source, thereby producing matched-maturity
funding.
As the following table shows, the consolidated one-year gap at
year-end 1995 was a positive $153.6 million. This compares to a
positive gap of $116.6 million at year-end 1994. The large
positive gaps have been due to growth
in escrow deposits from the servicing portfolio of the mortgage
bank. These deposits are generally held in noninterest-bearing
accounts at Irwin Union Bank. However, they are invested in
earning assets with rate maturities of less than one year,
including mortgage loans held for sale.
Since the gap was positive, it means that with respect to net
interest income, the Corporation was positioned to benefit from
rising interest rates,
or to be harmed by declining rates. While traditional interest
rate risk focuses on the changes in net interest income due to
interest rate changes, the Corporation engages in other
activities which are also affected by interest rate changes.
Principal among these are mortgage loan origination and
servicing. For example, if interest rates decline, management
expects an increase in mortgage loan origination income and a
decline in the value of mortgage servicing rights. Management
attempts to monitor this exposure to traditional interest rate
risk as well as interest rate influences on production and
servicing value in a comprehensive manner.
In addition, the static one-year gap is not a reliable measure of
actual exposure to changes in market interest rates.
Consequently, management uses simulations of the behavior of net
interest revenue to determine exposure and to develop hedging
strategies.
PAGE 78
<Page 91>
<TABLE>
<CAPTION>
Interest Sensitivity:
Within 3 Months After
(In thousands) 3 Months to 1 Year 1 Year
---------- ---------- ----------
<S> <C> <C> <C>
Interest-earning assets:
Interest-bearing deposits
with banks $ 2,547 $3,994 $ 1,397
Federal funds sold 15,000 - -
Taxable investment securities 14,902 7,886 31,591
Tax-exempt investment securities 590 - 5,900
Mortgages held for sale 378,658 - -
Loans, net of unearned discount 234,562 32,853 145,110
---------- ---------- ----------
Total interest-earning assets 646,259 44,733 183,998
---------- ---------- ---------
Interest-bearing liabilities:
Money market checking 18,803 - 56,410
Money market savings 3,550 - 10,846
Regular savings 26,929 2,178 20,593
Time deposits 125,814 44,499 46,997
Short-term borrowings 300,079 5,200 5,000
Long-term debt 2,023 8,363 11,189
---------- ---------- ----------
Total interest-bearing
liabilities 477,198 60,240 151,035
---------- ---------- ---------
Interest sensitivity gap $169,061 $(15,507) $32,963
========== ========== ==========
Cumulative gap $169,061 $153,554 $186,517
</TABLE>
Effects of Inflation:
The Corporation is affected by inflation primarily as it impacts
interest rates. During periods of inflation, interest rates
increase. As a result, loan volume declines. In addition,
prepayments on mortgage loans decrease, extending the average
life of the Corporation's servicing portfolio and increasing its
servicing fee income. During periods of declining prices,
interest rates are likely to decline as well. This results in
increased loan activity, particularly with mortgage loan
originations and refinancings. However, the average life of the
servicing portfolio is reduced as is servicing fee income.
We believe that a financial institution's ability to react to
changing interest rates is an indicator of its ability to perform
in an inflationary environment. Please see the section on
interest rate sensitivity for a discussion on this subject.
PAGE 79
<Page 92>
Daily Average Consolidated Balance Sheet,
Interest Rates and Interest Differential
For the year ended December 31,1995
<TABLE>
<CAPTION>
1995
----
Average Yield/
(In thousands) Balance Interest Rate
---------- ---------- -------
Assets:
<S> <C> <C> <C>
Interest-earning assets:
Interest-bearing deposits with
banks $9,737 497 5.10%
Federal funds sold 35,006 2,036 5.82
Taxable investment securities 59,765 4,004 6.70
Tax-exempt investment securities (1) 6,961 738 10.60
Mortgage loans held for sale 285,808 20,727 7.25
Loans and leases, net of unearned
income (2) 369,220 36,637 9.92
-------- --------- -------
Total interest-earning assets 766,497 64,639 8.43
======== ======== =======
Noninterest-earning assets:
Cash and due from banks 36,263
Premises and equipment, net 15,011
Other assets 68,677
Less allowance for possible loan
and lease losses (4,284)
--------
Total assets $882,164
========
Liabilities and Shareholders' Equity:
Interest-bearing liabilities:
Equity:
Money market checking $68,491 1,552 2.27%
Money market savings 15,376 465 3.02
Regular savings 53,255 2,016 3.79
Time deposits 255,004 10,834 4.25
Short-term borrowings 217,289 11,979 5.51
Long-term debt 20,896 1,722 8.24
-------- ------- --------
Total interest-bearing liabilities 630,311 28,568 4.53
======== ======== ======
Noninterest-bearing liabilities:
Demand deposits 133,936
Other liabilities 29,050
Shareholders' equity 88,867
--------
Total liabilities and
shareholders' equity $882,164
========
Net interest income $36,071
========
Net interest income to average interest-earning
assets 4.71%
=====
</TABLE>
Notes: (1) Interest is reported on a fully taxable equivalent
basis. The prevailing federal income tax rate was 34% in 1995 and
35% for 1994 and 1993.
(2) For purposes of these computations, nonaccrual loans
are included in daily average loan amounts outstanding.
PAGE 80
<Page 93>
Daily Average Consolidated Balance Sheet,
Interest Rates and Interest Differential
For the year ended December 31,1995
<TABLE>
<CAPTION>
1994
-----
Average Yield/
(In thousands) Balance Interest Rate
---------- ---------- -------
Assets:
<S> <C> <C> <C>
Interest-earning assets:
Interest-bearing deposits with
banks $22,627 $684 3.02%
Federal funds sold 42,466 1,763 4.15
Taxable investment securities 77,230 4,392 5.69
Tax-exempt investment securities
(1) 7,764 732 9.43
Mortgage loans held for sale 231,369 16,707 7.22
Loans and leases, net of unearned
income (2) 279,389 25,375 9.08
-------- -------- -------
Total interest-earning assets 660,845 49,653 7.51
======== ======== =======
Noninterest-earning assets:
Cash and due from banks 32,449
Premises and equipment, net 13,484
Other assets 45,746
Less allowance for possible loan
and lease losses (3,543)
--------
Total assets $748,981
========
Liabilities and Shareholders' Equity:
Interest-bearing liabilities:
Equity:
Money market checking $65,583 1,347 2.05%
Money market savings 24,864 578 2.33
Regular savings 54,770 1,601 2.92
Time deposits 125,415 5,592 4.46
Short-term borrowings 167,818 7,024 4.19
Long-term debt 20,760 1,491 7.18
-------- ------- --------
Total interest-bearing
liabilities 459,210 17,633 3.84
======== ======== ======
Noninterest-bearing liabilities:
Demand deposits 196,454
Other liabilities 17,139
Shareholders' equity 76,178
--------
Total liabilities and
shareholders' equity $748,981
========
Net interest income $32,020
========
Net interest income to average interest-earning
assets 4.85%
=====
</TABLE>
Notes: (1) Interest is reported on a fully taxable equivalent
basis. The prevailing federal income tax rate was 34% in 1995 and
35% for 1994 and 1993.
(2) For purposes of these computations, nonaccrual loans
are included in daily average loan amounts outstanding.
PAGE 81 (1)
<Page 93(1)>
Daily Average Consolidated Balance Sheet,
Interest Rates and Interest Differential
For the year ended December 31,1995
<TABLE>
<CAPTION>
1993
----
Average Yield/
(In thousands) Balance Interest Rate
---------- ---------- -------
Assets:
<S> <C> <C> <C>
Interest-earning assets:
Interest-bearing deposits
with banks $32,306 $1,241 3.84%
Federal funds sold 46,815 1,395 2.98
Taxable investment securities 50,780 3,119 6.14
Tax-exempt investment securities
(1) 7,576 711 9.38
Mortgage loans held for sale 269,140 21,574 8.02
Loans and leases, net of unearned
income (2) 233,357 21,453 9.19
-------- ------- -------
Total interest-earning assets 639,974 49,493 7.73
======== ======== =======
Noninterest-earning assets:
Cash and due from banks 35,414
Premises and equipment, net 11,265
Other assets 42,593
Less allowance for possible loan
and lease losses (3,400)
--------
Total assets $725,846
========
Liabilities and Shareholders' Equity:
Interest-bearing liabilities:
Equity:
Money market checking $60,192 1,157 1.92%
Money market savings 32,374 590 1.82
Regular savings 52,842 1,540 2.91
Time deposits 121,082 4,850 4.01
Short-term borrowings 181,693 7,746 4.26
Long-term debt 11,074 806 7.28
-------- ------- --------
Total interest-bearing
liabilities 459,257 16,689 3.63
======== ======== ======
Noninterest-bearing liabilities:
Demand deposits 183,350
Other liabilities 20,653
Shareholders' equity 62,586
--------
Total liabilities and
shareholders' equity $725,846
========
Net interest income $32,804
========
Net interest income to average interest-earning
assets 5.13%
=====
</TABLE>
Notes: (1) Interest is reported on a fully taxable equivalent
basis. The prevailing federal income tax rate was 34% in 1995 and
35% for 1994 and 1993.
