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 Incorporation (I.R.S. Employer
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 filingrequirements 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. __
The aggregate market value of the voting stock held by nonaffiliates of the
Registrant was $150,757,321.75 as of March 11, 1997. As of March 11, 1997,
there were outstanding 11,329,062 common shares of the Registrant.
DOCUMENTS INCORPORATED BY REFERENCE
Selected Portions of Part of Form 10-K Into Which
the Following Documents Incorporated
Annual Report to Shareholders Part I, Part II
for the year ended December 31, 1996
Definitive Proxy Statement for Part III
Annual Meeting of Shareholders
to be held April 29, 1997
Exhibit Index on Pages 44 through 47 Page 1
Total Pages in This Filing: 207
XXXPAGE 1XXX
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 9
Part II
Item 5 - Market for Registrant's Common Equity
and Related Security Holder Matters 9
Item 6 - Selected Financial Data 10
Item 7 - Management's Discussion and
Analysis of Financial Condition and
Results of Operations 10
Item 8 - Financial Statements and
Supplementary Data 42
Item 9 - Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure 42
Part III
Item 10 - Directors and Executive Officers of the
Registrant 42
Item 11 - Executive Compensation 42
Item 12 - Security Ownership of Certain
Beneficial Owners and Management 42
Item 13 - Certain Relationships and Related
Transactions 42
Part IV
Item 14 - Exhibits, Financial Statement Schedules
and Reports on Form 8-K 43
Signatures 48
XXXPAGE 2XXX
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; 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. Registrant is
also the sole equity shareholder of IFC Capital Trust I ("Capital Trust"), a
special purpose trust. Registrant is in the process of winding down Irwin
Union Investor Services, Inc. ("Investor Services") an investment and financial
counseling company.
Business of Subsidiaries
Inland Mortgage originates, purchases and services conventional or government
agency backed (i.e., FHA and VA) residential mortgage loans. Most 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 106 production
and satellite offices in 27 states. During 1996, Inland Mortgage established
offices in Temecula, California; Colorado Springs, and Denver Central,
Colorado; Marlton previously Cape May, New Jersey; Albuquerque, New Mexico;
Austin, Texas. During 1996, Inland Mortgage closed offices in Fresno, Long
Beach, Montclair, Orange, Pleasanton, San Francisco, San Mateo, San Rafael,
and Selma, California; Prescott, Arizona; Bloomington and St. Louis Park, MN;
Kalispell, Montana; Santa Fe, New Mexico; and Orting and Vancouver, Washington.
Inland Mortgage will enter the non-prime first mortgage lending market in
1997. This market is comprised of borrowers who do not qualify under
the underwriting guidelines established by the government sponsored secondary
market agencies for conforming first mortgages. Inland opened a non-prime
lending office in Richmond, Virginia late in the fourth quarter of 1996 and
will begin originating nonprime first mortgages in 1997.
Inland Mortgage and the Registrant have, for several years, been exploring
opportunities to test the development of mortgage banking operations in
markets outside the United States. In December, 1996, Inland Mortgage began
taking applications from U. S. Borrowers for Dollar denominated loans to be
secured by residential real estate located in Mexico. Inland does not
expect to close any of these loans until the first quarter of 1997. The
Registrant hopes to continue research of international opportunities
to which Registrant might apply its knowledge and competencies.
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, financial counseling,
property and casualty insurance agency services, trust services, securities
brokerage and safe deposit facilities. Irwin Union Bank
XXXPage 3XXX
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. Irwin Union Bank has two trust
custodial offices in Indianapolis, Indiana. The custodial locations
are scheduled to close in January, 1997.
Affiliated, acquired in 1990 and located in
Northbrook, Illinois, is engaged in the small-ticket equipment leasing and
commercial lending business. Affiliated offers nonrecourse, non-
operating, full payout 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 loans. The loans are
marketed through direct mail and telemarketing in sixteen states.
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.
IFC Capital Trust I ("Capital Trust"), is a statutory business trust created
under the laws of Delaware. The Company owns all of the Common
Securities of Capital Trust. Trust exists for the purpose of issuing the
Preferred Securities and investing the proceeds thereof in an equivalent
amount of 9.25% Subordinated Debentures of the Company. The Subordinated
Debentures will mature on March 31, 2027, which date may be (i)
shortened to a date not earlier than March 31, 2002, or (ii) extended to a
date not later than March 31, 2046, in each case if certain conditions are
met (including, in the case of shortening the Stated Maturity, the Company
having received prior approval of the Board of Governors of the Federal
Reserve System ("Federal Reserve") to do so if then required under
applicable capital guidelines or policies of the Federal Reserve). The
Preferred Securities, which are guaranteed by the Company, will have a
preference under certain circumstances with respect to cash distributions
and amounts payable on liquidation, redemption or otherwise over the
Common Securities. Holders of Preferred Securities are entitled to receive
preferential cumulative cash distributions, at the annual rate
of 9.25% of the liquidation amount of $25 per Preferred Security accruing
from the date of original issuance and payable quarterly in arrears on the
last day of March, June, September and December of each year, commencing
March 31, 1997.
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
106 production and satellite offices in Arizona, California, Colorado,
Delaware, Florida, Georgia, Hawaii, Illinois, Indiana, Kentucky, Louisiana,
Minnesota, Missouri, New Jersey, New Mexico, Nevada, North Carolina, Ohio,
Oklahoma, Oregon, Pennsylvania, Texas, Utah, 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
XXXPAGE 4XXX
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 south central 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, 1996, 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 south central
Indiana.
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 originates home equity loans for private home owners in several
states. Home Equity's primary competitors include banks, thrifts, credit
unions and other home equity lenders with 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 Registrant's
registered broker/dealer 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.
XXXPAGE 5XXX
Employees and Labor Relations
As of December 31, 1996, the Registrant and its subsidiaries
had a total of 1,998 employees, including full-time and parttime 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, 1996 and is incorporated herein by reference: "Daily Average
Consolidated Balance Sheet, Interest Rates and Interest Differential"
(p. 70), "Investment Securities" (p. 57), "Short-Term Borrowings" (p. 59),
"Summary of Net Interest Income Changes" (p. 55), "Deposits" (p. 58), "Loans
and Leases" (p. 56), "Five-Year Selected Financial Data" (p. 28), and the
discussion and tabular information under the caption "Credit Risk" on pages
62 to 66 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 (46) is President of Affiliated Capital Corp. since February
28, 1990.
Claude E. Davis (36) is President of Irwin Union Bank since January 2, 1996.
He has been an officer since 1988.
Elena Delgado (41) 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 (34) 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).
Jose M. Gonzalez (38) 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.
Theresa L. Hall (44) is Vice President of the Registrant, since 1988. She
has been an officer since 1980.
Rick L. McGuire, (44) is President of Inland Mortgage since January 1, 1996.
He has been an officer since 1978.
William I. Miller (40) is Chairman of the Board, since 1990, and has been a
Director of the Registrant since 1985.
XXXPAGE 6XXX
John A. Nash (59) 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 (51) is Vice President Community Relations of the Registrant
since January 2, 1996. He was President of Irwin Union Bank from
1981 - 1995. He has been an officer since 1976.
Matthew F. Souza (40) is Vice President and Secretary of the Registrant. He
has been an officer since 1985.
Marie C. Strack (34) 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 (50) is Senior Vice President and Chief Financial Officer,
since 1980, of the Registrant. He has been an officer since 1976.
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 and a new servicing facility is located at 11800 Exit
Five Parkway, Indianapolis, Indiana. Inland Mortgage also has
loan production and satellite offices located in Flagstaff, Phoenix (3),
Mesa, Scottsdale, Tempe, and Tucson, Arizona; Antioch, Bakersfield,
Concord, Covina, Lake Forest, Morgan Hill, Pasadena, Porterville, Richmond,
Sacramento, Salinas, Santa Rosa, Temecula, Ventura, Visalia, Walnut Creek,
Westlake Village, Woodland, Yuba City, and Yreka, California; Castle Rock,
Colorado Springs, Denver (2), Englewood, and Fort Collins , Colorado; Bethany
Beach and Newark, Delaware; Clearwater, Longwood, and Orlando, Florida;
Atlanta, Georgia; Aiea, Honolulu, Kailua, and Maui, Hawaii; Chicago, Decatur,
and Tinley Park, Illinois; Indianapolis (5), Anderson, Ft. Wayne, Kokomo,
Lafayette, LaPorte, South Bend, and Warsaw, Indiana; Lexington and
Louisville, Kentucky; Baton Rouge, Louisiana; Columbia, Crofton, Rockville,
Solomons, and Towson, Maryland; Arden Hills, Burnsville, and Minneapolis,
Minnesota; St. Louis, Missouri; Las Vegas, Nevada; Marlton previously Cape
May, New Jersey; Albuquerque, New Mexico; Cary, Charlotte,
Greensboro, and Raleigh, North Carolina; Cleveland, Dayton, and Independence,
Ohio; Tulsa, Oklahoma; Beaverton and Clackamas, Oregon; West Chester,
Pennsylvania; Austin, Corpus Christi, Dallas, El Paso, Houston, North
Houston, and Plano, Texas; Salt Lake City, Utah; Fredericksburg, Gloucester,
Richmond, Springfield, Suffolk, and Woodbridge, Virginia;
Bellevue, Battleground, Everett, Mount Lake Terrace, Seattle, and Snohomish,
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 and 520 Washington Street, Columbus, Indiana. These buildings and
one branch building are owned in fee by Irwin Union Realty Corporation, a
whollyowned 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 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 12677 Alcosta Blvd., Suite
500, San Ramon, California. This office location is leased.
XXXPAGE 7XXX
The main offices of the Registrant, 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, 1996, 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, Illinois.
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. Early in January, 1997, class
certification was denied to the plaintiff by the court. The plaintiff may
still pursue an action against Inland Mortgage as an individual and
plaintiff's counsel may still seek to find another mortgagor who would
support a new class action against Inland Mortgage so 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 in this or similar escrow individual or
class action cases brought in the future.
As of December 31, 1996, 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. In February, 1996, Inland Mortgage
filed a motion for summary judgment with the court. In December, 1996, the
court denied the motion. The litigation is still at a stage where 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, 1996, Inland Mortgage was a defendant to a class action
lawsuit initiated in the state of Alabama. This action is one of a
breed of "RESPA Section 8" class actions that have been filed against several
mortgage lenders challenging the legality of the payment of
broker fees by mortgage lenders to mortgage brokers. 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
loss exposure, if any, to which Inland Mortgage might be exposed.
As of December 31, 1996, the Registrant, Home Equity and certain officers of
Home Equity were defendants to an 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 plaintiff originally sought a preliminary
injunction hearing but the hearing was vacated in April, 1996. It is
impossible to predict the extent or amount of liability or potential loss
exposure, if any, to which Home Equity and the other named defendants might
be exposed.
As of December 31, 1996, Irwin Union Bank was plaintiff in an action
initiated in the State of New York against another depository institution
arising from a wire transfer of funds which occurred in September, 1995.
The litigation is presently in the discovery stage and it is
impossible to predict the likelihood of an unfavorable outcome or to
establish the full extent of the potential loss exposure, if any,
to which Irwin Union Bank may be exposed.
XXXPAGE 8XXX
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
During the fourth quarter of 1996, no matters were submitted 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 Nasdaq National Market
(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 Registrant's Common Stock in each quarter
of the two most recent calendar years. All data have been adjusted for stock
splits. The approximate number of shareholders of record on March 11, 1997
was 1,550.
<TABLE>
<CAPTION>
Stock Prices and Dividends:
<S> <C> <C> <C> <C> <C>
High Low Quarter Cash Total Dividend
$ $ End Dividend For Year
$ $ $
1995 (split
adjusted)
First Quarter 15 7/8 13 3/4 15 1/2 0.055
Second Quarter 17 5/8 15 1/2 17 1/4 0.055
Third Quarter 18 1/4 17 1/4 17 3/4 0.055
Fourth Quarter 20 1/8 17 5/8 20 0.055 0.22
1996 (split
adjusted)
First Quarter 22 3/4 19 3/4 22 1/8 0.060
Second Quarter 22 1/4 19 5/8 19 5/8 0.060
Third Quarter 21 5/8 17 7/8 21 1/4 0.060
Fourth Quarter 24 3/4 21 1/4 24 3/4 0.060 0.24
</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 27, 1996, the Registrant's Board of Directors
a pproved an increase in the Registrant's quarterly dividend to $.12 per
share which dividend rate was adjusted to reflect the two-for-one stock split
of December 30, 1996. 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.
No sales of unregistered equity securities were made by the Registrant during
the fourth quarter of 1996.
XXXPAGE 9XXX
Item 6. Selected Financial Data
The information contained in the Annual Report to Shareholders for the year
ended December 31, 1996, 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
Forward Looking Statements. The Company desires to take advantage of the
"safe harbor" provisions of the Private Securities Litigation Reform Act of
1995 as to "forward looking" statements in this Form 10-K. This section
contains certain forward looking statements within the meaning of such Act,
including the statements made under the "1997 Outlook" section
for each line of business. Such statements are subject to risks and
uncertainties and actual results for subsequent periods could differ
materially from those addressed in forward looking statements as a result of
various factors, including the following:
Economic Conditions. The Company's results are likely to be influenced by
general economic conditions. Changes in local, regional or national
economies could have a material impact on the credit quality of the Company's
assets and the demand for its products and services.
Interest Rate Fluctuations. The Company actively manages its interest rate
risk exposure as described below in "Interest Rate Sensitivity," but if
interest rates should change rapidly or vary substantially from
anticipated levels, the Company's results may be impacted in the shortterm.
Government Regulation and Monetary Policy. The financial services industry
is subject to extensive federal and state regulations. There have been
significant changes in the past in such regulations, and there may be future
legislation or repeal of or changes in laws or regulations that could have a
material impact on the Company's businesses. Further, federal monetary policy
particularly as implemented through the Federal Reserve System, significantly
affects credit conditions for the Company, primarily through open market
operations in U.S. government securities, the discount rate for member bank
borrowing and bank reserve requirements, and a material change in these
conditions would be likely to have an impact on results.
Credit Quality and Liquidity Risk. As discussed below under "Risk
Management," "Credit Risk" and "Liquidity," the Company's businesses involve
the assumption of substantial financial risk. While the Company employs risk
management policies and procedures intended to minimize such financial risk
exposures as described below, such policies and procedures may not
prevent unexpected losses if borrowers' nonperformance significantly exceeds
the estimated loan loss levels anticipated by management in establishing loan
and lease loss reserves.
Computation. The Company competes with numerous financial institutions and
other non-depository financial intermediaries in each of its lines of
business. Future results may be impacted if circumstances affecting the
nature or level of competition change, such as the merger of
competing financial institutions or aggressive expansion by existing
competitors that may impact net interest margin.
Management's Discussion and Analysis of Results
of Operations and Financial Condition:
<TABLE>
<CAPTION>
Five-Year Selected Financial Data
<S> <C> <C> <C> <C> <C>
1996 1995 1994 1993 1992
Financial Data
(in thousands)
For the year:
Net Revenues $197,020 $148,364 $116,908 $119,366 $494,934
XXXPAGE 10XXX
Other Operating
Expense 159,733 115,915 86,844 93,803 73,811
Net Income 22,428 20,083 18,216 15,588 12,866
Mortgage Loan
Closings 5,085,625 3,559,310 2,812,962 4,273,933 3,441,347
Return on Average
Equity 20.58% 22.60% 23.91% 24.91% 26.51%
Return on Average
Assets 1.95 2.28 2.43 2.15 1.97
Dividend Payout Ratio 12.15 12.36 11.38 11.12 8.88
Per share:*
Net Income $1.93 $1.75 $1.55 $1.33 $1.12
Cash Dividends 0.24 0.22 0.18 0.15 0.10
Book Value 10.46 8.76 7.21 6.03 4.82
Market Value at
December 31, 24.75 19.94 13.38 12.50 11.50
At year end:
Assets $1,303,886 $1,038,307 $659,671 $881,864 $602,465
Deposits 640,153 563,999 439,918 500,370 389,323
Mortgage Loans
Held for Sale 445,101 378,658 154,964 370,755 218,080
Loans and Leases, Net 522,457 407,904 304,548 252,823 207,138
Shareholders'
Equity 118,902 99,216 81,104 70,093 55,343
Mortgage Servicing
Portfolio 10,810,988 10,301,914 8,818,502 7,922,299 5,470,505
Equity to Assets
Ratio 9.12% 9.56% 12.29% 7.95% 9.19%
Risk-based Capital
Ratio 14.23 14.49 19.18 15.68 16.46
Leverage Ratio (Tier
one) 9.84 10.57 10.82 9.63 8.48
Averages:
Assets $1,151,535 $882,164 $748,981 $725,846 $651,517
Equity 108,970 88,867 76,178 62,586 48,539
Shares Outstanding 11,610 11,486 11,766 11,720 11,534
</TABLE>
*Adjusted for stock splits
Consolidated Overview:
Irwin Financial Corporation earned record net income in 1996. This
performance was largely due to increased loan originations in the mortgage
banking business, continued growth at the community bank, and improved
results at the Corporation's newly formed home equity lending business.
Net income for 1996 totaled $22,428,338, up 11.7% from 1995 and 23.1% from
1994. Net income per share in 1996 was $1.93 compared to $1.75 in 1995 and
$1.55 in 1994. Return on average equity for 1996 was 20.58% compared to 22.60%
in 1995 and 23.91% in 1994. Return on average assets was 1.95% compared to
2.28% in 1995 and 2.43% in 1994.
Earnings By LineIrwin Financial Corporation is comprised of four lines of
business:
- Mortgage banking
- Community banking
XXXPAGE 11XXX
- Home equity lending
- Equipment leasing
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.
<TABLE>
<CAPTION>
Earnings:
<C> <C> <C> <C>
(In thousands) 1996 1995 1994
Mortgage Banking $20,422 $19,331 $15,728
Community Banking 4,254 3,639 3,050
Home Equity Lending (816) (3,220) -
Equipment Leasing (141) (334) 873
Parent (including consolidating entries) (1,291) 667 (1,435)
---------- --------- --------
$22,428 $20,083 $18,216
</TABLE>
Business Profile:
Mortgage Banking
<TABLE>
Selected Financial Data
<CAPTION>
<C> <C> <C> <C> <C> <C>
(In thousands) 1996 1995 1994 1993 1992
Selected Income Statement Data:
Net interest income $16,828 $13,290 $12,702 $15,067 $15,203
Loan origination fees 43,463 31,871 25,308 37,605 28,548
Gain on sale of loans 25,541 18,020 2,219 14,225 10,337
Loan servicing fees 44,587 36,087 32,426 24,428 15,135
Gain on sale
of servicing 16,378 15,271 17,716 2,979 5,133
Other income 888 787 647 550 448
--------------------------------------------------
Total net revenues 147,685 115,326 91,018 94,854 74,804
Operating expense 113,590 83,344 64,571 72,140 54,309
---------------------------------------------------
Income before taxes 34,095 31,982 26,447 22,714 20,495
Income taxes 13,673 12,651 10,719 9,073 8,178
---------------------------------------------------
Net income $20,422 $19,331 $15,728 $13,641 $12,317
============================================================================
Selected Balance Sheet Data
at End of Period:
Mortgage loans held
for sale $371,058 $309,262 $131,543 $318,453 $179,583
Mortgage servicing
rights 67,750 51,783 18,834 11,505 10,156
Total assets 557,275 445,129 216,180 452,365 214,411
Short-term debt 265,646 227,021 68,259 215,014 77,731
Long-term debt 4,914 2,300 2,605 2,934 1,178
Shareholders'
equity $66,180 $55,811 $50,805 $42,355 $31,105
Selected Operating Data:
Mortgage loan closings $5,085,625 $3,559,310 $2,812,962 $4,273,933 $3,441,347
</TABLE>
XXXPAGE 12 XXX
<TABLE>
<CAPTION>
Servicing portfolio:
Balance at
<C> <C> <C> <C> <C> <C>
December 31, 10,810,988 10,301,914 8,818,502 7,922,299 5,470,505
Weighted average coupon
rate 7.83% 7.83% 7.59% 7.51% 8.37%
Weighted average servicing
fee 0.38 0.38 0.38 0.37 0.36
Servicing sold as a percent of
production 60.9 28.4 49.8 5.6 12.3
</TABLE>
Overview & Strategy:
The mortgage banking line of business consists of Inland Mortgage Corporation
and the related activities of Irwin Union Bank. The business is
headquartered in Indianapolis and originates, packages, sells, and services
residential mortgage loans throughout the U.S. It has offices in 27 states
and ranks among the top 25 mortgage loan originators in the country. Most
of the loans originated and serviced are either government-insured through
the Veterans' Administration (VA) or Federal Housing Administration (FHA) or
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 cash flow and servicing portfolio
management. Over the past five years, servicing rights have been retained
on a total of 67.8% of the loans originated by this line of business.
1996 Review:
Net income from mortgage banking was $20.4 million in 1996, an increase of
5.6% over 1995 results of $19.3 million and 29.8% over 1994 results of $15.7
million.
<TABLE>
<CAPTION>
Mortgage Closings:
<C> <C> <C> <C>
(In thousands) 1996 1995 1994
Total closings
$5,085,625 $3,559,310 $2,812,962
Percent retail loans 41.8% 50.3% 56.6%
Percent wholesale loans 52.4 42.5 42.9
Percent brokered 5.8 7.2 0.5
</TABLE>
Annual loan closings in 1996 of $5.1 billion were up 42.9% from 1995 and
80.8% from 1994. During 1996 the mortgage bank originated a greater portion of
its loans through wholesale channels than had been done in previous years.
Income from mortgage loan originations totaled $43.5 million which was $11.6
million over 1995 and $18.2 million over 1994. Mortgage loan applications in
process at the end of 1996 totaled $1.5 billion, compared with $1.2 billion
at the end of 1995 and $0.5 billion at the end of 1994. Refinances
accounted for 19.0% of 1996 loan closings, compared to 11.6% in 1995 and
15.8% in 1994.
XXXPAGE 13XXX
Gains from the sale of mortgage loans totaled $25.5 million in 1996, up from
$18.0 million in 1995 and $2.2 million in 1994. Gains recognized in 1996 and
for the last nine months of 1995 reflect the change in generally accepted
accounting principles for mortgage banking (SFAS No. 122) which took effect
April 1, 1995. Net revenues from loan sales were tempered somewhat by loan
pricing concessions which totaled $2.5 million in 1996 compared to
$3.8 million in 1995 and $0.1 million in 1994.
<TABLE>
<CAPTION>
Mortgage Servicing:
Servicing Portfolio:
<C> <C> <C> <C>
(In billions) 1996 1995 1994
Beginning portfolio $10.3 $8.8 $7.9
Add:
Loans originated 2.1 1.8 1.6
Loans purchased 3.0 1.8 1.2
Deduct:
Sale of servicing rights (3.1) (1.0) (1.4)
Run-off* (1.5) (1.1) (0.5)
- -------------------------------------------------------
Ending portfolio $10.8 $10.3 $8.8
=======================================================
Number of loans 140,354 129,270 107,101
Average loan size $83,540 $82,186 $80,038
Percent GNMA 51% 48% 57%
Percent FHLMC 15 21 16
Percent FNMA 16 17 20
Delinquency ratio: 5.12% 4.55% 3.25%
Capitalized servicing as a
percentage of servicing
portfolio 0.65% 0.50% 0.23%
</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.
The mortgage servicing portfolio was $10.8 billion at December 31, 1996, up
4.9% from the same date in 1995 and 22.6% from 1994. The 1996 annual
portfolio run-off rate was 10.7%. This is up from the 1995 rate of 10.4% and
the 1994 rate of 6.3%. The following table sets forth certain information
regarding the interest rates of loans in the servicing portfolio at
December 31:
<TABLE>
<CAPTION>
Servicing Portfolio by Interest Rate:
<C> <C> <C> <C>
1996 1995 1994
Less than 7% 8.9% 10.3% 20.1%
7.00 - 7.99% 44.3 39.8 35.3
8.00 - 8.99% 38.7 33.9 30.7
9% or greater 8.1 16.0 13.9
--------- -------- --------
Total 100% 100% 100%
</TABLE>
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 provisions. Expenses related to
mortgage servicing right impairment and hedging totaled $637.9 thousand in
1996 compared to $908.8 thousand in 1995. None were recorded in 1994.
The preceding information is related to the servicing portfolio owned by
Inland. In addition to the owned servicing portfolio, the business
subservices conventional loans for which it does not own
XXXPAGE 14XXX
servicing rights. The subservicing portfolio totaled $1.7 billion at December
31, 1996, compared to $1.9 billion on the same date in 1995.
<TABLE>
<CAPTION>
Servicing and Other Fees:
<C> <C> <C> <C>
(In thousands) 1996 1995 1994
Servicing fees $44,587 $36,087 $32,426
Other fees 888 787 647
-------------------------------
Total $45,475 $36,874 $33,073
</TABLE>
Servicing fee income is recognized by collecting fees which range between 25
and 44 basis points annually on the principal amount of the underlying
mortgages. An increase in the average size of the servicing portfolio
throughout the year positively affected servicing income which increased
23.6% from 1995 and 37.5% from 1994.
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 cash flow. The decision to sell or retain servicing is based on
current market conditions balanced with the business' interest rate risk
tolerance.
Servicing rights totaling $3.1 billion were sold in 1996, generating a $16.4
million pre-tax gain on those sales, net of any purchased servicing
expense which had been capitalized. This compares to servicing sales of $1.0
billion in 1995 that produced a $15.3 million pre-tax gain and $1.4 billion
in 1994 that produced a $17.7 million pretax gain. The lower margin recognized
in 1996 reflects the impact of the change in mortgage accounting standards
made in 1995. Had all servicing been retained in 1996, gains on sales of
loans would have been higher than what was recorded, with a corresponding
reduction in gains from sales of servicing. Therefore, the net increase in
income as a result of the decision to sell servicing was insignificant.
Servicing sales in 1996 represented 60.9% of 1996 closings versus
1995 sales which were 28.4% of that year's closings and 1994 sales which
were 49.8% 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 $16.8
million in 1996, compared to $13.3 million in 1995 and $12.7
million in 1994. The increase is due primarily to the increased loan volume
experienced in 1996.
<TABLE>
<CAPTION>
Operating Expenses:
<C> <C> <C> <C>
(In thousands) 1996 1995 1994
Salaries and employee benefits $66,153 $51,737 $41,725
Amortization of mortgage servicing
rights 13,259 4,865 1,943
Other expenses 34,178 26,742 20,903
------------------------------------
Total operating expenses $113,590 $83,344 $64,571
======== ======= ========
Number of employees at December 31, 1,474 1,316 955
</TABLE>
Total operating expenses increased 36.3% from 1995 and 75.9% from 1994. The
increase reflects the continued expansion of the production system and
increased costs associated with technological improvements made during the
year.
1997 Outlook:
XXXPAGE 15XXX
The environment in which the mortgage bank operates is rapidly changing. As
a result, technology will play an increasingly important role in the mortgage
bank's strategic plans. Management believes that in order to remain
competitive, the mortgage bank must advance its use of technology to reduce
its costs of production and enhance its distribution methods or develop new
channels of distribution. Significant technology initiatives which were
started in 1996 will continue during the coming year.
Throughout much of its history, the mortgage banking business has
concentrated on the origination of FHA and VA loans. As such, the
company developed a reputation of effectively serving the mortgage
origination needs of first time home buyers. These borrowers generally
require more guidance through the origination process than do those borrowers
who previously qualified for mortgage loans.
Inland Mortgage continues to be interested in leveraging its capabilities to
serve those borrowers who have special needs. The business recently began two
initiatives to expand its reach in special needs borrowing. Both are in
their early stages and are not expected to add materially to results in 1997.
They are indicative, however, of efforts the company is making to focus on
defensible market segments where a sustainable competitive advantage can be
created based upon a dedication to customer service, fast turnaround time,
and product innovation.
The first such initiative is the mortgage bank's entrance into the non-prime
first mortgage lending market which is comprised of borrowers who do not
qualify under the underwriting guidelines established by the government
sponsored secondary market agencies for conforming first mortgages.
The second initiative to expand the company's reach involves making mortgage
loans on selected resort properties located outside the United
States. In December, 1996, Inland Mortgage began taking applications from
U.S. borrowers for dollar denominated loans to be secured by residential real
estate located in Mexico. The company is prepared to begin closing such loans
during the first quarter of 1997.
Employees:
As of December 31, 1996, the mortgage banking line of business employed 1,474
people- approximately 74% of the Corporation's total employee base. Total
employment expense in 1996 was $66.2 million or 58.2% of operating
expenses.
Inland Mortgage Corporation
Directors
John T. Hackett Managing General Partner,
CID Equity Partners, L. P.
(Venture Capital
Partnership)
William H. Kling President,
Minnesota Public
Radio
Inland Mortgage Corporation
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)
Thomas G. Shafran President,
Better Homes Realty
Thomas D. Washburn Senior Vice President,
Irwin Financial Corporation
XXXPage 16XXX
Darell E. Zink, Jr. Executive Vice President and Chief
Financial Officer
Duke Investments, Inc.
(Real Estate Development Company)
Inland Mortgage Corporation
Senior Officers
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
Mark J. Lynch Senior Vice President- Nonconforming Lending
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
Richard C. Cargill First Vice President-Metro Phoenix
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 E. 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-Customer Service
Lyle E. Shearer First Vice President-All Pacific Region
Richard E. Skiles First Vice President-Appraisals
Nicholas Vracas First Vice President-Mid-states Region
Business Profile:
Community Banking
<TABLE>
<CAPTION>
Selected Financial Data
<C> <C> <C> <C> <C> <C>
(In thousands) 1996 1995 1994 1993 1992
Selected Income Statement Data:
Interest income $35,645 $31,965 $23,808 $22,238 $20,267
Interest expense 15,908 14,048 8,822 8,684 8,379
Provision for loan
and lease losses 2,284 2,038 1,344 1,551 1,500
------------------------------------------------------
XXXPAGE 17XXX
Net interest income after provision for
loan and lease losses 17,453 15,879 13,642 12,003 10,388
Noninterest income 9,384 7,187 5,719 6,192 5,443
---------------------------------------------
Total net revenues 26,837 23,066 19,361 18,195 15,831
Operating expenses 20,311 17,582 14,858 14,264 12,498
- --------------------------------------------------------------------------
Income before taxes 6,526 5,484 4,503 3,931 3,333
Income taxes 2,272 1,845 1,453 1,247 1,001
---------------------------------------------
Net income $4,254 $3,639 $3,050 $2,684 $2,332
====== ====== ====== ====== ======
Selected Balance Sheet Data at
End of Period:
Loans and leases, net $331,790 $306,415 $252,226 $210,340 $176,958
Total assets 503,507 440,035 370,462 334,148 318,512
Deposits 453,879 400,149 341,459 298,615 314,773
Shareholders' equity 33,967 28,722 24,686 23,882 20,470
Daily Averages:
Assets $459,893 $405,249 $344,691 $302,692 $261,708
Deposits 413,935 358,343 315,229 275,956 236,641
Loans and
leases, net 325,291 281,147 228,544 195,304 166,202
Shareholders' equity 31,863 27,661 23,580 20,326 18,290
Shareholders' equity
to assets 6.93% 6.83% 6.84% 6.72% 6.99%
</TABLE>
Overview & Strategy:
Community banking is conducted by Irwin Union Bank and Trust Company which is
headquartered in Columbus, Indiana. At year-end 1996, 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. 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. Credit, investment, trust, and insurance services are
provided to individual and corporate customers.
1996 Review:
Community banking net income in 1996 totaled $4.3 million, up 16.9% from 1995
net income of $3.6 million and 39.5% from 1994 net income of $3.1 million.
The return on average equity was 13.35% in 1996 as compared to 13.16% in 1995
and 12.93% in 1994. Results include the income and expenses of trust
operations and investment advisory services which were previously reported
in the investor services line of business and are now managed and reported by
the community bank. Also included are credit insurance income and expenses
which were previously reported as a separate line of business. Results for
previous years have been restated for comparability.
<TABLE>
<CAPTION>
Net interest revenue:
<C> <C> <C> <C>
(In thousands) 1996 1995 1994
Net interest revenue on a taxable
equivalent basis* $20,096 $18,362 $14,989
Average interest earning assets 426,290 373,784 312,898
Net interest margin 4.71% 4.91% 4.79%
</TABLE>
XXX PAGE 18XXX
*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
9.4% from 1995 and 34.1% from 1994 to a total of $20.1
million. Net interest revenue is the product of
net interest margin and average earning assets.
Net interest margin was down for the year, coming in at 4.71% for 1996
compared to 4.91% in 1995 and 4.79% in 1994. The decline was
principally due to declines in yields in the community bank's loan portfolio.
The average yield on all earning assets was 8.45% compared
to 8.67% for 1995 and 7.61% for 1994.
Provision for Loan and Lease Losses:
The provision for loan and lease losses in 1996 was $2.3 million, compared to
$2.0 million in 1995 and $1.3 million in 1994. The provision was
equal to 0.7% of average loans and leases outstanding in 1996, compared to
0.7% in 1995 and 0.6% in 1994. See the section on credit risk
for additional information on asset quality and reserve adequacy.
<TABLE>
<CAPTION>
Noninterest Income:
<C> <C> <C> <C>
(In thousands) 1996 1995 1994
Trust fees $2,571 $2,470 $2,300
Service charges on deposit
accounts 1,820 1,596 1,259
Insurance commissions, fees,
and premiums 1,105 1,016 915
Gain from sale of consumer
and mortgage loans 909 - -
Loan servicing fees 690 210 93
Brokerage fees 736 571 -
Other $1,553 $1,324 $1,152
---------- --------- --------
Total noninterest income $9,384 $7,187 $5,719
</TABLE>
Noninterest income was up 30.6% from 1995 and 64.1% from 1994. The increase
is partially attributed to the sale of $59.5 million of consumer loans during
1996 which generated a pre-tax gain of $676.0 thousand. The community
bank retained the right to service the sold loans which contributed to
increased loan servicing fees in 1996.
<TABLE>
<CAPTION>
Operating Expenses:
<S> <C> <C> <C>
(In thousands, except for number of employees) 1996 1995 1994
Salaries $10,916 $9,656 $8,278
Other expenses 9,395 7,926 6,580
--------------------------------
Total operating expenses $20,311 $17,582 $14,858
======= ======= =======
Number of employees at December 31, 304 291 262
</TABLE>
Operating expenses increased 15.5% from 1995 and 36.7% from 1994. Costs
associated with expanding new products and markets contributed to increases
over the past two years. In addition, during 1996 the community bank changed
its strategy for offering employee benefits services to customers
of the trust department. The decision was made to simplify and streamline
the product offering. Also during 1996, the community bank exited the
mortgage document custody business. As a result of these two changes, the
community bank recorded $1.5 million of restructuring expenses
during the year.
XXXPAGE 19XXX
Balance Sheet:
Total assets averaged $459.9 million in 1996, compared to $405.2 million in
1995 and $344.7 million in 1994. Average earning assets for the
year were $426.3 million, up $52.5 million or 14.0% from 1995 and up $113.4
million or 36.2% from 1994. The most significant component of the
1996 increase was loans and leases which were up $44.1 million on average in
1996 as a result of the community bank's expansion efforts into new
markets. Average deposits were $413.9 million or 15.5% higher in 1996 than
1995 and $98.7 million or 31.3% higher than 1994.
The community bank's equity to assets ratio averaged 6.93% for the year,
compared to 6.83% in 1995 and 6.84% in 1994.
1997 Outlook:
During 1997, the community bank plans to take advantage of the opportunities
created by further consolidation in the banking industry. It plans to enter
two new markets in which it can become the "local banking" alternative. The
community bank will continue to expand its offering of non-traditional
services in all of its markets. In addition, the community bank
plans a test in certain markets of a new personal banker service made
possible by the integration of information systems and new customer delivery
channels through the use of new technology.
Employees:
As of December 31, 1996 the community bank employed 304 people. Total
employment expense in 1996 was $10.9 million or 53.7% of total operating
expenses.
