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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
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 0-6835
IRWIN FINANCIAL CORPORATION
(Exact Name of Corporation as Specified in its Charter)
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<S> <C>
INDIANA 35-1286807
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
500 WASHINGTON STREET 47201
COLUMBUS, INDIANA (Zip Code)
(Address of Principal Executive Offices)
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(812) 376-1020
(Corporation'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 Corporation: (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
Corporation was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Corporation's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of
the Corporation was $155,117,904 as of March 9, 2000. As of March 9, 2000, there
were outstanding 21,045,469 common shares of the Corporation.
DOCUMENTS INCORPORATED BY REFERENCE
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SELECTED PORTIONS OF THE FOLLOWING DOCUMENTS PART OF FORM 10-K INTO WHICH INCORPORATED
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Definitive Proxy Statement for Annual Meeting of
Shareholders to be held April 27, 2000 Part III
Exhibit Index on Pages 64 through 66
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Total Pages in This Filing: 177
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FORM 10-K
TABLE OF CONTENTS
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<S> <C>
Part I
Item 1 -- Business........................................ 1
Item 2 -- Properties...................................... 5
Item 3 -- Legal Proceedings............................... 6
Item 4 -- Submission of Matters to a Vote of Security
Holders................................................ 6
Part II
Item 5 -- Market for Corporation's Common Equity and
Related Security Holder Matters................. 7
Item 6 -- Selected Financial Data......................... 8
Item 7 -- Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 9
Item 8 -- Financial Statements and Supplementary Data..... 38
Item 9 -- Changes in and Disagreements with Accountants on
Accounting and Financial
Disclosure................................... 62
Part III
Item 10 -- Directors and Executive Officers of the
Corporation............................................ 63
Item 11 -- Executive Compensation......................... 63
Item 12 -- Security Ownership of Certain Beneficial Owners
and Management................................. 63
Item 13 -- Certain Relationships and Related
Transactions........................................... 64
Part IV
Item 14 -- Exhibits, Financial Statement Schedules and
Reports on Form 8-K............................ 64
Signatures.................................................. 67
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PART I
ITEM 1. BUSINESS
GENERAL
Irwin Financial Corporation (the "Corporation") is a diversified financial
services company organized as an Indiana bank holding company in May, 1972. The
Corporation's principal subsidiaries are Irwin Mortgage Corporation ("Irwin
Mortgage"), a mortgage banking company; Irwin Union Bank and Trust Company
("Irwin Union Bank"), a commercial bank; Irwin Home Equity Corporation ("Home
Equity"), a consumer home equity lending company; Irwin Business Finance
("Business Finance"), an equipment leasing company; Irwin Ventures Incorporated
("Irwin Ventures"), a venture capital company; and Irwin Union Credit Insurance
Corporation, a credit insurance company. The Corporation is also the sole equity
shareholder of IFC Capital Trust I ("Capital Trust"), a special purpose trust.
BUSINESS OF SUBSIDIARIES
Irwin Mortgage, acquired in 1981, 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. Irwin Mortgage also engages in the non-prime first and second
mortgage lending market. This market is composed of borrowers who do not qualify
under the underwriting guidelines established by the government-sponsored
secondary market agencies for conforming first mortgages.
Irwin Mortgage sells mortgage loans to institutional and private investors
but may retain servicing rights to mortgage loans that it originates or
purchases from correspondents. Irwin 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. Irwin Mortgage operates 107 production and satellite
offices in twenty-nine states. During 1999, Irwin Mortgage established offices
in Irvine, California; Schererville, Indiana; Springfield, Illinois; Ashland,
Kentucky; Kalamazoo and Lansing, Michigan; Sunset Hills and Union, Missouri;
Reno, Nevada; Charlotte, Creed Moor and Durham, North Carolina; Weatherford,
Oklahoma; Portland, Oregon; Lancaster, Pennsylvania; Brentwood, Tennessee;
Houston, Texas; Chesapeake, Virginia; and Green Bay, Wisconsin. During 1999,
Irwin Mortgage closed offices in Antioch, California; Aiea, Hawaii; Anderson,
Kendalville and New Albany, Indiana; Louisville, Kentucky; Towson, Maryland;
Braintree, Massachusetts; Jackson, Mississippi; Las Vegas, Nevada; Charlotte and
Madison, North Carolina; Broken Arrow, Oklahoma; Lake Oswego, Oregon;
Wyomissing, Pennsylvania; Austin and Rockport, Texas; Suffolk, Virginia;
Bellevue, Washington; and Green Bay, Wisconsin.
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 is the largest of
eleven financial institutions operating in Bartholomew County, Indiana, with
eight locations throughout the county. Irwin Union Bank also has branch
facilities in Greensburg (Decatur County), Carmel (Hamilton County), Avon
(Hendricks County), Seymour (Jackson County -- 2), Franklin and Greenwood
(Johnson County -- 2), Indianapolis (Marion County), Bloomington (Monroe
County -- 3) and Shelbyville (Shelby County), Indiana. In January, 1999, Irwin
Union Bank opened a loan production office in Brentwood (St. Louis), Missouri.
Loan production offices established in 1999 in Kalamazoo and Grandville (Grand
Rapids), Michigan became branches of the Bank in June, 1999 and January, 2000,
respectively. In December, 1999, the Bank opened a branch office in Carson City,
Nevada. In July, 1999, Irwin Union Bank acquired the business of Susan Wier,
d/b/a Investment Partners. In January, 2000, Irwin Union Insurance, Inc., an
insurance agency subsidiary of Irwin Union Bank, acquired Colvin Brokerage &
Insurance Agency, Inc. In
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April, 1999, Irwin Union Advisory Services, Inc., a subsidiary of Irwin Union
Bank, became a registered investment advisor.
Home Equity was formed in 1994 and is located in San Ramon, California. In
conjunction with its affiliate Irwin Union Bank, Home Equity originates,
securitizes, and services home equity loans and lines of credit. The products
are marketed through direct mail, telemarketing and Internet-based solicitations
in twenty-nine states. Products are also offered through the use of independent
third-party brokers. Additionally, Home Equity offers a first mortgage refinance
program in selected states. In January, 2000, Home Equity introduced a product
offering a limited amount of credit with an expedited turnaround time called
"Immediate Credit."
Business Finance, headquartered in Bellevue, Washington, was organized
during the second quarter of 1999 for the purpose of originating and servicing
small to medium-sized equipment leases and loans. Business Finance commenced
operations in January, 2000. The company originates transactions from an
established national network of brokers and vendors through an e-commerce system
that provides automated credit scoring, documentation and portfolio management
services.
Irwin Ventures, located in Columbus, Indiana, is a venture capital
subsidiary formed in the third quarter of 1999 for the purpose of making
investments in early stage companies in the financial services industry and
related fields. In August, 1999, Irwin Ventures established a subsidiary, Irwin
Ventures Incorporated-SBIC ("IVI-SBIC"). Irwin Ventures has filed an application
with the Small Business Administration for a Small Business Investment Company
license on behalf of IVI-SBIC.
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 Corporation owns all of the Common
Securities of Capital Trust. Capital 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 Corporation. 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 Corporation 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 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.
The Corporation continues to hold certain small-ticket equipment leases in
its subsidiary, Irwin Leasing Corporation (the former Affiliated Capital Corp.).
The leases were not part of the 1998 sale of substantially all of the assets of
Affiliated Capital to DVI Financial Services, Inc. Irwin Leasing and its parent,
Irwin Equipment Finance Corporation, are inactive except for the leases.
In December, 1999, the Corporation applied to the Office of Thrift
Supervision to establish a federal savings bank subsidiary. The federal savings
bank would foster the development of branch banking capabilities in markets
outside Indiana.
No single part of the business of the Corporation 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 Corporation.
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COMPETITION
Irwin Mortgage originates and services residential first and second
mortgage loans from 107 production and satellite offices in Arizona, California,
Colorado, Connecticut, Delaware, Florida, Georgia, Hawaii, Illinois, Indiana,
Kentucky, Louisiana, Michigan, Minnesota, Missouri, Nevada, New Jersey, North
Carolina, Ohio, Oklahoma, Oregon, Pennsylvania, Tennessee, 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 comes from other national, regional, local, and web-enabled
mortgage banking companies as well as commercial banks, savings banks, and
savings & loan associations. Irwin 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, Hamilton, Hendricks, Jackson, Johnson, Marion, Monroe and Shelby
County, Indiana areas is very competitive. Within these counties, in addition to
the commercial banks, there are a number of savings banks, savings & loan
associations and credit unions competing for deposits and loans. Irwin Union
Bank also competes for the provision of banking services with banks located
elsewhere in Indiana, primarily in 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, 1999, 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. Irwin Union Bank's new branch offices in Kalamazoo and
Grandville (Grand Rapids), Michigan and Carson City, Nevada, and its loan
production office in Brentwood (St. Louis), Missouri experience competition from
existing institutions in those areas.
Home Equity's primary competitors for home equity loans and lines of credit
include banks, thrifts, credit unions, and other home equity lenders with
operations that are either national, regional, local, or web-enabled in scope.
Such competitors may be headquartered anywhere in the country.
The primary competitors of Business Finance include other funding sources
that are independent or affiliated with banks or large equipment leasing
companies that operate on a national or regional basis.
The primary competitors of Irwin Ventures are other venture capital firms
and individuals who invest in start-up companies. Such companies and individuals
may be located anywhere in the country.
SUPERVISION AND REGULATION
The Corporation 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 Corporation 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.
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In addition to the regulation of the Corporation, Irwin Union Bank is
subject to extensive regulation and periodic examination, principally by the
Indiana Department of Financial Institutions and the Federal Reserve Bank of
Chicago. Irwin 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
Corporation 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 reinsurance subsidiary of Irwin Union Bank is subject
to examination by the state of Vermont. The home equity and equipment leasing
subsidiaries of the Corporation are also dependent upon state licenses for their
ability to engage in origination and servicing activities in certain states. The
securities brokerage activities of Irwin Union Bank'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 Irwin Union Securities, Inc. operates, and the National Association of
Securities Dealers. The activities of Irwin Union Bank's investment advisor
subsidiary are regulated and examined by the Indiana Securities Division and the
securities divisions of the states in which Irwin Union Advisory Services, Inc.
operates.
EMPLOYEES AND LABOR RELATIONS
As of December 31, 1999, the Corporation and its subsidiaries had a total
of 2,328 employees, including full-time and part-time employees. The Corporation
continues a commitment of equal employment opportunity for all job applicants
and staff members, and management regards its relations with its employees as
satisfactory.
EXECUTIVE OFFICERS OF THE CORPORATION
The Executive Officers of the Corporation 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.
Claude E. Davis (39) is President of Irwin Union Bank since January 2,
1996. He has been an officer since 1988.
Elena Delgado (44) is President of Irwin Home Equity Corporation since
September 4, 1994.
Gregory F. Ehlinger (37) is Senior Vice President and Chief Financial
Officer of the Corporation. He has been an officer since August of 1992.
Jose M. Gonzalez (41) is Vice President and Director of Internal Audit of
the Corporation since October of 1995. From 1993 to 1995, Mr. Gonzalez was
Senior Vice President, Audit & Compliance Services of Premier Bank and Trust.
Theresa L. Hall (47) is Vice President - Human Resources of the Corporation
since 1988. She has been an officer since 1980.
Jody A. Littrell (32) is Vice President and Controller of the Corporation
since March 13, 2000. He was employed with Arthur Andersen LLP from September,
1990 to March, 2000, most recently as Audit Manager.
Rick L. McGuire, (47) is President of Irwin Mortgage since January 1, 1996.
He has been an officer since 1978.
William I. Miller (43) is Chairman of the Board since 1990, and has been a
Director of the Corporation since 1985.
Ellen Z. Mufson (51) is Vice President - Legal of the Corporation since
September, 1997. She was Vice President - Legal Counsel of Irwin Union Bank and
Trust Company from July, 1996 through August, 1997, and Corporate Counsel of
Irwin Financial Corporation from January, 1995 through June, 1996.
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John A. Nash (62) is Chairman of the Executive Committee since 1990, and
President since 1985, of the Corporation. He has been an officer and Director of
the Corporation since 1972.
Michael F. Ryan (54) is Vice President - Community Development of the
Corporation since January 2, 1996. He was President of Irwin Union Bank from
1981 - 1995. He has been an officer since 1976.
Matthew F. Souza (43) is Senior Vice President, Ethics and Secretary of the
Corporation. He has been an officer since 1985.
Michael E. Taft (59) is President of Irwin Business Finance Corporation
since April, 1999. From August of 1998 to April of 1999, he was Executive Vice
President of General Electric Capital Business Asset Funding Corp., a subsidiary
of General Electric Capital Corporation. From September of 1984 to August of
1998, he was Executive Vice President of MetLife Capital Corp., a subsidiary of
Metropolitan Life Insurance Company. (General Electric Capital Corporation
acquired MetLife Capital in August of 1998.)
Thomas D. Washburn (53) is Executive Vice President of the Corporation. He
has been an officer since 1976.
ITEM 2. PROPERTIES
The location and general character of the materially important physical
properties of the Corporation and its subsidiaries are as follows: The main
office of Irwin Mortgage, where administrative and servicing activities are
centered, is located at 9265 Counselor's Row, Indianapolis, Indiana and a
servicing facility is located at 11800 Exit Five Parkway, Indianapolis, Indiana.
Irwin Mortgage also has loan production and satellite offices located in
Flagstaff, Mesa, Phoenix, Scottsdale and Tucson, Arizona; Bakersfield, Concord,
Covina, Irvine, Orinda, Richmond, Sacramento, Salinas, San Diego, Temecula,
Ventura, Visalia, Walnut Creek, Woodland, Yreka and Yuba City, California;
Castle Rock, Colorado Springs, Denver, Englewood and Woodland Park, Colorado;
Rocky Hill, Connecticut; Newark, Delaware; Boca Raton, Clearwater and Longwood,
Florida; Atlanta, Georgia; Honolulu, Kailua and Maui, Hawaii; Decatur, Oak
Forest and Springfield, Illinois; Indianapolis (5), Carmel, Fishers, Ft. Wayne,
Greenwood, Kokomo, Lafayette, Schererville, South Bend and Warsaw, Indiana;
Ashland, Kentucky; Baton Rouge, Louisiana; Columbia and Rockville, Maryland;
Kalamazoo and Lansing, Michigan; Arden Hills, Burnsville and Minneapolis,
Minnesota; Desloge, St. Louis, Sunset Hills and Union, Missouri; Reno, Nevada;
Brick, New Jersey; Burlington, Cary, Creed Moor, Durham, Greensboro (2), Raleigh
and Wilmington, North Carolina; Dayton, Ohio; Altus, Bristow, Tulsa and
Weatherford, Oklahoma; Beaverton, Hillsboro and Portland, Oregon; Lancaster,
Pennsylvania; Brentwood, Tennessee; Austin, Corpus Christi, El Paso, Houston (2)
and Irving, Texas; Salt Lake City, Utah; Chesapeake, Franklin, Fredericksburg,
Glen Allen, Newport News, Richmond, Springfield, and Virginia Beach, Virginia;
Battle Ground, Everett and Mount Lake Terrace, Washington; and Madison,
Wisconsin. All offices occupied by Irwin Mortgage are leased.
The main office of Irwin Union Bank is located in four connected buildings
at 500 and 520 Washington Street, Columbus, Indiana. These buildings are owned
in fee by Irwin Union Realty Corporation, a wholly-owned subsidiary of Irwin
Union Bank, and are leased by Irwin Union Bank. The following Irwin Union Bank
branch properties are owned in fee by either Irwin Union Bank or Irwin Union
Realty: State Street and Eastbrook in Columbus, Indiana; Hope, Taylorsville, and
Franklin, Indiana (the Franklin building and a portion of the land are owned;
the remaining land is leased). The other branch offices are leased: Avon,
Bloomington (3), Carmel, Columbus (3), Greensburg, Greenwood, Indianapolis,
Seymour (2) and Shelbyville, Indiana; Grandville (Grand Rapids) and Kalamazoo,
Michigan; and Carson City, Nevada. The loan production office in Brentwood (St.
Louis), Missouri is also leased. None of the properties owned by Irwin Union
Bank or Irwin Union Realty is subject to any major encumbrances.
The main office of Irwin Home Equity is located at 12677 Alcosta Blvd.,
Suite 500, San Ramon, California. A second office was established in January,
2000 at 3000 Executive Parkway, Building Q, Suite 300, San Ramon, California.
Both office locations are leased.
The main office of Irwin Business Finance is located at 330 120th Avenue
NE, Suite 110, Bellevue, Washington. The office location is leased.
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The main offices of the Corporation, Irwin Ventures, Irwin Ventures
Incorporated-SBIC 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 Corporation 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. In addition to such claims,
the Corporation was involved, as of December 31, 1999, in the following actions:
Culpepper, et al. v. Inland Mortgage Corporation. As of December 31, 1999,
Irwin Mortgage (previously known as Inland Mortgage Corporation) was a defendant
in a class action lawsuit initiated in the United States District Court,
Northern District of Alabama in April, 1996. This action is one of a number 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. In June, 1999, the District Court certified a
limited class of borrowers. In July, 1999, Irwin Mortgage filed a petition with
the Court of Appeals for the Eleventh Circuit for immediate review of the class
certification order. In September, 1999, the Court agreed to review the District
Court's order. At present, it is impossible to predict the likelihood of an
unfavorable outcome or to establish the possible extent or amount of liability
or potential loss exposure, if any, to which Irwin Mortgage might be exposed.
Heifets, et al. v. Matrix Electromedical, et al. As of December 31, 1999,
Affiliated Capital Corp. (now, Irwin Leasing Corporation) and Irwin Financial
Corporation were defendants in a class action lawsuit initiated against them in
August, 1998 in the Superior Court of Los Angeles County, California. The suit
alleged that a manufacturer of certain medical devices made misrepresentations
to induce doctors to acquire the devices, which Affiliated Capital Corp.
financed by means of leases. In August, 1999, the trial court dismissed the
plaintiffs' case with prejudice and awarded attorneys' fees to the Irwin
companies. The plaintiffs then appealed. In January, 2000, the plaintiffs agreed
to dismiss their appeal and pay a portion of the Irwin companies' attorneys'
fees. The court of appeals issued an order of dismissal on February 29, 2000.
Kruta et al. v. Inland Mortgage Corporation. As of December 31, 1999, Irwin
Mortgage was a defendant in a class action lawsuit initiated in the state of
Minnesota in October, 1995 and later assigned to a federal Multidistrict
Litigation Panel in Chicago, Illinois. Plaintiffs allege they represent a
nationwide class of persons who have or had mortgage escrow accounts allegedly
improperly managed by Irwin 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. On December 9, 1999, the Court
issued its preliminary approval of a settlement timetable in this case.
Except as described above, there is no material pending litigation in which
the Corporation 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 Corporation in which any director, officer or affiliate of the
Corporation, 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 1999, no matters were submitted to a vote of
security holders of the Corporation, through the solicitation of proxies or
otherwise.
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PART II
ITEM 5. MARKET FOR CORPORATION'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Common Stock of the Corporation is quoted on the National Association
of Securities Dealers Automated Quotation/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 two most recent
calendar years. All data have been adjusted for stock splits. The approximate
number of shareholders of record on March 9, 2000 was 1,750.
STOCK PRICES AND DIVIDENDS:
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TOTAL
QUARTER CASH DIVIDENDS
HIGH LOW END DIVIDEND FOR YEAR
$ $ $ $ $
---- --- ------- -------- ---------
<S> <C> <C> <C> <C> <C>
1997 (split adjusted)
First Quarter.......................................... 15 1/4 12 1/8 13 5/8 $0.035
Second Quarter......................................... 14 3/4 12 14 3/4 $0.035
Third Quarter.......................................... 18 5/8 14 3/8 18 5/8 $0.035
Fourth Quarter......................................... 21 1/2 18 1/4 21 $0.035 $0.14
1998 (split adjusted)
First Quarter.......................................... 28 1/4 19 1/2 28 1/8 $ 0.04
Second Quarter......................................... 30 25 1/8 29 $ 0.04
Third Quarter.......................................... 37 20 1/2 24 5/8 $ 0.04
Fourth Quarter......................................... 31 20 1/8 27 1/5 $ 0.04 $0.16
1999
First Quarter.......................................... 28 7/8 20 20 $ 0.05
Second Quarter......................................... 25 1/2 17 1/2 19 1/2 $ 0.05
Third Quarter.......................................... 25 19 1/3 20 $ 0.05
Fourth Quarter......................................... 22 7/8 17 17 4/5 $ 0.05 $0.20
</TABLE>
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 24, 2000, the Corporation's Board of Directors approved an increase
in the first quarter dividend to $.06 per share, payable in March, 2000.
Dividends paid by Irwin Union Bank to the Corporation are restricted by banking
law.
SALES OF UNREGISTERED SECURITIES:
In July, 1999, the Corporation issued $30 million of 7.58% subordinated
debt, callable in ten years at par, in an institutional private placement. The
proceeds will be used to strengthen the Corporation's capital base.
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ITEM 6. SELECTED FINANCIAL DATA
FIVE-YEAR SELECTED FINANCIAL DATA
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<CAPTION>
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
For the Year:
Net Revenues.................. $ 271,445 $ 276,760 $ 205,469 $ 181,117 $ 143,374
Other Operating Expense....... 214,111 221,206 158,818 143,829 110,925
Net Income.................... 33,156 30,503 24,444 22,428 20,083
Return on Average Equity...... 21.51% 22.84% 19.80% 20.58% 22.60%
Return on Average Assets...... 2.01 1.85 1.94 1.95 2.28
Dividend Payout Ratio......... 12.93 11.39 12.74 12.15 12.36
Per share:*
Net Income -- Basic........... $ 1.54 $ 1.40 $ 1.10 $ 0.99 $ 0.89
Net Income -- Diluted......... 1.51 1.38 1.08 0.98 0.88
Cash Dividends................ 0.20 0.16 0.14 0.12 0.11
Book Value.................... 7.55 6.70 5.82 5.23 4.38
Market Value at December
31,........................ 17.81 27.20 20.94 12.38 9.97
At year end:
Assets........................ $ 1,680,847 $ 1,946,179 $ 1,496,794 $ 1,300,122 $ 1,037,541
Deposits...................... 870,318 1,009,211 719,596 640,153 563,999
Mortgage Loans Held for
Sale....................... 508,997 936,788 528,739 446,898 378,658
Loans and Leases, Net......... 724,869 547,103 602,281 526,175 407,904
Shareholders' Equity.......... 159,296 145,233 127,983 118,903 99,216
Owned first mortgage servicing
portfolio.................. 10,488,112 11,242,470 10,713,549 10,810,988 10,301,914
Managed home equity
portfolio.................. 842,403 581,241 358,166 230,450 86,691
Equity to Assets Ratio........ 9.48% 7.46% 8.55% 9.15% 9.56%
Risk-based Capital Ratio...... 13.50 12.25 14.85 12.88 14.49
Leverage Ratio (Tier one)..... 12.77 10.51 12.06 9.84 10.57
Averages:
Assets........................ $ 1,651,010 $ 1,650,384 $ 1,262,714 $ 1,151,535 $ 882,164
Equity........................ 154,143 133,563 123,483 108,970 88,867
Shares
Outstanding* -- Basic...... 21,530 21,732 22,326 22,716 22,560
Shares
Outstanding* -- Diluted.... 21,886 22,139 22,722 23,030 22,860
</TABLE>
- -------------------------
* Adjusted for stock splits
8
<PAGE> 11
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Management's discussion and analysis should be read in conjunction with the
accompanying consolidated financial statements, footnotes, and tables. This
discussion and other sections of this report contain forward-looking statements
that are based on management's expectations, estimates, projections and
assumptions. Words such as "expects," "anticipates," "intends," "are likely,"
"estimates," "outlook," "assumption," and similar expressions are intended to
identify forward-looking statements, which include but are not limited to
projections of business strategies and future activities. These statements are
not guarantees of future performance and involve uncertainties that are
difficult to predict. Actual future results may differ materially from what is
projected due to a variety of factors, including, but not limited to, unexpected
changes in interest rates or in the economies served by the Corporation,
competition from other financial service providers, unanticipated difficulties
in expanding the Corporation's businesses, availability of appropriate
investment opportunities, legislative or regulatory changes, or governmental
changes in monetary or fiscal policy.
CONSOLIDATED OVERVIEW
Irwin Financial Corporation's results in 1999 were up significantly from
1998. The Corporation's home equity lending business experienced a significant
improvement in earnings as a result of a more favorable competitive environment
and a reduction in loan prepayment activity. Results at the Corporation's
commercial bank also improved in connection with growth in its commercial loan
portfolio. However, a rising interest rate environment led to a reduction in
loan originations and lower net income at the Corporation's mortgage banking
line of business, partially offsetting the improvements at the Corporation's
other lines of business. Results in 1999 and 1998 include one-time after-tax
gains of $1.1 million and $3.1 million from a change in statutory tax rates and
the sale of the majority of assets of the medical equipment leasing business,
respectively.
<TABLE>
<CAPTION>
1999 % CHANGE 1998 % CHANGE 1997
---- -------- ---- -------- ----
<S> <C> <C> <C> <C> <C>
Net Income ($ Millions)............................. $33.2 8.7% $30.5 36.6% $24.4
Basic Earnings per Share*........................... 1.54 10.0 1.40 40.0 1.10
Diluted Earnings per Share*......................... 1.51 9.4 1.38 39.8 1.08
Return on Average Equity............................ 21.51% -- 22.84% -- 19.80%
Return on Average Assets............................ 2.01% -- 1.85% -- 1.94%
*Adjusted for Stock Split
</TABLE>
EARNINGS BY LINE OF BUSINESS
Irwin Financial Corporation is composed of five principal lines of business:
- Mortgage banking
- Commercial banking
- Home equity lending
- Equipment leasing
- Venture capital
9
<PAGE> 12
EARNINGS:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Mortgage Banking............................................ $23,063 $28,853 $21,300
Commercial Banking.......................................... 7,345 6,509 5,587
Home Equity Lending......................................... 12,606 (6,668) 1,710
Equipment Leasing........................................... (843) -- --
Venture Capital............................................. 656 -- --
Other (including parent, medical equipment leasing, and
consolidating entries).................................... (9,671) 1,809 (4,153)
------- ------- -------
$33,156 $30,503 $24,444
======= ======= =======
</TABLE>
SUMMARY OF QUARTERLY FINANCIAL INFORMATION:
<TABLE>
<CAPTION>
1999
----------------------------------------
FOURTH THIRD SECOND FIRST
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Interest income......................................... $32,900 $31,644 $30,323 $31,746
Interest expense........................................ 15,336 13,103 12,541 13,814
Provision for loan and lease losses..................... 548 364 2,330 1,201
Non-interest income..................................... 47,281 48,627 53,518 54,643
Non-interest expense.................................... 52,991 51,186 54,823 55,111
Income taxes............................................ 2,272 5,733 5,360 6,116
------- ------- ------- -------
Net income.............................................. 9,034 9,885 8,787 10,147
------- ------- ------- -------
Distribution on company obligated mandatorily redeemable
preferred securities of subsidiary trust.............. 1,174 1,174 1,174 1,175
------- ------- ------- -------
Net income available to common shareholders............. $ 7,860 $ 8,711 $ 7,613 $ 8,972
======= ======= ======= =======
Earnings per share of common stock:
Basic................................................. $ 0.37 $ 0.41 $ 0.35 $ 0.41
Diluted............................................... $ 0.36 $ 0.40 $ 0.35 $ 0.41
</TABLE>
<TABLE>
<CAPTION>
1998
----------------------------------------
FOURTH THIRD SECOND FIRST
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Interest income......................................... $30,183 $33,649 $31,946 $27,409
Interest expense........................................ 13,094 18,256 15,435 12,504
Provision for loan and lease losses..................... 1,350 1,951 1,056 1,638
Non-interest income..................................... 60,472 59,258 50,089 49,038
Non-interest expense.................................... 64,575 54,749 52,697 49,185
Income taxes............................................ 4,162 6,684 4,627 4,881
------- ------- ------- -------
Net income.............................................. 7,474 11,267 8,220 8,239
------- ------- ------- -------
Distribution on company obligated mandatorily redeemable
preferred securities of subsidiary trust.............. 1,174 1,174 1,174 1,175
------- ------- ------- -------
Net income available to common shareholders............. $ 6,300 $10,093 $ 7,046 $ 7,064
======= ======= ======= =======
Earnings per share of common stock:
Basic*................................................ $ 0.29 $ 0.47 $ 0.32 $ 0.32
Diluted*.............................................. $ 0.29 $ 0.46 $ 0.32 $ 0.31
</TABLE>
10
<PAGE> 13
<TABLE>
<CAPTION>
1997
----------------------------------------
FOURTH THIRD SECOND FIRST
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Interest income......................................... $27,597 $26,237 $23,127 $22,480
Interest expense........................................ 12,989 11,705 10,032 9,856
Provision for loan and lease losses..................... 1,374 2,042 2,019 803
Non-interest income..................................... 45,970 40,018 35,551 35,309
Non-interest expense.................................... 46,458 39,033 35,837 37,490
Income taxes............................................ 5,404 4,989 3,851 3,490
------- ------- ------- -------
Net income.............................................. 7,342 8,486 6,939 6,150
------- ------- ------- -------
Distribution on company obligated mandatorily redeemable
preferred securities of subsidiary trust.............. 1,174 1,174 1,171 954
------- ------- ------- -------
Net income available to common shareholders............. $ 6,168 $ 7,312 $ 5,768 $ 5,196
======= ======= ======= =======
Earnings per share of common stock:
Basic*................................................ $ 0.28 $ 0.33 $ 0.26 $ 0.23
Diluted*.............................................. $ 0.28 $ 0.33 $ 0.26 $ 0.23
</TABLE>
- -------------------------
*Adjusted for the May 27, 1998 two-for-one stock split
MORTGAGE BANKING
BUSINESS PROFILE: MORTGAGE BANKING
SELECTED FINANCIAL DATA:
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
SELECTED INCOME STATEMENT DATA:
Net interest income................. $ 21,745 $ 26,244 $ 17,577 $ 17,178 $ 13,415
Provision for loan losses........... (1,998) (1,721) (1,383) (455) (125)
Loan origination fees............... 46,311 59,328 41,045 43,463 31,871
Gain on sale of loans............... 43,599 55,245 22,213 26,179 18,929
Loan servicing fees................. 54,247 52,217 50,194 45,573 36,087
Amortization and impairment of
servicing assets, net of
hedging.......................... (24,566) (29,805) (15,843) (13,897) (5,774)
Gain on sale of servicing........... 37,801 43,308 32,631 16,378 15,271
Other income........................ 3,628 2,422 1,223 891 787
---------- ---------- ---------- ---------- ----------
Total net revenue................ 180,767 207,238 147,657 135,310 110,461
Operating expense................... 144,915 159,192 111,367 101,215 78,479
---------- ---------- ---------- ---------- ----------
Income before tax................... 35,852 48,046 36,290 34,095 31,982
Tax................................. 12,789 19,193 14,990 13,673 12,651
---------- ---------- ---------- ---------- ----------
Net income....................... $ 23,063 $ 28,853 $ 21,300 $ 20,422 $ 19,331
========== ========== ========== ========== ==========
SELECTED BALANCE SHEET DATA AT END OF PERIOD:
Mortgage loans held for sale........ $ 277,614 $ 697,542 $ 528,739 $ 446,897 $ 378,658
Mortgage servicing asset............ 132,648 113,131 81,610 71,715 51,783
Total assets........................ 549,966 1,020,249 792,007 629,528 514,525
Short-term debt..................... 217,691 430,859 429,451 339,688 296,417
Long-term debt...................... 223 2,839 54 4,914 2,300
Shareholders' equity................ 98,556 104,696 81,058 66,182 55,811
SELECTED OPERATING DATA:
Mortgage loan originations.......... $5,876,750 $8,944,615 $5,397,338 $5,085,625 $3,559,310
Servicing portfolio:
Balance at December 31........... 10,488,112 11,242,470 10,713,549 10,810,988 10,301,914
Weighted average coupon rate..... 7.51% 7.56% 7.85% 7.83% 7.83%
Weighted average servicing fee... 0.44 0.43 0.40 0.38 0.38
Servicing sold as a % of
production....................... 79.9 54.6 71.8 60.9 28.4
</TABLE>
11
<PAGE> 14
OVERVIEW & STRATEGY:
Irwin Mortgage Corporation originates, sells, and services residential
mortgage loans throughout the U.S. 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 branches (retail), third party
sources (wholesale), and to a limited degree, the Internet. Potential borrowers
are identified principally through relationships maintained with housing
intermediaries including realtors, home builders, and brokers.
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.
1999 REVIEW:
Net income from mortgage banking was $23.1 million in 1999, a decrease of
20.1% from 1998 results of $28.9 million and an increase of 8.3% over 1997
results of $21.3 million. Return on average equity was 22.6% in 1999 compared to
31.5% in 1998 and 29.6% in 1997. The 1999 decline was the result of a rising
interest rate environment which slowed production activity throughout the
mortgage banking industry.
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Total originations:...................................... $5,876,750 $8,944,615 $5,397,338
Percent retail loans..................................... 37.4% 35.9% 36.6%
Percent wholesale loans.................................. 57.1 59.7 57.2
Percent brokered......................................... 5.5 4.4 6.2
Percent refinances....................................... 28.6 49.5 22.5
</TABLE>
As a result of rising interest rates, the mortgage banking line of business
experienced a decline in 1999 loan originations as compared to 1998 when a
record number of originations were made in a low interest rate environment. Loan
originations in 1999 of $5.9 billion were down 34.3% from 1998 and up 8.9% from
1997. Income from mortgage loan originations totaled $46.3 million which was
21.9% lower than 1998 and 12.8% more than 1997. Refinances accounted for 28.6%
of 1999 originations as compared to 49.5% in 1998 and 22.5% in 1997. Because
certain fees are not collected for loan refinancings, loan origination fees did
not decrease at the same rate as loan production in 1999.
Gains from the sale of mortgage loans totaled $43.6 million in 1999,
compared to $55.2 million in 1998 and $22.2 million in 1997. Lower loan
production levels accounted for the 1999 decline.
In 1997, the mortgage bank entered into the nonprime mortgage market which
is composed of borrowers who do not qualify under the underwriting guidelines
established by the government-sponsored secondary market agencies for conforming
first mortgages. Total mortgage banking originations include $148.8 million,
$173.5 million, and $66.1 million of nonprime loans in 1999, 1998, and 1997,
respectively. These loans are sold on a non-recourse, service-released basis to
private investors.