(2) For purposes of these computations, nonaccrual loans
are included in daily average loan amounts outstanding.
PAGE 81 (2)
<Page 93(2)>
Summary of Quarterly Financial Information
<TABLE>
<CAPTION>
Summary Income Information 1995
Fourth Third Second First
Quarter Quarter Quarter Quarter
-------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Interest income $20,182,007 $17,549,368 $14,292,830 $12,136,831
Interest expense 9,919,789 8,020,339 5,926,174 4,701,985
Provision for loan
and lease losses 933,000 910,000 580,000 650,000
Noninterest income 34,210,824 31,302,546 25,195,365 25,135,528
Noninterest expense 34,123,371 30,584,492 27,249,576 23,957,371
Income taxes 4,117,000 3,298,000 1,480,000 3,471,000
---------- ---------- ---------- ----------
Net income $5,299,671 $6,039,083 $4,252,445 $4,492,003
========== ========== ========== ==========
Net income per
common share $0.92 $1.05 $0.74 $0.78
Summary Income Information 1994
Fourth Third Second First
Quarter Quarter Quarter Quarter
--------- ---------- ---------- ----------
Interest income $12,231,143 $12,628,441 $12,114,663 $12,211,357
Interest expense 4,536,399 4,525,176 3,967,292 4,603,679
Provision for loan
and lease losses 799,000 368,000 235,000 325,000
Noninterest income 21,123,563 20,930,167 22,445,843 22,582,238
Noninterest expense 19,221,350 21,245,418 23,498,040 22,879,522
Income taxes 3,421,000 2,942,000 2,689,000 2,796,000
---------- ---------- ---------- ----------
Net income $5,376,957 $4,478,014 $4,171,174 $4,189,394
========== ========== ========== ==========
Net income per
common share $0.93 $0.76 $0.70 $0.71
</TABLE>
PAGE 82
<Page 94>
Summary of Quarterly Financial Information (continued)
<TABLE>
<CAPTION>
Summary Income Information 1993
Fourth Third Second First
Quarter Quarter Quarter Quarter
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Interest income $14,210,578 $12,567,380 $12,221,955 $10,066,235
Interest expense 4,788,952 4,094,017 4,341,400 3,464,267
Provision for loan
and lease losses 509,000 409,000 534,000 125,000
Noninterest income 25,858,181 22,757,544 21,495,294 18,454,420
Noninterest expense 27,820,173 24,242,058 22,667,274 19,073,086
Income taxes 2,551,000 2,714,000 2,410,000 2,300,000
---------- ---------- ---------- ----------
Net income $4,399,634 $3,865,849 $3,764,575 $3,558,302
========== ========== ========== ==========
Net income per
common share $0.75 $0.66 $0.64 $0.61
</TABLE>
PAGE 83
<Page 95>
1995 Financial Statements
Irwin Financial Corporation
and Subsidiaries
PAGE 85
<Page 96>
Management Report on Responsibility for Financial Reporting
The management of Irwin Financial Corporation and its
subsidiaries has the responsibility of preparing the accompanying
financial statements
and for their integrity and objectivity. The statements were
prepared in conformity with generally accepted accounting
principles and are not misstated due to material fraud or error.
The financial statements include amounts that are based on
management's best estimates and judgments. Management also
prepared the other information in the annual report and is
responsible for its accuracy and consistency with the financial
statements.
The Corporation's financial statements have been audited by
Coopers & Lybrand L.L.P., independent certified public
accountants elected by the shareholders. Management has made
available to Coopers & Lybrand all the Corporation's financial
records and related data, as well as the minutes of stockholders'
and directors' meetings. Furthermore, management believes that
all representations made to Coopers & Lybrand during its audit
were valid and appropriate.
Management of the Corporation has established and maintains a
system of internal control that provides reasonable assurance as
to the integrity and reliability of the financial statements, the
protection of assets from unauthorized use or disposition, and
the prevention and detection of fraudulent financial reporting.
The system of internal control provides for appropriate division
of responsibility and is documented by written policies and
procedures that are communicated to employees with significant
roles in the financial reporting process and updated as
necessary. Management continually monitors the system of internal
control for compliance. The Corporation maintains a strong
internal auditing program that independently assesses the
effectiveness of the internal controls and recommends possible
improvements thereto. In addition, as part of its audit of the
Corporation's financial statements, Coopers & Lybrand completed
an assessment of selected internal accounting controls to
establish a basis for reliance thereon in determining the nature,
timing, and extent of audit tests to be applied. Management has
considered the internal auditor's and Coopers & Lybrand's
recommendations concerning the Corporation's system of internal
control and has taken actions to respond appropriately to these
recommendations that we believe are cost-effective in the
circumstances. Management believes that the Corporation's system
of internal control is adequate to accomplish the objectives
discussed herein.
Management also recognizes its responsibility for fostering a
strong ethical climate so that the Corporation's affairs are
conducted according to the highest standards of personal and
corporate conduct. This responsibility is characterized and
reflected in the Corporation's Creed, which is publicized
throughout the Corporation. This responsibility is also reflected
in the individual Codes of Conduct of each major operating
subsidiary of the Corporation, which are publicized throughout
each respective subsidiary. These Codes of Conduct address, among
other things, the necessity of ensuring open communication within
the Corporation; potential conflicts of interests; compliance
with all domestic and foreign laws, including those related to
financial disclosures; and a confidentiality of proprietary
information. The Corporation maintains a systematic program to
assess compliance with these policies.
John A. Nash, President Thomas D. Washburn, Chief Financial
Officer
PAGE 87
<Page 97>
Report of Coopers & Lybrand L.L.P. Independent Accountants
To the Shareholders and Board of Directors
Irwin Financial Corporation
Columbus, Indiana
We have audited the accompanying consolidated balance sheet of
Irwin Financial Corporation and subsidiaries as of December 31,
1995 and 1994, and the related consolidated statements of income,
changes in shareholders' equity and cash flows for each of the
three years in the period ended December 31, 1995. These
financial statements are the responsibility of the Corporation's
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Irwin Financial Corporation and
subsidiaries as of December 31, 1995 and 1994, and the
consolidated results of their operations and their cash flows for
each of the three years in the period ended December 31, 1995, in
conformity with generally accepted accounting principles.
As described in Note 1, the Corporation adopted Statement of
Financial Accounting Standards No. 122, Accounting for Mortgaging
Servicing Rights, as of April 1, 1995.
