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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 (Fee Required)
For the fiscal year ended December 31, 1995
or
__ Transition report pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934
(No Fee Required)
For the transition period from _______
to ________
Commission file number 0-6835
IRWIN FINANCIAL CORPORATION
(Exact Name of Registrant as Specified in its
Charter)
Indiana 35-1286807
(State or Other Jurisdiction of Incorporation (I.R.S. Employer
or Organization Identification No.)
500 Washington Street
Columbus, Indiana 47201
(Address of Principal Executive Offices) (Zip Code)
(812) 376-1020
(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Shares
(Title of Class)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports),
and (2) has been subject to such filingrequirements for the past 90 days.
Yes x No _____
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K. __
The aggregate market value of the voting stock held by nonaffiliates of the
Registrant was $150,757,321.75 as of March 11, 1997. As of March 11, 1997,
there were outstanding 11,329,062 common shares of the Registrant.
DOCUMENTS INCORPORATED BY REFERENCE
Selected Portions of Part of Form 10-K Into Which
the Following Documents Incorporated
Annual Report to Shareholders Part I, Part II
for the year ended December 31, 1996
Definitive Proxy Statement for Part III
Annual Meeting of Shareholders
to be held April 29, 1997
Exhibit Index on Pages 44 through 47 Page 1
Total Pages in This Filing: 207
XXXPAGE 1XXX
FORM 10-K TABLE OF CONTENTS
Part I
Item 1 - Business 3
Item 2 - Properties 7
Item 3 - Legal Proceedings 8
Item 4 - Submission of Matters to a Vote of
Security Holders 9
Part II
Item 5 - Market for Registrant's Common Equity
and Related Security Holder Matters 9
Item 6 - Selected Financial Data 10
Item 7 - Management's Discussion and
Analysis of Financial Condition and
Results of Operations 10
Item 8 - Financial Statements and
Supplementary Data 42
Item 9 - Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure 42
Part III
Item 10 - Directors and Executive Officers of the
Registrant 42
Item 11 - Executive Compensation 42
Item 12 - Security Ownership of Certain
Beneficial Owners and Management 42
Item 13 - Certain Relationships and Related
Transactions 42
Part IV
Item 14 - Exhibits, Financial Statement Schedules
and Reports on Form 8-K 43
Signatures 48
XXXPAGE 2XXX
PART I
Item 1 Business
General
Irwin Financial Corporation (the "Registrant") is a diversified financial
services company organized as an Indiana bank holding company in May, 1972.
The Registrant's principal subsidiaries are Inland Mortgage Corporation
("Inland Mortgage"), a mortgage banking company; Irwin Union Bank and
Trust Company ("Irwin Union Bank"), a commercial bank; Affiliated Capital
Corp. ("Affiliated"), an equipment leasing company; Irwin Home Equity
Corporation ("Home Equity"), a consumer home equity lending company;
White River Capital Corporation, a small venture capital company; and Irwin
Union Credit Insurance Corporation, a credit insurance company. Registrant is
also the sole equity shareholder of IFC Capital Trust I ("Capital Trust"), a
special purpose trust. Registrant is in the process of winding down Irwin
Union Investor Services, Inc. ("Investor Services") an investment and financial
counseling company.
Business of Subsidiaries
Inland Mortgage originates, purchases and services conventional or government
agency backed (i.e., FHA and VA) residential mortgage loans. Most mortgages
are either insured by an agency of the federal government, or in the case of a
conventional mortgage, meet requirements for resale to the Federal National
Mortgage Association or the Federal Home Loan Mortgage Corporation.
Periodically, Inland Mortgage sells loans to private investors pursuant to their
requirements. Inland also originates a small amount of commercial mortgages.
Inland Mortgage sells mortgage loans to institutional investors but may
retain servicing rights to mortgage loans that it originates or purchases
from correspondents. Inland Mortgage collects and accounts for the monthly
payments on each loan serviced and pays the real estate taxes
and insurance necessary to protect the integrity of the mortgage lien, for
which it receives a servicing fee. Inland Mortgage operates 106 production
and satellite offices in 27 states. During 1996, Inland Mortgage established
offices in Temecula, California; Colorado Springs, and Denver Central,
Colorado; Marlton previously Cape May, New Jersey; Albuquerque, New Mexico;
Austin, Texas. During 1996, Inland Mortgage closed offices in Fresno, Long
Beach, Montclair, Orange, Pleasanton, San Francisco, San Mateo, San Rafael,
and Selma, California; Prescott, Arizona; Bloomington and St. Louis Park, MN;
Kalispell, Montana; Santa Fe, New Mexico; and Orting and Vancouver, Washington.
Inland Mortgage will enter the non-prime first mortgage lending market in
1997. This market is comprised of borrowers who do not qualify under
the underwriting guidelines established by the government sponsored secondary
market agencies for conforming first mortgages. Inland opened a non-prime
lending office in Richmond, Virginia late in the fourth quarter of 1996 and
will begin originating nonprime first mortgages in 1997.
Inland Mortgage and the Registrant have, for several years, been exploring
opportunities to test the development of mortgage banking operations in
markets outside the United States. In December, 1996, Inland Mortgage began
taking applications from U. S. Borrowers for Dollar denominated loans to be
secured by residential real estate located in Mexico. Inland does not
expect to close any of these loans until the first quarter of 1997. The
Registrant hopes to continue research of international opportunities
to which Registrant might apply its knowledge and competencies.
Irwin Union Bank, organized in 1871, is a full service commercial bank
offering a wide variety of services to individual, business, institutional,
and governmental customers. Irwin Union Bank's services include personal and
commercial checking accounts, savings and time deposit accounts, personal and
business loans, credit card services, money transfer, financial counseling,
property and casualty insurance agency services, trust services, securities
brokerage and safe deposit facilities. Irwin Union Bank
XXXPage 3XXX
is the largest of nine financial institutions operating in Bartholomew
County, Indiana with eight locations throughout the county. Irwin Union Bank
also has branch facilities in Seymour (Jackson County - 2), Shelbyville
(Shelby County 2), Bloomington (Monroe County), Franklin (Johnson County),
and Greensburg (Decatur County), Indiana. Irwin Union Bank has two trust
custodial offices in Indianapolis, Indiana. The custodial locations
are scheduled to close in January, 1997.
Affiliated, acquired in 1990 and located in
Northbrook, Illinois, is engaged in the small-ticket equipment leasing and
commercial lending business. Affiliated offers nonrecourse, non-
operating, full payout leases and commercial lines of credit to physicians,
medical clinics, veterinarians, dentists and chiropractors.
Home Equity was formed in 1994 and is located in San Ramon, California.