12
<PAGE> 15
MORTGAGE SERVICING:
SERVICING PORTFOLIO:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
(PORTFOLIO IN BILLIONS)
<S> <C> <C> <C>
Beginning Portfolio......................................... $ 11.2 $ 10.7 $ 10.8
Add:
Originated Servicing Rights............................... 2.3 3.2 2.0
Purchased Servicing Rights................................ 3.6 5.7 3.4
Deduct:
Sale of Servicing Rights.................................. (4.7) (4.9) (3.9)
Run-off*.................................................. (1.9) (3.5) (1.6)
------- ------- -------
Ending Portfolio............................................ $ 10.5 $ 11.2 $ 10.7
======= ======= =======
Number of Loans............................................. 133,990 135,833 141,737
Average Loan Size........................................... $84,500 $82,900 $82,902
Percent GNMA................................................ 70% 65% 59%
Percent FHLMC............................................... 4 5 11
Percent FNMA................................................ 8 13 19
Delinquency ratio........................................... 7.1% 5.0% 6.0%
Capitalized servicing as a percentage of servicing
portfolio................................................. 1.3% 1.0% 0.8%
</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 $10.5 billion at December 31, 1999,
down 7.1% from the same date in 1998 and 2.5% from 1997. The mortgage bank has
followed a strategy to manage the interest rate risk associated with the
servicing portfolio by selling servicing rights on those loans that are most
likely to refinance should the interest rates decline. The following table sets
forth certain information regarding the interest rates of loans in the servicing
portfolio at December 31:
SERVICING PORTFOLIO BY INTEREST RATE:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Less than 7%................................................ 14.9% 15.1% 8.4%
7.00 -- 7.99%............................................... 53.3 52.7 42.5
8.00 -- 8.99%............................................... 29.9 27.6 42.6
9% or greater............................................... 1.9 4.6 6.5
---- ---- ----
Total.................................................. 100% 100% 100%
==== ==== ====
</TABLE>
Mortgage servicing assets are recorded at the lower of their cost or market
value, and a valuation allowance is recorded for any impairment. At December 31,
1999, the market value of these assets was estimated to be $180.5 million, or
$47.9 million greater than the carrying value on the balance sheet.
LOAN ADMINISTRATION INCOME:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Servicing fees..................................... $54,247 $52,217 $50,194
Amortization and impairment of servicing assets.... 13,758 34,123 15,843
------- ------- -------
Net loan administration income..................... $40,489 $18,094 $34,351
======= ======= =======
</TABLE>
Servicing fee income is recognized by collecting fees which normally range
between 25 and 44 basis points annually on the principal amount of the
underlying mortgages. Servicing fee income increased 3.9%
13
<PAGE> 16
from 1998 and 8.1% from 1997, reflecting the increase in the average size of the
servicing portfolio throughout the year.
The value of mortgage servicing assets must be amortized over their
estimated life and adjusted for impairment which could result from interest rate
changes. The amortization and impairment of servicing assets declined 59.7% from
1998 and 13.2% from 1997. The decline is the result of the rising interest rate
environment during 1999 that slowed prepayments in underlying loans and reduced
impairment levels in mortgage servicing assets. The 1999 improvement in mortgage
servicing asset amortization and impairment was partially offset by
corresponding losses on hedging activities. The mortgage bank used options on
treasury futures to offset the interest rate risk associated with its mortgage
servicing assets. By December 31, 1999, options on the mortgage bank's balance
sheet had expired. In 1999, the mortgage bank recorded a $10.8 million market
loss on options held during the year. This compares with a market gain of $4.3
million recorded in 1998. No gains or losses were recorded in 1997. The mortgage
bank does not satisfy the criteria for "hedge accounting." As a result, options
are accounted for as trading assets, and changes in fair value are adjusted
through earnings as trading gains or losses.
SALE OF MORTGAGE SERVICING:
The mortgage banking business maintains the flexibility to either sell
servicing for current 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 interest rate risk tolerance of the business.
Servicing totaling $4.7 billion was sold in 1999 generating a $37.8 million
pre-tax gain on those sales. This compares to servicing sales of $4.9 billion in
1998 that produced $43.3 million pre-tax gain and $3.9 billion in 1997 that
produced a $32.6 million pre-tax gain. Had all servicing been retained, gains on
sales of loans would have been higher than what was recorded, with a
corresponding reduction in gains from sales of servicing. Servicing sales in
1999 represented 79.9% of 1999 originations versus 1998 sales which were 54.6%
of that year's originations and 1997 sales which were 71.8% of originations.
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 $21.7 million in 1999,
compared to $26.2 million in 1998 and $17.6 million in 1997. The 1999 decline
resulted from the decreased loan production during the year.
OPERATING EXPENSES:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
($ IN THOUSANDS)
<S> <C> <C> <C>
Salaries and employee benefits.................. $ 88,473 $101,477 $ 71,389
Other expenses.................................. 56,442 57,715 39,978
-------- -------- --------
Total operating expenses........................ $144,915 $159,192 $111,367
======== ======== ========
Number of employees at December 31,............. 1,492 1,752 1,411
</TABLE>
Total operating expenses decreased 9.0% from 1998 and increased 30.1% from
1997. Salaries and employee benefits were down 12.8% from 1998 and up 23.9% from
1997. The decrease reflects the decreased production activities throughout 1999.
2000 OUTLOOK:
The mortgage bank anticipates a decline in loan production throughout the
mortgage industry in 2000. Interest rates are expected to remain stable, causing
refinance activity to return to normal historic levels.
14
<PAGE> 17
Competitive pricing pressures are expected to increase and significant growth is
expected in the volume of Internet-originated loans.
The mortgage bank's strategy for competing in this changing environment is
comprised of three components. The first is to grow its loan production
activities through the expansion of retail branches and increased nonprime
production. This includes expansion to new markets that are thought to be
underserved by the mortgage industry and that value the mortgage bank's
service-oriented approach to lending. The second component is to improve profit
margins as a result of an important process improvement initiative undertaken in
1999 for loan production activities. This initiative uses e-commerce to increase
efficiency by allowing the mortgage bank to process, underwrite, and close loans
in a highly automated environment. The final component is to manage servicing
asset impairment risk by continuing with the strategy of selling servicing
rights associated with those loans that are most likely to refinance in the
event of a decline in interest rates.
COMMERCIAL BANKING
BUSINESS PROFILE: COMMERCIAL BANK
SELECTED FINANCIAL DATA:
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
SELECTED INCOME STATEMENT DATA:
Interest income...................... $ 54,452 $ 46,056 $ 41,115 $ 35,645 $ 31,965
Interest expense..................... 23,525 20,957 19,120 15,908 14,048
Provision for loan losses............ 1,813 1,820 2,201 2,284 2,038
-------- -------- -------- -------- --------
Net interest income after provision
for loan losses.................... 29,114 23,279 19,794 17,453 15,879
Non-interest income.................. 11,797 11,712 9,256 9,298 7,187
-------- -------- -------- -------- --------
Total net revenues................. 40,911 34,991 29,050 26,751 23,066
-------- -------- -------- -------- --------
Operating expense.................... 29,080 24,515 20,194 20,225 17,582
-------- -------- -------- -------- --------
Income before taxes.................. 11,831 10,476 8,856 6,526 5,484
Income taxes......................... 4,486 3,967 3,269 2,272 1,845
-------- -------- -------- -------- --------
Net income......................... $ 7,345 $ 6,509 $ 5,587 $ 4,254 $ 3,639
======== ======== ======== ======== ========
SELECTED BALANCE SHEET DATA AT END OF
PERIOD:
Loans................................ $720,493 $514,950 $410,272 $336,580 $310,083
Allowance for loan losses............ 7,375 6,680 5,525 4,790 3,668
Total assets......................... 789,560 607,992 539,233 503,507 440,035
Deposits............................. 710,899 567,526 486,481 453,879 400,149
Shareholders' equity................. 63,678 46,990 38,390 33,967 28,722
DAILY AVERAGES:
Assets............................... $682,632 $567,116 $515,666 $459,893 $405,249
Deposits............................. 619,308 514,694 463,851 413,935 358,343
Loans................................ 600,877 462,319 370,313 329,658 284,713
Allowance for loan losses............ 7,317 6,308 5,332 4,367 3,566
Shareholders' equity................. 52,867 42,026 36,232 31,863 27,661
Shareholders' equity to assets....... 7.74% 7.41% 7.03% 6.93% 6.83%
</TABLE>
OVERVIEW & STRATEGY:
Commercial banking is conducted by Irwin Union Bank and Trust Company. In
recent years, the commercial bank has implemented a growth plan that calls for
expansion into new markets outside of its traditional markets in south-central
Indiana using de novo offices staffed by senior commercial loan officers who
have experience with other commercial banks. As a result, the commercial bank
currently operates in
15
<PAGE> 18
nine counties in Indiana as well as Kalamazoo and Grandville (Grand Rapids),
Michigan; Brentwood (St. Louis), Missouri; and Carson City, Nevada. The
commercial bank's strategy in these and other possible new markets is to
position itself with local management and staff that can provide highly
personalized, flexible service to commercial customers who have been negatively
affected by bank consolidation.
1999 REVIEW:
Commercial banking net income in 1999 totaled $7.3 million, up 12.9% from
1998 net income of $6.5 million and 31.5% from 1997 net income of $5.6 million.
The return on average equity was 13.89% in 1999 as compared to 15.49% in 1998
and 15.42% in 1997. Results in 1999 reflect the continued growth and expansion
efforts of the commercial bank into new markets.
NET INTEREST REVENUE:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Net interest revenue on a taxable equivalent basis*......... $ 31,151 $ 25,367 $ 22,206
Average interest earning assets............................. 645,809 534,439 481,707
Net interest margin......................................... 4.82% 4.75% 4.61%
</TABLE>
- -------------------------
* Reflects what net interest revenue would be if all interest income were
subject to federal and state income taxes.
Net interest revenue on a taxable equivalent basis increased 22.8% from
1998 and 40.3% from 1997 to a total of $31.2 million. Net interest revenue is
the product of net interest margin and average earning assets. The 1999
improvement resulted from an increase in the commercial bank's loan portfolio as
a result of its expansion efforts.
Net interest margin was up for the year, coming in at 4.82% for 1999
compared to 4.75% in 1998 and 4.61% in 1997. This improvement resulted from a
change in mix of the commercial bank's assets in 1999 to a lower percentage of
investments and federal funds sold and a higher percentage of loans.
NONINTEREST INCOME:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Trust fees.................................................. $ 2,257 $ 2,136 $2,178
Service charges on deposit accounts......................... 2,021 2,076 1,831
Insurance commissions, fees and premiums.................... 1,635 1,265 1,044
Gain from sale of loans..................................... 901 1,346 1,088
Loan servicing fees......................................... 1,458 1,745 972
Brokerage fees.............................................. 1,546 1,050 757
Other....................................................... 1,979 2,094 1,386
------- ------- ------
Total noninterest income............................... $11,797 $11,712 $9,256
======= ======= ======
</TABLE>
Reflective of the growth at the commercial bank from expansion into new
markets, noninterest income was up 0.7% from 1998 and 27.5% from 1997.
OPERATING EXPENSES:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Salaries and employee benefits.............................. $16,881 $14,142 $11,333
Other expenses.............................................. 12,199 10,373 8,861
------- ------- -------
Total operating expenses............................... $29,080 $24,515 $20,194
======= ======= =======
Number of employees at December 31,......................... 395 353 339
</TABLE>
16
<PAGE> 19
Operating expenses increased 18.6% from 1998 and 44.0% from 1997. Costs
associated with expanding new products and markets contributed to the increase.
BALANCE SHEET:
Total assets averaged $789.6 million in 1999, compared to $608.0 million in
1998 and $539.2 million in 1997. Average earning assets for the year were $645.8
million, up $111.4 million or 20.8% from 1998 and up $164.1 million or 34.1%
from 1997. The most significant component of the 1999 increase was loans which
were up $138.6 million on average in 1999 as a result of the commercial bank's
expansion efforts into new markets. Average deposits were $619.3 million in
1999, 20.3% higher than 1998 and 33.5% higher than 1997.
The commercial bank's risk-based assets ratio was 10.0% at December 31,
1999 compared to 10.1% at the end of 1998 and 10.3% at the end of 1997. Banks
having a ratio of at least 10% are considered to be well capitalized by bank
regulatory authorities.
In 1999, Irwin Financial Corporation commenced offerings under its
Preferred Share Program targeted to investors in new commercial banking markets
who can assist with deposit growth. Approximately 95 thousand shares under this
plan were issued in the first quarter of 2000. More information on this subject
is contained in the section on Capital.
CREDIT QUALITY:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
At December 31,
Nonperforming loans....................................... $1,168 $1,858 $2,856
Other real estate owned................................... -- 48 413
------ ------ ------
Total nonperforming assets................................ $1,168 $1,906 $3,269
====== ====== ======
Nonperforming assets as a percentage of total assets...... 0.15% 0.31% 0.60%
====== ====== ======
Allowance for loan losses................................. $7,375 $6,680 $5,525
====== ====== ======
Allowance for loan losses as a percentage of loans........ 1.02% 1.30% 1.35%
====== ====== ======
For the Year Ended December 31,
Provision for loan losses................................. $1,813 $1,820 $2,201
====== ====== ======
Net charge-offs........................................... $ 963 $ 592 $1,277
====== ====== ======
</TABLE>
2000 OUTLOOK:
The commercial bank expects significant consolidation to continue in the
banking and financial services industry. The commercial bank plans to capitalize
on the opportunities brought about by consolidation by continuing its growth
strategy for small business lending in new markets throughout the United States.
The focus will be to provide personalized lending services to small businesses
in cities affected by consolidation, using experienced lenders with a strong
presence in those cities.
In addition to its lending expansion, the commercial bank looks to develop
further its insurance and investment operations in order to provide a full range
of financial services to its customers.
17
<PAGE> 20
HOME EQUITY LENDING
BUSINESS PROFILE: HOME EQUITY LENDING
SELECTED FINANCIAL DATA:
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
SELECTED INCOME STATEMENT DATA:
Net interest income...................... $ 18,852 $ 5,495 $ 7,129 $ 7,755 $ 1,828
Provision for loan losses................ -- (513) (1,404) (983) (363)
Gain on sale of loans.................... 23,998 18,610 15,908 7,798 2,985
Loan servicing fees...................... 4,907 3,323 2,145 710 13
Amortization and impairment of servicing
assets................................ (1,445) (842) (334) -- --
Trading gains (losses)................... 2,512 (2,952) (1,961) -- --
Other income............................. 1,742 820 294 140 10
-------- -------- -------- -------- -------
Total net revenues.................... 50,566 23,941 21,777 15,420 4,473
Operating expenses....................... 35,557 30,609 20,067 16,236 7,693
-------- -------- -------- -------- -------
Income before taxes...................... 15,009 (6,668) 1,710 (816) (3,220)
Income taxes............................. 2,403 -- -- -- --
-------- -------- -------- -------- -------
Net Income............................ $ 12,606 $ (6,668) $ 1,710 $ (816) $(3,220)
======== ======== ======== ======== =======
SELECTED BALANCE SHEET DATA AT END OF
PERIOD:
Home equity loans, net of loan loss
reserve............................... $ 1,904 $ 7,832 $111,216 $117,588 $36,225
Home equity loans held for sale.......... 231,382 242,702 -- -- --
Interest-only strips..................... 57,833 32,321 22,134 12,661 4,446
Total assets............................. 339,640 311,974 165,242 145,113 50,845
Short-term debt.......................... 260,184 226,998 146,219 129,627 24,981
Shareholders' equity..................... 58,733 40,272 10,936 13,221 5,538
SELECTED OPERATING DATA:
Loan Volume:
Lines of credit.......................... $ 93,185 $ 98,855 $115,274 $ 80,724 $87,420
Loans.................................... 346,322 290,818 99,244 88,396 --
Servicing portfolio:
Balance at December 31,.................. 842,403 581,241 358,166 230,450 86,691
Weighted average coupon rate:
Lines of credit....................... 13.48% 11.89% 12.96% 12.80% 13.61%
Loans................................. 13.85% 11.86% 13.97% 14.08% --
</TABLE>
OVERVIEW & STRATEGY:
Irwin Home Equity operates from offices located in San Ramon, California
and was incorporated in late 1994. The company markets home equity loans through
direct mail, telemarketing, and Internet-based solicitations.
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 non
production 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.
18
<PAGE> 21
1999 REVIEW:
The home equity lending business recorded net income of $12.6 million in
1999 compared with a pre-tax loss of $6.7 million in 1998 and pre-tax income of
$1.7 million in 1997. Results in 1999 are net of $2.4 million of income taxes.
It was not until late in 1999 that the net operating losses carried forward by
the business were fully used and the business began recording income tax
expense. Until that point, income taxes for this business were recorded at the
parent company.
The improvement in 1999 earnings was the result of higher interest rates,
improved competitive environments, and efforts made by the business to shift a
substantial portion of its portfolio to product with less prepayment
sensitivity.
LOAN ORIGINATIONS AND SECURITIZATIONS:
During 1999, the home equity lending business originated and acquired
$439.5 million of home equity loans, up 12.8% from 1998 volume of $389.7 million
and 104.9% from 1997 volume of $214.5 million. The home equity lending business
had $233.3 million of loans and loans held for sale at December 31, 1999. This
compares to $250.5 million at the end of 1998 and $111.2 million at the end of
1997.
The business securitized $420.1 million of loans in 1999 which generated a
pre-tax gain of $24.0 million. This compares to a $18.6 million gain recognized
in 1998 on the sale of $294.3 million of loans, and a $15.9 million gain
recognized in 1997 on the sale of $210.1 million of loans.
SERVICING PORTFOLIO:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Balance at December 31,..................................... $842,403 $581,241 $358,166
Delinquency ratio........................................... 1.9% 1.3% 1.5%
</TABLE>
The home equity lending business continues to service loans it has
securitized. The servicing portfolio, which includes loans held on the balance
sheet as well as securitized loans, increased 44.9% from 1998 and 135.2% from
1997. The business earns a servicing fee equal to one percent of the outstanding
principal balance of the securitized loans. Servicing fee income increased to
$4.9 million in 1999 from $3.3 million in 1998 and $2.1 million in 1997.
The home equity lending business recognizes on its balance sheet a
servicing asset equal to the discounted cash flows of estimated future servicing
income and expense. At December 31, 1999, net servicing assets totaled $4.5
million, compared with $3.1 million at the end of 1998 and $1.3 million at the
end of 1997. Servicing asset amortization and impairment expense totaled $1.4
million in 1999, up from $0.8 million in 1998 and $0.3 million in 1997.
When the home equity lending business securitizes loans, the business
recognizes an interest-only strip equal to the discounted future cash flows of
the interest paid by borrowers less servicing fees, expected losses, and
interest paid to investors. Interest-only strips had a balance of $57.8 million
at December 31, 1999, compared with $32.3 million at the same date in 1998 and
$22.1 million in 1997. Interest-only strips are recorded on the balance sheet as
trading assets and are carried at their market values. Market values are
determined using assumptions about the duration and performance of the
securitized loans and are calculated on the basis of the expected timing of cash
receipts by the company. Included in these assumptions are estimates of the
lives of the loans, expected losses, and appropriate discount rates. Management
continually evaluates these assumptions to determine the proper carrying values
of these items on the balance sheet. Adjustments to carrying values are recorded
as trading gains or losses. During 1999, the home equity lending business
recorded a trading gain of $2.5 million. This compares with trading losses of
$3.0 million recorded in 1998 and $2.0 million recorded in 1997. The 1999
improvement was the result of the rising interest rate environment combined with
efforts made to shift a substantial portion of the home equity loan portfolio
into product with less prepayment sensitivity.
19
<PAGE> 22
At the end of 1999 the company owned rights to excess interest in eight
securitizations. All interest-only strips have been computed by discounting
expected cash flows using a discount rate of 15%. The other assumptions used in
the calculation of carrying value for these interest-only strips at December 31,
1999, were as follows:
<TABLE>
<CAPTION>
PREPAYMENT REMAINING CONSTANT EXPECTED
PENALTY AVERAGE PREPAYMENT ANNUAL
POOL PRODUCT TYPE FEATURES LIFE (YEARS) RATE LOSSES
---- ------------ ---------- ------------ ---------- --------
<C> <S> <C> <C> <C> <C>
1995-2 Home Equity Lines of Credit................ No 1.40 26% 2.8%
1996-1 Home Equity Lines of Credit................ No 1.57 39 0.65
No 1.17 38 0.65
Home Equity Loans..........................
1997-1 Home Equity Lines of Credit................ No 2.03 38 0.65
No 1.61 37 0.65
Home Equity Loans..........................
1997-2 Home Equity Lines of Credit................ No 2.38 34 0.65
No 1.87 36 0.65
Home Equity Loans..........................
1998-1 First Mortgage Loans....................... Mixed 3.06 10 0.50
Mixed 3.06 31 0.50
Home Equity Loans..........................
Mixed 3.69 23 0.50
Home Equity Lines of Credit................
Mixed 3.69 22 2.00
125 LTV Home Equity Lines of Credit........
1999-1 First Mortgage Loans....................... Yes 4.71 8 0.25
No 4.71 16 0.25
First Mortgage Loans.......................
Yes 4.71 21 0.50
Home Equity Lines of Credit................
No 4.71 40 0.50
Home Equity Lines of Credit................
1999-2 First Mortgage Loans....................... Yes 3.68 8 0.25
No 3.68 16 0.25
First Mortgage Loans.......................
Yes 3.68 20 0.50
Home Equity Loans..........................
No 3.68 40 0.50
Home Equity Loans..........................
Yes 3.68 15 2.00
125 LTV Home Equity Loans..................
No 3.68 25 2.00
125 LTV Home Equity Loans..................
1999-3 First Mortgage Loans....................... Yes 3.96 8 0.25
No 3.96 16 0.25
First Mortgage Loans.......................
Yes 3.96 18 0.50
Home Equity Loans..........................
No 3.96 35 0.50
Home Equity Loans..........................
Yes 3.96 14 2.00
125 LTV Home Equity Loans..................
No 3.96 23 2.00
125 LTV Home Equity Loans..................
Yes 3.96 14 2.00
125 LTV Home Equity Lines of Credit........
No 3.96 23 2.00
125 LTV Home Equity Lines of Credit........
No 3.96 23 3.00
Home Equity Loans -- Immediate Credit......
No 3.96 20 3.00
Home Equity Lines of Credit -- Immediate
Credit...................................
</TABLE>
NET INTEREST INCOME:
Net interest income was $18.9 million in 1999, compared to $5.5 million in
1998 and $7.1 million in 1997. Included in interest income is income earned on
the interest-only strip, net of amortization expense. This amounted to $6.5
million in 1999, compared to $0.4 million in 1998 and $1.8 million in 1997.
20
<PAGE> 23
OPERATING EXPENSES:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Salaries and employee benefits.............................. $21,383 $15,480 $11,175
Marketing and development................................... 3,410 5,314 2,731
Other....................................................... 10,764 9,815 6,161
------- ------- -------
Total operating expenses............................... $35,557 $30,609 $20,067
======= ======= =======
Number of employees at December 31,......................... 372 266 189
</TABLE>
Operating expenses increased 16.2% from 1998 and 77.2% from 1997,
reflecting the growth in the company's managed portfolio and growth in
production.
2000 OUTLOOK:
The competitive environment became more favorable during 1999 with the exit
of many home equity lenders who did not survive the competitive pressures and
significant refinance activity of 1998. Management anticipates that the
competitive environment will remain favorable, and consumer demand for home
equity products is expected to remain high in 2000, allowing the home equity
business to continue its expansion of operations.
The home equity business anticipates increasing its loan production volume
in 2000, particularly its high loan-to-value ratio loans. Moreover, distribution
channels will be expanded by the addition of brokers, correspondents and
Internet sites. The home equity business will also continue an initiative begun
in 1999 of purchasing creditworthy, profitable loans produced by other lenders.
EQUIPMENT LEASING
During 1999, the Corporation also formed a new leasing subsidiary, Irwin
Business Finance. The company began organizing in the second quarter of 1999 and
began lease originations in early 2000. During 1999, the leasing line of
business incurred a pre-tax loss of $0.84 million.
2000 OUTLOOK:
The leasing industry experienced strong growth in new business volume in
1998 and 1999, and 2000 is expected to continue this trend. However, because of
aggressive competition, margins in the industry have been compressed as lessors
have been slow to increase rates offered to customers despite the rising
interest rate environment.
Irwin Business Finance has developed a strategy to cultivate relationships
with brokers as well as direct relationships with vendors to originate the
majority of its lease production. The business expects to differentiate itself
from its competition by providing a high level of customer service while
providing new and improved ways of doing business. Additionally, the business
will explore opportunities for the development of direct e-commerce capability.
VENTURE CAPITAL
During 1999, the Corporation formed Irwin Ventures, Inc., a venture capital
company which makes minority investments in early-stage financial
services-related businesses. Its primary focus is on businesses which plan to
use the Internet, or other forms of technology, as a key component of their
competitive strategy. The company seeks to make investments in opportunities
where the financial services experience and expertise of Irwin Ventures'
management team can add superior value to innovative companies. The
Corporation's Board of Directors has approved an allocation of up to 10% of the
Corporation's capital base to support this subsidiary. During 1999, the venture
capital line of business recorded net income of $0.7 million which resulted
principally from valuation increases in its sole portfolio investment.
21
<PAGE> 24
Venture capital investments held by Irwin Ventures, Inc. are carried at
market value with changes in market value recognized in other income. The
investment committee of Irwin Ventures determines the value of the investments
at the end of each reporting period and the values are adjusted based upon
review of the investee's financial results, condition, and prospectus. Changes
in estimated market values can also be made when an event such as a new funding
round from other private equity investors would cause a change in estimated
market value. In the future, should the company have investments in
publicly-traded securities, it would look to the traded market value of the
investments as the basis of its mark-to-market.
At December 31, 1999, the business had an investment in a single company as
follows:
<TABLE>
<CAPTION>
INVESTMENT CARRYING
COMPANY PUBLIC/PRIVATE AT COST VALUE
------- -------------- ---------- --------
<S> <C> <C> <C>
LiveCapital.com..................................... Private $1.76 million $3.07 million
</TABLE>
2000 OUTLOOK:
Numerous opportunities have arisen in the past few years for
technology-focused private equity investment in the financial service industry.
Irwin Ventures believes this will continue in 2000 as improvements in technology
and entreprenuerial innovation continue to change the manner in which financial
services are delivered to businesses and consumers.
Irwin Ventures anticipates that its organizational efforts in 1999 will
allow it to identify and fund attractive opportunities in 2000 and beyond. In
early 2000, Irwin Ventures increased its investment in LiveCapital.com by $0.2
million and increased the carrying value of the entire investment by
approximately $4.5 million after-tax, reflecting the valuation used in the
fourth round of funding and the introduction into the investment of three new
private equity investors. In addition, during the first quarter, the company
made a $1.2 million first-round investment in Bremer Associates. Bremer produces
enterprise application integration software, a subset of the general category of
software known as middleware and which provides a seamless integration among
mainframe, client/server, and web-based applications. It has had successful
implementations for the federal government and for a private sector financial
services company. Irwin Ventures was the only private equity investor in the
first round of funding.
OTHER (INCLUDES PARENT, MEDICAL EQUIPMENT LEASING, AND CONSOLIDATING ENTRIES):
Results at the Corporation's other businesses totaled a net loss of $9.7
million in 1999, compared with net income of $1.8 million in 1998 and a net loss
of $4.2 million in 1997. The components of these other results are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Parent Company operating results............................ $(6,269) $(3,722) $(3,438)
Income tax benefit (expense) generated at home equity line
of business............................................... (3,601) 2,667 (684)
Income tax benefit generated at leasing line of business.... 335 NA NA
------- ------- -------
Total parent company................................. (9,535) (1,055) (4,122)
Medical equipment leasing line of business.................. (257) 2,898 151
Other, net.................................................. 121 (34) (182)
------- ------- -------
$(9,671) $ 1,809 $(4,153)
======= ======= =======
</TABLE>
Parent company operating losses were higher in 1999 as a result of
increased net interest expense for funding to support the growth of its
subsidiaries. Tax benefits resulting from the operating losses generated by the
home equity line of business were recorded by the parent company until late 1999
when all of the losses carried forward had been used.
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
22
<PAGE> 25
another. Intercompany income and expenses are calculated on an arm's-length,
external market basis and are eliminated in consolidation.
CONSOLIDATED INCOME STATEMENT ANALYSIS
Pre-tax income for 1999 totaled $52.6 million, up 3.5% from 1998 and 24.8%
from 1997. The effective income tax rate was 37% in 1999, 40.0% in 1998, and
42.0% in 1997. The lower rate in 1999 was the result of a change in the Indiana
Financial Institutions Tax which took effect in 1999. The change in tax law
caused the Corporation's current year income taxes to decline and also resulted
in a reduction in the Corporation's deferred Indiana income tax liability.
Net interest revenue for 1999 totaled $67.4 million, up 16.4% from 1998 and
38.6% from 1997. The net interest margin was 5.36% in 1999 compared to 4.41% in
1998 and 4.95% in 1997. These improvements were primarily due to a shift in
composition of mortgage loans held for sale from a concentration in first
mortgage loans in 1997 and 1998 to a greater share of higher-yielding second
mortgage loans in 1999.
The following table sets forth, for the periods indicated, a summary of the
changes in interest income and interest expense 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>
<CAPTION>
1999 OVER 1998 1998 OVER 1997
------------------------------ -----------------------------
VOLUME RATE TOTAL VOLUME RATE TOTAL
------ ---- ----- ------ ---- -----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest Income:
Loans and leases................... $ 5,135 $(8,509) $(3,374) $ 1,562 $(5,753) $(4,191)
Mortgage loans held for sale....... (15,716) 17,238 1,522 26,051 4,417 30,468
Taxable investment securities...... (277) 102 (175) (731) (577) (1,308)
Tax-exempt securities.............. (32) (11) (43) 96 (81) 15
Trading assets..................... 312 5,155 5,467 474 (1,509) (1,035)
Interest bearing deposits with
financial institutions.......... 314 (250) 64 (84) (210) (294)
Federal funds sold................. (56) (23) (79) 47 10 57
-------- ------- ------- ------- ------- -------
Total......................... (10,320) 13,702 3,382 27,415 (3,703) 23,712
-------- ------- ------- ------- ------- -------
Interest Expense:
Money market checking.............. 320 (735) (415) 199 4 203
Money market savings............... (13) (19) (32) (82) (2) (84)
Regular savings.................... (282) (202) (484) (265) (124) (389)
Time deposits...................... 4,627 (1,845) 2,782 3,856 (178) 3,678
Short-term borrowings.............. (10,013) 3,332 (6,681) 13,280 (1,963) 11,317
Long-term debt..................... 269 138 407 (35) 17 (18)
-------- ------- ------- ------- ------- -------
Total......................... (5,092) 669 (4,423) 16,953 (2,246) 14,707
-------- ------- ------- ------- ------- -------
Net Interest Revenue............... $ (5,228) $13,033 $ 7,805 $10,462 $(1,457) $ 9,005
======== ======= ======= ======= ======= =======
</TABLE>
The consolidated provision for loan and lease losses for 1999 was $4.4
million, down 25.9% from 1998 and 28.8% from 1997. More information on this
subject is contained in the section on credit risk.
Other income decreased 6.8% in 1999 to $204.1 million. This compares to
$218.9 million in 1998 and $156.8 million in 1997. Improvements at the
commercial banking and home equity lines of business were offset by declines at
the mortgage bank.
Other expenses in 1999 totaled $214.1 million, down 3.2% from 1998 and up
34.8% from 1997. The 1999 decrease in consolidated other expense of $7.1 million
was mostly due to lower loan production costs at the mortgage bank, mitigated by
operating expenses associated with higher commercial and home equity loan
production.
23
<PAGE> 26
CONSOLIDATED BALANCE SHEET ANALYSIS
Total assets at year-end 1999 were $1.68 billion, down 13.6% from 1998 and
up 12.3% from 1997. 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 $1.65 billion in 1999, relatively unchanged
from 1998 and up 30.8% from 1997. Although loans held for sale were down as a
result of the decreased production activities at the Corporation's mortgage
banking line of business, it was partially offset by the increased loan
production at the commercial banking and home equity lines of business.
The Corporation's commercial loans are extended primarily to midwest
regional businesses. 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>
AT DECEMBER 31,
--------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Commercial, financial and agricultural.... $443,985 $278,834 $212,095 $179,650 $150,312
Real estate construction.................. 121,803 97,253 73,279 48,991 36,126
Real estate mortgage...................... 115,265 123,980 222,818 214,696 108,351
Consumer.................................. 48,936 51,730 39,985 38,371 67,756
Direct lease financing.................... 3,890 6,375 78,079 62,372 60,979
Unearned income........................... (455) (1,181) (15,163) (11,030) (10,999)
-------- -------- -------- -------- --------
Total................................ $733,424 $556,991 $611,093 $533,050 $412,525
======== ======== ======== ======== ========
</TABLE>
MATURITY DISTRIBUTION OF LOANS:
<TABLE>
<CAPTION>
AT DECEMBER 31, 1999
------------------------------------------------
AFTER ONE
BUT
WITHIN WITHIN AFTER
ONE YEAR FIVE YEARS FIVE YEARS TOTAL
-------- ---------- ---------- -----
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Commercial, financial and agricultural.............. $105,045 $117,297 $221,643 $443,985
Real estate construction............................ 77,502 17,797 26,504 121,803
Real estate mortgage................................ 11,341 20,732 83,192 115,265
Consumer loans...................................... 4,141 27,383 17,412 48,936
Direct lease financing.............................. 2,777 658 -- 3,435
-------- -------- -------- --------
Total.......................................... $733,424
========
Loans due after one year with:
Fixed interest rates.............................. $218,010
Variable interest rates........................... 314,608
--------
Total.......................................... $532,618
========
</TABLE>
On average, investment securities decreased $4.2 million in 1999 to $44.1
million. The decline resulted from a change at the commercial bank to shift
assets from investment securities to commercial loans. The carrying value of
investments at December 31, 1999 includes $117 thousand of unrealized losses on
available-for-sale securities.