Irwin Union Bank and Trust Company
Directors
Robert H. Claxton Senior Vice President- Finance,
Knauf Fiber Glass
(Manufacturer of Fiberglass Insulation)
Claude E. Davis President,
Irwin Union Bank and Trust Company
John T. Hackett Managing General Partner,
CID Equity Partners, L.P.
(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)
XXXPAGE 20XXX
Irwin Union Bank and Trust Company
Senior Officers
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 and Senior
Lending Officer
Albert C. Roszczyk Senior Vice President-Bartholomew County
William S. Beitler President-Shelby County
Karen S. Coldiron President-Decatur County
Brian D. Hall President-Monroe County
Robert L. Phillips President-Johnson County
William R. Redman President-Hamilton County
Donald J. Stuart President-Irwin Union Advisory Services
Gloria C. Bennett Vice President-Investments and Funds
Management
David S. Brooks Vice President- Bartholomew County
Debora L. Cox Vice President-Operations
Patrick K. Crimmins Vice President- Bartholomew County
Bradley R. Davis Vice President-Controller
Dyar Forkert Vice President- Decatur County
Joseph B. Hauersperger Vice President-Shelby County
William A. Helmbrecht Vice President-Bartholomew County
Carrie K. Houston Vice President-Human Resources
James D. Keller Vice President-Bartholomew County
Dianne Kelly Vice President-Jackson County
Jay N. Morris Vice President-Johnson County
Ellen Z. Mufson Vice President-Legal Counsel and
Assistant Secretary
James D. Parcell Vice President-Bartholomew County
Rick L. Smith Vice President- Jackson County
Barbara A. Smitherman Vice President-Bartholomew County
Jill A. Stanton Vice President-Mortgage Lending
Jerrie H. Suckow Vice President-Bartholomew County
Craig Teegarden Vice President-Johnson County
<TABLE>
<CAPTION>
Selected Financial Data
<S> <C> <C>
(In thousands) 1996 1995
Net interest income $4,574 $1,298
Gain on sale of loans 7,798 2,985
Loan servicing fees 4,573 13
Other income 141 229
----------------------
Total net revenues 17,086 4,525
Operating expenses $17,902 7,745
----------- ----------
Pre-tax loss ($816) ($3,220)
======= ========
Selected Balance Sheet Data at End of Period:
Home equity loans net of loan loss
allowance $117,588 $36,225
</TABLE>
XXXPAGE 21XXX
<TABLE>
<S> <C> <C>
Excess servicing 15,343 5,683
Total assets 147,088 51,611
Short-term debt 129,627 24,981
Shareholders' equity 13,221 5,538
Selected Operating Data:
Loan Volume:
Lines of credits 80,724 87,420
Loans 88,396 -
Servicing portfolio:
Balance at December 31, 230,450 86,691
Weighted average coupon rate:
Lines of credit 12.80% 13.61%
Loans 14.08% -
</TABLE>
Overview & Strategy:
The home equity line of business includes Irwin Home Equity
and the related activities of Irwin Union Bank. 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 16 states.
The business has the option to either hold the loans in portfolio or
securitize and service them. 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.
1996 Review:
The home equity lending business recorded a pre-tax loss of $0.8 million in
1996, compared to a $3.2 million pre-tax loss in 1995.
Loan Originations:
During 1996 the home equity lending business originated $169.1 million of
home equity loans, up 93.5% from 1995 volume of $87.4 million.
The business securitized and delivered $79.9 million of loans in 1996 which
generated a pre-tax gain of $6.8 million. This compares to a
$3.0 million gain recognized in 1995 on the sale of $51.6 million of loans.
In addition to the $79.9 million of loans that were delivered in 1996,
another $60.1 million were securitized. These loans will be delivered in the
first quarter of 1997, and the gain on the sale will be recognized at that
time. During 1996, the business also recorded a one-time $1.0 million
pre-tax adjustment to the gain recorded on the 1995 securitization. The
adjustment resulted from the substitution of a letter of credit in
1996 for the cash reserve which had been in place when the transaction was
recorded. This revised approach to providing for reserves caused the 1995
gain to be higher than it would have been under the previous approach. If the
business uses letters of credit in future transactions, the resulting gains
are expected to be similarly affected.
<TABLE>
<CAPTION>
Servicing Portfolio:
<S> <C> <C>
(In thousands) 1996 1995
Balance at December 31 $230,450 $86,691
Delinquency ratio 0.67% 0.85%
</TABLE>
XXXPAGE 22XXX
The home equity lending business continues to service loans it has
securitized. The servicing portfolio, which includes loans held on the
company's books as well as securitized loans, increased 165.8% from 1995.
The business earns a servicing fee equal to one percent of the
outstanding principal balance of the securitized loans. Servicing fee income
increased to $4.6 million in 1996 from $12.9 thousand in 1995. The
level of fees in 1995 reflects the fact that loans were not securitized until
late in the year.
Net Interest Income:
As a result of the increased loan volume in 1996, net interest income before
loan loss provision was up 234.6% to $5.6 million. The loan loss
provision also increased to $983.5 thousand from $363.0 thousand. Net charge-
offs for the home equity lending business were $37.0 thousand in
1996 as compared to $2.1 thousand in 1995.
<TABLE>
<CAPTION>
Operating Expenses
<S> <C> <C>
(In thousands, except for number of employees) 1996 1995
Salaries and employee benefits $8,663 $3,995
Marketing and development 5,063 2,601
Other 4,176 1,149
---------------------
Total operating expenses $17,902 $7,745
======= =======
Number of employees at December 31, 159 107
</TABLE>
Balance Sheet:
The home equity lending business had $118.2 million of loans outstanding at
December 31, 1996. This compares to $36.4 million at the end of 1995. The
loan loss allowance also increased to $589.4 thousand at December 31, 1996
from $146.6 thousand in 1995.
1997 Outlook:
During 1997, the home equity lending business looks to develop its business
further and to increase its loan production volume. The business plans to
continue exploring new products, funding alternatives, and markets
where its skills in identifying customers well served by direct marketing of
products uniquely tailored to their needs can be best applied.
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.
Employees:
As of December 31, 1996, the home equity business employed 159 people. Total
employment expense in 1996 was $8.6 million or 48.4% of total operating
expenses.
Irwin Home Equity Corporation
Directors and Senior Officers
Directors
Elena Delgado President,
Irwin Home Equity Corporation
William I. Miller Chairman,
XXXPAGE 23XXX
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- Production
Edwin K. Corbin Vice President-Finance and Servicing
Kathryn J. Diamond Vice President-Credit Risk Management
J. Christopher Huseby Vice President- Marketing and Business
Development
Sunita Liggin Vice President-Human Resources
Jocelyn Martin-Leano Vice President- Operations Support
Jack Nichols Vice President-Information Services
Fern Prosnitz Vice President-Legal Counsel
Business Profile:
Equipment Leasing
<TABLE>
<CAPTION>
Selected Financial Data
<S> <C> <C> <C> <C> <C>
(In thousands) 1996 1995 1994 1993 1992
Net interest income $3,622 $3,409 $4,339 $3,638 $2,349
Noninterest income 418 300 123 47 33
----------------------------------------------
Total net revenues 4,040 3,709 4,462 3,685 2,382
Operating expenses 4,181 4,043 3,589 3,133 2,278
Pre-tax income
(loss) $(141) $(334) $873 $552 $104
======= ======= ==== ==== ====
Lease and loan
volume $36,624 $24,951 $23,585 $22,922 $19,140
Net leases and loans
outstanding 53,632 45,765 42,989 37,401 27,738
Number of leases and
loans outstanding 9.186 7.766 7.209 6.438 5.032
Average new lease and
loan size $9.298 $9.027 $9.152 $8.663 $8.180
</TABLE>
Overview & Strategy:
The equipment leasing line of business is made up of Affiliated Capital Corp.
and the related activities of Irwin Union Bank. 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 strategy of the equipment leasing business is to establish relationships
with manufacturers and distributors of medical equipment and to
place leases with medical professionals through the sales representatives of
these vendors. This allows the business to place leases nationwide
despite the fact that all employees are located in Northbrook. In response to
changing customer needs, in 1995 the business
XXXPAGE 24XXX
began entering into private-label financing agreements with several equipment
manufacturers and began offering a revolving credit product to
complement its lease products.
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.
1996 Review:
Equipment leasing recorded a pre-tax loss of $140.8 thousand in 1996,
compared with a pre-tax loss of $333.7 thousand in 1995 and pre-tax income of
$872.6 in 1994. As a result of the strategy changes implemented in
late 1995, lease and loan volume increased to $36.6 million in 1996, up
46.8% from $25.0 million in 1995 and 55.3% from $23.6 million in
1994. However, because of increased competition in the equipment leasing
industry which created margin pressures, net interest income did not
increase commensurately. Net interest income totaled $3.6 million in 1996,
an increase of $212.9 thousand or 6.2% from 1995 and a decrease
of $717.4 thousand or 16.5% from 1994. Operating expenses were $4.2 million
for the year, 3.4% higher than 1995 and 16.5% higher than 1994.
1997 Outlook:
Competition in the small-ticket leasing industry is expected to remain
strong in 1997. The equipment leasing business will strive to remain
competitive with larger lessors using a strategy that focuses on adding
value through product differentiation to targeted business partners.
The challenge for the business is to demonstrate that this strategy can
achieve an attractive rate of return on equity in the long run.
Employees:
As of December 31, 1996, equipment leasing employed 38 people. Total
employment expense in 1996 was $2.0 million or 48.0% of total
operating expenses.
Affiliated Capital Corp.
Directors and Senior Officers
Directors
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
David M. Tustison Vice President-Strategic Planning
Other Irwin Financial Businesses
XXXPAGE 25XXX
During the third quarter of 1996, the Corporation exited the brokered
certificate of deposit and institutional brokerage businesses
which were the sole businesses operated by the Investor Services line of
business. A sale of selected assets of the brokered certificate of
deposit program was completed in the third quarter, and its impact on
earnings was not material. Parent company results in each period
include the results of investor services.
The results of parent company operations combined with Investor Services
results and consolidating entries are summarized below:
<TABLE>
<C> <C> <C> <C>
(In thousands) 1996 1995 1994
Net revenues $15,494 $17,986 $7,536
Operating expenses (5,353) (4,068) (3,665)
Tax credit 903 2,275 238
-------------------------------
11,044 16,193 4,109
Investor services (283) 177 (186)
Eliminations (12,052) (15,703) (5,358)
----------------------------------
Net income (loss) $(1,291) $667 $(1,435)
</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. Intercompany income and expenses are calculated on an arm's length,
external market basis.
Consolidated Income Statement Analysis: Pre-tax income for 1996 totaled
$37.3 million, up 14.9% from 1995 and 24.0% from 1994. The effective income
tax rate was 39.8% in 1996, 38.1% in 1995, and 39.4% in 1994. Please see
Note 16 of Notes to the Consolidated Financial Statements for more
information on income taxes.
Net interest revenue for 1996 totaled $47.8 million, up 28.1% from 1995 and
45.9% from 1994. The increase was due to a combination of increased loan
volume at the community bank and home equity lending business and higher
mortgage loan originations at the mortgage bank. Net interest margin was
4.94% in 1996, compared to 4.93% in 1995 and 5.03% in 1994. See page 70
for further analysis of the net interest margin.
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 a fully taxable equivalent basis:
<TABLE>
1996 Over 1995 1995 Over 1994
<C> <C> <C> <C> <C> <C>
(In thousands) Volume Rate Total Volume Rate Total
Interest Income:
Loans and leases $13,248 $778 $14,026 $8,550 $3,210 $11,760
Mortgage loans held
for sale 6,760 3,456 10,216 3,931 89 4,020
XXXPAGE 26XXX
Taxable investment
securities 21 51 72 (993) 605 (388)
Tax-exempt
securities (171) (63) (234) (76) 82 6
Interest-bearing deposits
with financial
institutions 28 78 106 (390) 203 (187)
Federal funds
sold (619) (127) (746) (310) 583 273
--------------------------------------------------
Total 19,267 4,173 23,440 10,712 4,772 15,484
---------------------------------------------------
Interest Expense:
Money market
checking 254 (233) 21 60 146 206
Money market
savings (88) (49) (137) (221) 108 (113)
Regular savings (23) (134) (157) (44) 458 414
Time deposits (268) 3,406 3,138 5,779 (537) 5,242
Short-term
borrowings 6,451 3,685 10,136 2,071 2,884 4,955
Long-term debt 78 (22) 56 10 221 231
-----------------------------------------------------
Total 6,404 6,653 13,057 7,655 3,280 10,935
-----------------------------------------------------
Net interest
revenue $12,863 $(2,480) $10,383 $3,057 $1,492 $4,549
</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.
The consolidated provision for loan losses for 1996 was $4.5 million, up
44.8% from 1995 and 157.7% from 1994. More information on this
subject is contained in the section on credit risk.
Other income increased 34.6% in 1996 to $153.6 million. This compares to
$114.1 million in 1995 and $85.9 million in 1994. The most significant
increases came in the categories related to mortgage banking and home equity
lending activities which were previously discussed on pages 32 and 46.
Other expenses in 1996 totaled $159.7 million, up 37.8% from 1995 and 83.9%
from 1994. The 1996 increase in consolidated other expense of $43.8
million was mostly due to operating expenses associated with expanded
mortgage and home equity loan production.
Consolidated Balance
Sheet Analysis:
Total assets at year-end 1996 were $1.3 billion, up 25.6% from 1995 and
97.7%:from 1994. 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 $1.2 billion in 1996, up 30.5% from
1995 and 53.7% from 1994. Mortgage loans held for sale increased by $93.2
million, while loans and leases increased by $127.5 million or 34.5%
on average in 1996.
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
XXXPAGE 27XXX
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,
<C> <C> <C> <C> <C> <C>
(In thousands) 1996 1995 1994 1993 1992
Commercial, financial,
and agricultural $179,650 $150,312 $136,083 $121,024 $108,964
Real estate
construction 48,991 36,126 21,960 21,258 15,890
Real estate mortgage 210,697 108,351 47,423 30,805 25,177
Consumer 38,371 67,756 55,323 41,101 30,626
Direct lease financing 62,372 60,979 58,348 52,555 38,082
Unearned income (11,030) (10,999) (10,726) (10,627) (8,380)
------------------------------------------------
Total $529,051 $412,525 $308,411 $256,116 $210,359
</TABLE>
<TABLE>
<CAPTION>
Maturity Distribution of Loans: After
One But
At December 31. 1996 Within Within After
(In thousands) One Year Five Years Five Years Total
<S> <C> <C> <C> <C>
Commercial, financial, and
agricultural $33,843 $56,688 $89,119 $179,650
Real estate construction 48,991 - - 48,991
Real estate mortgage 81,908 11,424 117,365 210,697
Consumer loans 6,325 29,161 2,885 38,371
Direct lease financing - 62,372 - 62,372
--------
Total $540,081
=======
Loans due
after one year with:
Fixed interest rates $207,135
Variable interest rates
161,879
----------
Total $369,014
</TABLE>
On average, investment securities decreased $1.3 million in 1996 to $65.4
million. The carrying value of investments at December 31, 1996 includes
$51.2 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>
<S> <C> <C> <C>
At December 31, (In thousands) 1996 1995 1994
Held-to-Maturity:
U.S. Treasury and Government
obligations $38,317 $26,914 $41,826
Obligations of states and political
subdivisions 4,466 6,490 7,549
Mortgage-backed securities 7,154 8,859 9,982
Corporate obligations - - 1,000
-----------------------------
Total held-to-maturity 49,937 42,263 60,357
</TABLE>
XXXPAGE 28XXX
<TABLE>
<CAPTION>
Available-for-Sale:
<S> <C> <C> <C>
U.S. Treasury and Government
obligations 19,924 15,359 13,834
Mortgage-backed securities 3,237 3,247 3,166
Other 26 - -
-------------------------------
Total available-for-sale 23,187 18,606 17,000
----------------------------------
Total investments $73,124 $60,869 $77,357
</TABLE>
<TABLE>
<CAPTION>
Maturity Distribution of Investment Securities:
After
After Five
One But But
Within Within Within After
One Five Ten Ten
Years Years Years Years
At December 31, 1996
(In thousands)
<S> <C> <C> <C> <C>
U.S. Treasury and
Government
obligations $12,808 $33,247 $ - $12,186
Obligations of states and political
subdivisions 481 1,437 1,173 1,375
Mortgage-backed securities 106 356 1,522 8,407
Other 26 - - -
-----------------------------------------
Total $13,421 $35,040 $2,695 $21,968
======= ======= ====== =======
Weighted Average Yield:
Held-to-maturity 6.95% 6.50% 8.64% 7.39%
Available-for-sale 5.72% 6.30% -% 6.25%
</TABLE>
The weighted average yield on state and municipal obligations has been
calculated on a fully taxable equivalent basis, assuming a 34.5% tax
rate.
Deposits averaged $632.2 million during 1996, compared to $526.1 million in
1995 and $467.1 million in 1994. Demand deposits were up 78.2%
on average, or $104.7 million from 1995. 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 $179.0 million in 1996.
Maturities of certificates of deposit of $100 thousand or more are set forth
in the following table:
<TABLE>
<S> <C> <C> <C>
At December 31, (In thousands) 1996 1995 1994
Under 3 months $47,907 $27,131 $9,197
3 to 6 months 5,127 6,299 4,581
6 to 12 months 7,493 14,378 4,248
After 12 months 5,977 6,268 3,448
------------------------------
Total $66,504 $54,076 $21,474
</TABLE>
Short-term borrowings averaged $334.3 million in 1996, compared to $217.3
million in 1995 and $167.8 million in 1994. The increase in 1996 is
due to the increase in mortgage loan closings in 1996.
XXXPAGE 29XXX
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>
Repurchase
Agreements
& Drafts Federal
Payable Home
Related to Loan Bank
Mortgage Borrowings Lines
Loan Commercial & Federal of
(In thousands) Closings Paper Funds Credit
<S> <C> <C> <C> <C> <C>
Year Ended 1996 $264,998 $17,175 $74,118 $105,592
December 31: 1995 225,873 21,723 40,000 22,683
1994 75,944 15,538 199 2,300
Weighted average 1996 4.65% 5.95% 5.80% 6.68%
interest rates at 1995 4.32 6.32 6.02 7.35
year-end: 1994 4.59 5.65 5.75 8.50
Maximum amount 1996 $270,516 $27,214 $121,000 $135,442
outstanding at any 1995 271,694 21,723 52,448 38,596
month's end: 1994 159,650 19,996 26,000 5,600
Average amount 1996 $218,810 $23,794 $44,139 $47,561
outstanding during 1995 155,726 19,125 20,497 6,109
the year: 1994 146,799 17,372 3,140 507
Weighted average 1996 3.78% 6.02% 5.80% 6.80%
interest rate during 1995 4.12 6.41 6.03 8.06
the year: 1994 3.62 4.63 5.71 7.14
</TABLE>
Capital:
Shareholders' equity averaged $109.0 million in 1996, up 22.6% from 1995 and
43.0% from 1994. Year-end shareholders' equity of $118.9 million
represented book value per share of $10.46, compared to $8.76 and $7.21 at
December 31, 1995 and 1994, respectively.
Prior to the adoption of SFAS No. 122 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 standard, it represents substantial
economic value which is not recorded on the balance sheet. The following
table demonstrates the estimated after-tax value of the servicing
portfolio at December 31:
<TABLE>
<S> <C> <C> <C>
(In thousands) 1996 1995 1994
Total loans serviced $10,810,988 $10,301,914 $8,818,502
Value (@ 1.5%) $162,165 $154,529 $132,278
Less capitalized servicing 70,551 51,783 20,302
Tax liability (@ 40%) 36,646 41,098 44,791
---------------------------------------
Net value $54,968 $61,648 $67,185
XXXPAGE 30XXX
======= ======== =========
Per share of common stock $4.84 $5.44 $5.97
</TABLE>
With the implementation of the new accounting standard in 1995, 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 $15.30 at December 31, 1996, up from $14.20 and $13.18 at
December 31, 1995 and 1994, respectively.
<TABLE>
<S> <C> <C> <C>
(In thousands) 1996 1995 1994
Tier 1 capital $117,416 $92,554 $80,966
Tier 2 capital 6,594 4,620 3,863
--------------------------------
Total risk-based capital $124,010 $97,174 $84,829
======== ======= =======
Risk-weighted assets $871,460 $670,675 $442,315
=========================================================
Risk-based ratios:
Tier 1 capital 13.47% 13.80% 18.31%
Total capital 14.23 14.49 19.18
Tier 1 leverage ratio 9.84 10.57 10.82
Ending shareholders'
equity to assets 9.12 9.56 12.29
Average shareholders'
equity to assets 9.46 10.07 10.17
</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, the Corporation considers both the
regulator's viewpoint and its own analysis of the capital
structure and leverage amounts that are consistent with underlying business
risks.
At year-end 1996, the Corporation's total risk-adjusted capital ratio was
14.23% compared to a current regulatory minimum of 8.0%. The Corporation's
ending equity to assets ratio for 1996 was 9.12%. 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 1996 was 9.46%.
In January 1997, the Corporation issued $50,000,000 of trust preferred
securities through a trust created and controlled by the Corporation. The
securities, which are publicly traded, 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 which the
Corporation can exercise at any point during the first 30 years. 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. The
securities are not convertible into common stock of the Corporation.
Stock Prices and Dividends:
The common stock of Irwin Financial 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.
XXXPAGE 31XXX
<TABLE>
Total
Quarter Cash Dividends
1994 *High *Low *End *Dividends *For Year
<S> <C> <C> <C> <C> <C>
First quarter $123/4 $107/8 $113/8 $0.045
Second quarter 117/8 101/4 111/8 0.045
Third quarter 14 101/2 135/8 0.045
Fourth quarter 137/8 123/4 133/8 0.045 $0.18
1995
First quarter $157/8 $133/4 $151/2 $0.055
Second quarter 175/8 151/2 171/4 0.055
Third quarter 181/4 171/4 173/4 0.055
Fourth quarter 201/8 175/8 20 0.055 $0.22
1996
First quarter $223/4 $193/4 $221/8 $0.060
Second quarter 221/4 195/8 195/8 0.060
Third quarter 215/8 177/8 211/4 0.060
Fourth quarter 243/4 211/4 243/4 0.060 $0.24
</TABLE>
*Adjusted for December 30, 1996 two-for-one stock split.
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 19, 1997, the Corporation's Board of
Directors approved an increase in the first quarter dividend to $0.07 per
share, payable in March 1997. Dividends by the Irwin Union Bank to
the Corporation are restricted by banking law. See Note 15 of Notes to
the Consolidated Financial Statements.
Risk Management:
As a financial intermediary, Irwin Financial 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 parent company 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 and home equity lending business
has the most potential to have a significant effect on consolidated
financial performance.
XXXPAGE 32XXX
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 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. Loans and leases
that are determined by management to be uncollectible are charged
against the allowance. The table on page 64 analyzes the consolidated
allowance for possible loan and lease losses over the past five years.
Net charge-offs in 1996 were $1.8 million, down 15.2% from 1995, and up
53.9% from 1994. Net charge-offs to average loans and leases was
0.36%, compared to 0.57% in 1995 and 0.41% in 1994. The provision for loan
and lease losses was $4.5 million, 249.9% of net charge-offs. The coverage
ratio was 146.3% in 1995 and 149.3% in 1994.
At year end, the allowance for possible loan and lease losses was 1.25% of
loans and leases, compared to 1.12% in 1995 and 1.25% in 1994.
Total nonperforming loans and leases at year end were $5.0 million, compared
to $2.4 million at the end of 1995 and $2.8 million at the end of
1994. Nonperforming loans and leases as a percent of total loans and leases
were 0.94% at year-end 1996, compared to 0.58% in 1995 and 0.90% in 1994.
Other real estate owned totaled $2.2 million at December 31, 1996, up
from $0.3 million in 1995 and $0.5 in 1994. Total nonperforming assets
were $7.2 million, or 0.55% of total assets at December 31, 1996, as
compared to $2.7 million or 0.26% at year-end 1994 and $3.3 million or
0.50% at the end of 1994.
<TABLE>
<CAPTION>
Analysis of Allowance for Loan and Lease Losses
<S> <C> <C> <C> <C> <C>
(In Thousands) 1996 1995 1994 1993 1992
Loans and leases
outstanding at end
of period, net of
unearned income $529,051 $412,525 $308,411 $256,116 $210,359
=================================================
Average loans and
leases for the
period, net of
unearned
income $496,729 $369,220 $279,389 $232,898 $195,161
==================================================
Allowance for loan and lease losses:
Balance beginning of
period $4,620 $3,863 $3,293 $3,220 $2,282
Charge-offs:
Commercial, financial,
and agricultural
loans 495 845 266 1,074 626
Real estate mortgage
loans 37 2 - - -
Consumer loans 959 953 543 387 392
Lease financing 883 690 757 323 207
-----------------------------------------------
Total charge-offs 2,374 2,490 1,566 1,784 1,225
------- -------- ------ ------- -------
</TABLE>
XXXPAGE 34XXX
<TABLE>
Recoveries:
Commercial, financial, and
<S> <C> <C> <C> <C> <C>
agricultural loans 133 2 34 82 21
Consumer loans 214 197 180 94 204
Lease financing 246 191 195 104 28
---------------------------------------------
Total recoveries 593 390 409 280 253
--------------------------------------------
Net charge-offs (1,781) (2,100) (1,157) (1,504) (972)
Reduction due to
sale of loans (695) (216) - - -
Provision charged to
expense 4,450 3,073 1,727 1,577 1,910
------------------------------------------------
Balance end of
period $6,594 $4,620 $3,863 $3,293 $3,220
====== ====== ====== ====== =======
Allowance for loan and lease losses:
By category of loans and leases Commercial,
financial, and
agricultural loans $3,676 $2,349 $2,586 $2,031 $1,635
Consumer loans 1,974 1,420 767 650 1,122
Lease financing 944 851 510 612 463
----------------------------------------------
Total $6,594 $4,620 $3,863 $3,293 $3,220
====== ====== ====== ======= ======
Ratios:
Net charge-offs to average loans
and leases 0.36% 0.57% 0.41% 0.65% 0.50%
Allowance for loan losses to average
loans and leases 1.33% 1.25% 1.38% 1.41% 1.65%
Allowance for loan losses
to loans and leases
outstanding 1.25% 1.12% 1.25% 1.29% 1.53%
Nonperforming Assets
(In thousands) 1996 1995 1994 1993 1992
Accruing loans past
due 90 days or more:
Commercial, financial,
and agricultural
loans $256 $418 $113 $800 $7
Real estate mortgages 234 - - 141 12
Consumer loans 205 202 93 88 121
------- ------ ------- ------ -----
695 620 206 1,029 140
------- ------ ------- ------ -----
Nonaccrual loans and leases:
Commercial, financial, and
agricultural loans
2,739 670 1,523 1,373 1,500
Real estate mortgages 260 694 689 848 1,540
Consumer loans - - - 39 55
Lease financing
receivables 1,261 415 363 242 299
-------- ------- -------- ----- -------
XXXPAGE 34XXX
4,260 1,779 2,575 2,502 3,394
-----------------------------------------------
Total nonperforming loans and
leases 4,955 2,399 2,781 3,531 3,534
-------- -------- -------- ------- --------
Other real estate
owned 2,239 295 489 623 1,085
-------- -------- --------- ------- -------
Total nonperforming
assets $7,194 $2,694 $3,270 $4,154 $4,619
====== ====== ====== ====== ======
Nonperforming loans and leases to total
loans and leases 0.94% 0.58% 0.90% 1.38% 1.68%
--------------------------------------------------
Nonperforming assets to total
assets 0.55% 0.26% 0.50% 0.47% 0.77%
</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.
<TABLE>
<CAPTION>
Renegotiated and Nonaccrual Loans
<S> <C> <C> <C>
(In thousands) 1996 1995 1994
Interest which would have been recorded
under original terms
Renegotiated $- $- $-
Nonaccrual 309 178 232
----- ---- -----
309 178 232
----- ----- -----
Interest income actually recorded
Renegotiated - - -
Nonaccrual 150 55 110
---- ---- ----
150 55 110
----- ------ -----
Reduction in interest income $159 $123 $122
</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,
1996 and related payment information is as follows:
<TABLE>
<CAPTION>
Analysis of Nonaccrual Loans
Contractual Cash interest payments
Book balance balance applied as
December 31, December 31, interest reduction
(In thousands) 1996 1996 income of principal
XXXPAGE 35XXX
Contractually past due with:
substantial
<S> <C> <C> <C> <C>
performance $168 $168 $9 $5
limited performance 2,463 2,849 104 562
no performance 963 1,267 - -
Contractually current, however:
payment in full of principal or
interest in doubt 666 666 37 19
----- ------ ----- -----
Total $4,260 $4,950 $150 $586
</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 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
Irwin Union 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 1996, this ratio
stood at 81.6%. 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 Irwin Union 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 portfolio under multiple rate scenarios.
Formal policies approved by the 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 risk 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.
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 policy at both the home equity lending
business and the equipment leasing business is to match-fund all
assets. In some cases, the Corporation uses internal hedges to allow for the
risk characteristics of one line of business to offset those of another.
XXXPAGE 36XXX
As the following table shows, the consolidated one-year gap at year-end 1996
was a positive $133.2 million. This compares to a positive gap of $153.6
million at year-end 1995. The large positive gaps have been due to levels
of 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.
<TABLE>
Within 3 Months After
<CAPTION>
Interest Sensitivity:(In thousands) Months to 1 Year 1 Year
Interest-earning assets:
<S> <C> <C> <C>
Interest-bearing deposits with banks $2,049 $3,294 $6,000
Taxable investment securities 16,679 15,133 36,846
Tax-exempt investment securities 95 386 3,985
Mortgages held for sale 445,100 - -
Loans, net of unearned discount 300,393 86,581 142,077
----------------------------------
Total interest-earning assets 764,316 105,394 188,908
-----------------------------------
Interest-bearing liabilities:
Money market checking 17,122 - 57,993
Money market savings 2,867 - 8,798
Regular savings 45,051 2,094 19,801
Time deposits 148,372 53,101 45,606
Short-term borrowings 456,683 5,200 -
Long-term debt 1,844 4,181 11,618
------------------------------------
Total interest-bearing liabilities 671,939 64,576 143,816
--------------------------------------
Interest sensitivity gap $92,377 $40,818 $ 45,092
======= ======= =========
Cumulative gap $92,377 $133,195 $178,287
</TABLE>
Effects of Inflation:
The Corporation is affected by inflation primarily as it impacts interest
rates. 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.
Daily Average Consolidated Balance Sheet,
Interest Rates and Interest Differential
XXXPAGE 37XXX
<TABLE>
<CAPTION>
For the year ended December 31,
1996
Average Yield/
(In thousands) Balance Interest Rate
Assets:
Interest-earning assets:
<S> <C> <C> <C>
Interest-bearing deposits with banks $10,282 $603 5.87%
Federal funds sold 24,370 1,290 5.29
Taxable investment securities 60,080 4,076 6.78
Tax-exempt investment securities (1) 5,348 504 9.43
Mortgage loans held for sale 379,027 30,943 8.16
Loans and leases, net of unearned
income (2) 496,729 52,391 10.55
----------- ----------- -------
Total interest-earning assets 975,836 89,807 9.20
----------- ----------- -------
Noninterest-earning assets:
Cash and due from banks 38,309
Premises and equipment, net 17,425
Other assets 125,689
Less allowance for possible loan
and lease losses (5,724)
---------
Total assets $1,151,535
==========
Liabilities and Shareholders'
Equity:
Interest-bearing liabilities:
Money market checking $79,704 1,571 1.97%
Money market savings 12,455 328 2.63
Regular savings 52,657 1,861 3.53
Time deposits 248,694 13,972 5.62
Short-term borrowings 334,304 22,115 6.62
Long-term debt 21,840 1,778 8.14
--------------------------------
Total interest-bearing liabilities 749,654 41,625 5.55
--------------------------------
Noninterest-bearing liabilities:
Demand deposits 238,673
Other liabilities 54,238
Shareholders' equity 108,970
-----------
Total liabilities and
shareholders' equity $1,151,535
==========
Net interest income $48,182
====
Net interest income to average interest-earning
assets 4.94%
</TABLE>
<TABLE>
For the year ended December 31, 1995
Average Yield/
XXXPAGE 38XXX
(In thousands) Balance Interest Rate
Assets:
Interest-earning assets:
<S> <C> <C> <C> <C>
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 38,364 10.39
-----------------------------
Total interest-earning assets 766,497 66,366 8.66
====
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:
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 $37,798
=======
Net interest
income to average interest-earning
assets 4.93%
</TABLE>
<TABLE>
For the year ended December 31, 1994
Average Yield/
(In thousands) Balance Interest Rate
XXXPAGE 39XXX
Assets:
Interest-earning assets:
<S> <C> <C> <C>
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 26,604 9.52
--------------------------------------
Total interest-earning assets 660,845 50,882 7.70
====
Noninterest-earning assets:
Cash and due from banks 32,449
Premises and equipment, net 13,485
Other assets 45,746
Less allowance for possible loan
and lease losses (3,543)
--------
Total assets $748,982
========
Liabilities and Shareholders'
Equity:
Interest-bearing liabilities:
Money market checking $65,583 1,347 2.05%
Money market savings 24,864 578 2.32
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 $33,249
=======
Net interest
income to average interest-earning
assets
5.03%
=====
</TABLE>
Notes:
(1) Interest is reported on a fully taxable equivalent
basis. The prevailing federal income tax rate was 34.5% in 1996, 34% in
1995 and 35% in 1994.
(2) For purposes of these computations, nonaccrual loans are
included in daily average loan amounts outstanding.
Summary of Quarterly Financial Information
XXXPAGE 40XXX
<TABLE>
1996
Fourth Third Second First
Summary Income Information Quarter Quarter Quarter Quarter
<S> <C> <C> <C> <C>
Interest income $24,566,540 $23,062,016 $22,003,722 $19,815,562
Interest expense 12,230,121 10,591,010 9,885,847 8,918,120
Provision for loan and
lease losses 1,676,000 989,000 841,000 944,000
Noninterest income 42,833,063 38,175,986 38,338,420 34,300,235
Noninterest expense 42,340,666 40,483,443 41,092,558 35,816,441
Income taxes 4,243,000 3,672,000 3,495,000 3,449,000
---------------------------------------------------------------
Net income $6,909,816 $5,502,549 $5,027,737 $4,988,236
---------------------------------------------------------------
Net income per
common share* $0.59 $0.48 $0.44 $0.44
1995
Fourth Third Second First
Summary Income Information Quarter Quarter Quarter
Quarter
Interest income $20,631,271 $17,990,434 $14,713,938 $12,552,550
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 33,761,560 30,861,480 24,774,257 24,719,809
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* $0.46 $0.53 $0.37 $0.39
1994
Fourth Third Second First
Summary Income Information Quarter Quarter Quarter Quarter
Interest income $12,633,617 $13,019,201 $12,421,802 $12,340,312
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 20,721,089 20,539,407 22,138,704 22,453,283
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* $0.47 $0.38 $0.35 $0.36
</TABLE>
XXXPAGE 41XXX
*restated for the two-for one-stock split December 30,1996
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, 1996, under the caption "1996 Financial Statements ", 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.
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, 1996, 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
1997 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
1997 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 13, 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
1997 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
1997 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.
XXXPAGE 42XXX
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 76
Consolidated Statement of Income
for the years ended December 31, 1996,
1995, and 1994 77
Consolidated Balance Sheet as of
December 31, 1996, and 1995 78
Consolidated Statement of Changes in
Shareholders' Equity for the years
ended December 31, 1996, 1995 and 1994 79
Consolidated Statement of Cash Flows
for the years ended December 31, 1996,
1995, and 1994 80
Notes to Consolidated Financial
Statements 81
The above listed report, financial statements,and the notes thereto, set
forth on pages 76 through 101 of the Registrant's 1996 Annual
Report to Shareholders are incorporated herein by reference.