Home Equity originates and services home equity loans. The loans are
marketed through direct mail and telemarketing in sixteen states.
White River Capital Corporation ("White River"), a venture capital company,
is located in Columbus, Indiana and currently holds one investment but has
suspended making new investments.
Irwin Union Credit Insurance Corporation is located in Columbus, Indiana and
provides credit life insurance to consumer loan customers of Irwin Union Bank.
IFC Capital Trust I ("Capital Trust"), is a statutory business trust created
under the laws of Delaware. The Company owns all of the Common
Securities of Capital Trust. Trust exists for the purpose of issuing the
Preferred Securities and investing the proceeds thereof in an equivalent
amount of 9.25% Subordinated Debentures of the Company. The Subordinated
Debentures will mature on March 31, 2027, which date may be (i)
shortened to a date not earlier than March 31, 2002, or (ii) extended to a
date not later than March 31, 2046, in each case if certain conditions are
met (including, in the case of shortening the Stated Maturity, the Company
having received prior approval of the Board of Governors of the Federal
Reserve System ("Federal Reserve") to do so if then required under
applicable capital guidelines or policies of the Federal Reserve). The
Preferred Securities, which are guaranteed by the Company, will have a
preference under certain circumstances with respect to cash distributions
and amounts payable on liquidation, redemption or otherwise over the
Common Securities. Holders of Preferred Securities are entitled to receive
preferential cumulative cash distributions, at the annual rate
of 9.25% of the liquidation amount of $25 per Preferred Security accruing
from the date of original issuance and payable quarterly in arrears on the
last day of March, June, September and December of each year, commencing
March 31, 1997.
No single part of the business of the Registrant is dependent upon a single
customer or upon a very few customers and the loss of any one
customer would not have a materially adverse effect upon the business of the
Registrant. Inland Mortgage is registered as a Foreign Financial Institution
in Mexico but has no foreign operations or export sales.
Competition
Inland Mortgage originates and services residential first mortgage loans from
106 production and satellite offices in Arizona, California, Colorado,
Delaware, Florida, Georgia, Hawaii, Illinois, Indiana, Kentucky, Louisiana,
Minnesota, Missouri, New Jersey, New Mexico, Nevada, North Carolina, Ohio,
Oklahoma, Oregon, Pennsylvania, Texas, Utah, Washington, Wisconsin
and the Washington, D.C. metropolitan area, including offices in Maryland and
Virginia. In each of these locations, competition for mortgage
loans is vigorous, coming from other national, regional and local mortgage
banking companies as well as commercial banks, savings banks and
savings & loan associations. Inland Mortgage purchases mortgage loans from
correspondents in these and other states as well.
The commercial banking business for Irwin Union Bank in the Bartholomew,
Decatur, Jackson, Johnson, Monroe and Shelby County areas is very
competitive. Within these counties, in addition
XXXPAGE 4XXX
to the commercial banks, there are a number of savings banks, savings & loan
associations and credit unions competing for deposits and loans. Irwin Union
Bank also competes for the provision of banking services with banks located
elsewhere in Indiana, primarily in south central Indiana,
and with a number of nonbank companies located throughout the United States,
including insurance companies, retailers, brokerage firms, companies
offering money market accounts, and national credit card companies. As of
December 31, 1996, Irwin Union Bank ranked first among commercial
banking and savings bank institutions on the basis of Bartholomew County
deposits. In addition to the above mentioned counties, Irwin
Union Bank derives its business from several other counties in south central
Indiana.
Affiliated provides, primarily, medical equipment leasing and commercial
credit services to medical clinics, small groups of physicians, individual
practitioners, chiropractors, dentists and veterinarians. Affiliated's
primary competitors include other equipment leasing companies with
operations that are national in scope, banks and other financial institutions
which offer commercial credit products. Such competitors may
be headquartered anywhere in the country.
Home Equity originates home equity loans for private home owners in several
states. Home Equity's primary competitors include banks, thrifts, credit
unions and other home equity lenders with operations that are either national,
regional or local in scope. Such competitors may be headquartered anywhere
in the country.
Supervision and Regulation
The Registrant is a bank holding company within the meaning of the Bank
Holding Company Act of 1956, as amended, and is registered with,
regulated and examined by the Board of Governors of the Federal Reserve
System (the "Board of Governors").
Subject to certain exceptions, a bank holding company is prohibited from
acquiring direct or indirect ownership or control of more than five percent
of the voting shares of any company which is not a bank and from engaging
directly or indirectly in activities unrelated to banking or managing or
controlling banks. One exception to this prohibition permits activities by a
bank holding company or its subsidiary which the Board of Governors
determines to be so closely related to banking or managing or controlling
banks as to be a proper incident thereto. The Board of Governors has adopted
regulations prescribing those activities it presently regards as permissible
which include the activities engaged in by Registrant and its subsidiaries.
The Bank Holding Company Act, the Federal Reserve Act and the Federal Deposit
Insurance Act also subject bank holding companies and their subsidiaries to
certain restrictions on extensions of credit by subsidiary banks to the
bank holding company or any of its subsidiaries, or investments in the
securities thereof, and on the taking of such securities as collateral for
loans to any borrower. Further, the Bank Holding Company Act and the
regulations of the Board of Governors thereunder, prohibit a bank holding
company and its subsidiaries from engaging in certain tie-in arrangements in
connection with any extension of credit, sale or lease of any property or
furnishing of services.
In addition to the regulation of the Registrant, Irwin Union Bank is subject
to extensive regulation and periodic examination, principally by the Indiana
Department of Financial Institutions and the Federal Deposit Insurance
Corporation. Inland Mortgage is subject to audit and examination oversight
by the federal department of Housing and Urban Development as
well as the Government National Mortgage Association, the Federal National
Mortgage Association, and the Federal Home Loan Mortgage
Corporation. The insurance subsidiary of the Registrant and the insurance
subsidiary of Irwin Union Bank are dependent upon state licenses and
upon franchise agreements with private corporations for their continued
existence. The home equity subsidiary of the Registrant is also
dependent upon state licenses for its ability to extend credit in certain
states. Finally, the securities brokerage activities of Registrant's
registered broker/dealer are regulated and examined by the Securities and
Exchange Commission, the Indiana Securities Division, the securities divisions
of the various states in which Investor Services operates, and the
National Association of Securities Dealers.
XXXPAGE 5XXX
Employees and Labor Relations
As of December 31, 1996, the Registrant and its subsidiaries
had a total of 1,998 employees, including full-time and parttime employees.
The Registrant continues a commitment of equal employment
opportunity for all job applicants and staff members, and management regards
its relations with its employees as satisfactory.