24
<PAGE> 27
MATURITY DISTRIBUTION OF INVESTMENT SECURITIES:
<TABLE>
<CAPTION>
AT DECEMBER 31, 1999
-------------------------------------------------
AFTER ONE AFTER FIVE
BUT BUT
WITHIN WITHIN WITHIN AFTER
ONE YEAR FIVE YEARS TEN YEARS TEN YEARS
-------- ---------- ---------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
U.S. Treasury and government obligations.............. $ -- $7,664 $ -- $18,508
Obligations of states and political subdivisions...... 100 1,022 1,060 2,524
Mortgage-backed securities............................ -- 276 3,501 2,274
Other................................................. 579 -- -- --
---- ------ ------ -------
Total............................................ $679 $8,962 $4,561 $23,306
==== ====== ====== =======
Weighted Average Yield
Held-to-maturity.................................... 6.65% 6.52% 7.08% 7.81%
Available-for-sale.................................. 5.21% 6.29% 6.75% 6.83%
</TABLE>
Average yield represents the weighted average yield to maturity. The yield
on state and municipal obligations has been calculated on a fully taxable
equivalent basis, assuming a 35% tax rate.
Deposits averaged $944.6 million during 1999, compared to $878.6 million in
1998 and $691.8 million in 1997. Demand deposits were down 6.2% on average, or
$23.6 million from 1998. 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 Irwin Mortgage. These escrow accounts
averaged $283.9 million in 1999 and $342.2 million in 1998.
Maturities of certificates of deposit of $100 thousand or more are set
forth in the following table:
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------------------
1999 1998 1997
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Under 3 months.............................................. $ 92,965 $ 81,850 $60,379
3 to 6 months............................................... 28,387 17,107 10,123
6 to 12 months.............................................. 40,292 17,807 10,115
after 12 months............................................. 78,872 25,207 5,411
-------- -------- -------
Total.................................................. $240,516 $141,971 $86,028
======== ======== =======
</TABLE>
Short-term borrowings averaged $406.5 million in 1999, compared to $568.8
million in 1998 and $365.0 million in 1997. The decrease in 1999 is due to the
decrease in mortgage loan closings in 1999.
25
<PAGE> 28
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 amount of borrowings and the average
amounts of borrowings as well as weighted average interest rates for the last
three years:
<TABLE>
<CAPTION>
REPURCHASE
AGREEMENTS &
DRAFTS PAYABLE FEDERAL HOME
RELATED TO LOAN BANK LINES OF
MORTGAGE COMMERCIAL BORROWINGS & CREDIT AND
LOAN CLOSINGS PAPER FEDERAL FUNDS OTHER
-------------- ---------- ------------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Year Ended December 31:
1999........................................ $ 46,796 $21,894 $173,000 $231,413
1998........................................ 172,126 26,617 266,000 180,118
1997........................................ 240,659 16,375 142,650 112,591
Weighted average interest rates at year-end:
1999........................................ 5.35% 6.00% 5.46% 6.02%
1998........................................ 5.43 5.78 4.93 6.01
1997........................................ 5.88 6.00 6.18 6.87
Maximum amount outstanding at any month's end:
1999........................................ $162,251 $28,215 $249,500 $308,422
1998........................................ 301,849 29,691 316,200 249,519
1997........................................ 274,363 16,375 142,650 151,111
Average amount outstanding during the year:
1999........................................ $105,591 $24,810 $108,422 $167,665
1998........................................ 218,342 26,166 115,479 208,785
1997........................................ 237,953 12,738 48,823 65,490
Weighted average interest rate during the
year:
1999........................................ 5.40% 5.82% 5.40% 5.45%
1998........................................ 5.84 6.05 5.63 6.20
1997........................................ 5.82 6.01 6.00 6.65
</TABLE>
In 1999, the Corporation issued $30 million of subordinated debt securities
which bear interest at a rate of 7.58% and mature in 2014.
CAPITAL
Shareholders' equity averaged $154.1 million in 1999, up 15.4% from 1998
and 24.8% from 1997. Year-end shareholders' equity of $159.3 million represented
book value per share of $7.55, compared to $6.70 and $5.82 at December 31, 1998
and 1997, respectively. The Corporation paid an aggregate of $4.3 million in
dividends on the Corporation's common stock in 1999, compared to $3.5 million in
1998 and $3.1 million in 1997.
Prior to the adoption of a new mortgage banking accounting standard 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.
Management estimated this value to be approximately $29.0 million after-tax or
$1.37 per share at December 31, 1999. This estimate was based on the market
value of servicing assets related to loans with similar interest rates and
servicing fees. 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 as the underlying loans pay off, servicing fees are collected,
and the income from servicing the loans is fully accreted into earnings.
26
<PAGE> 29
CAPITAL
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Tier 1 capital........................................... $ 207,627 $ 191,806 $ 169,366
Tier 2 capital........................................... 38,556 11,505 16,170
---------- ---------- ----------
Total risk-based capital....................... 246,183 203,311 185,536
Risk weighted assets..................................... 1,823,633 1,649,227 1,249,385
Risk-based ratios:
Tier 1 capital......................................... 11.39% 11.63% 13.56%
Total capital.......................................... 13.50 12.25 14.85
Tier 1 leverage ratio.................................... 12.77 10.51 12.06
Ending shareholders' equity to assets.................... 9.48 7.46 8.55
Average shareholders' equity to assets................... 9.33 8.09 9.78
</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 regulators' viewpoint and its own analysis of
the capital structure and leverage amounts that are consistent with underlying
business risks.
At year-end 1999, the Corporation's total risk-adjusted capital ratio was
13.5% compared to 10.0% which is required to be considered well capitalized by
the regulators. The Corporation's ending equity to assets ratio for 1999 was
9.48%. However, as previously discussed, temporary conditions that existed at
year-end make the average balance sheet ratio a more accurate measure of
capital. The Corporation's average equity to assets for 1999 was 9.33%.
In July 1999, the Corporation raised $30 million of 7.58%, 15-year
subordinated debt which is callable in 10 years at par, to strengthen and add
flexibility in the management of its capital base. The debt was privately
placed. These funds qualify as Tier 2 capital. The securities are not
convertible into common stock of the Corporation.
To assist Irwin Union Bank in generating deposits in new markets, Irwin
Financial Corporation initiated a program in 1999 to issue Irwin Financial
non-coupon, convertible preferred shares to certain qualified investors thought
to be in a position to support deposit growth. Under the program, each preferred
share is issued for cash at approximately the market price of one common share.
A preferred share automatically converts into one common share at a determined
future date. If a banking branch reaches a specified level of deposits prior to
the conversion date, the number of common shares into which a preferred share
converts is increased by as much as 25%, depending upon the date on which the
deposit level was attained. A maximum of approximately 400,000 shares of
preferred stock are issuable under the program. Offerings for a portion of these
shares are expected to be completed in the first quarter of 2000.
In January 1997, the Corporation issued $50 million of 9.25% trust
preferred securities through a trust created and controlled by the Corporation.
The securities 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.
In 1999, the Corporation repurchased approximately 800,000 common shares.
Over the past three years repurchases of $46 million of common stock were made
in an effort to restructure capital to reach a more optimal mix between common
equity and less expensive, hybrid forms of capital.
27
<PAGE> 30
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
commercial banking and home equity lending lines of business. 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 portfolios of the
commercial bank and the home equity lending business have the most potential to
have a significant effect on consolidated financial performance.
The commercial 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.
An allowance for loan losses is established as an estimate of the probable
credit losses on the loans held by the Corporation. A specific allowance is
determined by evaluating those loans which are either substandard or have the
potential to become substandard. In general, commercial loans, mortgage loans,
and leases are evaluated individually. Consumer loans, including home equity
loans, are generally evaluated as a group. A specific allowance is set at a
level which management considers sufficient to cover probable losses on these
loans. A general allowance is determined by analyzing historical loss experience
by loan type and then adjusting these loss factors for current conditions not
reflected in prior experience. The allowance for loan losses is an estimate
which is based on management's judgement combined with a quantitative process of
evaluation and analysis.
Loans and leases that are determined by management to be uncollectible are
charged against the allowance. The allowance is increased by provisions against
income and recoveries of loans and leases previously charged off. The table on
page 29 analyzes the consolidated allowance for loan and lease losses over the
past five years.
Net charge-offs in 1999 were $1.7 million, down 11.1% from 1998, and 33.7%
from 1997. Net charge-offs to average loans and leases was 0.27% compared to
0.33% in 1998 and 0.46% in 1997. At year-end, the allowance for loan and lease
losses was 1.17% of outstanding loans and leases, compared to 1.78% in 1998 and
1.44% in 1997.
Total nonperforming loans and leases at year-end were $4.3 million,
compared to $11.7 million at the end of 1998 and $7.7 million at the end of
1997. Nonperforming loans and leases as a percent of total loans and leases were
0.59% at year-end 1999 compared to 2.11% in 1998 and 1.26% in 1997. The 1999
decline occurred primarily at the Corporation's mortgage bank in connection with
a change in the classification of nonperforming loans to the "loans held for
sale" category to more accurately reflect management's intent with respect to
the ultimate disposition of these assets. These loans are carried at the lower
of their cost or market value. Any impairment provision is recorded through the
markdown of the loans to their market value.
Other real estate owned totaled $3.8 million at December 31, 1999, up from
$3.5 million in 1998 and $1.8 in 1997. Total nonperforming assets were $8.1
million, or 0.48% of total assets at December 31, 1999, as compared to $15.4
million, or 0.78%, at year-end 1998 and $9.5 million, or 0.64% at the end of
1997.
28
<PAGE> 31
ANALYSIS OF ALLOWANCE FOR LOAN AND LEASE LOSSES:
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Loans and leases outstanding at end of
period, net of unearned income.......... $733,424 $556,991 $611,093 $533,050 $412,525
======== ======== ======== ======== ========
Average loans and leases for the period,
net of unearned income.................. $642,435 $585,025 $569,325 $496,729 $369,220
======== ======== ======== ======== ========
Allowance for possible loan and lease
losses:
Balance beginning of period............... $ 9,888 $ 8,812 $ 6,875 $ 5,033 $ 4,174
Charge-offs:
Commercial, financial and agricultural
loans................................ 646 246 800 495 845
Real estate mortgage loans.............. -- 232 356 37 2
Consumer loans.......................... 813 761 734 959 953
Lease financing......................... 772 1,263 1,255 883 690
-------- -------- -------- -------- --------
Total charge-offs.................... 2,231 2,502 3,145 2,374 2,490
-------- -------- -------- -------- --------
Recoveries:
Commercial, financial and agricultural
loans................................ 32 14 32 133 2
Real estate mortgage loans.............. -- -- 1 -- --
Consumer loans.......................... 307 362 246 214 197
Lease financing......................... 164 183 259 246 191
-------- -------- -------- -------- --------
Total recoveries..................... 503 559 538 593 390
-------- -------- -------- -------- --------
Net charge-offs........................... (1,728) (1,943) (2,607) (1,781) (2,100)
Reduction due to sale of loans............ (3,126) (2,976) (1,694) (930) (239)
Reclassification of loans to loans held
for sale................................ (922) -- -- -- --
Provision charged to expense.............. 4,443 5,995 6,238 4,553 3,198
-------- -------- -------- -------- --------
Balance end of period..................... $ 8,555 $ 9,888 $ 8,812 $ 6,875 $ 5,033
======== ======== ======== ======== ========
Allowance for possible loan and lease
losses:
By category of loans and leases:
Commercial, financial and agricultural
loans................................... $ 5,634 $ 4,240 $ 5,118 $ 3,676 $ 2,349
Real estate mortgage loans................ 1,194 3,299 2,170 281 413
Consumer loans............................ 1,270 1,747 446 1,974 1,420
Lease financing........................... 457 602 1,078 944 851
-------- -------- -------- -------- --------
Totals............................... $ 8,555 $ 9,888 $ 8,812 $ 6,875 $ 5,033
======== ======== ======== ======== ========
Ratios:
Net charge-offs to average loans and
leases.................................. 0.27% 0.33% 0.46% 0.36% 0.57%
Allowance for possible loan losses to
average loans and leases................ 1.33% 1.69% 1.55% 1.38% 1.36%
Allowance for possible loan losses to
loans and leases outstanding............ 1.17% 1.78% 1.44% 1.29% 1.22%
</TABLE>
29
<PAGE> 32
NONPERFORMING ASSETS:
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Accruing loans past due 90 days or more:
Commercial, financial, and agricultural loans.... $ 58 $ 252 $ 382 $ 256 $ 418
Real estate mortgage loans....................... -- 291 534 234 --
Consumer loans................................... 89 89 86 205 202
------ ------- ------ ------ ------
147 632 1,002 695 620
------ ------- ------ ------ ------
Nonaccrual loans and leases:
Commercial, financial and agricultural loans..... 748 1,052 777 2,739 670
Real estate mortgage loans....................... 3,049 9,449 5,333 2,481 848
Consumer loans................................... 273 174 63 -- --
Lease financing.................................. 88 426 506 1,261 415
------ ------- ------ ------ ------
4,158 11,101 6,679 6,481 1,933
------ ------- ------ ------ ------
Total nonperforming loans and leases.......... 4,305 11,733 7,681 7,176 2,553
Other real estate owned.......................... 3,752 3,506 1,828 2,239 295
------ ------- ------ ------ ------
Total nonperforming assets.................... $8,057 $15,239 $9,509 $9,415 $2,848
====== ======= ====== ====== ======
Nonperforming loans and leases to total loans and
leases........................................... 0.59% 2.13% 1.26% 1.35% 0.62%
====== ======= ====== ====== ======
Nonperforming assets to total assets............... 0.48% 0.78% 0.64% 0.72% 0.27%
====== ======= ====== ====== ======
</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.
Renegotiated and Nonaccrual Loans:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Interest which would have been recorded under original terms
Renegotiated.............................................. $-- $ -- $ --
Nonaccrual................................................ 80 323 302
--- ---- ----
80 323 302
--- ---- ----
Interest income actually recorded
Renegotiated.............................................. -- -- --
Nonaccrual................................................ 33 47 36
--- ---- ----
33 47 36
--- ---- ----
Reduction in interest income................................ $47 $276 $266
=== ==== ====
</TABLE>
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.
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
the Corporation's lines of business.
30
<PAGE> 33
Since loans are 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 1999, this ratio was 84.3%. The Corporation is
able to maintain this position due to the position in mortgage loans held for
sale. These loans carry an interest rate equal to the current market rate for
first and second lien mortgage loans. However, liquidity is significantly
improved since nearly 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 RISK
Interest rate risk refers to the potential for changes in market rates of
interest to cause changes in net interest income and in the market value of
assets and liabilities.
The Asset-Liability Management Committees of each of the Corporation's
lines of business monitor the repricing structure of both assets and liabilities
over various time horizons and exposure to changes in interest rates is
evaluated by modeling the repricing characteristics of the instruments under
multiple rate scenarios. Rate sensitivities can typically be managed by
controlling the maturity of loans, securities, and deposits and through the use
of prepayment penalties. The Corporation may also use financial futures or
interest rate swaps from time to time.
The commercial banking and leasing lines of business assume interest rate
risk in the pricing of their loan and lease products and mitigate this risk by
managing the duration of the liabilities they raise to support their portfolios.
The mortgage banking business assumes interest rate sensitivity by entering into
commitments to extend loans to borrowers at a fixed price for a limited period
of time. Loans are held temporarily until a pool is formed. The mortgage bank
buys commitments to deliver loans at a fixed price to manage risk.
The mortgage bank and the home equity company are also exposed to interest
rate risk through their ownership of servicing assets and excess servicing. As
discussed in the analysis of each line of business earlier in this report, the
companies also manage their risk using a variety of techniques including:
maintaining a strong production operation which offsets the interest rate risk,
selective sales of the servicing rights, match funded through asset-backed
securities sales, and the use of financial hedges. In some cases, the
Corporation uses internal hedges to allow for the risk characteristics of one
line of business to offset those of another line.
The following tables show management's estimate of the present value of
interest-sensitive assets and liabilities, as well as off-balance sheet
financial contracts as of December 31, 1999, at then current interest rates as
well as simulated rates 1.0% and 2.0% above and below those interest rates. Two
tables are presented:
1. An economic analysis showing the net present value impact of changes in
interest rates, and
2. An accounting analysis showing the same net present value impact,
adjusted for the expected GAAP treatment of the assets and liabilities
under the scenarios shown.
The analyses do not take into account the book values of the Corporation's
non-interest sensitive assets and liabilities, such as cash, accounts
receivable, and fixed assets, the value of which is not directly determined by
interest rates.
As noted above, the analyses are based on discounted cash flows over the
remaining estimated lives of the financial instruments. The total measurement of
the Corporation's exposure to interest rate risk as presented in the following
tables may not be representative of the actual values which might result from a
higher or lower rate environment. Such environments would likely result in
different lending and borrowing strategies by the Corporation, designed in part
to further mitigate the effect on the value of, and the net earnings generated
from, the Corporation's net assets. In addition, they do not reflect activities
not traditionally measured as financial assets or liabilities. Principal among
these activities for the Corporation would be the change in mortgage loan
production and the earnings stream the Corporation derives therefrom.
ECONOMIC VALUE CHANGE METHOD
The figures suggest, based on an economic assessment of balance sheet and
off-balance sheet financial assets and before any initiatives to mitigate the
impact of changing interest rates, that the present value of the
31
<PAGE> 34
Corporation's interest-sensitive assets and liabilities would decline in a
falling rate environment principally due to the Corporation's investments in
mortgage servicing rights, and would also decline in a rising rate environment
due to the influence of its loan portfolio. To mitigate the impact of rising
rates, the Corporation periodically sells certain mortgage servicing rights
where the risk profile indicates more downside risk than upside opportunity. The
Corporation mitigates the risk of falling rates by maintaining a strong
production operation which increases in value as interest rates fall.
<TABLE>
<CAPTION>
PRESENT VALUE
AT DECEMBER 31, 1999
INSTANTANEOUS CHANGE IN INTEREST RATES OF:
-----------------------------------------------------------------------
-2% -1% CURRENT +1% +2%
--- --- ------- --- ---
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
INTEREST SENSITIVE ASSETS
Loans and Other Assets........ $ 848,487 $ 831,024 $ 814,495 $ 798,729 $ 783,640
Loans Held for Sale........... 325,486 323,109 320,878 318,721 316,582
Mortgage Servicing Rights..... 109,275 161,169 186,311 189,606 187,020
Interest-only Strips.......... 63,564 67,217 70,914 74,529 77,974
----------- ----------- ----------- ----------- -----------
TOTAL INTEREST SENSITIVE
ASSETS................. 1,346,812 1,382,519 1,392,598 1,381,585 1,365,216
----------- ----------- ----------- ----------- -----------
INTEREST SENSITIVE LIABILITIES
Deposits...................... (718,020) (714,355) (710,762) (707,256) (703,865)
Short-term Borrowings......... (272,340) (272,224) (272,103) (271,979) (271,852)
Long-term Debt................ (84,985) (80,905) (76,501) (71,434) (66,409)
----------- ----------- ----------- ----------- -----------
TOTAL INTEREST SENSITIVE
LIABILITIES............ (1,075,345) (1,067,484) (1,059,366) (1,050,669) (1,042,126)
----------- ----------- ----------- ----------- -----------
INTEREST SENSITIVE OFF-BALANCE
SHEET ITEMS................. 370 892 1,751 2,956 4,263
----------- ----------- ----------- ----------- -----------
NET SENSITIVITY AS OF DECEMBER
31, 1999.................... $ 271,837 $ 315,927 $ 334,983 $ 333,872 $ 327,353
=========== =========== =========== =========== ===========
POTENTIAL CHANGE.............. $ (63,146) $ (19,056) $ -- $ (1,111) $ (7,630)
=========== =========== =========== =========== ===========
NET SENSITIVITY AS OF DECEMBER
31, 1998.................... $ 50,666 $ 78,781 $ 103,290 $ 126,155 $ 140,238
=========== =========== =========== =========== ===========
POTENTIAL CHANGE.............. $ (52,624) $ (24,509) $ -- $ 22,865 $ 36,948
=========== =========== =========== =========== ===========
</TABLE>
32
<PAGE> 35
GAAP-BASED VALUE CHANGE METHOD
The figures suggest, based on an accounting assessment of balance sheet and
off-balance sheet financial assets and before any initiatives to mitigate the
impact of changing interest rates, that the present value of the Corporation's
interest-sensitive assets and liabilities would decline in a falling rate
environment principally due to the Corporation's investments in mortgage
servicing rights and would increase in a rising rate environment.
<TABLE>
<CAPTION>
PRESENT VALUE
AT DECEMBER 31, 1999
INSTANTANEOUS CHANGE IN INTEREST RATES OF:
--------------------------------------------------------
-2% -1% CURRENT +1% +2%
--- --- ------- --- ---
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
INTEREST SENSITIVE ASSETS
Loans and Other Assets(1)................. $ -- $ -- $ -- $ -- $ --
Loans Held for Sale....................... 325,487 323,109 320,877 318,721 316,582
Mortgage Servicing Rights................. 100,690 118,556 125,105 125,215 125,215
Interest-only Strips...................... 63,564 67,217 70,914 74,529 77,974
-------- -------- -------- -------- --------
TOTAL INTEREST SENSITIVE ASSETS...... 489,741 508,882 516,896 518,465 519,771
-------- -------- -------- -------- --------
INTEREST SENSITIVE LIABILITIES
Deposits(1)............................... -- -- -- -- --
Short-term Borrowings(1).................. -- -- -- -- --
Long-term Debt(1)......................... -- -- -- -- --
TOTAL INTEREST SENSITIVE
LIABILITIES(1)..................... -- -- -- -- --
-------- -------- -------- -------- --------
INTEREST SENSITIVE OFF-BALANCE SHEET
ITEMS................................... 370 892 1,751 2,956 4,263
-------- -------- -------- -------- --------
NET SENSITIVITY AS OF DECEMBER 31, 1999... $490,111 $509,774 $518,647 $521,421 $524,034
======== ======== ======== ======== ========
POTENTIAL CHANGE.......................... $(28,536) $ (8,873) $ -- $ 2,774 $ 5,387
======== ======== ======== ======== ========
</TABLE>
- -------------------------
(1) Not marked to market under GAAP.
DERIVATIVE FINANCIAL INSTRUMENTS
The Corporation hedges its interest rate risk on mortgage loans held for
sale using mandatory commitments to sell the loans at a future date. The value
of mortgage servicing assets is periodically hedged using options on treasury
futures. At December 31, 1999, all such options had expired. Certain of the
Corporation's interest-only strips are hedged using interest rate caps which had
a fair value of $1.2 million at December 31, 1999, and a notional amount of
$50.0 million. Options on treasury futures and interest rate caps are classified
as trading securities on the balance sheet and carried at their market values.
Adjustments to market values are recorded as trading gains or losses on the
income statement. In 1999, the Corporation recorded $8.2 million of net trading
losses related to these derivative products, compared with $1.4 million in gains
in 1998. No gains or losses were reported in 1997.
33
<PAGE> 36
Daily Average Consolidated Balance Sheets, Interest Rates and Interest
Differential are on the next three pages.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1999
------------------------------------
AVERAGE YIELD/
BALANCE INTEREST RATE
------- -------- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Assets
Interest-earning assets:
Interest-bearing deposits with banks................... $ 22,334 $ 771 3.45%
Federal funds sold..................................... 12,293 652 5.30
Trading assets......................................... 45,637 6,275 13.75
Taxable investment securities.......................... 39,208 2,984 7.61
Tax-exempt investment securities(1).................... 4,916 410 8.34
Loans held for sale.................................... 575,592 66,682 11.58
Loans and leases, net of unearned income(1)(2)......... 642,435 49,063 7.64
---------- -------- ------
Total interest-earning assets..................... 1,342,415 126,837 9.45%
---------- -------- ======
Noninterest-earning assets:
Cash and due from banks................................ 44,775
Premises and equipment, net............................ 22,077
Other assets........................................... 251,251
Less allowance for possible loan and lease losses...... (9,508)
----------
Total assets...................................... $1,651,010
==========
Liabilities and Shareholders' Equity
Interest-bearing liabilities:
Money market checking.................................. $ 104,641 $ 1,430 1.37%
Money market savings................................... 6,801 165 2.43
Regular savings........................................ 36,867 1,015 2.75
Time deposits.......................................... 438,505 22,610 5.16
Short-term borrowings.................................. 406,488 28,425 6.99
Long-term debt......................................... 13,631 1,149 8.43
---------- -------- ------
Total interest-bearing liabilities................ 1,006,933 54,794 5.44%
---------- -------- ======
Noninterest-bearing liabilities:
Demand deposits........................................ 357,771
Other liabilities...................................... 132,163
Shareholders' equity...................................... 154,143
----------
Total liabilities and shareholders' equity........ $1,651,010
==========
Net interest income.................................... $ 72,043
========
Net interest income to average interest-earning
assets............................................... 5.36%
======
</TABLE>
- -------------------------
Notes:
(1) Interest is reported on a fully taxable equivalent basis. The prevailing
federal income tax rate was 35%.
(2) For purposes of these computations, nonaccrual loans are included in daily
average loan amounts outstanding.
34
<PAGE> 37
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31, 1998
--------------------------------
AVERAGE YIELD/
BALANCE INTEREST RATE
------- -------- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Assets
Interest-earning assets:
Interest-bearing deposits with banks................... $ 15,462 $ 707 4.57%
Federal funds sold..................................... 13,317 731 5.49
Trading assets......................................... 32,920 311 .94
Taxable investment securities.......................... 42,988 3,655 8.50
Tax-exempt investment securities(1).................... 5,291 453 8.56
Loans held for sale.................................... 758,640 65,155 8.59
Loans and leases, net of unearned income(1)(2)......... 585,025 52,443 8.96
---------- -------- -----
Total interest-earning assets..................... 1,453,643 123,455 8.49%
---------- -------- =====
Noninterest-earning assets:
Cash and due from banks................................ 50,754
Premises and equipment, net............................ 18,944
Other assets........................................... 135,693
Less allowance for possible loan and lease losses...... (8,650)
----------
Total assets...................................... $1,650,384
==========
Liabilities and Shareholders' Equity
Interest-bearing liabilities:
Money market checking.................................. $ 89,158 $ 1,845 2.07%
Money market savings................................... 7,281 197 2.70
Regular savings........................................ 45,414 1,500 3.30
Time deposits.......................................... 355,431 19,827 5.57
Short-term borrowings.................................. 568,772 35,106 6.17
Long-term debt......................................... 10,245 814 7.94
---------- -------- -----
Total interest-bearing liabilities................ 1,076,301 59,289 5.50%
---------- -------- =====
Noninterest-bearing liabilities:
Demand deposits........................................ 381,343
Other liabilities...................................... 59,177
Shareholders' equity................................... 133,563
----------
Total liabilities and shareholders' equity........ $1,650,384
==========
Net interest income.................................... $ 64,166
========
Net interest income to average interest-earning
assets............................................... 4.41%
=====
</TABLE>
- -------------------------
Notes:
(1) Interest is reported on a fully taxable equivalent basis. The prevailing
federal income tax rate was 35%.
(2) For purposes of these computations, nonaccrual loans are included in daily
average loan amounts outstanding.
35
<PAGE> 38
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31, 1997
--------------------------------
AVERAGE YIELD/
BALANCE INTEREST RATE
------- -------- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Assets
Interest-earning assets
Interest-bearing deposits with banks................... $ 16,887 $ 1,001 5.93%
Federal funds sold..................................... 12,454 674 5.41
Trading assets......................................... 26,178 1,842 7.03
Taxable investment securities.......................... 51,412 4,467 8.68
Tax-exempt investment securities(1).................... 4,336 438 10.10
Loans held for sale.................................... 433,275 34,691 8.01
Loans and leases, net of unearned income(1)(2)......... 569,325 56,629 9.95
---------- ------- ------
Total interest-earning assets..................... 1,113,867 99,742 8.95%
---------- ------- ======
Noninterest-earning assets:
Cash and due from banks................................ 34,347
Premises and equipment, net............................ 18,568
Other assets........................................... 103,682
Less allowance for possible loan and lease losses...... (7,750)
----------
Total assets...................................... $1,262,714
==========
Liabilities and Shareholders' Equity
Interest-bearing liabilities:
Money market checking.................................. $ 79,549 $ 1,643 2.07%
Money market savings................................... 10,267 280 2.73
Regular savings........................................ 52,843 1,889 3.57
Time deposits.......................................... 286,934 16,151 5.63
Short-term borrowings.................................. 365,005 23,788 6.52
Long-term debt......................................... 10,698 831 7.77
---------- ------- ------
Total interest-bearing liabilities................ 805,296 44,582 5.54%
---------- ------- ======
Noninterest-bearing liabilities:
Demand deposits........................................ 262,190
Other liabilities...................................... 71,745
Shareholders' equity...................................... 123,483
----------
Total liabilities and shareholders' equity........ $1,262,714
==========
Net interest income.................................... $55,160
=======
Net interest income to average interest-earning
assets............................................... 4.95%
======
</TABLE>
- -------------------------
Notes:
(1) Interest is reported on a fully taxable equivalent basis. The prevailing
federal income tax rate was 35%.
(2) For purposes of these computations, nonaccrual loans are included in daily
average loan amounts outstanding.
YEAR 2000
The Corporation did not experience any significant Year 2000 related
computer disruptions. The total cost to the Corporation during the 1997-1999
period to ensure its Year 2000 readiness was $2.9 million. The Corporation's
Steering Committee and working groups at each line of business continue to meet
periodically to assure continued data and systems integrity in the post-2000
environment.
36
<PAGE> 39
ITEM 7(A). QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The quantitative and qualitative disclosures about market risk are reported
in the Interest Rate Risk section to Item 7, Managements Discussion and Analysis
of Financial Condition and Results of Operations found on pages 31 through 33.
37
<PAGE> 40
ITEM 8. FINANCIAL STATEMENTS
Management Report on Responsibility for Financial Reporting
The management of Irwin Financial Corporation and its subsidiaries has the
responsibility of preparing the accompanying financial statements and for their
integrity and objectivity. The statements were prepared in conformity with
generally accepted accounting principles and are not misstated due to material
fraud or error. The financial statements include amounts that are based on
management's best estimates and judgments. Management also prepared the other
information in the annual report and is responsible for its accuracy and
consistency with the financial statements.
The Corporation's financial statements have been audited by
PricewaterhouseCoopers LLP, independent certified public accountants elected by
the shareholders. Management has made available to PricewaterhouseCoopers 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 PricewaterhouseCoopers 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. Assessments of the system of internal control are based on
criteria for effective internal control over financial reporting described in
"Internal Control-Integrated Framework" issued by the Committee of Sponsoring
Organizations of the Treadway Commission. 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,
PricewaterhouseCoopers 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 PricewaterhouseCoopers' 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 recognized 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 Guiding Philosophy, which is
publicized throughout the Corporation. This responsibility is also reflected in
the individual Codes of Conduct of each major operating 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.