2. Financial Statement Schedules
Report of Independent
Accountants, Coopers &
Lybrand L.L.P. 50
Schedule I - Indebtedness to
Related Parties 51
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.
XXXPAGE 43XXX
3. Exhibits
A. Exhibits to Form 10-K
Number Assigned Sequential Numbering
in Regulation System Page Number of
S-K Item 601 Description of Exhibit 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.)
3(f) Articles of Amendment, 52
dated April 30, 1996.
(ii) 3(a) Code of By-Laws as 114
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.)
XXXPAGE 44XXX
4(b) Certain instruments
defining the rights of
the holders oflong-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.
06835.)
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.
06835.)
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.
06835.)
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. 06835.)
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.
06835.)
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. 06835.)
XXXPAGE 45XXX
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. 06835.)
10(i) Amended Irwin
Financial
Corporation Outside
Director Restricted
Stock Compensation
Plan.@
(Incorporated by
reference to Exhibit
10(i) to Form 10-K
report for year ended
December 31, 1995, File
No. 06835.)
10(j) Inland Mortgage 129
Corporation Long
Term Incentive Plan.@
(11) 11(a) Computation of Earnings 137
Per Share.
(12) No exhibit.
(13) 13(a) Registrant's 1996 Annual 138
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 205
Registrant.
(22) No exhibit.
(23) 23(a) Consent of Independent 206
Accountants.
(24) No exhibit.
(27) Financial Data Schedule. 207
(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,
1996.*
99(b) Annual Report
on Form 11K
for the Inland
Mortgage
Corporation
Employees'
Savings Plan
for the year
ending
December 31, 1996.*
@ Denotes management contract or compensatory plan.
* To be filed by amendment pursuant to Rule 15d-21.
b. Reports on Form 8-K
XXXPAGE 46XXX
None.
XXXPAGE 47XXX
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 27, 1997 By: /s/ 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
/s/ Sally A. Dean Director March 27, 1997
- -------------------
Sally A. Dean
/s/ David W. Goodrich Director March 27, 1997
- ----------------------
David W. Goodrich
/s/ John T. Hackett Director March 27, 1997
- -------------------
John T. Hackett
/s/ William H. Kling Director March 27, 1997
- -----------------------
William H. Kling
/s/ Brenda J. Lauderback Director March 27, 1997
- -----------------------
Brenda J. Lauderback
/s/ John C. McGinty,Jr. Director March 27, 1997
- -----------------------
John C. McGinty, Jr.
/s/ Irwin Miller Director March 27, 1997
- -----------------------
Irwin Miller
/s/ William I. Miller Director, Chairman March 27, 1997
- ----------------------- of the Board
William I. Miller (Principal Executive
Officer)
/s/ John A. Nash Director, Chairman March 27, 1997
- ----------------------- of the Executive
John A. Nash Committee
XXXPAGE 48XXX
/s/ Lance R. Odden Director March 27, 1997
- -----------------------
Lance R. Odden
/s/ James T. Sakai Director March 27, 1997
- -----------------------
James T. Sakai
/s/ Theodore M. Solso Director March 27, 1997
- -----------------------
Theodore M. Solso
/s/ Thomas D. Washburn Senior Vice President March 27, 1997
- ----------------------- (Principal Financial Officer)
Thomas D. Washburn
/s/ Marie C. Strack Vice President and March 27, 1997
- ----------------------- Controller
Marie C. Strack (Principal Accounting Officer)
XXXPAGE 49XXX
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors
Irwin Financial Corporation
Columbus, Indiana
We have audited the consolidated financial statements of Irwin Financial
Corporation and Subsidiaries as of December 31, 1996 and 1995, and
for each of the three years in the period ended December 31, 1996, which
financial statements are included on pages 77 through 101 of the 1996
Annual Report to Shareholders of Irwin Financial Corporation and
incorporated by reference herein. We have also audited the financial
statement schedules listed in the index on page 43 of this Form 10-K. These
financial statements and financial statement schedules are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and financial statement
schedules 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, 1996 and 1995,
and the consolidated results of their operations and their cash flows for
each of the three years in the period ended December 31, 1996 in
conformity with generally accepted accounting principles. In addition, in
our opinion, the financial statement schedules referred to above,
when considered in relation to the basic financial statements taken as a
whole, present fairly, in all material respects, the information required
to be included therein.
As described in Note 1 to the financial statements, the Corporation adopted
Statement of Financial Accounting Standards No. 122, Accounting for Mortgage
Servicing Rights, as of April 1, 1995.
/s/ Coopers & Lybrand L.L.P.
Indianapolis, Indiana
January 17, 1997
XXXPAGE 50XXX
Schedule I
<TABLE>
<CAPTION>
SCHEDULE I - INDEBTEDNESS TO RELATED PARTIES
(In Thousands)
Col. B Col. C Col. D Col. E
Balance at Balance at
Beginning Additions Deductions End of
Name of Person of Period (1) (2) Period
Year Ended December 31, 1996:
<S> <C> <C> <C> <C>
Irwin Management Company $18,005 $632,259 $635,300 $14,964
Year Ended December 31, 1995:
Irwin Management Company $11,187 $653,074 $646,256 $18,005
Year Ended December 31, 1994:
Irwin Management Company $11,728 $561,502 $562,043 $11,187
</TABLE>
(1) The indebtedness disclosed is the purchase of Irwin Financial
Corporation commercial paper by Irwin Management Company.
Irwin Management Company is owned by a principal shareholder
and director. Commercial paper borrowings generally
mature within three months from the date of issuance.
(2) No deductions occurred that were other than a disbursement of cash.
XXXPAGE 51XXX
Exhibit 3(i) 3(f)
STATE OF INDIANA
OFFICE OF THE SECRETARY OF STATE
CERTIFICATE OF
IRWIN UNION CORPORATION
I, LARRY A. CONRAD, Secretary of State of the State of
Indiana, hereby certify that Articles of Incorporation of the
above Corporation, in the form prescribed by my office, prepared
and signed in duplicate by the incorporator(s), and acknowledged
and verified by the same before a Notary Public, have been
presented to me at my office accompanied by the fees prescribed
by law; that I have found such Articles conform to law; that I
have endorsed my approval upon the duplicate copies of such
Articles; that all fees have been paid as required by law; that
one copy of such Articles has been filed in my office; and that
the remaining copy of such Articles bearing the endorsement of
my approval and filing has been returned by me to the
incorporator(s) or his (their) representatives; all as
prescribed by the provisions of the Indiana General Corporation
Act, as amended.
Wherefore, I hereby issue to such Corporation this
Certificate of Incorporation, and further certify that its
corporate existence has begun.
In Witness Whereof, I have hereunto set any hand and affixed the
seal of the State of Indiana, at the City of Indianapolis, this
31st day of May, 1972
Larry A. Conrad, Secretary
of State
XXXPAGE 52XXX
ARTICLES OF INCORPORATION
OF
IRWIN UNION CORPORATION
The undersigned incorporator or incorporators, desiring to
form a corporation (hereinafter referred to as the "Corporation")
pursuant to the provisions of the Indiana General Corporation
Act, as amended (herein. after referred to as the "Act,") execute
the following Articles of Incorporation.
ARTICLE I
Name
The name of the Corporation is Irwin Union Corporation.
ARTICLE II
Purposes
The purposes for which the Corporation is formed are:
The transaction of any and all lawful business for which
corporations May be incorporated under the Act, including by way
of illustration and not of limitation, the following:
XXXPAGE 53XXX
Irwin Union Corporation
ARTICLE II
Purposes
2.01. To Act as Holding Company. To purchase or
otherwise acquire, own and hold the stock of other corporations
and equity interests in other business entities and to direct the
operations of other corporations through the ownership of stock
therein and to direct the operation: of other business entities
through the ownership of equity interests therein.
2.02. Capacity to Act. To have the capacity to act
possessed by natural persons, but to have authority to perform
only such acts as are necessary, convenient or expedient to
accomplish the purposes for which it is formed and such as are
not repugnant to law.
2.03. To Deal in Securities. To acquire, by purchase,
subscription or otherwise and to receive, hold, own, guarantee,
sell, assign, exchange, transfer, mortgage, pledge or otherwise
dispose of or deal in and with any and all securities (as
hereinafter defined) issued or created by any corporation, firm,
organization, association or other entity, public or private,
whether formed under the laws of the United States of America or
any state or commonwealth thereof, or any foreign country, or by
any agency, subdivision, territory, dependency, possession or
municipality of any of the foregoing, and as owner thereof to
possess and exercise all of the rights, powers and privileges of
ownership, including the right to execute consents and vote
thereon. The term "securities" as used herein shall mean any and
all notes, stocks, treasury stocks, bonds, debentures, evidences
of indebtedness, certificates of interest or participation in any
profit-sharing agreement, collateral trust certificates, pre-
organization certificates or subscriptions, transferable shares,
investment contracts voting trust certificates, certificates of
deposit for a security, fractional undivided interests in oil,
gas or other mineral rights or, in general, any interests or
instruments commonly known as securities or any and all
certificates of interest or participation in temporary or interim
certificates for, receipts for, guarantees of, or warrants or
rights to subscribe to or purchase any of the foregoing.
2.04. Investment Management. To make, establish and
maintain investments in securities, funds or properties of any
nature whatsoever and manage such funds; to do any and all acts
and things for the preservation, protection, improvement and
enhancement of the value of such property or securities or
designed to accomplish any such purposes. To make investigations
as to the business affairs and property of corporations,
partnerships and various forms of business enterprises and to
make appraisals and valuations of all kinds and investigate and
render opinions as to the advisability from a financial
standpoint of creating, merging, combining or otherwise dealing
in business enterprise.
Article II, Page One
XXXPAGE 54XXX
Irwin Union Corporation
2.05. Creation of Corporations and Other Entities. To
cause to be organized under the laws of the United States of
America or of any state, commonwealth, territory, dependency or
possession thereof, or of any foreign country, or of any
political subdivision, territory, dependency, possession or
municipality thereof, one or more corporations, firms,
organizations, associations or other entities, and to cause the
same to be dissolved, wound up, liquidated, merged or
consolidated.
2.06. To Deal in Good Will. To acquire by purchase or
exchange, or by transfer, or by merger or consolidation with,
the Corporation of any corporation, firm, organization,
association or other entity owned or controlled, directly or
indirectly, by the Corporation, or otherwise to acquire the
whole or any part of the business, good will, rights or other
assets of any corporation, firm, organization, association or
other entity and to undertake or assume in connection therewith
the whole or any part of the liabilities and obligations thereof
and to effect any such acquisition in whole or in part by
delivery of cash or other property, including securities issued
by the Corporation or by any other lawful means.
2.07. To Engage in Lending. To make loans and give
other forms of credit including, but not limited to, financing,
factoring and leasing, with or without security, and to
negotiate and make contracts and agreements in connection
therewith and to sell and underwrite credit insurance and life,
property and liability insurance, directly or through
subsidiaries.
2.08. To Aid Subsidiaries. To aid by loans, subsidy,
guaranty or in any other lawful manner any corporation, firm,
organization, association or other entity of which any
securities (as that term is defined in section 2.03 hereof) are
in any manner, directly or indirectly, held by the Corporation
or in which the Corporation or any such corporation, firm,
organization, association or entity may be or become otherwise
interested; to guarantee the payment of dividends on any stock
issued by any such corporation, firm, organization, association
or entity; to guarantee or, to assume, with or without recourse
against any such correlation, firm, organization, association or
entity, to do any and all other acts and things for the
enhancement, protection or preservation of any securities which
are in any manner, directly or indirectly, held , guaranteed or
assumed by the Corporation, and to do any and all acts and
things designed to accomplish any such purpose.
2.09. To Provide Services. To render service, assistance,
counsel and advice to and act as representative or agent in any
capacity, (whether managing, operating, financial, purchasing,
selling, advertising or otherwise) for any corporation, firm,
organization, association or other entity and to gather, compile
and disseminate information, data and advice in respect to
matters of commercial, financial, statistical and business
nature and to act as consultants, counselors and advisors.
Article II, Page Two
XXXPAGE 55XXX
Irwin Union
Corporation
2.10. To Deal in Real Estate. To acquire by purchase,
exchange, lease as lessee, let as lessor, sell, convey, or
mortgage, whether alone or in conjunction with others, real
estate of every kind, including, without limiting the generality
of the foregoing, the design, development, management,
acquisition, and operation of commercial, mercantile and service
structures and facilities of every character, recreational
structures and facilities, residential properties and structures,
and mobile home parks.
2.11. To Deal in Personal Property. To acquire (by
purchase, exchange, lease, hire or otherwise), hold, mortgage,
pledge, hypothecate, exchange, sell, deal in and dispose of, at
wholesale or retail, alone or in syndicates or otherwise in
conjunction with others, commodities or other personal property
of every kind, character and description and wherever situated,
and any interest therein.
2.12. To Deal in its Own Securities. To acquire (by
purchase, exchange, lease, hire or otherwise), hold, sell,
transfer, reissue, or cancel its own shares, or any securities or
other obligations of the Corporation, in the manner and to the
extent now or hereafter permitted by the laws of Indiana, except
that the Corporation shall not use its funds or other assets for
the purchase of its own shares if such use would cause any
impairment of the capital of the Corporation, and except that its
own shares beneficially owned by the Corporation shall not be
voted directly or indirectly.
2.13. To Make Contracts. To enter into, make, perform
and carry out, or cancel and rescind, contracts for any lawful
purposes to its business.
12.14. To Enter into Partnerships. To enter into any
lawful arrangement for sharing profits, union of interest,
reciprocal association or cooperative association with any
corporation, association, partnership individual or other entity,
for the carrying on of any business, transaction, or venture,
which the Corporation is authorized to carry on or any business,
transaction, or venture deemed necessary, convenient or
incidental to carrying out of any of the purposes of the
Corporation.
2.15. To Engage in Business Generally. To engage in any
commercial, financial, mercantile, industrial, manufacturing,
marine, exploration, mining, agricultural, research, licensing,
servicing or agency business not prohibited by law and any, some
or all of the foregoing.
2.16. To-Borrow Money. To borrow money for any business
object or purpose of the Corporation from time to time without
limit as to amount, to issue any kind of indebtedness, whether or
not in connection with borrowing money, including evidences of
indebtedness convertible into stock of the Corporation, to secure
the payment of any evidence of indebtedness by the creation of
any interest in any of the property or rights of the Corporation,
whether at that time owned or thereafter acquired.
Article-II, Page Three
XXXPAGE 56XXX
Irwin Union
Corporation
2.17. To Execute Guarantees. To make any guarantee
respecting stocks, dividends, securities, indebtedness, interest,
contracts or other obligations.
2.18. Stated Capital; Consideration for Shares. To
determine the amount of the stated capital and increase or reduce
stated capital and determine the consideration to be received for
shares issued from time to time.
2.19. Rights, Privileges and Powers. Subject to any
limitations or restrictions imposed by law or by these Articles
of Incorporation, to have and exercise all the rights, privileges
and powers specified in or permitted under the Indiana General
Corporation Act.
2.20. General Powers. To do everything necessary, proper,
advisable or convenient for the accomplishment of any of the
purposes or the attainment of any of the objects of the
furtherance of any of the powers herein set forth and to do every
other act and thing incident thereto or connected therewith which
is not forbidden by the laws of the State of Indiana or by the
provisions of these Articles of Incorporation
2.21. Construction. The foregoing sections shall be
construe as purposes as well as powers and the matters expressed
in each section shall, unless otherwise expressly provided, be in
no way limited by reference to or inference from the terms of any
other section, each of such sections being regarded as creating
independent purposes and powers The enumeration shall not be
construed as limiting or restricting in any manner either the
meaning or general terms used in any of the sections or the scope
of the general powers of the Corporation created thereby. The
enumeration herein of any specific purposes or powers shall not
be held to limit or restrict in any manner the exercise by the
Corporation of the general powers now or hereafter conferred by
the laws of the state of Indiana nor shall the expression of one
thing be deemed to exclude another not expressed, whether or not
it be of like nature. The titles contained herein are solely for
convenience and are not to be considered in construing the
various sections.
2.22. Limiting Clause. Nothing in this article shall be
construed to authorize the conduct by the Corporation, directly
or indirectly, of a rural loan and savings association, credit
union or a banking, railroad, insurance, surety, trust, safe
deposit, mortgage guarantee or building and loan business or
receiving deposits or money, bullion or foreign coins or of
issuing bills, notes, or other evidences of debt or circulation
as money; provided, however, that the Corporation may own, create
or otherwise acquire all or part of the issued and outstanding
stock of corporations lawfully engaged in any of such activities.
Article II, Page Four
XXXPAGE 57XXX
ARTICLE III
Period of Existence
The period during which the Corporation shall continue is perpetual.
ARTICLE IV
Resident Agent and Principal Office
Section 1. Resident Agent. The name and address of the Resident Agent
in charge of the Corporation's principal office is John A. Nash, 500
Washington Street, Columbus, Indiana 47201.
Section 2. Principal Office. The post office address of the principal
office of the Corporation is 500 Washington Street, Columbus, Indiana
47201
ARTICLE V
Shares
Section 1. Number. The total number of shares which the Corporation has
authority to issue is 1,000 shares consisting of 500 common shares with the
par value of $10.00 per shares, and 500 preferred shares without par value.
Section 2. Terms.
(see attached)
Section 3. Voting Rights.
(sec attached)
XXXPAGE 58XXX
Irwin Union Corporation
ARTICLE V
2. Terms Shares
5.20. Classes. The authorized shares of the Corporation
(the "Shares")shall be divided into two classes consisting of 500
common shares par value $10, (the "Common Shares") and 500
preferred shares without par value (the "Preferred Shares").
5.21. Rights.
5.211. Common Shares. -All Common Shares shall have
the same rights and privileges. Common Shareholders shall
have no preemptive rights.
5.212. Preferred Shares. The Board of Directors is
expressly authorized at any time, and from time to time, by
resolution, to determine and state the designations,
relative rights, preferences, limitations and restrictions
of any class or classes of Preferred Shares, or of any
series of any class or classes thereof, and to authorize the
issuance of such Preferred Shares upon compliance prior to
the issuance of any such Preferred Shares with the
applicable provisions of the Act.
5.22. Dividends. Dividends or distributions may be
declared and paid upon outstanding Shares at the discretion of
the Board of Directors from time to time out of earned surplus or
capital surplus of the Corporation. Dividends payable on the
Shares of any class of Shares or series thereof may be paid to
the holders of Shares of that or any other class of Shares or
series thereof.
5.23. Issuance of and Consideration for Shares. Shares
may be issued for such consideration as may be fixed from time to
time by the Board of Directors, which consideration may be equal
to, less than or more than the par value thereof. The judgment
of the Board of Directors as to (i) the value of any property or
services received in full or partial payment for Shares, and (ii)
as to the value of the corporate assets in the event of a Share
dividend, shall be conclusive. When Shares are issued upon
payment of the consideration fixed by the Board of Directors,
such Shares shall be taken to be fully paid stock and shall be
nonassessable.
5.24. Partial Distributions. The Board of Directors may
make distributions to Shareholders out of capital surplus from
time to time to the extent permitted by law.
5.25. Facsimile Signatures. Facsimile signatures may be
used in lieu of the manual signature of an officer or director of
the Corporation. In case any officer of director who has signed
or whose facsimile signature has been placed upon any share
certificate or other document issued by this Corporation shall
have ceased to be such an officer or director before such
certificate or other document is used , such certificate or other
document may be issued by
XXXPAGE 59XXX
the Corporation with the same effect as
if such person were an officer at the date of its issue.
Article V, Page One
XXXPAGE 60XXX
Irwin Union Corporation
5.26. Transfer of Shares. Transfer of shares shall be
governed by the By-Laws of the Corporation subject to applicable
law.
3. Voting Rights.
5.30. Voting Rights.
5.301. Common Shares. Every holder of the 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.
5.302. Preferred Shares. Holders of Preferred Shares
shall have no right to vote upon any question except as
shall be affirmatively provided in the Act, or in the
remaining sections of this article.
5.31. No Greater Requirements. Nothing in these
Articles shall be deemed to require any greater portion of the
Shares to concur in any action taken by the Shareholders than is
required by law.
5.32. Record Date. The By-Laws may provide for a record
date for determining Shareholders entitled to receive payment of
dividend or for determining Shareholders for any other purpose.
5.33. Mergers and Consolidations. Any class of Shares
of this Corporation shall be entitled to vote as a class if the
agreement of merger or consolidation contains any provision
which, if contained in a proposed amendment to the Articles of
Incorporation of the Corporation, would entitle such class of
Shares to vote as a class.
5.34. Voting on Special Corporate Transactions. In
voting on adoption of any proposal for a special corporate
transaction or for dissolution of the Corporation, all Shares
shall vote as a single class and no Shares shall be entitled to
vote as a separate class.
5.35. Mergers With Subsidiaries. Nothing herein
contained shall limit the power of the Corporation or prescribe
the procedures to be followed in any merger or consolidation of
any subsidiary of this Corporation, ninety-five percent (95%) (or
such lesser percentage as may hereafter be prescribed by law) or
more of the outstanding Shares of which subsidiary are owned by
this Corporation and any such merger or consolidation of any such
subsidiary may be accomplished by the Board of Directors of this
Corporation in the manner prescribed by law.
5.36. Class Voting. If the holders of any class of Shares
are entitled to vote as a class, the proposal shall be adopted
upon receiving the affirmative vote of the holders of at least a
majority (or such greater proportion as these Articles of
Incorporation may require) of the Shares of each class of Shares
entitled to vote thereon as a class and of the total Shares
entitled to vote thereon.
Article V, Page Two
XXXPAGE 61XXX
ARTICLE VI
Requirements Prior To Doing Business
The Corporation will not commence business until consideration of the
value of at least $1,000.00 (one thousand dollars) has been received for
the issuance of shares.
ARTICLE VII
Director(s)
Section 1. Number of Directors. The initial Board of Directors is
composed 3 member(s). The number of directors may be from time to time
fixed by the By-Laws of the Corporation at any number. In the absence of a
By-Law fixing the number of directors, the number shall be three.
Section 2. Names and Post Office Addresses of the Director(s). The
name(s) and post office addressees) of the initial Board of Director(s) of
the Corporation is (are):
Name Number and Street or Building City State Zip Code
Paul N. Dinkins 500 Washington Street Columbus, Indiana 47201
John A. Nash 500 Washington Street Columbus, Indiana 47201
Greg W. Rush 500 Washington Street Columbus, Indiana 47201
Section 3. Qualifications of Directors. (If Any)
No qualifications are prescribed by these Articles.
XXXPAGE 62XXX
ARTICLE VIII
Incorporator(s)
The name(s) and post office addressees) of the incorporator(s) of the
Corporation is (are):
Name Number and Street or Building City State Zip Code
Irwin Miller 301 Washington Street Columbus, Indiana 47201
Paul N. Dinkins 500 Washington Street Columbus, Indiana 47201
John A. Nash 500 Washington Street Columbus, Indiana 47201
ARTICLE IX
Provisions for Regulation of Business
and Conduct of Affairs of Corporation
(see attached)
XXXPAGE 63XXX
Irwin Union Corporation
ARTICLE IX
Provisions for Regulation of Business
and Conduct of Affairs of Corporation
9.01. Code of By-Laws. The Board of Directors of the
Corporation shall have power, without the assent of the
Shareholders, to make, alter, amend or repeal the Code of By-Laws
of the Corporation, but the affirmative vote of a majority of the
members of the Board of Directors for the time being shall be
necessary to make such Code or to effect any alteration,
amendment or repeal thereof. All provisions for the regulation
of business and management of the affairs of the Corporation
shall be stated in the By-Laws.
9.02. Meetings of Shareholders. Meetings of the
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 waiver: of notice thereof or as specified
in the By-Laws.
9.03. Meetings of Directors. Meetings of the Board of
Directors and committees thereof 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 as specified in the By-Laws. The By-Laws shall prescribe the
manner in which notice of such meetings may be given and the time
before such meeting in which such notice shall be given, unless
waived.
9.04. Interest of Directors in Contracts. Any contract
or other transaction between the Corporation and any corporation
in which this Corporation owns all or a part of the capital stock
shall be valid and binding notwithstanding the fact that the
officers and/or directors executing the contract on behalf of
this Corporation are the same or a majority of them are the same
or the participating directors or officers are the same. With
the exception provided above, any contract or other transaction
between the Corporation and any one or more of its directors or
between the Corporation and any firm of which one or more of its
directors are members or employees or in which they are
interested or between the Corporation and any corporation or
association in which one or more of its directors are
stockholders, members, directors, officers or employees or in
which they are interested, shall be valid for all purposes
notwithstanding the presence of such director or directors at the
meeting of the Board of Directors which acts upon or in reference
to such contract or transaction and notwithstanding his or their
participate in such action if the fact of such interest shall be
disclosed or known to the Board of Directors and the Board of
Directors shall authorize, approve and ratify such contract or
transaction by a vote of the majority of the directors present,
such interested director or directors to be counted in
determining whether a quorum is present but not to be counted in
calculating the majority of such quorum necessary to carry such
vote. This section shall not be construed to invalidate any
contract or other transaction which would otherwise be valid
under the common and statutory law applicable thereto.
Article IX, Page One
XXXPAGE 64XXX
Irwin Union Corporation
9.05. Indemnification of Directors, Officers and
Employees.
9.051. "Liability;" "Expense;" As used in this section
9.05 the terms "liability" and "expense" shall include but
shall not be limited to attorneys' fees and disbursements
and amounts of judgment, fines or penalties against and
amounts paid in settlement by the directors, officers or
employees.
9.052. "Claim." As used in this section 9.05, the term
"claim" 'shall include: (i) any claim, action, suit or
proceeding, whether actual or threatened, brought by or in
the right of this Corporation or another corporation or
otherwise, civil, criminal or administrative or in
connection with an investigation or appeal relating thereto,
(ii) against a person who is or was a director, officer or
employee of this Corporation or a person who was serving as
a director, officer or employee of any other corporation at
the request of this Corporation, and (iii) which is asserted
against or threatened against him, as a party or otherwise,
by reason of his having been a director, officer or employee
of this Corporation or such other corporation or by reason
of any past or future action taken or not taken in his
capacity as such director, officer or employee, whether or
not he continues to be such at the time the claim is
asserted or threatened.
9.053. Indemnity. Any such director, officer or
employee who has been wholly successful on the merits or
otherwise with respect to any claim of the character
described herein shall be entitled to indemnification as of
right. Except as provided in the preceding sentence, any
indemnification hereunder shall be made at the discretion of
the Corporation but only if (i) the Board of Directors
acting by a quorum consisting of directors who are not
parties to or who have been wholly successful with respect
to such claim, action, suit or proceeding shall find that
the person to be indemnified acted in good faith in what he
reasonably believed to be the best interests of this
Corporation or such other corporation, as the case may be,
and, in addition, in any criminal action or proceeding
(which shall not be deemed to include civil, administrative
or investigative actions or proceedings in which conduct
which violates a criminal statute is alleged) he had no
reasonable cause to believe that his conduct was unlawful,
or (ii) independent legal counsel (who may be regular
counsel of the Corporation) shall deliver to it its written
opinion that the person to be indemnified so acted.
Article IX, Page Two
XXXPAGE 65XXX
Irwin Union Corporation
9.054. No Presumption. The termination of any
claim by judgment, settlement (whether with or without
court approval)or conviction or upon a plea of guilty
or of nolo contendere or its equivalent shall not
create a prescription that the person to be indemnified
did not meet the standard of conduct set forth in
section 9.053.
9.055. Several Claims. If several claims, issues
or matters of ac ion are involved, any such person may
be entitled to indemnification as to some matters even
though he ! is not entitled as to other matters.
9.056. Advances. The Corporation may advance
expenses @to or, where appropriate, may at its expense
undertake the ,defense of any such director, officer or
employee upon receipt of an undertaking by or on behalf
of such person to repay such expenses if it should
ultimately be determined that he is not entitled to
indemnification under this section 9.05.
9.057. Applicability. The provisions of this
section 9.05shall be applicable to claims, actions,
suits or proceedings made or commenced after the
adoption hereof, whether arising from acts or omissions
to act during, before or after the adoption hereof.
9.058. Extent of Rights. The rights of
indemnification provided hereunder shall be in addition
to any rights to which any person concerned may
otherwise be entitled by contract or as a matter of law
and shall inure to the benefit of the heirs, executors
and administrators of any such person.
9.59. Insurance. The Corporation may purchase and maintain
insurance on behalf of any person who is or was a director,
officer, employee or agent of the Corporation or is or was
serving at the request of the-Corporation as a director, officer,
employee or agent of another corporation against any liability
asserted against him and incurred by him in any capacity or
arising out of his status as such, whether or not the Corporation
would have the power to indemnify him against such liability
under the provisions of this section 9.05 or otherwise
9.06. Abandoned Property. After it remains unclaimed for a
period of six years, any stock or other certificate of ownership,
or any dividend, profit, distribution, interest, payment or
principal or other property held by this Corporation or owing by
this Corporation for the six consecutive years last passed shall
revert to and become the property of this Corporation. The
secretary shall prepare a written claim of the Corporation to
such fund, claim, income or property before the end of the
seventh year after its appropriate due date,, distribution date
or delivery date.
Article IX, Page Three
XXXPAGE 66XXX
Irwin union Corporation
9.07. Partnerships. The Board of Directors shall have
the power to authorize the Corporation to enter into partnerships
or any other lawful arrangement for the sharing of profits, union
of interest, reciprocal association, cooperative association,
partnership, joint venture or syndicate with any corporation,
association, partnership, individual, firm or other legal entity
for the purpose of carrying on any lawful business.
9.08. Committees. The By-Laws may provide for an executive
committee and other committees, which shall have the fullest
authority to act for the Board of Directors permitted under the
laws of Indiana.
9.09. Removal of Directors. The Shareholders shall have no
power to remove directors during their terms of office. Any
director may be removed for specific cause found and determined
by a vote of not less than two-thirds (2/3) of the entire Board
of Directors at any time.
9.10. Term of Directors. When the Board of Directors
consist of nine (9) or more directors, the By-Laws may specify
that the director shall be apportioned into two or more classes
whose terms of office shall expire at different times, but no
term shall continue longer than three (3) years.
9.ll. Amendment of Articles of Incorporation. The
Corporation reserves the right to alter, amend and repeal any
provisions contained in these Articles of Incorporation in the
manner now or hereafter prescribed by the provisions of the Act
or any other pertinent enactment of the General Assembly of the
State of Indiana and all rights and powers conferred hereby on
Shareholders, directors and officers of the Corporation are
subject to such reserved right.
Article IX, Page Four
XXXPAGE 67XXX
IN WITNESS WHEREOF, the undersigned, being the incorporator(s)
designated in Article VIII, execute these Articles of Incorporation and
certify to the truth of the facts herein stated, this 30th day of May,
1972.
/s/ Irwin Miller Paul N. Dinkins
- ------------------------- -----------------------
Irwin Miller Paul N. Dinkins
- ------------------------- -----------------------
/s/ John A. Nash
-----------------------
STATE OF INDIANA
ss:
COUNTY OF Bartholomew
I, the undersigned, a Notary Public duly commissioned to take
acknowledgments and administer oaths in State of Indiana, certify that John
A. Nash being one of the incorporator(s) referred to in Article VIII of the
foregoing Articles of Incorporation, personally appeared before me;
acknowledged the execution thereof; and swore to the truth of the facts
therein stated.
Witness my hand and Notarial Seal this 30 day of May, 1972
/s/ Antoinette Frenzer
-----------------------------
Antoinette Frenzer
--------------------------------
(Printed Signature)
My Commission Expires: Notary Public
December 23, 1972
This instrument was prepared by Donald W. Buttrey, Stephen J. Dutton,
Attorneys at Law,
McHALE, COOK & WELCH, 906 Chamber of Commerce Building, Indianapolis,
Indiana 46204
XXXPAGE 68XXX
STATE OF INDIANA
OFFICE OF THE SECRETARY OF STATE
CERTIFICATE OF AMENDED ARTICLES OF INCORPORATION
OF
IRWIN UNION CORPORATION
I, Larry A. Conrad, Secretary of the State of Indiana, hereby certify that
Amended Articles of Incorporation for the above Corporation, in the form
prescribed bv my office, prepared and signed in duplicate in accordance
with "An Act concerning domestic and foreign corporations for profit,
providing penalties for the violation hereof, and repealing all laws or
parts of laws in conflict herewith," approved March 16, 1929, and Acts
supplemental thereto.
Whereas, upon due examination, I find that the Amended Articles of
Incorporation conform to law, and have endorsed my approval upon the
duplicate copies of such Articles; that all fees have been paid as required
by law; that one copy of such Articles bearing the endorsement of my
approval and filing has been returned by me to the Corporation.
In Witness Whereof, I have hereunto set my
hand and affixed the seal of the State of
Indiana at the City of Indianapolis, this
29th day of December, 1972.
Larry A. Conrad, Secretary of State
XXXPAGE 69XXX
AMENDED ARTICLES OF INCORPORATION
OF
Irwin Union Corporation
The undersigned officers of Irwin Union Corporation
(hereinafter referred to as the "Corporation") existing pursuant
to the provisions of The Indiana General Corporation Act, as
amended (hereinafter referred to as the "Act"), desiring to give
notice of corporate action effectuating certain Amendments of its
Articles of Incorporation by the adoption of new Amended Articles
of Incorporation to supersede and take the place of its
heretofore existing Articles of Incorporation, certify the
following facts:
ARTICLE I
Text of the Amended Articles
The exact text of the entire Articles of Incorporation of the
Corporation, as amended (hereinafter referred to as the "Amended
Articles"), now is as follows:
See Exhibit A attached.
XXXPAGE 70XXX
ARTICLE III
Period of Existence
The period during which the Corporation shall continue is Perpetual.
ARTICLE IV
Resident Agent and Principal Office
Section 1. Resident Agent. The name and address of the
Resident Agent in charge of the Corporation's principal office is
John A. Nash, 500 Washington Street, Columbus, Indiana 47201
Section 2. Principal Office. 'Me post office address of the
principal office of the Corporation is 500 Washington Street,
Columbus, Indiana 47201
ARTICLE V
Shares
Section 1. Number. The total number of shares which the
Corporation has authority to issue consisting of 500,000 common
shares with the par value of $10.00 per shares, and 50,000
preferred shares without par value.
Section 2. Terms.
(see attached)
Section 3. Voting Rights.
(see attached)
XXXPAGE 71XXX
Irwin Union Corporation
ARTICLE V
2. Terms Shares
5.20. Classes. The authorized shares of the Corporation
(the "Shares")shall be divided into two classes consisting of
500,000 common shares, par value $10, (the "Common Shares") and
50,000 preferred, shares without par value (the "Preferred
Shares").
5.21. Rights.
5.211. Common Shares. All Common Shares shall
have the same rights and privileges. Common
Shareholders shall have no preemptive rights.
5.212. Preferred Shares. The Board of
Directors is expressly authorized at any time, and
from time to time, by resolution, to determine and
state the designations, relative rights, preferences,
limitations and restrictions of any class or classes
of Preferred Shares, or of any series of any class or
classes thereof, and to authorize the issuance of such
Preferred Shares upon compliance prior to the issuance
of any such Preferred Shares with the applicable
provisions of the Act.
5.22.Dividends. Dividends or distributions may be declared
and paid upon outstanding Shares at the discretion of the Board
of Directors from time to time out of earned surplus or capital
surplus of the Corporation. Dividends payable on the Shares of
any class of Shares or series thereof may be paid to the holders
of Shares of that or any other class of Shares or series thereof.
5.23. Issuance of and Consideration for Shares. Shares
may be issued for such consideration as may be fixed from time to
time by the Board of Directors, which consideration may be eaual
to, less than or more than the par value thereof. The judgment
of the Board of Directors as to (i) the value of any property or
services received in full or partial payment for Shares, and (ii)
as to the value of the corporate assets in the event of a Share
dividend, shall be conclusive. When Shares are issued upon
payment of the consideration fixed by the Board of Directors,
such Shares shall be taken to be fully paid stock and shall be
nonassessable.