Further Information
The following information responsive to Guide 3 promulgated under the
Securities Exchange Act of 1934, is contained in the "Management's
Discussion and Analysis of Financial Conditions and Results of Operations"
section of the Annual Report to Shareholders for the year ending
December 31, 1996 and is incorporated herein by reference: "Daily Average
Consolidated Balance Sheet, Interest Rates and Interest Differential"
(p. 70), "Investment Securities" (p. 57), "Short-Term Borrowings" (p. 59),
"Summary of Net Interest Income Changes" (p. 55), "Deposits" (p. 58), "Loans
and Leases" (p. 56), "Five-Year Selected Financial Data" (p. 28), and the
discussion and tabular information under the caption "Credit Risk" on pages
62 to 66 of "Management's Discussion and Analysis of Financial Conditions and
Results of Operations".
Executive Officers of the Registrant
The Executive Officers of the Registrant are elected annually by the Board of
Directors and serve for a term of one year or until their successors are
elected and qualified. There are no arrangements or understandings between any
Executive Officer and any other person pursuant to which the Officer was or
is to be selected as an Officer.
Robert P. Albert (46) is President of Affiliated Capital Corp. since February
28, 1990.
Claude E. Davis (36) is President of Irwin Union Bank since January 2, 1996.
He has been an officer since 1988.
Elena Delgado (41) is President of Irwin Home Equity Corporation since
September 4, 1994. From March through August, 1994, Ms. Delgado was an
independent consultant to Irwin Financial Corporation. From 1990 to 1993,
Ms. Delgado was Vice President, Second Mortgage Lending of First
Deposit Corporation.
Gregory F. Ehlinger (34) is Vice President and Treasurer of the Registrant
since August of 1992. From 1988 to 1992, Mr. Ehlinger was employed by
Irwin Management Company, Inc. (A private management company).
Jose M. Gonzalez (38) is Vice President and Director of Internal Audit of the
Registrant since October of 1995. From 1993 to 1995, Mr. Gonzalez was Senior
Vice President, Audit & Compliance Services of Premier Bank and Trust. From
1991 to 1993, Mr. Gonzalez was Vice President and Senior Compliance Officer
at First Empire State Corporation.
Theresa L. Hall (44) is Vice President of the Registrant, since 1988. She
has been an officer since 1980.
Rick L. McGuire, (44) is President of Inland Mortgage since January 1, 1996.
He has been an officer since 1978.
William I. Miller (40) is Chairman of the Board, since 1990, and has been a
Director of the Registrant since 1985.
XXXPAGE 6XXX
John A. Nash (59) is Chairman of the Executive Committee, since 1990, and
President, since 1985, of the Registrant. He has been an officer and
Director of the Registrant since 1972.
Michael F. Ryan (51) is Vice President Community Relations of the Registrant
since January 2, 1996. He was President of Irwin Union Bank from
1981 - 1995. He has been an officer since 1976.
Matthew F. Souza (40) is Vice President and Secretary of the Registrant. He
has been an officer since 1985.
Marie C. Strack (34) is Vice President and Controller of the Registrant since
May of 1992. From 1985 to 1992, Ms. Strack was employed by the public
accounting firm of Coopers & Lybrand L.L.P., as Audit Manager.
Thomas D. Washburn (50) is Senior Vice President and Chief Financial Officer,
since 1980, of the Registrant. He has been an officer since 1976.
Item 2. Properties
The location and general character of the materially important physical
properties of the Registrant and its subsidiaries are as follows:
The main office of Inland Mortgage, where administrative and servicing
activities are centered, is located at 9265 Counselor's Row,
Indianapolis, Indiana and a new servicing facility is located at 11800 Exit
Five Parkway, Indianapolis, Indiana. Inland Mortgage also has
loan production and satellite offices located in Flagstaff, Phoenix (3),
Mesa, Scottsdale, Tempe, and Tucson, Arizona; Antioch, Bakersfield,
Concord, Covina, Lake Forest, Morgan Hill, Pasadena, Porterville, Richmond,
Sacramento, Salinas, Santa Rosa, Temecula, Ventura, Visalia, Walnut Creek,
Westlake Village, Woodland, Yuba City, and Yreka, California; Castle Rock,
Colorado Springs, Denver (2), Englewood, and Fort Collins , Colorado; Bethany
Beach and Newark, Delaware; Clearwater, Longwood, and Orlando, Florida;
Atlanta, Georgia; Aiea, Honolulu, Kailua, and Maui, Hawaii; Chicago, Decatur,
and Tinley Park, Illinois; Indianapolis (5), Anderson, Ft. Wayne, Kokomo,
Lafayette, LaPorte, South Bend, and Warsaw, Indiana; Lexington and
Louisville, Kentucky; Baton Rouge, Louisiana; Columbia, Crofton, Rockville,
Solomons, and Towson, Maryland; Arden Hills, Burnsville, and Minneapolis,
Minnesota; St. Louis, Missouri; Las Vegas, Nevada; Marlton previously Cape
May, New Jersey; Albuquerque, New Mexico; Cary, Charlotte,
Greensboro, and Raleigh, North Carolina; Cleveland, Dayton, and Independence,
Ohio; Tulsa, Oklahoma; Beaverton and Clackamas, Oregon; West Chester,
Pennsylvania; Austin, Corpus Christi, Dallas, El Paso, Houston, North
Houston, and Plano, Texas; Salt Lake City, Utah; Fredericksburg, Gloucester,
Richmond, Springfield, Suffolk, and Woodbridge, Virginia;
Bellevue, Battleground, Everett, Mount Lake Terrace, Seattle, and Snohomish,
Washington; and Madison, Wisconsin. All offices occupied by Inland Mortgage
are leased.
The main office of Irwin Union Bank is located in four connected buildings
all at 500 and 520 Washington Street, Columbus, Indiana. These buildings and
one branch building are owned in fee by Irwin Union Realty Corporation, a
whollyowned subsidiary of Irwin Union Bank, and are leased by
Irwin Union Bank. Irwin Union Bank owns in fee three of its other thirteen
relatively small branch banking premises. The other branch offices are
leased. None of the properties owned by Irwin Union Bank are
subject to any major encumbrances.
The main office of Affiliated, where administrative and lease servicing
activities are centered, is located at 707 Skokie Boulevard, Northbrook,
Illinois. This office location is leased.
The main office of Irwin Home Equity is located at 12677 Alcosta Blvd., Suite
500, San Ramon, California. This office location is leased.
XXXPAGE 7XXX
The main offices of the Registrant, White River Capital Corporation and Irwin
Union Credit Insurance Corporation are located at 500 Washington Street,
Columbus, Indiana in space leased from Irwin Union Bank.