<TABLE>
<S> <C>
/s/ John A. Nash /s/ Gregory F. Ehlinger
</TABLE>
38
<PAGE> 41
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors
Irwin Financial Corporation
Columbus, Indiana
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of income, of changes in shareholders' equity
and of cash flows present fairly, in all material respects, the financial
position of Irwin Financial Corporation and its subsidiaries at December 31,
1999 and 1998, and the consolidated results of their operations and their cash
flows for each of the three years in the period ended December 31, 1999, in
conformity with accounting principles generally accepted in the United States.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States, which 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, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
Cincinnati, Ohio
January 24, 2000
39
<PAGE> 42
IRWIN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1999 1998
------------ ------------
(IN THOUSANDS, EXCEPT FOR SHARES)
<S> <C> <C>
ASSETS:
Cash and due from banks..................................... $ 47,215 $ 68,942
Federal funds sold.......................................... -- 8,580
---------- ----------
Cash and cash equivalents.............................. 47,215 77,522
Interest-bearing deposits with financial institutions....... 26,785 18,441
Trading assets.............................................. 59,025 32,148
Investment securities -- Note 3............................. 37,508 48,055
Loans held for sale......................................... 508,997 936,788
Loans and leases, net of unearned income -- Note 4.......... 733,424 556,991
Less: Allowance for loan and lease losses -- Note 5......... (8,555) (9,888)
---------- ----------
724,869 547,103
Servicing assets -- Note 6................................. 138,500 117,129
Accounts receivable......................................... 49,415 71,087
Accrued interest receivable................................. 8,430 13,071
Premises and equipment...................................... 23,368 21,382
Other assets................................................ 56,735 63,453
---------- ----------
$1,680,847 $1,946,179
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Deposits
Noninterest-bearing....................................... $ 218,402 $ 477,724
Interest-bearing.......................................... 411,400 389,516
Certificates of deposit over $100......................... 240,516 141,971
---------- ----------
870,318 1,009,211
Short-term borrowings -- Note 9............................. 473,103 644,861
Long-term debt -- Note 10................................... 29,784 2,839
Other liabilities........................................... 100,275 96,036
---------- ----------
Total liabilities.................................... 1,473,480 1,752,947
---------- ----------
Company-obligated mandatorily redeemable preferred
securities of subsidiary trust -- Note 15................. 48,071 47,999
Shareholders' equity
Preferred stock, no par value -- authorized 4,000,000
shares; none issued.................................... -- --
Common stock; no par value -- authorized 40,000,000
shares; issued 23,402,080 shares as of December 31,
1999 and 1998; including 2,297,303 and 1,729,324 shares
in treasury as of December 31, 1999 and 1998,
respectively........................................... 29,965 29,965
Additional paid-in capital.................................. 4,250 2,595
Net unrealized gain (loss) on investment securities net of
deferred income tax liability/(asset) of ($47) in 1999 and
$57 in 1998............................................... (70) 85
Retained earnings........................................... 171,101 142,232
---------- ----------
205,246 174,877
Less treasury stock, at cost................................ (45,950) (29,644)
---------- ----------
Total shareholders' equity.................................. 159,296 145,233
---------- ----------
$1,680,847 $1,946,179
========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
40
<PAGE> 43
IRWIN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------------
1999 1998 1997
---- ---- ----
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<S> <C> <C> <C>
INTEREST INCOME:
Loans held for sale.................................... $ 66,682 $ 65,155 $ 34,691
Loans and leases....................................... 48,978 52,329 56,490
Trading account........................................ 6,275 311 1,842
Investment securities:
Taxable............................................. 3,755 4,362 5,469
Tax-exempt.......................................... 271 299 275
Federal funds sold..................................... 652 731 674
-------- -------- --------
Total interest income.......................... 126,613 123,187 99,441
-------- -------- --------
INTEREST EXPENSE:
Deposits............................................... 25,220 23,369 19,963
Short-term borrowings.................................. 28,425 35,106 23,788
Long-term debt......................................... 1,149 814 831
-------- -------- --------
Total interest expense......................... 54,794 59,289 44,582
-------- -------- --------
Net interest income.................................... 71,819 63,898 54,859
Provision for loan and lease losses -- Note 5.......... 4,443 5,995 6,238
-------- -------- --------
Net interest income after provision for loan and lease
losses.............................................. 67,376 57,903 48,621
-------- -------- --------
OTHER INCOME:
Loan origination fees.................................. 47,007 60,013 41,370
Gain from sales of loans............................... 68,851 75,201 39,210
Loan servicing fees.................................... 60,581 57,284 53,257
Amortization and impairment of servicing asset......... (15,702) (35,388) (16,355)
-------- -------- --------
Net loan administration income......................... 44,879 21,896 36,902
Gain on sale of servicing assets....................... 37,801 43,308 32,631
Trading gains (losses)................................. (8,296) 1,366 (1,961)
Gain from sale of leasing assets....................... -- 5,241 --
Other.................................................. 13,827 11,832 8,696
-------- -------- --------
204,069 218,857 156,848
-------- -------- --------
OTHER EXPENSE:
Salaries............................................... 114,303 120,338 86,533
Pension and other employee benefits.................... 18,402 16,757 13,724
Office expense......................................... 13,181 12,865 10,583
Premises and equipment................................. 24,052 20,214 16,621
Marketing and development.............................. 8,962 11,735 7,697
Other.................................................. 35,211 39,297 23,660
-------- -------- --------
214,111 221,206 158,818
-------- -------- --------
Income before income taxes............................... 57,334 55,554 46,651
Provision for income taxes............................... 19,481 20,354 17,734
-------- -------- --------
37,853 35,200 28,917
Distribution on company-obligated mandatorily redeemable
preferred securities of subsidiary trust............... 4,697 4,697 4,473
-------- -------- --------
Net income available to common shareholders.............. $ 33,156 $ 30,503 $ 24,444
======== ======== ========
Earnings per share of common stock available to
shareholders:
Basic -- Note 17....................................... $ 1.54 $ 1.40 $ 1.10
======== ======== ========
Diluted -- Note 17..................................... $ 1.51 $ 1.38 $ 1.08
======== ======== ========
Dividends per share of common stock.................... $ 0.20 $ 0.16 $ 0.14
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
41
<PAGE> 44
IRWIN FINANCIAL CORPORATION AND SUBSIDIARIES
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE THREE YEARS ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
NET UNREALIZED
GAIN (LOSS) ADDITIONAL
RETAINED ON INVESTMENT COMMON PAID IN TREASURY
TOTAL EARNINGS SECURITIES STOCK CAPITAL STOCK
----- -------- -------------- ------ ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1997....... $118,902 $ 94,084 $ 56 $29,965 $ -- $ (5,203)
Comprehensive Income
Net Income..................... 24,444
Other Comprehensive Income..... (1)
Total....................... 24,443
Cash dividends -- $0.14 per
share*......................... (3,114) (3,114)
Tax benefit on exercise of stock
options........................ 576 576
Purchase of 940,082 shares of
treasury stock*................ (14,412) (14,412)
Sales of 204,238 shares of
treasury stock*................ 1,588 204 1,384
-------- -------- ----- ------- ------ --------
Balance December 31, 1997........ 127,983 115,414 55 29,965 780 (18,231)
-------- -------- ----- ------- ------ --------
Comprehensive Income
Net Income..................... 30,503
Other Comprehensive Income..... 30
Total....................... 30,533
Cash dividends -- $0.16 per
share*......................... (3,473) (3,473)
Tax benefit on exercise of stock
options........................ 1,027 1,027
Purchase of 496,455 shares of
treasury stock*................ (12,593) (12,593)
Sales of 164,411 shares of
treasury stock*................ 1,756 (212) 788 1,180
-------- -------- ----- ------- ------ --------
Balance December 31, 1998........ 145,233 142,232 85 29,965 2,595 (29,644)
-------- -------- ----- ------- ------ --------
Comprehensive Income
Net Income..................... 33,156
Other Comprehensive Income..... (155)
Total....................... 33,001
Cash dividends -- $0.20 per
share.......................... (4,287) (4,287)
Tax benefit on exercise of stock
options........................ 1,055 1,055
Purchase of 800,052 shares of
treasury stock................. (18,314) (18,314)
Sales of 232,073 shares of
treasury stock................. 2,608 600 2,008
-------- -------- ----- ------- ------ --------
Balance December 31, 1999........ $159,296 $171,101 $ (70) $29,965 $4,250 $(45,950)
======== ======== ===== ======= ====== ========
</TABLE>
- -------------------------
* Adjusted for the two-for-one stock split on May 27, 1998
The accompanying notes are an integral part of the consolidated financial
statements.
42
<PAGE> 45
IRWIN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------
1999 1998 1997
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
NET INCOME................................................. $ 33,156 $ 30,503 $ 24,444
Adjustments to reconcile net income to cash provided (used)
by operating activities:
Depreciation and amortization............................ 7,390 5,802 3,910
Amortization and impairment of servicing assets.......... 15,702 35,388 16,355
Provision for loan and lease losses...................... 4,443 5,995 6,238
Amortization of premiums, less accretion of discounts.... 1,145 3,210 1,716
Decrease (increase) in loans held for sale............... 427,791 (408,049) (81,841)
Gain on sale of servicing asset.......................... (37,801) (43,308) (32,631)
Net increase in trading assets........................... (26,877) (10,015) (9,472)
Other, net............................................... 35,387 (23,663) (21,823)
--------- --------- ---------
Net cash provided (used) by operating activities...... 460,336 (404,137) (93,104)
--------- --------- ---------
LENDING AND INVESTING ACTIVITIES:
Proceeds from maturities/calls of investment securities:
Held-to-maturity......................................... 12,058 10,645 6,542
Available-for-sale....................................... 159 280 7,534
Proceeds from sales of investment securities:
Available-for-sale....................................... 3,118 6,000 26,309
Purchase of investment securities:
Held-to-maturity......................................... (34) (8,932) (3,868)
Available-for-sale....................................... (5,899) (4,051) (20,315)
Net increase in interest-bearing deposits with financial
institutions............................................. (8,344) (201) (6,897)
Net increase in loans, excluding sales..................... (205,137) (131,632) (414,205)
Sale of loans.............................................. 22,928 175,574 331,861
Sale of leasing assets..................................... -- 5,241 --
Additions to mortgage servicing assets..................... (84,653) (165,910) (84,781)
Proceeds from sale of mortgage servicing assets............ 85,380 138,635 90,734
Other, net................................................. (6,520) (4,148) (5,930)
--------- --------- ---------
Net cash provided (used) by lending and investing
activities............................................ (186,944) 21,501 (73,016)
--------- --------- ---------
FINANCING ACTIVITIES:
Net (decrease) increase in deposits........................ (138,893) 289,615 27,897
Net (decrease) increase in short-term borrowings........... (171,758) 132,586 50,409
Repayments of long-term debt............................... (3,055) (11,871) (10,563)
Proceeds from long-term debt............................... 30,000 7,614 51,546
Sale of company-obligated manditorily redeemable preferred
securities of subsidiary trust........................... -- -- 47,927
Purchase of treasury stock................................. (18,314) (12,593) (14,412)
Proceeds from sale of stock for employee benefit plans..... 2,608 1,756 1,588
Dividends paid............................................. (4,287) (3,473) (3,114)
--------- --------- ---------
Net cash provided (used) by financing activities......... (303,699) 403,634 151,278
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents....... (30,307) 20,998 (14,842)
Cash and cash equivalents at beginning of year............. 77,522 56,524 71,366
--------- --------- ---------
Cash and cash equivalents at end of year................... $ 47,215 $ 77,522 $ 56,524
========= ========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period:
Interest................................................. $ 52,456 $ 58,689 $ 45,554
========= ========= =========
Income taxes............................................. $ 14,328 $ 18,947 $ 9,912
========= ========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
43
<PAGE> 46
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, equipment leasing, and venture capital 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 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.
Trading Assets: Trading assets are stated at fair value. Unrealized gains
and losses are included in earnings. Included in trading assets are interest
only strips. Market values for interest-only strips are determined using
assumptions about the duration and performance of the securitized loans and are
calculated on the basis of the expected timing of cash receipts by the company.
Included in these assumptions are estimates of the lives of the loans, expected
losses, and appropriate discount rates. Management continually evaluates these
assumptions to determine the proper carrying values of these items on the
balance sheet. Adjustments to carrying values are recorded as trading gains or
losses.
Loans Held For Sale: Loans held for sale are carried at the lower of cost
or market, determined on an aggregate basis for both performing and
nonperforming loans. Market value is determined by outstanding commitments or by
current investor yield requirements.
Loans: Loan origination fees and costs are deferred and the net amounts are
amortized as an adjustment to yield. 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 loan and
lease losses and is based on management's evaluation of expected losses in the
portfolio. 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.
Servicing Assets: When the Corporation securitizes loans, it retains
servicing assets and interest-only strips. A portion of the cost of originating
a loan is allocated to the servicing asset and interest-only strip based on
their fair values relative to the loan as a whole. The Corporation uses the
market prices under comparable servicing sale contracts, when available, or
alternatively uses a valuation model that calculates the present value of future
cash flows to determine the fair value of the servicing assets. In using this
valuation method, the Corporation incorporates assumptions that it is believed
market participants would use in estimating future net servicing income which
include estimates of the cost of servicing per loan, the discount rate, float
value, an
44
<PAGE> 47
inflation rate, ancillary income per loan, prepayment speeds, and default rates.
Servicing assets are amortized over the estimated lives of the related loans,
which are grouped based on loan characteristics, in proportion to estimated net
servicing income.
In determining servicing value impairment at the end of the year, the
servicing portfolio was disaggregated into its predominant risk characteristics.
The Corporation has determined those risk characteristics to be interest rate,
loan type and investor type. These segments of the portfolio were valued, using
market prices under comparable servicing sale contracts, when available, or
alternatively, using the same model as was used to originally determine the fair
value at origination, using current market assumptions. The calculated value was
then compared with the book value of each segment to determine the required
reserve for impairment. It is reasonably possible that a change in the
impairment reserve will occur in the near term. No reasonable estimate can be
made of the range of amounts of loss or gain.
Derivative Instruments: The Corporation uses derivative instruments to
offset changes in the value of servicing assets and interest-only strips.
Derivative instruments on the Corporation's balance sheet are classified as
trading assets and carried at market value. Changes in market value are recorded
as trading gains or losses on the income statement. The Corporation uses forward
contracts to reduce its interest rate exposure on mortgage loans held for sale
and on the pipeline of loan applications in process. Gains and losses associated
with these contracts are deferred and included in the determination of gain or
loss on ultimate sale of the loans, or expensed when it becomes evident the loan
sale will not occur.
On June 15, 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (SFAS No. 133). SFAS No. 133 requires that
all derivative instruments be recorded on the balance sheet at their fair value.
Changes in the fair value of derivatives will be recorded each period in current
earnings or other comprehensive income, depending on whether a derivative is
designated as part of a hedge transaction and, if it is, the type of hedge
transaction. In June 1999, the FASB issued SFAS No. 137, "Accounting for
Derivative Instruments and Hedging Activities -- Deferral of the Effective Date
of FASB Statement No. 133," deferring its effective date to fiscal years
beginning after June 15, 2000. The Corporation will adopt SFAS 133 on January 1,
2001. The Corporation has not quantified the impact of this statement on its
financial position or results of operations.
Premises and Equipment: Premises and equipment are recorded at cost.
Depreciation is determined by the straight-line method.
Venture Capital Investments: Venture capital investments held by Irwin
Ventures, Inc. are carried at market value with changes in market value
recognized in other income. The investment committee of Irvin Ventures
determines the value of the investments at the end of each reporting period and
the values are adjusted based upon review of the investee's financial results,
condition, and prospectus. Changes in estimated market values can also be made
when an event such as a new funding round from other private equity investors
would cause a change in estimated market value. In the future, should the
company have investments in publicly-traded securities, it would look to the
traded market value of the investments as the basis of its mark-to-market.
Earnings Per Share: In 1997, the Corporation adopted Statement of Financial
Accounting Standards No. 128, "Earnings Per Share" (SFAS No. 128). Under this
standard, earnings per share are calculated as "basic" and "diluted" based on
the weighted average number of common shares outstanding during the year.
Income Taxes: A consolidated tax return is filed for all eligible entities.
Deferred income taxes are computed using the liability method which establishes
a deferred tax asset or liability based on temporary differences between the tax
basis of an asset or liability and the basis recorded in the financial
statements. Rehabilitation tax credits and low-income housing tax credits are
recorded as a reduction to the provision for federal income taxes in the year
the eligible buildings are placed in service.
Cash and Cash Equivalents Defined: For purposes of the statement of cash
flows, the Corporation considers cash and due from banks to be cash equivalents.
45
<PAGE> 48
Reclassifications: Certain amounts in the 1998 and 1997 consolidated
financial statements have been reclassified to conform to the 1999 presentation.
NOTE 2 -- RESTRICTIONS ON CASH AND INTEREST-BEARING DEPOSITS WITH FINANCIAL
INSTITUTIONS
Irwin Union Bank and Trust Company is required to maintain a reserve
balance with the Federal Reserve Bank. The amount of the reserve balance at
December 31, 1999 was $8.1 million. Additionally, the Corporation is required to
maintain reserve funds in connection with its loan securitization activities.
Included in interest-bearing deposits with financial institutions at December
31, 1999 is $672 thousand of these reserve funds.
NOTE 3 -- INVESTMENT SECURITIES
The amortized cost, fair value, and carrying value of investments held at
December 31, 1999 are as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR CARRYING
COST GAINS LOSSES VALUE VALUE
--------- ---------- ---------- ----- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Held-to-Maturity:
U.S. Treasury and Government Obligations..... $21,238 $ 2 $ -- $21,240 $21,238
Obligations of states and political
subdivisions............................... 4,706 7 (74) 4,639 4,706
Mortgage-backed securities................... 2,981 21 -- 3,002 2,981
------- --- ----- ------- -------
Total held-to-maturity.................. 28,925 30 (74) 28,881 28,925
------- --- ----- ------- -------
Available-for-Sale:
U.S. Treasury and Government Obligations..... 4,988 -- (54) 4,934 4,934
Mortgage-backed securities................... 3,133 -- (63) 3,070 3,070
Other........................................ 579 -- -- 579 579
------- --- ----- ------- -------
Total available-for-sale................ 8,700 -- (117) 8,583 8,583
------- --- ----- ------- -------
Total investments....................... $37,625 $30 $(191) $37,464 $37,508
======= === ===== ======= =======
</TABLE>
The amortized cost, fair value, and carrying value of investments held at
December 31, 1998 are as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR CARRYING
COST GAINS LOSSES VALUE VALUE
--------- ---------- ---------- ----- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Held-to-Maturity:
U.S. Treasury and Government Obligations..... $32,158 $235 $-- $32,393 $32,158
Obligations of states and political
subdivisions............................... 5,207 117 -- 5,324 5,207
Mortgage-backed securities................... 4,424 130 -- 4,554 4,424
------- ---- --- ------- -------
Total held-to-maturity.................. 41,789 482 -- 42,271 41,789
------- ---- --- ------- -------
Available-for-Sale:
U.S. Treasury and Government Obligations..... 2,051 46 (1) 2,096 2,096
Mortgage-backed securities................... 4,074 57 -- 4,131 4,131
Other........................................ -- 39 -- 39 39
------- ---- --- ------- -------
Total available-for-sale................ 6,125 142 (1) 6,266 6,266
------- ---- --- ------- -------
Total investments....................... $47,914 $624 $(1) $48,537 $48,055
======= ==== === ======= =======
</TABLE>
46
<PAGE> 49
The amortized cost and estimated value of debt securities at December 31,
1999, by contractual maturity, are shown below. Expected maturities will differ
from contractual maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
AMORTIZED FAIR
COST VALUE
--------- -----
(IN THOUSANDS)
<S> <C> <C>
Held-to-Maturity:
Due in one year or less................................... $ 100 $ 100
Due after one year through five years..................... 3,750 3,754
Due after five years through ten years.................... 1,060 1,044
Due after ten years....................................... 21,034 20,981
------- -------
25,944 25,879
Mortgage-backed securities.................................. 2,981 3,002
------- -------
28,925 28,881
------- -------
Available-for-Sale:
Due in one year or less................................... 579 579
Due after one year through five years..................... 4,988 4,934
------- -------
5,567 5,513
Mortgage-backed securities.................................. 3,133 3,070
------- -------
8,700 8,583
------- -------
Total investments...................................... $37,625 $37,464
======= =======
</TABLE>
Investment securities amounting to $9.6 million were pledged as collateral
for borrowings and for other purposes on December 31, 1999. During 1999, 1998,
and 1997, sales of "available for sale" investments with proceeds of $3.1
million, $6.0 million, and $26.3 million resulted in a gross loss of $1.2
thousand, and gross gains of $58.9 thousand and $56.1 thousand, respectively.
Additionally in 1999, 1998, and 1997, "held-to-maturity" investments totaling
$1.8 million, $2.8 million and $7.0 million, respectively, were called. Calls in
1999 and 1997 were at par. Calls in 1998 resulted in a gross gain of $54.3
thousand.
NOTE 4 -- LOANS AND LEASES
Loans and leases are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1999 1998
---- ----
(IN THOUSANDS)
<S> <C> <C>
Commercial, financial, and agricultural..................... $443,985 $278,834
Real estate construction.................................... 121,803 97,253
Real estate mortgage........................................ 115,265 123,980
Consumer.................................................... 48,936 51,730
Direct financing leases..................................... 3,890 6,375
Unearned income............................................. (455) (1,181)
-------- --------
Total.................................................. $733,424 $556,991
======== ========
</TABLE>
Commercial loans are extended primarily to local regional businesses and to
local farming operations in the market area of Irwin Union Bank. The Corporation
also provides consumer loans to the customers in that market. 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. Such
loans amounted to approximately $2.2 million and $1.7 million at December 31,
1999 and 1998, respectively. During 1999, $1.6 million of new loans were made
and repayments totaled $1.1 million.
47
<PAGE> 50
NOTE 5 -- ALLOWANCE FOR LOAN AND LEASE LOSSES
Changes in the allowance for loan and lease losses are summarized below:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1999 1998 1997
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Balance at beginning of year................................ $ 9,888 $ 8,812 $ 6,875
Provision for loan and lease losses......................... 4,443 5,995 6,238
Reduction due to sale of loans and leases................... (3,126) (2,976) (1,694)
Reduction due to reclassification of loans.................. (922) -- --
Recoveries.................................................. 503 559 538
Charge-offs................................................. (2,231) (2,502) (3,145)
------- ------- -------
Balance at end of year...................................... $ 8,555 $ 9,888 $ 8,812
======= ======= =======
</TABLE>
At December 31, 1999, 1998, and 1997, the recorded investment in loans for
which impairment has been recognized in accordance with SFAS No. 114 and SFAS
No. 118 totaled $0.9 million, $1.6 million, and $2.7 million, respectively.
These loans had a corresponding valuation allowance of $204 thousand, $493
thousand, and $726 thousand, respectively, based on the fair value of the loans'
collateral. The Corporation recognized $38 thousand, $103 thousand, and $155
thousand of interest income on these loans in 1999, 1998, and 1997,
respectively.
NOTE 6 -- SERVICING ASSETS
Included on the consolidated balance sheet at December 31, 1999 and 1998
are $138.5 million and $117.1 million, respectively, of capitalized servicing
assets. These amounts relate to the principal balances of loans serviced by the
Corporation for investors. Although they are not generally held for purposes of
sale, there is an active secondary market for servicing assets.
Mortgage Servicing Asset:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1999 1998
---- ----
(IN THOUSANDS)
<S> <C> <C>
Beginning Balance........................................... $117,129 $ 83,044
Additions................................................... 84,653 165,910
Amortization and impairment................................. (15,702) (36,498)
Reduction for servicing sales............................... (45,580) (95,327)
-------- --------
$138,500 $117,129
======== ========
</TABLE>
The Corporation has established a valuation allowance to record servicing
assets at their fair market value. Changes in the allowance are summarized
below:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1999 1998 1997
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Balance at beginning of year................................ $ 11,720 $ 600 $ --
Provision................................................... (11,319) 11,120 600
Reductions due to sales of servicing........................ -- -- --
-------- ------- ----
Balance at end of year...................................... $ 401 $11,720 $600
======== ======= ====
</TABLE>
48
<PAGE> 51
Included in the servicing assets are $132.6 million and $113.1 million of
servicing assets related to the mortgage bank at December 31, 1999 and 1998,
respectively. The servicing assets at the mortgage bank had a fair value of
$180.5 million and $117.6 million at December 31, 1999 and 1998, respectively.
The mortgage bank's servicing portfolio balance and interest rate stratification
are as follows:
Servicing Portfolio
<TABLE>
1999 1998 1997
----- ----- -----
(IN BILLIONS)
<S> <C> <C> <C>
Beginning Portfolio......................................... $11.2 $10.7 $10.8
Add:
Originated Servicing Rights............................... 2.3 3.2 2.0
Purchased Servicing Rights................................ 3.6 5.7 3.4
Deduct:
Sale of Servicing Rights.................................. (4.7) (4.9) (3.9)
Run-off*.................................................. (1.9) (3.5) (1.6)
----- ----- -----
Ending Portfolio............................................ $10.5 $11.2 $10.7
===== ===== =====
</TABLE>
Servicing Portfolio by Interest Rate
<TABLE>
1999 1998 1997
----- ----- ----
<S> <C> <C> <C>
Less than 7%.............................................. 14.9% 15.1% 8.4%
7.00 -- 7.99%............................................. 53.3 52.7 42.5
8.00 -- 8.99%............................................. 29.9 27.6 42.6
9% or greater.......................................... 1.9 4.6 6.5
----- ----- ----
Total................................................ 100% 100% 100%
===== ===== ====
</TABLE>
NOTE 7 -- PREMISES AND EQUIPMENT
Premises and equipment are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------
USEFUL
1999 1998 LIVES
---- ---- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Land........................................................ $ 1,734 $ 1,734 n/a
Building and leasehold improvements......................... 15,063 13,231 7-40 years
Furniture and equipment..................................... 33,297 29,693 3-10 years
-------- --------
50,094 44,658
Less accumulated depreciation............................... (26,726) (23,276)
-------- --------
Total.................................................. $ 23,368 $ 21,382
======== ========
</TABLE>
NOTE 8 -- LEASE OBLIGATIONS
At December 31, 1999, the Corporation and its subsidiaries leased certain
branch locations and office equipment used in its operations.
Operating lease rental expense was $16.5 million in 1999, $13.7 million in
1998, and $11.2 million in 1997.
49
<PAGE> 52
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>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------
(IN THOUSANDS)
<S> <C>
2000........................................................ $11,963
2001........................................................ 9,149
2002........................................................ 4,559
2003........................................................ 1,389
2004........................................................ 658
Thereafter.................................................. 432
-------
Total minimum rental payments............................... $28,150
=======
</TABLE>
NOTE 9 -- SHORT-TERM BORROWINGS
Short-term borrowings are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1999 1998
---- ----
(IN THOUSANDS)
<S> <C> <C>
Repurchase agreements & drafts payable related to mortgage
loan closings............................................. $ 46,796 $172,126
Commercial paper............................................ 21,894 26,617
Federal funds and Federal Home Loan Bank borrowings......... 173,000 266,000
Lines of Credit............................................. 231,413 180,118
-------- --------
$473,103 $644,861
======== ========
Weighted average interest rate.............................. 5.45% 5.34%
</TABLE>
Repurchase agreements at December 31, 1999 and 1998, include $0.7 million
and $29.8 million in mortgages sold under agreements to repurchase which are
used to fund mortgages prior to sale in the secondary market. These repurchase
agreements are collateralized by mortgage loans held for sale.
Drafts payable related to mortgage loan closings totaled $46.1 million and
$142.3 million at December 31, 1999 and 1998. These borrowings are related to
mortgage closings at the end of December which have not been presented to the
banks for payment. When presented for payment, these borrowings will be funded
internally or by borrowing from the lines of credit.
Commercial paper includes $15.6 million and $18.8 million at December 31,
1999 and 1998, respectively, payable to a company owned by a significant
shareholder and director of the Corporation.
The Corporation also has lines of credit available of $217 million to fund
loan originations and operations. Interest on the lines of credit is payable
monthly or quarterly with rates ranging from 4.8% to 7.5%.
NOTE 10 -- LONG-TERM DEBT
Long-term debt at December 31, 1999 consists of two notes payable. The
first note, scheduled to mature in 2000 allows the Corporation to borrow up to
$10 million with a variable interest rate tied to LIBOR (average of 7.7% in
1999). The second note is for $29.6 million with an interest rate of 7.58% that
will mature on July 7, 2014.
Long-term debt at December 31, 1998 consisted of a note payable with a
variable interest rate averaging 7.94% and maturing on July 1, 2002.
50
<PAGE> 53
Maturities of long-term debt as of December 31, 1999, are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
2000........................................................ $ 2,194
2001........................................................ 1,971
2002........................................................ 1,971
2003........................................................ 1,971
after....................................................... 21,677
-------
Total.................................................. $29,784
=======
</TABLE>
NOTE 11 -- COMMITMENTS AND 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, 1999, Irwin Mortgage Corporation (IMC) was a defendant
in class action lawsuits relating to the following: IMC's administration of
mortgage escrow accounts and IMC's right to pay broker fees to mortgage brokers.
At present, it is not possible for the Corporation to predict the likelihood of
an unfavorable outcome or to establish the possible extent or amount of
liability or potential exposure with respect to this litigation.
As of December 31, 1998, Irwin Leasing Corporation (ILC) and Irwin
Financial Corporation were defendants in a class action lawsuit alleging
misrepresentations by a manufacturer of certain equipment financed by ILC. The
parties agreed to settle this matter in January, 2000 and the court issued an
order of dismissal in February, 2000.
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, 1999, were $266.2 million. These loan
commitments include $172.8 million of floating rate loan commitments and $93.4
million of fixed rate loan commitments related to commercial and mortgage
banking activities. The Corporation had approximately $13.6 million and $14.2
million in irrevocable standby letters of credit outstanding at December 31,
1999 and 1998, respectively.
Forward commitments are used in mortgage banking activities to offset 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
$255.3 million and $810.5 million at December 31, 1999 and 1998, respectively.
Derivative instruments are used periodically to offset changes in the value
of servicing assets against the effects of increased prepayment activity that
generally results from declining interest rates. To the extent that interest
rates increase, the value of servicing assets increases while the value of these
instruments declines. The Corporations's servicing asset derivative instruments
all had expired as of December 31, 1999.
Derivative instruments are also used to offset changes in the value of
interest-only strips. Interest rate caps are used when interest is received on
fixed rate securitized loans and the resulting security pays interest at
51
<PAGE> 54
a variable rate. As interest rates change, the values of the interest-only
strips and interest rate caps move in opposite directions. At December 31, 1999,
the carrying value of the interest rate caps was $1.2 million and the notional
amount was $50.0 million.
NOTE 13 -- REGULATORY MATTERS
The Corporation and its bank subsidiary, Irwin Union Bank (IUB), are
subject to various regulatory capital requirements administered by the federal
and state banking agencies. Under capital adequacy guidelines, the Corporation
and IUB must meet specific capital guidelines that involve quantitative measures
of their assets, liabilities, and certain off-balance sheet items as calculated
under regulatory accounting practices. The Corporation's and IUB'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 and IUB to maintain minimum amounts and ratios (set
forth in the following table) of total and Tier I capital (as defined in the
regulations) to risk-weighted assets (as defined), and Tier I capital to average
assets (as defined). Management believes, as of December 31, 1999, that the
Corporation and IUB met all capital adequacy requirements to which they are
subject.
As of December 31, 1999, the Corporation and IUB were categorized as well
capitalized under the regulatory framework for prompt corrective action. To be
categorized as well capitalized the Corporation and IUB must significantly
exceed minimum total risk-based, Tier I risk-based, and Tier I capital to
average assets ratios. There have been no conditions or events that management
believes have changed this category.
52
<PAGE> 55
The Corporation's and IUB's actual capital amounts and ratios are presented
in the following table:
<TABLE>
<CAPTION>
ADEQUATELY
ACTUAL CAPITALIZED WELL CAPITALIZED
----------------- ----------------- -----------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------ ----- ------ ----- ------ -----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1999:
Total Capital (to Risk-Weighted Assets):
Irwin Financial Corporation........... $246,183 13.5% $145,891 8.0% $182,363 10.0%
Irwin Union Bank...................... 144,305 10.0 115,295 8.0 144,119 10.0
Tier I Capital (to Risk-Weighted
Assets):
Irwin Financial Corporation........... 207,627 11.4 72,945 4.0 109,418 6.0
Irwin Union Bank...................... 136,864 9.5 57,647 4.0 86,471 6.0
Tier I Capital (to Average Assets):
Irwin Financial Corporation........... 207,627 12.8 65,046 4.0 81,307 5.0
Irwin Union Bank...................... 136,864 11.0 50,349 4.0 62,936 5.0
As of December 31, 1998:
Total Capital (to Risk-Weighted Assets):
Irwin Financial Corporation........... $203,311 12.3% $132,742 8.0% $165,927 10.0%
Irwin Union Bank...................... 111,935 10.1 88,712 8.0 110,890 10.0
Tier I Capital (to Risk-Weighted
Assets):
Irwin Financial Corporation........... 191,806 11.6 66,371 4.0 99,556 6.0
Irwin Union Bank...................... 105,215 9.5 44,356 4.0 66,534 6.0
Tier I Capital (to Average Assets):
Irwin Financial Corporation........... 191,806 10.5 73,032 4.0 91,290 5.0
Irwin Union Bank...................... 105,215 7.9 53,162 4.0 66,452 5.0
As of December 31, 1997:
Total Capital (to Risk-Weighted Assets):
Irwin Financial Corporation........... $185,536 14.9% $ 99,951 8.0% $124,939 10.0%
Irwin Union Bank...................... 72,150 10.3 55,949 8.0 69,936 10.0
Tier I Capital (to Risk-Weighted
Assets):
Irwin Financial Corporation........... 169,366 13.6 49,975 4.0 74,963 6.0
Irwin Union Bank...................... 65,549 9.4 27,974 4.0 41,961 6.0
Tier I Capital (to Average Assets)
Irwin Financial Corporation........... 169,366 12.1 56,192 4.0 70,240 5.0
Irwin Union Bank...................... 65,549 7.3 36,088 4.0 45,110 5.0
</TABLE>
NOTE 14 -- FAIR VALUES OF FINANCIAL INSTRUMENTS
Fair value estimates, methods, and assumptions are set forth below for the
Corporation's financial instruments:
Cash and cash equivalents: The carrying amounts reported in the balance
sheet for cash and cash equivalents approximate those assets' fair values.
Interest-bearing deposits with financial institutions, loans, servicing
assets, deposit liabilities, short-term borrowings, long-term debt, and
company-obligated mandatorily redeemable preferred securities of subsidiary
trust: The fair values were estimated using discounted cash flow analyses, using
interest rates currently being offered for like assets with similar terms, to
borrowers with similar credit quality, and for the same remaining maturities.
Trading assets: The carrying amounts reported in the balance sheet for
trading assets approximate those assets' fair values.
53
<PAGE> 56
Investment securities: Fair values for investment securities were based on
quoted market prices when available. For securities which had no quoted market
prices, fair values were estimated by discounting future cash flows using
current rates on similar securities.
Loans held for sale: Fair values for loans held for sale are based on
current market prices for loans with similar terms to borrowers with similar
credit quality.
Forward contract commitments: The unrealized gains and losses of forward
contract commitments is based on the difference between the settlement values of
those commitments and the quoted market values of the underlying securities.
The estimated fair values of the Corporation's financial instruments at
December 31, are as follows:
<TABLE>
<CAPTION>
1999 1998
---------------------- ------------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
-------- ---------- -------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents........................ $ 47,215 $ 47,215 $ 77,522 $ 77,522
Interest-bearing deposits with financial
institutions.................................. 26,785 26,764 18,441 18,495
Trading assets................................... 59,025 59,025 32,148 32,148
Investment securities............................ 37,508 37,464 48,055 48,537
Loans held for sale.............................. 508,997 522,033 936,788 959,300
Loans, net of unearned discount.................. 729,534 771,948 556,991 601,338
Servicing assets................................. 138,500 186,311 117,129 121,610
Financial liabilities:
Deposits......................................... 870,318 710,762 1,009,211 997,776
Short-term borrowings............................ 473,103 473,785 644,861 636,890
Long-term debt................................... 29,784 28,112 2,839 2,993
Company-obligated mandatorily redeemable
preferred securities of subsidiary trust...... 50,000 48,389 50,000 57,757
Forward contract commitments..................... -- 860 -- (551)
</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 based
on present value of estimated cash flows 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.
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, and
premises and equipment.
NOTE 15 -- COMPANY-OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF
SUBSIDIARY TRUST
In January 1997, the Corporation issued $50.0 million of trust preferred
securities through IFC Capital Trust I, a trust created and controlled by the
Corporation. The securities were issued at $25 per share with a cumulative
dividend rate of 9.25%, payable quarterly. They have an initial maturity of 30
years with a 19-year extension option. The securities are callable at par after
five years, or immediately, in the event of an adverse tax development affecting
the Corporation's classification of the securities for federal income tax
purposes. They are not convertible into common stock of the Corporation. The
securities are shown on the balance sheet net of capitalized issuance costs.
54
<PAGE> 57
The sole assets of IFC Capital Trust I are subordinated debentures of the
Corporation with a principal balance of $51.5 million, an interest rate of
9.25%, and an initial maturity of 30 years with a 19-year extension option.
NOTE 16 -- SHAREHOLDERS' EQUITY
The board of directors of the Corporation approved a two-for-one stock
split May 27, 1998. Previously reported shares and per share data have been
changed to reflect these splits.
The Corporation has a stock plan to compensate Directors of the Corporation
with the Corporation's common stock, if so elected, in lieu of cash for their
annual retainer and meeting fees. The number of shares issued under the plan is
based on the current market value of the Corporation's common stock. The
Corporation also has an employee stock purchase plan for all qualified
employees. The plan provides for employees to purchase common stock through
payroll deduction at approximately 85% of the current market value.