5.24. Partial Distributions. The Board of Directors may
make distributions to Shareholders out of capital surplus from
time to time to the extent permitted by law.
5.25. Facsimile Signatures. Facsimile signatures may be
used in lieu of the manual signature of an officer or director of the
Corporation. In case any officer or director who has signed or whose
facsimile signature has been placed upon any share certificate or
other document issued by this Corporation shall have ceased to be
such an officer or director before such certificate or other
document is used, such certificate
XXXPAGE 72XXX
or other document may beissued by the Corporation with the same effect
as if such person were an officer at the date of its issue.
Article V, Page One
XXXPAGE 73XXX
Irwin Union Corporation
5.26. Transfer of Shares. Transfer of Shares shall be
governed by the By-Laws of the Corporation subject to applicable
law.
3. Voting Rights
5.30. Voting Rights.
5.301. Common Shares. Every holder of the
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.
5.302. Preferred Shares. Holders of Preferred
Shares shall have no right to vote upon any question
except as shall be affirmatively provided in the Act,
or in the remaining sections of this article.
5.31. No Greater Requirements. Nothing in these
Articles shall be deemed to require any greater portion of the
Shares to concur in any action taken by the Shareholders than is
required by law.
5.32. Record Date. The By-Laws may provide for a record
date for determining Shareholders entitled to receive payment of
any dividend or for determining Shareholders for any other
purpose.
5.33. Mergers and Consolidations. Any class of Shares
of this Corporation shall be entitled to vote as a class if the
agreement of merger or consolidation contains any provision
which, if contained in a proposed amendment to the Articles of
Incorporation of the Corporation, would entitle such class of
Shares to vote as a class.
5.34. Voting on Special Corporate Transactions. In
voting on adoption of any proposal for a special corporate
transaction or for dissolution of the Corporation, all Shares
shall vote as a single class and no Shares shall be entitled to
vote as a separate class.
5.35. Mergers With Subsidiaries. Nothing herein
contained shall limit the power of the Corporation or prescribe
the procedures to be followed in any merger or consolidation of
any subsidiary of this Corporation, ninety-five percent (95%) (or
such lesser percentage as may hereafter be prescribed by law) or
more of the outstanding Shares of which subsidiary are owned by
this Corporation and any such merger or consolidation of any such
subsidiary may be accomplished by the Board of Directors of this
Corporation in the manner prescribed by law.
5.36. Class Voting. If the holders of any class of
Shares are entitled to vote as a class, the proposal shall be
adopted upon receiving the affirmative vote of the holders of at
least a majority (or such greater proportion as these Articles of
Incorporation may require) of the Shares of each class of Shares
entitled to vote thereon as a class and of the total Shares
entitled to vote thereon.
Article V, Page Two
XXXPAGE 74XXX
ARTICLE VI
Requirements Prior To Doing Business
The stated capital of the Corporation is at least $1000.00.
ARTICLE VII
Director(s)
Section 1. Number of Directors. The Board of Directors is composed of
16 member(s) The number of directors may be from time to time fixed by the
By-Laws of the Corporation at any number. In the absence of a By-Law
fixing the number of directors, the number shall be sixteen.
Section 2. Names and Post Office Addresses of the Director(s). The
name(s) and post office addressees) Of the Board of Director(s) of the
Corporation (are):
Name Number and Street or Building city State Zip Code
Eugene I. Anderson 500 Washington Street, Columbus, Indiana 47201
Paul N. Dinkins 500 Washington Street, Columbus, Indiana 47201
George Doup 500 Washington Street, Columbus, Indiana 47201
Edward E. Edwards 500 Washington Street, Columbus, Indiana 47201
Harry J. Embry 500 Washington Street, Columbus, Indiana 47201
Lowell E. Engelking 500 Washington Street, Columbus, Indiana 47201
Frank C. Forster 500 Washington Street, Columbus, Indiana 47201
Clarence 0. Hamilton 500 Washington Street, Columbus, Indiana 47201
William R. Laws, Jr. 500 Washington Street, Columbus, Indiana 47201
Irwin Miller 301 Washinqton Street, Columbus, Indiana 47201
John A. Nash 500 Washington Street, Columbus, Indiana 47201
Paul H. Pardieck 500 Washington Street, Columbus, Indiana 47201
Charles A. Rau 500 Washington Street, Columbus, Indiana 47201
Carl M. Reeves 500 Washington Street, Columbus, Indiana 47201
Albert H. Schumaker 500 Washington Street, Columbus, Indiana 47201
E. Don Tull 500 Washington Street, Columbus, Indiana 47201
Section 3. Qualifications of Directors. (If Any)
No qualifications are prescribed by these Articles.
XXXPAGE 75XXX
ARTICLE VIII
Incorporators
The name(s) and post office addressees) of the of the
Corporation (are): President and Executive Vice President,
Secretary
Name Number and Street or Building City State Zip Code
Paul N. Dinkins 500 Washington Street, Columbus, Indiana 47201
(President)
John A. Nash 500 Washington Street, Columbus, Indiana 47201
(Executive Vice President, Secretary)
ARTICLE IX
Provisions for Regulation of Business
and Conduct of Affairs of Corporation
(See attached)
XXXPAGE 76XXX
Irwin Union Corporation
ARTICLE IX
Provisions for Regulation of Business
and Conduct of Affairs of Corporation
9.01. Code of By-Laws. The Board of Directors of
the Corporation shall have power, without the assent of the
Shareholders, to make, alter, amend or repeal the Code of By-Laws
of the Corporation, but the affirmative vote of a majority of the
members of the Board of Directors for the time being shall be
necessary to make such Code or to effect any alteration,
amendment or repeal thereof. All provisions for the regulation
of business and management of the affairs of the Corporation
shall be stated in the By-Laws.
9.02. Meetings of Shareholders. Meetings of the
Shareholders of the Corporation shall e 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 as specified
in the By-Laws.
9.03. Meetings of Directors. Meetings of the Board
of Directors and committees thereof 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 as specified in the By-Laws. The By-Laws shall
prescribe the manner in which notice of such meetings may be
given and the time before such meeting in which such notice shall
be given, unless waived.
9.04. Interest of Directors in Contracts. Any
contract or other transaction between the Corporation and any
corporation in which this Corporation owns all or a part of the
capital stock shall be valid and binding notwithstanding the fact
that the officers and/or directors executing the contract on
behalf of this Corporation are the same or a majority of them are
the same or the participating directors or officers are the same.
With the exception provided above, any contract or other
transaction between the Corporation and any one or more of its
directors or between the Corporation and any firm of which one or
more of its directors are members or employees or in which they
are interested or between the Corporation and any corporation or
association in which one or more of its directors are
stockholders, members, directors, officers or employees or in
which they are interested, shall be valid for all purposes
notwithstanding the presence of such director or directors at the
meeting of the Board of Directors which acts upon or in reference
to such contract or transaction and notwithstanding his or their
participation such action if the fact of such interest shall be
disclosed or known to the Board of Directors and the Board of
Directors shall authorize, approve and ratify such contract or
transaction by a vote of the majority, of the directors present,
such interested director or directors to be counted in
determining whether a quorum is present but not to be counted in
calculating the majority of such quorum necessary to carry such
vote. This section shall not be construed to invalidate any
contract or other transaction-which would otherwise be valid
under the common and statutory, law applicable thereto.
Article IX, Page One
XXXPAGE 77XXX
Irwin Union Corporation
9.05. Indemnification of Directors, Officers and
Employees.
9.051. "Liability;" "Expense;" As used in this
section 9.05 The terms "liability" and "expense" shall
include but shall not be limited to attorneys' fees and
disbursements and amounts of judgment, fines or penalties
against and amounts paid in settlement by the directors,
officers or employees.
9.052. "Claim." As used in this section 9.05, the
term "claim" shall include: (i) any claim, action, suit or
proceeding, whether actual or threatened, brought by or in
the right of this Corporation or another corporation or
otherwise, civil, criminal or administrative or in
connection with an investigation or appeal relating thereto,
(ii) against a person who is or was a director, officer or
employee of this Corporation or a person who was serving as
a director, officer or employee of any other corporation at
the request of this Corporation, and (iii) which is asserted
against or threatened against him, as a party or otherwise,
by reason of his having been a director, officer or employee
of this Corporation or such other corporation or by reason
of any past or future action taken or not taken in his
capacity as such director, officer or employee, whether or
not he continues to be such at the time the claim is
asserted or threatened.
9.053. Indemnity. Any such director, officer or
employee who has been wholly successful on the merits or
otherwise with respect to any claim of the character
described herein shall be entitled to indemnification as of
right. Except as provided in the preceding sentence, any
indemnification hereunder shall be made at the discretion of
the Corporation but only if (i) the Board of Directors
acting by a quorum consisting of directors who are not
parties to or who have been wholly successful with respect
to such claim, action, suit or proceeding shall find that
the person to be indemnified acted in good faith in what he
reasonably believed to be the best interests of this
Corporation or such other corporation, as the case may be,
and, in addition, in any criminal action or proceeding
(which shall not be deemed to include civil, administrative
or investigative actions or proceedings in which conduct
which violates a criminal statute is alleged) he had no
reasonable cause to believe that his conduct was unlawful,
or (ii) independent legal counsel (who may be regular
counsel of the Corporation) shall deliver to it its written
opinion that the person to be indemnified so acted..
Article IX, Page Two
XXXPAGE 78XXX
Irwin Union Corporation
9.054. No Presumption. The termination of any claim
by judgment, settlement (whether with or without court
approval)or conviction or upon a plea of guilty or of nolo
contendere or its equivalent shall not create 8L
prescription that the person to be indemnified did not meet
the standard of conduct set forth in section 9.053.
9.055. Several Claims. If several claims, issues or
matters of ac ion are involved, any such person may be
entitled to indemnification as to some matters even though
he is not entitled as to other matters.
9.056. Advances. The Corporation may advance
expenses to or, where appropriate, may at its expense
und4rtake the defense of any such director, officer or
employee upon receipt of an undertaking by or on behalf of
such person to repay such expenses if it should ultimately
be determined that he is not entitled to indemnification
under this section 9.05.
9.057. Applicability. The provisions of this
section
9.05 shall be applicable to claims, actions, suits or
proceedings made or commenced after the adoption hereof,
whether arising from acts or omissions to act during, before
or after the adoption hereof.
9.058. Extent of Rights The rights of
indemnification provided hereunder shall be in addition to
any rights to which any person concerned Pay otherwise be
entitled by contract or as a matter of law and shall inure
to the benefit of the heirs, executors and administrators of
any such person.
9.059. Insurance. The Corporation may purchase and
maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the Corporation or
is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation
against any liability asserted against him and incurred by
him in any capacity or arising out of his status as such,
whether or not the Corporation would have the power to
indemnify him against such liability under the provisions of
this section 9.05 or otherwise.
Article IX, Page Three
XXXPAGE 79XXX
Irwin Union Corporation
9.06. Partnerships. The Board of Directors shall have
the power to authorize the Corporation to enter into partnerships
or any other lawful arrangement for the sharing of profits, union
of interest, reciprocal association, cooperative association,
partnership, joint venture or syndicate with any corporation,
association, partnership, individual, firm or other legal entity
for the purpose of carrying on any lawful business.
9.07. Committees. The By-Laws may provide for an
executive committee and other committees, which shall have the
fullest authority to act for the Board of Directors permitted
under the laws of Indiana.
9.08. Removal of Directors. The Shareholders shall have
no power to remove directors during their terms of office. Any
director may be removed for specific cause found and determined
by a vote of not less than two-thirds (2/3) of the entire Board
of Directors at any time.
9.09. Term of Directors. When the Board of Directors
consists of nine (9) or more directors, the By-Laws may specify
that the director shall be apportioned into two or more classes
whose terms of office shall expire at different times, but no
term shall continue longer than three (3) years.
9.10. Amendment of Articles of Incorporation. The
Corporation reserves the right to alter, amend and repeal any
provisions contained in these Articles of Incorporation in the
manner now or hereafter prescribed by the provisions of the Act
or any other pertinent enactment of the General Assembly of the
State of Indiana and all rights and powers conferred hereby on
Shareholders, directors and officers of the Corporation are
subject to such reserved right.
Article IX, Page Four
XXXPAGE 80XXX
ARTICLE 11
Manner of Adoption and Vote
(b) By written consent executed on December 18, 1972 signed by all of the
members of the Board of Directors of the Corporation entitled to vote in
respect of the Amended Articles, that the provisions and terms of Articles
V & IX of its Articles of Incorporation be amended so as to read as set
forth in the amended Articles, and a meeting of such Shareholders was
called to be held January 2, 1973, to adopt or reject the Amended Articles
unless the same were so approved prior to such date by unanimous written
consent.
Section 2. Action by Shareholders (select appropriate paragraph) (b) By
written consent executed on December 18, 1972, signed by the holders to
500 common shares of the Corporation, being all of the shares of the
Corporation entitled to vote in respect of the Amendments, the
Shareholders adopted the Amended Articles.
XXXPAGE 81XXX
Section 3. Compliance With Legal Requirements
The manner of the adoption of the Amended Articles, and the vote by
which they were adopted, constitute full legal compliance with the
provisions of the Acts, the Articles of Incorporation, and the By-Laws of
the Corporation.
ARTICLE III
Statement of Changes Made With Respect
To the Number of Shares Heretofore Authorized
Section 1, of Article V of the Articles of Incorporation was amended to
increase the number of authorized shares from 1,000 authorized shares to
550,000 authorized shares, consisting of 500,000 common shares with the par
value of $10 per share, and 50,000 preferred shares without par value.
XXXPAGE 82XXX
IN WITNESS WHEREOF, the undersigned officers execute these Amended
Articles of Incorporation of the Corporation and certify to the truth of
the facts herein stated, this 18th day of December, 1972,
/s/ Paul N. Dinkins /s/ John A. Nash
- ------------------- ----------------
(Written Signature) (Written Signature)
Paul N. Dinkins John A. Nash
- ---------------- --------------------
(Printed Signature) (Printed Signature)
President of Secretary of
Irwin Union Corporation Irwin Union Corporation
STATE OF INDIANA
COUNTY OF BARTHOLOMEW
I, the undersigned, a Notary Public duly commissioned to take
acknowledgements and administer oaths in the State of Indiana, certify that
Paul N. Dinkins ,the President and John A. Nash, the Secretary of Irwin
Union Corporation, the officers executing the foregoing Amended Articles of
Incorporation, personally appeared before me, acknowledged the execution
thereof; and swore to the truth of the facts herein stated.
Witness my hand and Notarial Seal this 18th day of December, 1972.
/s/ Antoinette Frenzer
------------------------
(written Signature)
Antoinette Frenzer
------------------------
(Printed Signature)
My Commission Expires: Notary Public
December 23, 1976
This instrument was prepared by Donald W. Buttrey, Stephen J. Dutton
Randolph L. Seger Attorneys at Law, McHalle, Cook & Welch, 906 Chamber of
Commerce Building, Indianapolis, Indiana 46204
XXXPAGE 83XXX
STATE OF INDIANA
OFFICE OF THE SECRETARY OF STATE
CERTIFICATE OF AMENDMENT
OF
IRWIN UNION CORPORATION
I, LARRY A. CONRAD, Secretary of State of the Slate of
Indiana, hereby certify that Articles of Amendment for the above
Corporation, in the form prescribed by my office, prepared and
signed in duplicate in accordance with "An Act concerning
domestic and foreign corporations for profit, providing penalties
for the violation hereof, and repealing all laws or parts of laws
in conflict herewith," approved March 16, 1929, and Acts
supplemental thereto.
The Amendment: The exact text of Article V, Section I and Section
5.20
Whereas, upon due examination, I find that the Articles of
Amendment conform to law, and have endorsed my approval upon the
duplicate copies of such Articles; that all fees have been paid
as required by law; that one copy of such Articles has been filed
in my office; and that the remaining copy of such Articles
bearing the endorsement of my approval and filing has been
returned by me to the Corporation.
In Witness Whereof, I have
hereunto set my hand and
affixed the seal of the State
of Indiana, at the Citv of
Indianapolis, this 3rd day of
March, 1973.
LARRY A. CONRAD, Secretary of
State
XXXPAGE 84XXX
ARTICLES OF AMENDMENT
OF THE
ARTICLES OF INCORPORATION
OF
IRWIN UNION CORPORATION
The undersigned officers of IRWIN UNION CORPORATION (hereinafter
referred to as the "Corporation") existing pursuant to the
provisions of the Indiana General Corporation Act, as amended
(hereinafter referred to as the "Act"), desiring to give notice
of corporate action effectuating amendment of certain provisions
of its Articles of Incorporation, certify the following facts:
ARTICLE I
Text of the Amendment
The exact text of Article(s).V Section and Section 5.20 of the
Articles of Incorporation of the Corporation, as amended
(hereinafter referred to as the "Amendments"), now is as
follows:
Section 1. Number. The number of shares which the Corporation
has the authority to issue is 1,050,000 shares consisting of
1,000,000 common shares with a par value of $5 per share, and
50,000 preferred shares without par value.
Section 5.20. Classes. The authorized shares of the Corporation
(the "Shares") shall be divided into two classes consisting of
1,000,000 common shares, par value $5, (the "Common Shares") and
50,000 preferred shares without par value (the "Preferred
Shares").
XXXPAGE 85XXX
ARTICLE 11
Manner of Adoption and Vote
Section 1. Action by Directors (select appropriate paragraph).
(a) The Board of Directors of the Corporation, at a meeting
thereof, duly called, constituted and held on at which a
quorum of such Board of Directors was present, duly
adopted a resolution proposing to the Shareholders of the
Corporation entitled to vote in respect the Amendments
that the provisions and terms of Article V of its Articles
of Incorporation be amended so as to read as set forth in
the Amendments; and called a meeting of such shareholders,
to be held March 20, 1973, to adopt or reject the
Amendments, unless the same were so approved prior to such
date by unanimous written consent.
Section 2. Action by Shareholders (select appropriate
paragraph)
(a) The Shareholders of the Corporation entitled to vote
in respect of the Amendments, at a meeting thereof, duly
called, constituted and held on March 20 1973, the holders at
which common shares were present in person or by proxy,
adopted the Amendments.
The holders of the following classes of shares were entitled to
vote as a class in respect of the Amendments:
(1) Common shares
(2)
(3)
XXXPAGE 86XXX
The number of shares entitled to vote in respect of the Amendments, the
number of shares voted in favorof the adoption of the Amendments, and the
number of shares voted against such adoption are as follows:
Total Shares Entitled to Vote as a Class (as
listed immediately above)
<TABLE>
<CAPTION>
Total (1) (2) (3)
<S> <C> <C>
Shares entitled to vote: 282,984 282,984
Shares voted in favor: 238,314 238,314
---------------------
Shares voted against: 85 85
</TABLE>
Section 3. Compliance with Legal Requirements.
The manner of the adoption of the Amendments, and the vote by which they
were adopted, constitute full legal compliance with the provisions of the
Act, the Articles of Incorporation, and the By-Laws of the Corporation.
ARTICLE III
Statement of Changes Made With Respect to Any Increase
In The Number of Shares Heretofore Authorized
Aggregate Number of Shares
Previously Authorized 550,O00
Increase 500,000
Aggregate Number of Shares To Be Authorized After Effect of This Amendment
1,050,000
XXXPAGE 87XXX
IN WITNESS WHEREOF, the undersigned officers execute these Articles of
Amendment of the Articles of Incorporation of the Corporation, and
certify to the truth of the facts herein stated, 18th day of March,
1973.
/s/ John A. Nash /s/ Robert E. Kirk
- ------------------------------------ ----------------------
(Written Signature Written Signature
John A. Nash Robert E. Kirk
(Printed Signature) (Printed Signature)
Executive Vice President Secretary of
of Irwin Union Corporation Irwin Union Corporation
STATE OF INDIANA
SS:
COUNTY OF Bartholomew
I, the undersigned, a Notary Public duly commissioned to take
acknowledgements acd administer oaths in the State of Indiana, certify that
John A. Nash, the Executive Vice President, and Robert E. Kirk, the
Secretary of Irwin Union Corporation the officers executing the foregoing
Articles of Amendment of the Articles of Incorporation, personally appeared
before me, acknowledged the execution thereof, and swore to the truth of
the facts therein stated.
Witness my hand and Notarial Seal this 27th day of March, 1973.
/s/ Gloria Harbaugh
--------------------
(Written Signature)
Gloria Harbaugh
-------------------
(Printed Signature)
My Commission Expires: April 22, 1974 Notary Public
Stephen J. Dutton
This instrument was prepared by Stephen J. Dutton, Attorney at Law,
McHALE, COOK & WELCH, 906 Chamber of Commerce Building, Indianapolis, 46204
XXXPAGE 88XXX
STATE OF INDIANA
OFFICE OF THE SECRETARY OF STATE
To Whom These Presents Come, Greeting:
WHEREAS, there has been presented to me at this office a
Resolution of the Board of Directors electing to be governed
by the provisions of the Indiana Businesss Corproation Law
prior to August 1, 1987 of
IRWIN UNION CORPORATION
and said Resolution has been prepared and signed in accordance
with the provisions of the Indiana Business Corporation Law.
WHEREAS., upon due examination,, I find that it satifies the
requirements of I.C. 23-1-17-3(b) and I.C. 23-1-13-1:
NOW, THEREFORE, I EDWIN J. SIMCOX, Secretary of State of
Indiana, hereby certify that I have this day filed the
Resolution of the Board of Directors in this office.
Effective date the provisions will apply is JUNE 24th, 1986.
In Witness Whereof, I have hereunto set my hand and affixed the
seal of the State of Indiana, at the City of Indianapolis, this
23rd day of June, 1986
/s/ Edwin J. Simcox
- -------------------
Secretary of State,
XXXPAGE 89XXX
CERTIFICATE REGARDING
ELECTION OF APPLICATION OF
INDIANA BUSINESS CORPORATION LAW
The undersigned, the duly elected and acting Secretary of Irwin Union
Corporation
("Corporation), respectively hereby certify, verify and affirm, subject to
the penalties for perjury, that the attached resolutions were adopted by
the Board of Directors of the Corporation at a meeting thereof, duly
constituted,and held on May 20, 1986; and that the effective date of the
election to have the Indiana Business Corporation Law apply to
the Corporation, as set forth in such resolutions is June 24, 1986.
Dated this 20th day of May 1986.
/s/ Matthew F. Souza
----------------------------------
[Name], [Office] of [Corporation]
Matthew F. Souza, Secretary
Irwin Union Corporation
ATTEST:
/s/Thomas D. Washburn
- -----------------------
Senior Vice President
Irwin Union Corporation
XXXPAGE 90XXX
RESOLUTIONS REGARDING
ELECTION TO BE GOVERNED BY
THE NEW INDIANA BUSINESS CORPORATION LAW
WHEREAS, the Indiana General Assembly has recently adopted
new statutory provisions governing business corporations, known
as the Indiana Business Corporation Law ("New Statute"); and
WHEREAS, the New Statute generally applies to all Indiana
corporations after July 31, 1987; although a corporation's board
of directors may elect to have the New Statute apply earlier by
adopting and filing a resolution electing to have the New Statute
apply to that corporation; and
WHEREAS, the Board of Directors has carefully considered a
summary and presentation of significant provisions of the New
Statute prepared by counsel to the Corporation; and
WHEREAS, the Board of Directors has determined that it is in
the best interests of the Corporation to cause the New Statute to
apply to the Corporation prior to August 1, 1987, for the
following reasons, among others;
(1) The New Statute provides greater flexibility in
corporate governance and thereby reduces the time and expense
required to ensure compliance with state law;
(2) The New Statute provides the Corporation with an
increased opportunity to recruit and retain qualified
directors by providing them greater protection against
potential liability;
(3) The New Statute provides the Corporation with
greater protection against vexatious or groundless derivative
suits, while protecting the rights of shareholders to pursue
meritorious derivative claims; and
(4) The New Statute provides the Corporation with
greater protection against the misuse of information obtained
upon inspection by shareholders of corporate records.
THEREFORE, BE IT RESOLVED, that the Board of Directors hereby
elects
to have the New Statute (in particular, Ind. Code 23-1-18
through 23-1-54, excluding Ind. Code 23-1-18-3, 23-1-21 and 23-
1-53-3) apply to the Corporation on and after June 24, 1986;
RESOLVED FURTHER, that the President, any Vice President, Secretary
and Treasurer, and each of them, be, and hereby are, authorized
and directed to (1) file the foregoing resolution in the Office
of the Secretary of State of Indiana and (2) take anv and all
additional action as may be deemed necessary or desirable to
implement the foregoing resolution.
XXXPAGE 91XXX
EXHIBIT A
ARTICLES OF INCORPORATION
OF
IRWIN UNION CORPORATION
The undersigned incorporator or incorporators, desiring to
form a corporation (hereinafter referred to as the "Corporation")
pursuant to the provisions of the Indiana General Corporation
Act, as amended (herein. after referred to as the "Act,") execute
the following Articles of Incorporation.
ARTICLE I
Name
The name of the Corporation is Irwin Union Corporation
ARTICLE II
Purposes
The purposes for which the Corporation is formed are:
The transaction of any and all lawful business for which
corporations may be incorporated under the Act, including by way
of illustration and not of limitation, the following:
XXXPAGE 92XXX
Irwin Union Corporation
ARTICLE II
Purposes
2.01. To Act as Holding Company. To purchase or
otherwise acquire, own and old the stock of other corporations
and equity interest in other business entities and to direct the
operations of other corporations through the ownership of stock
therein and to direct the operations of other business entities
through the ownership of equity interests therein.
2.02. Capacity to Act. To have the capacity to-act
possessed by natural persons, but to have authority to perform
only such acts as are necessary, convenient or expedient to
accomplish the purposes for which it is formed and such as are
not repugnant to law.
2.03. To Deal in Securities. To acquire, by purchase,
subscription or otherwise and to receive, hold, own, guarantee,
sell, assign, exchange, transfer, mortgage, pledge or otherwise
dispose of or deal in and with any and all securities (as
hereinafter defined) issued or created by any corporation, firm,
organization, association or other entity, public or private,
whether formed under the laws of the United States of America or
any state or commonwealth thereof, or any foreign country, or by
any agency, subdivision, territory, dependency, possession or
municipality of any of the foregoing, and as owner thereof to
possess and exercise all of the rights, powers and privileges of
ownership, including the right to execute consents and vote
thereon. The term "securities" as used herein shall mean any and
all notes, stocks, treasury stocks, bonds, debentures, evidences
of indebtedness, certificates of interest or participation in any
profit sharing agreement, collateral trust certificates, pre-
organization certificates or subscriptions, transferable shares,
investment contracts, voting trust certificates, certificates of
deposit for a security, fractional undivided interests in oil,
gas or other mineral rights or, in general, any interests or
instruments commonly known as securities or any and all
certificates of interest or participation in temporary or interim
certificates for, receipts for, guarantees of, or warrants or
rights to subscribe to or purchase any of the foregoing.
2.04. Investment Management. To make, establish and
maintain investments in securities, funds or properties of any
nature whatsoever and to manage such funds; to do any and all
acts and things for the preservation, protection, improvement and
enhancement of the value of such property or securities or
designed to accomplish any such purposes. To make investigations
as to the business affairs and property of corporations,
partnerships and various forms of business enterprises and to
make appraisals and valuations of all kinds and investigate and
render opinions as to the advisability from a financial
standpoint of creating, merging, combining or otherwise dealing
in business enterprises
Article II, Page One
XXXPAGE 93XXX
Irwin Union
Corporation
2.05. Creation of Corporations and Other Entities. To
cause to be organized under the laws of the United States of
America or of any state, commonwealth, territory, dependency or
possession thereof, or of any foreign country, or of any
political subdivision, territory, dependency, possession or
municipality thereof, one or more corporations, firms,
organizations, associations or other entities, and to cause the
same to be dissolved, wound up, liquidated, merged or
consolidated.
2.06. To Deal in Good Will. To acquire by purchase or
exchange, or by transfer, or by merger or consolidation with, the
Corporation of any corporation, firm, organization, association
or other entity owned or controlled, directly or indirectly, by
the Corporation, or otherwise to acquire the whole or any part of
the business, good will, rights or other assets of any
corporation, firm, organization, association or other entity and
to undertake or assume in connection therewith the whole or any
part of the liabilities and obligations thereof and to effect any
such acquisition in whole or in part by delivery of cash or other
property, including securities issued by the Corporation or by
any other lawful means.
2.07. To Engage in Lending. To make loans and give
other forms of credit including, but not limited to, financing,
factoring and leasing, with or without security, and to negotiate
and make contracts and agreements in connection therewith and to
sell and underwrite credit insurance and life, property and
liability insurance, directly or throuc.1 subsidiaries.
2.08. To Aid Subsidiaries. To aid by loans, subsidy,
guaranty or in any other lawful manner any corporation, firm,
organization, association or other entity of which any securities
(as that term is defined in section 2.03 hereof) are in any
manner, directly or indirectly, held by the Corporation or in
which the Corporation or any such corporation, firm,
organization, association or entity may be or become otherwise
interested; to guarantee the payment of dividends on any stock
issued by any such corporation, firm, organization, association
or entity; to guarantee or, to assume, with or without recourse
against any such corporation, firm, organization, association or
entity, the payment of the principal of, and/or the interest and
premium, if any, on any obligations issued or incurred by such
corporation, firm, organization ( association or entity; to do
any and all other acts and things for the enhancement, protection
or preservation of any securities which are in any manner,
directly or indirectly, held, guaranteed or assumed by the
Corporation, and to do any and all acts and things designed to
accomplish, any such purpose.
2.09. To Provide Services. To render service,
assistance, counsel and advice to and act as representative or
agent in any capacity (whether managing, operating, financial,
purchasing, selling, advertising or otherwise) for any
corporation, firm, organization, association or other entity and
to gather, compile and disseminate information, data and advice
in respect to matters of a commercial, financial, statistical and
business nature and to act as consultants, counselors and
advisors.
Article II, Page Two
XXXPAGE 94XXX
Irwin Union
Corporation
2.10. To Deal in Real Estate. To acquire by purchase,
exchange, lease or otherwise, and to hold, own, improve, operate,
manage, lease as lessee, let as lessor, sell, convey or mortgage,
whether alone or in conjunction with others, real estate of every
kind, character and description, and wherever situated, or any
interest therein including, without limiting the generality of
the foregoing, the design, development, management, acquisition,
and operation of commercial, mercantile and service structures
and facilities of every character, recreational structures and
facilities, residential properties and structures, and mobile
home parks.
2.11. To Deal in Personal Property. To acquire (by
purchase, exchange, lease, hire or otherwise), hold, mortgage,
pledge, hypothecate, exchange, sell, deal in and dispose of, at
wholesale or retail, alone or in syndicates or otherwise in
conjunction with others, commodities or other personal property
of every kind, character and description and wherever situated,
and any interest therein.
2.12. To Deal in its Own Securities. To acquire (by
purchase, exchange, lease, hire or otherwise), hold, sell,
transfer, reissue, or cancel its own shares, or any securities or
other obligations of the Corporation, in the manner and to the
extent now or hereafter permitted by the laws of Indiana, except
that the Corporation shall not use its funds or other assets for
the purchase of its own shares if such use would cause any
impairment of the capital of the Corporation, and except that its
own shares beneficially owned by the Corporation shall not be
voted directly or indirectly.
2.13.To Make Contracts. To enter into, make, perform and
carry out, or cancel and rescind, contracts for any lawful
purposes to its business.
2.14. To Enter into Partnerships. To enter into any
lawful arrangement for sharing profits, union of interest,
reciprocal association or cooperative association with any
corporation, association, partnership individual or other entity,
for the carrying on of any business, transaction, or venture,
which the Corporation is authorized to carry on or any business,
transaction, or venture deemed necessary, convenient or
incidental to carrying out of any of the purposes of the
Corporation.
2.15. To Engage in Business Generally. To engage in any
commercial, financial, mercantile, industrial, manufacturing,
marine, exploration, mining, agricultural, research, licensing,
servicing or agency business not prohibited by law and any, some
or all of the foregoing.
2.16. To Borrow Money. To borrow money for any business
object or purpose of the Corporation from time to time without
limit as to amount, to issue any kind of indebtedness, whether or
not in connection with borrowing money, including evidences of
indebtedness convertible into stock of the Corporation, to secure
the payment of any evidence of indebtedness by the creation of
any interest in any of the property or rights of the Corporation,
whether at that time owned or thereafter acquired.
XXXPAGE 95XXX
Article II, Page Three
XXXPAGE 96XXX
Irwin union Corporation
2.17. To Execute Guarantees. To make any guarantee
respecting stocks, dividends, securities, indebtedness, interest,
contracts or other obligations.
2.18. Stated Capital; Consideration for Shares. To
determine the amount of the stated capital and increase or reduce
stated capital and determine the consideration to be received for
shares issued from time to time.
2.19. Rights, Privileges and Powers. Subject to any
limitations or restrictions imposed by law or by the-se Articles
of Incorporation, to have and exercise all the rights, privileges
and powers specified in or permitted under the Indiana General
Corporation Act.
2.20. General Powers. To do everything necessary,
proper, advisable or convenient for the accomplishment of any of
the purposes or the attainment of any of the objects of the
furtherance of any of the powers herein set forth and to do every
other act and thing incidental thereto or connected therewith
which is not forbidden by the laws of the State of Indiana or by
the provisions of these Articles of Incorporation.
2.21. Construction. The foregoing sections shall be
construed as purposes as well as powers and the matters expressed
in each section shall, unless otherwise expressly provided, be in
no way limited by reference to or inference from the terms of any
other section, each of such sections being regarded as creating
independent purposes and powers. The enumeration shall not be
construed as limiting or restricting in any manner either the
meaning or general terms used in any of the sections or the scope
of the general powers of the Corporation created thereby. The
enumeration herein of any specific purposes or powers shall not
be held to limit or restrict in any manner the exercise by the
Corporation of the general powers now or hereafter conferred by
the laws of the state of Indiana nor shall the expression of one
thing be deemed to exclude another not expressed, whether or not
it be of like nature. The titles contained herein are solely for
convenience and are not to be considered in construing the
various sections.
2.22. Limiting Clause. Nothing in this article shall be
construed to authorize the conduct by the Corporation, directly
or indirectly, of a rural loan and savings association, credit
union or a banking, railroad, insurance, surety, trust, safe
deposit, mortgage guarantee or building and loan business or
receiving deposits of money, bullion or foreign coins or of
issuing bills, notes, or other evidences of debt or circulation
as money; provided, however, that the Corporation may own, create
or otherwise acquire all or part of the issued and outstanding
stock of corporations lawfully engaged in any of such activities.
Article II, Page Four
XXXPAGE 97XXX
CERTIFICATE OF CONSENT TO USE OF NAME
Irwin Union Bank and Trust Company, an Indiana bank,on its own
behalf and on behalf of its wholly-owned subsidiary, Irwin Union
Realty Corporation, hereby consents to incorporation under the
Indiana General Corporation Act of a incorporation on having the
name Irwin Union Corporation; consents that said corporation be
authorized to transact business in Indiana; and grants permission
to use, and consents to the use of, the name Irwin Union
Corporation by said Indiana corporation as is provided by the
Indiana General Corporation Act (IC 1971, 23-1-2-4).
IN WITNESS WHEREOF said Irwin Union Bank and Trust Company, an Indiana
bank, has caused this Certificate of Consent to be executed in its proper
corporate name by the officers below this day of May 1972.
IRWIN UNION BANK AND TRUST COMPANY
An Indiana Bank
By: /s/ Paul. N. Dinkins
-------------------------
Paul N. Dinkins
Attest:
/s/ John A. Nash
- ------------------
John A. Nash, Secretary
STATE OF INDIANA
) SS:
COUNTY OF BARTHOLOMEW )
Subscribed and sworn to by Paul N. Dinkins and John A.
Nash, to me known to be the President and Secretary of Irwin
Union Bank and Trust Company- upon their several oaths before me,
a notarv public, this 30 day of May 1972.
/s/ Antoinette Frenzer
------------------------------
Notary Public
Antoinette Frenzer
My commission expires:
December 23, 1972
This instrument prepared by Stephen J. Dutton, attorney at law.