Item 3. Legal Proceedings
As a part of the ordinary course of business, the Registrant and its
subsidiary companies are parties to litigation involving claims to the
ownership of funds in particular accounts, the collection of delinquent
accounts, challenges to security interests in collateral, and
foreclosure interests, that is incidental to their regular business
activities.
As of December 31, 1996, Inland Mortgage was a defendant to a class action
lawsuit initiated in the state of Minnesota. The case is currently
pending before a federal Multidistrict Litigation Panel in Chicago, Illinois.
Plaintiffs allege that they represent a nationwide class of persons who have
or had mortgage escrow accounts allegedly improperly managed by Inland
Mortgage. This case is among a series of class action cases commenced against
a number of mortgage servicers in several states challenging the practices
used in connection with the administration of escrow accounts for
single family residential mortgages. Early in January, 1997, class
certification was denied to the plaintiff by the court. The plaintiff may
still pursue an action against Inland Mortgage as an individual and
plaintiff's counsel may still seek to find another mortgagor who would
support a new class action against Inland Mortgage so it is impossible to
predict the likelihood of an unfavorable outcome or to establish possible
extent or amount of liability or potential loss exposure, if any, to which
Inland Mortgage might be exposed in this or similar escrow individual or
class action cases brought in the future.
As of December 31, 1996, Inland Mortgage was a defendant to a class action
lawsuit initiated in the state of Indiana. The case is currently
pending before the Marion County Superior Court. Plaintiffs allege that
lenders do not have the right to require borrowers to pay premiums for
private mortgage insurance. This case is among a series of class action
cases commenced against a number of mortgage lenders in several states
challenging the right of mortgage lenders to collect private mortgage
insurance payments from borrowers. In February, 1996, Inland Mortgage
filed a motion for summary judgment with the court. In December, 1996, the
court denied the motion. The litigation is still at a stage where it is
impossible to predict the likelihood of an unfavorable outcome or to
establish possible extent or amount of liability or potential loss exposure,
if any, to which Inland Mortgage might be exposed.
As of December 31, 1996, Inland Mortgage was a defendant to a class action
lawsuit initiated in the state of Alabama. This action is one of a
breed of "RESPA Section 8" class actions that have been filed against several
mortgage lenders challenging the legality of the payment of
broker fees by mortgage lenders to mortgage brokers. The litigation is still
at an early stage and it is impossible to predict the likelihood of an
unfavorable outcome or to establish possible extent or amount of liability
loss exposure, if any, to which Inland Mortgage might be exposed.
As of December 31, 1996, the Registrant, Home Equity and certain officers of
Home Equity were defendants to an action initiated in the State
of California. The case is currently pending in the Superior Court of the
State of California in and for the City and County of San Francisco.
The plaintiff alleges that defendants misappropriated trade secrets of
plaintiff due to the employment by Home Equity of former officers and
employees of plaintiff. The plaintiff originally sought a preliminary
injunction hearing but the hearing was vacated in April, 1996. It is
impossible to predict the extent or amount of liability or potential loss
exposure, if any, to which Home Equity and the other named defendants might
be exposed.
As of December 31, 1996, Irwin Union Bank was plaintiff in an action
initiated in the State of New York against another depository institution
arising from a wire transfer of funds which occurred in September, 1995.
The litigation is presently in the discovery stage and it is
impossible to predict the likelihood of an unfavorable outcome or to
establish the full extent of the potential loss exposure, if any,
to which Irwin Union Bank may be exposed.
XXXPAGE 8XXX
Except as described above, there is no material pending litigation in which
the Registrant or any of its subsidiaries is involved or of which
any of their property is the subject. Furthermore, there is no pending legal
proceeding that is adverse to the Registrant in which any director, officer
or affiliate of the Registrant, or any associate of any such director or
officer, is a party, or has a material interest.
Item 4. Submission of Matters to a Vote of Security Holders
During the fourth quarter of 1996, no matters were submitted to a vote of
security holders of the Registrant, through the solicitation of
proxies or otherwise.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The Common Stock of the Registrant is quoted on The Nasdaq National Market
(NASDAQ-NMS - trading symbol, IRWN). The following table sets forth
certain information regarding trading in, and cash dividends paid with
respect to, the shares of the Registrant's Common Stock in each quarter
of the two most recent calendar years. All data have been adjusted for stock
splits. The approximate number of shareholders of record on March 11, 1997
was 1,550.
Stock Prices and Dividends:
High Low Quarter Cash Total Dividend
$ $ End Dividend For Year
$ $ $
1995 (split
adjusted)
First Quarter 15 7/8 13 3/4 15 1/2 0.055
Second Quarter 17 5/8 15 1/2 17 1/4 0.055
Third Quarter 18 1/4 17 1/4 17 3/4 0.055
Fourth Quarter 20 1/8 17 5/8 20 0.055 0.22
1996 (split
adjusted)
First Quarter 22 3/4 19 3/4 22 1/8 0.060
Second Quarter 22 1/4 19 5/8 19 5/8 0.060
Third Quarter 21 5/8 17 7/8 21 1/4 0.060
Fourth Quarter 24 3/4 21 1/4 24 3/4 0.060 0.24
The Registrant expects to continue its policy of paying regular cash
dividends, although there is no assurance as to future dividends because they
are dependent on future earnings, capital requirements, and financial
condition. On February 27, 1996, the Registrant's Board of Directors
a pproved an increase in the Registrant's quarterly dividend to $.12 per
share which dividend rate was adjusted to reflect the two-for-one stock split
of December 30, 1996. Dividends paid by Irwin Union Bank to the Registrant are
restricted by banking law. See Note 14 of Notes to the Consolidated
Financial Statements in the attached Annual Report to Shareholders.
No sales of unregistered equity securities were made by the Registrant during
the fourth quarter of 1996.
XXXPAGE 9XXX
Item 6. Selected Financial Data
The information contained in the Annual Report to Shareholders for the year
ended December 31, 1996, under the caption "Five-Year Selected
Financial Data", is incorporated herein by reference in response to this item.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Forward Looking Statements. The Company desires to take advantage of the
"safe harbor" provisions of the Private Securities Litigation Reform Act of
1995 as to "forward looking" statements in this Form 10-K. This section
contains certain forward looking statements within the meaning of such Act,
including the statements made under the "1997 Outlook" section
for each line of business. Such statements are subject to risks and
uncertainties and actual results for subsequent periods could differ
materially from those addressed in forward looking statements as a result of
various factors, including the following:
Economic Conditions. The Company's results are likely to be influenced by
general economic conditions. Changes in local, regional or national
economies could have a material impact on the credit quality of the Company's
assets and the demand for its products and services.