The Corporation has three stock option plans (established in 1997, 1992,
and 1986) which provide for the issuance of 4,280,000 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. Vested
outstanding stock options have been considered as common stock equivalents in
the computation of diluted earnings per share.
Activity in the above plans for 1999, 1998, and 1997 is summarized as
follows (adjusted for the two-for-one stock split on May 27, 1998):
<TABLE>
<CAPTION>
1999 1998 1997
---------------------------- ---------------------------- ----------------------------
NUMBER OF WEIGHTED-AVERAGE NUMBER OF WEIGHTED-AVERAGE NUMBER OF WEIGHTED-AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES EXERCISE PRICE
--------- ---------------- --------- ---------------- --------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at the
beginning of the
year............... 1,257,050 $ 9.71 1,231,220 $ 7.40 1,246,600 $ 5.83
Granted............ 216,155 24.02 133,710 27.23 178,220 13.69
Exercised.......... (137,600) 4.19 (103,880) 4.74 (187,400) 2.89
Canceled........... (7,715) 24.88 (4,000) 15.92 (6,200) 9.62
--------- --------- ---------
Outstanding at the
end of the year.... 1,327,890 12.50 1,257,050 9.71 1,231,220 7.40
========= ========= =========
Exercisable at the
end of the year.... 1,045,650 $ 9.64 1,014,420 $ 7.48 948,506 $ 6.16
========= ========= =========
Available for future
grants............. 1,382,934 1,560,878 1,694,588
========= ========= =========
</TABLE>
The Corporation has not recognized compensation cost for the three
non-qualified and incentive stock option plans or the Employee Stock Purchase
Plan. Had Compensation cost been determined based on the fair
55
<PAGE> 58
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:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C> <C>
Net income As reported....................... $33,156 $30,503 $24,444
Pro forma......................... 32,176 29,746 23,913
Basic earnings per share As reported....................... 1.54 1.40 1.10
Pro forma......................... 1.49 1.37 1.07
Diluted earnings As reported....................... 1.51 1.38 1.08
per share Pro forma......................... 1.49 1.34 1.06
</TABLE>
The fair value of each option was estimated to be $10.97, $12.25, and $6.35
on the date of the grant using the binomial option-pricing model with the
following assumptions for 1999, 1998, and 1997, respectively: risk free interest
rates of 5.20%, 5.85%, and 6.89%; dividend yield of 0.83% for 1999 and 1.00% for
1998 and 1997; and volatility of .287 for 1999 and .250 for 1998 and 1997. As of
December 31, 1999, 1,327,890 options were outstanding under these plans with
exercise prices that range between $1.26 and $28.56 and a remaining
weighted-average contractual life of 6.00 years.
NOTE 17 -- EARNINGS PER SHARE
Earnings per share calculations are summarized as follow:
<TABLE>
<CAPTION>
BASIC EARNINGS EFFECT OF DILUTED EARNINGS
PER SHARE STOCK OPTIONS PER SHARE
-------------- ------------- ----------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
1999
Net income......................................... $33,156 $ -- $33,156
Shares............................................. 21,530 356 21,886
------- ------ -------
Per-Share Amount................................... $ 1.54 $(0.03) $ 1.51
======= ====== =======
1998
Net income......................................... $30,503 $ -- $30,503
Shares............................................. 21,732 407 22,139
------- ------ -------
Per-Share Amount................................... $ 1.40 $(0.02) $ 1.38
======= ====== =======
1997
Net income......................................... $24,444 $ -- $24,444
Shares............................................. 22,326 396 22,722
------- ------ -------
Per-Share Amount................................... $ 1.10 $(0.02) $ 1.08
======= ====== =======
</TABLE>
The Board of Directors of the Corporation approved a two-for-one stock
split effective May 27, 1998. Previously reported per share data have been
adjusted to reflect these splits.
56
<PAGE> 59
NOTE 18 -- INCOME TAXES
Income tax expense is summarized as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal.......................................... $ 3,251 $ 6,963 $ 8,086
State............................................ 687 2,048 2,268
------- ------- -------
3,938 9,011 10,354
------- ------- -------
Deferred:
Federal.......................................... 14,580 9,256 6,162
State............................................ 963 2,087 1,218
------- ------- -------
15,543 11,343 7,380
------- ------- -------
Income tax expense:
Federal.......................................... 17,831 16,219 14,248
State............................................ 1,650 4,135 3,486
------- ------- -------
$19,481 $20,354 $17,734
======= ======= =======
</TABLE>
The Corporation's net deferred tax liability, which is included in other
liabilities on the consolidated balance sheet, consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1999 1998
---- ----
(IN THOUSANDS)
<S> <C> <C>
Mortgage servicing....................................... $(52,464) $(45,059)
Deferred securitization income........................... (9,992) (5,357)
Loan and lease loss reserve.............................. 6,555 7,676
Deferred origination fees and costs...................... (1,731) (3,488)
Deferred compensation.................................... 4,069 3,556
Retirement benefits...................................... 1,018 630
Fixed assets............................................. (1,566) (262)
Other, net............................................... (61) (28)
-------- --------
Net deferred tax liability............................... $(54,172) $(42,332)
======== ========
</TABLE>
A reconciliation of income tax expense to the amount computed by applying
the statutory income tax rate to income before income taxes is summarized as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Income taxes computed at the statutory rate................. $18,423 $17,800 $14,762
Increase (decrease) resulting from:
Nontaxable interest from investment securities and
loans.................................................. (410) (484) (198)
State franchise tax, net of federal benefit............... 2,121 2,810 2,330
Change in deferred tax asset or liability resulting from
tax rate change........................................ (1,055) -- 292
Other items -- net........................................ 402 228 548
------- ------- -------
$19,481 $20,354 $17,734
======= ======= =======
</TABLE>
NOTE 19 -- 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. Contribu-
57
<PAGE> 60
tions 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 amounts recognized in the Corporation's
balance sheet:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1999 1998
---- ----
(IN THOUSANDS)
<S> <C> <C>
Funded status............................................... $ 1,071 $ 31
Unrecognized prior service cost............................. 181 136
Unrecognized net actuarial loss (gain)...................... (1,380) 164
------- ----
Prepaid (accrued) pension cost.............................. $ (128) $331
======= ====
Weighted average assumptions:
Discount rate............................................. 7.75% 6.75%
Return on plan assets..................................... 9.00% 9.00%
Rate of compensation increase............................. 4.50% 3.75%
</TABLE>
A reconciliation of the change in projected benefit obligation and plan
assets is presented below:
<TABLE>
<CAPTION>
1999 1998
---- ----
(IN THOUSANDS)
<S> <C> <C>
Benefit obligation at January 1,............................ $10,183 $ 9,046
Service cost................................................ 627 568
Interest cost............................................... 713 622
Amendments.................................................. 70 --
Actuarial loss (gain)....................................... (779) 192
Benefits paid............................................... (283) (245)
------- -------
Benefit obligation at December 31,.......................... $10,531 $10,183
======= =======
Fair value plan assets at January 1,........................ $10,214 $ 9,114
Return on plan assets....................................... 1,671 1,345
Benefits paid............................................... (283) (245)
------- -------
Fair value plan assets at December 31,...................... $11,602 $10,214
======= =======
</TABLE>
The net pension cost for 1999, 1998, and 1997 included the following
components:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost................................................ $ 627 $ 568 $ 475
Interest cost............................................... 713 622 566
Return on plan assets....................................... (906) (863) (745)
Amortization of transition obligation....................... -- -- (83)
Amortization of prior service cost.......................... 25 20 20
----- ----- -----
Net pension cost............................................ $ 459 $ 347 $ 233
===== ===== =====
</TABLE>
The Corporation has a supplemental employee retirement plan for certain
members of executive management. Balances related to this plan included in other
liabilities as of December 31, 1999 and 1998, are $1.8 million and $1.3 million,
respectively.
58
<PAGE> 61
NOTE 20 -- INDUSTRY SEGMENT INFORMATION
The Corporation has three principal segments that provide a broad range of
financial services throughout the United States. The Mortgage Banking line of
business originates, sells, and services residential first mortgage loans. The
Commercial Banking line of business provides commercial banking services. The
Home Equity Lending line of business originates and services home equity loans.
The Corporation's other segments include equipment leasing, venture capital, and
the parent company.
59
<PAGE> 62
The accounting policies of each segment are the same as those described in
the "Summary of Significant Accounting Policies." Below is a summary of each
segment's revenues, net income, and assets for 1999, 1998, and 1997:
<TABLE>
<CAPTION>
MORTGAGE COMMERCIAL HOME EQUITY
BANKING BANKING LENDING OTHER CONSOLIDATED
-------- ---------- ----------- ----- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
1999
Net interest income.................. $ 28,411 $ 26,170 $ 11,725 $ 1,070 $ 67,376
Intersegment interest................ (8,664) 2,944 7,127 (1,407) --
Other revenue........................ 161,020 11,622 31,714 (287) 204,069
Intersegment revenues................ -- 175 -- (175) --
---------- -------- -------- -------- ----------
Total net revenues.............. 180,767 40,911 50,566 (799) 271,445
Other expense........................ 142,439 27,814 34,672 9,186 214,111
Intersegment expenses................ 2,476 1,266 885 (4,627) --
---------- -------- -------- -------- ----------
Net income before taxes......... 35,852 11,831 15,009 (5,358) 57,334
Income taxes......................... 12,789 4,486 2,403 (197) 19,481
---------- -------- -------- -------- ----------
Net income...................... 23,063 7,345 12,606 (5,161) 37,853
Distribution on Preferred
Securities........................ -- -- -- 4,697 4,697
---------- -------- -------- -------- ----------
Net income available to
shareholders................. $ 23,063 $ 7,345 $ 12,606 $ (9,858) $ 33,156
========== ======== ======== ======== ==========
Assets at December 31,............... $ 549,966 $789,560 $339,640 $ 1,681 $1,680,847
========== ======== ======== ======== ==========
1998
Net interest income.................. $ 37,088 $ 13,797 $ (2,545) $ 9,563 $ 57,903
Intersegment interest................ (12,565) 9,482 7,527 (4,444) --
Other revenue........................ 182,485 11,557 17,704 1,870 213,616
Gain on sale of leases............... -- -- -- 5,241 5,241
Intersegment revenues................ 230 155 1,255 (1,640) --
---------- -------- -------- -------- ----------
Total net revenues.............. 207,238 34,991 23,941 10,590 276,760
Other expense........................ 157,382 22,314 27,164 14,346 221,206
Intersegment expenses................ 1,810 2,201 3,445 (7,456) --
---------- -------- -------- -------- ----------
Net income before taxes......... 48,046 10,476 (6,668) 3,700 55,554
Income taxes......................... 19,193 3,967 -- (2,806) 20,354
---------- -------- -------- -------- ----------
Net income...................... 28,853 6,509 (6,668) 6,506 35,200
Distribution on Preferred
Securities........................ -- -- -- 4,697 4,697
---------- -------- -------- -------- ----------
Net income available to
shareholders................. $ 28,853 $ 6,509 $ (6,668) $ 1,809 $ 30,503
========== ======== ======== ======== ==========
Assets at December 31,............... $1,020,249 $607,992 $311,974 $ (5,964) $1,946,179
========== ======== ======== ======== ==========
1997
Net interest income.................. $ 19,325 $ 19,678 $ 7,379 $ 2,239 $ 48,621
Intersegment interest................ (3,131) 116 (1,654) 4,669 --
Other revenue........................ 131,412 8,898 16,052 486 156,848
Intersegment revenues................ 51 358 -- (409) --
---------- -------- -------- -------- ----------
Total Net revenues.............. 147,657 29,050 21,777 6,985 205,469
Other expense........................ 109,762 19,496 20,038 9,522 158,818
Intersegment expenses................ 1,605 698 29 (2,332) --
---------- -------- -------- -------- ----------
Net income before taxes......... 36,290 8,856 1,710 (205) 46,651
Income taxes......................... 14,990 3,269 -- (525) 17,734
---------- -------- -------- -------- ----------
Net income...................... 21,300 5,587 1,710 320 28,917
Distribution on Preferred
Securities........................ -- -- -- 4,473 4,473
---------- -------- -------- -------- ----------
Net income available to
shareholders................. $ 21,300 $ 5,587 $ 1,710 $ (4,153) $ 24,444
========== ======== ======== ======== ==========
Assets at December 31,............... $ 792,007 $539,233 $165,242 $ 312 $1,496,794
========== ======== ======== ======== ==========
</TABLE>
60
<PAGE> 63
NOTE 21 -- IRWIN FINANCIAL CORPORATION (PARENT ONLY) FINANCIAL INFORMATION
The condensed financial statements of the parent company as of December 31,
1999 and 1998, and for the three years ended December 31, 1999 are presented
below:
CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1999 1998
---- ----
(IN THOUSANDS)
<S> <C> <C>
Assets:
Cash and short-term investments........................... $ 643 $ 799
Investment in bank subsidiary............................. 137,816 105,807
Investments in non-bank subsidiaries...................... 91,357 81,308
Loans to non-bank subsidiaries............................ 85,523 60,221
Other assets.............................................. 11,978 16,305
-------- --------
$327,317 $264,440
======== ========
Liabilities:
Short-term borrowings..................................... $ 80,744 $ 66,967
Long-term debt............................................ 79,179 49,545
Other liabilities......................................... 8,098 2,695
-------- --------
168,021 119,207
-------- --------
Shareholders' equity:
Common stock.............................................. 29,965 29,965
Other shareholders' equity................................ 129,331 115,268
-------- --------
159,296 145,233
-------- --------
$327,317 $264,440
======== ========
</TABLE>
CONDENSED STATEMENT OF INCOME
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------
1999 1998 1997
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Income
Cash dividends from non-bank subsidiaries................. $ 15,500 $ 18,331 $10,062
Cash dividends from bank subsidiary....................... 14,147 1,000 4,750
Interest income........................................... 4,800 5,348 5,666
Other..................................................... 3,200 3,002 2,219
-------- -------- -------
37,647 27,681 22,697
-------- -------- -------
Expenses
Interest expense.......................................... 9,819 7,825 7,210
Salaries and benefits..................................... 5,398 4,548 4,009
Other..................................................... 2,744 2,056 1,799
-------- -------- -------
17,961 14,429 13,018
-------- -------- -------
Income before income taxes and equity in undistributed
income of subsidiaries.................................... 19,686 13,252 9,679
Income taxes (credits), less amounts charged to
subsidiaries.............................................. (10,482) (14,079) (2,590)
-------- -------- -------
30,168 27,331 12,269
Equity in undistributed income of subsidiaries.............. 2,988 3,172 12,175
-------- -------- -------
Net income.................................................. $ 33,156 $ 30,503 $24,444
======== ======== =======
</TABLE>
61
<PAGE> 64
CONDENSED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------
1999 1998 1997
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Net income................................................ $ 33,156 $ 30,503 $ 24,444
Adjustments to reconcile net income to cash provided by
operating activities:
Equity in undistributed income of subsidiaries............ (2,988) (3,172) (12,175)
Depreciation and amortization............................. 408 209 160
Increase (decrease) in taxes payable...................... 4,695 (17,244) 1,046
(Decrease) increase in interest receivable................ (159) 217 (314)
Increase (decrease) in interest payable................... 763 (4) 146
Net change in other assets and other liabilities.......... 4,322 1,529 (2,321)
-------- -------- --------
Net cash provided by operating activities............ 40,197 12,038 10,986
-------- -------- --------
Lending and investing activities:
Net decrease (increase) in loans to subsidiaries.......... (25,302) 37,467 (51,571)
Investments in subsidiaries............................... (39,122) (48,550) (5,858)
Net additions of premises and equipment................... 286 (1,381) (42)
-------- -------- --------
Net cash used by lending and investing activities.... (64,138) (12,464) (57,471)
-------- -------- --------
Financing activities:
Net increase in borrowings................................ 13,778 14,791 11,001
Proceeds from long-term debt.............................. 30,000 -- 51,546
Purchase of treasury stock................................ (18,314) (12,593) (14,411)
Proceeds from sale of stock for employee benefit plans.... 2,608 1,756 1,588
Dividends paid............................................ (4,287) (3,473) (3,114)
-------- -------- --------
Net cash provided by financing activities............ 23,785 481 46,610
-------- -------- --------
Net increase in cash and cash equivalents................. (156) 55 125
Cash and cash equivalents at beginning of year............ 799 744 619
-------- -------- --------
Cash and cash equivalents at end of year.................. $ 643 $ 799 $ 744
======== ======== ========
Supplemental disclosures of cash flow information:
Cash paid during the year:
Interest............................................... $ 9,056 $ 7,503 $ 7,064
======== ======== ========
Income taxes........................................... $ 14,328 $ 18,947 $ 9,912
======== ======== ========
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
In connection with the audits of the Corporation for the two most recent
fiscal years ended December 31, 1999, the Corporation 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.
62
<PAGE> 65
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE CORPORATION
The information contained in the proxy statement of the Corporation for the
2000 Annual Meeting of Shareholders under the caption "Election of Directors" on
pages 4 through 7, inclusive, is incorporated herein by reference in response to
this item.
ITEM 11. EXECUTIVE COMPENSATION
The information contained in the proxy statement of the Corporation for the
2000 Annual Meeting of Shareholders under the captions "Election of
Directors -- Outside Director Compensation," "Executive Compensation and Other
Information" and "Board Compensation Committee Report on Executive Compensation"
on pages 9 through 19, 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 Corporation for the
2000 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 Corporation for the
2000 Annual Meeting of Shareholders under the caption "Interest of Management in
Certain Transactions" on pages 20 and 21, inclusive, is incorporated herein by
reference in response to this item.
63
<PAGE> 66
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
PAGE
NO.
-----
FORM
10-K
A. DOCUMENTS FILED AS A PART OF THIS REPORT: ----
<S> <C> <C> <C>
1. Financial Statements
A. Irwin Financial Corporation and Subsidiaries
Report of PricewaterhouseCoopers LLP Independent
Accountants............................................... 39
Consolidated Balance Sheet as of December 31, 1999, and
1998...................................................... 40
Consolidated Statement of Income for the years ended
December 31, 1999, 1998, and 1997......................... 41
Consolidated Statement of Changes in Shareholders' Equity
for the years ended December 31, 1999, 1998, and 1997..... 42
Consolidated Statement of Cash Flows for the years ended
December 31, 1999, 1998, and 1997......................... 43
Notes to Consolidated Financial Statements.................. 44-62
2. Financial Statement Schedules
None
</TABLE>
Schedules are omitted because they are not required or the information is
included in the Notes to Consolidated Financial Statements.
3. Exhibits
A. Exhibits to Form 10-K
<TABLE>
<CAPTION>
SEQUENTIAL
NUMBER ASSIGNED IN NUMBERING SYSTEM
REGULATION S-K PAGE NUMBER
ITEM 601 DESCRIPTION OF EXHIBIT OF EXHIBIT
- ------------------ ---------------------- ----------------
<S> <C> <C> <C>
(2) No exhibit.
(3)(i) 3(a) Articles of Amendment dated September 8, 1999 and
October 28, 1999. (Incorporated by reference to
Exhibit 3 to Form 10-Q Report for quarter ended
September 30, 1999. File No. 0-6835.)
3(b) Articles of Amendment dated February 2, 2000. 1
(ii) 3(a) Code of By-Laws as amended to date. (Incorporated by
reference to Exhibit 3(ii) 3(a) to Form 10-K Report
for year ended December 31, 1997, File No. 0-6835.)
(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.)
</TABLE>
64
<PAGE> 67
<TABLE>
<CAPTION>
SEQUENTIAL
NUMBER ASSIGNED IN NUMBERING SYSTEM
REGULATION S-K PAGE NUMBER
ITEM 601 DESCRIPTION OF EXHIBIT OF EXHIBIT
- ------------------ ---------------------- ----------------
<S> <C> <C> <C>
4(b) Certain instruments defining the rights of the holders
of long-term debt of the Corporation and certain of
its subsidiaries, none of which authorize a total
amount of indebtedness in excess of 10% of the total
assets of the Corporation and its subsidiaries on a
consolidated basis, have not been filed as Exhibits.
The Corporation hereby agrees to furnish a copy of any
of these agreements to the Commission upon request.
(9) No exhibit.
(10) 10(a) Amended 1986 Stock Option Plan. (Incorporated by
reference to Exhibit 10(b) to Form 10-K Report for
year ended December 31, 1991, File No. 0-6835.)
10(b) Amended and Restated Management Bonus Plan.
(Incorporated by reference to Exhibit 19(a) to Form
10-K Report for year ended December 31, 1986, File No.
0-6835.)
10(c) Long-Term Management Performance Plan. (Incorporated
by reference to Exhibit 10(d) to Form 10-K Report for
year ended December 31, 1986, File No. 0-6835.)
10(d) Long-Term Incentive Plan -- Summary of Terms.
(Incorporated by reference to Exhibit 10(e) to Form
10-K Report for year ended December 31, 1986, File No.
0-6835.)
10(e) Irwin Financial Corporation Employees' Stock Purchase
Plan. (Incorporated by reference to Exhibit 10(f) to
Form 10-K Report for year ended December 31, 1991,
File No. 0-6835.)
10(f) Employee Stock Purchase Plan II. (Incorporated by
reference to Exhibit 10(f) to Form 10-K Report for
year ended December 31, 1994, File No. 0-6835.)
10(g) Amended Irwin Financial Corporation Outside Directors
Restricted Stock Compensation Plan. (Incorporated by
reference to Exhibit 10(g) to Form 10-K Report for
year ended December 31, 1991, File No. 0-6835.)
10(h) Irwin Financial Corporation 1992 Stock Option Plan.
(Incorporated by reference to Exhibit 10(h) to Form
10-K report for year ended December 31, 1992, File No.
0-6835.)
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. 0-6835.)
10(j) Inland Mortgage Corporation Long-Term Incentive Plan.
(Incorporated by reference to Exhibit (10)(j) to Form
10-K report for year ended December 31, 1996, File No.
0-6835.)
10(k) Irwin Financial Corporation 1997 Stock Option Plan.
(Incorporated by reference to Exhibit (10) to Form
10-Q report for quarter ended June 30, 1997, File No.
0-6835.)
</TABLE>
65
<PAGE> 68
<TABLE>
<CAPTION>
SEQUENTIAL
NUMBER ASSIGNED IN NUMBERING SYSTEM
REGULATION S-K PAGE NUMBER
ITEM 601 DESCRIPTION OF EXHIBIT OF EXHIBIT
- ------------------ ---------------------- ----------------
<S> <C> <C> <C>
10(l) Amendment to Irwin Financial Corporation 1997 Stock
Option Plan. (Incorporated by reference to Exhibit
(10) to Form 10-Q report for quarter ended June 30,
1997, File No. 0-6835.)
10(m) Employee Stock Purchase Plan III. (Incorporated by
reference to Exhibit 10(a) to Form 10-Q report for
quarter ended June 30, 1999, File No. 0-6835.)
10(n) 1999 Outside Director Restricted Stock Compensation
Plan. (Incorporated by reference to Exhibit 10(b) to
Form 10-Q report for quarter ended June 30, 1999, File
No. 0-6835.)
(11) 11(a) Computation of Earnings Per Share. 108
(12) No exhibit.
(13) No exhibit.
(16) No exhibit.
(18) No exhibit.
(21) 21(a) Subsidiaries of the Corporation. 109
(22) No exhibit.
(23) 23(a) Consent of Independent Accountants. 110
(24) No exhibit.
(27) Financial Data Schedule. 111
(99) 99(a) Annual Report on Form 11-K for the Irwin Financial
Corporation Employees' Savings Plan for the year
ending December 31, 1999.*
99(b) Annual Report on Form 11-K for the Irwin Mortgage
Corporation Retirement and Profit Sharing Plan for the
year ending December 31, 1999.*
</TABLE>
- -------------------------
* To be filed by amendment pursuant to Rule 15d-21.
B. REPORTS ON FORM 8-K
None.
66
<PAGE> 69
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Corporation has duly caused this report to be signed
on its behalf by the Undersigned, thereunto duly authorized.
IRWIN FINANCIAL CORPORATION
<TABLE>
<S> <C>
Date: March 21, 2000 By: /s/ WILLIAM I. MILLER
----------------------------------------------------
William I. Miller,
Chairman of the Board
</TABLE>
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 Corporation and in the capacities on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY WITH CORPORATION DATE
--------- ------------------------- ----
<C> <S> <C>
/s/ SALLY A. DEAN Director March 21, 2000
- -----------------------------------------------------
Sally A. Dean
/s/ DAVID W. GOODRICH Director March 21, 2000
- -----------------------------------------------------
David W. Goodrich
/s/ JOHN T. HACKETT Director March 21, 2000
- -----------------------------------------------------
John T. Hackett
/s/ WILLIAM H. KLING Director March 21, 2000
- -----------------------------------------------------
William H. Kling
/s/ BRENDA J. LAUDERBACK Director March 21, 2000
- -----------------------------------------------------
Brenda J. Lauderback
/s/ JOHN C. MCGINTY, JR. Director March 21, 2000
- -----------------------------------------------------
John C. McGinty, Jr.
/s/ IRWIN MILLER Director March 21, 2000
- -----------------------------------------------------
Irwin Miller
/s/ WILLIAM I. MILLER Director, Chairman of the March 21, 2000
- ----------------------------------------------------- Board (Principal Executive
William I. Miller Officer)
/s/ JOHN A. NASH Director, Chairman of the March 21, 2000
- ----------------------------------------------------- Executive Committee
John A. Nash
/s/ LANCE R. ODDEN Director March 21, 2000
- -----------------------------------------------------
Lance R. Odden
/s/ THEODORE M. SOLSO Director March 21, 2000
- -----------------------------------------------------
Theodore M. Solso
/s/ GREGORY F. EHLINGER Senior Vice President March 21, 2000
- ----------------------------------------------------- (Principal Financial
Gregory F. Ehlinger Officer)
/s/ JODY A. LITTRELL Vice President and Controller March 21, 2000
- ----------------------------------------------------- (Principal Accounting
Jody A. Littrell Officer)
</TABLE>
67
<PAGE> 1
EXHIBIT 3b
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
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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:
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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
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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
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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
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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
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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.
(see attached)
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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 the
Corporation with the same effect as if such person were an officer at the date
of its issue.
Article V, Page One
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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
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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.
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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)
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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
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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
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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 act 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 9.05 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 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
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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
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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 /s/ 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 in the I
being one
of the incorporator(s) referred to in Article VTII 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
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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 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.
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
17
<PAGE> 18
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.
18
<PAGE> 19
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)
19
<PAGE> 20
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 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 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 or other document may be issued by the
Corporation with the same effect as if such person were an officer at the date
of its issue.
Article V, Page One
20
<PAGE> 21
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
21
<PAGE> 22
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):
<TABLE>
<CAPTION>
Name Number and Street or Building City State Zip Code
<S> <C> <C> <C> <C>
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 Washington 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
</TABLE>
Section 3. Qualifications of Directors. (If Any)
No qualifications are prescribed by these Articles.
22
<PAGE> 23
ARTICLE VIII
Incorporators
The name(s) and post office addressees) of the of the Corporation (are):
President and Executive Vice President, Secretary
<TABLE>
<CAPTION>
Name Number and Street or Building City State Zip Code
<S> <C> <C> <C> <C>
Paul N. Dinkins 500 Washington Street, Columbus, Indiana 47201
(President)
John A. Nash 500 Washington Street, Columbus, Indiana 47201
(Executive Vice President, Secretary)
</TABLE>
ARTICLE IX
Provisions for Regulation of Business
and Conduct of Affairs of Corporation
(See attached)
23
<PAGE> 24
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 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
24
<PAGE> 25
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
25
<PAGE> 26
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 action 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 9.05 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
26
<PAGE> 27
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
27
<PAGE> 28
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.
28
<PAGE> 29
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.
29
<PAGE> 30
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
SS:
COUNTY OF BARTHOLOMEW.
I, the undersigned, a Notary Public duly commissioned to take acknowledgments
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)
Notary Public
My Commission Expires:
December 23, 1976
30
<PAGE> 31
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
31
<PAGE> 32
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 City of Indianapolis, this 3rd day of March, 1973.
LARRY A. CONRAD, Secretary of State
32
<PAGE> 33
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").
33
<PAGE> 34
ARTICLE II
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)
34
<PAGE> 35
The number of shares entitled to vote in respect of the Amendments, the number
of shares voted in favor of 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> <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 550,000
Increase 500,000
Aggregate Number of Shares To Be Authorized After Effect of This Amendment
1,050,000
35
<PAGE> 36
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 acknowledgments
and 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)
Notary Public
My Commission Expires: April 22, 1974
Stephen J. Dutton
This instrument was prepared by Stephen J. Dutton, Attorney at Law,
McHALE, COOK & WELCH, 906 Chamber of Commerce Building, Indianapolis, 46204
36
<PAGE> 37
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 Business
Corporation 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 satisfies 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,
37
<PAGE> 38
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
38
<PAGE> 39
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 any and all additional action as may be deemed necessary or
desirable to implement the foregoing resolution.
39
<PAGE> 40
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:
40
<PAGE> 41
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
41
<PAGE> 42
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
42
<PAGE> 43
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.
Article II, Page Three
43
<PAGE> 44
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 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
44
<PAGE> 45
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 notary public, this 30 day of May 1972.
/s/ Antoinette Frenzer
- ------------------------------
Antoinette Frenzer
Notary Public
My commission expires:
December 23, 1972
This instrument prepared by Stephen J. Dutton, attorney at law.
45
<PAGE> 46
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
- ----------------------
Antoinette Frenzer
My Commission Expires:
December 23, 1972
This instrument prepared by Stephen J. Dutton, attorney at law.
46
<PAGE> 47
ARTICLES OF INCORPORATION
IND. SECRETARY OF STATE OF
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 par 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.
47
<PAGE> 48
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.
48
<PAGE> 49
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
49
<PAGE> 50
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.
Provisions 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
SECTION 1: Shareholder vote not required.
The amendment(s) was/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 to 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
50
<PAGE> 51
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:
Designation of voting Group Common
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
51
<PAGE> 52
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 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
52
<PAGE> 53
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
53
<PAGE> 54
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:
TOTAL
SHAREHOLDERS ENTITLED TO VOTE. 1,417,891
SHAREHOLDERS VOTED IN FAVOR: 1,211,029
SHAREHOLDERS VOTED AGAINST. 10,668
(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
- --------------------------------------------------------------------------------
54
<PAGE> 55
STATE OF INDIANA
OFFICE OF THE SECRETARY OF STATE
ARTICLES OF AMENDMENT
To Whom These Presents Come, Greeting:
WHEREAS, there has been presented to them 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
- --------------------------------------------------------------------------------
55
<PAGE> 56
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
56
<PAGE> 57
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 appropriate paragraph)
(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 all
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 of such Shareholders during the meeting called by the Board of
Directors. The result of such vote is as follows:
SHAREHOLDERS ENTITLED TO VOTE: 5,833,135
SHAREHOLDERS VOTED IN FAVOR: 4,986,081
SHAREHOLDERS VOTED AGAINST: 27,183
(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
57
<PAGE> 58
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
58
<PAGE> 59
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
59
<PAGE> 60
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:
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
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 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 herein are true, this lst day of May, 1996
/s/ Matthew F. Souza
- ------------------------------
Matthew F. Souza
Vice President and Secretary
ARTICLES OF AMENDMENT OF THE
ARTICLES OF INCORPORATION
ARTICLES OF AMENDMENT OF THE
ARTICLES OF INCORPORATION OF:
Name of Corporation Irwin Financial Corporation
Date of Incorporation May 31, 1972
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The undersigned officers above referenced Corporation (hereinafter referred to
as the "Corporation") existing pursuant to the provisions of. (Indicate
appropriate act)
X 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 Article of Incorporation, certify the
following facts:
ARTICLE I
The exact text of Article(s) V., Section I of the Articles
(NOTE. if amending the name of corporation, write Article "I" in
space above and write, "The name of the Corporation is below.)
"Section 1. Number and Classes of Shares." The total number of shares,
which the Corporation shall have the authority to issue, is 44,000,000
shares. The total authorized shares of the Corporation shall be divided
into two classes: a class of up to 40,000,000 Common Shares without par
value (the "Common Shares") and a class of up to 4,000,000 Preferred
Shares without par value (the "Preferred Shares"). The Common Shares and
the Preferred Shares are collectively referred to herein as the
"Shares."
ARTICLE II
Date of each amendments adoption: April 29, 1999
ARTICLE III Manner of Adoption and Vote
Mark applicable section: NOTE - Only in limited situations does Indiana law
permit an Amendment without shareholder approval. Because a name change
requires shareholder approval, Section 2 must be marked and either A or B
completed.
SECTION 1 This amendment was adopted by the Board of Directors or incorporators
and shareholder action was not required.
X SECTION 2 The shareholders of the Corporation entitled to vote in respect
to the amendment adopted the proposed amendment. The
amendment was adopted by: (Shareholder approval may be by
either A or B.)
A. Vote of such shareholders during a meeting called by the
Board of Directors. The result of such vote is as follows:
21689574 Shares entitled to vote.
19149002 Number of shares represented at the meeting.
15586607 Shares voted in favor.
2023197 Shares voted against.
B. Unanimous written consent executed on _______ 19__ and signed
by all shareholders entitled to vote.
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ARTICLE IV 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 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 herein are true, this 3rd day of May, 1999
Signature of current officer or chairman of the board
Printed name of officer or chairman of the board Matthew F. Souza
Signature's title /s/ Matthew F. Souza
Secretary
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ARTICLES OF AMENDMENT OF THE
ARTICLES OF INCORPORATION
ARTICLES OF AMENDMENT OF THE
ARTICLES OF INCORPORATION OF:
Name of Corporation Irwin Financial Corporation
Date of Incorporation May 31, 1972
The undersigned officers above referenced Corporation (hereinafter referred to
as the 'Corporation") existing pursuant to the provisions of. (Indicate
appropriate act)
X 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 Article of Incorporation, certify the
following facts:
ARTICLE I
The exact text of Article(s) V., Section 2, 5.20 of the Articles
(NOTE. if amending the name of corporation, write Article "I" in
space above and write, "The name of the Corporation is below.)
Section Deleted.