XXXPAGE 98XXX
CERTIFICATE OF CONSENT TO USE OF NAME
Irwin Union Foundation, an Indiana foundation hereby consents
to the incorporation under the Indiana General Corporation Act
of a corporation having the Irwin Union Corporation; consents
that said corporation be authorized to transact business in
Indiana; and grants permission to use, and consents to the use
of, the name Irwin Union Corporation by said Indiana
corporation as is provided by the Indiana General Corporation
Act (IC 1971, 23-1-2-4).
IN WITNESS WHEREOF said Irwin Union Foundation, an
Indiana foundation, has caused this Certificate of Consent to be
executed in its proper corporate name by the officers below this
day of May, 1972.
IRWIN UNION FOUNDATION
An Indiana Foundation
By /s/ Paul N. Dinkins
---------------------
Paul N. Dinkins President
ATTEST:
/s/ James A. Joseph
- ----------------------------
James A. Joseph, Secretary
STATE OF INDIANA
SS:
COUNTY OF BARTHOLOMEW
Subscribed and sworn to by Paul N. Dinkins and James A. Joseph,
to me known to be the President and Secretary of Irwin Union
Foundation upon their several oaths before me, a Notary Public,
this, day of May, 1972.
/s/ Antoinette Frenzer
----------------------
My Commission Expires: Antoinette Frenzer
December 23, 1972
This instrument prepared by Stephen J. Dutton, attorney at law.
XXXPAGE 99XXX
ARTICLES OF INCORPORATION
IND. SECRETARY OF STATEOF
IRWIN UNION CORPORATION
Irwin Union Corporation (hereinafter referred to as the
"Corporation") existing pursuant to the Indiana Business Corporation
Law, desiring to give notice of corporate action effectuating amendment
of certain provisions of its Articles of Incorporation, sets forth the
following facts:
ARTICLE I
AMENDMENT
Section 1. The date of incorporation of the Corporation
is May 31, 1972.
Section 2. The name of the Corporation following this
amendment is Irwin Union Corporation.
Section 3. The exact text of Article V, Section 1 and Section 5.20
of the Articles of Incorporation is now as follows:
Section 1. Number. The number of shares which
the Corporation has the authority to issue is
1,550,000 shares consisting of 1,500,000 Common
Shares with a par due of $5
per share, and 50,000 preferred shares without par
value.
Section 5.20. Classes. The authorized shares of
the Corporation (the "Shares") shall be divided into
two classes consisting of 1,500,000 Common Shares,
par value $5, (the "Common Shares") and 50,000
preferred shares without par value (the "Preferred
Shares").
Section 4. The Amendment was adopted by the shareholders
of the Corporation on March 22, 1989, and are to be effective
upon the filing of these Articles of Amendment.
XXXPAGE 100XXX
ARTICLE II
MANNER OF ADOPTION AND VOTE
The designation (i.e. common, preferred and any classification where
different classes of stock exists), number of outstanding shares, number
of votes entitled to be -cast by each voting group entitled to vote
separately on the amendment and the number of votes of each voting group
represented at the meeting is set forth below:
<TABLE>
<CAPTION>
Designation of Voting Group Common
<S> <C>
Number of Outstanding Shares 630,007
Number of Votes Entitled to be Cast 630,007
Number of Votes Represented at Meeting 522,899
Shares Voted in Favor 512,798
--------
Shares Voted Against 9,238
</TABLE>
IN WITNESS WHEREOF, the undersigned officer executes these Articles
of Amendment of the Articles of Incorporation of the Corporation, and
verifies subject to the penalties of perjury that the facts contained
herein are true, this 10 day of May, 1989.
IRWIN UNION CORPORATION
/s/ Matthew F. Souza
---------------------------
Matthew F. Souza, Secretary
This instrument was prepared by Stephen J. Hackman, Attorney at
Law, ICE MILLER DONADIO & RYAN, One American Square, Box 82001,
Indianapolis, Indiana 46282-0002.
XXXPAGE 101XXX
Exhibit 3(d)
ARTICLES OF AMENDMENT OF THE
ARTICLES OF INCORPORATION
ARTICLES OF AMENDMENT
OF THE
ARTICLES OF INCORPORATION
OF
Irwin Union Corporation
The above corporation (hereinafter referred to as the Corporation
existing pursuant to the Indiana Business Corporation Law. desiring to give
notice of corporate action effectuating amendment of certain provisions of
its Articles of Incorporation, sets forth the following facts:
ARTICLE I - AMENDMENT(S)
Section 1: Date of Incorporation: May 31, 1972
Section 2: The name of the Corporation following this amendment: Irwin
Financial Corporation
Section 3: The exact text of Article(s) see attached of the
Articles of Incorporation is now as follows (attach additional
pages it necessary).
Date of each Amendment's Adoption: August 21, 1990
XXXPAGE 102XXX
Section 4: (Complete this section only if amendments provides
for an exchange, reclassification or cancellation of issued
shares and provisions for implementing the amendment are not
contained in the amendment itself.
Provisons for implementing the exchange, reclassification or
cancellation of issued shares are set forth below (Attach
additional sheets if necessary):
N/A
ARTICLE 11 - MANNER OF ADOPTION AND VOTE (Strike not applicable
section)
SECTION 1: Shareholder vote not required.
The amendment(s) was I were adopted by the incorporators
or board of directors without shareholder action and
shareholder action was not required.
SECTION 2: Vote of Shareholders.
The designation (i.e. common, preferred and any
classification were different classes of stock exists).
number of outstanding shares. number of votes entitled
to be Cast by each voting group) entitled lo vote
separately on the amendment and the number of votes of
each voting group represented at the meeting is set
forth below: see attached.
DESIGNATION OF EACH VOTING GROUP.
NUMBER OF OUTSTANDING SHARES:
NUMBER OF VOTES ENTITLED TO BE CAST:
NUMBER OF VOTES REPRESENTED AT THE MEETING:
SHARES VOTED IN FAVOR.
SHARES VOTED AGAINST:
In Witness Whereof, the undersigned being Vice President
and Secretary of said Corporation executes these Articles
of Amendments of the Articles of Incorporation and
verifies. subject to penalties of perjury that the
statements contained herein are true, this 4th day of
September, 1990.
/s/ Matthew F. Souza Matthew F. Souza
Signature Printed
XXXPAGE 103XXX
ARTICLE I
AMENDMENT
Section 1. The date of incorporation of the Corporation is
May 31, 1972.
Section 2. The name of the Corporation following this
amendment is Irwin Financial Corporation.
Section 3. The exact text of Article I of the Articles of
Incorporation is now as follows:
Name. The name of the Corporation is Irwin
Financial Corporation.
Section 4. The Amendment was adopted by the shareholders of
the Corporation on August 21, 1990, and are to be effective upon
the filing of these Articles of Amendment.
ARTICLE II
MANNER OF ADOPTION AND VOTE
The designation (i.e. common,, preferred and any
classification where different classes of stock exists), number
of outstanding shares, number of votes entitled to be cast by
each voting group entitled to vote separately on the amendment
and the number of votes of each voting group represented at the
meeting is set forth below:
<TABLE>
<CAPTION>
Designation of voting Group Common
<S> <C>
Number of outstanding shares: 934,780
Number of votes entitled to be cast: 934,780
Number of votes represented at the
meeting: 713,402
Shares voted in favor: 701,376
Shares voted against: 10,175
</TABLE>
XXXPAGE 104XXX
STATE OF INDIANA
OFFICE OF THE SECRETARY OF STATE
ARTICLES OF AMENDMENT
To Whom These Presents Come, Greeting:
WHEREAS, there has been presented to em at this office,
Articles of Amendment for:
Irwin Financial Corporation
and said Articles of Amendment have been prepared and signed
in accordance with the provisions of the Indiana Business
Corporation Law, as amended.
NOW, THEREFORE, I JOSEPH H. HOGSETT, Secretary of State of
Indiana, hereby certify that I have this day filed said articles
in this office.
The effective date of these Articles of Amendment is April
30, 1992.
IN Witness Whereof, I have hereunto set my hand and affixed
the seal of the State of Indiana, at the City of Indianapolis,
this Thirtieth day of April, 1992.
JOSEPH H. HOGSETT, Secretary of State
XXXPAGE 105XXX
ARTICLES OF AMENDMENT OF THE
ARTICLES OF INCORPORATION OF:
The undersigned officers of Irwin Financial Corporation
(hereinafter referred to as the "Corporation") existing pursuant
to the provisions of: Indiana Business Corporation Law
as amended (hereinafter referred to as the "Act"), desiring to
give notice of corporate action effectuating amendment of
certain provisions of Articles of Incorporation, certify the
following facts:
ARTICLE I Amendment(s)
SECTION I The date of incorporation of the corporation is: May
31, 1972
SECTION 2 The name of the corporation following this amendment to
the Articles of Incorporation is: same as above
SECTION 3
The exact text of Article(s): V Section 1 Number of the Articles
of Incorporation now as follows:
The number of shares which the Corporation has the authority
to issue is 7,550,000 shares consisting of common shares
with a par value of $5 per share, and 50,000 preferred
shares without par value.
SECTION 4 Date of each amendment's adoption:
April 21, 1992
XXXPAGE 106XXX
ARTICLE 11
Manner of Adoption and Vote
SECTION 1 Action by Directors:
The Board of Directors of the Corporation duly adopted a
resolution proposing to amend the terms and provisions of
Article(s) of the Articles of Incorporation directing a meeting
of the Shareholders, to be held on allowing such Shareholders to-
vote on the proposed amendment.
The resolution was adopted by (Select appropriate paragraph)
(a)Vote of the Board of Directors at a meeting held on ------
--at which a quorum of such Board was present.
(b) Written consent executed on --------, and signed by all
member of the Board of Directors.
SECTION 2 Action by Shareholders:
The Shareholders of the Corporation entitled to vote in respect
of the Articles of Amendment adopted the proposed amendment.
The amendment was adopted by: (Select appropriate paragraph)
(a) Vote of such Shareholders during the meeting called by
the Board of Directors. The result of such vote is as
follows:
<TABLE>
<CAPTION>
TOTAL
<S> <C>
SHAREHOLDERS ENTITLED TO VOTE. 1,417,891
SHAREHOLDERS VOTED IN FAVOR: 1,211,029
SHAREHOLDERS VOTED AGAINST. 10,668
</TABLE>
(b) Written consent executed on 19 and signed by all such
Shareholders
SECTION 3 Compliance with Legal requirements.
The manner of the adoption of the Articles of Amendment and
the vote by which they were adopted constitute full legal
compliance the provisions of the Act. the Articles of
Incorporation, and the By-Laws of the Corporation.
I hereby verify subject to the Penalties of perjury that the
statements contained are true this
/s/ Matthew F. Souza
------------------------
Vice President and Secretary
XXXPAGE 107XXX
STATE OF INDIANA
OFFICE OF THE SECRETARY OF STATE
ARTICLES OF AMENDMENT
To Whom These Presents Come, Greeting:
WHEREAS, there has been presented to em at this office,
Articles of Amendment for:
Irwin Financial Corporation
and said Articles of Amendment have been prepared and signed
in accordance with the provisions of the Indiana Business
Corporation Law, as amended.
NOW, THEREFORE, I JOSEPH H. HOGSETT, Secretary of State of
Indiana, hereby certify that I have this day filed said articles
in this office.
The effective date of these Articles of Amendment is April
28, 1994.
IN Witness Whereof, I have hereunto set my hand and affixed
the seal of the State of Indiana, at the City of Indianapolis,
this Twenty-eighth day of April, 1994.
/s/ JOSEPH H. HOGSETT
- -------------------------------
JOSEPH H. HOGSETT, Secretary of State
By /s/ Peggy Runes
- ----------------------------
Peggy Runes, Deputy
XXXPAGE 108XXX
ARTICLES OF AMENDMENT OF THE
ARTICLES OF INCORPORATION OF:
The undersigned officers of IRWIN FINANCIAL CORPORATION
(hereinafter referred to as the "Corporation") existing pursuant
to the provisions of:
(Indicate appropriate act)
Indiana Business Corporation Law
as amended (hereinafter referred to as the "Act"), desiring to
give notice of corporate action effectuating amendment certain
provisions of Articles of Incorporation, certify the following
facts:
ARTICLE I Amendment(s)
SECTION 1 The date of incorporation of the corporation is: May 31, 1972
SECTION 2 The name of the corporation following this amendment to the
Articles of Incorporation is:
same as above
SECTION 3
The exact text of Article(s) V., Section 1. Number of the
Articles of Incorporation
now as follows:
The number of shares which the Corporation has the
authority to issue is 7,550,000 shares consisting of
7,500,000 common shares without par value, and 50,000 preferred
shares without par value.
SECTION 4 Date of each amendment's adoption:
April 26, 1994
XXXPAGE 109XXX
ARTICLE II Manner of Adoption and Vote
Section 1 Action by Directors:
The Board of Directors of the Corporation duly adopt a resolution proposing
to amend the terms and provisions of Articles ---------- of the Articles of
Incorporation such Shareholders to vote on the proposed amendment.
The resolution was adopted by: (Select aPProPtiateoaragrapt7)
(a) Vote of the Board of Directors at a meeting held on ------------- 19--
at which a quorum of such Board was present.
(b) Written consent executed on ------------------ 19-- and
signed by ail members
the Board of Directors.
The Shareholders of the Corporation entitled to vote in respect of the
Articles of Amendment adopted the Proposed amendment.
The amendment was adopted by: (Select appropriate paragraph) (a)
(a) Vote ot such Shareholders during the meeting called by the
Board of Directors. The result of such vote is as follows:
<TABLE>
<S> <C>
SHAREHOLDERS ENTITLED TO VOTE: 5,833,135
SHAREHOLDERS VOTED IN FAVOR: 4,986,081
SHAREHOLDERS VOTED AGAINST: 27,183
</TABLE>
(b) Written consent executed on -------------- and signed by all
such Shareholder of the adoption of the Articles of Amendment and
the vote by which they were adopted constitute full legal
Compliance of the Act, the Articles of Incorporation, and the By-
Laws of the Corporation.
I hereby verify subject to the penalties of perjury that the statements
contained are true the 27th day of April, 1994.
/s/ Matthew F. Souza Matthew F. Souza
Signature Printed Name
Officer's Title: Vice President and Secretary
XXXPAGE 110XXX
ARTICLES OF AMENDMENT OF THE ARTICLES OF INCORPORATION
ARTICLES OF AMENDMENT OF THE
ARTICLES OF INCORPORATION OF:
Name of Corporation
Irwin Financial Corporation
The undersigned officers of: Irwin Financial Corporation
(hereinafter referred to as the "Corporation") existing pursuant
to the provisions of: (indicate appropriate act) Indiana Business
Corporation Law as amended
(hereinafter referred to as the 'Act'), desiring to give notice
of corporate action effectuating amendment of certain provisions
of its Articles of Incorporation, certify the following facts:
Article I Amendment(s)
SECTION 1 The date of incorporation of the Corporation is: May
31, 1972
SECTION 2 The name of the Corporation following this amendment to
the Articles of Incorporation is: same as above
SECTION 3
The exact text of Article(s) V. Section 1. Number of
Incorporation is now as follows:
The number of shares which the Corporation has the authority
to issue is
of the Articles 40,050,000 shares consisting of 40,000,000 common
shares without par value, and 50,000 preferred shares without par
value.
SECTION 4 Date of each amendment's adoption: April 30, 1996
XXXPAGE 111XXX
STATE OF INDIANA
OFFICE OF THE SECRETARY OF STATE
ARTICLES OF AMENDMENT
To Whom These Presents Come, Greeting:
WHEREAS, there has been presented to me at this office, Articles
of Amendment for:
IRWIN FINANCIAL CORPORATION
and said Articles of Amendment have been prepared and signed in
accordance with the provisions of the Indiana Business
Corporation Law, as amended.
NOW, THEREFORE, I, SUE ANNE GILROY, Secretary of State of
Indiana, hereby certify that I have this day filed said articles
in this office.
The effective date of these Articles of Amendment is May 02,
1996.
In Witness Whereof, I have hereunto set my hand and affixed the
seal of the State of Indiana, at the City of Indianapolis, this
Second day of May, 1996.
/s/ Sue Anne Gilroy
- --------------------------
SUE ANNE GILROY, Secretary of State
JB
- ---------------------------
Deputy
XXXPAGE 112XXX
ARTICLE 11 Manner of Adoption and Vote
SECTION I This amendment was adopted by the Board of Directors or
incorporators and shareholder action was not required.
SECTION 2 The shareholders of the Corporation entitled to vote in respect
to the amendment adopted the proposed amendment. The amendment was adopted
by:
A. Vote of such shareholders during a meeting called by the Board of
Directors. The result of such vote is as follows:
<TABLE>
<S> <C> <C>
Shares entitled to vote. 5,670,586
Number of shares represented at the meeting. 5,296,068
Shares voted in favor. 4,928,818
Shares voted against. 344,339
</TABLE>
B. Written consent executed on 19 and signed by all
such shareholders.
ARTICLE III Compliance with Legal Requirements
The manner of the adoption of the Articles of Amendment and the vote by
which they were adopted constitute full legal compliance with tne
provisions of the Act, the Articles of Incorporation, and the By-Laws of
the Corporation.
I hereby verify, subject to the penalties of perjury, that the statements
contained herein are true, this lst day of May, 1996
/s/ Matthew F. Souza
------------------------------
Matthew F. Souza
Vice President and Secretary
XXXPAGE 113XXX
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
"Indiana". In the center of the seal shall appear the words
"Seal" or " Corporate Seal".
XXXPAGE 114XXX
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,
XXXPAGE 115XXX
transfer agent, or registrar who has signed or whose
facsimile signature has been placed upon a certificate shall
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.
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
XXXPAGE 116XXX
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 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
XXXPAGE 117XXX
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.
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
XXXPAGE 118XXX
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 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,
XXXPAGE 119XXX
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
8.20.96
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 twelve (12)
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 by amendment to the By-Laws, but no decrease shall
have the effect of shortening the term of any incumbent
director.
XXXPAGE 120XXX
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 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
XXXPAGE 121XXX
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.
XXXPAGE 122XXX
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, adopting an agreement or plan of merger or
consolidation, proposing a Special Corporate
XXXPAGE 123XXX
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.
XXXPAGE 124XXX
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.
XXXPAGE 125XXX
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
XXXPAGE 126XXX
same 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.
XXXPAGE 127XXX
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.
XXXPAGE 128XXX
INLAND MORTGAGE CORPORATION
LONG TERM INCENTIVE COMPENSATION PLAN
ARTICLE I
PURPOSE OF PLAN
The continued growth and success of Inland Mortgage Corporation
("Inland") are dependent upon Inland's ability to attract and
retain the services of key executives and provide incentive for
their superior long term performance. The purpose of the Inland
Mortgage Corporation Long Term Incentive Compensation Plan (the
"Plan") is to attract, retain and motivate key executives to
achieve long-term performance goals
ARTICLE II
NATURE OF THE PLAN
This Plan is an income tax non-qualified, unfunded plan to
provide deferred compensation for a "select group of management
or highly compensated employees." It is our intention this plan
be a Top-Hat Plan under ERISA 29 CFR 2520.104-24.
ARTICLE III
DEFINITIONS
3.1 Annual Return on Equity. Annual Return on Equity is the
amount equal to net income of Inland for a particular year,
as determined under Generally Accepted Accounting
Principles, divided by the average equity of Inland for the
same year.
3.2 Basis Points. The value of each Basis Point will equal one
one-hundredth of one percent (.01%).
3.3 Board. Board shall mean the Board of Directors for Inland
Mortgage Corporation.
3.4 First Vesting Date. First Vesting Date is the first January
1 following the end of an Incentive Period.
3.5 Incentive Compensation Award. Incentive Compensation Award
is the number of Basis Points awarded to a participant by
the Board. Those Basis Points will be multiplied by the Net
Income for each year in the Incentive Period to create the
Participant's annual accrual.
XXXPAGE 129XXX
3.6 Incentive Period. An Incentive Period is a period of time
during which the value of an award under the Plan to a
Participant shall be determined. The first Incentive Period
is January 1, 1993 to December 31, 1994. The second
Incentive Period is January 1, 1993 to December 31, 1996.
The third Incentive Period is January 1, 1995 to December
31, 1998. Each successive Incentive Period (after the third
Incentive Period) shall begin on the January 1 two years
following the beginning of the immediate previous Incentive
Period and end on the fourth December 31 after its
beginning.
3.7 Net Income. Net Income as determined under Generally
Accepted Accounting Principles.
3.8 Participants. Participants are those employees chosen to
participate in the Plan by , and at the sole discretion of,
the Board. For each Incentive Period, the Board shall
designate which employees shall participate in the Plan.
3.9 Plan Administrator. Plan Administrator means the Company
(Inland), except that the Administrator may appoint an
individual, committee or an entity to carry out certain
functions of the Administrator.
3.10 Retirement. Retirement shall mean that date on or following
the Participant's 65th birthday, when the participant ceases
to be an employee of Inland.
3.11 Second Vesting Date. Second Vesting Date is the second
January 1 following the end of an Incentive Period.
XXXPAGE 130XXX
ARTICLE IV
INCENTIVE COMPENSATION AWARD
4.1 Calculation of Participant's Incentive Compensation Award.
For each Participant with respect to an Incentive Period,
the Participant's Incentive Compensation Award shall accrue
annually and shall be the product of the Incentive
Compensation Award (stated in number of Basis Points as
determined by the Board) times the Net Income.
4.2 Award Threshold. An Award with respect to an Incentive
Period shall only be made to a Participant if the cumulative
performance record of Inland for that Incentive Period
exceeds a twelve percent (12%) average Annual Return on
Equity. The Award Threshold for any prospective Incentive
Period may be established at any level according to the
discretion of the Board. If the Award Threshold is changed
by the Board, a written description of the change and its
effective date shall be attached to the Plan and
communicated in writing to the participants by the Plan
Administrator.
4.3 Right to Receive Award. Subject only to those exceptions
set forth in this paragraph 4.3, Participant must continue
employment with Inland through the last day of the Incentive
Period in order to be entitled to receive any of the
Participant's Incentive Compensation Award for such
Incentive Period. Nothing in this Plan in general or any of
its provisions in particular is intended to constitute an
offer of or be a guarantee of employment to the Participant.
If a Participant's employment with Inland is terminated
prior to the end of the Incentive Period for any reason
other than death, disability or Retirement, Participant
shall not be entitled to any payment of an Award related to
that Incentive Period. If a Participant's employment with
Inland is terminated prior to the end of an Incentive Period
due to death, disability or Retirement, Participant or the
Participant's beneficiary or estate shall be entitled to
receive payment of a prorated portion of the Participant's
Award related to that Incentive Period.
XXXPAGE 131XXX
ARTICLE V
VESTING
An Award will vest fifty percent (50%) on the first January 1
(First Vesting Date) following the end of an Incentive Period
and will become one hundred percent (100%) vested on the second
January 1 (Second Vesting Date) following the end of an Incentive
Period. There are two exceptions to this vesting provision. (1)
For the first incentive period (the two year period from January
1, 1993, to December 31, 1994) vesting is immediate. (2) For the
first four year incentive period, beginning January 1, 1993 and
ending December 31, 1996, the participant will be fifty percent
(50%) vested on January 1, 1996 and will become one hundred
percent (100%) vested on January 1, 1997. A Participant must be a
full time employee of Inland continually in order for the
respective portion of an Award to become vested. The termination
of a Participant's employment with Inland shall not affect the
vested status of Awards which were vested prior to such
termination of employment.
In the event of a Participant's Retirement , death or disability,
vesting shall accelerate immediately to one hundred percent
(100%) of the pro rata portion of the Incentive Period(s) during
which the Retirement, death or disability occurred and during
which Participant was a full time employee. Vesting will
accelerate in the same manner if, upon sale or acquisition of
Inland, the Plan is terminated.
ARTICLE VI
PAYMENT OF AWARDS
6.1 Payment Options. At the beginning of an Incentive Period,
each Participant for that Incentive Period shall
irrevocably elect in writing and have delivered to the
Plan Administrator, one of the payment options set forth
below for any Award that may be accrued by Inland in such
Participant's favor during the respective Incentive
Period:
(a) Payment in one lump sum within thirty (30) days after
the time the Award is one hundred percent (100%)
vested; or
(b) Payment of the Award in a lump sum on the anniversary
date of the date upon which such Award became one
hundred percent (100%) vested, which anniversary date
shall not be less than two (2) years after such one
hundred percent (100%) vested date; or
(c) Following Participant's retirement, payment via a
lump sum cash payment in March of the next succeeding
calendar year; or
(d) Payment in ten (10) equal annual installments
beginning in March of the calendar year following the
calendar year in which the Participant retires; or
XXXPAGE 132XXX
(e) Such additional methods of payment as the Board, in
its sole discretion, may authorize.
If no election is made, Participant's Award shall be paid in a
lump sum within thirty (30) days after the date such Award
becomes fully vested.
6.2 Interest. The unpaid portion with respect to any
Award that is not paid out within ninety (90) days after
such Award becomes one hundred percent (100%) vested,
shall accrue interest at a rate equal to the Federal
Reserve's consensus average prime rate as reflected in
the Wall Street Journal and the Federal Reserve Bulletin,
compounded quarterly.
6.3 Death Benefits. If a Participant who has deferred
payment of a one hundred percent (100%) vested Award dies
before full payment of the Award, the unpaid balance of
the Award, shall be paid in a lump sum to the
Participant's beneficiary as designated in writing by the
Participant on the Beneficiary Designation form or, if
there is no beneficiary, to the Participant's estate
within ninety (90) days after written proof of a
Participant's death has been received by the Plan
Administrator.
6.4 Termination. If a Participant who has deferred
payment of an Award under the Plan ceases to be employed
by Inland for any reason other than death or Retirement,
the Board may, in its sole discretion, pay the
Participant's deferred vested Awards in a lump sum within
ninety (90) days after the Participant's termination of
employment with Inland.
ARTICLE VII
SOURCE OF BENEFITS
This Plan and the benefits payable hereunder shall be unfunded
and shall be payable only from the general assets of Inland.
Inland does not represent that a specific portion of its assets
will be used to provide the benefits hereunder. The Participant
or beneficiaries shall not have any security interest in Inland.
Nothing contained herein shall be deemed to create a trust of any
kind or create any fiduciary relationship or obligation on the
part of or on behalf of any Participant. To the extent that any
person acquires a right to receive payments from Inland under
this Plan, such rights shall be no greater than the right of any
unsecured general creditor of Inland.
ARTICLE VIII
ADMINISTRATION
The Plan shall be administered by the Board. The Board shall
have the exclusive authority and responsibility for all matters
in connection with the operation and administration of the Plan.
The administration of the Plan shall include, but shall not be
limited to, the following:
(a) The completion and maintenance of all records
necessary in connection with the Plan;
XXXPAGE 133XXX
(b) Compliance of the Plan with all applicable
laws and regulations
(c) Authorizing the payment of all benefits and
expenses of the Plan as they become payable under
the Plan; and
(d) Authority to engage such legal, accounting, and
other professional services as appropriate .
Decisions by the Board shall be final and binding upon all
parties affected by the Plan, including the beneficiaries of
Participants.
The Board may delegate to a Plan Administrator responsibility
for ordinary plan administration and responsibility for decisions
that the Board may make or actions that it may take under the
terms of the Plan, subject to the Board's reserved right to
review such decisions or actions and modify them at the Board's
sole discretion. Except as specifically provided herein, the
Board shall not allow any beneficiary of the Plan to obtain
control over decisions or actions that affect that beneficiary's
Plan benefits.
ARTICLE IX
MISCELLANEOUS
9.1 Non-assignability of Benefits. A Participant's benefits
under the Plan cannot be sold, transferred, anticipated,
assigned, pledged, hypothecated, seized by legal process,
subjected to claims of creditors in any way, or otherwise
disposed of by a Participant or the Participant's
beneficiaries.
9.2 Governing Law. This Plan and any amendments shall be
construed, administered, and governed in all respects in
accordance with applicable federal law and the laws of the
State of Indiana.
9.3 No Right of Continued Employment. Nothing in this Plan
shall confer upon any person the right to continue in the
employ of Inland, or interfere in any way with the right of
Inland to terminate the person's employment at any time.
9.4 Withholding Taxes. Inland shall withhold any taxes required
by law to be withheld in connection with payment of an Award
under this Plan. These withholdings will be made by Inland
but the responsibility for paying taxes rests solely with
the Participants.
XXXPAGE 134XXX
ARTICLE X
CLAIMS PROCEDURE IN CASE OF DISPUTE
10.1 Initial Claim. Any Participant claiming an Award under this
Plan (the "Claimant") shall present a claim in writing to
the Chairman of the Board of Inland (the "Chairman").
10.2 Decision on Initial Claim.
(a) Time Period for Denial Notice. A decision shall be
made on the claim as soon as practicable and shall be
communicated in writing by the Chairman to the Claimant
within a reasonable period after receipt of the claim
by the Chairman. In no event shall the decision on an
initial claim be given more than ninety (90) days after
the date the claim was received by the Chairman, unless
,at the Chairman's sole discretion, an extension of
time for processing is granted. If there is an
extension, the Claimant shall be notified of such
within ninety (90) days of the date the claim was
filed. The extension notice shall indicate the reason
for the extension . The extension shall not exceed
ninety (90) days from the end of the initial response
period.
(b) Contents of Denial Notice. If the claim is wholly or
partially denied, the notice of denial shall indicate:
(1) The specific reasons for the denial;
(2) The specific references to pertinent Plan
provisions on which the denial is based;
(3) A description of additional material or
information necessary for the Claimant to perfect
the claim and an explanation of why such material
or information is necessary; and
(4) An explanation of the Plan's claim review procedure as
outlined in 10.3 and 10.4.
(c) Deemed Denied. If written notice of the decision
wholly or partially denying the claim has not been
furnished within ninety (90) days after the claim is
filed or there has been an extension and no notice of a
decision is furnished by the end of the extension
period, and if the claim has not been granted within
such period, the claim shall be deemed denied as of the
end of the ninety (90) day or one hundred eighty (180)
day period for purposes of proceeding to the review
stage described 10.3 and 10.4.
10.3 Review of Denied Claim. If a Claimant receives a notice of
denial or his or her claim is deemed denied pursuant to 10.2
above, the Claimant may request a review of the claim. The
request for review is made by delivering or mailing a
written request for review,
XXXPAGE 135XXX
prepared by either the Claimant
or his or her authorized representative, to the Board. The
Claimant's request for review must be made within 90 days of
receipt of notice of denial or deemed denial In no event
shall the Claimant have less than ninety (90) days after
receipt of the notice of denial to request review of the
denial. If the written request for review is not made on a
timely basis, the Claimant shall be deemed to waive his or
her right to review. The Claimant or his or her duly
authorized representative may, at or after the time of
making the request, review all pertinent documents and
submit issues and comments in writing.
10.4 Decision on Review. A review shall be made by the Board
after receipt of a timely filed request for review. A
decision on review shall be made and furnished in writing to
the Claimant. The decision shall be made not later than
sixty (60) days after receipt of the request for review. If
special circumstances require an extension of time for
processing (such as the need to hold a hearing), a decision
shall be made and furnished to the Claimant not later than
one hundred twenty (120) days after such receipt. If an
extension is required, the Claimant shall be notified of
such within sixty (60) days after the request for review was
filed. The written decision shall include the reasons for
such decision with reference to the provisions of the Plan
upon which the decision is based. The decision shall be
final and binding upon the Claimant and Inland and all other
persons involved. If the decision on review is not
furnished within the applicable time period, the claim shall
be deemed denied on review.
The scope of any subsequent review of the benefit claim,
judicial or otherwise, shall be limited to a determination
as to whether the Board acted arbitrarily or capriciously in
the exercise of its discretion. In no event shall any such
further review be on a de novo basis as the Board has
discretionary authority to determine eligibility for
benefits and to construe the terms of this Plan.
ARTICLE XI
AMENDMENTS AND TERMINATION
The Board has the power to terminate this Plan at any time or to
amend this Plan at any time and in any manner that it may deem
advisable.
This Plan was approved by the Board on 14th day of May,1993 and
revised the 1st day of April 1995.
INLAND MORTGAGE CORPORATION
By: /s/ Matthew F. Souza
-------------------------
Name: Matthew F. Souza
Title: Secretary
XXXPAGE 136XXX
Exhibit 11 (a)
IRWIN FINANCIAL CORPORATION AND SUBSIDIARIES
EXHIBIT 11(a) - COMPUTATION OF EARNINGS PER SHARE
Year Ended December 31, 1996 1995 1994
----- ----- -----
<TABLE>
<CAPTION>
PRIMARY SHARES OUTSTANDING:
<S> <C> <C> <C>
Average number of shares outstanding 11,358,121 11,279,870 11,547,034
Assumed exercise of stock options 251,535 206,386 219,178
----------- ----------- -----------
Total shares (Note 2) 11,609,656 11,486,256 11,766,212
=========== =========== ===========
NET INCOME $22,428,337 $20,083,202 $18,215,539
=========== =========== ===========
PRIMARY EARNINGS PER SHARE (Note 2) $1.93 $1.75 $1.55
===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
FULLY DILUTED SHARES OUTSTANDING:
<S> <C> <C> <C>
Average number of shares outstanding 11,358,121 11,279,870 11,547,034
Assumed exercise of stock options
(Note 1) 298,210 232,940 234,606
----------- ----------- -----------
Total shares (Note 2) 11,656,331 11,512,810 11,781,640
=========== =========== ===========
NET INCOME $22,428,337 $20,083,202 $18,215,539
=========== =========== ===========
FULLY DILUTED EARNINGS PER SHARE (Note 2) $1.92 $1.74 $1.55
===== ===== =====
</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.
(2) Adjusted for the two-for-one stock split on December 30,
1996
XXXPAGE 137XXX
Contents
Management's Discussion and Analysis of Results
of Operations and Financial Condition:
28 Five-Year Selected Financial Data and Graphs
31 Consolidated Overview
32 Mortgage Banking
40 Community Banking
46 Home Equity Lending
50 Equipment Leasing
54 Other Irwin Financial Businesses
54 Consolidated Income Statement Analysis
56 Consolidated Balance Sheet Analysis
59 Capital
62 Risk Management
62 Credit Risk
67 Liquidity
67 Interest Rate Sensitivity
69 Effects of Inflation
Financial Statements:
75 Report of Management
76 Report of Independent Public Accountants
77 Consolidated Statement of Income
78 Consolidated Balance Sheet
79 Consolidated Statement of Changes in
Shareholders' Equity
80 Consolidated Statement of Cash Flows
81 Notes to Financial Statements
XXX PAGE 27 XXX
XXXPAGE 138XXX
Management's Discussion
Five-Year Selected Financial Data:
<TABLE>
1996 1995 1994 1993 1992
- -----------------------------------------------------------------
Financial Data (in thousands)
For the year:
<S> <C> <C> <C> <C> <C>
Net Revenues $197,020 $148,364 $116,908 $119,366 $494,934
Other Operating
Expense 159,733 115,915 86,844 93,803 73,811
Net Income 22,428 20,083 18,216 15,588 12,866
Mortgage Loan
Closings 5,085,625 3,559,310 2,812,962 4,273,933 3,441,347
Return on Average
Equity 20.58% 22.60% 23.91% 24.91% 26.51%
Return on Average
Assets 1.95 2.28 2.43 2.15 1.97
Dividend Payout Ratio12.15 12.36 11.38 11.12 8.88
Per share:*
Net Income $1.93 $1.75 $1.55 $1.33 $1.12
Cash Dividends 0.24 0.22 0.18 0.15 0.10
Book Value 10.46 8.76 7.21 6.03 4.82
Market Value at
December 31, 24.75 19.94 13.38 12.50 11.50
At year end:
Assets 1,303,886 $1,038,307 $659,671 $881,864 $602,465
Deposits 640,153 563,999 439,918 500,370 389,323
Mortgage Loans
Held for Sale 445,101 378,658 154,964 370,755 218,080
Loans and Leases,
Net 522,457 407,904 304,548 252,823 207,138
Shareholders'
Equity 118,902 99,216 81,104 70,093 55,343
Mortgage Servicing
Portfolio 10,810,988 10,301,914 8,818,502 7,922,299 5,470,505
Equity to Assets
Ratio 9.12% 9.56% 12.29% 7.95% 9.19%
Risk-based Capital
Ratio 14.23 14.49 19.18 15.68 16.46
Leverage Ratio (Tier
one) 9.84 10.57 10.82 9.63 8.48
Averages:
Assets $1,151,535 $882,164 $748,981 $725,846 $651,517
Equity 108,970 88,867 76,178 62,586 48,539
Shares Outstanding 11,610 11,486 11,766 11,720 11,534
- -----------------------------------------------------------------
</TABLE>
*Adjusted for stock splits
XXX PAGE 28 XXX
MANAGEMENTS'S DISCUSSION
Consolidated Overview:
Irwin Financial Corporation earned record net income in 1996.