Indianapolis, Indiana
January 16, 1996
PAGE 88
<Page 98>
Consolidated Statement of Income
<TABLE>
<CAPTION>
For the year ended December 31, 1995 1994 1993
----- ----- -----
Interest income:
<S> <C> <C> <C>
Loans and leases $36,449,721 $25,156,739 $21,271,778
Investment securities:
Taxable 4,501,359 5,075,361 4,349,070
Tax-exempt 447,353 483,018 476,212
Loans held for sale 20,726,833 16,706,854 21,573,796
Federal funds sold 2,035,770 1,763,632 1,395,292
---------- ---------- ----------
Total interest income 64,161,036 49,185,604 49,066,148
---------- ---------- ----------
Interest expense:
Deposits 14,868,026 9,117,721 8,136,837
Short-term borrowings 11,978,591 7,223,035 7,745,674
Long-term debt 1,721,670 1,291,790 806,125
---------- ---------- ----------
Total interest expense 28,568,287 17,632,546 16,688,636
---------- ---------- ----------
Net interest income 35,592,749 31,553,058 32,377,512
Provision for possible loan and lease losses -
Note 5 3,073,000 1,727,000 1,577,000
---------- ---------- ----------
Net interest income after provision for possible
loan and lease losses 32,519,749 29,826,058 30,800,512
---------- ---------- ----------
Other income:
Loan servicing fees 36,155,560 32,426,480 24,427,584
Loan origination income 32,133,179 25,544,575 38,268,648
Gain on sale of loans 21,005,875 2,219,132 14,224,974
Gain on sale of
mortgage servicing 15,271,081 17,715,696 2,978,887
Brokerage fees and
commissions 2,792,436 2,148,946 2,888,451
Trust fees 2,009,864 1,902,620 1,620,946
Service charges on
deposit accounts 1,238,731 1,258,818 1,285,775
Insurance commissions,
fees and premiums 1,304,625 1,076,258 953,202
Other 3,932,912 2,789,286 1,916,972
---------- ---------- ----------
115,844,263 87,081,811 88,565,439
----------- ---------- -----------
Other expense:
Salaries 61,082,725 47,839,918 55,584,487
Pension and other
employee benefits 10,638,338 8,205,547 8,179,748
Premises and equipment 12,307,288 8,838,121 7,196,459
Office expense 7,859,511 5,891,352 5,996,226
Marketing and development 6,845,335 3,311,775 2,729,668
Amortization of mortgage
servicing rights 4,865,340 1,943,146 3,055,476
Other 12,316,273 10,814,471 11,060,526
---------- ---------- -----------
115,914,810 86,844,330 93,802,590
---------- ---------- -----------
Income before income taxes 32,449,202 30,063,539 25,563,361
Federal income taxes 9,872,000 9,524,000 7,657,000
State income taxes 2,494,000 2,324,000 2,318,000
---------- ---------- ----------
Net income $20,083,202 $18,215,539 $15,588,361
========== ========== ==========
Net Income per share of common stock:
Net income -Note 1 $3.50 $3.10 $2.66
========== ========== ==========
Dividends per share
of common stock $0.44 $0.36 $0.30
========== ========== ==========
Weighted average shares of
common stock outstanding 5,743,129 5,883,106 5,859,691
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
PAGE 89
<Page 99>
<TABLE>
<CAPTION>
Consolidated Balance Sheet
December 31, 1995 1994
----- -----
Assets:
<S> <C> <C>
Cash and due from banks $49,256,953 $36,840,452
Federal funds sold 15,000,000 14,000,000
----------- -----------
Cash and cash equivalents 64,256,953 50,840,452
Interest-bearing deposits with
financial institutions 7,937,740 12,164,206
Investment securities - Note 3 60,869,413 77,356,575
Mortgage loans held for sale -
Note 9 378,658,247 154,964,484
Loans and leases, net of unearned
income - Note 4 412,524,601 308,411,082
Less: Allowance for possible loan and
lease losses - Note 5 (4,620,167) (3,863,223)
------------- ------------
407,904,434 304,547,859
Mortgage servicing rights - Note 6 48,535,326 18,834,092
Accrued interest receivable 4,239,435 3,117,400
Premises and equipment - Note 7 16,377,889 13,838,677
Other assets 49,527,138 24,006,755
----------- -----------
$1,038,306,575 $659,670,500
============== =============
Liabilities and Shareholders' Equity:
Deposits
Noninterest-bearing $207,379,192 $154,081,893
Interest-bearing 302,543,544 264,361,775
Certificates of deposit
over $100,000 54,075,911 21,474,306
----------- -----------
563,998,647 439,917,974
Short-term borrowings - Note 9 310,278,659 93,981,072
Long-term debt - Note 10 21,574,792 24,029,410
Other liabilities 43,237,996 20,638,098
----------- -----------
Total liabilities 939,090,094 578,566,554
------------ -----------
Shareholders' equity
Preferred stock, no par value -
authorized 50,000 shares;
none issued - -
Common stock; no par value -
authorized 7,500,000 shares; issued
5,850,520 shares in 1995 and 1994;
including 185,604 and 220,732
shares in treasury in 1995 and
1994, respectively 29,965,287 29,965,287
Additional paid-in capital - -
Net unrealized gain (loss) on investment
securities net of deferred income
taxes of $6,435 in 1995 and $186,040
in 1994. (9,657) (279,063)
Retained earnings 74,647,711 57,080,536
----------- -----------
104,603,341 86,766,760
Less treasury stock, at cost 5,386,860 5,662,814
----------- -----------
Total shareholders' equity 99,216,481 81,103,946
----------- -----------
$1,038,306,575 $659,670,500
============== =============
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
PAGE 90
<Page 100>
Consolidated Statement of Changes in Shareholders' Equity
<TABLE>
<CAPTION>
Net Unrealized
Additional Gain (Loss)
Common Paid-In on Investment Retained Treasury
Stock Capital Securities Earnings Stock
------ ----------- ------------- --------- --------
<C> <C> <C> <C> <C> <C>
Balance at
January 1, 1993 $14,357,305 $461,653 - $40,524,366 -
Common stock
issued for
stock split 14,521,845 (1,091,721) - (13,430,124) -
Common stock issued for
employee stock purchase
plan 170,975 658,261 - - -
Net income - - - 15,588,361 -
Cash dividends
$.30 per share - - - (1,733,317) -
Unrealized gains on investment
securities - - 87,293 - -
Purchase of 29,160 shares of
treasury stock - - - - 637,889
Sale of 29,160 shares of
treasury stock - (22,030) - - (637,889)
------- --------- ------- -------- --------
Balance at December 31,
1993 29,050,125 6,163 87,293 40,949,286 -
---------- ------ ------- ---------- ------
Common stock issued for
employee stock
purchase plan 893,496 - - - -
Conversion of common stock
to no par value 21,666 (21,666) - - -
Net income - - - 18,215,539 -
Cash dividends -
$.36 per share - - - (2,073,733) -
Unrealized losses on investment
securities - - (366,356) - -
Purchase of 245,475 shares of
treasury stock - - - - 6,207,150
Sale of 24,743 shares of
treasury stock - 15,503 - (10,556)(544,336)
------- ------- ---------- -------- ------
Balance at December 31,
1994 29,965,287 - (279,063) 57,080,536 5,662,814
---------- ------ -------- ---------- ---------
Net income - - - 20,083,202 -
Cash dividends -
$.44 per share - - - (2,482,705) -
Unrealized gains on investment
securities - - 269,406 - -
Tax benefit on exercise of
stock options - 704,394 - - -
Purchase of 88,785 shares of
treasury stock - - - - 2,887,611
Sale of 123,913 shares of
treasury stock - (704,394) - (33,322) (3,163,565)
------- -------- --------- -------- ---------
Balance at December 31,
1995 $29,965,287 $- (9,657) $74,647,711 $5,386,860
=========== ========= ======== =========== =========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
PAGE 91
<Page 101>
Consolidated Statement of Cash Flows
<TABLE>
<CAPTION>
For the year ended December 31, 1995 1994 1993
----- ----- -----
<S> <C> <C> <C>
Net Income $20,083,202 $18,215,539 $15,588,361
</TABLE>
<TABLE>
Adjustment to reconcile net income to cash provided (used) by
operating activities:
<S> <C> <C> <C>
Depreciation and amortization 9,605,234 4,075,249 4,964,257
Provision for possible loan
and lease losses 3,073,000 1,727,000 1,577,000
Amortization of premiums,
less accretion of discounts 574,956 (659,363) (63,640)
Mortgage loan originations
(3,559,310,152) (2,812,961,911) (4,273,932,768)
Sales of mortgage loans 3,335,616,389 3,028,752,763 4,121,257,039
Gain on sale of mortgage
servicing (15,271,081) (17,715,696) (2,978,887)
Other, net (5,781,443) 1,088,287 (655,819)
------------ -------------- --------------
Net cash provided (used) by
operating activities (211,409,895) 222,521,868 (134,244,457)
Lending and investing activities:
Proceeds from maturities/calls of
investment securities:
Held-to-Maturity 53,491,466 47,502,478 33,826,924
Available-for-Sale 9,507,979 46,139,448 110,005
Proceeds from sales of investment
securities:
Available-for-sale 3,008,031 2,029,289 -
Purchase of investment securities:
Held-to-Maturity (35,814,475) (68,407,912) (26,192,532)
Available-for-Sale (14,280,795) (8,610,870) (56,211,442)
Net (increase) decrease in interest-bearing
deposits with financial
institutions 4,226,466 22,915,401 (25,466,641)
Net increase in loans (158,013,297) (53,452,273) (47,261,354)
Sale of home equity loans 51,583,722 - -
Net additions to premises
and equipment (5,270,777) (3,490,108) (5,124,565)
Additions to mortgage
servicing rights (49,486,423) (22,103,888) (18,060,946)
Proceeds from sale of mortgage
servicing rights 30,190,930 30,547,293 16,635,676
----------- ----------- -----------
Net cash used by lending
and investing activities (110,857,173) (6,931,142) (127,744,875)
Financing activities:
Net increase (decrease)
in deposits 124,080,673 (60,452,108) 111,047,481
Net increase (decrease) in short-term
borrowings 216,297,587 (179,819,319) 148,721,552
Repayment of long-term debt (7,747,676) (5,102,780) (7,147,357)
Proceeds from long-term debt 5,293,058 11,351,485 12,626,516
Purchase of treasury stock (2,887,611) (6,207,150) (637,889)
Proceeds from sale of stock for employee
stock purchase plan 3,130,243 1,442,779 1,445,095
Dividends paid (2,482,705) (2,073,733) (1,733,317)
----------- ----------- -----------
Net cash provided (used) by
financing activities 335,683,569 (240,860,826) 264,322,081
----------- ------------ -----------
Net increase (decrease) in cash and
cash equivalents 13,416,501 (25,270,100) 2,332,749
Cash and cash equivalents at beginning
of year 50,840,452 76,110,552 73,777,803
Cash and cash equivalents at
end of year $64,256,953 $50,840,452 $76,110,552
=========== =========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the year:
Interest $27,551,606 $17,457,343 $16,792,392
============ =========== ===========
Income taxes $3,829,990 $11,569,195 $15,698,531
============ =========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
PAGE 92
<Page 102>
Notes to Consolidated Financial Statements
Note 1:Summary of Significant Accounting Policies
Consolidation: Irwin Financial Corporation and its subsidiaries
(the Corporation) provide financial services throughout the
United States. The Corporation is engaged in the mortgage
banking, commercial banking, investor services, home equity
lending, and equipment leasing lines of business. Intercompany
balances and transactions have been eliminated in consolidation.
Use of Estimates: The preparation of financial statements in
conformity with generally accepted accounting principles requires
the Corporation to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from
those estimates.