ARTICLE II
Date of each amendments adoption: April 29, 1999
ARTICLE III Manner of Adoption and Vote
Mark applicable section: NOTE - Only in limited situations does Indiana law
permit an Amendment without shareholder approval. Because a name change
requires shareholder approval, Section 2 must be marked and either A or B
completed.
SECTION 1 This amendment was adopted by the Board of Directors or incorporators
and shareholder action was not required.
X SECTION 2 The shareholders of the Corporation entitled to vote in respect
to the amendment adopted the proposed amendment. The amendment was
adopted by: (Shareholder approval may be by either A or B.)
A. Vote of such shareholders during a meeting called by the
Board of Directors. The result of such vote is as follows:
21689574 Shares entitled to vote.
19149002 Number of shares represented at the meeting.
18987492 Shares voted in favor.
81949 Shares voted against.
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B. Unanimous written consent executed on _______ 19__ and signed
by all shareholders entitled to vote.
ARTICLE IV 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 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 herein are true, this 3rd day of May, 1999
Signature of current officer or chairman of the board
Printed name of officer or chairman of the board Matthew F. Souza
Signature's title /s/ Matthew F. Souza
Secretary
ARTICLES OF AMENDMENT OF THE
ARTICLES OF INCORPORATION
IRWIN FINANCIAL CORPORATION
Article I Amendment
The exact text of Article V., Section 2 of the Articles is amended to
add a new Section 5.27, as set forth in Exhibit A and Exhibit B
attached hereto, respectively.
Article II
Date of each amendment's adoption: August 26, 1999.
Article III Manner of Adoption and Vote
SECTION 1 This amendment was adopted by the Board of Directors or
incorporators and shareholder action was not required.
Article IV 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 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 herein are true, this 2nd day of September, 1999.
/s/ Matthew F. Souza
Matthew F. Souza, Secretary
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EXHIBIT A
IRWIN FINANCIAL CORPORATION
TERMS OF SERIES A CONVERTIBLE PREFERRED SHARES
By resolutions adopted on April 29, 1999 and August 26, 1999, the Board
of Directors of Irwin Financial Corporation (the "Corporation"), has established
and designated a series of Preferred shares to be called the Series A
Convertible Preferred Shares (the "Series A Preferred Shares"), to consist of
67,000 shares having the following terms.
1. Definitions.
"Bank" means Irwin Union Bank and Trust Company, a commercial
bank chartered under the laws of the State of Indiana and a
wholly-owned subsidiary of the Corporation.
"Banking Office" means, collectively, the banking offices
operated by the Bank in Monroe County, Indiana, including locations at
300 W 6th St., Bloomington, IN 47404; 1175 College Mall Rd., Box A,
Bloomington, IN 47401; and 528 S. College Ave., Box A, Bloomington, IN
47401.
"Board" means the Board of Directors of the Corporation.
"Common Shares" means the common shares of the Corporation.
"Corporation" means Irwin Financial Corporation, an Indiana
corporation.
"Deposit Goal" means the goal that the average deposits at the
Bank on behalf of the Banking Office for any calendar quarter equal or
exceed $34,000,000, with the calculations to be made as set forth in
Section 4(b)(iii) herein.
"Person" means an individual, a partnership, a joint venture,
a corporation, an association, a trust, or any other entity or
organization.
"Purchase Price" means the price per share at which the Series
A Preferred Shares have been offered and sold by the Corporation to
qualified investors pursuant to a Confidential Private Placement
Memorandum.
"Series A Preferred Shares" means the Series A Convertible
Preferred Shares of the Corporation.
"Start Date" means the first day of the calendar quarter
following the closing date of the offering. The Start Date is the date
from which
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the Corporation will measure the amount of deposits at the Bank on
behalf of the Banking Office for the purposes of determining
conversion rights.
2. Dividends. The holders of outstanding Series A Preferred
Shares shall not be entitled to receive any dividends on the Series A Preferred
Shares.
3. Redemption.
(a) The outstanding Series A Preferred Shares are redeemable
at the option of the Corporation, out of the assets of the Corporation
legally available therefor, at any time or from time to time, in whole
and not in part, at a redemption price per share of Series A Preferred
Shares (the "Redemption Price") equal to the Purchase Price; provided,
however, that for a period of not less than 30 days prior to the date
fixed for redemption (the "Redemption Date"), the holders of the
outstanding Series A Preferred Shares shall have an option to convert
each Series A Preferred Share into 1.25 Common Shares.
(b) Notice of any redemption of Series A Preferred Shares,
specifying the date fixed for redemption, the redemption price and the
place at which shareholders may obtain payment of the Redemption Price
upon surrender of their certificates, and the option of the
shareholders to convert their Series A Preferred Shares into Common
Shares, shall be mailed to each holder of record of the shares to be
redeemed, at such holder's address of record, not less than 35, nor
more than 90 days prior to the Redemption Date. Such notice shall set
forth the manner in which shareholders may convert their Series A
Preferred Shares into Common Shares, or to receive the Redemption
Price, upon surrender of their certificates.
(c) Unless the Corporation defaults in the payment in full of
the Redemption Price, (i) all rights of the holders of such Series A
Preferred Shares as shareholders of the Corporation by reason of the
ownership of such shares (including, without limitation, the right to
convert the Series A Preferred Shares into Common Shares) shall cease
on the Redemption Date except the right to receive the amount payable
upon redemption of such shares upon presentation and surrender of the
respective certificates evidencing such shares, and (ii) such shares
shall be deemed not to be outstanding after the Redemption Date.
(d) Any Series A Preferred Shares that have been redeemed
shall, after such redemption, not be reissued as Series A Preferred
Shares, but shall become authorized but unissued Preferred Shares of
the Corporation, and the certificates evidencing such shares shall be
canceled.
(e) Any notice required by the provisions of this Section 3 to
be given to the holders of Series A Preferred Shares shall be deemed
given if deposited in the United States mail postage prepaid, and
addressed to each holder of record at his, her or its address appearing
on the books of the Corporation.
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4. Conversion Rights. The Series A Preferred Shares shall be
convertible into Common Shares as follows:
(a) No Optional Conversion. Other than pursuant to a
redemption of the Series A Preferred Shares as set forth in Section 3
above, the holders of Series A Preferred Shares shall have no optional
rights to convert such shares into Common Shares.
(b) Automatic Conversion. Each Series A Preferred Share shall
be automatically converted, without any further act of the Corporation
or the holders of Series A Preferred Shares, into fully paid and
nonassessable Common Shares in the manner and at the times specified
below:
(i) Second Anniversary after Start Date. If the
Deposit Goal is met prior to twenty-four (24) months from the
Start Date, (A) the date of the automatic conversion into
Common Shares shall be twenty-seven (27) months after the
Start Date, and (B) each Series A Preferred Share shall
automatically be converted into 1.25 Common Shares. If the
Deposit Goal has not been met prior to twenty-four (24) months
from the Start Date, the Series A Preferred Shares will not be
converted into Common Shares until after the third anniversary
of the Start Date.
(ii) Third Anniversary after Start Date. If the
conversion of the Series A Preferred Shares into Common Shares
has not previously taken place within thirty-six (36) months
after the Start Date, then, thirty-nine (39) months after the
Start Date, each outstanding Series A Preferred Share shall
automatically be converted into (A) 1.10 Common Shares if the
Deposit Goal has been met prior to the end of thirty-six (36)
months after the Start Date, and (B) 1.02 Common Shares if the
Deposit Goal has not been met prior to the end of thirty-six
(36) months after the Start Date.
(iii) Determination of Whether Deposit Goal Has Been
Met. The Deposit Goal shall have been met prior to a specified
date if the average deposits at the Bank on behalf of the
Banking Office for any calendar quarter prior to such date
equal or exceed $34,000,000. For the purposes of determining
whether the Deposit Goal has been met, the corporation will
follow the following procedures:
Deposits: For the purpose of making the
Deposit Goal calculations, "deposits" means the book
balances of all accounts which are insurable by the
Federal Deposit Insurance Corporation (such as
demand, savings, time, money market and NOW accounts
and certificates of deposit), including the balances
in such accounts in excess of $100,000; provided,
however, that certificates of deposit shall be
included in the total amount of deposits only to the
extent that they do not exceed 10% of total deposits.
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Credit for Deposits: The specific banking
office at which a deposit account is opened receives
the credit for the account; provided, however, that
if the Banking Office is not authorized to accept
deposits or has not yet opened for business, a
deposit account may be established at another banking
office on behalf of the Banking Office if designated
as such. The Bank's accounting system tracks and
accounts for all depository accounts on a daily
basis.
Calendar Quarter Average: After a calendar
quarter has expired, the Bank will calculate the
calendar quarter average of deposits for accounts
designated as gathered on behalf of the Banking
Office by adding the sum of the daily general ledger
balance for such deposits and then dividing this sum
by the number of days in the calendar quarter.
All determinations regarding whether the Deposit Goal has been
met as of any date shall be made by the Board of Directors of
the Corporation, whose determinations in this regard shall be
final and conclusive for all purposes.
(c) Mechanics of Conversion. Upon the occurrence of the dates
specified in Section 4(b) above, the outstanding Series A Preferred
Shares shall be converted automatically without any further action by
the holders of such shares and whether or not the certificates
representing such shares are surrendered to the Corporation or its
transfer agent; provided, however, that the Corporation shall not be
obligated to issue to any holder certificates evidencing the Common
Shares issuable upon such conversion unless certificates evidencing the
Series A Preferred Shares are delivered either to the Corporation or
any transfer agent designated by the Corporation. Conversion shall be
deemed to have been effected on the date of the occurrence of the dates
specified in Section 4(b) above, as the case may be, and such date is
referred to herein as the "Conversion Date." Subject to the provisions
of Section 4(b) above, as promptly as practicable thereafter (and after
surrender of the certificate or certificates representing the Series A
Preferred Shares to the Corporation or any transfer agent designated by
the Corporation), the Corporation shall issue and deliver to such
holder a certificate or certificates for the number of full Common
Shares to which such holder is entitled as provided in Section 4(b)
hereof. Subject to the provisions of Section 4(b), the person in whose
name the certificate or certificates for Common Shares are to be issued
shall be deemed to have become a holder of record of such Common Shares
on the applicable Conversion Date.
(d) Fractional Shares. No fractional Common Shares or scrip
shall be issued upon conversion of Series A Preferred Shares. In lieu
of any fractional Common Shares which would otherwise be issuable upon
conversion of any Series A Preferred Shares, the number of full Common
Shares issuable upon conversion thereof shall be increased to the next
higher number of whole shares.
(e) Rights After Conversion Date. From and after the
Conversion Date (unless the Corporation defaults in issuing Common
Shares in
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conversion for the outstanding Series A Preferred Shares on the
Conversion Date), such Series A Preferred Shares shall be deemed
not to be outstanding and all rights of the holders of such shares as
Shareholders of the Corporation by reason of the ownership of such
shares shall cease, except the right to receive Common Shares as
provided in Section 4(b) herein on presentation and surrender of the
respective certificates evidencing such Series A Preferred Shares. Upon
presentation and surrender, on or after the Conversion Date, of any
certificate evidencing Series A Preferred Shares (properly endorsed or
assigned for transfer, if the Corporation shall so require), such
shares shall be converted by the Corporation for Common Shares as
provided in this Section 4.
(f) Authorized, But Unissued Shares. Any Series A Preferred
Shares that shall at any time have been converted into Common Shares
pursuant to this Section 4 shall, after such conversion become
authorized but unissued Preferred Shares of the Corporation, and the
certificates evidencing such shares shall be canceled.
(g) Reservation of Shares. The Corporation shall reserve at
all times so long as any Series A Preferred Shares remain outstanding,
free from preemptive rights, out of its treasury shares or its
authorized but unissued Common Shares, or both, solely for the purpose
of effecting the conversion of the Series A Preferred Shares,
sufficient Common Shares to provide for the conversion of all
outstanding Series A Preferred Shares.
(h) Fully Paid and Nonassessable Shares. All Common Shares or
other securities which may be issued upon conversion of the Series A
Preferred Shares will upon issuance by the Corporation be duly and
validly issued, fully paid and nonassessable and free from all taxes,
liens and charges with respect to the issuance thereof and the
Corporation shall take no action which would cause a contrary result.
5. Conversion Ratio Adjustments. The number of Common Shares into which
the Series A Preferred Shares shall be converted pursuant to Section 4 (the
"Conversion Ratios") and the securities or other property deliverable upon
conversion of the Series A Preferred Shares shall be subject to adjustment from
time to time as follows:
(a) Share Subdivisions or Split-Ups. If the number of Common
Shares outstanding at any time after the date of issuance of the Series
A Preferred Shares is increased by a subdivision or split-up of Common
Shares, then immediately after the record date fixed for the
determination of holders of Common Shares entitled to receive such
subdivision or split-up, as the case may be, the Conversion Ratios
shall be appropriately increased so that the holder of any Series A
Preferred Shares thereafter converted shall be entitled to receive the
number of Common Shares of the Corporation which the holder would have
owned immediately following such action had such Series A Preferred
Shares been converted immediately prior thereto.
(b) Combinations of Shares. If the number of Common Shares
outstanding at any time after the date of issuance of the Series A
Preferred Shares is decreased by a combination of the outstanding
Common
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Shares, then, immediately after the effective date of such combination,
the Conversion Ratios applicable thereto shall be appropriately
decreased so that the holder of any Series A Preferred Shares
thereafter converted shall be entitled to receive the number of Common
Shares of the Corporation which the holder would have owned immediately
following such action had such Series A Preferred Shares been converted
immediately prior thereto.
(c) Reorganization, Reclassification, Merger, Sale of All
Assets, etc. In case of any capital reorganization of the Corporation,
or of any reclassification of the Common Shares, or in case of the
consolidation of the Corporation with or the merger of the Corporation
with or into any other Person or of the sale, lease or other transfer
of all or substantially all of the assets of the Corporation to any
other Person, or in the case of any distribution of cash or other
assets or of notes or other indebtedness of the Corporation or any
other securities of the Corporation (except Common Shares) to the
holders of its Common Shares, each Series A Preferred Share shall,
after such capital reorganization, reclassification, consolidation,
merger, sale, lease or other transfer or such distribution, be
convertible into the number of shares or other securities or property
to which the Common Shares issuable (at the time of such capital
reorganization, reclassification, consolidation, merger, sale, lease or
other transfer or such distribution) upon conversion of such Series A
Preferred Shares would have been entitled upon such capital
reorganization, reclassification, consolidation, merger, sale, lease or
other transfer or such distribution in place of (or in addition to, in
the case of any such event after which Common Shares remain
outstanding) the Common Shares into which such Series A Preferred
Shares would otherwise have been convertible; and in any such case, if
necessary, the provisions set forth herein with respect to the rights
and interest thereafter of the holders of Series A Preferred Shares
shall be appropriately adjusted so as to be applicable, as nearly as
may reasonably be, to any shares or other securities or property
thereafter deliverable on the conversion of the Series A Preferred
Shares.
(d) Rounding of Calculations; Minimum Adjustment. All
calculations under this Section 5 shall be made to the nearest one
hundredth (1/100th) of a Common Share, as the case may be. Any
provision of this Section 5 to the contrary notwithstanding, no
adjustment in the Conversion Ratios shall be made if the amount of such
adjustment would be less than one hundredth of a Common Share, but any
such amount shall be carried forward and an adjustment with respect
thereto shall be made at the time of any subsequent adjustment which,
together with such amount and any other amount or amounts so carried
forward, shall aggregate one hundredth of a Common Share or more.
(e) Timing of Issuance of Additional Common Shares upon
Certain Adjustments. In any case in which the provisions of this
Section 5 shall require that an adjustment shall become effective
immediately after a record date for an event, the Corporation may defer
until the occurrence of such event issuing to the holder of any Series
A Preferred Shares converted after such record date and before the
occurrence of such event the additional Common Shares or other property
issuable or
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deliverable upon such conversion by reason of the adjustment required
by such event over and above the Common Shares other property
issuable or deliverable upon such conversion before giving effect to
such adjustment; provided, however, that the Corporation upon request
shall deliver to such holder a due bill or other appropriate instrument
evidencing such holder's right to receive such additional shares or
other property, and such cash, upon the occurrence of the event
requiring such adjustment.
(f) Statement Regarding Adjustments. Whenever the Conversion
Ratios shall be adjusted as provided in this Section 5, the Corporation
shall forthwith file, at the office of any transfer agent for the
Series A Preferred Shares and at the principal office of the
Corporation a statement showing in detail the facts requiring such
adjustment and the Conversion Ratios that shall be in effect after such
adjustment, and the Corporation shall also cause a copy of such
statement to be mailed, first class postage prepaid, to each holder of
Series A Preferred Shares at its address appearing on the Corporation's
records.
(g) Cost. The Corporation shall pay all documentary, stamp,
transfer or other transactional taxes attributable to the issuance or
delivery of Common Shares of the Corporation or other securities or
property upon conversion of any Series A Preferred Shares; provided,
however, that the Corporation shall not be required to pay any taxes
which may be payable in respect of any transfer involved in the
issuance or delivery of any certificate for such shares or securities
in the name other than that of the holder of Series A Preferred Shares
in respect of which such shares are being issued.
6. Voting. The holders of Series A Preferred Shares shall have no right
or power to vote on any matter except as required by law. In any matter on which
the holders of Series A Preferred Shares shall, as a matter of law, be entitled
to vote, the holders shall be entitled to one vote for each Series A Preferred
Share held.
7. Liquidation Rights.
(a) Upon the dissolution, liquidation or winding up of the
Corporation, whether voluntary or involuntary, the holders of Series A
Preferred Shares then outstanding shall be entitled to receive out of
the assets of the Corporation available for distribution to equity
holders, an amount per share in cash equal to the Purchase Price before
any payment or distribution shall be made on the Common Shares or on
any other class of capital shares of the Corporation ranking junior to
the Series A Preferred Shares upon liquidation. All outstanding shares
of any other series of preferred shares shall rank at parity with the
Series A Preferred Shares. The consolidation or merger of the
Corporation, or a sale, exchange or transfer of all or substantially
all of its assets as an entirety, shall not be regarded as a
"dissolution, liquidation or winding up of the Corporation" within the
meaning of this Section 7(a).
(b) After the payment to the holders of Series A Preferred
Shares of the full preferential amounts fixed hereby for Series A
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Preferred Shares, the holders of Series A Preferred Shares as such
shall have no right or claim to any of the remaining assets of the
Corporation.
(c) If the assets of the Corporation available for
distribution to the holders of Series A Preferred Shares upon
dissolution, liquidation or winding up of the Corporation are
insufficient to pay in full all amounts to which such holders are
entitled pursuant to Section 7(a), no distribution shall be made on
account of any shares of a class or series of capital shares of the
Corporation ranking on a parity with the Series A Preferred Shares, if
any, upon such dissolution, liquidation or winding up unless
proportionate distributive amounts shall be paid on account of the
Series A Preferred Shares, ratably, in proportion to the full
distributable amounts for which holders of all such parity shares are
respectively entitled upon such dissolution, liquidation or winding up.
8. Reports to Holders of Series A Preferred Shares. For so long as
there shall remain outstanding any Series A Preferred Shares, the Corporation
shall furnish to each holder of record of Series A Preferred Shares (i) all
reports or other correspondence sent by the Corporation to holders of record of
the Common Shares of the Corporation, and (ii) a quarterly report setting forth
the average monthly deposits on behalf of the Banking Office.
9. Certain Covenants. So long as any Series A Preferred Shares are
outstanding, without the prior written consent of the holders of a majority of
the outstanding Series A Preferred Shares, the Corporation shall not amend,
alter or repeal any provisions of this Resolution Establishing Series A
Convertible Preferred Shares, or otherwise amend, alter or repeal any provision
of the Articles of Incorporation of the Corporation so as to affect adversely
the preferences, rights, powers or privileges of the Series A Preferred Shares.
10. Certain Events. If any event occurs of the type contemplated but
not expressly provided for by the provisions of Section 4 or Section 5 herein,
then the Corporation's Board of Directors will make an appropriate adjustment in
the Conversion Ratios for the Series A Preferred Shares to protect the rights of
the holders thereof.
11. Exclusion of Other Rights. Unless otherwise required by law, the
Series A Preferred Shares shall not have any voting powers, preferences or
relative, participating, optional or other special rights other than those
specifically set forth herein.
ARTICLES OF AMENDMENT OF THE
ARTICLES OF INCORPORATION
ARTICLES OF AMENDMENT OF THE
ARTICLES OF INCORPORATION OF:
Name of Corporation Irwin Financial Corporation
Date of Incorporation May 31, 1972
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The undersigned officers above referenced Corporation (hereinafter referred to
as the 'Corporation") existing pursuant to the provisions of. (Indicate
appropriate act)
X 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 Article of Incorporation, certify the
following facts:
ARTICLE I Amendment(s)
The exact text of Article(s) V., Section 2 of the Articles
(NOTE: if amending the name of corporation, write Article 'I' in
space above and write, "The name of the Corporation is_____" below.)
1. Section 5.27 is amended as set forth in Exhibit A attached hereto,
respectively.
2. Section 5/28 is amended as set forth in Exhibit B attached hereto,
respectively.
3. Amended to add a new Section 5.29 as set forth in Exhibit C attached
hereto, respectively.
ARTICLE II
Date of each amendment's adoption: October 8, 1999
ARTICLE III Manner of Adoption and Vote
Mark applicable section: NOTE - Only in limited situations does Indiana law
permit an Amendment without shareholder approval. Because a name change
requires shareholder approval, Section 2 must be marked and either A or B
completed.
X SECTION 1 This amendment was adopted by the Board of Directors or
incorporators and shareholder action was not required.
ARTICLE IV 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 the
provisions of the Act, the Articles of Incorporation, and the By-Laws of
the Corporation.
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I hereby verify, subject to the penalties of perjury, that the statements
contained herein are true, this 26th day of October, 1999.
Signature of current officer or chairman of the board /s/ Ellen Z. Mufson
Printed name of officer or chairman of the board Ellen Z. Mufson
Signature's title Assistant Secretary
CERTIFIED COPY OF A RESOLUTION
I HEREBY CERTIFY that I am the Assistant Secretary of Irwin Financial
Corporation, an Indiana corporation, and that the following resolution was
adopted by the Board of Directors of said Corporation on October 8, 1999:
[Attached Herein]
IN WITNESS WHEREOF, I have hereunto subscribed my name and affixed the corporate
seal this 26th day of October 1999.
/s/ Ellen Z. Mufson
---------------------------------
Ellen Z. Mufson, Assistant Secretary
EXHIBIT A
IRWIN FINANCIAL CORPORATION
AMENDMENT TO
TERMS OF SERIES A CONVERTIBLE PREFERRED SHARES
By Unanimous Written Consent effective as of October 8, 1999, the Board
of Directors of Irwin Financial Corporation (the "Corporation"), has amended the
terms of its Series A Convertible Preferred Shares (the "Series A Preferred
Shares"), to consist of 66,666 shares, and further as follows:
1. Definitions.
"Bank" means Irwin Union Bank and Trust Company, a commercial
bank chartered under the laws of the State of Indiana and a
wholly-owned subsidiary of the Corporation.
"Banking Office" means, collectively, the banking offices
operated by the Bank in Monroe County, Indiana, including locations at
300 W. 6th St., Bloomington, IN 47404; 1175 College Mall Rd., Box A,
Bloomington, IN 47401; and 528 S. College Ave., Box A, Bloomington, IN
47401.
"Board" means the Board of Directors of the Corporation.
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"Common Shares" means the common shares of the Corporation.
"Corporation" means Irwin Financial Corporation, an Indiana
corporation.
"Deposit Goal" means the goal that the average deposits at the
Bank on behalf of the Banking Office for any calendar quarter equal or
exceed $50,000,000, with the calculations to be made as set forth in
Section 4(b)(iii) herein.
"Person" means an individual, a partnership, a joint venture,
a corporation, an association, a trust, or any other entity or
organization.
"Purchase Price" means the price per share at which the Series
A Preferred Shares have been offered and sold by the Corporation to
qualified investors pursuant to a Confidential Private Placement
Memorandum.
"Series A Preferred Shares" means the Series A Convertible
Preferred Shares of the Corporation.
"Start Date" means the first day of the calendar quarter
following the closing date of the offering. The Start Date is the date
from which the Corporation will measure the amount of deposits at the
Bank on behalf of the Banking Office for the purposes of determining
conversion rights.
2. Dividends. The holders of outstanding Series A Preferred Shares
shall not be entitled to receive any dividends on the Series A Preferred Shares.
3. Redemption.
(a) The outstanding Series A Preferred Shares are redeemable
at the option of the Corporation, out of the assets of the Corporation
legally available therefor, at any time or from time to time, in whole
and not in part, at a redemption price per share of Series A Preferred
Shares (the "Redemption Price") equal to the Purchase Price; provided,
however, that for a period of not less than 30 days prior to the date
fixed for redemption (the "Redemption Date"), the holders of the
outstanding Series A Preferred Shares shall have an option to convert
each Series A Preferred Share into 1.25 Common Shares.
(b) Notice of any redemption of Series A Preferred Shares,
specifying the date fixed for redemption, the redemption price and the
place at which shareholders may obtain payment of the Redemption Price
upon surrender of their certificates, and the option of the
shareholders to convert their Series A Preferred Shares into Common
Shares, shall be mailed to each holder of record of the shares to be
redeemed, at such holder's address of record, not less than 35, nor
more than 90 days prior to the Redemption Date. Such notice shall set
forth the manner in which shareholders may convert their Series A
Preferred Shares into
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Common Shares, or to receive the Redemption Price, upon surrender of
their certificates.
(c) Unless the Corporation defaults in the payment in full of
the Redemption Price, (i) all rights of the holders of such Series A
Preferred Shares as shareholders of the Corporation by reason of the
ownership of such shares (including, without limitation, the right to
convert the Series A Preferred Shares into Common Shares) shall cease
on the Redemption Date except the right to receive the amount payable
upon redemption of such shares upon presentation and surrender of the
respective certificates evidencing such shares, and (ii) such shares
shall be deemed not to be outstanding after the Redemption Date.
(d) Any Series A Preferred Shares that have been redeemed
shall, after such redemption, not be reissued as Series A Preferred
Shares, but shall become authorized but unissued Preferred Shares of
the Corporation, and the certificates evidencing such shares shall be
canceled.
(e) Any notice required by the provisions of this Section 3 to
be given to the holders of Series A Preferred Shares shall be deemed
given if deposited in the United States mail postage prepaid, and
addressed to each holder of record at his, her or its address appearing
on the books of the Corporation.
4. Conversion Rights. The Series A Preferred Shares shall be
convertible into Common Shares as follows:
(a) No Optional Conversion. Other than pursuant to a
redemption of the Series A Preferred Shares as set forth in Section 3
above, the holders of Series A Preferred Shares shall have no optional
rights to convert such shares into Common Shares.
(b) Automatic Conversion. Each Series A Preferred Share shall
be automatically converted, without any further act of the Corporation
or the holders of Series A Preferred Shares, into fully paid and
nonassessable Common Shares in the manner and at the times specified
below:
(i) Second Anniversary after Start Date. If the
Deposit Goal is met prior to twenty-four (24) months from the
Start Date, (A) the date of the automatic conversion into
Common Shares shall be twenty-seven (27) months after the
Start Date, and (B) each Series A Preferred Share shall
automatically be converted into 1.25 Common Shares. If the
Deposit Goal has not been met prior to twenty-four (24) months
from the Start Date, the Series A Preferred Shares will not be
converted into Common Shares until after the third anniversary
of the Start Date.
(ii) Third Anniversary after Start Date. If the
conversion of the Series A Preferred Shares into Common Shares
has not previously taken place within thirty-six (36) months
after the Start Date, then, thirty-nine (39) months after the
Start Date, each outstanding Series A Preferred Share shall
automatically be
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converted into (A) 1.10 Common Shares if the Deposit Goal
has been met prior to the end of thirty-six (36) months after
the Start Date, and (B) 1.02 Common Shares if the Deposit
Goal has not been met prior to the end of thirty-six (36)
months after the Start Date.
(iii) Determination of Whether Deposit Goal Has Been
Met. The Deposit Goal shall have been met prior to a specified
date if the average deposits at the Bank on behalf of the
Banking Office for any calendar quarter prior to such date
equal or exceed $50,000,000. For the purposes of determining
whether the Deposit Goal has been met, the Corporation will
follow the following procedures:
Deposits: For the purpose of making the
Deposit Goal calculations, "deposits" means the book
balances of all accounts which are insurable by the
Federal Deposit Insurance Corporation (such as
demand, savings, time, money market and NOW accounts
and certificates of deposit), including the balances
in such accounts in excess of $100,000; provided,
however, that certificates of deposit in amounts of
$100,000 or more shall be included in the total
amount of deposits only to the extent such
certificates of deposit do not exceed 10% of total
deposits.
Credit for Deposits: The specific banking
office at which a deposit account is opened receives
the credit for the account; provided, however, that
if the Banking Office is not authorized to accept
deposits or has not yet opened for business, a
deposit account may be established at another banking
office on behalf of the Banking Office if designated
as such. The Bank's accounting system tracks and
accounts for all depository accounts on a daily
basis.
Calendar Quarter Average: After a calendar
quarter has expired, the Bank will calculate the
calendar quarter average of deposits for accounts
designated as gathered on behalf of the Banking
Office by adding the sum of the daily general ledger
balance for such deposits and then dividing this sum
by the number of days in the calendar quarter.
All determinations regarding whether the Deposit Goal has been
met as of any date shall be made by the Corporation. Such
determinations in this regard shall be final and conclusive
for all purposes.
(c) Mechanics of Conversion. Upon the occurrence of the dates
specified in Section 4(b) above, the outstanding Series A Preferred
Shares shall be converted automatically without any further action by
the holders of such shares and whether or not the certificates
representing such shares are surrendered to the Corporation or its
transfer agent; provided, however, that the Corporation shall not be
obligated to issue to any holder certificates evidencing the Common
Shares issuable upon such conversion unless certificates evidencing the
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<PAGE> 78
Series A Preferred Shares are delivered either to the Corporation or
any transfer agent designated by the Corporation. Conversion shall be
deemed to have been effected on the date of the occurrence of the dates
specified in Section 4(b) above, as the case may be, and such date is
referred to herein as the "Conversion Date." Subject to the provisions
of Section 4(b) above, as promptly as practicable thereafter (and after
surrender of the certificate or certificates representing the Series A
Preferred Shares to the Corporation or any transfer agent designated by
the Corporation), the Corporation shall issue and deliver to such
holder a certificate or certificates for the number of full Common
Shares to which such holder is entitled as provided in Section 4(b)
hereof. Subject to the provisions of Section 4(b), the person in whose
name the certificate or certificates for Common Shares are to be issued
shall be deemed to have become a holder of record of such Common Shares
on the applicable Conversion Date.
(d) Fractional Shares. No fractional Common Shares or scrip
shall be issued upon conversion of Series A Preferred Shares. In lieu
of any fractional Common Shares which would otherwise be issuable upon
conversion of any Series A Preferred Shares, the number of full Common
Shares issuable upon conversion thereof shall be increased to the next
higher number of whole shares.
(e) Rights After Conversion Date. From and after the
Conversion Date (unless the Corporation defaults in issuing Common
Shares in conversion for the outstanding Series A Preferred Shares on
the Conversion Date), such Series A Preferred Shares shall be deemed
not to be outstanding and all rights of the holders of such shares as
Shareholders of the Corporation by reason of the ownership of such
shares shall cease, except the right to receive Common Shares as
provided in Section 4(b) herein on presentation and surrender of the
respective certificates evidencing such Series A Preferred Shares. Upon
presentation and surrender, on or after the Conversion Date, of any
certificate evidencing Series A Preferred Shares (properly endorsed or
assigned for transfer, if the Corporation shall so require), such
shares shall be converted by the Corporation for Common Shares as
provided in this Section 4.
(f) Authorized, But Unissued Shares. Any Series A Preferred
Shares that shall at any time have been converted into Common Shares
pursuant to this Section 4 shall, after such conversion become
authorized but unissued Preferred Shares of the Corporation, and the
certificates evidencing such shares shall be canceled.
(g) Reservation of Shares. The Corporation shall reserve at
all times so long as any Series A Preferred Shares remain outstanding,
free from preemptive rights, out of its treasury shares or its
authorized but unissued Common Shares, or both, solely for the purpose
of effecting the conversion of the Series A Preferred Shares,
sufficient Common Shares to provide for the conversion of all
outstanding Series A Preferred Shares.
(h) Fully Paid and Nonassessable Shares. All Common Shares or
other securities which may be issued upon conversion of the Series A
Preferred Shares will upon issuance by the Corporation be duly and
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<PAGE> 79
validly issued, fully paid and nonassessable and free from all taxes,
liens and charges with respect to the issuance thereof and the
Corporation shall take no action which would cause a contrary result.
5. Conversion Ratio Adjustments. The number of Common Shares into which
the Series A Preferred Shares shall be converted pursuant to Section 4 (the
"Conversion Ratios") and the securities or other property deliverable upon
conversion of the Series A Preferred Shares shall be subject to adjustment from
time to time as follows:
(a) Share Subdivisions or Split-Ups. If the number of Common
Shares outstanding at any time after the date of issuance of the Series
A Preferred Shares is increased by a subdivision or split-up of Common
Shares, then immediately after the record date fixed for the
determination of holders of Common Shares entitled to receive such
subdivision or split-up, as the case may be, the Conversion Ratios
shall be appropriately increased so that the holder of any Series A
Preferred Shares thereafter converted shall be entitled to receive the
number of Common Shares of the Corporation which the holder would have
owned immediately following such action had such Series A Preferred
Shares been converted immediately prior thereto.
(b) Combinations of Shares. If the number of Common Shares
outstanding at any time after the date of issuance of the Series A
Preferred Shares is decreased by a combination of the outstanding
Common Shares, then, immediately after the effective date of such
combination, the Conversion Ratios applicable thereto shall be
appropriately decreased so that the holder of any Series A Preferred
Shares thereafter converted shall be entitled to receive the number of
Common Shares of the Corporation which the holder would have owned
immediately following such action had such Series A Preferred Shares
been converted immediately prior thereto.