Interest Rate Fluctuations. The Company actively manages its interest rate
risk exposure as described below in "Interest Rate Sensitivity," but if
interest rates should change rapidly or vary substantially from
anticipated levels, the Company's results may be impacted in the shortterm.
Government Regulation and Monetary Policy. The financial services industry
is subject to extensive federal and state regulations. There have been
significant changes in the past in such regulations, and there may be future
legislation or repeal of or changes in laws or regulations that could have a
material impact on the Company's businesses. Further, federal monetary policy
particularly as implemented through the Federal Reserve System, significantly
affects credit conditions for the Company, primarily through open market
operations in U.S. government securities, the discount rate for member bank
borrowing and bank reserve requirements, and a material change in these
conditions would be likely to have an impact on results.
Credit Quality and Liquidity Risk. As discussed below under "Risk
Management," "Credit Risk" and "Liquidity," the Company's businesses involve
the assumption of substantial financial risk. While the Company employs risk
management policies and procedures intended to minimize such financial risk
exposures as described below, such policies and procedures may not
prevent unexpected losses if borrowers' nonperformance significantly exceeds
the estimated loan loss levels anticipated by management in establishing loan
and lease loss reserves.
Computation. The Company competes with numerous financial institutions and
other non-depository financial intermediaries in each of its lines of
business. Future results may be impacted if circumstances affecting the
nature or level of competition change, such as the merger of
competing financial institutions or aggressive expansion by existing
competitors that may impact net interest margin.
Management's Discussion and Analysis of Results
of Operations and Financial Condition:
Five-Year Selected Financial Data
1996 1995 1994 1993 1992
Financial Data
(in thousands)
For the year:
Net Revenues $197,020 $148,364 $116,908 $119,366 $494,934
XXXPAGE 10XXX
Other Operating
Expense 159,733 115,915 86,844 93,803 73,811
Net Income 22,428 20,083 18,216 15,588 12,866
Mortgage Loan
Closings 5,085,625 3,559,310 2,812,962 4,273,933 3,441,347
Return on Average
Equity 20.58% 22.60% 23.91% 24.91% 26.51%
Return on Average
Assets 1.95 2.28 2.43 2.15 1.97
Dividend Payout Ratio 12.15 12.36 11.38 11.12 8.88
Per share:*
Net Income $1.93 $1.75 $1.55 $1.33 $1.12
Cash Dividends 0.24 0.22 0.18 0.15 0.10
Book Value 10.46 8.76 7.21 6.03 4.82
Market Value at
December 31, 24.75 19.94 13.38 12.50 11.50
At year end:
Assets $1,303,886 $1,038,307 $659,671 $881,864 $602,465
Deposits 640,153 563,999 439,918 500,370 389,323
Mortgage Loans
Held for Sale 445,101 378,658 154,964 370,755 218,080
Loans and Leases, Net 522,457 407,904 304,548 252,823 207,138
Shareholders'
Equity 118,902 99,216 81,104 70,093 55,343
Mortgage Servicing
Portfolio 10,810,988 10,301,914 8,818,502 7,922,299 5,470,505
Equity to Assets
Ratio 9.12% 9.56% 12.29% 7.95% 9.19%
Risk-based Capital
Ratio 14.23 14.49 19.18 15.68 16.46
Leverage Ratio (Tier
one) 9.84 10.57 10.82 9.63 8.48
Averages:
Assets $1,151,535 $882,164 $748,981 $725,846 $651,517
Equity 108,970 88,867 76,178 62,586 48,539
Shares Outstanding 11,610 11,486 11,766 11,720 11,534
*Adjusted for stock splits
Consolidated Overview:
Irwin Financial Corporation earned record net income in 1996. This
performance was largely due to increased loan originations in the mortgage
banking business, continued growth at the community bank, and improved
results at the Corporation's newly formed home equity lending business.
Net income for 1996 totaled $22,428,338, up 11.7% from 1995 and 23.1% from
1994. Net income per share in 1996 was $1.93 compared to $1.75 in 1995 and
$1.55 in 1994. Return on average equity for 1996 was 20.58% compared to 22.60%
in 1995 and 23.91% in 1994. Return on average assets was 1.95% compared to
2.28% in 1995 and 2.43% in 1994.
Earnings By LineIrwin Financial Corporation is comprised of four lines of
business:
- Mortgage banking
- Community banking
XXXPAGE 11XXX
- Home equity lending
- Equipment leasing
To provide an effective report on the Corporation's operations, the results
of the activities of Irwin Union Bank which provide funding and invest in
assets generated by other Irwin Financial companies have been included
with the results of the other asset-generating companies. These combined
figures are reported as the results of each line of business.
Earnings:
(In thousands) 1996 1995 1994
Mortgage Banking $20,422 $19,331 $15,728
Community Banking 4,254 3,639 3,050
Home Equity Lending (816) (3,220) -
Equipment Leasing (141) (334) 873
Parent (including consolidating entries) (1,291) 667 (1,435)
---------- --------- --------
$22,428 $20,083 $18,216
Business Profile:
Mortgage Banking
Selected Financial Data
(In thousands) 1996 1995 1994 1993 1992
Selected Income Statement Data:
Net interest income $16,828 $13,290 $12,702 $15,067 $15,203
Loan origination fees 43,463 31,871 25,308 37,605 28,548
Gain on sale of loans 25,541 18,020 2,219 14,225 10,337
Loan servicing fees 44,587 36,087 32,426 24,428 15,135
Gain on sale
of servicing 16,378 15,271 17,716 2,979 5,133
Other income 888 787 647 550 448
--------------------------------------------------
Total net revenues 147,685 115,326 91,018 94,854 74,804
Operating expense 113,590 83,344 64,571 72,140 54,309
---------------------------------------------------
Income before taxes 34,095 31,982 26,447 22,714 20,495
Income taxes 13,673 12,651 10,719 9,073 8,178
---------------------------------------------------
Net income $20,422 $19,331 $15,728 $13,641 $12,317
============================================================================
Selected Balance Sheet Data
at End of Period:
Mortgage loans held
for sale $371,058 $309,262 $131,543 $318,453 $179,583
Mortgage servicing
rights 67,750 51,783 18,834 11,505 10,156
Total assets 557,275 445,129 216,180 452,365 214,411
Short-term debt 265,646 227,021 68,259 215,014 77,731
Long-term debt 4,914 2,300 2,605 2,934 1,178
Shareholders'
equity $66,180 $55,811 $50,805 $42,355 $31,105
Selected Operating Data:
Mortgage loan closings $5,085,625 $3,559,310 $2,812,962 $4,273,933 $3,441,347
XXXPAGE 12 XXX
Servicing portfolio:
Balance at
December 31, 10,810,988 10,301,914 8,818,502 7,922,299 5,470,505
Weighted average coupon
rate 7.83% 7.83% 7.59% 7.51% 8.37%
Weighted average servicing
fee 0.38 0.38 0.38 0.37 0.36
Servicing sold as a percent of
production 60.9 28.4 49.8 5.6 12.3
Overview & Strategy:
The mortgage banking line of business consists of Inland Mortgage Corporation
and the related activities of Irwin Union Bank. The business is
headquartered in Indianapolis and originates, packages, sells, and services
residential mortgage loans throughout the U.S. It has offices in 27 states
and ranks among the top 25 mortgage loan originators in the country. Most
of the loans originated and serviced are either government-insured through
the Veterans' Administration (VA) or Federal Housing Administration (FHA) or
conventional loans which conform to the underwriting guidelines of the
two principal government-sponsored agencies which support the secondary
mortgage markets, the Federal National Mortgage Association (FNMA)
and the Federal Home Loan Mortgage Corporation (FHLMC).