Securities: Those securities which the Corporation has the
positive intent and ability to hold until maturity are classified
as held-to-maturity and are stated at cost adjusted for
amortization of premium and accretion of discount. Securities
that might be sold prior to maturity are classified as "available-
for-sale'' and are stated at fair value. Unrealized gains and
losses, net of the future tax impact, are reported as a separate
component of shareholders' equity until realized. Investment
gains and losses are based on the adjusted cost of the specific
security.
Mortgage Banking Activities: Mortgage loans held for sale are
carried at the lower of cost or market, determined on an
aggregate basis. On May 12, 1995, the Financial Accounting
Standards Board (FASB) issued SFAS No. 122, ''Accounting for
Mortgage Servicing Rights'' (SFAS No. 122), an amendment to SFAS
No. 65. The Corporation elected to adopt this standard for its
financial statement reporting in the second quarter of 1995. SFAS
No. 122 prohibits retroactive application to 1994. Accordingly,
the Corporation's previous years and first quarter 1995 mortgage
banking activities reported in the financial statements were
accounted for under the original SFAS No. 65.
SFAS No. 122 requires that a portion of the cost of originating a
mortgage loan be allocated to the mortgage servicing right based
on its fair value relative to the loan as a whole. To determine
the fair value of the servicing rights created since the second
quarter of 1995, the Corporation used the market prices under
comparable servicing sale contracts, when available, or
alternatively used a valuation model that calculates the present
value of future cash flows to determine the fair value of the
servicing rights. In using this valuation method, the Corporation
incorporated assumptions that it is believed market participants
would use in estimating future net servicing income which
included estimates of the cost of servicing per loan, the
discount rate, float value, an inflation rate, ancillary income
per loan, prepayment speeds, and default rates. Capitalized
servicing rights are amortized over the estimated lives of the
related loans, which are grouped based on loan characteristics,
in proportion to estimated net servicing income.
In determining servicing value impairment at the end of the year,
the post-implementation servicing portfolio was disaggregated
into its predominant risk characteristics. The Corporation has
determined those risk characteristics to be interest rate, loan
type, and investor type. These segments of the portfolio were
valued using market prices under comparable servicing sale
PAGE 95
<Page 103>
Notes to Consolidated Financial Statements (continued)
contracts, when available, or alternatively, using the same model
as was used to originally determine the fair value at
origination, using current assumptions. The calculated value was
then compared with the book value of each segment to determine
the required reserve for impairment. It is reasonably possible
that a change in the impairment reserve will occur in the near
term. No reasonable estimate can be made of the range of amounts
of loss or gain.
The effect of the change in accounting standards to 1995 results
was an increase to net income of approximately $11,800,000 for
the last three quarters of 1995 over what would have been earned
under SFAS No. 65.
Loans: Loan origination fees and costs are deferred and the net
amounts are amortized as adjustments of the loans' yields. When
loans are sold, deferred fees and costs are included with
outstanding principal balances to determine gains or losses.
Interest income on loans is computed daily based on the principal
amount of loans outstanding. The accrual of interest income is
discontinued when a loan becomes 90 days past due as to principal
or interest. Management may elect to continue the accrual of
interest when the estimated net realizable value of collateral is
sufficient to cover the principal balance and accrued interest.
Direct Financing Leases: Interest and service charges, net of
initial direct costs, are deferred and reported as income in
decreasing amounts over the life of the lease, which averages
three to four years, so as to provide an approximate constant
yield on the outstanding principal balance.
Allowance for Possible Loan and Lease Losses: The allowance for
possible loan and lease losses is maintained at a level
considered adequate to provide for potential loan and lease
losses and is based on management's evaluation of potential
losses in the portfolios, as well as prevailing and anticipated
economic conditions. On January 1, 1995, the Corporation adopted
Statement of Financial Accounting Standards No. 114, ''Accounting
by Creditors for Impairment of a Loan'' (SFAS No. 114) and
Statement of Financial Accounting Standards No. 118 which amends
SFAS No. 114. Under these standards, certain loans are considered
impaired if it is probable that the Corporation will be unable to
collect the scheduled payments of principal or interest when due
according to the contractual terms of the loan agreement. The
measurement of impaired loans is generally based on the present
value of expected future cash flows discounted at the historical
effective interest rate, except that all collateral-dependent
loans are measured for impairment based on the fair value of the
collateral. The adoption of these standards did not have a
material effect on the Corporation's financial position or
results of operations in 1995.
PAGE 96
<Page 104>
Derivative Contracts: The Corporation uses derivative contracts
to hedge the value of mortgage servicing rights. The contracts
are recorded at market value.
Premises and Equipment: Premises and equipment are recorded at
cost. Depreciation is determined by the straight-line method.
Income Per Share: Income per share computations are based on the
weighted average number of common shares outstanding during the
year. The net income and cash dividend per share information has
been adjusted to reflect the two-for-one stock split on September
2, 1993.
Stocked-Based Compensation: The FASB has issued Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-
Based Compensation'' (SFAS No. 123). This statement establishes
the accounting and disclosure standards for stock-based employee
compensation plans. In 1996, the Corporation will adopt the
required disclosure provisions of the statement, but not the
optional accounting criteria. Accordingly, the implementation of
SFAS No. 123 will have no effect on the Corporation's financial
position in 1996.
Income Taxes: A consolidated tax return is filed for all eligible
entities. Deferred income taxes are computed using the liability
method which establishes a deferred tax asset or liability based
on temporary differences between the tax basis of an asset or
liability and the basis recorded in the financial statements.
Rehabilitation tax credits and low-income housing tax credits are
recorded as a reduction to the provision for federal income taxes
in the year the eligible buildings are placed in service.
Cash and Cash Equivalents Defined: For purposes of the statement
of cash flows, the Corporation considers cash and due from banks
and federal funds sold to be cash equivalents.
Forward Commitments: The Corporation uses forward contracts to
reduce its interest rate exposure associated with mortgage
banking activities.
Reclassifications: Certain amounts in the 1994 and 1993
consolidated financial statements have been reclassified to
conform to the 1995 presentation.
Note 2: Restrictions on Cash And Due From Banks
Irwin Union Bank and Trust Company is required to maintain a
reserve balance with the Federal Reserve Bank. The amount of the
reserve balance for the period including December 31, 1995 was
approximately $4,224,000.
PAGE 97
<Page 105>
Notes to Consolidated Financial Statements (continued)
Note 3: Investment Securities
The amortized cost, fair value, and carrying value of investments
held at December 31, 1995 are as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair Carrying
Cost Gains Losses Value Value
--------- ---------- ---------- ----- ---------
Held-to-Maturity:
<S> <C> <C> <C> <C> <C>
U.S. Treasury and Government
obligations $26,914,375 $479,575 $- $27,393,950 $26,914,375
Obligations of states and
political
subdivisions 6,490,223 322,077 (2,151) 6,810,149 6,490,223
Mortgage-backed
securities 8,858,431 215,550 - 9,073,981 8,858,431
--------- -------- -------- ---------- ----------
Total held-to-
maturity 42,263,029 1,017,202 (2,151) 43,278,080 42,263,029
---------- --------- -------- ---------- ----------
Available-for-Sale:
U.S. Treasury and Government
obligations 15,362,687 34,678 (37,927) 15,359,438 15,359,438
Mortgage-backed
securities 3,259,791 2,676 (15,521) 3,246,946 3,246,946
--------- -------- -------- ---------- ----------
Total available-
for-sale 18,622,478 37,354 (53,448) 18,606,384 18,606,384
---------- ------- -------- ----------- ----------
Total
investments $60,885,507 $1,054,556 $(55,599) $61,884,464 $60,869,413
=========== ========== ======== =========== ===========
</TABLE>
The amortized cost, fair value, and carrying value of investments
held at December 31, 1994 are as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair Carrying
Cost Gains Losses Value Value
--------- --------- ---------- ------ ---------
Held-to-Maturity:
<S> <C> <C> <C> <C> <C>
U.S. Treasury and Government
obligations $41,826,087 $ 193 $(856,198) $40,970,082 $41,826,087
Obligations of states and political
subdivisions 7,548,613 67,223 (48,120) 7,567,716 7,548,613
Mortgage-backed
securities 9,982,166 118,101 (249,810) 9,850,457 9,982,166
Corporate
obligations 1,000,000 - (312) 999,688 1,000,000
--------- --------- --------- ---------- ---------
Total held-
to-maturity 60,356,866 185,517 (1,154,440) 59,387,943 60,356,866
---------- ------- ---------- --------- ---------
Available-for-Sale:
U.S. Treasury and Government
obligations 14,162,781 9,688 (338,954) 13,833,515 13,833,515
Mortgage-backed
securities 3,302,031 - (135,837) 3,166,194 3,166,194
--------- -------- --------- ---------- ---------
Total available-
for-sale 17,464,812 9,688 (474,791) 16,999,709 16,999,709
---------- -------- --------- ----------- ---------
Total
investments $77,821,678 $195,205 $(1,629,231) $76,387,652 $77,356,575
=========== ======== ========== ========= ==========
</TABLE>
PAGE 98
<Page 106>
The amortized cost and fair value of debt securities at December
31, 1995, by contractual maturity, are shown below. Expected
maturities will differ from contractual maturities because
borrowers may have the right to call or prepay obligations with
or without call or prepayment penalties.