(c) Reorganization, Reclassification, Merger, Sale of All
Assets, etc. In case of any capital reorganization of the Corporation,
or of any reclassification of the Common Shares, or in case of the
consolidation of the Corporation with or the merger of the Corporation
with or into any other Person or of the sale, lease or other transfer
of all or substantially all of the assets of the Corporation to any
other Person, or in the case of any distribution of cash or other
assets or of notes or other indebtedness of the Corporation or any
other securities of the Corporation (except Common Shares) to the
holders of its Common Shares, each Series A Preferred Share shall,
after such capital reorganization, reclassification, consolidation,
merger, sale, lease or other transfer or such distribution, be
convertible into the number of shares or other securities or property
to which the Common Shares issuable (at the time of such capital
reorganization, reclassification, consolidation, merger, sale, lease or
other transfer or such distribution) upon conversion of such Series A
Preferred Shares would have been entitled upon such capital
reorganization, reclassification, consolidation, merger, sale, lease or
other transfer or such distribution in place of (or in addition to, in
the case of any such event after which Common Shares remain
outstanding) the Common Shares into which such Series A Preferred
Shares would otherwise have been
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convertible; and in any such case, if necessary, the provisions set
forth herein with respect to the rights and interest thereafter of the
holders of Series A Preferred Shares shall be appropriately adjusted so
as to be applicable, as nearly as may reasonably be, to any shares or
other securities or property thereafter deliverable on the conversion
of the Series A Preferred Shares.
(d) Rounding of Calculations; Minimum Adjustment. All
calculations under this Section 5 shall be made to the nearest one
hundredth (1/100th) of a Common Share, as the case may be. Any
provision of this Section 5 to the contrary notwithstanding, no
adjustment in the Conversion Ratios shall be made if the amount of such
adjustment would be less than one hundredth of a Common Share, but any
such amount shall be carried forward and an adjustment with respect
thereto shall be made at the time of any subsequent adjustment which,
together with such amount and any other amount or amounts so carried
forward, shall aggregate one hundredth of a Common Share or more.
(e) Timing of Issuance of Additional Common Shares upon
Certain Adjustments. In any case in which the provisions of this
Section 5 shall require that an adjustment shall become effective
immediately after a record date for an event, the Corporation may defer
until the occurrence of such event issuing to the holder of any Series
A Preferred Shares converted after such record date and before the
occurrence of such event the additional Common Shares or other property
issuable or deliverable upon such conversion by reason of the
adjustment required by such event over and above the Common Shares or
other property issuable or deliverable upon such conversion before
giving effect to such adjustment; provided, however, that the
Corporation upon request shall deliver to such holder a due bill or
other appropriate instrument evidencing such holder's right to receive
such additional shares or other property, and such cash, upon the
occurrence of the event requiring such adjustment.
(f) Statement Regarding Adjustments. Whenever the Conversion
Ratios shall be adjusted as provided in this Section 5, the Corporation
shall forthwith file, at the office of any transfer agent for the
Series A Preferred Shares and at the principal office of the
Corporation a statement showing in detail the facts requiring such
adjustment and the Conversion Ratios that shall be in effect after such
adjustment, and the Corporation shall also cause a copy of such
statement to be mailed, first class postage prepaid, to each holder of
Series A Preferred Shares at its address appearing on the Corporation's
records.
(g) Cost. The Corporation shall pay all documentary, stamp,
transfer or other transactional taxes attributable to the issuance or
delivery of Common Shares of the Corporation or other securities or
property upon conversion of any Series A Preferred Shares; provided,
however, that the Corporation shall not be required to pay any taxes
which may be payable in respect of any transfer involved in the
issuance or delivery of any certificate for such shares or securities
in the name other than that of the holder of Series A Preferred Shares
in respect of which such shares are being issued.
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6. Voting. The holders of Series A Preferred Shares shall have no right
or power to vote on any matter except as required by law. In any matter on which
the holders of Series A Preferred Shares shall, as a matter of law, be entitled
to vote, the holders shall be entitled to one vote for each Series A Preferred
Share held.
7. Liquidation Rights.
(a) Upon the dissolution, liquidation or winding up of the
Corporation, whether voluntary or involuntary, the holders of Series A
Preferred Shares then outstanding shall be entitled to receive out of
the assets of the Corporation available for distribution to equity
holders, an amount per share in cash equal to the Purchase Price before
any payment or distribution shall be made on the Common Shares or on
any other class of capital shares of the Corporation ranking junior to
the Series A Preferred Shares upon liquidation. All outstanding shares
of any other series of preferred shares shall rank at parity with the
Series A Preferred Shares. The consolidation or merger of the
Corporation, or a sale, exchange or transfer of all or substantially
all of its assets as an entirety, shall not be regarded as a
"dissolution, liquidation or winding up of the Corporation" within the
meaning of this Section 7(a).
(b) After the payment to the holders of Series A Preferred
Shares of the full preferential amounts fixed hereby for Series A
Preferred Shares, the holders of Series A Preferred Shares as such
shall have no right or claim to any of the remaining assets of the
Corporation.
(c) If the assets of the Corporation available for
distribution to the holders of Series A Preferred Shares upon
dissolution, liquidation or winding up of the Corporation are
insufficient to pay in full all amounts to which such holders are
entitled pursuant to Section 7(a), no distribution shall be made on
account of any shares of a class or series of capital shares of the
Corporation ranking on a parity with the Series A Preferred Shares, if
any, upon such dissolution, liquidation or winding up unless
proportionate distributive amounts shall be paid on account of the
Series A Preferred Shares, ratably, in proportion to the full
distributable amounts for which holders of all such parity shares are
respectively entitled upon such dissolution, liquidation or winding up.
8. Reports to Holders of Series A Preferred Shares. For so long as
there shall remain outstanding any Series A Preferred Shares, the Corporation
shall furnish to each holder of record of Series A Preferred Shares (i) all
reports or other correspondence sent by the Corporation to holders of record of
the Common Shares of the Corporation, and (ii) a quarterly report setting forth
the average monthly deposits on behalf of the Banking Office.
9. Certain Covenants. So long as any Series A Preferred Shares are
outstanding, without the prior written consent of the holders of a majority of
the outstanding Series A Preferred Shares, the Corporation shall not amend,
alter or repeal any provisions of this Resolution Establishing Series A
Convertible Preferred Shares, or otherwise amend, alter or repeal any
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provision of the Articles of Incorporation of the Corporation so as to affect
adversely the preferences, rights, powers or privileges of the Series A
Preferred Shares.
10. Certain Events. If any event occurs of the type contemplated but
not expressly provided for by the provisions of Section 4 or Section 5 herein,
then the Corporation's Board of Directors will make an appropriate adjustment in
the Conversion Ratios for the Series A Preferred Shares to protect the rights of
the holders thereof.
11. Exclusion of Other Rights. Unless otherwise required by law, the
Series A Preferred Shares shall not have any voting powers, preferences or
relative, participating, optional or other special rights other than those
specifically set forth herein.
EXHIBIT B
IRWIN FINANCIAL CORPORATION
AMENDMENT TO
TERMS OF SERIES B CONVERTIBLE PREFERRED SHARES
By Unanimous Written Consent effective as of October 8, 1999, the Board
of Directors of Irwin Financial Corporation (the "Corporation"), has amended the
terms of its Series B Convertible Preferred Shares (the "Series B Preferred
Shares"), to consist of 66,666 shares, and further as follows:
1. Definitions.
"Bank" means Irwin Union Bank and Trust Company, a commercial
bank chartered under the laws of the State of Indiana and a
wholly-owned subsidiary of the Corporation.
"Banking Office" means the banking office operated by the Bank
at 555 W. Crosstown Parkway, Kalamazoo, Michigan 49008.
"Board" means the Board of Directors of the Corporation.
"Common Shares" means the common shares of the Corporation.
"Corporation" means Irwin Financial Corporation, an Indiana
corporation.
"Deposit Goal" means the goal that the average deposits at the
Bank on behalf of the Banking Office for any calendar quarter equal or
exceed $25,000,000, with the calculations to be made as set forth in
Section 4(b)(iii) herein.
"Person" means an individual, a partnership, a joint venture,
a corporation, an association, a trust, or any other entity or
organization.
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"Purchase Price" means the price per share at which the Series
B Preferred Shares have been offered and sold by the Corporation to
qualified investors pursuant to a Confidential Private Placement
Memorandum.
"Series B Preferred Shares" means the Series B Convertible
Preferred Shares of the Corporation.
"Start Date" means the first day of the calendar quarter
following the closing date of the offering. The Start Date is the date
from which the Corporation will measure the amount of deposits at the
Bank on behalf of the Banking Office for the purposes of determining
conversion rights.
2. Dividends. The holders of outstanding Series B Preferred Shares
shall not be entitled to receive any dividends on the Series B Preferred Shares.
3. Redemption.
(a) The outstanding Series B Preferred Shares are redeemable
at the option of the Corporation, out of the assets of the Corporation
legally available therefor, at any time or from time to time, in whole
and not in part, at a redemption price per share of Series B Preferred
Shares (the "Redemption Price") equal to the Purchase Price; provided,
however, that for a period of not less than 30 days prior to the date
fixed for redemption (the "Redemption Date"), the holders of the
outstanding Series B Preferred Shares shall have an option to convert
each Series B Preferred Share into 1.25 Common Shares.
(b) Notice of any redemption of Series B Preferred Shares,
specifying the date fixed for redemption, the redemption price and the
place at which shareholders may obtain payment of the Redemption Price
upon surrender of their certificates, and the option of the
shareholders to convert their Series B Preferred Shares into Common
Shares, shall be mailed to each holder of record of the shares to be
redeemed, at such holder's address of record, not less than 35, nor
more than 90 days prior to the Redemption Date. Such notice shall set
forth the manner in which shareholders may convert their Series B
Preferred Shares into Common Shares, or to receive the Redemption
Price, upon surrender of their certificates.
(c) Unless the Corporation defaults in the payment in full of
the Redemption Price, (i) all rights of the holders of such Series B
Preferred Shares as shareholders of the Corporation by reason of the
ownership of such shares (including, without limitation, the right to
convert the Series B Preferred Shares into Common Shares) shall cease
on the Redemption Date except the right to receive the amount payable
upon redemption of such shares upon presentation and surrender of the
respective certificates evidencing such shares, and (ii) such shares
shall be deemed not to be outstanding after the Redemption Date.
(d) Any Series B Preferred Shares that have been redeemed
shall, after such redemption, not be reissued as Series B Preferred
Shares, but
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shall become authorized but unissued Preferred Shares of the
Corporation, and the certificates evidencing such shares shall be
canceled.
(e) Any notice required by the provisions of this Section 3 to
be given to the holders of Series B Preferred Shares shall be deemed
given if deposited in the United States mail postage prepaid, and
addressed to each holder of record at his, her or its address appearing
on the books of the Corporation.
4. Conversion Rights. The Series B Preferred Shares shall be
convertible into Common Shares as follows:
(a) No Optional Conversion. Other than pursuant to a
redemption of the Series B Preferred Shares as set forth in Section 3
above, the holders of Series B Preferred Shares shall have no optional
rights to convert such shares into Common Shares.
(b) Automatic Conversion. Each Series B Preferred Share shall
be automatically converted, without any further act of the Corporation
or the holders of Series B Preferred Shares, into fully paid and
nonassessable Common Shares in the manner and at the times specified
below:
(i) Second Anniversary after Start Date. If the
Deposit Goal is met prior to twenty-four (24) months from the
Start Date, (A) the date of the automatic conversion into
Common Shares shall be twenty-seven (27) months after the
Start Date, and (B) each Series B Preferred Share shall
automatically be converted into 1.25 Common Shares. If the
Deposit Goal has not been met prior to twenty-four (24) months
from the Start Date, the Series B Preferred Shares will not be
converted into Common Shares until after the third anniversary
of the Start Date.
(ii) Third Anniversary after Start Date. If the
conversion of the Series B Preferred Shares into Common Shares
has not previously taken place within thirty-six (36) months
after the Start Date, then, thirty-nine (39) months after the
Start Date, each outstanding Series B Preferred Share shall
automatically be converted into (A) 1.10 Common Shares if the
Deposit Goal has been met prior to the end of thirty-six (36)
months after the Start Date, and (B) 1.02 Common Shares if the
Deposit Goal has not been met prior to the end of thirty-six
(36) months after the Start Date.
(iii) Determination of Whether Deposit Goal Has Been
Met. The Deposit Goal shall have been met prior to a specified
date if the average deposits at the Bank on behalf of the
Banking Office for any calendar quarter prior to such date
equal or exceed $25,000,000. For the purposes of determining
whether the Deposit Goal has been met, the Corporation will
follow the following procedures:
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Deposits: For the purpose of making the
Deposit Goal calculations, "deposits" means the book
balances of all accounts which are insurable by the
Federal Deposit Insurance Corporation (such as
demand, savings, time, money market and NOW accounts
and certificates of deposit), including the balances
in such accounts in excess of $100,000; provided,
however, that certificates of deposit in amounts of
$100,000 or more shall be included in the total
amount of deposits only to the extent such
certificates of deposit do not exceed 10% of total
deposits.
Credit for Deposits: The specific banking
office at which a deposit account is opened receives
the credit for the account; provided, however, that
if the Banking Office is not authorized to accept
deposits or has not yet opened for business, a
deposit account may be established at another banking
office on behalf of the Banking Office if designated
as such. The Bank's accounting system tracks and
accounts for all depository accounts on a daily
basis.
Calendar Quarter Average: After a calendar
quarter has expired, the Bank will calculate the
calendar quarter average of deposits for accounts
designated as gathered on behalf of the Banking
Office by adding the sum of the daily general ledger
balance for such deposits and then dividing this sum
by the number of days in the calendar quarter.
All determinations regarding whether the Deposit Goal has been
met as of any date shall be made by the Corporation. Such
determinations in this regard shall be final and conclusive
for all purposes.
(c) Mechanics of Conversion. Upon the occurrence of the dates
specified in Section 4(b) above, the outstanding Series B Preferred
Shares shall be converted automatically without any further action by
the holders of such shares and whether or not the certificates
representing such shares are surrendered to the Corporation or its
transfer agent; provided, however, that the Corporation shall not be
obligated to issue to any holder certificates evidencing the Common
Shares issuable upon such conversion unless certificates evidencing the
Series B Preferred Shares are delivered either to the Corporation or
any transfer agent designated by the Corporation. Conversion shall be
deemed to have been effected on the date of the occurrence of the dates
specified in Section 4(b) above, as the case may be, and such date is
referred to herein as the "Conversion Date." Subject to the provisions
of Section 4(b) above, as promptly as practicable thereafter (and after
surrender of the certificate or certificates representing the Series B
Preferred Shares to the Corporation or any transfer agent designated by
the Corporation), the Corporation shall issue and deliver to such
holder a certificate or certificates for the number of full Common
Shares to which such holder is entitled as provided in Section 4(b)
hereof. Subject to the provisions of Section 4(b), the person in whose
name the certificate or certificates for Common Shares are to be issued
shall be
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deemed to have become a holder of record of such Common Shares on the
applicable Conversion Date.
(d) Fractional Shares. No fractional Common Shares or scrip
shall be issued upon conversion of Series B Preferred Shares. In lieu
of any fractional Common Shares which would otherwise be issuable upon
conversion of any Series B Preferred Shares, the number of full Common
Shares issuable upon conversion thereof shall be increased to the next
higher number of whole shares.
(e) Rights After Conversion Date. From and after the
Conversion Date (unless the Corporation defaults in issuing Common
Shares in conversion for the outstanding Series B Preferred Shares on
the Conversion Date), such Series B Preferred Shares shall be deemed
not to be outstanding and all rights of the holders of such shares as
Shareholders of the Corporation by reason of the ownership of such
shares shall cease, except the right to receive Common Shares as
provided in Section 4(b) herein on presentation and surrender of the
respective certificates evidencing such Series B Preferred Shares. Upon
presentation and surrender, on or after the Conversion Date, of any
certificate evidencing Series B Preferred Shares (properly endorsed or
assigned for transfer, if the Corporation shall so require), such
shares shall be converted by the Corporation for Common Shares as
provided in this Section 4.
(f) Authorized, But Unissued Shares. Any Series B Preferred
Shares that shall at any time have been converted into Common Shares
pursuant to this Section 4 shall, after such conversion become
authorized but unissued Preferred Shares of the Corporation, and the
certificates evidencing such shares shall be canceled.
(g) Reservation of Shares. The Corporation shall reserve at
all times so long as any Series B Preferred Shares remain outstanding,
free from preemptive rights, out of its treasury shares or its
authorized but unissued Common Shares, or both, solely for the purpose
of effecting the conversion of the Series B Preferred Shares,
sufficient Common Shares to provide for the conversion of all
outstanding Series B Preferred Shares.
(h) Fully Paid and Nonassessable Shares. All Common Shares or
other securities which may be issued upon conversion of the Series B
Preferred Shares will upon issuance by the Corporation be duly and
validly issued, fully paid and nonassessable and free from all taxes,
liens and charges with respect to the issuance thereof and the
Corporation shall take no action which would cause a contrary result.
5. Conversion Ratio Adjustments. The number of Common Shares into which
the Series B Preferred Shares shall be converted pursuant to Section 4 (the
"Conversion Ratios") and the securities or other property deliverable upon
conversion of the Series B Preferred Shares shall be subject to adjustment from
time to time as follows:
(a) Share Subdivisions or Split-Ups. If the number of Common
Shares outstanding at any time after the date of issuance of the Series
B Preferred Shares is increased by a subdivision or split-up of Common
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Shares, then immediately after the record date fixed for the
determination of holders of Common Shares entitled to receive such
subdivision or split-up, as the case may be, the Conversion Ratios
shall be appropriately increased so that the holder of any Series B
Preferred Shares thereafter converted shall be entitled to receive the
number of Common Shares of the Corporation which the holder would have
owned immediately following such action had such Series B Preferred
Shares been converted immediately prior thereto.
(b) Combinations of Shares. If the number of Common Shares
outstanding at any time after the date of issuance of the Series B
Preferred Shares is decreased by a combination of the outstanding
Common Shares, then, immediately after the effective date of such
combination, the Conversion Ratios applicable thereto shall be
appropriately decreased so that the holder of any Series B Preferred
Shares thereafter converted shall be entitled to receive the number of
Common Shares of the Corporation which the holder would have owned
immediately following such action had such Series B Preferred Shares
been converted immediately prior thereto.
(c) Reorganization, Reclassification, Merger, Sale of All
Assets, etc. In case of any capital reorganization of the Corporation,
or of any reclassification of the Common Shares, or in case of the
consolidation of the Corporation with or the merger of the Corporation
with or into any other Person or of the sale, lease or other transfer
of all or substantially all of the assets of the Corporation to any
other Person, or in the case of any distribution of cash or other
assets or of notes or other indebtedness of the Corporation or any
other securities of the Corporation (except Common Shares) to the
holders of its Common Shares, each Series B Preferred Share shall,
after such capital reorganization, reclassification, consolidation,
merger, sale, lease or other transfer or such distribution, be
convertible into the number of shares or other securities or property
to which the Common Shares issuable (at the time of such capital
reorganization, reclassification, consolidation, merger, sale, lease or
other transfer or such distribution) upon conversion of such Series B
Preferred Shares would have been entitled upon such capital
reorganization, reclassification, consolidation, merger, sale, lease or
other transfer or such distribution in place of (or in addition to, in
the case of any such event after which Common Shares remain
outstanding) the Common Shares into which such Series B Preferred
Shares would otherwise have been convertible; and in any such case, if
necessary, the provisions set forth herein with respect to the rights
and interest thereafter of the holders of Series B Preferred Shares
shall be appropriately adjusted so as to be applicable, as nearly as
may reasonably be, to any shares or other securities or property
thereafter deliverable on the conversion of the Series B Preferred
Shares.
(d) Rounding of Calculations; Minimum Adjustment. All
calculations under this Section 5 shall be made to the nearest one
hundredth (1/100th) of a Common Share, as the case may be. Any
provision of this Section 5 to the contrary notwithstanding, no
adjustment in the Conversion Ratios shall be made if the amount of such
adjustment would be less than one hundredth of a Common Share, but any
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such amount shall be carried forward and an adjustment with respect
thereto shall be made at the time of any subsequent adjustment which,
together with such amount and any other amount or amounts so carried
forward, shall aggregate one hundredth of a Common Share or more.
(e) Timing of Issuance of Additional Common Shares upon
Certain Adjustments. In any case in which the provisions of this
Section 5 shall require that an adjustment shall become effective
immediately after a record date for an event, the Corporation may defer
until the occurrence of such event issuing to the holder of any Series
B Preferred Shares converted after such record date and before the
occurrence of such event the additional Common Shares or other property
issuable or deliverable upon such conversion by reason of the
adjustment required by such event over and above the Common Shares or
other property issuable or deliverable upon such conversion before
giving effect to such adjustment; provided, however, that the
Corporation upon request shall deliver to such holder a due bill or
other appropriate instrument evidencing such holder's right to receive
such additional shares or other property, and such cash, upon the
occurrence of the event requiring such adjustment.
(f) Statement Regarding Adjustments. Whenever the Conversion
Ratios shall be adjusted as provided in this Section 5, the Corporation
shall forthwith file, at the office of any transfer agent for the
Series B Preferred Shares and at the principal office of the
Corporation a statement showing in detail the facts requiring such
adjustment and the Conversion Ratios that shall be in effect after such
adjustment, and the Corporation shall also cause a copy of such
statement to be mailed, first class postage prepaid, to each holder of
Series B Preferred Shares at its address appearing on the Corporation's
records.
(g) Cost. The Corporation shall pay all documentary, stamp,
transfer or other transactional taxes attributable to the issuance or
delivery of Common Shares of the Corporation or other securities or
property upon conversion of any Series B Preferred Shares; provided,
however, that the Corporation shall not be required to pay any taxes
which may be payable in respect of any transfer involved in the
issuance or delivery of any certificate for such shares or securities
in the name other than that of the holder of Series B Preferred Shares
in respect of which such shares are being issued.
6. Voting. The holders of Series B Preferred Shares shall have no right
or power to vote on any matter except as required by law. In any matter on which
the holders of Series B Preferred Shares shall, as a matter of law, be entitled
to vote, the holders shall be entitled to one vote for each Series B Preferred
Share held.
7. Liquidation Rights.
(a) Upon the dissolution, liquidation or winding up of the
Corporation, whether voluntary or involuntary, the holders of Series B
Preferred Shares then outstanding shall be entitled to receive out of
the assets of the Corporation available for distribution to equity
holders, an amount per share in cash equal to the Purchase Price
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before any payment or distribution shall be made on the Common Shares
or on any other class of capital shares of the Corporation ranking
junior to the Series B Preferred Shares upon liquidation. All
outstanding shares of any other series of preferred shares shall rank
at parity with the Series B Preferred Shares. The consolidation or
merger of the Corporation, or a sale, exchange or transfer of all or
substantially all of its assets as an entirety, shall not be regarded
as a "dissolution, liquidation or winding up of the Corporation" within
the meaning of this Section 7(a).
(b) After the payment to the holders of Series B Preferred
Shares of the full preferential amounts fixed hereby for Series B
Preferred Shares, the holders of Series B Preferred Shares as such
shall have no right or claim to any of the remaining assets of the
Corporation.
(c) If the assets of the Corporation available for
distribution to the holders of Series B Preferred Shares upon
dissolution, liquidation or winding up of the Corporation are
insufficient to pay in full all amounts to which such holders are
entitled pursuant to Section 7(a), no distribution shall be made on
account of any shares of a class or series of capital shares of the
Corporation ranking on a parity with the Series B Preferred Shares, if
any, upon such dissolution, liquidation or winding up unless
proportionate distributive amounts shall be paid on account of the
Series B Preferred Shares, ratably, in proportion to the full
distributable amounts for which holders of all such parity shares are
respectively entitled upon such dissolution, liquidation or winding up.
8. Reports to Holders of Series B Preferred Shares. For so long as
there shall remain outstanding any Series B Preferred Shares, the Corporation
shall furnish to each holder of record of Series B Preferred Shares (i) all
reports or other correspondence sent by the Corporation to holders of record of
the Common Shares of the Corporation, and (ii) a quarterly report setting forth
the average monthly deposits on behalf of the Banking Office.
9. Certain Covenants. So long as any Series B Preferred Shares are
outstanding, without the prior written consent of the holders of a majority of
the outstanding Series B Preferred Shares, the Corporation shall not amend,
alter or repeal any provisions of this Resolution Establishing Series B
Convertible Preferred Shares, or otherwise amend, alter or repeal any provision
of the Articles of Incorporation of the Corporation so as to affect adversely
the preferences, rights, powers or privileges of the Series B Preferred Shares.
10. Certain Events. If any event occurs of the type contemplated but
not expressly provided for by the provisions of Section 4 or Section 5 herein,
then the Corporation's Board of Directors will make an appropriate adjustment in
the Conversion Ratios for the Series B Preferred Shares to protect the rights of
the holders thereof.
11. Exclusion of Other Rights. Unless otherwise required by law, the
Series B Preferred Shares shall not have any voting powers, preferences or
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relative, participating, optional or other special rights other than those
specifically set forth herein.
EXHIBIT C
IRWIN FINANCIAL CORPORATION
TERMS OF SERIES C CONVERTIBLE PREFERRED SHARES
By Unanimous Written Consent effective as of October 8, 1999, the Board
of Directors of Irwin Financial Corporation (the "Corporation"), has approved
and adopted the terms of Series C Convertible Preferred Shares (the "Series C
Preferred Shares"), to consist of 133,332 shares, as follows:
1. Definitions.
"Bank" means Irwin Union Bank and Trust Company, a commercial
bank chartered under the laws of the State of Indiana and a
wholly-owned subsidiary of the Corporation.
"Banking Office" means, collectively, the banking offices
operated by the Bank in Hamilton County, Indiana, and Marion County,
Indiana, including locations at 11611 N. Meridian St., Suite 100,
Carmel, Indiana 46032 and 300 N. Meridian St., Suite 1200,
Indianapolis, Indiana 46204.
"Board" means the Board of Directors of the Corporation.
"Common Shares" means the common shares of the Corporation.
"Corporation" means Irwin Financial Corporation, an Indiana
corporation.
"Deposit Goal" means the goal that the average deposits at the
Bank on behalf of the Banking Office for any calendar quarter equal or
exceed $50,000,000, with the calculations to be made as set forth in
Section 4(b)(iii) herein.
"Person" means an individual, a partnership, a joint venture,
a corporation, an association, a trust, or any other entity or
organization.
"Purchase Price" means the price per share at which the Series
C Preferred Shares have been offered and sold by the Corporation to
qualified investors pursuant to a Confidential Private Placement
Memorandum.
"Series C Preferred Shares" means the Series C Convertible
Preferred Shares of the Corporation.
"Start Date" means the first day of the calendar quarter
following the closing date of the offering. The Start Date is the date
from which the Corporation will measure the amount of deposits at the
Bank on
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behalf of the Banking Office for the purposes of determining conversion
rights.
2. Dividends. The holders of outstanding Series C Preferred Shares
shall not be entitled to receive any dividends on the Series C Preferred Shares.
3. Redemption.
(a) The outstanding Series C Preferred Shares are redeemable
at the option of the Corporation, out of the assets of the Corporation
legally available therefor, at any time or from time to time, in whole
and not in part, at a redemption price per share of Series C Preferred
Shares (the "Redemption Price") equal to the Purchase Price; provided,
however, that for a period of not less than 30 days prior to the date
fixed for redemption (the "Redemption Date"), the holders of the
outstanding Series C Preferred Shares shall have an option to convert
each Series C Preferred Share into 1.25 Common Shares.
(b) Notice of any redemption of Series C Preferred Shares,
specifying the date fixed for redemption, the redemption price and the
place at which shareholders may obtain payment of the Redemption Price
upon surrender of their certificates, and the option of the
shareholders to convert their Series C Preferred Shares into Common
Shares, shall be mailed to each holder of record of the shares to be
redeemed, at such holder's address of record, not less than 35, nor
more than 90 days prior to the Redemption Date. Such notice shall set
forth the manner in which shareholders may convert their Series C
Preferred Shares into Common Shares, or to receive the Redemption
Price, upon surrender of their certificates.
(c) Unless the Corporation defaults in the payment in full of
the Redemption Price, (i) all rights of the holders of such Series C
Preferred Shares as shareholders of the Corporation by reason of the
ownership of such shares (including, without limitation, the right to
convert the Series C Preferred Shares into Common Shares) shall cease
on the Redemption Date except the right to receive the amount payable
upon redemption of such shares upon presentation and surrender of the
respective certificates evidencing such shares, and (ii) such shares
shall be deemed not to be outstanding after the Redemption Date.
(d) Any Series C Preferred Shares that have been redeemed
shall, after such redemption, not be reissued as Series C Preferred
Shares, but shall become authorized but unissued Preferred Shares of
the Corporation, and the certificates evidencing such shares shall be
canceled.
(e) Any notice required by the provisions of this Section 3 to
be given to the holders of Series C Preferred Shares shall be deemed
given if deposited in the United States mail postage prepaid, and
addressed to each holder of record at his, her or its address appearing
on the books of the Corporation.
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4. Conversion Rights. The Series C Preferred Shares shall be
convertible into Common Shares as follows:
(a) No Optional Conversion. Other than pursuant to a
redemption of the Series C Preferred Shares as set forth in Section 3
above, the holders of Series C Preferred Shares shall have no optional
rights to convert such shares into Common Shares.
(b) Automatic Conversion. Each Series C Preferred Share shall
be automatically converted, without any further act of the Corporation
or the holders of Series C Preferred Shares, into fully paid and
nonassessable Common Shares in the manner and at the times specified
below:
(i) Second Anniversary after Start Date. If the
Deposit Goal is met prior to twenty-four (24) months from the
Start Date, (A) the date of the automatic conversion into
Common Shares shall be twenty-seven (27) months after the
Start Date, and (B) each Series C Preferred Share shall
automatically be converted into 1.25 Common Shares. If the
Deposit Goal has not been met prior to twenty-four (24) months
from the Start Date, the Series C Preferred Shares will not be
converted into Common Shares until after the third anniversary
of the Start Date.
(ii) Third Anniversary after Start Date. If the
conversion of the Series C Preferred Shares into Common Shares
has not previously taken place within thirty-six (36) months
after the Start Date, then, thirty-nine (39) months after the
Start Date, each outstanding Series C Preferred Share shall
automatically be converted into (A) 1.10 Common Shares if the
Deposit Goal has been met prior to the end of thirty-six (36)
months after the Start Date, and (B) 1.02 Common Shares if the
Deposit Goal has not been met prior to the end of thirty-six
(36) months after the Start Date.
(iii) Determination of Whether Deposit Goal Has Been
Met. The Deposit Goal shall have been met prior to a specified
date if the average deposits at the Bank on behalf of the
Banking Office for any calendar quarter prior to such date
equal or exceed $50,000,000. For the purposes of determining
whether the Deposit Goal has been met, the Corporation will
follow the following procedures:
Deposits: For the purpose of making the
Deposit Goal calculations, "deposits" means the book
balances of all accounts which are insurable by the
Federal Deposit Insurance Corporation (such as
demand, savings, time, money market and NOW accounts
and certificates of deposit), including the balances
in such accounts in excess of $100,000; provided,
however, that certificates of deposit in amounts of
$100,000 or more shall be included in the total
amount of deposits only to the extent such
certificates of deposit do not exceed 10% of total
deposits.
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Credit for Deposits: The specific banking
office at which a deposit account is opened receives
the credit for the account; provided, however, that
if the Banking Office is not authorized to accept
deposits or has not yet opened for business, a
deposit account may be established at another banking
office on behalf of the Banking Office if designated
as such. The Bank's accounting system tracks and
accounts for all depository accounts on a daily
basis.
Calendar Quarter Average: After a calendar
quarter has expired, the Bank will calculate the
calendar quarter average of deposits for accounts
designated as gathered on behalf of the Banking
Office by adding the sum of the daily general ledger
balance for such deposits and then dividing this sum
by the number of days in the calendar quarter.
All determinations regarding whether the Deposit Goal has been
met as of any date shall be made by the Corporation. Such
determinations in this regard shall be final and conclusive
for all purposes.
(c) Mechanics of Conversion. Upon the occurrence of the dates
specified in Section 4(b) above, the outstanding Series C Preferred
Shares shall be converted automatically without any further action by
the holders of such shares and whether or not the certificates
representing such shares are surrendered to the Corporation or its
transfer agent; provided, however, that the Corporation shall not be
obligated to issue to any holder certificates evidencing the Common
Shares issuable upon such conversion unless certificates evidencing the
Series C Preferred Shares are delivered either to the Corporation or
any transfer agent designated by the Corporation. Conversion shall be
deemed to have been effected on the date of the occurrence of the dates
specified in Section 4(b) above, as the case may be, and such date is
referred to herein as the "Conversion Date." Subject to the provisions
of Section 4(b) above, as promptly as practicable thereafter (and after
surrender of the certificate or certificates representing the Series C
Preferred Shares to the Corporation or any transfer agent designated by
the Corporation), the Corporation shall issue and deliver to such
holder a certificate or certificates for the number of full Common
Shares to which such holder is entitled as provided in Section 4(b)
hereof. Subject to the provisions of Section 4(b), the person in whose
name the certificate or certificates for Common Shares are to be issued
shall be deemed to have become a holder of record of such Common Shares
on the applicable Conversion Date.
(d) Fractional Shares. No fractional Common Shares or scrip
shall be issued upon conversion of Series C Preferred Shares. In lieu
of any fractional Common Shares which would otherwise be issuable upon
conversion of any Series C Preferred Shares, the number of full Common
Shares issuable upon conversion thereof shall be increased to the next
higher number of whole shares.
(e) Rights After Conversion Date. From and after the
Conversion Date (unless the Corporation defaults in issuing Common
Shares in
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conversion for the outstanding Series C Preferred Shares on the
Conversion Date), such Series C Preferred Shares shall be deemed not to
be outstanding and all rights of the holders of such shares as
Shareholders of the Corporation by reason of the ownership of such
shares shall cease, except the right to receive Common Shares as
provided in Section 4(b) herein on presentation and surrender of the
respective certificates evidencing such Series C Preferred Shares. Upon
presentation and surrender, on or after the Conversion Date, of any
certificate evidencing Series C Preferred Shares (properly endorsed or
assigned for transfer, if the Corporation shall so require), such
shares shall be converted by the Corporation for Common Shares as
provided in this Section 4.
(f) Authorized, But Unissued Shares. Any Series C Preferred
Shares that shall at any time have been converted into Common Shares
pursuant to this Section 4 shall, after such conversion become
authorized but unissued Preferred Shares of the Corporation, and the
certificates evidencing such shares shall be canceled.