This
performance was largely due to increased loan originations in the
mortgage banking business, continued growth at the community
bank, and improved results at the Corporation's newly formed home
equity lending business.
Net income for 1996 totaled $22,428,338, up 11.7% from 1995 and
23.1% from 1994. Net income per share in 1996 was $1.93 compared
to $1.75 in 1995 and $1.55 in 1994. Return on average equity for
1996 was 20.58% compared to 22.60% in 1995 and 23.91% in 1994.
Return on average assets was 1.95% compared to 2.28% in 1995 and
2.43% in 1994.
Earnings By Line Of Business:
Irwin Financial Corporation is comprised of four lines of
business:
- Mortgage banking
- Community banking
- Home equity lending
XXXPAGE 139XXX
- Equipment leasing
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.
<TABLE>
<CAPTION>
Earnings:
(In thousands) 1996 1995 1994
- -----------------------------------------------------------------
<S> <C> <C> <C>
Mortgage Banking $20,422 $19,331 $15,728
Community Banking 4,254 3,639 3,050
Home Equity Lending (816) (3,220) 0
Equipment Leasing (141) (334) 873
Parent (including consolidating
entries) (1,291) 667 (1,435)
- -----------------------------------------------------------------
$22,428 $20,083 $18,216
- -----------------------------------------------------------------
</TABLE>
XXX PAGE 31 XXX
Management's Discussion (continued)
Business Profile:
Mortgage Banking
Selected Financial Data
<TABLE>
(In thousands) 1996 1995 1994 1993 1992
- -----------------------------------------------------------------
<CAPTION>
Selected Income Statement Data:
<S> <C> <C> <C> <C> <C>
Net interest income $16,828 $13,290 $12,702 $15,067 $15,203
Loan origination fees 43,463 31,871 25,308 37,605 28,548
Gain on sale of loans 25,541 18,020 2,219 14,225 10,337
Loan servicing fees 44,587 36,087 32,426 24,428 15,135
Gain on sale
of servicing 16,378 15,271 17,716 2,979 5,133
Other income 888 787 647 550 448
- --------------------------------------------------------------------
Total net revenues 147,685 115,326 91,018 94,854 74,804
Operating expense 113,590 83,344 64,571 72,140 54,309
- ---------------------------------------------------------------------
Income before taxes 34,095 31,982 26,447 22,714 20,495
Income taxes 13,673 12,651 10,719 9,073 8,178
- ---------------------------------------------------------------------
Net income $20,422 $19,331 $15,728 $13,641 $12,317
=====================================================================
</TABLE>
Selected Balance Sheet Data at End of Period:
Mortgage loans held
<TABLE>
<S> <C> <C> <C> <C> <C>
for sale $371,058 $309,262 $131,543 $318,453 $179,583
XXXPAGE 140XXX
Mortgage servicing
rights 67,750 51,783 18,834 11,505 10,156
Total assets 557,275 445,129 216,180 452,365 214,411
Short-term debt 265,646 227,021 68,259 215,014 77,731
Long-term debt 4,914 2,300 2,605 2,934 1,178
Shareholders' equity $66,180 $55,811 $50,805 $42,355 $31,105
</TABLE>
Selected Operating Data:
<TABLE>
Mortgage loan
<S> <C> <C> <C> <C> <C>
closings $5,085,625 $3,559,310 $2,812,962 $4,273,933 $3,441,347
Servicing portfolio:
Balance at
December 31, 10,810,988 10,301,914 8,818,502 7,922,299 5,470,505
Weighted average coupon
rate 7.83% 7.83% 7.59% 7.51% 8.37%
Weighted average servicing
fee 0.38 0.38 0.38 0.37 0.36
Servicing sold as a percent of
production 60.9 28.4 49.8 5.6 12.3
- ----------------------------------------------------------------------------
</TABLE>
XXX PAGE 32 XX
Overview & Strategy:
The mortgage banking line of business consists of Inland Mortgage
Corporation and the related activities of Irwin Union Bank. The
business is headquartered in Indianapolis and originates,
packages, sells, and services residential mortgage loans
throughout the U.S. It has offices in 27 states and ranks among
the top 25 mortgage loan originators in the country. Most of the
loans originated and serviced are either government-insured
through the Veterans' Administration (VA) or Federal Housing
Administration (FHA) or 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 cash flow and servicing
portfolio management. Over the past five years, servicing rights
have been retained on a total of 67.8% of the loans originated by
this line of business.
1996 Review:
XXXPAGE 141XXX
Net income from mortgage banking was $20.4 million in 1996, an
increase of 5.6% over 1995 results of $19.3 million and 29.8%
over 1994 results of $15.7 million.
<TABLE>
<CAPTION>
Mortgage Closings:
(In thousands) 1996 1995 1994
- -----------------------------------------------------------------
<S> <C> <C> <C>
Total closings $5,085,625 $3,559,310 $2,812,962
Percent retail loans 41.8% 50.3% 56.6%
Percent wholesale loans 52.4 42.5 42.9
Percent brokered 5.8 7.2 0.5
- -----------------------------------------------------------------
</TABLE>
XXX PAGE 33 XXX
Annual loan closings in 1996 of $5.1 billion were up 42.9% from
1995 and 80.8% from 1994. During 1996 the mortgage bank
originated a greater portion of its loans through wholesale
channels than had been done in previous years. Income from
mortgage loan originations totaled $43.5 million which was $11.6
million over 1995 and $18.2 million over 1994. Mortgage loan
applications in process at the end of 1996 totaled $1.5 billion,
compared with $1.2 billion at the end of 1995 and $0.5 billion at
the end of 1994. Refinances accounted for 19.0% of 1996 loan
closings, compared to 11.6% in 1995 and 15.8% in 1994.
Gains from the sale of mortgage loans totaled $25.5 million in
1996, up from $18.0 million in 1995 and $2.2 million in 1994.
Gains recognized in 1996 and for the last nine months of 1995
reflect the change in generally accepted accounting principles
for mortgage banking (SFAS No. 122) which took effect
April 1, 1995. Net revenues from loan sales were tempered
somewhat by loan pricing concessions which totaled $2.5 million
in 1996 compared to $3.8 million in 1995 and $0.1 million in
1994.
<TABLE>
<CAPTION>
Mortgage Servicing:
Servicing Portfolio:
<S> <C> <C> <C>
(In billions) 1996 1995 1994
- -----------------------------------------------------------------
Beginning portfolio $10.3 $8.8 $7.9
Add:
Loans originated 2.1 1.8 1.6
Loans purchased 3.0 1.8 1.2
Deduct:
Sale of servicing rights (3.1) (1.0) (1.4)
Run-off* (1.5) (1.1) (0.5)
- -----------------------------------------------------------------
Ending portfolio $10.8 $10.3 $8.8
=================================================================
Number of loans 140,354 129,270 107,101
Average loan size $83,540 $82,186 $80,038
Percent GNMA 51% 48% 57%
Percent FHLMC 15 21 16
Percent FNMA 16 17 20
Delinquency ratio: 5.12% 4.55% 3.25%
Capitalized servicing as a
percentage of servicing
portfolio 0.65% 0.50% 0.23%
- -----------------------------------------------------------------
</TABLE>
XXXPAGE 142XXX
*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.
XXX PAGE 34 XXX
The mortgage servicing portfolio was $10.8 billion at December
31, 1996, up 4.9% from the same date in 1995 and 22.6% from 1994.
The 1996 annual portfolio run-off rate was 10.7%. This is up from
the 1995 rate of 10.4% and the 1994 rate of 6.3%. The following
table sets forth certain information regarding the interest rates
of loans in the servicing portfolio at December 31:
<TABLE>
<CAPTION>
Servicing Portfolio by Interest Rate:
1996 1995 1994
- -----------------------------------------------------------------
<S> <C> <C> <C>
Less than 7% 8.9% 10.3% 20.1%
7.00 - 7.99% 44.3 39.8 35.3
8.00 - 8.99% 38.7 33.9 30.7
9% or greater 8.1 16.0 13.9
- -----------------------------------------------------------------
Total 100% 100% 100%
- -----------------------------------------------------------------
</TABLE>
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 provisions. Expenses related to mortgage
servicing right impairment and hedging totaled $637.9 thousand in
1996 compared to $908.8 thousand in 1995. None were recorded in
1994.
The preceding information is related to the servicing portfolio
owned by Inland. In addition to the owned servicing portfolio,
the business subservices conventional loans for which it does not
own servicing rights. The subservicing portfolio totaled $1.7
billion at December 31, 1996, compared to $1.9 billion on the
same date in 1995.
<TABLE>
<CAPTION>
Servicing and Other Fees:
(In thousands) 1996 1995 1994
- -----------------------------------------------------------------
<S> <C> <C> <C>
Servicing fees $44,587 $36,087 $32,426
Other fees 888 787 647
- -----------------------------------------------------------------
Total $45,475 $36,874 $33,073
- -----------------------------------------------------------------
</TABLE>
Servicing fee income is recognized by collecting fees which range
between 25 and 44 basis points annually on the principal amount
of the underlying mortgages. An increase in the average size of
the servicing portfolio throughout the year positively affected
servicing income which increased 23.6% from 1995 and 37.5% from
1994.
XXXPAGE 143XXX
XXX PAGE 35 XXX
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 cash flow. The decision to sell or retain
servicing is based on current market conditions balanced with the
business' interest rate risk tolerance.
Servicing rights totaling $3.1 billion were sold in 1996,
generating a $16.4 million pre-tax gain on those sales, net of
any purchased servicing expense which had been capitalized. This
compares to servicing sales of $1.0 billion in 1995 that produced
a $15.3 million pre-tax gain and $1.4 billion in 1994 that
produced a $17.7 million pre-tax gain. The lower margin
recognized in 1996 reflects the impact of the change in mortgage
accounting standards made in 1995. Had all servicing been
retained in 1996, gains on sales of loans would have been higher
than what was recorded, with a corresponding reduction in gains
from sales of servicing. Therefore, the net increase in income as
a result of the decision to sell servicing was insignificant.
Servicing sales in 1996 represented 60.9% of 1996 closings versus
1995 sales which were 28.4% of that year's closings and 1994
sales which were 49.8% 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 $16.8 million in 1996, compared to $13.3
million in 1995 and $12.7 million in 1994. The increase is due
primarily to the increased loan volume experienced in 1996.
<TABLE>
<CAPTION>
Operating Expenses:
(In thousands) 1996 1995 1994
- -----------------------------------------------------------------
<S> <C> <C> <C>
Salaries and employee benefits $66,153 $51,737 $41,725
Amortization of mortgage servicing
rights 13,259 4,865 1,943
Other expenses 34,178 26,742 20,903
- -----------------------------------------------------------------
Total operating expenses $113,590 $83,344 $64,571
=================================================================
Number of employees at December 31, 1,474 1,316 955
- -----------------------------------------------------------------
</TABLE>
Total operating expenses increased 36.3% from 1995 and 75.9% from
1994. The increase reflects the continued expansion of the
production system and increased costs associated with
technological improvements made during the year.
XXX PAGE 36
1997 Outlook:
The environment in which the mortgage bank operates is rapidly
changing.
XXXPAGE 144XXX
As a result, technology will play an increasingly important role
in the mortgage bank's strategic plans. Management believes that
in order to remain competitive, the mortgage bank must advance
its use of technology to reduce
its costs of production and enhance its distribution methods or
develop new channels of distribution. Significant technology
initiatives which were started in 1996 will continue during the
coming year.
Throughout much of its history, the mortgage banking business has
concentrated on the origination of FHA and VA loans. As such, the
company developed a reputation of effectively serving the
mortgage origination needs of first-time home buyers. These
borrowers generally require more guidance through the origination
process than do those borrowers who previously qualified for
mortgage loans.
Inland Mortgage continues to be interested in leveraging its
capabilities to serve those borrowers who have special needs. The
business recently began two initiatives to expand its reach in
special needs borrowing. Both are in their early stages and are
not expected to add materially to results in 1997. They are
indicative, however, of efforts the company is making to focus on
defensible market segments where a sustainable competitive
advantage can be created based upon a dedication to customer
service, fast turnaround time, and product innovation.
The first such initiative is the mortgage bank's entrance into
the non-
prime first mortgage lending market which is comprised of
borrowers who do not qualify under the underwriting guidelines
established by the government sponsored secondary market agencies
for conforming first mortgages.
The second initiative to expand the company's reach involves
making mortgage loans on selected resort properties located
outside the United States. In December, 1996, Inland Mortgage
began taking applications from U.S. borrowers for dollar
denominated loans to be secured by residential real estate
located in Mexico. The company is prepared to begin closing such
loans during the first quarter of 1997.
Employees:
As of December 31, 1996, the mortgage banking line of business
employed 1,474 people-approximately 74% of the Corporation's
total employee base. Total employment expense in 1996 was $66.2
million or 58.2% of operating expenses.
XXX PAGE 37 XXX
Inland Mortgage Corporation
Directors
John T. Hackett Managing General Partner,
CID Equity Partners, L. P.
(Venture Capital Partnership)
William H. Kling President,
Minnesota Public Radio
Inland Mortgage Corporation
William I. Miller Chairman,
Irwin Financial Corporation
John A. Nash President,
Irwin Financial Corporation
XXXPAGE 145XXX
Lance R. Odden President and 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 and Chief
Financial Officer
Duke Investments, Inc.
(Real Estate Development Company)
XXX PAGE 38 XXX
Inland Mortgage Corporation
Senior Officers
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
Mark J. Lynch Senior Vice President-Nonconforming Lending
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
Richard C. Cargill First Vice President-Metro Phoenix
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 E. 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-Customer Service
Lyle E. Shearer First Vice President-All Pacific Region
Richard E. Skiles First Vice President-Appraisals
Nicholas Vracas First Vice President-Mid-states Region
XXX PAGE 39 XXX
XXXPAGE 146XXX
Management's Discussion (continued)
Business Profile:
Community Banking
<TABLE>
<CAPTION>
Selected Financial Data
<S> <C> <C> <C> <C> <C>
(In thousands) 1996 1995 1994 1993 1992
- -----------------------------------------------------------------
Selected Income Statement Data:
Interest income $35,645 $31,965 $23,808 $22,238 $20,267
Interest expense 15,908 14,048 8,822 8,684 8,379
Provision for loan
and lease losses 2,284 2,038 1,344 1,551 1,500
- -----------------------------------------------------------------
Net interest income after provision for
loan and lease
losses 17,453 15,879 13,642 12,003 10,388
Noninterest income 9,384 7,187 5,719 6,192 5,443
- -----------------------------------------------------------------
Total net revenues 26,837 23,066 19,361 18,195 15,831
Operating expenses 20,311 17,582 14,858 14,264 12,498
- -----------------------------------------------------------------
Income before taxes 6,526 5,484 4,503 3,931 3,333
Income taxes 2,272 1,845 1,453 1,247 1,001
- -----------------------------------------------------------------
Net income $4,254 $3,639 $3,050 $2,684 $2,332
=================================================================
</TABLE>
<TABLE>
<CAPTION>
Selected Balance Sheet Data at
End of Period:
Loans and leases,
<S> <C> <C> <C> <C> <C>
net $331,790 $306,415 $252,226 $210,340 $176,958
Total assets 503,507 440,035 370,462 334,148 318,512
Deposits 453,879 400,149 341,459 298,615 314,773
Shareholders'
equity 33,967 28,722 24,686 23,882 20,470
Daily Averages:
Assets $459,893 $405,249 $344,691 $302,692 $261,708
Deposits 413,935 358,343 315,229 275,956 236,641
Loans and leases,
net 325,291 281,147 228,544 195,304 166,202
Shareholders'
equity 31,863 27,661 23,580 20,326 18,290
Shareholders' equity
to assets 6.93% 6.83% 6.84% 6.72% 6.99%
- -----------------------------------------------------------------
</TABLE>
XXX PAGE 41 XXX
Overview & Strategy:
Community banking is conducted by Irwin Union Bank and Trust
Company which is headquartered in Columbus, Indiana. At year-end
1996, 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
XXXPAGE 147XXX
surrounding counties
has occurred in recent years and has been on a de novo basis. 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. Credit,
investment, trust, and insurance services are provided to
individual and corporate customers.
1996 Review:
Community banking net income in 1996 totaled $4.3 million, up
16.9% from 1995 net income of $3.6 million and 39.5% from 1994
net income of $3.1 million. The return on average equity was
13.35% in 1996 as compared to 13.16% in 1995 and 12.93% in 1994.
Results include the income and expenses of trust operations and
investment advisory services which were previously reported in
the investor services line of business and are now managed and
reported by the community bank. Also included are credit
insurance income and expenses which were previously reported as a
separate line of business. Results for previous years have been
restated for comparability.
Net interest revenue:
(In thousands) 1996 1995 1994
- -----------------------------------------------------------------
Net interest revenue on a taxable
equivalent basis* $20,096 $18,362 $14,989
Average interest earning assets 426,290 373,784 312,898
Net interest margin 4.71% 4.91% 4.79%
- -----------------------------------------------------------------
*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 9.4%
from 1995 and 34.1% from 1994 to a total of $20.1 million. Net
interest revenue is the product of net interest margin and
average earning assets.
Net interest margin was down for the year, coming in at 4.71% for
1996 compared to 4.91% in 1995 and 4.79% in 1994. The decline was
principally due to declines in yields in the community bank's
loan portfolio. The average yield on all earning assets was 8.45%
compared to 8.67% for 1995 and 7.61% for 1994.
XXX PAGE 41 XXX
Provision for Loan and Lease Losses:
The provision for loan and lease losses in 1996 was $2.3 million,
compared to $2.0 million in 1995 and $1.3 million in 1994. The
provision was equal to 0.7% of average loans and leases
outstanding in 1996, compared to 0.7% in 1995 and 0.6% in 1994.
See the section on credit risk for additional information on
asset quality and reserve adequacy.
Noninterest Income:
(In thousands) 1996 1995 1994
- -----------------------------------------------------------------
XXXPAGE 148XXX
Trust fees $2,571 $2,470 $2,300
Service charges on deposit accounts 1,820 1,596 1,259
Insurance commissions, fees, and
premiums 1,105 1,016 915
Gain from sale of consumer and mortgage
loans 909 0 0
Loan servicing fees 690 210 93
Brokerage fees 736 571 -
Other $1,553 $1,324 $1,152
- -----------------------------------------------------------------
Total noninterest income $9,384 $7,187 $5,719
- -----------------------------------------------------------------
Noninterest income was up 30.6% from 1995 and 64.1% from 1994.
The increase is partially attributed to the sale of $59.5 million
of consumer loans during 1996 which generated a pre-tax gain of
$676.0 thousand. The community bank retained the right to service
the sold loans which contributed to increased loan servicing fees
in 1996.
Operating Expenses:
(In thousands, except for number
of employees) 1996 1995 1994
- -----------------------------------------------------------------
Salaries $10,916 $9,656 $8,278
Other expenses 9,395 7,926 6,580
- -----------------------------------------------------------------
Total operating expenses $20,311 $17,582 $14,858
=================================================================
Number of employees at December 31, 304 291 262
- -----------------------------------------------------------------
Operating expenses increased 15.5% from 1995 and 36.7% from 1994.
Costs associated with expanding new products and markets
contributed to increases over the past two years. In addition,
during 1996 the community bank changed its strategy for offering
employee benefits services to customers of the trust department.
The decision was made to simplify and streamline the product
offering. Also during 1996, the community bank exited the
mortgage document custody business. As a result of these two
changes, the community bank recorded $1.5 million of
restructuring expenses during the year.
XXX PAGE 42 XXX
Balance Sheet:
Total assets averaged $459.9 million in 1996, compared to $405.2
million in 1995 and $344.7 million in 1994. Average earning
assets for the year were $426.3 million, up $52.5 million or
14.0% from 1995 and up $113.4 million or 36.2% from 1994. The
most significant component of the 1996 increase was loans and
leases which were up $44.1 million on average in 1996 as a result
of the community bank's expansion efforts into new markets.
Average deposits were $413.9 million or 15.5% higher in 1996 than
1995 and $98.7 million or 31.3% higher than 1994.
The community bank's equity to assets ratio averaged 6.93% for
the year, compared to 6.83% in 1995 and 6.84% in 1994.
XXXPAGE 149XXX
1997 Outlook:
During 1997, the community bank plans to take advantage of the
opportunities created by further consolidation in the banking
industry. It plans to enter two new markets in which it can
become the "local banking" alternative. The community bank will
continue to expand its offering of non-traditional services in
all of its markets. In addition, the community bank plans a test
in certain markets of a new personal banker service made possible
by the integration of information systems and new customer
delivery channels through the use of new technology.
Employees:
As of December 31, 1996 the community bank employed 304 people.
Total employment expense in 1996 was $10.9 million or 53.7% of
total operating expenses.
XXX PAGE 43 XXX
Irwin Union Bank and Trust Company
Directors
Robert H. Claxton Senior Vice President-Finance,
Knauf Fiber Glass
(Manufacturer of Fiberglass Insulation)
Claude E. Davis President,
Irwin Union Bank and Trust Company
John T. Hackett Managing General Partner,
CID Equity Partners, L.P.
(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)
XXX PAGE 44 XXX
Irwin Union Bank and Trust Company
XXXPAGE 150XXX
Senior Officers
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 and Senior Lending Officer
Albert C. Roszczyk Senior Vice President-Bartholomew County
William S. Beitler President-Shelby County
Karen S. Coldiron President-Decatur County
Brian D. Hall President-Monroe County
Robert L. Phillips President-Johnson County
William R. Redman President-Hamilton County
Donald J. Stuart President-Irwin Union Advisory Services
Gloria C. Bennett Vice President-Investments and Funds Management
David S. Brooks Vice President-Bartholomew County
Debora L. Cox Vice President-Operations
Patrick K. Crimmins Vice President-Bartholomew County
Bradley R. Davis Vice President-Controller
Dyar Forkert Vice President-Decatur County
Joseph B. Hauersperger Vice President-Shelby County
William A. Helmbrecht Vice President-Bartholomew County
Carrie K. Houston Vice President-Human Resources
James D. Keller Vice President-Bartholomew County
Dianne Kelly Vice President-Jackson County
Jay N. Morris Vice President-Johnson County
Ellen Z. Mufson Vice President-Legal Counsel and
Assistant Secretary
James D. Parcell Vice President-Bartholomew County
Rick L. Smith Vice President-Jackson County
Barbara A. Smitherman Vice President-Bartholomew County
Jill A. Stanton Vice President-Mortgage Lending
Jerrie H. Suckow Vice President-Bartholomew County
Craig Teegarden Vice President-Johnson County
XXX PAGE 45 XXX
Management's Discussion (continued)
Business Profile:
Home Equity Lending
<TABLE>
<CAPTION>
Selected Financial Data
<C> <C> <C>
(In thousands) 1996 1995
- -----------------------------------------------------------------
Net interest income $4,574 $1,298
Gain on sale of loans 7,798 2,985
Loan servicing fees 4,573 13
Other income 141 229
- -----------------------------------------------------------------
Total net revenues 17,086 4,525
Operating expenses $17,902 7,745
- -----------------------------------------------------------------
Pre-tax loss ($816) ($3,220)
=================================================================
</TABLE>
XXXPAGE 151XXX
<TABLE>
<CAPTION>
Selected Balance Sheet Data at End of Period:
Home equity loans net of loan loss
<S> <C> <C>
allowance $117,588 $36,225
Excess servicing 15,343 5,683
Total assets 147,088 51,611
Short-term debt 129,627 24,981
Shareholders' equity 13,221 5,538
Selected Operating Data:
Loan Volume:
Lines of credits 80,724 87,420
Loans 88,396 0
Servicing portfolio:
Balance at December 31, 230,450 86,691
Weighted average coupon rate:
Lines of credit 12.80% 13.61%
Loans 14.08% 0
- -----------------------------------------------------------------
</TABLE>
XXX PAGE 46 XXX
Overview & Strategy:
The home equity line of business includes Irwin Home Equity and
the related activities of Irwin Union Bank. 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 16
states.
The business has the option to either hold the loans in portfolio
or securitize and service them. 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.
1996 Review:
The home equity lending business recorded a pre-tax loss of $0.8
million in 1996, compared to a $3.2 million pre-tax loss in 1995.
Loan Originations:
During 1996 the home equity lending business originated $169.1
million of home equity loans, up 93.5% from 1995 volume of $87.4
million.
The business securitized and delivered $79.9 million of loans in
1996 which generated a pre-tax gain of $6.8 million. This
compares to a $3.0 million gain recognized in 1995 on the sale of
$51.6 million of loans. In addition to the $79.9 million of loans
that were delivered in 1996, another $60.1 million were
securitized. These loans will be delivered in the first quarter
of 1997, and
XXXPAGE 152XXX
the gain on the sale will be recognized at that
time. During 1996, the business also recorded a one-time $1.0
million pre-tax adjustment to the gain recorded on the 1995
securitization. The adjustment resulted from the substitution of
a letter of credit in 1996 for the cash reserve which had been in
place when the transaction was recorded. This revised approach to
providing for reserves caused the 1995 gain to be higher than it
would have been under the previous approach. If the business uses
letters of credit in future transactions, the resulting gains are
expected to be similarly affected.
<TABLE>
<CAPTION>
Servicing Portfolio:
<C> <C> <C>
(In thousands) 1996 1995
- -----------------------------------------------------------------
Balance at December 31 $230,450 $86,691
Delinquency ratio 0.67% 0.85%
- -----------------------------------------------------------------
</TABLE>
XXX PAGE 47 XXX
The home equity lending business continues to service loans it
has securitized. The servicing portfolio, which includes loans
held on the company's books as well as securitized loans,
increased 165.8% from 1995. The business earns a servicing fee
equal to one percent of the outstanding principal balance of the
securitized loans. Servicing fee income increased to $4.6 million
in 1996 from $12.9 thousand in 1995. The level of fees in 1995
reflects the fact that loans were not securitized until late in
the year
Net Interest Income:
As a result of the increased loan volume in 1996, net interest
income before loan loss provision was up 234.6% to $5.6 million.
The loan loss provision also increased to $983.5 thousand from
$363.0 thousand. Net charge-offs for the home equity lending
business were $37.0 thousand in 1996 as compared to $2.1 thousand
in 1995.
<TABLE>
<CAPTION>
Operating Expenses
<S> <C> <C>
(In thousands, except for
number of employees) 1996 1995
- -----------------------------------------------------------------
Salaries and employee benefits $8,663 $3,995
Marketing and development 5,063 2,601
Other 4,176 1,149
- -----------------------------------------------------------------
Total operating expenses $17,902 $7,745
=================================================================
Number of employees at December 31, 159 107
- -----------------------------------------------------------------
</TABLE>
Balance Sheet:
The home equity lending business had $118.2 million of loans
outstanding at December 31, 1996. This compares to $36.4 million
at the end of 1995. The loan loss allowance also increased to
$589.4 thousand at December 31, 1996 from $146.6 thousand in
1995.
1997 Outlook:
XXXPAGE 153XXX
During 1997, the home equity lending business looks to develop
its business further and to increase its loan production volume.
The business plans to continue exploring new products, funding
alternatives, and markets where its skills in identifying
customers well served by direct marketing of products uniquely
tailored to their needs can be best applied.
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.
Employees:
As of December 31, 1996, the home equity business employed 159
people. Total employment expense in 1996 was $8.6 million or
48.4% of total operating expenses.
XXX PAGE 48
Irwin Home Equity Corporation
Directors and Senior Officers
Directors
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-Production
Edwin K. Corbin Vice President-Finance and Servicing
Kathryn J. Diamond Vice President-Credit Risk Management
J. Christopher Huseby Vice President-Marketing and Business
Development
Sunita Liggin Vice President-Human Resources
Jocelyn Martin-Leano Vice President-Operations Support
Jack Nichols Vice President-Information Services
Fern Prosnitz Vice President-Legal Counsel
XXX PAGE 49 XXX
Management's Discussion (continued)
Business Profile:
Equipment Leasing
Selected Financial Data
XXXPAGE 154XXX
<TABLE>
<C> <C> <C> <C> <C> <C>
(In thousands) 1996 1995 1994 1993 1992
- -----------------------------------------------------------------
Net interest income $3,622 $3,409 $4,339 $3,638 $2,349
Noninterest income 418 300 123 47 33
- -----------------------------------------------------------------
Total net revenues 4,040 3,709 4,462 3,685 2,382
Operating expenses 4,181 4,043 3,589 3,133 2,278
- -----------------------------------------------------------------
Pre-tax income (loss)$(141) $(334) $873 $552 $104
=================================================================
Lease
and loan volume $36,624 $24,951 $23,585 $22,922 $19,140
Net leases and loans
outstanding 53,632 45,765 42,989 37,401 27,738
Number of leases and
loans outstanding 9.186 7.766 7.209 6.438 5.032
Average new lease and
loan size $9.298 $9.027 $9.152 $8.663 $8.180
- -----------------------------------------------------------------
</TABLE>
XXX PAGE 50 XXX
Overview & Strategy:
The equipment leasing line of business is made up of Affiliated
Capital Corp. and the related activities of Irwin Union Bank.
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 strategy of the equipment leasing business is to establish
relationships with manufacturers and distributors of medical
equipment and to place leases with medical professionals through
the sales representatives of these vendors. This allows the
business to place leases nationwide despite the fact that all
employees are located in Northbrook. In response to changing
customer needs, in 1995 the business began entering into private-
label financing agreements with several equipment manufacturers
and began offering a revolving credit product to complement its
lease products.
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.
1996 Review:
Equipment leasing recorded a pre-tax loss of $140.8 thousand in
1996, compared with a pre-tax loss of $333.7 thousand in 1995 and
pre-tax income of $872.6 in 1994. As a result of the strategy
changes implemented in late 1995, lease and loan volume increased
to $36.6 million in 1996, up 46.8% from $25.0 million in 1995 and
55.3% from $23.6 million in 1994. However, because of increased
competition in the equipment leasing industry which created
margin pressures, net interest income did not increase
commensurately. Net interest income
XXXPAGE 155XXX
totaled $3.6 million in 1996,
an increase of $212.9 thousand or 6.2% from 1995 and a decrease
of $717.4 thousand or 16.5% from 1994. Operating expenses were
$4.2 million for the year, 3.4% higher than 1995 and 16.5% higher
than 1994.
XXX PAGE 51 XXX
1997 Outlook:
Competition in the small-ticket leasing industry is expected to
remain strong in 1997. The equipment leasing business will strive
to remain competitive with larger lessors using a strategy that
focuses on adding value through product differentiation to
targeted business partners. The challenge for the business is to
demonstrate that this strategy can achieve an attractive rate of
return on equity in the long run.
Employees:
As of December 31, 1996, equipment leasing employed 38 people.
Total employment
expense in 1996 was $2.0 million or 48.0% of total operating
expenses.
XXX PAGE 52 XXX
Affiliated Capital Corp.
Directors and Senior Officers
Directors
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
David M. Tustison Vice President-Strategic Planning
XXX PAGE 53 XXX
Management's Discussion (continued)
Other Irwin Financial Businesses
XXXPAGE 156XXX
During the third quarter of 1996, the Corporation exited the
brokered certificate of deposit and institutional brokerage
businesses which were the sole businesses operated by the
Investor Services line of business. A sale of selected assets of
the brokered certificate of deposit program was completed in the
third quarter, and its impact on earnings was not material.
Parent company results in each period include the results of
investor services.
The results of parent company operations combined with Investor
Services results and consolidating entries are summarized below:
<TABLE>
<C> <C> <C> <C>
(In thousands) 1996 1995 1994
- -----------------------------------------------------------------
Net revenues $15,494 $17,986 $7,536
Operating expenses (5,353) (4,068) (3,665)
Tax credit 903 2,275 238
- -----------------------------------------------------------------
11,044 16,193 4,109
Investor services (283) 177 (186)
Eliminations (12,052) (15,703) (5,358)
- -----------------------------------------------------------------
Net income (loss) $(1,291) $667 $(1,435)
- -----------------------------------------------------------------
</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 1996 totaled $37.3 million, up 14.9% from 1995
and 24.0%
from 1994. The effective income tax rate was 39.8% in 1996, 38.1%
in 1995, and 39.4% in 1994. Please see Note 16 of Notes to the
Consolidated Financial Statements for more information on income
taxes.
Net interest revenue for 1996 totaled $47.8 million, up 28.1%
from 1995 and 45.9% from 1994. The increase was due to a
combination of increased loan volume at the community bank and
home equity lending business and higher mortgage loan
originations at the mortgage bank. Net interest margin was 4.94%
in 1996, compared to 4.93% in 1995 and 5.03% in 1994. See page 70
for further analysis of the net interest margin.
XXX PAGE 54 XXX
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 a fully taxable equivalent basis:
XXXPAGE 157XXX
<TABLE>
1996 Over 1995 1995 Over 1994
- -----------------------------------------------------------------
(In thousands) Volume Rate Total Volume Rate Total
- -----------------------------------------------------------------
Interest Income:
<S> <C> <C> <C> <C> <C> <C>
Loans and leases $13,248 $778 $14,026 $8,550 $3,210 $11,760
Mortgage loans held
for sale 6,760 3,456 10,216 3,931 89 4,020
Taxable investment
securities 21 51 72 (993) 605 (388)
Tax-exempt
securities (171) (63) (234) (76) 82 6
Interest-bearing
deposits
with financial
institutions 28 78 106 (390) 203 (187)
Federal funds
sold (619) (127) (746) (310) 583 273
- -----------------------------------------------------------------
Total 19,267 4,173 23,440 10,712 4,772 15,484
- -----------------------------------------------------------------
Interest Expense:
Money market
checking 254 (233) 21 60 146 206
Money market
savings (88) (49) (137) (221) 108 (113)
Regular savings (23) (134) (157) (44) 458 414
Time deposits (268) 3,406 3,138 5,779 (537) 5,242
Short-term
borrowings 6,451 3,685 10,136 2,071 2,884 4,955
Long-term debt 78 (22) 56 10 221 231
- -----------------------------------------------------------------
Total 6,404 6,653 13,057 7,655 3,280 10,935
- -----------------------------------------------------------------
Net interest
revenue $12,863 $(2,480)$10,383 $3,057 $1,492 $4,549
- -----------------------------------------------------------------
</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.
XXX PAGE 55 XXX
The consolidated provision for loan losses for 1996 was $4.5
million, up 44.8% from 1995 and 157.7% from 1994. More
information on this subject is contained in the section on credit
risk.
Other income increased 34.6% in 1996 to $153.6 million. This
compares to $114.1 million in 1995 and $85.9 million in 1994. The
most significant increases came in the categories related to
mortgage banking and home equity lending activities which were
previously discussed on pages 32 and 46.
XXXPAGE 158XXX
Other expenses in 1996 totaled $159.7 million, up 37.8% from 1995
and 83.9% from 1994. The 1996 increase in consolidated other
expense of $43.8 million was mostly due to operating expenses
associated with expanded mortgage and home equity loan
production.
