SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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, IN 47201
(Address of principal executive offices)
(Zip Code)
812/376-1020
Registrant's telephone number, including area code)
(Former name, former address and former fiscal year
if changed since last report)
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
----
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Sections 12, 13, or
15(d) of the Securities Exchange Act of 1934 subsequent to the
distribution of securities under a plan confirmed by a court.
Yes No
As of July 31, 1997, there were outstanding 11,125,102 common
shares, no par value, of the Registrant.
XXX PAGE 1 XXX
<TABLE>
IRWIN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
June 30, December 31,
1997 1996
- -----------------------------------------------------------------
ASSETS:
<S> <C> <C>
Cash and due from banks $51,099,483 $71,365,788
Federal funds sold 7,000,000 0
----------- -----------
Cash and cash equivalents 58,099,483 71,365,788
Interest-bearing deposits with
financial institutions 10,486,386 11,343,546
Investment securities (Market value:
$69,168,000 in 1997 and $73,819,000
in 1996)-Note 2 68,628,801 73,124,455
Mortgage loans held for sale 368,062,609 445,100,504
Loans and leases, net of unearned
income - Note 4 538,299,485 529,050,970
Less: Allowance for loan and lease losses
Note 5 (7,319,518) (6,744,577)
------------- -------------
530,979,967 522,306,393
Capitalized servicing - Note 6 99,035,298 86,757,254
Accounts receivable 44,041,990 41,712,662
Accrued interest receivable 5,491,699 6,724,973
Premises and equipment 19,388,176 18,687,620
Other assets 30,220,459 26,762,916
------------- -------------
$1,234,434,868 $1,303,886,111
============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY:
Deposits
Noninterest-bearing $245,150,754 $239,347,589
Interest-bearing 368,667,966 334,301,111
Certificates of deposit over
$100,000 53,361,410 66,504,205
------------- -------------
667,180,130 640,152,905
Short-term borrowings- Note 7 316,174,070 461,882,725
Long-term debt- Note 8 9,789,488 17,642,526
Other liabilities 71,531,291 65,305,875
------------- -------------
Total liabilities 1,064,674,979 1,184,984,031
------------- -------------
Company-obligated mandatorily redeemable
preferred securities of subsidiary trust
- Note 9 47,919,397 0
Shareholders' equity
Preferred stock, no par value - authorized
50,000 shares; none issued 0 0
Common stock; no par value - issued
11,701,040 shares in 1997 and 1996;
including 573,942 and 332,268 shares
in treasury in 1997 and 1996,
respectively. 29,965,287 29,965,287
Additional paid in capital 0 0
Unrealized gains, net 1,442,385 56,523
Retained earnings 103,089,672 94,083,540
-------------- -------------
134,497,344 124,105,350
Less treasury stock, at cost (12,656,852) (5,203,270)
-------------- --------------
Total shareholders' equity 121,840,492 118,902,080
-------------- --------------
$1,234,434,868 1,303,886,111
============== ==============
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
XXX PAGE 2 XXX
IRWIN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
Three Months Ended
June 30,
1997 1996
- -----------------------------------------------------------------
<TABLE>
INTEREST INCOME:
<S> <C> <C>
Loans and leases $14,783,505 $12,694,850
Investment securities:
Taxable 1,337,716 1,176,637
Tax-exempt 70,832 88,598
Loans held for sale 7,667,524 7,615,719
Federal funds sold 138,402 452,306
------------- -------------
Total interest income 23,997,979 22,028,110
------------- -------------
INTEREST EXPENSE:
Deposits 4,554,040 4,451,334
Short-term borrowings 5,892,609 5,001,138
Long-term debt 227,100 434,483
------------- -------------
Total interest expense 10,673,749 9,886,955
------------- -----------
Net interest income 13,324,230 12,141,155
Provision for loan and lease
losses - Note 5 1,986,000 1,019,000
------------- -------------
Net interest income after provision
for loan and lease losses 11,338,230 11,122,155
------------ -------------
OTHER INCOME:
Loan origination fees 10,683,699 11,872,588
Gain from sales of loans 10,243,428 9,165,037
Loan servicing fees 15,384,754 11,439,912
Gain on sale of mortgage servicing 6,849,323 3,341,621
Brokerage fees and commissions 260,627 300,904
Trust fees 487,289 473,575
Service charges on deposit accounts 377,525 332,389
Insurance commissions, fees and premiums 375,274 399,324
Other 1,272,926 681,807
------------- -------------
45,934,845 38,007,157
------------- -------------
OTHER EXPENSE:
Salaries 21,354,127 20,293,042
Pension and other employee benefits 3,430,893 3,205,018
Office expense 2,458,805 2,691,581
Premises and equipment 4,301,921 3,274,349
Amortization of capitalized servicing 5,916,063 4,127,476
Marketing and development 3,315,806 2,793,655
Other 5,704,902 4,221,454
------------- -------------
46,482,517 40,606,575
------------- -------------
Income before income taxes 10,790,558 8,522,737
Income taxes 3,851,000 3,495,000
------------- -------------
6,939,558 5,027,737
Distribution on company-obligated
mandatorily redeemable preferred
securities of subsidiary trust 1,171,163 0
------------- -------------
Net income available to common
shareholders $5,768,395 $5,027,737
============== ==============
Net income per share of common stock:
Net income -Note 1 $0.50 $0.43
====== ======
Dividends per share of common stock $0.07 $0.06
====== ======
Weighted average shares of common stock
outstanding 11,463,037 11,613,186
============= =============
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
XXX PAGE 3 XXX
<TABLE>
IRWIN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
Six Months Ended
June 30,
1997 1996
- -----------------------------------------------------------------
<S> <C> <C>
INTEREST INCOME:
Loans and leases $27,607,014 $23,572,277
Investment securities:
Taxable 2,730,063 2,274,457
Tax-exempt 142,263 182,476
Loans held for sale 14,580,249 14,741,348
Federal funds sold 365,418 1,073,114
----------- -----------
Total interest income 45,425,007 41,843,672
----------- -----------
INTEREST EXPENSE:
Deposits 9,597,991 8,820,152
Short-term borrowings 10,046,832 9,137,199
Long-term debt 532,032 847,724
----------- -----------
Total interest expense 20,176,855 18,805,075
----------- -----------
Net interest income 25,248,152 23,038,597
Provision for loan and lease
losses - Note 5 2,692,000 1,963,000
----------- -----------
Net interest income after provision
for loan and lease losses 22,556,152 21,075,597
----------- -----------
OTHER INCOME:
Loan origination fees 19,272,045 22,841,519
Gain from sales of loans 18,394,930 16,776,533
Loan servicing fees 30,329,450 23,295,719
Gain on sale of mortgage servicing 13,668,135 4,529,470
Brokerage fees and commissions 607,454 1,128,266
Trust fees 1,067,434 1,033,465
Service charges on deposit accounts 801,662 683,012
Insurance commissions, fees and
premiums 742,649 816,130
Other 1,971,555 1,203,278
----------- -----------
86,855,314 72,307,392
----------- -----------
OTHER EXPENSE:
Salaries 40,071,505 38,568,024
Pension and other employee benefits 7,217,120 6,386,116
Office expense 5,224,915 5,333,852
Premises and equipment 8,180,602 6,566,144
Amortization of capitalized servicing 11,033,740 6,699,292
Marketing and development 6,340,699 5,238,595
Other 10,912,336 7,630,993
----------- -----------
88,980,917 76,423,016
----------- -----------
Income before income taxes 20,430,549 16,959,973
Income taxes 7,341,000 6,944,000
----------- -----------
13,089,549 10,015,973
Distribution on company-obligated
mandatorily redeemable preferred
securities of subsidiary trust 2,124,878 0
----------- -----------
Net income available to common
shareholders $10,964,671 $10,015,973
=========== ===========
Net income per share of common stock:
Net income -Note 1 $0.95 $0.86
====== ======
Dividends per share of common stock $0.14 $0.12
====== ======
Weighted average shares of common stock
outstanding 11,547,691 11,609,612
=========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
XXX PAGE 4 XXX
<TABLE>
IRWIN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
June 30, 1997 1996
- -----------------------------------------------------------------
<S> <C> <C>
Net income $10,964,671 $10,015,973
Adjustments to reconcile net income
to cash provided by operating
activities:
Depreciation and amortization 12,853,344 8,972,432
Provision for loan and lease losses 2,692,000 1,785,000
Premium amortization less
discount accretion 579,979 996,523
Mortgage loan originations (2,391,354,544) (2,589,187,197)
Sales of mortgage loans 2,468,392,439 2,585,261,575
Gain on sale of mortgage servicing (13,668,135) (4,529,470)
Other, net 3,351,115 (2,121,104)
----------- -----------
Net cash provided (used) by operating
activities 93,810,869 11,193,732
----------- -----------
Lending and investing activities:
Proceeds from maturities/calls of
investment securities:
Held-to-Maturity 110,000 615,000
Available-for-Sale 18,745,042 28,777,845
Purchase of investment securities:
Held-to-Maturity (1,987,500) (5,051,178)
Available-for-Sale (12,951,867) (28,107,320)
Net (increase) decrease in
interest-bearing deposits with
financial institutions 857,160 (312,622)
Net increase in loans, excluding
sales (136,184,833) (102,384,538)
Sale of loans 124,970,242 0
Net additions to premises and
equipment (2,485,340) (2,598,602)
Additions to mortgage servicing
assets (42,494,684) (46,552,278)
Proceeds from sale of mortgage
servicing 32,341,018 30,776,503
------------ ------------
Net cash provided (used) by lending
and investing activities (19,080,762) (124,837,190)
------------ ------------
Financing activities:
Net increase in deposits 27,027,225 39,621,420
Net increase (decrease) in
short-term borrowings (145,708,655) 60,940,704
Proceeds from (repayment of)
long-term debt (7,853,038) 798,796
Sale of company-obligated
manditorily redeemable preferred
securities of subsidiary trust 47,950,178 0
Purchase of treasury stock (8,191,372) (235,816)
Proceeds from sale of stock for
employee benefit plans 350,526 562,400
Dividends paid (1,571,275) (1,362,163)
------------- -------------
Net cash provided (used) by
financing activities (87,996,411) 100,325,341
------------- -------------
Net increase (decrease) in cash
and cash equivalents (13,266,304) (13,318,117)
Cash and cash equivalents at
beginning of year 71,365,788 64,256,953
------------- -------------
Cash and cash equivalents
at end of year $58,099,484 $50,938,836
============= =============
</TABLE>
Supplemental disclosures of cash flow
information:
Cash paid during the period:
Interest $19,449,504 $8,933,690
============= =============
Income taxes $5,609,375 $750,200
============= =============
The accompanying notes are an integral part of the consolidated
financial statements.