<TABLE>
<CAPTION>
Amortized Fair
Cost Value
---------- ---------
Held-to-Maturity:
<S> <C> <C>
Due in one year or less $3,584,166 $3,638,752
Due after one year through five years 19,226,090 19,748,075
Due after five years through ten years 2,183,642 2,370,797
Due after ten years 270,000 305,775
------------ -------------
25,263,898 26,063,399
Mortgage-backed securities 8,858,431 9,073,981
Federal Home Loan Bank stock 8,140,700 8,140,700
------------ -------------
42,263,029 43,278,080
Available-for-Sale:
Due in one year or less 6,498,133 6,496,327
Due after one year through five years 8,864,554 8,863,111
------------ -------------
15,362,687 15,359,438
Mortgage-backed securities 3,259,791 3,246,946
------------ -------------
18,622,478 18,606,384
------------ -------------
Total investments $60,885,507 $61,884,464
============ =============
</TABLE>
Investment securities amounting to $19,693,654 were pledged as
collateral for borrowings and for other purposes on December 31,
1995. During 1995, sales of "available-for-sale"investments with
proceeds of $3,008,031 resulted in a gross loss of $15,786. "Held-
to-maturity"investments totaling $4,446,100 were called at their
par value. In 1994, sales of "available-for-sale"investments
with proceeds of $2,029,289 resulted in a gross gain of $4,374.
Additionally in 1994, proceeds from calls of "held-to-
maturity"investments were $2,721,183 resulting in a gross gain of
$5,000. In 1993, proceeds from calls of investments were $336,600
with a gross gain of $6,600 realized. Sales of "held-to-
maturity"investments in 1995 and 1994 and all sales in 1993 were
due to calls on the securities.
As permitted by the November 1995 FASB Special Report on the
accounting for investments, the Corporation transferred
$8,850,000 of investment securities from the "held-to-
maturity"category to the "available-for-sale"category in 1995.
These investments had a market value of $8,862,955 at the time of
transfer.
PAGE 99
<Page 107>
Note 4:Loans and Leases
Loans and leases are summarized as follows:
<TABLE>
<CAPTION>
December 31, 1995 1994
----- -----
<S> <C> <C>
Commercial, financial and agricultural $150,311,871 $136,082,836
Real estate-construction 36,125,577 21,960,246
Real estate-mortgage 108,350,683 47,422,827
Consumer 67,755,702 55,322,568
Direct financing leases 60,979,310 58,348,603
Unearned income (10,998,542) (10,725,998)
------------ -----------
Total $412,524,601 $308,411,082
============= ============
</TABLE>
Commercial loans are extended primarily to local regional
businesses and to local farming operations in the market area of
Irwin Union Bank. The Corporation also provides consumer loans to
the customers in that market.
The Bank, in the normal course of business, makes loans to
directors, officers, and organizations and individuals with which
they are associated. These transactions are consistent with sound
banking practices and are within applicable bank regulatory
guidelines and limitations. Such loans amounted to approximately
$4,145,000 and $2,634,000 at December 31, 1995 and 1994,
respectively. During 1995 $14,408,000 of new loans were made and
repayments totaled $12,897,000.
The Corporation leases small-ticket medical and other equipment
under direct financing leases generally with terms from one to
five years. At December 31, 1995, information pertaining to the
Corporation's investment in direct financing leases is as
follows:
<TABLE>
<S> <C>
Future minimum lease payments receivable $54,164,990
Estimated unguaranteed residual value of leased assets 6,814,320
------------
Investment in direct financing leases 60,979,310
Unearned income (10,998,542)
------------
Net investment in direct financing leases $49,980,768
============
</TABLE>
Contractual future minimum lease payments receivable during the
next five years are as follows:
<TABLE>
<S> <C>
1996 $24,887,267
1997 15,610,964
1998 8,354,022
1999 3,973,857
2000 1,338,880
------------
Total $54,164,990
============
</TABLE>
Actual payments may differ from contractual payments because
borrowers have the right to prepay lease obligations without
prepayment penalties.
PAGE 100
<Page 108>
Note 5: Allowance for Possible Loan and Lease Losses
Changes in the allowance for possible loan and lease losses are
summarized below:
<TABLE>
<CAPTION>
December 31, 1995 1994 1993
----- ----- -----
<S> <C> <C> <C>
Balance at beginning of year $3,863,223 $3,293,402 $3,220,418
Provision for possible loan and
lease losses 3,073,000 1,727,000 1,577,000
Reduction due to sale of loans (215,833) - -
Recoveries 389,674 408,821 280,402
Charge-offs (2,489,897) (1,566,000) (1,784,418)
---------- ---------- -----------
Balance at end of year $4,620,167 $3,863,223 $3,293,402
========== =========== ===========
</TABLE>
At December 31, 1995 the recorded investment in loans for which
impairment has been recognized in accordance with SFAS No. 114
and SFAS No. 118 totaled $6,543,932. These loans had a
corresponding valuation allowance of $742,901, determined based
on the fair value of the loans' collateral. The Corporation
recognized $260,886 of interest income on these loans in 1995.
Note 6:Mortgage Servicing Rights
Included on the consolidated balance sheet at December 31, 1995
and 1994 are $48,535,326 and $18,834,092, respectively, of
capitalized mortgage servicing rights. These amounts relate to
the principal balances of mortgage loans serviced by the
Corporation for investors which total $10,301,914,063 and
$8,818,502,314 at December 31, 1995 and 1994, respectively.
Although they are not generally held for purposes of sale, there
is an active secondary market for mortgage servicing rights.
In accordance with the requirements of SFAS No. 122, in 1995 the
Corporation established a valuation allowance to record mortgage
servicing rights at their fair market value. The December 31,
1995 mortgage servicing rights balance is recorded net of the
$908,778 valuation allowance. Gains on the sale of loans in 1995
are recorded net of an impairment provision of the same amount.
Note 7: Premises and Equipment
Premises and equipment are summarized as follows:
<TABLE>
<CAPTION>
December 31, 1995 1994
----- -----
<S> <C> <C>
Land $1,221,918 $442,103
Building and leasehold improvements 9,846,001 9,034,424
Furniture and equipment 20,315,099 16,941,147
---------- ----------
31,383,018 26,417,674
Less accumulated depreciation (15,005,129) (12,578,997)
----------- ------------
Total $16,377,889 $13,838,677
=========== ============
</TABLE>
PAGE 101
<Page 109>
Note 8:Lease Obligations
At December 31, 1995, the Corporation and its subsidiaries leased
certain branch locations and office equipment used in its
operations.
Operating lease rental expense was $7,754,388 in 1995, $5,075,119
in 1994, and $3,908,446 in 1993.
The future minimum rental payments required under noncancelable
operating leases with initial or remaining terms of one year or
more are summarized as follows:
<TABLE>
<CAPTION>
Year ended December 31:
<S> <C>
1996 $5,292,350
1997 4,096,422
1998 2,184,048
1999 1,336,231
2000 1,085,997
Thereafter 1,138,555
-----------
Total minimum rental payments $15,133,603
===========
</TABLE>
Note 9:Short-Term Borrowings
Short-term borrowings are summarized as follows:
<TABLE>
<CAPTION>
December 31, 1995 1994
----- -----
<S> <C> <C>
Repurchase agreements and drafts payable
related to mortgage loan closings $225,872,594 $75,943,986
Commercial paper 21,722,935 15,538,086
Federal funds 40,000,000 199,000
Other 22,683,130 2,300,000
------------- -----------
Total $310,278,659 $93,981,072
============== ==============
Weighted average interest rate 5.51% 4.19%
</TABLE>
Repurchase agreements at December 31, 1995 and 1994 include
$151,104,931 and $47,476,177 in mortgages sold under agreements
to repurchase which are used to
fund mortgages prior to sale in the secondary market. These
repurchase agreements are collateralized by mortgage loans held
for sale.
Drafts payable related to mortgage loan closings totaled
$69,395,883 and $23,422,309 at December 31, 1995 and 1994. These
borrowings are related to mortgage closings at the end of
December which have not been presented to the banks for payment.
When presented for payment, these borrowings will be funded
internally or by borrowing from the lines of credit.
Commercial paper includes $18,005,000 and $11,187,000 at December
31, 1995 and 1994, respectively, payable to a company owned by a
significant shareholder and director of the Corporation.
PAGE 102
<Page 110>
The Corporation also has lines of credit available of $52,000,000
to fund mortgage loans held for sale. Interest on the lines of
credit is payable monthly at the lenders' prime rates. At
December 31, 1995 and 1994, there was $22,600,000 and $2,300,000,
respectively, outstanding under these lines of credit included in
other short-term borrowings.