(g) Reservation of Shares. The Corporation shall reserve at
all times so long as any Series C Preferred Shares remain outstanding,
free from preemptive rights, out of its treasury shares or its
authorized but unissued Common Shares, or both, solely for the purpose
of effecting the conversion of the Series C Preferred Shares,
sufficient Common Shares to provide for the conversion of all
outstanding Series C Preferred Shares.
(h) Fully Paid and Nonassessable Shares. All Common Shares or
other securities which may be issued upon conversion of the Series C
Preferred Shares will upon issuance by the Corporation be duly and
validly issued, fully paid and nonassessable and free from all taxes,
liens and charges with respect to the issuance thereof and the
Corporation shall take no action which would cause a contrary result.
5. Conversion Ratio Adjustments. The number of Common Shares into which
the Series C Preferred Shares shall be converted pursuant to Section 4 (the
"Conversion Ratios") and the securities or other property deliverable upon
conversion of the Series C Preferred Shares shall be subject to adjustment from
time to time as follows:
(a) Share Subdivisions or Split-Ups. If the number of Common
Shares outstanding at any time after the date of issuance of the Series
C Preferred Shares is increased by a subdivision or split-up of Common
Shares, then immediately after the record date fixed for the
determination of holders of Common Shares entitled to receive such
subdivision or split-up, as the case may be, the Conversion Ratios
shall be appropriately increased so that the holder of any Series C
Preferred Shares thereafter converted shall be entitled to receive the
number of Common Shares of the Corporation which the holder would have
owned immediately following such action had such Series C Preferred
Shares been converted immediately prior thereto.
(b) Combinations of Shares. If the number of Common Shares
outstanding at any time after the date of issuance of the Series C
Preferred Shares is decreased by a combination of the outstanding
Common
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Shares, then, immediately after the effective date of such combination,
the Conversion Ratios applicable thereto shall be appropriately
decreased so that the holder of any Series C Preferred Shares
thereafter converted shall be entitled to receive the number of Common
Shares of the Corporation which the holder would have owned immediately
following such action had such Series C Preferred Shares been converted
immediately prior thereto.
(c) Reorganization, Reclassification, Merger, Sale of All
Assets, etc. In case of any capital reorganization of the Corporation,
or of any reclassification of the Common Shares, or in case of the
consolidation of the Corporation with or the merger of the Corporation
with or into any other Person or of the sale, lease or other transfer
of all or substantially all of the assets of the Corporation to any
other Person, or in the case of any distribution of cash or other
assets or of notes or other indebtedness of the Corporation or any
other securities of the Corporation (except Common Shares) to the
holders of its Common Shares, each Series C Preferred Share shall,
after such capital reorganization, reclassification, consolidation,
merger, sale, lease or other transfer or such distribution, be
convertible into the number of shares or other securities or property
to which the Common Shares issuable (at the time of such capital
reorganization, reclassification, consolidation, merger, sale, lease or
other transfer or such distribution) upon conversion of such Series C
Preferred Shares would have been entitled upon such capital
reorganization, reclassification, consolidation, merger, sale, lease or
other transfer or such distribution in place of (or in addition to, in
the case of any such event after which Common Shares remain
outstanding) the Common Shares into which such Series C Preferred
Shares would otherwise have been convertible; and in any such case, if
necessary, the provisions set forth herein with respect to the rights
and interest thereafter of the holders of Series C Preferred Shares
shall be appropriately adjusted so as to be applicable, as nearly as
may reasonably be, to any shares or other securities or property
thereafter deliverable on the conversion of the Series C Preferred
Shares.
(d) Rounding of Calculations; Minimum Adjustment. All
calculations under this Section 5 shall be made to the nearest one
hundredth (1/100th) of a Common Share, as the case may be. Any
provision of this Section 5 to the contrary notwithstanding, no
adjustment in the Conversion Ratios shall be made if the amount of such
adjustment would be less than one hundredth of a Common Share, but any
such amount shall be carried forward and an adjustment with respect
thereto shall be made at the time of any subsequent adjustment which,
together with such amount and any other amount or amounts so carried
forward, shall aggregate one hundredth of a Common Share or more.
(e) Timing of Issuance of Additional Common Shares upon
Certain Adjustments. In any case in which the provisions of this
Section 5 shall require that an adjustment shall become effective
immediately after a record date for an event, the Corporation may defer
until the occurrence of such event issuing to the holder of any Series
C Preferred Shares converted after such record date and before the
occurrence of such event the additional Common Shares or other property
issuable or
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deliverable upon such conversion by reason of the adjustment required
by such event over and above the Common Shares or other property
issuable or deliverable upon such conversion before giving effect to
such adjustment; provided, however, that the Corporation upon request
shall deliver to such holder a due bill or other appropriate instrument
evidencing such holder's right to receive such additional shares or
other property, and such cash, upon the occurrence of the event
requiring such adjustment.
(f) Statement Regarding Adjustments. Whenever the Conversion
Ratios shall be adjusted as provided in this Section 5, the Corporation
shall forthwith file, at the office of any transfer agent for the
Series C Preferred Shares and at the principal office of the
Corporation a statement showing in detail the facts requiring such
adjustment and the Conversion Ratios that shall be in effect after such
adjustment, and the Corporation shall also cause a copy of such
statement to be mailed, first class postage prepaid, to each holder of
Series C Preferred Shares at its address appearing on the Corporation's
records.
(g) Cost. The Corporation shall pay all documentary, stamp,
transfer or other transactional taxes attributable to the issuance or
delivery of Common Shares of the Corporation or other securities or
property upon conversion of any Series C Preferred Shares; provided,
however, that the Corporation shall not be required to pay any taxes
which may be payable in respect of any transfer involved in the
issuance or delivery of any certificate for such shares or securities
in the name other than that of the holder of Series C Preferred Shares
in respect of which such shares are being issued.
6. Voting. The holders of Series C Preferred Shares shall have no right
or power to vote on any matter except as required by law. In any matter on which
the holders of Series C Preferred Shares shall, as a matter of law, be entitled
to vote, the holders shall be entitled to one vote for each Series C Preferred
Share held.
7. Liquidation Rights.
(a) Upon the dissolution, liquidation or winding up of the
Corporation, whether voluntary or involuntary, the holders of Series C
Preferred Shares then outstanding shall be entitled to receive out of
the assets of the Corporation available for distribution to equity
holders, an amount per share in cash equal to the Purchase Price before
any payment or distribution shall be made on the Common Shares or on
any other class of capital shares of the Corporation ranking junior to
the Series C Preferred Shares upon liquidation. All outstanding shares
of any other series of preferred shares shall rank at parity with the
Series C Preferred Shares. The consolidation or merger of the
Corporation, or a sale, exchange or transfer of all or substantially
all of its assets as an entirety, shall not be regarded as a
"dissolution, liquidation or winding up of the Corporation" within the
meaning of this Section 7(a).
(b) After the payment to the holders of Series C Preferred
Shares of the full preferential amounts fixed hereby for Series C
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Preferred Shares, the holders of Series C Preferred Shares as such
shall have no right or claim to any of the remaining assets of the
Corporation.
(c) If the assets of the Corporation available for
distribution to the holders of Series C Preferred Shares upon
dissolution, liquidation or winding up of the Corporation are
insufficient to pay in full all amounts to which such holders are
entitled pursuant to Section 7(a), no distribution shall be made on
account of any shares of a class or series of capital shares of the
Corporation ranking on a parity with the Series C Preferred Shares, if
any, upon such dissolution, liquidation or winding up unless
proportionate distributive amounts shall be paid on account of the
Series C Preferred Shares, ratably, in proportion to the full
distributable amounts for which holders of all such parity shares are
respectively entitled upon such dissolution, liquidation or winding up.
8. Reports to Holders of Series C Preferred Shares. For so long as
there shall remain outstanding any Series C Preferred Shares, the Corporation
shall furnish to each holder of record of Series C Preferred Shares (i) all
reports or other correspondence sent by the Corporation to holders of record of
the Common Shares of the Corporation, and (ii) a quarterly report setting forth
the average monthly deposits on behalf of the Banking Office.
9. Certain Covenants. So long as any Series C Preferred Shares are
outstanding, without the prior written consent of the holders of a majority of
the outstanding Series C Preferred Shares, the Corporation shall not amend,
alter or repeal any provisions of this resolution establishing Series C
Convertible Preferred Shares, or otherwise amend, alter or repeal any provision
of the Articles of Incorporation of the Corporation so as to affect adversely
the preferences, rights, powers or privileges of the Series C Preferred Shares.
10. Certain Events. If any event occurs of the type contemplated but
not expressly provided for by the provisions of Section 4 or Section 5 herein,
then the Corporation's Board of Directors will make an appropriate adjustment in
the Conversion Ratios for the Series C Preferred Shares to protect the rights of
the holders thereof.
11. Exclusion of Other Rights. Unless otherwise required by law, the
Series C Preferred Shares shall not have any voting powers, preferences or
relative, participating, optional or other special rights other than those
specifically set forth herein.
ARTICLES OF AMENDMENT OF THE
ARTICLES OF INCORPORATION
ARTICLES OF AMENDMENT OF THE
ARTICLES OF INCORPORATION OF:
Name of Corporation Irwin Financial Corporation
Date of Incorporation May 31, 1972
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<PAGE> 98
The undersigned officers above referenced Corporation (hereinafter referred to
as the 'Corporation") existing pursuant to the provisions of. (Indicate
appropriate act)
X 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 Article of Incorporation, certify the
following facts:
ARTICLE I Amendment(s)
The exact text of Article(s) V., Section 2 of the Articles
(NOTE: if amending the name of corporation, write Article 'I' in
space above and write, "The name of the Corporation is_____" below.)
is amended to add a new Section 5.30, as set forth in Exhibit A
attached hereto, respectively.
ARTICLE II
Date of each amendment's adoption: December 16, 1999
ARTICLE III Manner of Adoption and Vote
Mark applicable section: NOTE - Only in limited situations does Indiana law
permit an Amendment without shareholder approval. Because a name change
requires shareholder approval, Section 2 must be marked and either A or B
completed.
X SECTION 1 This amendment was adopted by the Board of Directors or
incorporators and shareholder action was not required.
ARTICLE IV 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 the
provisions of the Act, the Articles of Incorporation, and the By-Laws of
the Corporation.
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<PAGE> 99
I hereby verify, subject to the penalties of perjury, that the statements
contained herein are true, this 31st day of January, 2000.
Signature of current officer or chairman of the board /s/ Ellen Z. Mufson
Printed name of officer or chairman of the board Ellen Z. Mufson
Signature's title Assistant Secretary
CERTIFIED COPY OF A RESOLUTION
I HEREBY CERTIFY that I am the Assistant Secretary of Irwin Financial
Corporation, an Indiana corporation, and that the following resolution was
adopted by the Board of Directors of said Corporation on December 16, 1999:
[Attached Herein]
IN WITNESS WHEREOF, I have hereunto subscribed my name and affixed the corporate
seal this 31st day of January 2000.
/s/ Ellen Z. Mufson
---------------------------------
Ellen Z. Mufson, Assistant Secretary
EXHIBIT A
IRWIN FINANCIAL CORPORATION
TERMS OF SERIES D CONVERTIBLE PREFERRED SHARES
By Resolution effective as of December 16, 1999, the Board of Directors
of Irwin Financial Corporation (the "Corporation"), has approved and adopted the
terms of Series D Convertible Preferred Shares (the "Series D Preferred
Shares"), to consist of 66,666 shares, as follows:
1. Definitions.
"Bank" means Irwin Union Bank and Trust Company, a commercial
bank chartered under the laws of the State of Indiana and a
wholly-owned subsidiary of the Corporation.
"Banking Office" means, collectively, the banking offices
operated by the Bank at 0-185 44th Street, Grandville, Michigan 49418.
"Board" means the Board of Directors of the Corporation.
"Common Shares" means the common shares of the Corporation.
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"Corporation" means Irwin Financial Corporation, an Indiana
corporation.
"Deposit Goal" means the goal that the average deposits at the
Bank on behalf of the Banking Office for any calendar quarter equal or
exceed $25,000,000, with the calculations to be made as set forth in
Section 4(b)(iii) herein.
"Person" means an individual, a partnership, a joint venture,
a corporation, an association, a trust, or any other entity or
organization.
"Purchase Price" means the price per share at which the Series
D Preferred Shares have been offered and sold by the Corporation to
qualified investors pursuant to a Confidential Private Placement
Memorandum.
"Series D Preferred Shares" means the Series D Convertible
Preferred Shares of the Corporation.
"Start Date" means the first day of the calendar quarter
following the closing date of the offering. The Start Date is the date
from which the Corporation will measure the amount of deposits at the
Bank on behalf of the Banking Office for the purposes of determining
conversion rights.
2. Dividends. The holders of outstanding Series D Preferred Shares
shall not be entitled to receive any dividends on the Series D Preferred Shares.
3. Redemption.
(a) The outstanding Series D Preferred Shares are redeemable
at the option of the Corporation, out of the assets of the Corporation
legally available therefor, at any time or from time to time, in whole
and not in part, at a redemption price per share of Series D Preferred
Shares (the "Redemption Price") equal to the Purchase Price; provided,
however, that for a period of not less than 30 days prior to the date
fixed for redemption (the "Redemption Date"), the holders of the
outstanding Series D Preferred Shares shall have an option to convert
each Series D Preferred Share into 1.25 Common Shares.
(b) Notice of any redemption of Series D Preferred Shares,
specifying the date fixed for redemption, the redemption price and the
place at which shareholders may obtain payment of the Redemption Price
upon surrender of their certificates, and the option of the
shareholders to convert their Series D Preferred Shares into Common
Shares, shall be mailed to each holder of record of the shares to be
redeemed, at such holder's address of record, not less than 35, nor
more than 90 days prior to the Redemption Date. Such notice shall set
forth the manner in which shareholders may convert their Series D
Preferred Shares into Common Shares, or to receive the Redemption
Price, upon surrender of their certificates.
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(c) Unless the Corporation defaults in the payment in full of
the Redemption Price, (i) all rights of the holders of such Series D
Preferred Shares as shareholders of the Corporation by reason of the
ownership of such shares (including, without limitation, the right to
convert the Series D Preferred Shares into Common Shares) shall cease
on the Redemption Date except the right to receive the amount payable
upon redemption of such shares upon presentation and surrender of the
respective certificates evidencing such shares, and (ii) such shares
shall be deemed not to be outstanding after the Redemption Date.
(d) Any Series D Preferred Shares that have been redeemed
shall, after such redemption, not be reissued as Series D Preferred
Shares, but shall become authorized but unissued Preferred Shares of
the Corporation, and the certificates evidencing such shares shall be
canceled.
(e) Any notice required by the provisions of this Section 3 to
be given to the holders of Series D Preferred Shares shall be deemed
given if deposited in the United States mail postage prepaid, and
addressed to each holder of record at his, her or its address appearing
on the books of the Corporation.
4. Conversion Rights. The Series D Preferred Shares shall be
convertible into Common Shares as follows:
(a) No Optional Conversion. Other than pursuant to a
redemption of the Series D Preferred Shares as set forth in Section 3
above, the holders of Series D Preferred Shares shall have no optional
rights to convert such shares into Common Shares.
(b) Automatic Conversion. Each Series D Preferred Share shall
be automatically converted, without any further act of the Corporation
or the holders of Series D Preferred Shares, into fully paid and
nonassessable Common Shares in the manner and at the times specified
below:
(i) Second Anniversary after Start Date. If the
Deposit Goal is met prior to twenty-four (24) months from the
Start Date, (A) the date of the automatic conversion into
Common Shares shall be twenty-seven (27) months after the
Start Date, and (B) each Series D Preferred Share shall
automatically be converted into 1.25 Common Shares. If the
Deposit Goal has not been met prior to twenty-four (24) months
from the Start Date, the Series D Preferred Shares will not be
converted into Common Shares until after the third anniversary
of the Start Date.
(ii) Third Anniversary after Start Date. If the
conversion of the Series D Preferred Shares into Common Shares
has not previously taken place within thirty-six (36) months
after the Start Date, then, thirty-nine (39) months after the
Start Date, each outstanding Series D Preferred Share shall
automatically be converted into (A) 1.10 Common Shares if the
Deposit Goal has been met prior to the end of thirty-six (36)
months after the Start Date, and (B) 1.02 Common Shares if the
Deposit Goal has not been
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met prior to the end of thirty-six (36) months after the Start
Date.
(iii) Determination of Whether Deposit Goal Has Been
Met. The Deposit Goal shall have been met prior to a specified
date if the average deposits at the Bank on behalf of the
Banking Office for any calendar quarter prior to such date
equal or exceed $25,000,000. For the purposes of determining
whether the Deposit Goal has been met, the Corporation will
follow the following procedures:
Deposits: For the purpose of making the
Deposit Goal calculations, "deposits" means the book
balances of all accounts which are insurable by the
Federal Deposit Insurance Corporation (such as
demand, savings, time, money market and NOW accounts
and certificates of deposit), including the balances
in such accounts in excess of $100,000; provided,
however, that certificates of deposit in amounts of
$100,000 or more shall be included in the total
amount of deposits only to the extent such
certificates of deposit do not exceed 10% of total
deposits.
Credit for Deposits: The specific banking
office at which a deposit account is opened receives
the credit for the account; provided, however, that
if the Banking Office is not authorized to accept
deposits or has not yet opened for business, a
deposit account may be established at another banking
office on behalf of the Banking Office if designated
as such. The Bank's accounting system tracks and
accounts for all depository accounts on a daily
basis.
Calendar Quarter Average: After a calendar
quarter has expired, the Bank will calculate the
calendar quarter average of deposits for accounts
designated as gathered on behalf of the Banking
Office by adding the sum of the daily general ledger
balance for such deposits and then dividing this sum
by the number of days in the calendar quarter.
All determinations regarding whether the Deposit Goal has been
met as of any date shall be made by the Corporation. Such
determinations in this regard shall be final and conclusive
for all purposes.
(c) Mechanics of Conversion. Upon the occurrence of the dates
specified in Section 4(b) above, the outstanding Series D Preferred
Shares shall be converted automatically without any further action by
the holders of such shares and whether or not the certificates
representing such shares are surrendered to the Corporation or its
transfer agent; provided, however, that the Corporation shall not be
obligated to issue to any holder certificates evidencing the Common
Shares issuable upon such conversion unless certificates evidencing the
Series D Preferred Shares are delivered either to the Corporation or
any transfer agent designated by the Corporation. Conversion shall be
deemed to have been effected on the date of the occurrence of the dates
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<PAGE> 103
specified in Section 4(b) above, as the case may be, and such date is
referred to herein as the "Conversion Date." Subject to the provisions
of Section 4(b) above, as promptly as practicable thereafter (and after
surrender of the certificate or certificates representing the Series D
Preferred Shares to the Corporation or any transfer agent designated by
the Corporation), the Corporation shall issue and deliver to such
holder a certificate or certificates for the number of full Common
Shares to which such holder is entitled as provided in Section 4(b)
hereof. Subject to the provisions of Section 4(b), the person in whose
name the certificate or certificates for Common Shares are to be issued
shall be deemed to have become a holder of record of such Common Shares
on the applicable Conversion Date.
(d) Fractional Shares. No fractional Common Shares or scrip
shall be issued upon conversion of Series D Preferred Shares. In lieu
of any fractional Common Shares which would otherwise be issuable upon
conversion of any Series D Preferred Shares, the number of full Common
Shares issuable upon conversion thereof shall be increased to the next
higher number of whole shares.
(e) Rights After Conversion Date. From and after the
Conversion Date (unless the Corporation defaults in issuing Common
Shares in conversion for the outstanding Series D Preferred Shares on
the Conversion Date), such Series D Preferred Shares shall be deemed
not to be outstanding and all rights of the holders of such shares as
Shareholders of the Corporation by reason of the ownership of such
shares shall cease, except the right to receive Common Shares as
provided in Section 4(b) herein on presentation and surrender of the
respective certificates evidencing such Series D Preferred Shares. Upon
presentation and surrender, on or after the Conversion Date, of any
certificate evidencing Series D Preferred Shares (properly endorsed or
assigned for transfer, if the Corporation shall so require), such
shares shall be converted by the Corporation for Common Shares as
provided in this Section 4.
(f) Authorized, But Unissued Shares. Any Series D Preferred
Shares that shall at any time have been converted into Common Shares
pursuant to this Section 4 shall, after such conversion, become
authorized but unissued (and undesignated) preferred shares of the
Corporation, and the certificates evidencing such shares shall be
canceled.
(g) Reservation of Shares. The Corporation shall reserve at
all times so long as any Series D Preferred Shares remain outstanding,
free from preemptive rights, out of its treasury shares or its
authorized but unissued Common Shares, or both, solely for the purpose
of effecting the conversion of the Series D Preferred Shares,
sufficient Common Shares to provide for the conversion of all
outstanding Series D Preferred Shares.
(h) Fully Paid and Nonassessable Shares. All Common Shares or
other securities which may be issued upon conversion of the Series D
Preferred Shares will upon issuance by the Corporation be duly and
validly issued, fully paid and nonassessable and free from all taxes,
103
<PAGE> 104
liens and charges with respect to the issuance thereof and the
Corporation shall take no action which would cause a contrary result.
5. Conversion Ratio Adjustments. The number of Common Shares into which
the Series D Preferred Shares shall be converted pursuant to Section 4 (the
"Conversion Ratios") and the securities or other property deliverable upon
conversion of the Series D Preferred Shares shall be subject to adjustment from
time to time as follows:
(a) Share Subdivisions or Split-Ups. If the number of Common
Shares outstanding at any time after the date of issuance of the Series
D Preferred Shares is increased by a subdivision or split-up of Common
Shares, then immediately after the record date fixed for the
determination of holders of Common Shares entitled to receive such
subdivision or split-up, as the case may be, the Conversion Ratios
shall be appropriately increased so that the holder of any Series D
Preferred Shares thereafter converted shall be entitled to receive the
number of Common Shares of the Corporation which the holder would have
owned immediately following such action had such Series D Preferred
Shares been converted immediately prior thereto.
(b) Combinations of Shares. If the number of Common Shares
outstanding at any time after the date of issuance of the Series D
Preferred Shares is decreased by a combination of the outstanding
Common Shares, then, immediately after the effective date of such
combination, the Conversion Ratios applicable thereto shall be
appropriately decreased so that the holder of any Series D Preferred
Shares thereafter converted shall be entitled to receive the number of
Common Shares of the Corporation which the holder would have owned
immediately following such action had such Series D Preferred Shares
been converted immediately prior thereto.
(c) Reorganization, Reclassification, Merger, Sale of All
Assets, etc. In case of any capital reorganization of the Corporation,
or of any reclassification of the Common Shares, or in case of the
consolidation of the Corporation with or the merger of the Corporation
with or into any other Person or of the sale, lease or other transfer
of all or substantially all of the assets of the Corporation to any
other Person, or in the case of any distribution of cash or other
assets or of notes or other indebtedness of the Corporation or any
other securities of the Corporation (except Common Shares) to the
holders of its Common Shares, each Series D Preferred Share shall,
after such capital reorganization, reclassification, consolidation,
merger, sale, lease or other transfer or such distribution, be
convertible into the number of shares or other securities or property
to which the Common Shares issuable (at the time of such capital
reorganization, reclassification, consolidation, merger, sale, lease or
other transfer or such distribution) upon conversion of such Series D
Preferred Shares would have been entitled upon such capital
reorganization, reclassification, consolidation, merger, sale, lease or
other transfer or such distribution in place of (or in addition to, in
the case of any such event after which Common Shares remain
outstanding) the Common Shares into which such Series D Preferred
Shares would otherwise have been convertible; and in any such case, if
necessary, the provisions set
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<PAGE> 105
forth herein with respect to the rights and interest thereafter of the
holders of Series D Preferred Shares shall be appropriately adjusted so
as to be applicable, as nearly as may reasonably be, to any shares or
other securities or property thereafter deliverable on the conversion
of the Series D Preferred Shares.
(d) Rounding of Calculations; Minimum Adjustment. All
calculations under this Section 5 shall be made to the nearest one
hundredth (1/100th) of a Common Share, as the case may be. Any
provision of this Section 5 to the contrary notwithstanding, no
adjustment in the Conversion Ratios shall be made if the amount of such
adjustment would be less than one hundredth of a Common Share, but any
such amount shall be carried forward and an adjustment with respect
thereto shall be made at the time of any subsequent adjustment which,
together with such amount and any other amount or amounts so carried
forward, shall aggregate one hundredth of a Common Share or more.
(e) Timing of Issuance of Additional Common Shares upon
Certain Adjustments. In any case in which the provisions of this
Section 5 shall require that an adjustment shall become effective
immediately after a record date for an event, the Corporation may defer
until the occurrence of such event issuing to the holder of any Series
D Preferred Shares converted after such record date and before the
occurrence of such event the additional Common Shares or other property
issuable or deliverable upon such conversion by reason of the
adjustment required by such event over and above the Common Shares or
other property issuable or deliverable upon such conversion before
giving effect to such adjustment; provided, however, that the
Corporation upon request shall deliver to such holder a due bill or
other appropriate instrument evidencing such holder's right to receive
such additional shares or other property, and such cash, upon the
occurrence of the event requiring such adjustment.
(f) Statement Regarding Adjustments. Whenever the Conversion
Ratios shall be adjusted as provided in this Section 5, the Corporation
shall forthwith file, at the office of any transfer agent for the
Series D Preferred Shares and at the principal office of the
Corporation a statement showing in detail the facts requiring such
adjustment and the Conversion Ratios that shall be in effect after such
adjustment, and the Corporation shall also cause a copy of such
statement to be mailed, first class postage prepaid, to each holder of
Series D Preferred Shares at its address appearing on the Corporation's
records.
(g) Cost. The Corporation shall pay all documentary, stamp,
transfer or other transactional taxes attributable to the issuance or
delivery of Common Shares of the Corporation or other securities or
property upon conversion of any Series D Preferred Shares; provided,
however, that the Corporation shall not be required to pay any taxes
which may be payable in respect of any transfer involved in the
issuance or delivery of any certificate for such shares or securities
in the name other than that of the holder of Series D Preferred Shares
in respect of which such shares are being issued.
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6. Voting. The holders of Series D Preferred Shares shall have no right
or power to vote on any matter except as required by law. In any matter on which
the holders of Series D Preferred Shares shall, as a matter of law, be entitled
to vote, the holders shall be entitled to one vote for each Series D Preferred
Share held.
7. Liquidation Rights.
(a) Upon the dissolution, liquidation or winding up of the
Corporation, whether voluntary or involuntary, the holders of Series D
Preferred Shares then outstanding shall be entitled to receive out of
the assets of the Corporation available for distribution to equity
holders, an amount per share in cash equal to the Purchase Price before
any payment or distribution shall be made on the Common Shares or on
any other class of capital shares of the Corporation ranking junior to
the Series D Preferred Shares upon liquidation. The Series D Preferred
Shares shall rank at parity with all outstanding shares of any other
series of preferred shares. The consolidation or merger of the
Corporation, or a sale, exchange or transfer of all or substantially
all of its assets as an entirety, shall not be regarded as a
"dissolution, liquidation or winding up of the Corporation" within the
meaning of this Section 7(a).
(b) After the payment to the holders of Series D Preferred
Shares of the full preferential amounts fixed hereby for Series D
Preferred Shares, the holders of Series D Preferred Shares as such
shall have no right or claim to any of the remaining assets of the
Corporation.
(c) If the assets of the Corporation available for
distribution to the holders of Series D Preferred Shares upon
dissolution, liquidation or winding up of the Corporation are
insufficient to pay in full all amounts to which such holders are
entitled pursuant to Section 7(a), no distribution shall be made on
account of any shares of a class or series of capital shares of the
Corporation ranking on a parity with the Series D Preferred Shares, if
any, upon such dissolution, liquidation or winding up unless
proportionate distributive amounts shall be paid on account of the
Series D Preferred Shares, ratably, in proportion to the full
distributable amounts for which holders of all such parity shares are
respectively entitled upon such dissolution, liquidation or winding up.
8. Reports to Holders of Series D Preferred Shares. For so long as
there shall remain outstanding any Series D Preferred Shares, the Corporation
shall furnish to each holder of record of Series D Preferred Shares (i) all
reports or other correspondence sent by the Corporation to holders of record of
the Common Shares of the Corporation, and (ii) a quarterly report setting forth
the average monthly deposits on behalf of the Banking Office.
9. Certain Covenants. So long as any Series D Preferred Shares are
outstanding, without the prior written consent of the holders of a majority of
the outstanding Series D Preferred Shares, the Corporation shall not amend,
alter or repeal any provisions of this resolution establishing Series D
Convertible Preferred Shares, or otherwise amend, alter or repeal any
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<PAGE> 107
provision of the Articles of Incorporation of the Corporation so as to affect
adversely the preferences, rights, powers or privileges of the Series D
Preferred Shares.
10. Certain Events. If any event occurs of the type contemplated but
not expressly provided for by the provisions of Section 4 or Section 5 herein,
then the Corporation's Board of Directors will make an appropriate adjustment in
the Conversion Ratios for the Series D Preferred Shares to protect the rights of
the holders thereof.
11. Exclusion of Other Rights. Unless otherwise required by law, the
Series D Preferred Shares shall not have any voting powers, preferences or
relative, participating, optional or other special rights other than those
specifically set forth herein.
107
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EXHIBIT 11 (a)
IRWIN FINANCIAL CORPORATION AND SUBSIDIARIES
EXHIBIT 11(a) - COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Year Ended December 31, 1999 1998 1997
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
AVERAGE NUMBER OF SHARES OUTSTANDING 21,530 21,732 22,326
============ =========== ==========
NET INCOME $ 33,156 $ 30,503 $ 24,444
============ =========== ==========
BASIC EARNINGS PER SHARE (Note 2) $ 1.54 $ 1.40 $ 1.10
============ =========== ==========
DILUTED SHARES OUTSTANDING:
Average number of shares outstanding 21,530 21,732 22,326
Assumed exercise of stock options (Note 1) 356 407 396
------------ ----------- ----------
Total shares (Note 2) 21,886 22,139 22,722
============ =========== ==========
NET INCOME $ 33,156 $ 30,503 $ 24,444
============ =========== ==========
DILUTED EARNINGS PER SHARE (Note 2) $ 1.51 $ 1.38 $ 1.08
============ =========== ==========
</TABLE>
(1) The dilutive effect of stock options is based on the Treasury Stock method.
(2) Adjusted for the two-for-one stock split on May 27, 1998
108
<PAGE> 1
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 Union Securities, Inc. Indiana
Irwin Funding Corp. Delaware
Irwin Union Advisory Services, Inc. Indiana
Irwin Reinsurance Corporation Vermont
Irwin Business Finance Corporation Indiana
IFC Mortgage Corporation Indiana
Irwin Mortgage Corporation Indiana
Irwin Ventures Incorporated Indiana
Irwin Ventures Incorporated-SBIC Indiana
Irwin Union Investor Services, Inc. Indiana
Irwin Home Equity Corporation Indiana
IHE Funding Corp. Delaware
Irwin Equipment Finance Corp. Indiana
Irwin Leasing Corporation Illinois
Irwin Union Credit Insurance Corp. Arizona
White River Capital Corporation Indiana
IFC Capital Trust I Delaware
109
<PAGE> 1
Exhibit 23(a)
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.
33-6880 on Form S-8 as amended by Post-Effective Amendment No. 1 effective
December 22, 1989; in Registration Statement No. 33-32783 on Form S-8 effective
January 11, 1990; in Registration Statement No. 2-72249 on Form S-3 as amended
by Post-Effective Amendment No. 3 to Form S-16 effective January 17, 1990; in
Post-Effective Amendment No. 2 to Registration Statement No. 33-6880 on Form S-8
effective April 9, 1990; in Registration Statement No. 33-32783 on Form S-8 as
amended by Post-Effective Amendment No. 1 effective April 9, 1990; in
Registration Statement No. 33-47680 on Form S-8 effective May 5, 1992; in
Registration Statement No. 2-72249 on Form S-3 as amended by Post-Effective
Amendment No. 4 to Form S-16 effective April 7, 1994; in Registration Statement
No. 33-29493 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; in Registration Statement No. 33-62669 on Form S-8 effective
September 15, 1995; in Registration Statement No. 333-26197 on Form S-8
effective April 30, 1997; and in Registration Statement No. 333-80777 on Form
S-8 effective June 16, 1999 of Irwin Financial Corporation of our report dated
January 24, 2000 relating to the financial statements, which appear in this
Form 10-K.
/s/ PricewaterhouseCoopers LLP
Dated: March 20, 2000
110
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000052617
<NAME> IRWIN FINANCIAL CORPORATION
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 47,215
<INT-BEARING-DEPOSITS> 26,785
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 59,025
<INVESTMENTS-HELD-FOR-SALE> 27,092
<INVESTMENTS-CARRYING> 37,508
<INVESTMENTS-MARKET> 37,464
<LOANS> 733,424
<ALLOWANCE> 8,555
<TOTAL-ASSETS> 1,680,847
<DEPOSITS> 870,318
<SHORT-TERM> 473,103
<LIABILITIES-OTHER> 100,275
<LONG-TERM> 29,784
48,071
0
<COMMON> 29,965
<OTHER-SE> 129,331
<TOTAL-LIABILITIES-AND-EQUITY> 1,680,847
<INTEREST-LOAN> 48,978
<INTEREST-INVEST> 4,026
<INTEREST-OTHER> 73,609
<INTEREST-TOTAL> 126,613
<INTEREST-DEPOSIT> 25,220
<INTEREST-EXPENSE> 54,794
<INTEREST-INCOME-NET> 71,819
<LOAN-LOSSES> 4,443
<SECURITIES-GAINS> 14
<EXPENSE-OTHER> 214,111
<INCOME-PRETAX> 57,334
<INCOME-PRE-EXTRAORDINARY> 57,334
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 33,156
<EPS-BASIC> 1.54<F1>
<EPS-DILUTED> 1.51<F1>
<YIELD-ACTUAL> .05<F2>
<LOANS-NON> 4,157
<LOANS-PAST> 147
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 9,888
<CHARGE-OFFS> 2,231
<RECOVERIES> 503
<ALLOWANCE-CLOSE> 8,555
<ALLOWANCE-DOMESTIC> 8,555
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 3,995
<FN>
<F1>Information not in 1,000 and earnings per share reported in basic and diluted
<F2>Information not in 1,000
</FN>
</TABLE>