XXX PAGE 5 XXX
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - 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, home equity
lending, and equipment leasing lines of business.
Intercompany balances and transactions have been eliminated
in consolidation. Significant accounting policies followed
by the Corporation are consistent with those followed for
annual financial reporting. The information furnished
reflects all adjustments which are, in the opinion of
management, necessary for a fair presentation of the results
of interim periods.
RECLASSIFICATIONS: Certain amounts in the 1996 consolidated
financial statements have been reclassified to conform to
the 1997 presentation.
TRANSFER OF ASSETS: On January 1, 1997, the Corporation
adopted Statement of Financial Accounting Standards No. 125,
"Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities" (SFAS No. 125). This
statement establishes the accounting treatment to be used
for the securitization of all financial assets. Under the
provisions of SFAS No. 125, the net carrying values of
assets sold and retained are allocated based on their
relative fair values. The adoption of SFAS No. 125 did not
have a material effect on the Corporation's financial
position or results of operations.
EARNINGS PER SHARE: Earnings per share computations are
based on the weighted average number of common shares
outstanding during the year.
In February 1997 the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 128,
"Earnings Per Share" (SFAS No. 128). This statement
specifies the computation, presentation and disclosure
requirements for earnings per share. SFAS No. 128 is
effective for financial statements issued for periods ending
after December 15, 1997. If the Corporation had calculated
earnings per share in accordance with SFAS No. 128, the
following amounts would have been reported:
<TABLE>
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Basic earnings per share $0.52 $0.44 $0.98 $0.88
Dilutive earnings per share $0.50 $0.43 $0.95 $0.86
</TABLE>
XXX PAGE 6 XXX
NOTE 2 - INVESTMENT SECURITIES
The carrying amounts of investment securities, including net
unrealized gains (losses) of ($45,896) and $51,159 on available-for-
sale securities at June 30, 1997 and December 31, 1996, respectively,
are summarized as follows:
<TABLE>
June 30, December 31,
1997 1996
- -----------------------------------------------------------------
<S> <C> <C>
Held-to-Maturity
US Treasury and Government
obligations $30,076,068 29,570,239
Obligations of states and political
subdivisions 4,349,409 4,466,043
Mortgage-backed securities 4,642,211 7,153,865
------------- -------------
Total Held-to-Maturity 39,067,688 41,190,147
Available-for-Sale
US Treasury and Government
obligations 26,328,776 28,670,847
Mortgage-backed securities 3,212,920 3,237,633
Other 19,417 25,828
------------- -------------
Total Available for Sale 29,561,113 31,934,308
------------- -------------
Total Investments $68,628,801 $73,124,455
============= =============
</TABLE>
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.
NOTE 3 - MORTGAGE LOANS HELD FOR SALE
Mortgage loans held for sale are stated at the lower of cost or market
as of the balance sheet date.
NOTE 4 - LOANS AND LEASES
Loans and leases are summarized as follows:
<TABLE>
June 30, December 31,
1997 1996
- -----------------------------------------------------------------
<S> <C> <C>
Real estate-mortgage $189,897,249 $210,697,305
Commercial, financial and
agricultural 188,549,155 179,650,053
Real estate-construction 65,384,024 48,990,519
Consumer 40,955,598 38,371,100
Lease financing 69,242,989 62,371,808
Unearned income (15,729,530) (11,029,815)
------------- -------------
$538,299,485 $529,050,970
============= =============
</TABLE>
XXX PAGE 7 XXX
NOTE 5 - ALLOWANCE FOR LOAN AND LEASE LOSSES
Changes in the allowance for loan and lease losses are summarized as
follows:
<TABLE>
June 30, December 31,
1997 1996
- -----------------------------------------------------------------
<S> <C> <C>
Balance at beginning of year $6,744,577 $4,770,908
Provision for loan and lease losses 2,692,000 4,450,000
Reduction due to sale of loans (752,304) (696,195)
Recoveries 209,156 593,421
Charge-offs (1,573,911) (2,373,557)
------------- -------------
Balance at end of period $7,319,518 $6,744,577
============= =============
</TABLE>
NOTE 6- CAPITALIZED SERVICING
Included in capitalized servicing at June 30, 1997 and December 31,
1996 are $71,251,988 and $70,551,101, respectively, of servicing
assets. These amounts represent the capitalized, contractually
specified servicing fees earned on securitized loans. Capitalized
servicing also includes interest only strips totaling $27,783,310 and
$16,206,153 at June 30, 1997 and December 31, 1996, respectively.
NOTE 7- SHORT-TERM BORROWINGS
Short-term borrowings are summarized as follows:
<TABLE>
June 30, December 31,
1997 1996
- -----------------------------------------------------------------
<S> <C> <C>
Repurchase agreements and drafts
payable related to mortgage loan
closings $193,701,323 $264,998,449
Federal funds 64,125,000 74,118,000
Lines of Credit 43,160,739 105,591,525
Commercial paper 15,187,008 17,174,751
------------- -------------
Total $316,174,070 $461,882,725
============ =============
</TABLE>
Repurchase agreements at June 30, 1997 and December 31, 1996, include
$97,485,161 and $183,869,533 respectively, in mortgage loans sold
under agreements to repurchase which are used to fund mortgage loans
sold 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
$89,808,169 and $74,042,188 at June 30, 1997 and December
31, 1996. These borrowings
XXX PAGE 8 XXX
are related to mortgage closings at the end of the period
which have not been presented to banks for payment. When
presented for payment these borrowings will be funded
internally or by borrowing from the lines of credit.
The Corporation has lines of credit available to fund
mortgage loans held for sale. Interest on the lines of
credit is payable monthly at variable rates ranging from
6.13 % to the lender's prime rate.
NOTE 8 -- LONG-TERM DEBT
Long-term debt at June 30, 1997 of $9,789,488 consists of
various notes payable at annual interest rates ranging from
6.3% to 9.6% and maturity dates ranging from September 30,
1997 through April 30, 2002. Long-term debt as of December
31, 1996 was $17,642,526 and consisted of various notes
payable at annual interest rates ranging from 6.3% to 9.6%
and maturity dates through April 30, 2002.
NOTE 9 -- COMPANY-OBLIGATED MANDATORILY REDEEMABLE PREFERRED
SECURITIES OF SUBSIDIARY TRUST
In January 1997, the Corporation issued $50,000,000 of trust
preferred securities through IFC Capital Trust 1, a trust
created and controlled by the Corporation. The securities
were issued at $25 per share with a cumulative dividend rate
of 9.25%, payable quarterly. They have an initial maturity
of 30 years with a 19-year extension option. The securities
are callable at par after five years, or immediately, in the
event of an adverse tax development affecting the
Corporation's classification of the securities for federal
income tax purposes. They are not convertible into common
stock of the Corporation. The securities are shown on the
balance sheet net of capitalized issuance costs.
The sole assets of IFC Capital Trust I are subordinated
debentures of the Corporation with a principal balance of
$51,546,400, an interest rate of 9.25% and an initial
maturity of 30 years with a 19-year extension option.
NOTE 10 -- CONTINGENCIES
In the normal course of business, Irwin Financial
Corporation and its subsidiaries are subject to various
claims and other pending and possible legal actions.
As of June 30, 1997 Inland Mortgage Corporation (Inland) was
a defendant to three separate class action lawsuits relating
to the following: Inland's administration of mortgage escrow
accounts, Inland's right to require its borrowers to pay
premiums for private mortgage insurance, and Inland's right
to pay broker fees to mortgage brokers.
At present, it is not possible for the Corporation to
predict the likelihood of an unfavorable outcome or to
establish the possible extent or amount of liability or
potential loss exposure with respect to the litigation.
XXX PAGE 9 XXX
Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Net income for the second quarter ended June 30, 1997, was
$5,768,395 up 14.7% from the second quarter 1996 net income of
$5,027,737. Net income per share was $0.50 for the second
quarter of 1997 as compared to $0.43 for the same period in 1996.
Return on equity for the second quarter of 1997 was 19.11%
compared to 18.97% in 1996.
For the year to date, the Corporation recorded net income
of $10,964,671, up 9.5% from 1996. Net income per share was
$0.95, up from $0.86 a year earlier. Return on equity for the
year to date was 18.21% as compared to 19.44% for the same period
in 1996.