Consolidated Balance Sheet Analysis:
Total assets at year-end 1996 were $1.3 billion, up 25.6% from
1995 and 97.7%from 1994. 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 $1.2
billion in 1996, up 30.5% from 1995 and 53.7% from 1994. Mortgage
loans held for sale increased by $93.2 million, while loans and
leases increased by $127.5 million or 34.5% on average in 1996.
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:
<S> <C> <C> <C> <C> <C>
At December 31, (In thousands) 1996 1995 1994 1993 1992
- -----------------------------------------------------------------
Commercial, financial,
and agricultural $179,650 $150,312 $136,083 $121,024 $108,964
Real estate
construction 48,991 36,126 21,960 21,258 15,890
Real estate mortgage 210,697 108,351 47,423 30,805 25,177
Consumer 38,371 67,756 55,323 41,101 30,626
Direct lease financing 62,372 60,979 58,348 52,555 38,082
Unearned income (11,030) (10,999) (10,726) (10,627) (8,380)
- ----------------------------------------------------------------------------
Total $529,051 $412,525 $308,411 $256,116 $210,359
- ---------------------------------------------------------------------------
</TABLE>
XXX PAGE 56 XXX
<TABLE>
<CAPTION>
Maturity Distribution of Loans:
After
One But
At December 31, 1996 Within Within After
(In thousands) One Year Five Years Five Years Total
- -----------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial, financial, and
agricultural $33,843 $56,688 $89,119 $179,650
Real estate construction 48,991 0 0 48,991
Real estate mortgage 81,908 11,424 117,365 210,697
Consumer loans 6,325 29,161 2,885 38,371
Direct lease financing 0 62,372 0 62,372
--------
Total $540,081
========
XXXPAGE 159XXX
Loans due after one year with:
Fixed interest rates $207,135
Variable interest rates 161,879
- -----------------------------------------------------------------
Total $369,014
- -----------------------------------------------------------------
</TABLE>
On average, investment securities decreased $1.3 million in 1996
to $65.4 million. The carrying value of investments at December
31, 1996 includes $51.2 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>
<S> <C> <C> <C>
At December 31, (In thousands) 1996 1995 1994
- -----------------------------------------------------------------
Held-to-Maturity:
U.S. Treasury and Government
obligations $38,317 $26,914 $41,826
Obligations of states and political
subdivisions 4,466 6,490 7,549
Mortgage-backed securities 7,154 8,859 9,982
Corporate obligations 0 0 1,000
- -----------------------------------------------------------------
Total held-to-maturity 49,937 42,263 60,357
- -----------------------------------------------------------------
Available-for-Sale:
U.S. Treasury and Government
obligations 19,924 15,359 13,834
Mortgage-backed securities 3,237 3,247 3,166
Other 26 0 0
- -----------------------------------------------------------------
Total available-for-sale 23,187 18,606 17,000
- -----------------------------------------------------------------
Total investments $73,124 $60,869 $77,357
- -----------------------------------------------------------------
</TABLE>
XXX PAGE 57 XXX
<TABLE>
<CAPTION>
Maturity Distribution of Investment Securities:
After
After Five
One But But
Within Within Within After
One Five Ten Ten
At December 31, 1996 (In thousands) Year Years Years Years
- -----------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury and Government
obligations $12,808 $33,247 $0 $12,186
Obligations of states and political
subdivisions 481 1,437 1,173 1,375
Mortgage-backed securities 106 356 1,522 8,407
Other 26 0 0 -
- -----------------------------------------------------------------
XXXPAGE 160XXX
Total $13,421 $35,040 $2,695 $21,968
=================================================================
Weighted Average Yield:
Held-to-maturity 6.95% 6.50% 8.64% 7.39%
Available-for-sale 5.72% 6.30% 0% 6.25%
- -----------------------------------------------------------------
</TABLE>
The weighted average yield on state and municipal obligations has
been calculated on a fully taxable equivalent basis, assuming a
34.5% tax rate.
Deposits averaged $632.2 million during 1996, compared to $526.1
million in 1995 and $467.1 million in 1994. Demand deposits were
up 78.2% on average, or $104.7 million from 1995. 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 $179.0 million in 1996.
Maturities of certificates of deposit of $100 thousand or more
are set forth in the following table:
<TABLE>
At December 31, (In thousands) 1996 1995 1994
- -----------------------------------------------------------------
<S> <C> <C> <C>
Under 3 months $47,907 $27,131 $9,197
3 to 6 months 5,127 6,299 4,581
6 to 12 months 7,493 14,378 4,248
After 12 months 5,977 6,268 3,448
- -----------------------------------------------------------------
Total $66,504 $54,076 $21,474
- -----------------------------------------------------------------
</TABLE>
Short-term borrowings averaged $334.3 million in 1996, compared
to $217.3 million in 1995 and $167.8 million in 1994. The
increase in 1996 is due to the increase in mortgage loan closings
in 1996.
XXX PAGE 58 XXX
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>
Repurchase
Agreements
& Drafts Federal
Payable Home
Related to Loan Bank
Mortgage Borrowings Lines
Loan Commercial & Federal of
(In thousands) Closings Paper Funds Credit
- -------------------------------------------------------------------
<C> <C> <C> <C> <C> <C>
Year Ended 1996 $264,998 $17,175 $74,118 $105,592
December 31: 1995 225,873 21,723 40,000 22,683
1994 75,944 15,538 199 2,300
XXXPAGE 161XXX
Weighted average 1996 4.65% 5.95% 5.80% 6.68%
interest rates at 1995 4.32 6.32 6.02 7.35
year-end: 1994 4.59 5.65 5.75 8.50
Maximum amount 1996 $270,516 $27,214 $121,000 $135,442
outstanding at any 1995 271,694 21,723 52,448 38,596
month's end: 1994 159,650 19,996 26,000 5,600
Average amount 1996 $218,810 $23,794 $44,139 $47,561
outstanding during 1995 155,726 19,125 20,497 6,109
the year: 1994 146,799 17,372 3,140 507
Weighted average 1996 3.78% 6.02% 5.80% 6.80%
interest rate during 1995 4.12 6.41 6.03 8.06
the year: 1994 3.62 4.63 5.71 7.14
- -----------------------------------------------------------------
</TABLE>
Capital:
Shareholders' equity averaged $109.0 million in 1996, up 22.6%
from 1995 and 43.0% from 1994. Year-end shareholders' equity of
$118.9 million represented book value per share of $10.46,
compared to $8.76 and $7.21 at December 31, 1995 and 1994,
respectively.
Prior to the adoption of SFAS No. 122 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 standard, it represents substantial economic
XXX PAGE 59 XXX
value which is not recorded on the balance sheet. The following
table demonstrates the estimated after-tax value of the servicing
portfolio at December 31:
<TABLE>
(In thousands) 1996 1995 1994
- -----------------------------------------------------------------
<S> <C> <C> <C>
Total loans serviced $10,810,988 $10,301,914 $8,818,502
- -----------------------------------------------------------------
Value (@ 1.5%) $162,165 $154,529 $132,278
Less capitalized servicing 70,551 51,783 20,302
Tax liability (@ 40%) 36,646 41,098 44,791
- -----------------------------------------------------------------
Net value $54,968 $61,648 $67,185
=================================================================
Per share of common stock $4.84 $5.44 $5.97
- -----------------------------------------------------------------
</TABLE>
With the implementation of the new accounting standard in 1995,
this off-balance sheet value will decline over future years and
eventually be reduced to zero.
XXXPAGE 162XXX
Total book value per share including the value of the servicing
portfolio was $15.30 at December 31, 1996, up from $14.20 and
$13.18 at December 31, 1995 and 1994, respectively.
<TABLE>
<S> <C> <C> <C>
(In thousands) 1996 1995 1994
- -----------------------------------------------------------------
Tier 1 capital $117,416 $92,554 $80,966
Tier 2 capital 6,594 4,620 3,863
- -----------------------------------------------------------------
Total risk-based capital $124,010 $97,174 $84,829
=================================================================
Risk-weighted assets $871,460 $670,675 $442,315
=================================================================
Risk-based ratios:
Tier 1 capital 13.47% 13.80% 18.31%
Total capital 14.23 14.49 19.18
Tier 1 leverage ratio 9.84 10.57 10.82
Ending shareholders'
equity to assets 9.12 9.56 12.29
Average shareholders'
equity to assets 9.46 10.07 10.17
- -----------------------------------------------------------------
</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, the
Corporation con-siders both the regulator's viewpoint and its own
analysis of the capital structure and leverage amounts that are
consistent with underlying business risks.
At year-end 1996, the Corporation's total risk-adjusted capital
ratio was 14.23% compared to a current regulatory minimum of
8.0%. The Corporation's ending equity to assets ratio for 1996
was 9.12%. However, as previously
XXX PAGE 60 XXX
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
1996 was 9.46%.
In January 1997, the Corporation issued $50,000,000 of trust
preferred securities through a trust created and controlled by
the Corporation. The securities, which are publicly traded, 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 which the Corporation
can exercise at any point during the first 30 years. 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 securites for federal income
tax purposes. The securities are not corvertible into common
stock of the Corporation.
Stock Prices and Dividends:
XXXPAGE 163XXX
The common stock of Irwin Financial is quoted on the National
Association ofSecurities 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>
Total
Quarter Cash Dividends
1994 *High *Low *End*Dividends *For Year
- -----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
First quarter $123/4 $107/8 $113/8 $0.045
Second quarter 117/8 101/4 111/8 0.045
Third quarter 14 101/2 135/8 0.045
Fourth quarter 137/8 123/4 133/8 0.045 $0.18
1995
- -----------------------------------------------------------------
First quarter $157/8 $133/4 $151/2 $0.055
Second quarter 175/8 151/2 171/4 0.055
Third quarter 181/4 171/4 173/4 0.055
Fourth quarter 201/8 175/8 20 0.055 $0.22
1996
- -----------------------------------------------------------------
First quarter $223/4 $193/4 $221/8 $0.060
Second quarter 221/4 195/8 195/8 0.060
Third quarter 215/8 177/8 211/4 0.060
Fourth quarter 243/4 211/4 243/4 0.060 $0.24
- -----------------------------------------------------------------
</TABLE>
*Adjusted for December 30, 1996 two-for-one stock split.
XXX PAGE 61 XXX
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 19, 1997, the
Corporation's Board of Directors approved an increase in the
first quarter dividend to $0.07 per share, payable in March 1997.
Dividends by the Irwin Union Bank to the Corporation are
restricted by banking law. See Note 15 of Notes to the
Consolidated Financial Statements.
Risk Management:
As a financial intermediary, Irwin Financial 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
parent company participate in each subsidiary's risk management
process.
XXXPAGE 164XXX
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 and home equity lending business 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.
XXX PAGE 62 XXX
An allowance for 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.
Loans and leases that are determined by management to be
uncollectible are charged against the allowance. The table on
page 64 analyzes the consolidated allowance for possible loan and
lease losses over the past five years.
Net charge-offs in 1996 were $1.8 million, down 15.2% from 1995,
and
up 53.9% from 1994. Net charge-offs to average loans and leases
was 0.36%, compared to 0.57% in 1995 and 0.41% in 1994.
The provision for loan and lease losses was $4.5 million, 249.9%
of net charge-offs. The coverage ratio was 146.3% in 1995 and
149.3% in 1994.
At year end, the allowance for possible loan and lease losses was
1.25% of loans and leases, compared to 1.12% in 1995 and 1.25% in
1994.
Total nonperforming loans and leases at year end were $5.0
million, compared to $2.4 million at the end of 1995 and $2.8
million at the end of 1994. Nonperforming loans and leases as a
percent of total loans and leases were 0.94% at year-end 1996,
compared to 0.58% in 1995 and 0.90% in 1994. Other real estate
owned totaled $2.2 million at December 31, 1996, up from $0.3
million in 1995 and $0.5 in 1994. Total nonperforming assets were
$7.2 million, or 0.55% of total assets at December 31, 1996, as
compared to $2.7 million or 0.26% at year-end 1994 and $3.3
million or 0.50% at the end of 1994.
XXX PAGE 63 XXX
XXXPAGE 165XXX
<TABLE>
<CAPTION>
Analysis of Allowance for Loan and Lease Losses
<C> <C> <C> <C> <C> <C>
(In Thousands) 1996 1995 1994 1993 1992
- -----------------------------------------------------------------
Loans and leases outstanding at end of period, net of unearned
income $529,051 $412,525 $308,411 $256,116 $210,359
=================================================================
Average loans and leases for the period, net of unearned
income $496,729 $369,220 $279,389 $232,898 $195,161
=================================================================
</TABLE>
<TABLE>
<CAPTION>
Allowance for loan and lease losses:
Balance beginning of
<S> <C> <C> <C> <C> <C>
period $4,620 $3,863 $3,293 $3,220 $2,282
Charge-offs:
Commercial, financial, and
agricultural loans 495 845 266 1,074 626
Real estate mortgage
loans 37 2 0 0 0
Consumer loans 959 953 543 387 392
Lease financing 883 690 757 323 207
- -----------------------------------------------------------------
Total charge-offs 2,374 2,490 1,566 1,784 1,225
- -----------------------------------------------------------------
Recoveries:
Commercial, financial, and
agricultural loans 133 2 34 82 21
Consumer loans 214 197 180 94 204
Lease financing 246 191 195 104 28
- -----------------------------------------------------------------
Total recoveries 593 390 409 280 253
- -----------------------------------------------------------------
Net charge-offs (1,781) (2,100) (1,157) (1,504) (972)
Reduction due to
sale of loans (695) (216) 0 0 0
Provision charged to
expense 4,450 3,073 1,727 1,577 1,910
- -----------------------------------------------------------------
Balance end
of period $6,594 $4,620 $3,863 $3,293 $3,220
=================================================================
</TABLE>
Allowance for loan and lease losses:
<TABLE>
<CAPTION>
By category of loans and leases
Commercial, financial, and
agricultural
<S> <C> <C> <C> <C> <C>
loans $3,676 $2,349 $2,586 $2,031 $1,635
Consumer loans 1,974 1,420 767 650 1,122
Lease financing 944 851 510 612 463
- -----------------------------------------------------------------
Total $6,594 $4,620 $3,863 $3,293 $3,220
=================================================================
</TABLE>
XXXPAGE 166XXX
<TABLE>
<CAPTION>
Ratios:
Net charge-offs to average loans
<S> <C> <C> <C> <C> <C>
and leases 0.36% 0.57% 0.41% 0.65% 0.50%
Allowance for loan losses to average
loans and leases 1.33% 1.25% 1.38% 1.41% 1.65%
Allowance for loan losses to loans and
leases outstanding1.25% 1.12% 1.25% 1.29% 1.53%
- -----------------------------------------------------------------
</TABLE>
XXX PAGE 64 XXX
<TABLE>
<CAPTION>
Nonperforming Assets
<C> <C> <C> <C> <C> <C>
(In thousands) 1996 1995 1994 1993 1992
- -----------------------------------------------------------------
Accruing loans past due 90 days or more:
Commercial, financial, and
agricultural loans $256 $418 $113 $800 $7
Real estate mortgages 234 0 0 141 12
Consumer loans 205 202 93 88 121
- -----------------------------------------------------------------
695 620 206 1,029 140
- -----------------------------------------------------------------
Nonaccrual loans and leases:
Commercial, financial, and
agricultural
loans 2,739 670 1,523 1,373 1,500
Real estate mortgages 260 694 689 848 1,540
Consumer loans 0 0 0 39 55
Lease financing
receivables 1,261 415 363 242 299
- -----------------------------------------------------------------
4,260 1,779 2,575 2,502 3,394
- -----------------------------------------------------------------
Total nonperforming loans and
leases 4,955 2,399 2,781 3,531 3,534
- -----------------------------------------------------------------
Other real estate owned2,239 295 489 623 1,085
- -----------------------------------------------------------------
Total nonperforming
assets $7,194 $2,694 $3,270 $4,154 $4,619
=================================================================
Nonperforming loans and leases to total
loans and leases 0.94% 0.58% 0.90% 1.38% 1.68%
=================================================================
Nonperforming assets to total
assets 0.55% 0.26% 0.50% 0.47% 0.77%
- -----------------------------------------------------------------
</TABLE>
XXXPAGE 167XXX
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.
XXX PAGE 65 XXX
<TABLE>
<CAPTION>
Renegotiated and Nonaccrual Loans
<S> <C> <C> <C>
(In thousands) 1996 1995 1994
- -----------------------------------------------------------------
Interest which would have been recorded under original terms
Renegotiated $0 $0 $0
Nonaccrual 309 178 232
- -----------------------------------------------------------------
309 178 232
- -----------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Interest income actually recorded
<S> <C> <C> <C>
Renegotiated 0 0 0
Nonaccrual 150 55 110
- -----------------------------------------------------------------
150 55 110
- -----------------------------------------------------------------
Reduction in interest income $159 $123 $122
- -----------------------------------------------------------------
</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, 1996 and related payment information is as follows:
<TABLE>
<CAPTION>
Analysis of Nonaccrual Loans
Contractual Cash interest payments
Book balance balance applied as:
December 31,December 31, interest reduction
(In thousands) 1996 1996 income of principal
- -----------------------------------------------------------------
<S> <C> <C> <C> <C>
Contractually past due with:
substantial performance $168 $168 $9 $5
limited performance 2,463 2,849 104 562
no performance 963 1,267 0 0
Contractually current, however:
payment in full of principal or
interest in doubt 666 666 37 19
- -----------------------------------------------------------------
Total $4,260 $4,950 $150 $586
- -----------------------------------------------------------------
</TABLE>
XXXPAGE 168XXX
XXX PAGE 66 XXX
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 Irwin Union 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 1996, this ratio stood at 81.6%. 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 Irwin Union 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
portfolio under multiple rate scenarios. Formal policies approved
by the 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
risk 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.
XXX PAGE 67 XXX
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
XXXPAGE 169XXX
bank buys commitments
to deliver loans at a fixed price to manage risk. The policy at
both the home equity lending business and the equipment leasing
business is to match-fund all assets. In some cases, the
Corporation uses internal hedges to allow for the risk
characteristics of one line of business to offset those of
another.
As the following table shows, the consolidated one-year gap at
year-end 1996 was a positive $133.2 million. This compares to a
positive gap of $153.6 million at year-end 1995. The large
positive gaps have been due to levels of 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.
XXX PAGE 68 XXX
<TABLE>
Within 3 Months After
Interest Sensitivity:(In thousands) 3 Months to 1 Year 1 Year
- -----------------------------------------------------------------
<S> <C> <C> <C>
Interest-earning assets:
Interest-bearing deposits with banks $2,049 $3,294 $6,000
Taxable investment securities 16,679 15,133 36,846
Tax-exempt investment securities 95 386 3,985
Mortgages held for sale 445,100 0 0
Loans, net of unearned discount 300,393 86,581 142,077
- -----------------------------------------------------------------
Total interest-earning assets 764,316 105,394 188,908
- -----------------------------------------------------------------
Interest-bearing liabilities:
Money market checking 17,122 0 57,993
Money market savings 2,867 0 8,798
Regular savings 45,051 2,094 19,801
Time deposits 148,372 53,101 45,606
Short-term borrowings 456,683 5,200 0
Long-term debt 1,844 4,181 11,618
- -----------------------------------------------------------------
XXXPAGE 170XXX
Total interest-bearing liabilities 671,939 64,576 143,816
- -----------------------------------------------------------------
Interest sensitivity gap $92,377 $40,818 $ 45,092
=================================================================
Cumulative gap $92,377 $133,195 $178,287
- -----------------------------------------------------------------
</TABLE>
Effects of Inflation:
The Corporation is affected by inflation primarily as it impacts
interest rates. 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.
XXX PAGE 69 XXX
<TABLE>
<CAPTION>
Daily Average Consolidated Balance Sheet,
Interest Rates and Interest Differential
For the year ended December 31, 1996
- -----------------------------------------------------------------
Average Yield/
(In thousands) Balance Interest Rate
- -----------------------------------------------------------------
Assets:
Interest-earning assets:
<S> <C> <C> <C>
Interest-bearing deposits with banks $10,282 $603 5.87%
Federal funds sold 24,370 1,290 5.29
Taxable investment securities 60,080 4,076 6.78
Tax-exempt investment securities (1) 5,348 504 9.43
Mortgage loans held for sale 379,027 30,943 8.16
Loans and leases, net of
unearned income (2) 496,729 52,391 10.55
- -----------------------------------------------------------------
Total interest-earning assets 975,836 89,807 9.20
- -----------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Noninterest-earning assets:
<S> <C>
Cash and due from banks 38,309
Premises and equipment, net 17,425
Other assets 125,689
Less allowance for possible loan
and lease losses (5,724)
- ------------------------------------------------------
Total assets $1,151,535
==========
</TABLE>
<TABLE>
Liabilities and Shareholders'
Equity:
<CAPTION>
Interest-bearing liabilities:
XXXPAGE 171XXX
<S> <C> <C> <C>
Money market checking $79,704 1,571 1.97%
Money market savings 12,455 328 2.63
Regular savings 52,657 1,861 3.53
Time deposits 248,694 13,972 5.62
Short-term borrowings 334,304 22,115 6.62
Long-term debt 21,840 1,778 8.14
- -----------------------------------------------------------------
Total interest-bearing liabilities 749,654 41,625 5.55
- -----------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Noninterest-bearing liabilities:
<S> <C> <C> <C>
Demand deposits 238,673
Other liabilities 54,238
Shareholders' equity 108,970
- ------------------------------------------------------
Total liabilities and shareholders'
equity $1,151,535
==========
Net interest income $48,182
=======
Net interest income to average interest-earning
assets 4.94%
- -----------------------------------------------------------------
</TABLE>
Notes:
(1) Interest is reported on a fully taxable equivalent basis. The
prevailing federal income tax rate was 34.5% in 1996, 34% in 1995
and 35% in 1994.
(2) For purposes of these computations, nonaccrual loans are
included in daily average loan amounts outstanding.
XXX PAGE 70 XXX
<TABLE>
For the year ended December 31, 1995
- -----------------------------------------------------------------
Average Yield/
(In thousands) Balance Interest Rate
- -----------------------------------------------------------------
Assets:
Interest-earning assets:
<S> <C> <C> <C>
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 38,364 10.39
- -----------------------------------------------------------------
Total interest-earning assets 766,497 66,366 8.66
</TABLE> =====
<TABLE>
<CAPTION>
Noninterest-earning assets:
<S> <C>
Cash and due from banks 36,263
Premises and equipment, net 15,011
XXXPAGE 172XXX
Other assets 68,677
Less allowance for possible loan
and lease losses (4,284)
- -------------------------------------------------------
Total assets $882,164
========
</TABLE>
<TABLE>
<CAPTION>
Liabilities and Shareholders'
Equity:
Interest-bearing liabilities:
<S> <C> <C> <C>
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
====
</TABLE>
<TABLE>
<CAPTION>
Noninterest-bearing liabilities:
<S> <C> <C> <C>
Demand deposits 133,936
Other liabilities 29,050
Shareholders' equity 88,867
- -----------------------------------------------------------------
Total liabilities and shareholders'
equity $882,164
========
Net interest income $37,798
========
Net interest income to average interest-earning
assets 4.93%%
- -----------------------------------------------------------------
</TABLE>
<TABLE>
For the year ended December 31, 1994
- -----------------------------------------------------------------
Average Yield/
(In thousands) Balance Interest Rate
- -----------------------------------------------------------------
Assets:
Interest-earning assets:
<S> <C> <C> <C>
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 26,604 9.52
- -----------------------------------------------------------------
Total interest-earning assets 660,845 50,882 7.70
====
</TABLE>
<TABLE>
Noninterest-earning assets:
<S> <C>
Cash and due from banks 32,449
Premises and equipment, net 13,485
XXXPAGE 173XXX
Other assets 45,746
Less allowance for possible loan
and lease losses (3,543)
- ------------------------------------------------------
Total assets $748,982
========
</TABLE>
<TABLE>
<CAPTION>
Liabilities and Shareholders'
Equity:
Interest-bearing liabilities:
<S> <C> <C> <C>
Money market checking $65,583 1,347 2.05%
Money market savings 24,864 578 2.32
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 $33,249
=======
Net interest income to average interest-earning
assets 5.03%
====
</TABLE>
Notes:
(1) Interest is reported on a fully taxable equivalent basis. The
prevailing federal income tax rate was 34.5% in 1996, 34% in 1995
and 35% in 1994.
(2) For purposes of these computations, nonaccrual loans are
included in daily average loan amounts outstanding.
XXX PAGE 71 XXX
<TABLE>
<CAPTION>
Summary of Quarterly Financial Information
1996
----
Fourth Third Second First
Summary Income Information Quarter Quarter Quarter Quarter
- -----------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income $24,566,540 $23,062,016 $22,003,722 $19,815,562
Interest expense 12,230,121 10,591,010 9,885,847 8,918,120
Provision for loan and
lease losses 1,676,000 989,000 841,000 944,000
Noninterest income 42,833,063 38,175,986 38,338,420 34,300,235
Noninterest expense 42,340,666 40,483,443 41,092,558 35,816,441
Income taxes 4,243,000 3,672,000 3,495,000 3,449,000
- ---------------------------------------------------------------------------
XXXPAGE 174XXX
Net income $6,909,816 $5,502,549 $5,027,737 $4,988,236
===========================================================================
Net income per
common share* $0.59 $0.48 $0.44 $0.44
- ---------------------------------------------------------------------------
</TABLE>
<TABLE>
1995
----
Fourth Third Second First
Summary Income Information Quarter Quarter Quarter Quarter
- -----------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income $20,631,271 $17,990,434 $14,713,938 $12,552,550
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 33,761,560 30,861,480 24,774,257 24,719,809
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* $0.46 $0.53 $0.37 $0.39
- ---------------------------------------------------------------------------
</TABLE>
<TABLE>
1994
----
Fourth Third Second First
Summary Income Information Quarter Quarter Quarter Quarter
- -----------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income $12,633,617 $13,019,201 $12,421,802 $12,340,312
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 20,721,089 20,539,407 22,138,704 22,453,283
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* $0.47 $0.38 $0.35 $0.36
- -------------------------------------------------------------------------
</TABLE>
*restated for the two-for one-stock split December 30,1996
XXX PAGE 72 XXX
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
XXXPAGE 175XXX
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
XXX PAGE 75 XXX
Report of Coopers & Lybrand L.L.P. Independent Accountants
XXXPAGE 176XXX
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,
1996 and 1995, 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, 1996. 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, 1996 and 1995, and the
consolidated results of their operations and their cash flows for
each of the three years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles.
As described in Note 1, the Corporation adopted Statement of
Financial Accounting Standards No. 122, Accounting for Mortgage
Servicing Rights, as of April 1, 1995.
Indianapolis, Indiana
January 17, 1997
XXX PAGE 76 XXX
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME
For the year ended December 31, 1996 1995 1994
- -----------------------------------------------------------------
Interest income:
<S> <C> <C> <C>
Loans and leases $52,202,866 $38,176,878 $26,386,067
Investment securities:
Taxable 4,678,752 4,501,359 5,075,361
Tax-exempt 332,866 447,353 483,018
Loans held for sale 30,943,144 20,726,833 16,706,854
Federal funds sold 1,290,212 2,035,770 1,763,632
- ------------------------------------------------------------------------
Total interest income 89,447,840 65,888,193 50,414,932
- -------------------------------------------------------------------------
XXXPAGE 177XXX
Interest expense:
Deposits 17,732,481 14,868,026 9,117,721
Short-term borrowings 22,115,307 11,978,591 7,223,035
Long-term debt 1,777,521 1,721,670 1,291,790
- ------------------------------------------------------------------------
Total interest expense 41,625,309 28,568,287 17,632,546
- ------------------------------------------------------------------------
Net interest income 47,822,531 37,319,906 32,782,386
Provision for loan and lease losses -
Note 5 4,450,000 3,073,000 1,727,000
- ------------------------------------------------------------------------
Net interest income after
provision for possible
loan and lease losses 43,372,531 34,246,906 31,055,386
- ------------------------------------------------------------------------
Loan origination income 43,779,433 32,133,179 25,544,575
Loan servicing fees 49,753,163 36,155,560 32,426,480
Gain on sale of loans 34,247,800 21,005,875 2,219,132
Gain on sale of mortgage servicing 16,378,230 15,271,081 17,715,696
Brokerage fees and commissions 2,010,318 2,792,436 2,148,946
Trust fees 1,995,153 2,009,864 1,902,620
Service charges on deposit accounts 1,444,669 1,238,731 1,258,818
Insurance commissions, fees and
premiums 1,544,053 1,304,625 1,076,258
Other 2,494,885 2,205,755 1,559,958
- ------------------------------------------------------------------------
153,647,704 114,117,106 85,852,483
- ------------------------------------------------------------------------
Other expense:
Salaries 79,435,165 61,082,725 47,839,918
Pension and other employee benefits 12,651,154 10,638,338 8,205,547
Amortization of mortgage
servicing rights 13,344,821 4,865,340 1,943,146
Premises and equipment 13,902,901 12,307,288 8,838,121
Office expense 10,387,037 7,859,511 5,891,352
Marketing and development 9,965,604 6,845,335 3,311,775
Other 20,046,215 12,316,273 10,814,471
- ------------------------------------------------------------------------
159,732,897 115,914,810 86,844,330
- ------------------------------------------------------------------------
Income before income taxes 37,287,338 32,449,202 30,063,539
Federal income taxes 11,730,000 9,872,000 9,524,000
State income taxes 3,129,000 2,494,000 2,324,000
- ------------------------------------------------------------------------
Net income $22,428,338 $20,083,202 $18,215,539
========================================================================
Net income per share of common stock:
Net income - Note 1 $1.93 $1.75 $1.55
========================================================================
Dividends per share of common stock $0.24 $0.22 $0.18
========================================================================
Weighted average shares of common stock
outstanding 11,609,656 11,486,258 11,766,212
========================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
XXXPAGE 178XXX
XXX PAGE 77 XXX
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET
December 31, 1996 1995
- -----------------------------------------------------------------
Assets:
<S> <C> <C>
Cash and due from banks $71,365,788 $49,256,953
Federal funds sold 0 15,000,000
- -----------------------------------------------------------------
Cash and cash equivalents 71,365,788 64,256,953
Interest-bearing deposits with
financial institutions 11,343,546 7,937,740
Investment securities - Note 3 73,124,455 60,869,413
Mortgage loans held for sale
- - Note 9 445,100,504 378,658,247
Loans and leases, net of unearned
income - Note 4 529,050,970 412,524,601
Less: Allowance for loan and
lease losses - Note 5 (6,593,836) (4,620,167)
- -----------------------------------------------------------------
522,457,134 407,904,434
Mortgage servicing rights - Note 6 67,450,101 48,535,326
Accounts receivable 41,712,662 19,888,880
Accrued interest receivable 6,724,973 4,239,435
Premises and equipment - Note 7 18,687,620 16,377,889
Other assets 45,919,328 29,638,258
- -----------------------------------------------------------------
$1,303,886,111 $1,038,306,575
=================================================================
Liabilities and
Shareholders' Equity:
Deposits
Noninterest-bearing $239,347,589 $207,379,192
Interest-bearing 334,301,111 302,543,544
Certificates of deposit
over $100,000 66,504,205 54,075,911
- -----------------------------------------------------------------
640,152,905 563,998,647
Short-term borrowings - Note 9 461,882,725 310,278,659
Long-term debt - Note 10 17,642,526 21,574,792
Other liabilities 65,305,875 43,237,996
- -----------------------------------------------------------------
Total liabilities 1,184,984,031 939,090,094
- -----------------------------------------------------------------
Shareholders' equity
Preferred stock, no par value -
authorized 50,000 shares; none issued 0 0
Common stock; no par value -
authorized 40,000,000 shares; issued
11,701,040 shares in 1996 and 1995; including
XXXPAGE 179XXX
332,268 and 371,208 shares in treasury in
1996 and 1995, respectively 29,965,287 29,965,287
Additional paid-in capital 0 0
Net unrealized gain (loss) on investment securities
net of deferred income taxes of $20,463 in 1996
and $6,435 in 1995. 56,523 (9,657)
Retained earnings 94,083,540 74,647,711
- -----------------------------------------------------------------
124,105,350 104,603,341
Less treasury stock, at cost (5,203,270) (5,386,860)
- -----------------------------------------------------------------
Total shareholders' equity 118,902,080 99,216,481
- -----------------------------------------------------------------
$1,303,886,111 $1,038,306,575
=================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
XXX PAGE 78 XXX
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDER'S EQUITY
Net Unrealized
Additional Gain (Loss)
Common Paid-In on Investment Retained Treasury
Stock Capital Securities Earnings Stock
- -------------------------------------------------------------------------
Balance at
<S> <C> <C> <C> <C> <C>
January 1, 1994 $29,050,125 $6,163 87,293 40,949,286 $0
Common stock issued for employee stock
purchase plan 893,496 0 0 0 0
Conversion of common stock for no par
value 21,666 (21,666)
Net income 0 0 0 18,215,539 0
Cash dividends - $.0.18
per share* 0 0 0 (2,073,733) 0
Unrealized losses on investment
securities 0 0 (366,356) 0 0
Purchase of 490,950 shares of
treasury stock* 0 0 0 0 6,207,150
Sale of 49,486 shares of
treasury stock* 0 15,503 0 (10,556) (544,336)
- -------------------------------------------------------------------------
Balance at
December 31, 1994 29,965,287 0 (279,063) 57,080,536 5,662,814
- ---------------------------------------------------------------------------
Net income 0 0 0 20,083,202 0
Cash dividends - $0.22
per share* 0 0 0 (2,482,705) 0
Unrealized gains on investment
securities 0 0 269,406 0 0
Tax benefit on exercise of
stock options 704,394
Purchase of 177,570 shares of
XXXPAGE 180XXX
treasury stock* 0 0 0 0 2,887,611
Sale of 247,826 shares of
treasury stock* 0 (704,394) 0 (33,322) (3,163,565)
- -----------------------------------------------------------------
Balance at
December 31,
1995 $29,965,287 $- $(9,657) $74,647,711 $5,386,860
- --------------------------------------------------------------------------
Net income 0 0 0 22,428,338 0
Cash dividends - $0.24
per share* 0 0 0 (2,725,921) 0
Unrealized gains on investment
securites 0 0 66,180 0 0
Tax benefit on exercise of
stock options 516,431
Purchase of 89,428 shares of
treasury stock* 0 0 0 0 1,930,831
Sale of 128,368 shares of
treasury stock* 0 (516,431) 0 (266,588) (2,114,421)
- ---------------------------------------------------------------------------
Balance at
December 31,
1996 $29,965,287 $0 $56,523 $94,083,540 $5,203,270
==========================================================================
</TABLE>
*Adjusted for the two-for-one stock split on December 30,1996.
The accompanying notes are an integral part of the consolidated
financial statements.