Mortgage loans are originated through both branches (retail) and third party
sources (wholesale). Potential borrowers are identified principally through
relationships maintained with housing intermediaries including realtors
and home builders.
Loans are funded on a short-term basis through credit facilities provided by
commercial banks including Irwin Union Bank. Repurchase agreements with
investment banks are also used. Individual loans are pooled, securitized, and
sold into the secondary mortgage market. Servicing rights are periodically
sold for a variety of reasons including cash flow and servicing portfolio
management. Over the past five years, servicing rights have been retained
on a total of 67.8% of the loans originated by this line of business.
1996 Review:
Net income from mortgage banking was $20.4 million in 1996, an increase of
5.6% over 1995 results of $19.3 million and 29.8% over 1994 results of $15.7
million.
Mortgage Closings:
(In thousands) 1996 1995 1994
Total closings
$5,085,625 $3,559,310 $2,812,962
Percent retail loans 41.8% 50.3% 56.6%
Percent wholesale loans 52.4 42.5 42.9
Percent brokered 5.8 7.2 0.5
Annual loan closings in 1996 of $5.1 billion were up 42.9% from 1995 and
80.8% from 1994. During 1996 the mortgage bank originated a greater portion of
its loans through wholesale channels than had been done in previous years.
Income from mortgage loan originations totaled $43.5 million which was $11.6
million over 1995 and $18.2 million over 1994. Mortgage loan applications in
process at the end of 1996 totaled $1.5 billion, compared with $1.2 billion
at the end of 1995 and $0.5 billion at the end of 1994. Refinances
accounted for 19.0% of 1996 loan closings, compared to 11.6% in 1995 and
15.8% in 1994.
XXXPAGE 13XXX
Gains from the sale of mortgage loans totaled $25.5 million in 1996, up from
$18.0 million in 1995 and $2.2 million in 1994. Gains recognized in 1996 and
for the last nine months of 1995 reflect the change in generally accepted
accounting principles for mortgage banking (SFAS No. 122) which took effect
April 1, 1995. Net revenues from loan sales were tempered somewhat by loan
pricing concessions which totaled $2.5 million in 1996 compared to
$3.8 million in 1995 and $0.1 million in 1994.
Mortgage Servicing:
Servicing Portfolio:
(In billions) 1996 1995 1994
Beginning portfolio $10.3 $8.8 $7.9
Add:
Loans originated 2.1 1.8 1.6
Loans purchased 3.0 1.8 1.2
Deduct:
Sale of servicing rights (3.1) (1.0) (1.4)
Run-off* (1.5) (1.1) (0.5)
- -------------------------------------------------------
Ending portfolio $10.8 $10.3 $8.8
=======================================================
Number of loans 140,354 129,270 107,101
Average loan size $83,540 $82,186 $80,038
Percent GNMA 51% 48% 57%
Percent FHLMC 15 21 16
Percent FNMA 16 17 20
Delinquency ratio: 5.12% 4.55% 3.25%
Capitalized servicing as a
percentage of servicing
portfolio 0.65% 0.50% 0.23%
*Run-off is the reduction in principal balance of the
servicing portfolio due to regular principal payments made by mortgagees and
early repayment of an entire loan.
The mortgage servicing portfolio was $10.8 billion at December 31, 1996, up
4.9% from the same date in 1995 and 22.6% from 1994. The 1996 annual
portfolio run-off rate was 10.7%. This is up from the 1995 rate of 10.4% and
the 1994 rate of 6.3%. The following table sets forth certain information
regarding the interest rates of loans in the servicing portfolio at
December 31:
Servicing Portfolio by Interest Rate:
1996 1995 1994
Less than 7% 8.9% 10.3% 20.1%
7.00 - 7.99% 44.3 39.8 35.3
8.00 - 8.99% 38.7 33.9 30.7
9% or greater 8.1 16.0 13.9
--------- -------- --------
Total 100% 100% 100%
The value of capitalized servicing rights must be adjusted for impairment
which could result from interest rate changes. Although impairment
write-offs caused by declining interest rates would be accompanied by
increased loan origination fees, management has implemented hedging
alternatives to avoid significant impairment provisions. Expenses related to
mortgage servicing right impairment and hedging totaled $637.9 thousand in
1996 compared to $908.8 thousand in 1995. None were recorded in 1994.
The preceding information is related to the servicing portfolio owned by
Inland. In addition to the owned servicing portfolio, the business
subservices conventional loans for which it does not own
XXXPAGE 14XXX
servicing rights. The subservicing portfolio totaled $1.7 billion at December
31, 1996, compared to $1.9 billion on the same date in 1995.
Servicing and Other Fees:
(In thousands) 1996 1995 1994
Servicing fees $44,587 $36,087 $32,426
Other fees 888 787 647
-------------------------------
Total $45,475 $36,874 $33,073
Servicing fee income is recognized by collecting fees which range between 25
and 44 basis points annually on the principal amount of the underlying
mortgages. An increase in the average size of the servicing portfolio
throughout the year positively affected servicing income which increased
23.6% from 1995 and 37.5% from 1994.
Sale of Mortgage Servicing:
The mortgage banking business maintains the flexibility to either sell
servicing rights for current income and cash flow or retain servicing
for future cash flow. The decision to sell or retain servicing is based on
current market conditions balanced with the business' interest rate risk
tolerance.