LINES OF BUSINESS
Irwin Financial Corporation has four lines of business:
- - Mortgage banking (includes Inland Mortgage Corporation and
the related activities of Irwin Union Bank)
- - Community banking (Irwin Union Bank and Irwin Union Advisory
Services)
- - Home equity lending (includes Irwin Home Equity and the
related activities of Irwin Union Bank)
- - Equipment leasing (includes Affiliated Capital Corp. and the
related activities of Irwin Union Bank)
Listed below are the earnings by line of business for the
quarter and year to date, as compared to the same periods in
1996:
<TABLE>
Three Months Six Months
Ended June 30, Ended June 30,
1997 1996 1997 1996
----- ----- ----- -----
<S> <C> <C> <C> <C>
Mortgage banking $5,074,349 $6,039,587 $8,994,200 $11,333,180
Community banking 1,279,973 901,777 2,630,796 2,155,941
Home equity lending 515,421 (2,106,362) 1,701,832 (4,111,512)
Equipment leasing 65,868 42,890 71,140 14,620
Parent (including
consolidating entries) (1,167,216) 149,845 (2,433,297) 623,744
------------- --------- ------------ ----------
$5,768,395 $5,027,737 $10,964,671 $10,015,973
============ ========== =========== ===========
</TABLE>
XXX PAGE 10 XXX
MORTGAGE BANKING
Selected Financial Data (shown in thousands):
<TABLE>
Three Months Six Months
Ended June 30, Ended June 30,
--------------- --------------
1997 1996 1997 1996
------- ------- ------- -------
Selected Income
Statement Data:
<S> <C> <C> <C> <C>
Loan origination fees $10,571 $11,782 $19,050 $22,673
Gain from sales of loans 4,728 9,059 8,119 16,355
Loan servicing fees 12,097 10,413 24,070 21,178
Net interest income 4,409 4,662 8,242 8,873
Provision for loan losses (382) (178) (527) (178)
Gain on sale of servicing 6,849 3,342 13,668 4,529
Other income 802 324 1,115 520
Operating expense (30,507) (29,258) (58,553) (54,925)
----------------------------------------
Income before tax 8,567 10,146 15,184 19,025
Income tax (3,493) (4,106) (6,190) (7,692)
----------------------------------------
Net income $5,074 $6,040 $8,994 $11,333
========================================
Return on average equity 29.60% 40.87% 26.30% 38.47%
========================================
Mortgage loan
originations $1,292,805 $1,341,623 $2,394,020 $2,589,187
===========================================
</TABLE>
<TABLE>
Selected Operating Data: June 30, December 31,
1997 1996
------------ ------------
<S> <C> <C>
Servicing portfolio $10,509,593 $10,810,988
Mortgage loans held for sale 278,254 371,058
Mortgage servicing asset 71,384 70,551
</TABLE>
Net income for the second quarter was $5.1 million, down
16.0% from the same period in 1996. Year to date, net income was
$9.0 million compared to $11.3 million in 1996.
Mortgage loan originations of $1.3 billion (including $81.4
million of brokered loans) were 3.6% below the second quarter of
1996. For the year, originations totaled $2.4 billion, down 7.5%
from 1996. Refinances accounted for 14.4% of loan production in
the second quarter of 1997 and 18.5% year to date. This compares
to 15.1% and 24.5%, respectively, in 1996. Decreased production
caused mortgage loan origination income to decline 10.3% in the
second quarter to $10.6 million, and year to date was down 16.0%
to $19.1 million. Mortgage loan applications in process totaled
$1.3 billion at June 30, 1997, compared to $1.7 billion a year
earlier.
Gains on the sale of loans decreased 46.9% in the second
quarter to $4.8 million. Year to date, gains on the sale of
loans totaled $8.2 million compared with $16.4 million in 1996.
XXX PAGE 11 XXX
Mortgage servicing fees increased 16.2% in the second
quarter and 13.7% year to date to $12.1 million and $24.1
million, respectively. The increase is reflective of a more
profitable mix of types of loans serviced by the company. The
servicing portfolio totaled $10.5 billion at June 30, 1997, down
1.9% from a year earlier and 2.8% from December 31, 1996.
Mortgage servicing assets totaled $71.4 million at June 30, 1997,
up 1.2% from December 31, 1996.
Revenues from the sale of mortgage servicing were up 105.0%
from the second quarter of 1996 to $6.8 million. Year to date
servicing sale revenues totaled $13.7 million, up from $4.5
million in 1996.
As a result of the decrease in mortgage loan closings from
1996, net interest income was down in the second quarter and year
to date. Net interest income for the three months ended June 30,
1997 was $4.4 million, down 5.4% from the second quarter 1996.
Year to date, net interest income totaled $8.2 million, compared
to $8.9 million in 1996.
Operating expenses were up $1.2 million, or 4.3% from the
second quarter of 1996 and $3.6 million or 6.6% year to date.
Included in second quarter operating expenses is $3.5 million of
amortization expense relating to mortgage servicing assets, a
decrease of $0.3 million from 1996. Year to date amortization
expense totaled $6.7 million, up $1.1 million from the previous
year. The increase in other operating expense reflects the
significant investments in technology being made by this line of
business in order to remain competitive in the current
environment of the industry.
XXX PAGE 12 XXX
Community Banking
<TABLE>
Selected Financial Data (shown in thousands):
Three Months Six Months
Ended June 30, Ended June 30,
------------ ------------
1997 1996 1997 1996
----- ----- ----- -----
Selected Income Statement Data:
<S> <C> <C> <C> <C>
Net interest revenue $5,395 $4,844 $10,473 $9,403
Provision for loan and
lease losses (553) (426) (995) (952)
Other income 2,227 2,096 4,654 4,479
Operating expense (5,058) (5,080) (9,951) (9,520)
--------- --------- --------- ---------
Income before tax 2,011 1,434 4,181 3,410
Income tax (731) (532) (1,550) (1,254)
--------- --------- --------- ---------
Net income $1,280 $902 $2,631 $2,156
========= ========= ========= =========
</TABLE>
<TABLE>
June 30, December 31,
Selected Balance
Sheet Data: 1997 1996
--------- ---------
<S> <C> <C>
Securities and short-term
investments $111,958 $116,533
Loans and leases 368,457 336,580
Allowance for loan and
lease losses (5,046) (4,790)
All other assets 39,098 55,184
--------- ---------
Total assets $514,467 $503,507
========= =========
Deposits $463,839 $453,879
All other liabilities 14,091 15,661
--------- ---------
Total liabilities $477,930 $469,540
========= =========
Shareholder's equity $36,537 $33,967
========= =========
</TABLE>
Community banking activities are conducted by Irwin Union
Bank through locations in seven counties in central Indiana. Net
income was up in the second quarter to $1.3 million from $901.8
thousand. Year to date, net income was $2.6 million, up from
$2.2 million in 1996. The provision for loan and lease losses
increased 29.8% to $553.0 thousand in the second quarter compared
with a provision of $426.0 thousand a year earlier. Year to
date, the provision for loan and lease losses totaled $995.0
thousand, compared to $952.0 thousand in 1996, an increase of
4.5%.
XXX PAGE 13 XXX
Following is an analysis of net interest income and net
interest margin computed on a tax equivalent basis:
<TABLE>
For the Three Months Ended June 30,
1997 1996
---- ----
(In thousands) Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
-------- ----------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest -
earning assets $475,821 $10,207 8.70% $408,441 $8,704 8.57%
Interest -
bearing
liabilities $412,042 4,733 4.66% $344,469 3,813 4.45%
Net interest
income $5,474 $4,891
Net interest margin 4.61% 4.82%
</TABLE>
<TABLE>
For the Six Months
Ended June 30, 1997 1996
---- ----
(In thousands) Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
------- -------- ------ ------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
Interest -
earning assets $470,930 $19,846 8.50% $406,589 $17,121 8.47%
Interest -
bearing
liabilities $409,053 9,218 4.54% $340,693 $ 7,620 4.50%
Net interest income $ 10,628 $ 9,501
Net interest margin 4.55% 4.70%
</TABLE>
Other income in the second quarter was up 6.2% to $2.2
million from $2.1 million in 1996. For the year to date, other
income increased 3.9% to $4.7 million. Other expenses decreased
0.4% from the second quarter of 1996 to $5.1 million. For the
year, these expenses were up 4.5% to $10.0 million. The
continued expansion of operations in new markets has increased
non-interest expense in 1997. However, during the second
quarter, this increase was offset by a decline in certain
expenses incurred in 1996 relating to the restructuring of the
community bank's trust operations.
XXX PAGE 14 XXX
HOME EQUITY LENDING
Selected Financial Data (shown in thousands):
<TABLE>
Three Months Six Months
Ended June 30, Ended June 30,
--------------- --------------
1997 1996 1997 1996
---- ---- ---- ----
Selected Income Statement
Data:
<S> <C> <C> <C> <C>
Net interest revenue $1,634 $1,278 $2,807 $2,186
Provision for loan and
lease losses (813) (248) (732) (514)
Gain from sale of loans 5,336 0 9,995 0
Loan servicing fees 3,105 868 5,834 1,844
Other revenue 69 25 120 39
--------- --------- --------- ---------
Total net revenues 9,331 1,923 18,024 3,555
--------- --------- --------- ---------
Amortization of
capitalized servicing 2,428 316 4,022 551
Operating expense 6,388 3,713 12,300 7,116
--------- --------- --------- ---------
Pre-tax income (loss) $515 ($2,106) $1,702 ($4,112)
========= ========= ========= =========
</TABLE>
<TABLE>
Other Selected Financial Data: June 30, December 31,
1997 1996
---- ----
<S> <C> <C>
Home equity loans, net of allowance $91,113 $117,588
Net capitalized servicing 27,783 15,343
Servicing portfolio 299,363 230,450
</TABLE>
The home equity lending business was begun in 1994 with the
incorporation of Irwin Home Equity Corporation. It has a single
production and servicing office located in San Ramon, California.