Note 10:Long-Term Debt
Long-term debt at December 31, 1995 of $21,574,792 consists of
various notes payable at annual interest rates ranging from 6.0%
to 9.6% and maturity dates through April 30, 2001. Long-term debt
as of December 31, 1994, was $24,029,410 and consisted of various
notes payable at annual interest rates ranging from 6.0% to 9.6%
and maturity dates through March 3o, 2000. Long-term debt is
collateralized by equipment leases and office equipment.
Maturities of long-term debt are as follows:
<TABLE>
<S> <C>
1996 $11,493,669
1997 5,254,889
1998 3,526,577
1999 1,008,964
2000 288,154
Thereafter 2,539
------------
Total $21,574,792
============
</TABLE>
Note 11 :Commitments and Contingents
In the normal course of business, Irwin Financial Corporation and
its subsidiaries are subject to various claims and other pending
and possible legal actions. Management believes that the results
of these claims and possible legal actions will not have a
material adverse effect on the Corporation's financial position
or results of operations.
Note 12:Financial Instruments with Off-Balance Sheet Risk
The Corporation is party to certain financial instruments with
off-balance sheet risk in the normal course of business to meet
the financial needs of its customers and to reduce its own
exposure to fluctuations in interest rates. These financial
instruments include loan commitments, standby letters of credit
and forward commitments relating to community and mortgage
banking activities. Those instruments involve, to varying
degrees, elements of credit and interest rate risk in excess of
the amounts recognized in the consolidated balance sheet.
The Corporation's exposure to credit loss in the event of
nonperformance by the other party to the financial instrument for
commitments to extend credit and standby letters of credit is
represented by the contractual amount of those instruments. The
collateral pledged for standby letters of credit and commitments
varies but may include accounts receivable, inventory, property,
plant, and equipment, and residential real estate. Total
outstanding commitments to extend credit at December 31, 1995,
were $205,532,000. These loan commitments include $62,104,000
related to community banking activities in addition to $8,953,000
of floating rate loan commitments and $134,475,000 of fixed rate
loan commitments related to mortgage banking activities. The
interest rate risk of the mortgage banking commitments is hedged
by forward commitments. The Corporation had approximately
$11,898,000 and $6,141,000 in irrevocable standby letters of
credit outstanding at December 31, 1995 and 1994, respectively.
PAGE 103
<Page 111>
Forward commitments are used in mortgage banking activities to
hedge the interest rate risk associated with mortgage loan
commitments and loans held for sale. The contract amount for
forward contracts does not represent exposure to credit loss.
Forward commitments related to mortgage banking activities were
$432,370,000 and 198,228,000 at December 31, 1995 and 1994,
respectively.
Derivative contracts are used to hedge the value of mortgage
servicing rights against the effects of increased prepayment
activity that generally results from declining interest rates. To
the extent that interest rates increase, the value of mortgage
servicing rights increases while the value of the hedge
instruments declines. However, the Corporation is not exposed to
loss beyond its initial outlay to acquire the hedge instruments.
The Corporation's mortgage servicing rights hedge instruments
consist entirely of long call options on U.S. Treasury futures.
At December 31, 1995, the carrying value of these options was
approximately $445,000 and the notional amount was $100,000,000,
all of which related to 1995 additions and no dispositions. There
can be no assurance that the Corporation's hedge instruments will
generate gains in the future.
The Corporation's commercial bank grants credit to customers in
south-central Indiana. Its mortgage banking operations are
located in 27 states throughout the United States.
Note 13: Fair Value of Financial Instruments
Fair value estimates, methods and assumptions are set forth below
for the Corporation's financial instruments:
Cash and cash equivalents: The carrying amounts reported in the
balance sheet for cash and cash equivalents approximate those
assets' fair values.
Interest-bearing deposits with financial institutions: Fair
values were estimated by discounting future cash flows using the
current rates offered on similar deposits.
Investment securities: Fair values for investment securities were
based on quoted market prices.
Mortgage loans held for sale: Fair values for mortgage loans held
for sale were based on quoted market prices.
Loan receivables: For variable rate loans that reprice frequently
and with no significant change in credit risk, fair values were
based on carrying values. The fair values of commercial,
consumer, real estate-mortgage, and real estate-construction
loans were estimated using discounted cash flow analyses, using
interest rates currently being offered for loans with similar
terms to borrowers with similar credit quality and for the same
remaining maturities.
Derivative Contracts: The carrying amounts of derivative
contracts equal their fair values which are based on quoted
market prices.
PAGE 104
<Page 112>
Deposit liabilities: The fair value of demand deposits, including
interest and non-interest checking, passbook savings, and certain
types of money market accounts, is assumed to be equal to the
amount payable on demand at the reporting date. The carrying
amounts for variable-rate money market accounts and certificates
of deposit approximate their fair values at the reporting date.
Fair values for fixed-rate certificates of deposit are estimated
using a discounted cash flow calculation that applies interest
rates currently being offered on certificates with similar
remaining maturities.
Short-term borrowings: The carrying amounts of short-term
borrowings approximate their fair values.
Long-term debt: The fair values of variable-rate long-term debt,
which reprices frequently, were based on carrying values. For
fixed-rate long-term debt, fair values were estimated using
discounted cash flow analyses, based on current incremental
borrowing rates for similar types of borrowing arrangements.
Commitments to extend credit and standby letters of credit: The
carrying values of these financial instruments are based on fees
charged to enter into the agreements and approximate their fair
values. The carrying values are insignificant to the
Corporation's balance sheet and have been included in the
carrying values of loans and other assets for commitments and
standby letters of credit, respectively.
The estimated fair values of the Corporation's financial
instruments at December 31 are as follows:
<TABLE>
<CAPTION>
1995 1994
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
-------- ---------- --------- ------------
Financial assets:
<S> <C> <C> <C> <C>
Cash and cash
equivalents $64,256,953 $64,257,000 $50,840,452 $50,841,000
Interest-bearing
deposits with
financial
institutions 7,937,740 7,926,000 12,164,206 11,997,000
Investment
securities 60,869,413 61,884,000 77,356,575 76,388,000
Mortgage loans held
for sale 378,658,247 380,135,000 154,964,484 155,012,000
Loans, net of allowance for
loan losses 358,213,904 358,135,000 277,435,477 287,057,000
Derivative contracts 445,000 445,000 - -
Financial liabilities:
Deposits 563,998,647 564,282,000 439,917,974 439,831,000
Short-term
borrowings 310,278,659 310,279,000 93,981,072 93,981,000
Long-term debt $21,574,792 $21,683,000 $24,029,410 $23,585,000
</TABLE>
The fair value estimates consider relevant market information
when available. Because no market exists for a significant
portion of the Corporation's financial instruments, fair value
estimates are determined judgmentally and consider various
factors, including current economic conditions and risk
characteristics of certain financial instruments. Changes in
factors, or the weight assumed for the various factors, could
significantly affect the estimated values.
PAGE 105
<Page 113>
The fair value estimates are presented for existing on- and off-
balance sheet financial instruments without attempting to
estimate the value of the Corporation's long-term relationships
with depositors and the benefit that results from the low cost
funding provided by deposit liabilities. In addition, significant
assets which were not considered financial instruments and were
therefore not a part of the fair value estimates include lease
receivables, mortgage servicing rights, deferred taxes, and
premises and equipment.
Note 14: Shareholders' Equity
The Shareholders of the Corporation approved a change in common
stock to no par value effective April 28, 1994.
The Corporation has a stock plan to compensate Directors of the
Corporation with the Corporation's common stock, if so elected,
in lieu of cash for their annual retainer and meeting fees. The
number of shares issued under the plan is based on the current
market value of the Corporation's common stock. The Corporation
also has an employee stock purchase plan for all qualified
employees. The plan provides for employees to purchase common
stock through payroll deduction at approximately 85% of the
current market value.
The Corporation has two stock option plans (established in 1992
and 1986) which provide for the issuance of 720,000 shares of non-
qualified and incentive stock options. Options granted under
these plans expire ten years from the date of the grant and are
exercisable over a vesting period of four years beginning the
year granted. The 1986 plan also provides for stock appreciation
rights (SARs) that may be granted with respect to options issued.
The holder of an SAR has the right to surrender the related
option at any time the option could be exercised (subject to
limitations described in the plan) and to receive its value at
that date in cash or common stock. Vested outstanding stock
options have been considered as common stock equivalents in the
computation of earnings per share.
Activity in the above plans for 1995 and 1994 is summarized as
follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
Number of Number of
shares Option Price shares Option Price
--------- ----------- --------- ----------
<S> <C> <C> <C> <C>
Outstanding at the beginning of
the year 325,402 $4.44-22.75 261,977 $4.44-11.81
Granted 60,350 31.375 68,450 22.75
Exercised (75,877) 5.04-22.75 (5,025) 4.44-5.50
Cancelled (475) 22.13-22.75 - -
-------- ------------ ------- -----------
Outstanding at the end of
the year 309,400 4.44-31.375 325,402 4.44-22.75
======== ============ ======== ============
Exercisable at the end of
the year 192,513 $4.44-31.375 204,563 $4.44-22.75
======== ============ ======== ============
Available for future
grants 170,552 231,902
======== ========
</TABLE>
PAGE 106
<Page 114>
Note 15:Dividends from Subsidiary Bank
Consolidated retained earnings include undistributed earnings of
Irwin Union Bank and Trust Company. At December 31, 1995, the
Bank may pay dividends of up to $10,348,379 from its
undistributed earnings without obtaining approval from bank
regulatory agencies. In practice, the Corporation further limits
dividends from the Bank to maintain adequate capital.