Servicing rights totaling $3.1 billion were sold in 1996, generating a $16.4
million pre-tax gain on those sales, net of any purchased servicing
expense which had been capitalized. This compares to servicing sales of $1.0
billion in 1995 that produced a $15.3 million pre-tax gain and $1.4 billion
in 1994 that produced a $17.7 million pretax gain. The lower margin recognized
in 1996 reflects the impact of the change in mortgage accounting standards
made in 1995. Had all servicing been retained in 1996, gains on sales of
loans would have been higher than what was recorded, with a corresponding
reduction in gains from sales of servicing. Therefore, the net increase in
income as a result of the decision to sell servicing was insignificant.
Servicing sales in 1996 represented 60.9% of 1996 closings versus
1995 sales which were 28.4% of that year's closings and 1994 sales which
were 49.8% of closings.
Net Interest Income:
Net interest income is generated from the interest earned on mortgage loans
before they are sold to investors, less the interest expense
incurred on borrowings to fund the loans. Net interest income totaled $16.8
million in 1996, compared to $13.3 million in 1995 and $12.7
million in 1994. The increase is due primarily to the increased loan volume
experienced in 1996.
Operating Expenses:
(In thousands) 1996 1995 1994
Salaries and employee benefits $66,153 $51,737 $41,725
Amortization of mortgage servicing
rights 13,259 4,865 1,943
Other expenses 34,178 26,742 20,903
------------------------------------
Total operating expenses $113,590 $83,344 $64,571
======== ======= ========
Number of employees at December 31, 1,474 1,316 955
Total operating expenses increased 36.3% from 1995 and 75.9% from 1994. The
increase reflects the continued expansion of the production system and
increased costs associated with technological improvements made during the
year.
1997 Outlook:
XXXPAGE 15XXX
The environment in which the mortgage bank operates is rapidly changing. As
a result, technology will play an increasingly important role in the mortgage
bank's strategic plans. Management believes that in order to remain
competitive, the mortgage bank must advance its use of technology to reduce
its costs of production and enhance its distribution methods or develop new
channels of distribution. Significant technology initiatives which were
started in 1996 will continue during the coming year.
Throughout much of its history, the mortgage banking business has
concentrated on the origination of FHA and VA loans. As such, the
company developed a reputation of effectively serving the mortgage
origination needs of first time home buyers. These borrowers generally
require more guidance through the origination process than do those borrowers
who previously qualified for mortgage loans.
Inland Mortgage continues to be interested in leveraging its capabilities to
serve those borrowers who have special needs. The business recently began two
initiatives to expand its reach in special needs borrowing. Both are in
their early stages and are not expected to add materially to results in 1997.
They are indicative, however, of efforts the company is making to focus on
defensible market segments where a sustainable competitive advantage can be
created based upon a dedication to customer service, fast turnaround time,
and product innovation.
The first such initiative is the mortgage bank's entrance into the non-prime
first mortgage lending market which is comprised of borrowers who do not
qualify under the underwriting guidelines established by the government
sponsored secondary market agencies for conforming first mortgages.
The second initiative to expand the company's reach involves making mortgage
loans on selected resort properties located outside the United
States. In December, 1996, Inland Mortgage began taking applications from
U.S. borrowers for dollar denominated loans to be secured by residential real
estate located in Mexico. The company is prepared to begin closing such loans
during the first quarter of 1997.
Employees:
As of December 31, 1996, the mortgage banking line of business employed 1,474
people- approximately 74% of the Corporation's total employee base. Total
employment expense in 1996 was $66.2 million or 58.2% of operating
expenses.
Inland Mortgage Corporation
Directors
John T. Hackett Managing General Partner,
CID Equity Partners, L. P.
(Venture Capital
Partnership)
William H. Kling President,
Minnesota Public
Radio
Inland Mortgage Corporation
William I. Miller Chairman,
Irwin Financial Corporation
John A. Nash President,
Irwin Financial Corporation
Lance R. Odden President and Headmaster,
The Taft School
James T. Sakai Former Chairman,
Contour Hardening,
Inc. (Metals Treatment
Company)
Thomas G. Shafran President,
Better Homes Realty
Thomas D. Washburn Senior Vice President,
Irwin Financial Corporation
XXXPage 16XXX
Darell E. Zink, Jr. Executive Vice President and Chief
Financial Officer
Duke Investments, Inc.
(Real Estate Development Company)
Inland Mortgage Corporation
Senior Officers
Rick L. McGuire President
Herbert B. Tasker Executive Vice President-All Pacific
Region
T. Lester Acree Senior Vice President- Wholesale Loan
Purchasing
Kenneth R. Block Senior Vice President-Loan Production
Katrina J. Crubaugh Senior Vice President-Human Resources
Mark J. Lynch Senior Vice President- Nonconforming Lending
William M. Meyer Senior Vice President-Loan Servicing
Timothy L. Murphy Senior Vice President-Finance
Erik J. Sorensen Senior Vice President-Secondary Marketing
Scott G. Beer First Vice President-Secondary Marketing
Mark E. Braden First Vice President-Information Technology
Richard C. Cargill First Vice President-Metro Phoenix
Robert H. Griffith, Jr. First Vice President and Legal Counsel
Renee M. Gunderson First Vice President-Underwriting/Closing
Post Closing
Darla S. Habig First Vice President-Loan Control
Allan D. Karlander First Vice President-Central Region
John F. Macke First Vice President- Management Information
David P. Matern First Vice President-Loan Administration
Rachelle E. Mikosz First Vice President-Office Services
Kevin M. Murphy First Vice President-Accounting
Michael G. Plank First Vice President-Atlantic Coast Region
Diana M. Rossetter First Vice President-Quality Control
Suzanne C. Samson First Vice President-All Pacific Region
Sherri K. Sanford First Vice President-Customer Service
Lyle E. Shearer First Vice President-All Pacific Region
Richard E. Skiles First Vice President-Appraisals
Nicholas Vracas First Vice President-Mid-states Region
Business Profile:
Community Banking
Selected Financial Data
(In thousands) 1996 1995 1994 1993 1992
Selected Income Statement Data:
Interest income $35,645 $31,965 $23,808 $22,238 $20,267
Interest expense 15,908 14,048 8,822 8,684 8,379
Provision for loan
and lease losses 2,284 2,038 1,344 1,551 1,500
------------------------------------------------------
XXXPAGE 17XXX
Net interest income after provision for
loan and lease losses 17,453 15,879 13,642 12,003 10,388
Noninterest income 9,384 7,187 5,719 6,192 5,443
---------------------------------------------
Total net revenues 26,837 23,066 19,361 18,195 15,831
Operating expenses 20,311 17,582 14,858 14,264 12,498
- --------------------------------------------------------------------------
Income before taxes 6,526 5,484 4,503 3,931 3,333
Income taxes 2,272 1,845 1,453 1,247 1,001
---------------------------------------------
Net income $4,254 $3,639 $3,050 $2,684 $2,332
====== ====== ====== ====== ======
Selected Balance Sheet Data at
End of Period:
Loans and leases, net $331,790 $306,415 $252,226 $210,340 $176,958
Total assets 503,507 440,035 370,462 334,148 318,512
Deposits 453,879 400,149 341,459 298,615 314,773
Shareholders' equity 33,967 28,722 24,686 23,882 20,470
Daily Averages:
Assets $459,893 $405,249 $344,691 $302,692 $261,708
Deposits 413,935 358,343 315,229 275,956 236,641
Loans and
leases, net 325,291 281,147 228,544 195,304 166,202
Shareholders' equity 31,863 27,661 23,580 20,326 18,290
Shareholders' equity
to assets 6.93% 6.83% 6.84% 6.72% 6.99%
Overview & Strategy:
Community banking is conducted by Irwin Union Bank and Trust Company which is
headquartered in Columbus, Indiana. At year-end 1996, it had 15 offices in
six counties in south central Indiana. It holds a major share of the market
in Bartholomew County where it has operated since 1871. Expansion into
surrounding counties has occurred in recent years and has been on a de novo
basis. The community bank's strategy in these and other possible new markets
is to position itself as "the local bank." The objective is to deliver
services in the way customers would expect from a bank headquartered
in that market. This means that every effort is made to staff the offices
with local people and to give those people the authority to make key
customer decisions. Credit, investment, trust, and insurance services are
provided to individual and corporate customers.