In 1995, the business began marketing home equity lines of credit
by means of direct mail and telemarketing.
The home equity lending business recorded pre-tax income of
$0.5 million during the second quarter of 1997 and $1.7 million
year to date. These results are compared to 1996 quarterly and
year to date losses of $2.1 million and $4.1 million,
respectively. Net revenues for the quarter totaled $9.3 million,
up from $1.9 million a year earlier. Year to date net revenues
increased to $18.0 million from $3.6 million in 1996. Included in
1997 net revenues are gains from the securitization of $64.9
million of home equity loans during the quarter and $125.0
million year to date.
Net revenues for the second quarter include $3.1 million of
servicing fees, up from $0.9 million a year earlier. Year to
date, servicing fees totaled $5.8 million, up from $1.8 million
in 1996. The home equity lending business has retained the
servicing rights on all the loans it has securitized. Its
managed portfolio of home equity loans totaled $299.4 million as
of June 30, 1997, compared with $230.5 million at December 31,
1996. Loan volume for the quarter ended June 30, 1997 totaled
$56.7 million, an increase of 36.1% from 1996. Year-to-date loan
volume increased 39.9% to $101.5 million.
XXX PAGE 15 XXX
The business will maintain the flexibility of either holding
the loans it produces or securitizing them. Management will
evaluate these options throughout the year in light of market
conditions and financial objectives.
Operating expenses were $8.8 million in the second quarter
of 1997, up 118.8% from 1996. Year to date, they increased
112.9% to $16.3 million. The increase is reflective of the
increased production activities of the company in 1997. Included
in operating expenses is the amortization of capitalized
servicing which totaled $2.4 million in the second quarter, up
from $0.3 million in 1996. For the year to date, amortization
expense totaled $4.0 million compared with $0.6 million in the
previous year. The increase results from the growth in
capitalized servicing asset which was $27.8 million at June 30,
1997, up from $15.3 million at December 31, 1996 and $5.2 million
a year earlier.
EQUIPMENT LEASING
The equipment leasing business recorded pre-tax income for
the quarter and for the year of $65.9 thousand and $71.1
thousand, respectively. This compares to pre-tax income of $42.9
thousand and $14.6 thousand in the second quarter and year to
date 1996, respectively. Net revenues were up 5.7% for the
quarter to $1.1 million and 5.1% year to date to $2.2 million.
Operating expenses totaled $1.0 million in the second quarter and
$2.1 million year to date in 1997, up 3.7% and 2.4%,
respectively, from 1996. Lease volume was $10.0 million in the
second quarter of 1997, up 7.9% from a year earlier. Year-to-
date volume was $18.3 million, up 8.3%.
PARENT COMPANY (INCLUDING CONSOLIDATING ENTRIES)
For the quarter ended June 30, 1997, the parent company
recorded a net loss of $1.2 million, compared with net income of
$0.1 million a year earlier. Year to date, the parent company's
net loss totaled $2.4 million compared with net income of $0.6
million in 1996. There are two primary reasons for the decline.
First, the parent company records the income tax expense or
benefit generated at the home equity lending and equipment
leasing businesses until such time that all net operating losses
carried forward are fully used. In the second quarter and year
to date 1997, the parent recorded $232.5 thousand and $709.2
thousand, respectively, of income tax expense related to these
lines of business. This compares with $825.4 thousand and $1.6
million of income tax benefit recorded in the second quarter and
year to date, respectively, in 1996.
The second factor in the decline in the parent company's
1997 results is the distributions on trust preferred securities
which were sold in January 1997. During the second quarter and
year to date 1997, $1.2 million and $2.1 million, respectively,
was distributed. See the section on the consolidated balance
sheet for further discussion of these securities.
XXX PAGE 16 XXX
CONSOLIDATED INCOME STATEMENT ANALYSIS
Net interest income for the second quarter of 1997 totaled
$13.3 million, up 9.7% from the second quarter of 1996. For the
year, it increased 9.6% to $25.2 million. The increases were the
net effect of a combination of factors throughout the
Corporation. The mortgage banking business recorded decreased
net interest revenue as a result of the decreased production of
mortgage loans during 1997. This decline was offset by increases
at the community banking and home equity lending businesses which
corresponded to growth in the loan portfolios in each of those
businesses.
The loan and lease loss provision was $2.0 million for the
second quarter of 1997, as compared with $1.0 million for the
same period in 1996. For the year, it totaled $2.7 million, up
from $2.0 million a year earlier. This increase is consistent
with an increase in nonperforming assets which the Corporation
has experienced during 1997. See the section on credit risk for
more discussion of this subject.
Other income was up $7.9 million or 20.9% in the second
quarter of 1997. Year to date other income increased $14.5
million or 20.1%. This increase was driven primarily by home
equity lending activities. Total income from home equity loan
sales and servicing was $8.4 million in the second quarter of
1997 and $15.8 million year to date. This compares to 1996
revenues of $0.9 million and $1.8 million in the second quarter
and year to date, respectively.
Operating expenses also increased in 1997 as the second
quarter was up $5.9 million or 14.5% from 1996. For the year,
operating expenses increased $12.6 million or 16.4%. This
increase is due in part to the growth of the Corporation through
the continued expansion of the home equity lending business,
investments in new technology at the mortgage banking business,
and the community bank's growth in new markets. Also
contributing to the increase was additional amortization expense
associated with capitalized servicing assets on the balance
sheets of the mortgage bank and home equity lending business.
Amortization expense increased $1.8 million in the second quarter
to $5.9 million. Year to date, the expense grew to $11.0 million
from $7.0 a year earlier.
The effective income tax rate for the Corporation was 40.0%
in the second quarter of 1997 and 40.1% year to date. This is
compared with 41.0% in the second quarter of 1996 and 40.9% year
to date 1996.
In February 1997 the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 128,
"Earnings per Share" (SFAS No. 128). This statement specifies
the computation, presentation and disclosure requirements for
earnings per share. SFAS No. 128 is effective for financial
statements issued for periods ending after December 15, 1997. If
the Corporation had calculated earnings per share in accordance
with SFAS No. 128, the following amounts would have been
reported:
<TABLE>
Three months ended Six months ended
June 30, June 30,
1997 1996 1997 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
Basic earnings per share $0.52 $0.44 $0.98 $0.88
Dilutive earnings per share $0.50 $0.43 $0.95 $0.86
</TABLE>
XXX PAGE 17 XXX
CONSOLIDATED BALANCE SHEET ANALYSIS
Total assets of the Corporation at June 30, 1997, were $1.2
billion, a decline of $69.5 million or 5.3% from December 31,
1996 total assets of $1.3 billion. The decline was attributed to
an decrease in mortgage loans held for sale of $77.0 million.
The decrease in assets was accompanied by an decrease in
short-term borrowings of $145.7 million or 31.5% and an increase
in deposits of $27.0 million or 4.2%. A portion of noninterest
bearing deposits is associated with escrow accounts held on loans
in the servicing portfolio of Inland Mortgage. These escrow
accounts totaled $181.7 million at June 30, 1997, up from $171.1
million at December 31, 1996.
Shareholders' equity grew to $121.8 million or $10.95 per
share, a 2.4% increase over the $118.9 million or $10.46 per
share at the end of 1996. The Corporation's equity to assets
ratio ended the quarter at 9.47%, compared to 9.12% at the end of
1996.
Prior to the adoption of new mortgage banking accounting
standards in the second quarter of 1995, mortgage banking
accounting did not allow the full value of mortgage servicing
rights to be reflected on the balance sheet. Since a significant
portion of the Corporation's mortgage servicing portfolio was
generated prior to the adoption of the new accounting standards,
it represents substantial economic value which is not recorded on
the balance sheet. The following table demonstrates the
estimated after-tax value for the current quarter as well as the
past two year ends.
<TABLE>
(In thousands) June 30,1997 Dec. 31,1996 Dec. 31,1995
------------ ------------ ------------
<S> <C> <C> <C>
Servicing portfolio
balance $10,509,593 $10,810,988 $10,301,914
------------ ------------ ------------
Value @1.5% $157,644 $162,165 $154,529
Less: capitalized
servicing 71,384 70,551 51,783
Tax liability at 40% 34,504 36,646 41,098
------------ ------------ ------------
Net value not on
balance sheet $51,756 $54,968 $61,648
============ ============ ============
Per share of common
stock $4.65 $4.84 $5.44
======= ======= =======
</TABLE>
CREDIT RISK
The assumption of credit risk is a key source of earnings
for the community banking, home equity lending, and equipment
leasing businesses. In addition, the mortgage banking business
assumes some credit risk despite the fact that the mortgages are
typically secured.
The community banking and home equity lending businesses
manage credit risk through the use of lending policies, credit
analysis and approval
XXX PAGE 18 XXX
procedures, and personal contact with the borrowers. Loans over
a certain size are reviewed prior to approval by a loan
committee. The equipment leasing business manages credit risk
in a similar manner through the use of lending policies, credit
analysis procedures, and personal contact with lessees.
Management reviews various ratios as measurements of asset
quality; however, the two most significant areas are delinquent
loan and lease ratios and the adequacy of the allowance for
possible loan and lease losses.