Note 16 :Income Taxes
Income taxes are summarized as follows:
<TABLE>
<CAPTION>
December 31, 1995 1994 1993
----- ----- -----
<S> <C> <C> <C>
Current $(487,000) $11,338,000 $12,374,000
Deferred (credit) 12,853,000 510,000 (2,399,000)
----------- ----------- ------------
$12,366,000 $11,848,000 $9,975,000
=========== =========== ===========
</TABLE>
The Corporation's net deferred tax asset and liability, which are
included in other assets and other liabilities on the
consolidated balance sheet, consisted of the following:
<TABLE>
<CAPTION>
December 31, 1995 1994
----- -----
<S> <C> <C>
Mortgage servicing $(16,542,988) $6,457,026
Deferred compensation 2,328,595 2,092,204
Loan and lease loss reserve 2,952,967 2,590,291
Deferred fees and costs 367,360 244,088
Lease financing income (4,413,995) (4,592,663)
Fixed assets (810,346) (755,955)
Other, net (305,958) (390,079)
------------ -----------
Net deferred tax asset (liability) $(16,424,365) $5,644,912
============ ==========
</TABLE>
A reconciliation of income tax expense to the amount computed by
applying the statutory income tax rate to income before income
taxes is summarized as follows:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Income taxes computed at the
statutory rate $11,032,729 $10,522,239 $8,947,176
Increase (decrease) resulting from:
Nontaxable interest from investment
securities and loans (308,157) (319,805) (280,771)
State franchise tax, net of
federal benefit 1,820,400 1,661,011 1,412,376
Rehabilitation and low-income
tax credits (30,000) (30,000) (30,000)
Other items - net (148,972) 14,555 (73,781)
--------- --------- ---------
$12,366,000 $11,848,000 $9,975,000
=========== =========== ===========
</TABLE>
PAGE 107
<Page 115>
Note 17:Employee Retirement Plans
The Corporation has a defined benefit plan covering eligible
employees of adopting subsidiaries. The benefits are based on
years of service and the employees' compensation during their
employment. The Corporation's funding policy is consistent with
the funding requirements of federal law and regulations.
Contributions are intended to provide not only for benefits
attributed to service to date but also for those expected to be
earned in the future.
Plan assets are primarily invested in corporate and U.S. bonds,
mutual funds and cash equivalents. The mutual funds are invested
primarily in common stocks and bonds.
The following table sets forth the plan's funded status and
amounts recognized in the Corporation's consolidated balance
sheet:
<TABLE>
<CAPTION>
December 31, 1995 1994
----- -----
Actuarial present value of benefit based
on service to date and present pay levels:
Accumulated benefit obligation
<S> <C> <C>
Vested $5,948,210 $4,782,290
Non-vested 174,990 130,368
----------- -----------
6,123,200 4,912,658
Additional amounts related to projected
pay increases 1,693,455 1,172,944
----------- -----------
Projected benefit obligation 7,816,655 6,085,602
Plan assets at fair value 7,002,188 6,169,759
----------- -----------
Excess of assets over (under) projected
benefit obligation (814,467) 84,157
Prior service cost not yet recognized in
net periodic pension cost (19,368) (14,866)
Unrecognized net loss from past experience
different from that assumed 1,523,009 902,449
Unrecognized net transition asset (213,769) (344,240)
----------- -----------
Prepaid pension costs included in other
assets $ 475,405 $ 627,500
=========== ===========
</TABLE>
The net pension cost for 1995, 1994, and 1993 included the
following components:
<TABLE>
<CAPTION>
1995 1994 1993
----- ----- -----
<S> <C> <C> <C>
Service cost _ benefits earned
during the period $ 344,825 $ 345,337 $ 315,766
Interest cost on projected
benefit obligation 483,011 439,596 419,881
Actual(return)loss on plan assets (916,317) 159,110 (695,718)
Net amortization and deferral 249,940 (846,569) 94,995
---------- ----------- ----------
Net pension cost $ 161,459 $ 97,474 $ 134,924
========== ========== ==========
</TABLE>
The weighted average discount rate used in determining the
actuarial present value of the projected benefit obligation was
7.0% and 8.0% at December 31, 1995 and 1994, respectively. The
expected long-term rate of return on plan assets and the rate of
increase in future compensation levels were 9% and 5%,
respectively, at December 31, 1995 and 1994.
PAGE 108
<Page 116>
In addition to the defined benefit plan, the Corporation also
provides certain health care and life insurance benefits to
eligible retirees and their dependents. The plan is contributory,
with retirees' contributions determined based on their years of
service with the Corporation. In 1993, the Corporation adopted
SFAS No. 106 which sets forth the accounting standards for these
benefits. The Corporation elected the prospective transition
approach and is amortizing the transition obligation over a 20-
year period.
The following sets forth the plan's funded status reconciled with
amounts reported in the Corporation's consolidated balance sheet
at December 31, 1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
----- -----
Accumulated postretirement benefit
obligation (APBO):
<S> <C> <C>
Retirees $1,202,196 $1,128,954
Fully eligible active plan participants 100,712 84,952
Other active plan participants 285,605 201,802
----------- ----------
Total APBO 1,588,513 1,415,708
Plan assets at fair value - -
---------- -----------
Accumulated postretirement benefit obligation
in excess of plan assets 1,588,513 1,415,708
Less: Unrecognized transition obligation 1,056,767 1,111,516
Unrecognized net loss 181,134 128,051
------------ --------
Accrued postretirement benefit liability $350,612 $176,141
============ ===========
Net periodic postretirement benefit cost for
1995 and 1994 included the following components:
Service cost $24,565 $24,683
Interest cost 109,072 104,936
Amortization of transition obligation 54,749 54,749
Unrecognized net loss 36,857 2,463
------------ --------
Net periodic postretirement benefit cost $225,243 $186,831
=========== ============
</TABLE>
For 1995 a 13.9% and 11.7% annual rate of increase in the per
capita costs of covered health care benefits was assumed for
participants under 65 and over 65, respectively. It was assumed
that those rates would gradually decrease to 6% by the year 2010.
Increasing the assumed health care cost trend rate by one
percentage point in each year would increase the accumulated
postretirement benefit obligation as of December 31, 1995 by
$165,205 and increase the aggregate of the service cost and
interest cost components of net periodic postretirement benefit
cost for 1995 by $16,486. The rate of increase in future
compensation levels used in determining the accumulated
postretirement benefit obligation was 5% at December 31, 1995 and
1994. The weighted average discount rates were 7.0% and 8.0% at
December 31, 1995 and 1994, respectively.