XXX PAGE 79 XXX
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended December 31,1996 1995 1994
- -----------------------------------------------------------------
Adjustment to reconcile net income to cash provided (used)by
operating
activities:
<S> <C> <C> <C>
Net Income $22,428,338 $20,083,202 $18,215,539
Depreciation and
amortization 20,367,079 9,605,234 4,075,249
Provision for loan and
lease losses 4,449,789 3,073,000 1,727,000
Amortization of premiums, less
accretion of discounts 1,588,570 574,956 (659,363)
Mortgage loan
originations (5,085,625,446) (3,559,310,152) (2,812,961,911)
Sale of mortgage
loans 5,019,183,189 3,335,616,389 3,028,752,763
Gain on sale of mortgage
servicing (16,378,230) (15,271,081) (17,715,696)
Other, net (22,137,641) (5,781,443) 1,088,287
- -------------------------------------------------------------------
Net cash provided (used) by
operating activities (56,124,352) (211,409,895) 222,521,868
</TABLE>
Lending and investing activities:
<TABLE>
Proceeds from maturities/calls of
XXXPAGE 181XXX
investment securities:
<S> <C> <C> <C>
Held-to-maturity 5,045,000 53,491,466 47,502,478
Available-for-sale 29,740,946 9,507,979 46,139,448
Proceeds from sales of
investment securities:
Available-for-sale 2,028,462 3,008,031 2,029,289
Purchase of investment
securities:
Held-to-maturity (14,286,470) (35,814,475) (68,407,912)
Available-for-sale (36,371,550) (14,280,795) (8,610,870)
Net (increase) decrease
in interest-bearing
deposits
with financial
institutions (3,405,806) 4,226,466 22,915,401
Net increase in loans,
excluding sales (258,412,078) (158,013,297) (53,452,273)
Sale of loans 139,409,589 51,583,722 -
Additions to mortgage
servicing rights (81,044,704) (49,486,423) (22,103,888)
Proceeds from sale of
mortgage
servicing rights 65,163,338 30,190,930 30,547,293
Other, net (5,650,679) (5,270,777) (3,490,108)
- -----------------------------------------------------------------
Net cash used by lending
and investing
activities (157,783,952) (110,857,173) (6,931,142)
Financing activities:
Net increase (decrease)
in deposits 76,154,258 124,080,673 (60,452,108)
Net increase (decrease) in
short-term borrowings 151,604,066 216,297,587 (179,819,319)
Repayment of long-term
debt (12,771,802) (7,747,676) (5,102,780)
Proceeds from long-term
debt 8,839,536 5,293,058 11,351,485
Purchase of treasury
stock (1,930,831) (2,887,611) (6,207,150)
Proceeds from sale of
stock for employee
benefit plans 1,847,833 3,130,243 1,442,779
Dividends paid (2,725,921) (2,482,705) (2,073,733)
- -----------------------------------------------------------------
Net cash provided (used) by
financing activities 221,017,139 335,683,569 (240,860,826)
- -----------------------------------------------------------------
Net increase (decrease)
in cash and
cash equivalents 7,108,835 13,416,501 (25,270,100)
Cash and cash equivalents
at beginning
of year 64,256,953 50,840,452 76,110,552
- -----------------------------------------------------------------
Cash and cash
equivalents at
end of year $71,365,788 $64,256,953 $50,840,452
=================================================================
Cash paid during the year:
Interest $41,248,019 $27,551,606 $17,457,343
=================================================================
Income taxes $6,230,350 $3,829,990 $11,569,195
=================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
XXXPAGE 182XXX
XXX PAGE 80 XXX
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, 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 1994 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 a portion of the cost of originating a
mortgage loan to 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.
XXXPAGE 183XXX
In determining servicing value impairment at the end of the year,
the post-implementation servicing portfolio is 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
XXX PAGE 83 XXX
portfolio were valued using market prices under comparable
servicing sale 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 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 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 Loan and Lease Losses: The allowance for loan and
lease losses is maintained at a level considered adequate to
provide for future loan and lease losses and is based on
management's evaluation of expected losses in the portfolios, as
well as prevailing and anticipated economic conditions. In 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.
XXX PAGE 84 XXX
XXXPAGE 184XXX
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 December
30, 1996.
Income Taxes: A consolidated tax return is filed for all eligible
entities. Income taxes are deferred for temporary differences
between pre-tax accounting income and taxable income.
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.
Transfers of Assets: The FASB issued Statement of Financial
Accounting Standards No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of
Liabilities'' (SFAS No. 125) in June 1996. This statement
establishes the accounting treatment to be used for the
securitization of all financial assets beginning in 1997. Under
this standard, the net carrying values of assets sold and
retained are allocated based on their relative fair values. The
Corporation does not expect the adoption of this standard to have
a material effect on its financial position or results of
operations in 1997.
Postretirement Benefits: The Corporation provides health
insurance benefits to its retirees and accrues the costs as
incurred.
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 1995 and 1994
consolidated financial statements have been reclassified to
conform to the 1996 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, 1996 was
approximately $8,276,000.
XXX PAGE 85 XXX
Note 3: Investment Securities
The amortized cost, fair value, and carrying value of investments
held at December 31, 1996 are as follows:
<TABLE>
Gross Gross
Amortized Unrealized Unrealized Fair Carrying
December 31, 1996 Cost Gains Losses Value Value
- --------------------------------------------------------------------------
XXXPAGE 185XXX
Held-to-Maturity:
U.S. Treasury and
Government
<S> <C> <C> <C> <C> <C>
obligations $38,317,039 $249,615 $(47,039) $38,519,615 $38,317,039
Obligations
of states and
political
subdivisions 4,466,043 299,937 (1,106) 4,764,874 4,466,043
Mortgage-backed
securities 7,153,865 193,341 0 7,347,206 7,153,865
- ------------------------------------------------------------------------------
Total held-
to-maturity 49,936,947 742,893 (48,145) 50,631,695 49,936,947
- ------------------------------------------------------------------------------
Available-for-Sale:
U.S. Treasury
and Government
obligations 19,886,179 64,280 (26,412) 19,924,047 19,924,047
Mortgage-backed
securities 3,224,342 15,418 (2,127) 3,237,633 3,237,633
Other 25,828 0 0 25,828 25,828
- ------------------------------------------------------------------------------
Total available-
for-sale 23,136,349 79,698 (28,539) 23,187,508 23,187,508
- ------------------------------------------------------------------------------
Total investments $73,073,296 $822,591 $(76,684) $73,819,203 $73,124,455
==============================================================================
</TABLE>
The amortized cost, fair value, and carrying value of investments
held at December 31, 1995 are as follows:
<TABLE>
Gross Gross
Amortized Unrealized Unrealized Fair Carrying
December 31, 1995 Cost Gains Losses Value Value
- -----------------------------------------------------------------------------
Held-to-Maturity:
U.S. Treasury and Government
<S> <C> <C> <C> <C> <C>
obligations $26,914,375 $479,575 $0 $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 0 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>
XXX PAGE 86 XXX
XXXPAGE 186XXX
The amortized cost and fair value of debt securities at December
31, 1996, 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>
Amortized Fair
Cost Value
- -----------------------------------------------------------------
Held-to-Maturity:
<S> <C> <C>
Due in one year or less $6,432,813 $6,500,066
Due after one year through
five years 21,616,745 21,797,458
Due after five years through
ten years 1,172,925 1,248,569
Due after ten years 1,375,000 1,552,796
- -----------------------------------------------------------------
30,597,483 31,098,889
Mortgage-backed securities 7,153,864 7,347,206
Federal Home Loan Bank stock 12,185,600 12,185,600
- -----------------------------------------------------------------
49,936,947 50,631,695
- -----------------------------------------------------------------
Available-for-Sale:
Due in one year or less 6,879,522 6,881,750
Due after one year through
five years 13,032,485 13,068,125
- -----------------------------------------------------------------
19,912,007 19,949,875
Mortgage-backed securities 3,224,342 3,237,633
- -----------------------------------------------------------------
23,136,349 23,187,508
- -----------------------------------------------------------------
Total investments $73,073,296 $73,819,203
=================================================================
</TABLE>
Investment securities amounting to $20,533,106 were pledged as
collateral for borrowings and for other purposes on December 31,
1996. During 1996, sales of "available-for-sale" investments with
proceeds of $2,028,462 resulted in a gross loss of $8,899. "Held-
to-maturity" investments totaling $1,499,o00 were called at their
par value. In 1995, sales of "available-for-sale" investments
with proceeds of $3,008,031 resulted in a gross loss of $15,786.
Additionally in 1995, "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. Proceeds from calls of ''held-
to-maturity" investments were $2,721,183, resulting in a gross
gain of $5,000. Sales of "held-to-maturity" investments in 1996,
1995, and 1994 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.
XXX PAGE 87 XXX
Note 4: Loans and Leases
XXXPAGE 187XXX
<TABLE>
<CAPTION>
Loans and leases are summarized as follows:
December 31, 1996 1995
- -----------------------------------------------------------------
Commercial, financial,
<S> <C> <C>
and agricultural $179,650,053 $150,311,871
Real estate-construction 48,990,519 36,125,577
Real estate-mortgage 210,697,305 108,350,683
Consumer 38,371,100 67,755,702
Direct financing leases 62,371,808 60,979,310
Unearned income (11,029,815) (10,998,542)
- -----------------------------------------------------------------
Total $529,050,970 $412,524,601
=================================================================
=============
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. Real estate loans and direct
financing leases are extended throughout the United States.
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
$4,277,000 and $4,145,000 at December 31, 1996 and 1995,
respectively. During 1996, $5,315,000 of new loans were made and
repayments totaled $5,110,000.
The Corporation leases small-ticket medical and other equipment
under direct financing leases generally with terms from one to
five years. At December 31, 1996, information pertaining to the
Corporation's investment in direct financing leases is as
follows:
</TABLE>
<TABLE>
<S> <C>
Future minimum lease payments receivable $55,449,691
Estimated unguaranteed residual value of leased assets 6,922,117
- -----------------------------------------------------------------
Investment in direct financing leases 62,371,808
Unearned income (11,029,815)
- -----------------------------------------------------------------
Net investment in direct financing leases $51,341,993
=================================================================
</TABLE>
Future minimum lease payments receivable during the next five
years are as follows:
<TABLE>
<C> <C>
1997 $25,525,630
1998 15,350,802
1999 8,877,463
2000 4,186,174
2001 1,509,622
- --------------------------------------------
Total $55,449,691
============================================
</TABLE>
XXXPAGE 188XXX
XXX PAGE 88
Note 5: Allowance for Possible Loan and Lease Losses
Changes in the allowance for possible loan and lease losses are
summarized below:
<TABLE>
December 31, 1996 1995 1994
- -----------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year $4,620,167 $3,863,223 $3,293,402
Provision for possible loan and
lease losses $4,450,000 3,073,000 1,727,000
Reduction due to sale of loans (696,195) (215,833) 0
Recoveries 593,421 389,674 408,821
Charge-offs (2,373,557) (2,489,897) (1,566,000)
- -------------------------------------------------------------------
Balance at end of year $6,593,836 $4,620,167 $3,863,223
===================================================================
</TABLE>
At December 31, 1996 and 1995, the recorded investment in loans
for which impairment has been recognized in accordance with SFAS
No. 114 and SFAS No. 118 totaled $4,334,968 and $6,543,932,
respectively. These loans had a corresponding valuation allowance
of $1,167,184, and $742,901, determined based on the fair value
of the loans' collateral. The Corporation recognized $356,917 and
$260,886 of interest income on these loans in 1996 and 1995,
respectively.
Note 6: Mortgage Servicing Rights
Included on the consolidated balance sheet at December 31, 1996
and 1995 are
$67,450,101 and $48,535,326, respectively, of capitalized
mortgage servicing rights. These amounts relate to the principal
balances of mortgage loans serviced by the Corporation for
investors which total $10,810,987,768 and $10,301,914,063 at
December 31, 1996 and 1995, 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. Changes in the
allowance are summarized below:
<TABLE>
December 31, 1996 1995
- --------------------------------------------------------------------------
<S> <C> <C>
Balance at beginning of year $908,778 0
Valuation changes during the period (254,427) 908,778
Reductions due to sales of servicing (654,351) 0
- --------------------------------------------------------------------------
Balance at end of year 0 $908,778
==========================================================================
</TABLE>
Note 7: Premises and Equipment
Premises and equipment are summarized as follows:
XXXPAGE 189XXX
<TABLE>
December 31, 1996 1995
- -----------------------------------------------------------------
<S> <C> <C>
Land $1,221,918 $1,221,918
Building and leasehold
improvements 10,824,250 9,846,001
Furniture and equipment 24,524,817 20,315,099
- -----------------------------------------------------------------
36,570,985 31,383,018
Less accumulated depreciation (17,883,365) (15,005,129)
- -----------------------------------------------------------------
Total $18,687,620 $16,377,889
=================================================================
</TABLE>
XXX PAGE 89 XXX
Note 8: Lease Obligations
At December 31, 1996, the Corporation and its subsidiaries leased
certain branch locations and office equipment used in its
operations.
Operating lease rental expense was $8,699,930 in 1996, $7,754,388
in 1995, and $5,075,119 in 1994.
The future minimum rental payments required under noncancellable
operating leases with initial or remaining terms of one year or
more are summarized as follows:
<TABLE>
Year ended December 31:
<C> <C>
1997 $4,888,026
1998 2,698,033
1999 1,678,581
2000 1,191,363
2001 1,135,006
Thereafter 646,759
- ---------------------------------------------
</TABLE>
Total minimum rental payments $12,237,768
=============================================
Note 9: Short-Term Borrowings
Short-term borrowings are summarized as follows:
<TABLE>
December 31, 1996 1995
- -----------------------------------------------------------------
Repurchase agreements and drafts payable
<S> <C> <C>
related to mortgage loan closings $264,998,449 $225,872,594
Commercial paper 17,174,751 21,722,935
Federal funds 74,118,000 40,000,000
Lines of credit 105,591,525 22,683,130
- --------------------------------------------------------------------
Total $461,882,725 $310,278,659
====================================================================
Weighted average interest rate 5.34% 5.51%
</TABLE>
Repurchase agreements at December 31, 1996 and 1995 include
$183,869,533 and $151,104,931 in mortgages sold under agreements
to repurchase, which are used
XXXPAGE 190XXX
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
$74,042,188 and $69,395,883 at December 31, 1996 and 1995,
respectively. 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 available lines of credit.
Commercial paper includes $14,963,694 and $18,005,000 at December
31, 1996 and 1995, respectively, payable to a company owned by a
significant shareholder and director of the Corporation.
The Corporation also has lines of credit available of
$222,000,000 to fund loan originations and other operations.
Interest on the lines of credit is payable monthly or quarterly
with rates ranging from 6.09% to 8.25%.
XXX PAGE 90 XXX
Note 10: Long-Term Debt
Long-term debt at December 31, 1996 of $17,642,526 consists of
various notes payable at annual interest rates ranging from 6.3%
to 9.6% and maturity dates through April 30, 2002. Long-term debt
as of December 31, 1995, was $21,574,792 and consisted of various
notes payable at annual interest rates ranging from 6.0% to 9.6%
and maturity dates through April 3o, 2001.
Maturities of long-term debt at December 31, 1996 are as follows:
<TABLE>
<C> <C>
1997 $7,420,309
1998 4,454,762
1999 2,738,434
2000 1,689,605
2001 1,339,146
Thereafter 270
- ----------------------------------------------
Total $17,642,526
==============================================
</TABLE>
Note 11 : 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 December 31, 1996, 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.
As of December 31, 1996, Irwin Financial Corporation, Irwin Home
Equity and
certain employees of Irwin Home Equity were defendents to a
lawsuit alleging misappropriation of trade secrets.
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.
XXXPAGE 191XXX
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 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, 1996,
were $188,898,000. These loan commitments include $37,949,000 of
floating rate loan commitments and $150,949,000 of fixed rate
loan commitments related to commercial and mortgage banking
activities. The interest rate risk of mortgage banking
commitments is hedged by forward commitments. The Corporation had
approximately $14,710,000
XXX PAGE 91 XXX
and $11,898,000 in irrevocable standby letters of credit
outstanding at December 31, 1996 and 1995, respectively.
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
$364,876,000 and $432,370,000 at December 31, 1996 and 1995,
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.
There were no hedge instruments outstanding as of December 31,
1996. 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
XXXPAGE 192XXX
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: The current market price of similar
loans sold was used to estimate the fair value of mortgage loans
held for sale.
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.
XXX PAGE 92 XXX
Deposit liabilities: The fair value of demand deposits, including
interest and non-interest checking, passbook savings, and certain
types of money market accounts, are 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: For variable-rate short-term borrowings
that reprice frequently, fair values were based on carrying
values. Fair values for fixed-rate short-term borrowings were
estimated using a discounted cash flow calculation that applies
interest rates currently being offered on borrowings with similar
remaining terms.
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
XXXPAGE 193XXX
insignificant to the
Corporation's balance sheet and have been included in the
carrying values of loans.
The estimated fair values of the Corporation's financial
instruments at December 31 are as follows:
<TABLE>
1996 1995
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
- -----------------------------------------------------------------
Financial assets:
<S> <C> <C> <C> <C>
Cash and cash equivalents $71,365,788 $71,366,000 $64,256,953 $64,257,000
Interest-bearing deposits with
financial institutions 11,343,546 11,344,000 7,937,740 7,926,000
Investment securities 73,124,455 73,819,000 60,869,413 61,884,000
Mortgage loans held
for sale 445,100,504 445,101,000 378,658,247 380,135,000
Loans, net of allowance for
loan losses 472,058,689 470,208,000 358,213,904 358,135,000
Derivative contracts 0 0 445,000 445,000
Financial liabilities:
Deposits 640,152,905 640,505,000 563,998,647 564,282,000
Short-term borrowings 461,882,725 461,919,000 310,278,659 310,279,000
Long-term debt $17,642,526 $17,695,000 $21,574,792 $21,683,000
</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.
XXX PAGE 93 XXX
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 Board of Directors of the Corporation approved a two-for-one
stock split effective December 30, 1996. Previously reported per
share data have been adjusted to reflect this split. The
shareholders of the Corporation approved an increase in common
shares authorized from 7,500,000 to 40,000,000 as of April 30,
1996.
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
XXXPAGE 194XXX
annual retainer fee 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 1,440,000 shares of
non-qualified and incentive stock options. The exercise price of
each option, which has a ten year life and a vesting period of
four years beginning the year granted, is equal to the market
price of the Corporation's stock on the grant date. 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 1996, 1995 and 1994 is summarized
as follows adjusted for the 1996 two-for-one stock split:
<TABLE>
1996 1995 1994
- -----------------------------------------------------------------
Weighted Weighted Weighted
average average average
Number exercise Number exercise Number exercise
of shares price of shares price of shares price
- -----------------------------------------------------------------
Outstanding at the
beginning of the
<S> <C> <C> <C> <C> <C> <C>
year 618,800 $9.19 650,804 $6.51 $523,954 $5.57
Granted 104,700 21.31 120,700 15.69 136,900 11.38
Exercised (87,948) 5.01 (151,754) 2.85 (10,050) 2.59
Cancelled (12,252) 17.85 (950) 11.21 0 0
-------- -------- --------
Outstanding at the end
of year 623,300 11.65 618,800 9.19 650,804 6.51
======== ======== ========
Exercisable at the end
of year 461,300 $9.63 429,426 $7.34 409,126 $5.47
======== ======== ========
Available for future
grants 236,404 341,104 463,804
======== ======== ========
</TABLE>
XXX PAGE 94
The Corporation has not recognized compensation cost for the two
non-qualified and incentive stock option plans or the employee
stock purchase plan. Had compensation cost been determined based
on the fair value at the grant dates the Corporation's net income
and earnings per share would have been reduced to the pro forma
amounts indicated below:
1996 1995
XXXPAGE 195XXX
<TABLE>
- -----------------------------------------------------------------
Net income
<S> <C> <C>
As reported $22,428,338 $20,083,202
Pro forma 22,071,004 19,885,813
Primary earnings per share
As reported $1.93 $1.75
Pro forma 1.91 1.73
Fully diluted earnings per share
As reported $1.93 $1.75
Pro forma 1.90 1.72
- -----------------------------------------------------------------
</TABLE>
The fair value of each option was estimated to be $9.13 and $7.41
on the date of the grant using the binomial option-pricing model
with the following assumptions for 1996 and 1995, respectively:
risk free interest rates of 6.75% and 7.25%; dividend yield of
1.25% both years; and volatility of 0.2284 and 0.275o. As of
December 31, 1996, 587,900 options were outstanding under these
plans with exercise prices that range between $2.52 and $21.31
and a remaining weighted average contractual life of 7.9 years.
Note 15: Dividends from Subsidiary Bank
Consolidated retained earnings include undistributed earnings of
Irwin Union Bank and Trust Company. At December 31, 1996, the
Bank may pay dividends of up to $12,650,807 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>
December 31, 1996 1995 1994
- -----------------------------------------------------------------
<S> <C> <C> <C>
Current $6,554,000 $(487,000) $11,338,000
Deferred 8,305,000 12,853,000 510,000
- -----------------------------------------------------------------
$14,859,000 $12,366,000 $11,848,000
=================================================================
</TABLE>
The Corporation's net deferred tax liability, which is included
in other liabilities on the consolidated balance sheet, consisted
of the following:
<TABLE>
December 31, 1996 1995
- -----------------------------------------------------------------
<S> <C> <C>
Mortgage servicing $(25,965,001) $(16,542,988)
Deferred compensation 2,763,430 2,328,595
Loan and lease loss allowance 4,047,304 2,952,967
Deferred origination fees and costs 709,498 367,360
Lease financing income (4,639,948) (4,413,995)
Fixed assets (1,017,670) (810,346)
Other, net (135,813) (305,958)
- ---------------------------------------------------------------------
Net deferred tax liability $(24,238,200) $(16,424,365)
=================================================================
</TABLE>
XXXPAGE 196XXX
XXX PAGE 95 XXX
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>
1996 1995 1994
- -----------------------------------------------------------------
<S> <C> <C> <C>
Income taxes computed at the
statutory rate $12,864,133 $11,032,729 $10,522,239
Increase (decrease) resulting from:
Nontaxable interest from investment
securities and loans (230,942) (308,157) (319,805)
State franchise tax, net of
federal benefit 2,075,973 1,820,400 1,661,011
Rehabilitation and low-income
tax credits (127,000) (30,000) (30,000)
Other items - net 276,836 (148,972) 14,555
- ----------------------------------------------------------------------
$14,859,000 $12,366,000 $11,848,000
======================================================================
</TABLE>
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 laws 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>
December 31, 1996 1995
- -----------------------------------------------------------------
Actuarial present value of benefits based on service to date
and present pay levels:
Accumulated benefit obligation
<S> <C> <C>
Vested $6,090,545 $5,948,210
Non-vested 251,938 174,990
- -----------------------------------------------------------------
6,342,483 6,123,200
Additional amounts related to
projected pay increases 1,405,887 1,693,455
- -----------------------------------------------------------------
XXXPAGE 197XXX
Projected benefit obligation 7,748,370 7,816,655
Plan assets at fair value 8,160,620 7,002,188
- -----------------------------------------------------------------
Excess of assets over (under) projected benefit
obligation 412,250 (814,467)
Prior service cost not yet recognized in net
periodic pension cost 175,224 (19,368)
Unrecognized net loss from past experience different
from that assumed 191,707 1,523,009
Unrecognized net transition asset (83,298) (213,769)
- -----------------------------------------------------------------
Prepaid pension costs included in
other assets $695,883 $475,405
=================================================================
</TABLE>
XXX PAGE 96 XXX
The net pension cost for 1996, 1995, and 1994 included the
following components:
<TABLE>
1996 1995 1994
- -----------------------------------------------------------------
<S> <C> <C> <C>
Service cost - benefits earned during
the period $443,865 $344,825 $345,337
Interest cost on projected
benefit obligation 519,358 483,011 439,596
Actual (return) loss on plan assets (926,681) (916,317) 159,110
Net amortization and deferral 205,364 249,940 (846,569)
- -----------------------------------------------------------------
Net pension cost $241,906 $161,459 $97,474
=================================================================
</TABLE>
The weighted average discount rate used in determining the
actuarial present value of the projected benefit obligation was
7.5% and 7.0% at December 31, 1996 and 1995, respectively. The
expected rate of increase in future compensation levels was 4.25%
and 4.0% at December 31, 1996 and 1995, respectively. The
expected long-term rate of return on plan assets was 9.0% at
December 31, 1996 and 1995.
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, 1996 and 1995.
<TABLE>
1996 1995
- -----------------------------------------------------------------
<S> <C> <C>
Accumulated postretirement benefit obligation (APBO):
Retirees $1,099,334 $1,202,196
Fully eligible active plan participants 112,913 100,712
XXXPAGE 198XXX
Other active plan participants 172,610 285,605
- -----------------------------------------------------------------
Total APBO 1,384,857 1,588,513
Plan assets at fair value 0 0
- -----------------------------------------------------------------
Accumulated postretirement benefit obligation in
excess of plan assets 1,384,857 1,588,513
Less: Unrecognized transition obligation 1,002,018 1,056,767
Unrecognized net (gain) loss (53,847) 181,134
- -----------------------------------------------------------------
Accrued postretirement benefit liability $436,686 $350,612
=================================================================
Net periodic postretirement benefit cost for 1996 and 1995
included the following components:
Service cost $24,217 $24,565
Interest cost 96,323 109,072
Amortization of transition obligation 54,749 54,749
Unrecognized net loss 0 36,857
- -----------------------------------------------------------------
Net periodic postretirement benefit cost $175,289 $225,243
=================================================================
</TABLE>
XXX PAGE 97 XXX
For 1996, a 12.9% and 11.0% 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 5.5% by the year
2011. 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, 1996 by
$81,707, and increase the aggregate of the service cost and
interest cost components of net periodic postretirement benefit
cost for 1996 by $5,866. The rate
of increase in future compensation levels used in determining the
accumulated postretirement benefit obligation was 5.0% at
December 31, 1996 and 1995. The weighted average discount rate
was 7.5% and 7.0% at December 31, 1996 and
1995, respectively.
Note 18: Subsequent Event
In January 1997, the Corporation issued $50,000,000 of trust
preferred securities through a trust created and controlled by
the Corporation. The securities, which are publicly traded, 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 which the Corporation can exercise at
any point during the first 30 years. 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.
The securities are not convertible into common stock of the
Corporation.
Note 19: Irwin Financial Corporation (Parent Only) Financial
Information
XXXPAGE 199XXX
The condensed financial statements of the parent company as of
December 31, 1996 and 1995, and for the three years ended
December 31, 1996 are presented below:
Condensed Balance Sheet
<TABLE>
December 31, 1996 1995
- -----------------------------------------------------------------
Assets:
<S> <C> <C>
Cash and short-term investments $618,516 $269,947
Investment in bank subsidiary 56,672,845 46,701,976
Investments in non-bank
subsidiaries 60,866,068 49,517,885
Loans to non-bank subsidiaries 46,117,124 37,513,805
Other assets 2,167,152 1,829,380
- -----------------------------------------------------------------
$166,441,705 $135,832,993
=================================================================
Liabilities:
Short-term borrowings $41,174,751 $ 28,972,281
Long-term debt 0 3,000,000
Other liabilities 6,364,874 4,644,231
- -----------------------------------------------------------------
47,539,625 36,616,512
- -----------------------------------------------------------------
Shareholders' equity:
Common stock 29,965,287 29,965,287
Other shareholders' equity 88,936,793 69,251,194
- -----------------------------------------------------------------
118,902,080 99,216,481
- -----------------------------------------------------------------
$166,441,705 $135,832,993
=================================================================
</TABLE>
XXX PAGE 98 XXX
Condensed Statement of Income
<TABLE>
For the year ended December 31, 1996 1995 1994
- -----------------------------------------------------------------
<S> <C> <C> <C>
Income:
Cash dividends from non-bank
subsidiaries $10,053,000 $14,431,000 $4,446,000
Cash dividends from bank
subsidiary 2,000,000 1,200,000 900,000
Interest income 2,376,154 1,806,896 1,425,410
Other 2,507,041 2,000,573 1,794,997
- ---------------------------------------------------------------------
16,936,195 19,438,469 8,566,407
- ---------------------------------------------------------------------
Expenses:
Salaries 2,549,195 2,163,509 2,077,865
Deferred compensation and employee
benefits 879,616 875,533 602,133
Interest expense 2,064,651 1,491,873 1,030,645
XXXPAGE 200XXX
Other 1,963,287 1,028,813 984,724
- ---------------------------------------------------------------------
7,456,749 5,559,728 4,695,367
- ---------------------------------------------------------------------
Income before income taxes and equity in
undistributed income of
subsidiaries 9,479,446 13,878,741 3,871,040
Income taxes (credits), less amounts
charged to subsidiaries (2,665,745) (2,844,056) (561,914)
- ---------------------------------------------------------------------
12,145,191 16,722,797 4,432,954
Equity in undistributed income of
subsidiaries 10,283,147 3,360,405 13,782,585
- ---------------------------------------------------------------------
Net income $22,428,338 $20,083,202 $18,215,539
=====================================================================
</TABLE>
XXX PAGE 99 XXX
Condensed statement of cash flows
<TABLE>
for the year ended December 31, 1996 1995 1994
- -----------------------------------------------------------------
Adjustments to reconcile net income to cash provided:
<S> <C> <C> <C>
Net income $22,428,338 $20,083,202 $18,215,539
Equity in undistributed income
of subsidiaries (10,283,147) (3,360,405) (13,782,585)
Depreciation 88,571 80,077 76,772
Increase (decrease) in taxes
payable 314,595 (1,159,924) 598,149
Increase in interest receivable (39,301) (75,606) (19,118)
Increase (decrease) in interest
payable 164,279 41,276 46,351
Net change in other assets and
other liabilities 877,205 (27,117) 733,740
- ----------------------------------------------------------------------
Net cash provided by operating
activities 13,550,540 15,581,503 5,868,848
- -----------------------------------------------------------------------
Lending and investing activities:
Net (increase) decrease in loans
to subsidiaries (8,603,320) (19,640,805) 3,554,000
activities: Net increase in
investments in subsidiarie (11,500,000) (7,260,000) (250,000)
Net (additions) disposals to premises
and equipment (21,548) 192,206 (94,839)
- ---------------------------------------------------------------------
Net cash provided (used) by lending and
investing activities (20,124,868) (26,708,599) 3,209,161
- ---------------------------------------------------------------------
Financing activities:
Net (increase) decrease in
borrowings 9,731,816 13,434,195 (5,621,284)
Payments to acquire
treasury stock (1,930,831) (2,887,611) (6,207,150)
Proceeds from sale of treasury
stock 1,847,833 3,130,243 549,282
XXXPAGE 201XXX
Proceeds from sale of stock for employee
benefit plan 0 0 893,496
Dividends paid (2,725,921) (2,482,705) (2,073,733)
- ----------------------------------------------------------------------
Net cash provided (used) by financing
activities 6,922,897 11,194,122 (12,459,389)
- ----------------------------------------------------------------------
Net increase (decrease) in cash and cash
equivalents 348,569 67,026 (3,381,380)
Cash and cash equivalents at
beginning of year 269,947 202,921 3,584,301
- ----------------------------------------------------------------------
Cash and cash equivalents at
end of year $618,516 $269,947 $202,921
======================================================================
Supplemental disclosures of cash flow information:
Cash paid during the year:
Interest 1,900,372 $1,450,597 $984,295
======================================================================
Income taxes $6,230,350 $3,829,990 $11,569,195
======================================================================
</TABLE>
XXX PAGE 100 XXX
Note 20: Regulatory Matters
The Corporation and its bank subsidiary are subject to various
regulatory capital requirements administered by federal and state
banking agencies. Under capital adequacy guidelines, the
Corporation must meet specific capital guidelines that involve
quantitative measures of the Corporation's assets, liabilities,
and certain off-balance-sheet items as calculated under
regulatory accounting practices. The Corporation's capital
amounts and classification are also subject to qualitative
judgements by the regulators about components, risk weightings,
and other factors.
Quantitative measures established by regulation to ensure capital
adequacy require the Corporation to maintain minimum amounts and
ratios (set forth in the table below) of total and Tier 1 capital
(as defined in the regulations) to risk-weighted assets (as
defined), and of Tier 1 capital to average assets (as defined).
Management believes, as of December 31, 1996, that the
Corporation meets all capital adequacy requirements to which it
is subject.
As of December 31, 1996 the Corporation was categorized as well
capitalized under the regulatory framework for prompt corrective
action. To be categorized as well capitalized the Corporation
must significantly exceed minimum total risk-based, Tier 1 risk-
based, and Tier 1 leverage ratios. There have been no conditions
or events that management believes have changed this category.
The Corporation's actual capital amounts and ratios are presented
in the following table:
<TABLE>
Adequately Well
Actual Capitalized Capitalized
- ----------------------------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
- ----------------------------------------------------------------------
As of December 31, 1996:
Total Capital (to Risk-
<S> <C> <C> <C> <C> <C> <C>
Weighted Assets) $124,010 14.3% $69,716 8.0% $87,146 10.0%
Tier 1 Capital (to Risk-
Weighted Assets) 117,416 13.5 34,858 4.0 52,288 6.0
Tier 1 Capital (to
Average Assets) 117,416 9.8 47,730 4.0 59,663 5.0
As of December 31, 1995:
Total Capital (to Risk-
Weighted Assets) $97,174 14.5% $53,654 8.0% $67,068 10.0%
Tier 1 Capital (to Risk-
Weighted Assets) 92,554 13.8 26,827 4.0 40,241 6.0
Tier 1 Capital (to
Average Assets) 92,554 10.6 35,025 4.0 43,781 5.0
As of December 31, 1994:
Total Capital (to Risk-
Weighted Assets) $84,829 19.2% $35,385 8.0% $44,232 10.0%
Tier 1 Capital (to Risk-
Weighted Assets) 80,966 18.3 17,693 4.0 26,539 6.0
Tier 1 Capital (to
Average Assets) 80,966 10.8 29,932 4.0 37,415 5.0
</TABLE>
XXX PAGE 101 XXX
Irwin Financial Corporation
Directors
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, L.P.
(Venture Capital Partnership)
William H. Kling President,
Minnesota Public Radio
Brenda J. Lauderback President,
Footwear Wholesale Group,
Nine West Group
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,
XXXPAGE 203XXX
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.
XXX PAGE 102 XXX
Irwin Financial Corporation
Senior Officers
William I. Miller Chairman
John A. Nash President
Thomas D. Washburn Senior Vice President and Chief Financial Officer
Gregory F. Ehlinger Vice President and Treasurer
Theresa L. Hall Vice President-Human Resources
Jose M. Gonzalez Vice President-Internal Audit
Michael F. Ryan Vice President-Community Development
Matthew F. Souza Vice President-Legal and Secretary
Marie C. Strack Vice President and Controller
XXX PAGE 103 XXX
XXXPAGE 204XXX
EXHIBIT 21(a). SUBSIDIARIES OF THE REGISTRANT
State of
Name Organization
Irwin Union Bank and Trust Company Indiana
Irwin Union Collateral, Inc. Indiana
Irwin Union Realty Corporation Indiana
Irwin Union Insurance, Inc. Indiana
Irwin 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
IFC Capital Trust I Delaware
_______________________________
1 80%owned by Registrant
XXXPAGE 205XXX
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. 272249 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 S16 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 17, 1997, on our audits of the
consolidated financial statements and financial statement
schedule of Irwin Financial Corporation as of December 31,
1996 and 1995 and for each of the three years in the period
ended December 31, 1996, which report is included in this
Annual Report on Form 10-K.
/s/ Coopers & Lybrand L.L.P.
Indianapolis, Indiana
March 21, 1997
XXXPAPGE 206XXX
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000052617
<NAME> IRWIN FINANCIAL CORP.
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 71,344
<INT-BEARING-DEPOSITS> 11,343
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 23,188
<INVESTMENTS-CARRYING> 49,937
<INVESTMENTS-MARKET> 50,632
<LOANS> 529,051
<ALLOWANCE> 6,594
<TOTAL-ASSETS> 1,303,865
<DEPOSITS> 640,746
<SHORT-TERM> 461,884
<LIABILITIES-OTHER> 64,691
<LONG-TERM> 17,643
0
0
<COMMON> 29,965
<OTHER-SE> 94,140
<TOTAL-LIABILITIES-AND-EQUITY> 1,303,865
<INTEREST-LOAN> 52,680
<INTEREST-INVEST> 8,093
<INTEREST-OTHER> 28,744
<INTEREST-TOTAL> 89,517
<INTEREST-DEPOSIT> 19,275
<INTEREST-EXPENSE> 41,625
<INTEREST-INCOME-NET> 47,892
<LOAN-LOSSES> 4,098
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 159,873
<INCOME-PRETAX> 37,287
<INCOME-PRE-EXTRAORDINARY> 37,287
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 22,428
<EPS-PRIMARY> 1.93<F1>
<EPS-DILUTED> 0
<YIELD-ACTUAL> .05<F1>
<LOANS-NON> 4,260
<LOANS-PAST> 695
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 4,620
<CHARGE-OFFS> 2,374
<RECOVERIES> 593
<ALLOWANCE-CLOSE> 6,594
<ALLOWANCE-DOMESTIC> 6,594
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 2,107
<FN>
<F1>information not in 1,000
</FN>
</TABLE>