The adequacy of the allowance for loan and lease losses is
critical to the fair valuation of net loans and leases recorded
on the Corporation's balance sheet. Management evaluates the
creditworthiness of significant borrowers, past loan and lease
loss experience, and current and anticipated economic conditions.
The allowance for loan and lease losses is reduced by loans and
leases which, in the opinion of management, are deemed to be
uncollectible. The allowance is increased by provisions against
income. The ending allowance at any reporting period reflects
management's opinion of the possible future loss potential of all
loans and leases currently recorded on the Corporation's books.
As of June 30, 1997, the allowance for loan and lease
losses as a percentage of total loans and leases was 1.36%,
compared to 1.25% at December 31, 1996. For the three months
ended June 30, 1997, the provision for possible loan and lease
losses totaled $2.0 million, a 94.9% increase over the amount
recorded in the second quarter of 1996. Year to date, the
provision totaled $2.7 million, up from $2.0 million a year
earlier. The higher 1997 reserve and provision are consistent
with the increase in nonperforming assets experienced by the
Corporation. Net charge-offs for the quarter were $877.7
thousand as compared to $304.4 thousand in 1996. Year to date
net charge-offs totaled $1.4 million, up from $0.5 million a year
earlier.
Nonperforming assets (loans 90 days past due, nonaccrual,
and owned real estate) were $9.0 million or 0.70% of total assets
at June 30, 1997, up from $7.2 million or 0.55% at December 31,
1996 and $2.7 million or 0.26% at December 31, 1995. The most
significant increases occurred at the mortgage bank and community
bank where nonperforming assets were up $1.6 million and $0.6
million, respectively, from year end 1996. The Corporation
monitors the loans and property included in this total in
evaluating the status of the current reserve.
XXX PAGE 19 XXX
<TABLE>
Nonperforming Assets
(In Thousands) June 30, December 31, December 31,
1997 1996 1995
--------------------------------------------
<S> <C> <C> <C>
Accruing loans past due
90 days or more:
Commercial $913 $256 $418
Leasing 0 0 0
Real Estate 0 234 0
Consumer 94 205 202
--------- --------- ---------
Subtotal 1,007 695 620
--------- --------- ---------
Nonaccrual loans:
Commercial 2,459 2,739 670
Leasing 1,051 1,261 415
Real Estate 2,757 260 694
Consumer 0 0 0
--------- --------- ---------
Subtotal 6,267 4,260 1,779
--------- --------- ---------
Total nonperforming loans 7,274 4,955 2,399
--------- --------- ---------
Other real estate owned 1,763 2,239 295
--------- --------- ---------
Total nonperforming assets $9,037 $7,194 $2,694
========= ========= =========
Nonperforming assets to
total assets 0.70% 0.55% 0.26%
====== ====== ======
</TABLE>
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, sales of investment securities, or short-term
borrowings. Seasonal fluctuations in deposit levels and loan
demand require differing levels of liquidity at various times
during the year. Liquidity measures are formally reviewed by
management monthly, and they continue to show adequate liquidity
in all areas of the organization.
XXX PAGE 20 XXX
INTEREST RATE SENSITIVITY
Interest rate sensitivity refers to the degree to which the
Corporation's short- and long-term earnings would change due to
changes in market rates of interest. The corporation's goal in
addressing this risk is to manage its businesses so that movements
of interest rates have a non-material impact on net income and on
the value of its assets and liabilities. To measure its sensitivity
to changes in interest rates and appropriate hedging strategies, the
Corporation uses a combination of measurement techniques including
simulation, rate shock analysis, and gap analysis.
The following table shows in summary form the Corporation's
interest rate sensitivity based on expected interest rate
repricing intervals for the balance sheet as of June 30, 1997 (a
"gap" analysis). For example, a 30-year adjustable rate
residential mortgage held in the portfolio of Irwin Union Bank is
included in the "4-12 month" category since that is the time
frame over which the asset will reprice. Fixed rate assets and
liabilities such as mortgage servicing rights and the escrow
deposits associated with them are analyzed based on their
expected maturities which reflect estimated pre-payment
characteristics, rather than their maximum contractual
maturities. Some items, such as certain deposit accounts, are
non-interest bearing, but will vary in balance due to interest
rate changes. Since the Corporation relies on such accounts in
its operations and would need to replace them with "at market"
liabilities should the non-interest bearing ones be unavailable,
they are included in the gap table and in simulations as "non-market" items.
<TABLE>
Within 4-12 1-5 Over 5 Subtotal Non- Total
3 Months Years Years market
Months
----------------------------------------------------------
(In Thousands)
Assets:
<S> <C> <C> <C> <C> <C> <C> <C>
Interest-bearing
deposits with
banks $1,744 $4,095 $4,647 $0 $10,486 $0 $10,486
Federal Funds Sold 7,000 0 0 0 7,000 0 7,000
Taxable
investment
securities 15,564 12,242 34,990 1,483 64,279 0 64,279
Tax-exempt
investment
securities 384 100 1,462 2,403 4,349 0 4,349
Mortgages held
for sale 368,062 0 0 0 368,062 0 368,062
Loans, net of
unearned income 258,841 72,144 121,046 86,268 538,299 0 538,299
Total interest-
earning assets 651,595 88,581 162,145 90,154 992,475 0 992,475
Liabilities:
Non-interest
bearing
deposits 0 0 0 0 0 $204,773 $204,773
Money Market
checking 16,368 0 49,104 16,082 81,554 0 81,554
Money Market
savings 2,518 0 7,761 0 10,279 0 10,279
Regular savings 27,295 2,217 11,822 9,135 50,469 0 50,469
Time deposits 157,623 69,191 51,901 1,014 279,729 0 279,729
Short-term
borrowings 266,174 0 0 0 266,174 0 266,174
Long-term debt 1,377 3,196 5,217 50,000 59,790 0 59,790
Total interest-
bearing
liabilities 471,355 74,604 125,805 76,231 747,995 204,773 952,768
Trust preferred
securities 0 0 0 50,000 50,000 0 50,000
Interest
sensitivity
gap 180,240 13,977 36,340 (36,077) 194,480 (204,773) (10,293)
Cumulative
interest
sensitivity
gap $180,240 $194,217 $230,557 $194,480 (10,293)
=================================== ========
</TABLE>
As the above table shows, the consolidated one-year gap at June
30, 1997 was a positive $194.2 million. This compares to a
positive gap of $188.4 million at March 31, 1997.
Since the gap was positive at June 30, 1997, it means that
the Corporation's net interest income was positioned to benefit
from rising 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. Through the use of simulations using
regression modeling and option-adjusted valuation techniques for
modeling expected customer behavior, the Corporation attempts to
analyze and mitigate the interest rate risks associated with the
negatively correlated activities of 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.
XXX PAGE 22 XXX
CAPITAL ADEQUACY
Capital is a major focus of regulatory attention, with the
risk-based capital standard being the principal capital adequacy
measure. Based on this standard, financial institutions are
currently required to have a risk-based capital ratio of at least
8.0%. In addition to the minimum requirements for the risk-based
capital ratio, Tier I capital of at least 4.0% of total risk-adjusted
assets must be maintained. Equity and risk-based capital ratios for the
Corporation are as follows:
<TABLE>
June 30, December 31, December 31,
1997 1996 1995
---------- --------------------------------
<S> <C> <C> <C>
Equity to Assets 9.47% 9.12% 9.56%
Risk-Based Capital
Ratio 17.39% 14.23% 14.49%
Tier I Capital
Ratio 16.62% 13.47% 13.80%
</TABLE>
The Corporation's capital ratios are adequate and above
regulatory minimums.
OTHER MATTERS
The Corporation, like many financial institutions, is actively
addressing its exposure to the "Year 2000 Bug" (which is commonly
defined as the ability of information and other business systems
to function fully and accurately from, into, and between the
twentieth and twenty-first centuries). The Corporation has
developed a five-stage project plan which culminates in final
testing and implementation by mid-1999.
The Corporation is currently in the assessment stage of its
plan and cannot definitively estimate the extent of the problem
for the Corporation or the cost to remedy it. The Corporation
has developed a technology strategy which primarily uses systems
developed by third parties and has very few internally developed
applications. Consequently, the Corporation's principal focus
will be on assuring Year 2000 compliance from its commercial
application vendors.
In April 1997, a lawsuit commenced in May 1995 against the
Corporation, Irwin Home Equity Corporation and certain employees
of Irwin Home Equity, alleging misappropriation of trade secrets,
was terminated.