PAGE 109
<Page 117>
Note 18: Irwin Financial Corporation (Parent Only) Financial
Information
The condensed financial statements of the parent company as of
December 31, 1995 and 1994, and for the three years ended
December 31, 1995 are presented below:
Condensed Balance Sheet
<TABLE>
<CAPTION>
December 31, 1995 1994
----- -----
Assets:
<S> <C> <C>
Cash and short-term investments $269,947 $202,921
Investment in bank subsidiary 46,701,976 40,176,496
Investments in non-bank subsidiaries 49,517,885 44,624,210
Loans to non-bank subsidiaries 37,513,805 17,873,000
Other assets 1,829,380 2,040,832
----------- -----------
$135,832,993 $104,917,459
============ ============
Liabilities:
Short-term borrowings $ 28,972,281 $15,538,086
Long-term debt 3,000,000 3,000,000
Other liabilities 4,644,231 5,275,427
------------ ------------
36,616,512 23,813,513
------------ ------------
Shareholders' equity:
Common stock 29,965,287 29,965,287
Other shareholders' equity 69,251,194 51,138,659
------------ ------------
99,216,481 81,103,946
------------ ------------
$135,832,993 $104,917,459
============ ============
</TABLE>
Condensed Statement of Income
<TABLE>
<CAPTION>
For the year ended December 31, 1995 1994 1993
----- ----- -----
Income:
<S> <C> <C> <C>
Cash dividends from non-bank
subsidiaries $14,431,000 $4,446,000 $2,621,522
Cash dividends from bank
subsidiary 1,200,000 900,000 -
Interest income 1,806,896 1,425,410 1,065,179
Other 2,000,573 1,794,997 1,052,516
------------ ----------- ------------
19,438,469 8,566,407 4,739,217
------------ --------- ------------
Expenses:
Salaries 2,163,509 2,077,865 1,769,146
Deferred compensation and employee
benefits 875,533 602,133 444,330
Interest expense 1,491,873 1,030,645 806,169
Other 1,028,813 984,724 642,135
---------- ---------- ----------
5,559,728 4,695,367 3,661,780
---------- ---------- ----------
Income before income taxes and
equity in undistributed
income of subsidiaries 13,878,741 3,871,040 1,077,437
Income taxes(credits), less amounts
charged to subsidiaries (2,844,056) (561,914) (645,000)
---------- ---------- ----------
16,722,797 4,432,954 1,722,437
Equity in undistributed income of
subsidiaries 3,360,405 13,782,585 13,865,924
---------- ---------- ----------
Net income $20,083,202 $18,215,539 $15,588,361
=========== ============ ===========
</TABLE>
PAGE 110
<Page 118>
Condensed statement of cash flows
<TABLE>
<CAPTION>
for the year ended December 31, 1995 1994 1993
----- ----- -----
<S> <C> <C> <C>
Net income $20,083,202 $18,215,539 $15,588,361
Adjustments to reconcile net
income to cash provided
Equity in undistributed income
of subsidiaries (3,360,405) (13,782,585) (13,865,924)
Depreciation 80,077 76,772 70,883
Increase (decrease) in
taxes payable (1,159,924) 598,149 (125,531)
Increase in interest receivable (75,606) (19,118) (55,552)
Increase (decrease) in
interest payable 41,276 46,351 (73,639)
Net change in other assets and
other liabilities (27,117) 733,740 1,094,313
---------- --------- ---------
Net cash provided by
operating activities 15,581,503 5,868,848 2,632,911
----------- ----------- -----------
Lending and investing activities:
Net (increase) decrease in loans
to subsidiaries (19,640,805) 3,554,000 (6,688,997)
Net increase in investments in
subsidiaries (7,260,000) (250,000) (1,000,000)
Net (additions) disposals of premises
and equipment 192,206 (94,839) (153,487)
----------- ----------- -----------
Net cash provided (used) by lending
and investing activities (26,708,599) 3,209,161 (7,842,484)
------------ ------------ ------------
Financing activities:
Net (increase) decrease
in borrowings 13,434,195 (5,621,284) 4,966,842
Payments to acquire
treasury stock (2,887,611) (6,207,150) (637,889)
Proceeds from sale of
treasury stock 3,130,243 549,282 615,859
Proceeds from sale of stock for employee
benefit plan - 893,496 829,236
Dividends paid (2,482,705) (2,073,733) (1,733,317)
---------- --------- ---------
Net cash provided (used) by financing
activities 11,194,122 (12,459,389) 4,040,731
---------- ------------ ------------
Net increase (decrease) in cash and cash
equivalents 67,026 (3,381,380) (1,168,842)
Cash and cash equivalents at
beginning of year 202,921 3,584,301 4,753,143
Cash and cash equivalents at
end of year $269,947 $202,921 $3,584,301
======== ========== ============
Supplemental disclosures of cash flow information:
Cash paid during the year:
Interest $ 1,450,597 $984,295 $879,808
============ =========== ============
Income taxes $ 3,829,990 $11,569,195 $14,788,531
============ =========== ============
</TABLE>
PAGE 111
<Page 119>
Irwin Financial Corporation
Directors
<TABLE>
<CAPTION>
As of March 1, 1996
<S> <S>
Sally Abrams Dean Consultant,
Retired Senior Vice President,
Dillon, Read & Co. Inc.
David W. Goodrich Executive Vice President,
F. C. Tucker Company, Inc.
(Realty Company)
John T. Hackett Managing General Partner,
CID Equity Partners
(Venture Capital Partnership)
William H. Kling President,
Minnesota Public Radio
John C. McGinty, Jr. President,
Southeastern Indiana Health
Management, Inc.
President, Columbus Regional Hospital
Irwin Miller Former Chairman,
Cummins Engine Company, Inc.
William I. Miller Chairman,
Irwin Financial Corporation
John A. Nash President,
Irwin Financial Corporation
Lance R. Odden President and Headmaster,
The Taft School
James T. Sakai Former Chairman,
Contour Hardening, Inc.
(Metals Treatment Company)
Theodore M. Solso President and Chief Operating
Officer,
Cummins Engine Company, Inc.
</TABLE>
PAGE 112
<Page 120>
Irwin Financial Corporation
Senior Officers
<TABLE>
<CAPTION>
As of March 1, 1996
<S> <S>
William I. Miller Chairman
John A. Nash President
Thomas D. Washburn Senior Vice President
Gregory F. Ehlinger Vice President and Treasurer
Jose M. Gonzalez Vice President-Internal Audit
Theresa L. Hall Vice President-Human Resources
Michael F. Ryan Vice President-Community Development
Matthew F. Souza Vice President-Legal and Secretary
Marie C. Strack Vice President and Controller
</TABLE>
PAGE 113
<Page 121>
Form 10-K
For copies of the Corporation's Annual
Report on Form 10-K filed with the Securities
and Exchange Commission, contact:
Thomas D. Washburn, Senior Vice President
Irwin Financial Corporation
P. O. Box 929
Columbus, Indiana 47202-0929
or
The Securities and Exchange Commission
EDGAR site:
http://www.sec.gov
PAGE 114
<Page 122>
EXHIBIT 22(a). SUBSIDIARIES OF THE REGISTRANT
Name State of Incorporation
Irwin Union Bank and Trust Company Indiana
Irwin Union Collateral, Inc. Indiana
Irwin Union Realty Corporation Indiana
Irwin Union Insurance, Inc. Indiana
Irwin Union Mortgage Corporation Indiana
Inland Mortgage Corporation Indiana
Irwin Union Investor Services, Inc. Indiana
Irwin Union Securities, Inc. Indiana
Irwin Union Advisory Services, Inc. Indiana
Irwin Home Equity Corporation Indiana
IHE Funding Corp. Delaware
Irwin Union Leasing Corporation Indiana
Affiliated Capital Corp.1 Illinois
Irwin Union Credit Insurance Corporation Arizona
White River Capital Corporation Indiana
_______________________________
1 80% owned by Registrant
<Page 123>
Consent of Independent Public Accountants
We consent to the incorporation by reference in Registration
Statement No. 33-8506 on Form S-8 effective September 25, 1986;
in Registration Statement No. 33-25931 on Form S-8 effective
December 28, 1988; in Registration Statement No. 33-29493 on Form
S-8 as amended by Post-Effective Amendment No. 1 effective
December 22, 1989; in Registration Statement No. 33-32783 on Form
S-8 effective January 11, 1990; in Registration Statement No. 2-
72249 on Form S-3 as amended by Post-Effective Amendment No. 3 to
Form S-16 effective January 17, 1990, in Post-Effective Amendment
No. 2 to Registration Statement No. 33-6880 on Form S-8 effective
April 9, 1990; in Registration Statement No. 33-32783 on Form S-8
as amended by Post-Effective Amendment No. 1 effective April 9,
1990; in Registration Statement No. 33-47680 on Form S-8
effective May 5, 1992; in Registration Statement No. 2-72249 on
Form S-3 as amended by Post-Effective Amendment No. 4 to Form S-
16 effective April 7, 1994; in Registration Statement No. 33-
80800 on Form S-8 effective June 28, 1994; in Registration
Statement No. 33-29493 on Form S-8 as amended by Post-Effective
Amendment No. 2 effective September 27, 1994; in Registration
Statement No. 33-62671 on Form S-8 effective September 15, 1995;
and in Registration Statement No. 33-62669 on Form S-8 effective
September 15, 1995 of Irwin Financial Corporation of our report,
dated January 16, 1996, on our audits of the consolidated
financial statements and financial statement schedule of Irwin
Financial Corporation as of December 31, 1995 and 1994 and for
each of the three years in the period ended December 31, 1995,
which report is included in this Annual Report on Form 10-K.
/s/ Coopers & Lybrand L.L.P.
Indianapolis, Indiana
March 25, 1996
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 49,257
<INT-BEARING-DEPOSITS> 7,938
<FED-FUNDS-SOLD> 15,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 18,606
<INVESTMENTS-CARRYING> 42,263
<INVESTMENTS-MARKET> 43,278
<LOANS> 412,525
<ALLOWANCE> 4,620
<TOTAL-ASSETS> 1,038,307
<DEPOSITS> 563,999
<SHORT-TERM> 310,279
<LIABILITIES-OTHER> 43,238
<LONG-TERM> 21,575
0
0
<COMMON> 29,965
<OTHER-SE> 69,251
<TOTAL-LIABILITIES-AND-EQUITY> 1,038,307
<INTEREST-LOAN> 36,450
<INTEREST-INVEST> 4,949
<INTEREST-OTHER> 22,762
<INTEREST-TOTAL> 64,161
<INTEREST-DEPOSIT> 14,868
<INTEREST-EXPENSE> 28,568
<INTEREST-INCOME-NET> 35,593
<LOAN-LOSSES> 3,073
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 115,915
<INCOME-PRETAX> 32,449
<INCOME-PRE-EXTRAORDINARY> 32,449
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20,083
<EPS-PRIMARY> 3.50<F1>
<EPS-DILUTED> 0
<YIELD-ACTUAL> .05<F1>
<LOANS-NON> 1,779
<LOANS-PAST> 620
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3,863
<CHARGE-OFFS> 2,490
<RECOVERIES> 390
<ALLOWANCE-CLOSE> 4,620
<ALLOWANCE-DOMESTIC> 3,431
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,189
<FN>
<F1>INFORMATION NOT IN 1,000
</FN>
</TABLE>