XXX PAGE 23 XXX
PART II
Other Information
Item 4. Submission of Matters to a Vote of Security Holders
a. The Annual Meeting of Shareholders of Registrant was held on
April 29, 1997.
b. The following directors were elected at the meeting:
<TABLE>
Affirmative Negative Votes Votes
Votes Votes Withheld Abstained
----------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Sally A. Dean 10,127,125 15,707 36,000 5,187
David W. Goodrich 10,162,083 15,707 1,042 5,187
John T. Hackett 10,163,125 15,707 0 5,187
William H. Kling 9,690,855 15,707 472,270 5,187
Brenda J. Lauderback 10,159,735 15,707 3,390 5,187
John C. McGinty 10,117,919 15,707 45,206 5,187
Irwin Miller 9,694,473 15,707 468,652 5,187
William I. Miller 10,163,125 15,707 0 5,187
John A. Nash 10,162,925 15,707 200 5,187
Lance R. Odden 10,123,929 15,707 39,196 5,187
Theodore M. Solso 10,161,018 15,707 2,107 5,187
</TABLE>
c. Other matters voted on during the meeting were as follows:
Confirmation of independent auditors, Coopers & Lybrand, of
the Registrant. 10,078,153 affirmative, 65,402 negative, 40,464
abstained
Approval of the 1997 Irwin Financial Corporation Stock
Option Plan. 9,949,623 affirmative, 170,480 negative, 63,916 abstained
XXX PAGE 24 XXX
PART II
Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits to Form 10-Q
<TABLE>
Number Assigned Sequential Numbering
In Regulation S-K System Page Number
Item 601 Description of Exhibit
- ----------------- ----------- --------------------
<C> <S> <C>
(10) Irwin Financial Corporation 27
1997 Stock Option Plan
(11) Computation of 38
Earnings per Share
(27) Financial Data Schedule 39
</TABLE>
(b) Reports on Form 8-K
None
XXX PAGE 25 XXX
SIGNATURES
Pursuant to the requirements 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
By: /s/ Thomas D. Washburn
________________________
Thomas D. Washburn
Chief Financial Officer
By: /s/ Marie C. Strack
_________________________
Marie C. Strack
Corporate Controller
(Chief Accounting Officer)
XXX PAGE 26 XXX
Exhibit 10
IRWIN FINANCIAL CORPORATION
1997 STOCK OPTION PLAN
Effective April 30, 1997
The terms and conditions of the Irwin Financial
Corporation 1997 Stock Option Plan (the "Plan") are set
forth below. This Plan shall be effective April 30, 1997,
subject to prior approval by the shareholders of Irwin
Financial Corporation ("IFC" or "the Company") and, when
effective, shall supersede and replace the Irwin Financial
Corporation 1992 Stock Option Plan (the "1992 Plan").
Options and rights granted under the 1992 Plan shall remain
subject to the terms and conditions of the 1992 Plan.
1. Purpose of the Plan.
The Plan is intended (a) to encourage the ownership of
the Common Shares, no par value, of IFC ("Shares") by
officers and other key employees of IFC and its subsidiaries
so as to give them an increased personal incentive to
promote the success of IFC and to encourage such officers
and key employees to remain in the employ of IFC and its
subsidiaries, (b) to encourage the non-employee members of
the Board (the "Outside Directors") to continue serving on
the Board, and (c) to enable IFC to compete more effectively
in attracting and retaining the Outside Directors and key
employees needed for continued success and growth.
2. Shares Available for Options.
An aggregate of 700,000 of authorized but unissued, or
treasury, Shares shall be reserved for issuance upon the
exercise of options granted under the Plan, which number
shall not include any Shares subject to options granted
under the 1992 Plan. If any option granted under this Plan
shall expire or terminate for any reason without having been
fully exercised, the Shares subject thereto shall again be
available for option grants.
3. Administration.
The Plan shall be administered by two or more members
of the Board of Directors who are and continue at all
relevant times to be "Non-Employee Directors" within the
meaning of Rule 16b-3 of the Securities and Exchange
Commission as in effect on the date of adoption of this Plan
(the "Committee"). The Board of Directors shall have the
power to name directors to the Committee and to remove
directors from the Committee at any time and for any
purpose. Any director serving on the Committee who is not a
Non-Employee Director with respect to any action of the
Committee shall abstain from voting or otherwise acting with
respect thereto. In the event that there are fewer than two
members of the Board of Directors who are Non-Employee
Directors with respect to any action to be taken under the
Plan, the full Board of Directors shall constitute the
Committee for the purpose of that action. The Committee
shall have the power to interpret and construe the
provisions of the Plan or any option or right granted under
it, and such
XXX PAGE 27 XXX
interpretation or construction shall be final and binding.
The Committee may prescribe, amend and rescind rules and
regulations relative to the Plan or its construction or
interpretation.
4. Issuance of Options.
(a) Prior to the Termination Date of the Plan (as
hereinafter defined), the Committee may, from time to time,
grant options to any Outside Director, officer or other key
employee of IFC and its subsidiaries (collectively, the
"Eligible Persons") for the purchase of Shares pursuant to
the Plan, in such amounts as the Committee may determine.
No option shall have an option price of less than 100% of
the fair market value of the Shares on the date the option
is granted or a term in excess of ten (10) years.
(b) Options granted under the Plan may be either
(i)Incentive Stock Options or (ii) Nonqualified Stock
Options; provided, however, that Outside Directors and
other Eligible Persons who are not "employees" of IFC
within the meaning of Section 421 of the Internal
Revenue Code of 1986, as amended, and any regulations
thereunder (the "Code"), shall not be eligible for
grants of Incentive Stock Options. Each option granted
under the Plan shall be designed by the Committee as
either an Incentive Stock Option or an Nonqualified
Stock Option.
(c) Incentive Stock Options shall be granted only
to those persons who are employees of IFC or a
"subsidiary corporation" of IFC as defined in Section
424(f) of the Code and the terms of each grant of
Incentive Stock Options shall meet the requirements of
Section 422 of the Code including but not limited to
the following:
(i) Incentive Stock Options granted to any
individual who is the owner (within the meaning of
Section 424(d) of the Code) of Shares possessing
more than 10% of the total combined voting power
of all classes of shares of IFC (a "10%
Shareholder") shall have an option price equal to
not less than 110% of the fair market value of the
Shares on the date the option is granted and the
exercise period must not exceed five (5) years.
(ii) The aggregate fair market value
(determined as of the time the option is granted)
of the Shares for which Incentive Stock Options
may be exercised for the first time by any
participant during any calendar year (under all
option plans of the Company or a parent or
subsidiary corporation within the meaning of Code
Section 422(d)) shall not exceed $100,000. In the
event the fair market value of Shares subject to
such options exceeds the $100,000 limitation in
the preceding sentence, the options exercised in
excess of such limitation shall be deemed to be
Nonqualified Stock Options.
(d) Nonqualified Stock Options shall consist of those
options that are designated as Nonqualified Stock Options at
the time of grant or thereafter deemed to be Nonqualified
Stock Options by virtue of the provisions contained in
subparagraph 4(c) or otherwise failing to
XXX PAGE 28 XXX
satisfy the requirements of Section 422 of the Code and the
regulations thereunder.
(e) Notwithstanding any provision in this Plan to
the contrary, the maximum aggregate number of Shares
with respect to which options may be granted to any
Eligible Person in any fiscal year of the Plan shall be
150,000 Shares.
5. Issuance of Stock Appreciation Rights.
(a) Prior to the Termination Date of the Plan,
the Committee may, from time to time, grant stock
appreciation rights ("SARs") to any Eligible Person, in
such amounts as the Committee may determine.
(b) Each SAR shall represent only the right to
receive in cash an amount equal to the excess of the
fair market value, on the date the SAR is exercised, of
one IFC Share over the grant price of the SAR as
determined by the Committee. The grant price of each
SAR shall be not less than the fair market value of one
Share on the date the SAR is granted
(c) The Committee may grant SARs at any time and
from time to time to any Eligible Person, may designate
such SARs as related to options then being granted or
granted prior to the grant date of the SARs, and may
set such terms and conditions upon the exercise of the
SARs as it may determine in its discretion.
(d) Unless the Committee provides otherwise at
the time of the grant, if an SAR is granted in relation
to an option, the exercise of the SAR or the option
shall result in the extinguishment of the related
option or SAR, as the case may be, with respect to the
Shares for which the option or SAR is exercised.
(e) Notwithstanding any provision in this Plan to
the contrary, the maximum aggregate number of Shares
with respect to which SARs may be granted to any
Eligible Person in any fiscal year of the Plan shall be
150,000 Shares.
6. Price and Terms of Payment.
(a) Determination of Fair Market Value. The fair
market value of Shares subject to any option or upon
which any SAR is based shall be determined by the
Committee in good faith in accordance with such
procedures as the Committee shall prescribe from time
to time. The Committee shall consider those factors
which the Committee reasonably believes to be relevant
in determining the fair market value of Shares.
(b) Exercise of Options. Each option may be
exercised in whole or in part at any time or from time
to time during the exercise period (described below)
upon written notice from the optionee to IFC,
accompanied by payment of the purchase price for the
number of Shares as to which the option is exercised.
XXX PAGE 29 XXX
(i) Payment of Purchased. Payment of the
purchase price for the exercise of any options
granted under the Plan shall be made either in
cash or cash equivalents on the date of purchase
or, if lawful, under one or more of the following
methods:
(1) The Committee may permit payment of
the purchase price by the transfer to IFC, on
the date of purchase, of that number of
Shares of IFC previously acquired by the
optionee the fair market value of which,
determined by the Committee (plus an
appropriate amount of cash, if any), is equal
to the purchase price ;
(2) The Committee may permit payment of the purchase price
in installments; provided however, that the provisions of
each installment purchase agreement: (A) shall provide that
the purchaser, at the purchaser's option, may pay any or all
such installments at one time, (B) shall comply with all
applicable credit regulations, if any, then in effect and
issued or enacted by governmental authority having
jurisdiction, including Regulation G of the Board of
Governors of the Federal Reserve System if such Regulation
is then in effect, (C) shall be established by the Committee
and shall include a specified rate of interest payable on
the unpaid balance, and (D)shall require that the
certificates for Shares purchased pursuant to installment
arrangement be pledged to IFC.
The certificates for Shares purchased
pursuant to an installment purchase agreement
will be delivered to the purchaser, who shall
take title to such Shares and be entitled to
all voting rights with respect thereto and
all cash dividends paid thereon, and
immediately deposited by the purchaser,
together with a properly executed stock
power, with the Secretary of IFC to be held
by IFC as security for the payment of the
installments of the purchase price, including
interest. In the event of the payment by IFC
of a stock dividend on or the declaration by
IFC of a stock split with respect to any of
its Shares held as security pursuant to an
installment purchase agreement hereunder, the
pledge under such agreement shall extend to
the Shares issued in payment of such stock
dividend or on account of such stock split.
The purchaser shall deliver to IFC the
certificates representing the dividend or
split Shares upon receipt thereof, together
with a properly executed stock power. In the
event that the Shares held as security
pursuant to an installment purchase agreement
shall be changed or reclassified as a result
of any charter amendment, recapitalization,
reorganization, merger, consolidation, sale
of assets or similar transactions, the
changed or reclassified Shares or other
assets or both received as a result of such
transaction shall be substituted for the
Shares pledged under such agreement; and the
purchaser shall promptly deliver to IFC any
certificates issued to represent the Shares
so changed or reclassified
XXX PAGE 30 XXX
and any such other assets, together with a
properly executed stock power. If rights to
subscribe for or purchase Shares or other
securities shall be issued to holders of
Shares held as security pursuant to an
installment purchase agreement, such rights
shall belong to the purchaser free from
pledge. Upon completion of payment for such
Shares, including interest to the date of
payment, and subject to any requirements
necessary to comply with Regulation G or
other applicable credit regulations, the
purchaser shall be entitled to the return
from IFC of the certificates so pledged; or
(3) The Committee may provide that
payment in full of the purchase price need
not accompany the notice of exercise provided
the notice of exercise directs that the
certificate or certificates for such Shares
for which the option is exercised be
delivered to a licensed broker acceptable to
the Company as the agent for the individual
exercising the option and, at the time such
certificate or certificates are delivered,
the broker tenders to the Company cash or
cash equivalents acceptable to the Company
equal to the purchase price for such Shares
purchased pursuant to the exercise of the
option plus the amount (if any) of federal
and other taxes which the Company may, in its
sole judgment, be required to withhold with
respect to the exercise of the option.
(ii) Withholding of Taxes. Upon exercise of
an option subject to withholding taxes, an
optionee may elect to have IFC withhold from the
Shares otherwise deliverable to the optionee that
number of Shares having an aggregate fair market
value, as of the date of exercise of the option,
equal to any applicable taxes imposed upon the
optionee as a result of the exercise of the
option, and to have that value applied by IFC to
the payment of the optionee's tax liability. Such
election must be made in writing and provided to
the Secretary of IFC at the time of exercise. For
purposes of such election, the fair market value
of Shares shall be determined by the Committee in
accordance with the provisions of subparagraph
6(a).
(c) Exercise of SARs. Each SAR may be exercised in whole
or in part at any time or from time to time during the
exercise period (described below) upon written notice from
the grantee to IFC. Upon receipt of the grantee's written
notice of exercise with respect to an SAR, the Committee
shall tender payment for the SAR (as determined pursuant to
subparagraph 5(b)), less any applicable withholdings for the
payment of taxes, to such grantee as soon as practicable
thereafter, unless the Committee and the grantee mutually
agree to some other method or form of payment.
7. Period of Exercise of Option/SAR.
Subject to the limitations set forth in paragraphs
8,9,10 and 11 below, each option and/or SAR granted under
this Plan shall be exercisable for a
XXX PAGE 31 XXX
period of ten (10) years from date of grant thereof, except
for Incentive Stock Options granted to a 10% Shareholder
which shall be exercisable for a period of five years from
the date of grant.
8. Limitations on Exercise of Options/SARs.
Each option and/or SAR granted under this Plan shall be
exercisable by the grantee only in accordance with the
following schedule:
(a) During the first year following the grant of
the option and/or SAR, up to 25% of the optioned
Shares, or Shares represented by the SAR, may be
exercised;
(b) During the second year following the grant of
the option and/or SAR, up to an additional 25% of the
optioned Shares, or Shares represented by the SAR, may
be exercised;
(c) During the third year following the grant of
the option and/or SAR, up to an additional 25% of the
optioned Shares, or represented by the SAR, may be
exercised; and
(d) After the end of the third year following the
grant of the option and/or SAR and until the expiration
of the option and/or SAR, any and all remaining Shares
under the option, or Shares represented by the SAR, may
be exercised.
The limitations on exercise set forth above shall be
cumulative; for example, during the second year after the
grant a combined total of 50% of the optioned Shares, or
Shares represented by the SAR may be exercised if none were
exercised during the first year. The limitations set forth
in this paragraph 8 shall not apply in the event of the
death of a grantee while serving on the Board of Directors
or in the employ of IFC or its subsidiaries.
9. Death of Grantee.
In the event of the death of a grantee while serving on
the Board or in the employ of IFC or its subsidiaries, the
options and/or SARs theretofore granted to such grantee
shall be exercisable within a period of twelve (12) months
after the date of death. In no case shall the period for
exercise extend beyond the expiration date of such option
and/or SAR.
10. Termination of Employment or of Service as Outside
Director.
(a) In the event that a grantee's employment with IFC or
its subsidiaries or service as an Outside Director is
terminated due to disability or retirement, the options
and/or SARs theretofore granted to such grantee may be
exercised to the extent that such grantee was entitled to
exercise the options and/or SARs at the date of such
termination, but only within a period of three (3) years
beginning on the day following the date of such termination,
and provided further that any Incentive Stock Options may be
exercised only within a period of three (3) months beginning
on the day following the date of such termination. In no
case shall the period for exercise extend beyond the
XXX PAGE 32 XXX
expiration date of such option grant and/or SAR.
So long as a grantee shall continue to serve as an
Outside Director or continue to be an employee of
IFC or one or more of its subsidiaries, the
options and/or SARs granted to the grantee shall
not be affected by any change of duties or
position. A change of employment from IFC to a
subsidiary, from a subsidiary to IFC, from one
subsidiary to another, or any combination thereof,
shall not be considered to be a termination of
employment for purposes of this Plan. For
purposes of this subparagraph 10(a),the employment
of a grantee shall be deemed to have been
terminated if the grantee retires at his or her
disability, normal, early, late, special or like
retirement date, as such retirement dates may be
defined in any existing retirement plan or plans
of IFC and its subsidiaries.
(b) In the event that a grantee's employment with
IFC or its subsidiaries or the service of an Outside
Director is terminated due to voluntary resignation,
the options and/or SARs theretofore granted to such
grantee may be exercised to the extent that such
grantee was entitled to exercise the options and/or
SARs at the date of such resignation, but only within a
period of three (3) months beginning on the day
following the date of such termination. In no case
shall the period for exercise extend beyond the
expiration date of such option and/or SAR.
(c) Notwithstanding anything herein to the
contrary, all outstanding options and/or SARs shall
immediately terminate without further action on the
part of IFC in the event of the termination of a
grantee's employment with IFC or its subsidiaries "for
cause."
(d) Whether an authorized leave of absence, or
absence on military or governmental service, or for any
other reason, shall constitute a termination of
employment for purposes of this Plan shall be
determined by the Committee in its sole discretion,
which determination shall be final and conclusive.
(e) Whether a grantee's employment or service as
an Outside Director is terminated due to "retirement"
or "disability" and whether a termination of employment
is "for cause" shall be determined by the Committee in
its sole discretion, which determination shall be final
and conclusive.
11. Change of Control, Dissolution, and Liquidation.
(a) Change of Control. For purposes of the Plan,
"change of control event" shall be deemed to have
occurred if:
(i) The Company shall become a party to an
agreement of merger, consolidation, or other
reorganization pursuant to which the Company will
be a constituent corporation and the Company will
not be the surviving or resulting corporation, or
which will result in less than 50% of the
outstanding voting securities of the surviving or
resulting entity being owned by the former
shareholders of the Company;
XXX PAGE 33 XXX
(ii) The Company shall become a party to an
agreement providing for the sale by the Company of
all or substantially all of the Company's assets
to any individual, partnership, joint venture,
association, trust, corporation, or other entity
("Person") which is not a wholly-owned subsidiary
of the Company;
(iii) The Company determines in its sole
discretion that any Person has become or is
anticipated to become the beneficial owner,
directly or indirectly, of securities of the
Company representing 50% or more of the combined
voting power of the Company's then outstanding
securities, the effect of which (as determined by
the Company in its sole discretion) is to take
over control of the Company; or
(iv) The Company determines that during any
period of two consecutive years, individuals who,
at the beginning of such period, constituted the
Board of Directors of the Company, cease, for any
reason, to constitute at least a majority thereof,
unless the election or nomination for election for
each new director was approved by the vote of at
least two-thirds of the directors then still in
office who were directors at the beginning of the
period.
(b) Effect of a Change of Control Event. Upon
the occurrence of a change of control event, the
Company shall provide written notice thereof (the
"Change of Control Notice") to the grantees. The
Company shall have the right, but not the obligation,
to terminate all outstanding options and/or SARs as of
the 30th day immediately following the date of the
sending of the Change of Control Notice by including a
statement to such effect in the Change of Control
Notice. Upon delivery of the Change of Control Notice
and regardless of whether the Company elects to
terminate the outstanding options and/or SARs, and
subject to subparagraph 5(a) and paragraph 7 of this
Plan, the grantees shall have the right to immediately
exercise all outstanding options and/or SARs in full
during the 30-day period notwithstanding the other
terms and conditions otherwise set forth in the Plan or
in any certificate or agreement representing such
option and/or SAR.
(c) Dissolution and Liquidation. In the event
the Company adopts all necessary resolutions approving
a plan to dissolve or liquidate the Company, the
Company shall provide written notice thereof (the
"Dissolution Notice") to the grantees. Upon delivery
of the Dissolution Notice, and subject to subparagraph
5(a) and paragraph 7 of this Plan, the grantees shall
have the right to immediately exercise all outstanding
options and/or SARs in full during the 30-day period
immediately following the date of the sending of the
Dissolution Notice notwithstanding the other terms and
conditions otherwise set forth in the Plan or in any
certificate or agreement representing such option
and/or SAR. All unexercised options and/or SARs
outstanding as of the 30th day immediately following
the date of the sending of the Dissolution Notice shall
terminate.
12. Non-transferability.
XXX PAGE 34 XXX
(a) Incentive Stock Options and SARs granted
under this Plan shall be non-transferable by the
grantee, otherwise than by will or pursuant to the laws
of descent and distribution. Otherwise, Incentive
Stock Options and SARs shall be exercisable during the
grantee's lifetime and only by the grantee.
(b) Nonqualified Stock Options granted under this
Plan may be transferred only to a member of the
immediate family of the grantee, or by will or pursuant
to the laws of descent and distribution. Otherwise,
Nonqualified Stock Options shall be exercisable during
the grantee's lifetime and only by the grantee.
13. Recapitalization
The aggregate number of Shares that may be the subject
of options and SARs issued hereunder, the number of Shares
covered by and the option price or grant price of each
outstanding option or SAR and each other term of this Plan
that is related to the share capital of the Company as of
the date of adoption of this Plan all shall be
proportionately adjusted for any increase or decrease in the
number of issued and outstanding Shares resulting from a
subdivision or consolidation of Shares or any other capital
adjustment of IFC, the payment of a share dividend, a share
split or any other increase or decrease in the outstanding
Shares effected without receipt of consideration by IFC. In
the event that, prior to the purchase of all of the Shares
or the exercise of all of the SARs provided for herein,
there shall be a capital reorganization or reclassification
of the capital of IFC resulting in a substitution of other
shares for the IFC Shares, there shall be substituted for
the number of Shares for which each outstanding option could
have been exercised on the effective date of that capital
adjustment the number of substitute Shares that would have
been issued with respect to the Shares then subject to the
option had such Shares been then issued and outstanding, and
appropriate adjustments shall be made to all outstanding
SARs.
14. Application of Funds.
The proceeds received by IFC from the sale of Shares
pursuant to this Plan shall be used for general corporate
purposes.
15. Issuance and Terms of Option Certificates.
Each grant of an option or SAR shall be evidenced by
the delivery to the grantee of an appropriate certificate or
other agreement evidencing the grant and incorporating the
terms and conditions of this Plan.
16. Effective Date
The effective date of this Plan is April 30, 1997,
subject to prior approval by the shareholders of IFC.
17. Compliance with Legal Requirements.
(a) The Company shall not be required to sell or issue any
Shares in connection with any option granted under the Plan
and may postpone the issuance and delivery of certificates
representing Shares
XXX PAGE 35 XXX
until (a) the admission of the option Shares to
listing on any exchange on which Shares of the
Company are then listed or, if not so listed,
qualification of such Shares for inclusion in the
Nasdaq National Market or such other trading
market or quotation system on which the Shares of
the Company are then traded or quoted; and (b) the
completion of such registration or other
qualification of the Shares under any state or
federal law, rule, or regulation as the Company
shall determine to be necessary or advisable,
which registration or other qualification the
Company shall use reasonable efforts to complete.
Any person acquiring Shares upon the exercise of
an option may be required to make such
representations and furnish such information as
may, in the opinion of the Company, be appropriate
to permit the Company to determine the necessity
of registration of the Shares under the Securities
Act of 1933, as amended, or any similar state
statute.
(b) The Plan is intended to qualify for the
exemption from the short-swing profits liability
imposed by Section 16(b) under the Securities Exchange
Act of 1934, as amended, provided by Rule 16b-3 of the
Securities and Exchange Commission. To the extent any
provision of the Plan or any action by the Committee
does not comply with the requirements of Rule 16b-3, it
shall be deemed inoperative to the extent permitted by
law and deemed advisable by the Committee. In the
event that Rule 16b-3 is revised or replaced, the
Committee may exercise its discretion to modify the
Plan in any respect necessary to satisfy the
requirements of the revised exemption or its
replacement, subject to the provision of paragraph 18.
(c) Grants of options and/or SARs under the Plan
are intended to comply with and be construed in
accordance with the performance-based compensation
provisions applicable to grants of options and stock
appreciation rights under Section 162(m) of the Code
and the regulations thereunder.
18. Amendment and Termination.
(a) The Board of Directors of IFC may from time
to time alter, amend, suspend or discontinue the Plan
with respect to any Shares for which an option has not
been granted, with respect to any SAR which has not
been granted, and may modify the Plan to include
additional equity-based compensation programs; provided
however, that the Board of Directors may not, without
further approval by the holders of a majority of the
issued and outstanding Shares:
(i) increase the maximum number of Shares or
SARs which may be issued under the Plan (other
than to reflect a stock split, stock dividend or
other recapitalization);
(ii) change the class of shares which may be
issued under the Plan;
(iii) change the designation of the
persons or class of persons eligible to receive
Shares or SARs under the Plan;
XXX PAGE 36 XXX
(iv) change the provisions of paragraph 4
concerning the option price; or
(v) otherwise modify or change the Plan
pursuant to Section 424(h) of the Code.
(b) Unless earlier terminated by the Board of
Directors pursuant to subparagraph (a) of this
paragraph 18, this Plan will terminate on the tenth
anniversary of the date the Plan was adopted by the
Board of Directors (the "Termination Date"). No
options or SARs may be granted subsequent to the
Termination Date.
19. Miscellaneous.
(a) In addition to the requirements of
subparagraph 17(a), the Committee may require, as a
condition to the obligation of IFC to issue Shares
subject to an option, that a grantee represent in
writing at the time of exercise of an option that he or
she is purchasing the Shares subject to the option for
investment purposes and without any present intention
of selling the same, and to agree that he or she will
transfer such Shares only in accordance with the
registration requirements of applicable state and
federal securities laws and that the certificate
representing any Shares purchased may bear an
appropriate notation to that effect.
(b) Prior to the exercise of an option, the
grantee shall have no rights as a shareholder with
respect to any Shares covered by such option. No
adjustment shall be made for dividends or other items
for which the record date is prior to the date of such
issuance of Shares subject to an option.
(c) Options and rights granted under the terms of
the 1992 Stock Option Plan shall remain subject to the
terms and conditions of that Plan.
(d) A grantee's right, if any, to continue to
serve IFC and its subsidiaries as an officer, employee,
or otherwise shall not be enlarged or otherwise
affected by the grantee's designation as a participant
under the Plan.
XXX PAGE 37 XXX
1
Exhibit 11
<TABLE>
IRWIN FINANCIAL CORPORATION
COMPUTATION OF EARNINGS PER SHARE
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
---- ---- ---- ----
PRIMARY
<S> <C> <C> <C> <C>
Average number of shares
outstanding 11,166,426 11,353,306 11,238,743 11,345,632
Assumed exercise of stock
options 296,611 259,880 308,948 263,980
----------------------------------------------
Total shares 11,463,037 11,613,186 11,547,691 11,609,612
==============================================
Net income $5,768,395 $5,027,737 $10,964,671 $10,015,973
==============================================
Net income per share $0.50 $0.43 $0.95 $0.86
====== ====== ====== ======
FULLY DILUTED
Average number of shares
outstanding 11,166,426 11,353,306 11,238,743 11,345,632
Assumed exercise of stock
options (Note 1) 316,550 259,880 329,717 263,980
---------------------------------------------
Total shares 11,482,976 11,613,186 11,568,460 11,609,612
==============================================
Net income $5,768,395 $5,027,737 $10,964,671 $10,015,973
==============================================
Net income per share $0.50 $0.43 $0.95 $0.86
====== ====== ====== ======
</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
period or the period-end market price.
XXX PAGE 38 XXX
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000052617
<NAME> IRWIN FINANCIAL CORP.
<MULTIPLIER> 1,000
<S> <C>
<S> <C> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 51,099
<INT-BEARING-DEPOSITS> 10,486
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 29,561
<INVESTMENTS-CARRYING> 39,068
<INVESTMENTS-MARKET> 39,608
<LOANS> 538,299
<ALLOWANCE> 7,320
<TOTAL-ASSETS> 1,234,434
<DEPOSITS> 667,180
<SHORT-TERM> 316,174
<LIABILITIES-OTHER> 71,531
<LONG-TERM> 9,789
47,919
0
<COMMON> 29,965
<OTHER-SE> 104,532
<TOTAL-LIABILITIES-AND-EQUITY> 1,234,434
<INTEREST-LOAN> 27,607
<INTEREST-INVEST> 3,237
<INTEREST-OTHER> 14,580
<INTEREST-TOTAL> 45,425
<INTEREST-DEPOSIT> 9,598
<INTEREST-EXPENSE> 20,177
<INTEREST-INCOME-NET> 25,248
<LOAN-LOSSES> 2,692
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 88,981
<INCOME-PRETAX> 20,431
<INCOME-PRE-EXTRAORDINARY> 20,431
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,965
<EPS-PRIMARY> .95<F1>
<EPS-DILUTED> 0
<YIELD-ACTUAL> .05<F1>
<LOANS-NON> 6,267
<LOANS-PAST> 1,007
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 6,745
<CHARGE-OFFS> 1,574
<RECOVERIES> 209
<ALLOWANCE-CLOSE> 7,320
<ALLOWANCE-DOMESTIC> 7,320
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 3,378
<FN>
<F1>information not in 1,000
</FN>
</TABLE>