1996 Review:
Community banking net income in 1996 totaled $4.3 million, up 16.9% from 1995
net income of $3.6 million and 39.5% from 1994 net income of $3.1 million.
The return on average equity was 13.35% in 1996 as compared to 13.16% in 1995
and 12.93% in 1994. Results include the income and expenses of trust
operations and investment advisory services which were previously reported
in the investor services line of business and are now managed and reported by
the community bank. Also included are credit insurance income and expenses
which were previously reported as a separate line of business. Results for
previous years have been restated for comparability.
Net interest revenue:
(In thousands) 1996 1995 1994
Net interest revenue on a taxable
equivalent basis* $20,096 $18,362 $14,989
Average interest earning assets 426,290 373,784 312,898
Net interest margin 4.71% 4.91% 4.79%
XXX PAGE 18XXX
*Reflects what net interest revenue would be if all
interest income was subject to federal and state
income taxes.
Net interest revenue on a taxable equivalent basis increased
9.4% from 1995 and 34.1% from 1994 to a total of $20.1
million. Net interest revenue is the product of
net interest margin and average earning assets.
Net interest margin was down for the year, coming in at 4.71% for 1996
compared to 4.91% in 1995 and 4.79% in 1994. The decline was
principally due to declines in yields in the community bank's loan portfolio.
The average yield on all earning assets was 8.45% compared
to 8.67% for 1995 and 7.61% for 1994.
Provision for Loan and Lease Losses:
The provision for loan and lease losses in 1996 was $2.3 million, compared to
$2.0 million in 1995 and $1.3 million in 1994. The provision was
equal to 0.7% of average loans and leases outstanding in 1996, compared to
0.7% in 1995 and 0.6% in 1994. See the section on credit risk
for additional information on asset quality and reserve adequacy.
Noninterest Income:
(In thousands) 1996 1995 1994
Trust fees $2,571 $2,470 $2,300
Service charges on deposit
accounts 1,820 1,596 1,259
Insurance commissions, fees,
and premiums 1,105 1,016 915
Gain from sale of consumer
and mortgage loans 909 - -
Loan servicing fees 690 210 93
Brokerage fees 736 571 -
Other $1,553 $1,324 $1,152
---------- --------- --------
Total noninterest income $9,384 $7,187 $5,719
Noninterest income was up 30.6% from 1995 and 64.1% from 1994. The increase
is partially attributed to the sale of $59.5 million of consumer loans during
1996 which generated a pre-tax gain of $676.0 thousand. The community
bank retained the right to service the sold loans which contributed to
increased loan servicing fees in 1996.
Operating Expenses:
(In thousands, except for number of employees) 1996 1995 1994
Salaries $10,916 $9,656 $8,278
Other expenses 9,395 7,926 6,580
--------------------------------
Total operating expenses $20,311 $17,582 $14,858
======= ======= =======
Number of employees at December 31, 304 291 262
Operating expenses increased 15.5% from 1995 and 36.7% from 1994. Costs
associated with expanding new products and markets contributed to increases
over the past two years. In addition, during 1996 the community bank changed
its strategy for offering employee benefits services to customers
of the trust department. The decision was made to simplify and streamline
the product offering. Also during 1996, the community bank exited the
mortgage document custody business. As a result of these two changes, the
community bank recorded $1.5 million of restructuring expenses
during the year.
XXXPAGE 19XXX
Balance Sheet:
Total assets averaged $459.9 million in 1996, compared to $405.2 million in
1995 and $344.7 million in 1994. Average earning assets for the
year were $426.3 million, up $52.5 million or 14.0% from 1995 and up $113.4
million or 36.2% from 1994. The most significant component of the
1996 increase was loans and leases which were up $44.1 million on average in
1996 as a result of the community bank's expansion efforts into new
markets. Average deposits were $413.9 million or 15.5% higher in 1996 than
1995 and $98.7 million or 31.3% higher than 1994.
The community bank's equity to assets ratio averaged 6.93% for the year,
compared to 6.83% in 1995 and 6.84% in 1994.
1997 Outlook:
During 1997, the community bank plans to take advantage of the opportunities
created by further consolidation in the banking industry. It plans to enter
two new markets in which it can become the "local banking" alternative. The
community bank will continue to expand its offering of non-traditional
services in all of its markets. In addition, the community bank
plans a test in certain markets of a new personal banker service made
possible by the integration of information systems and new customer delivery
channels through the use of new technology.
Employees:
As of December 31, 1996 the community bank employed 304 people. Total
employment expense in 1996 was $10.9 million or 53.7% of total operating
expenses.
Irwin Union Bank and Trust Company
Directors
Robert H. Claxton Senior Vice President- Finance,
Knauf Fiber Glass
(Manufacturer of Fiberglass Insulation)
Claude E. Davis President,
Irwin Union Bank and Trust Company
John T. Hackett Managing General Partner,
CID Equity Partners, L.P.
(Venture Capital Partnership)
Robert W. Haddad Chairman and President,
Columbus
Container, Inc.
(Manufacturer of
Corrugated Shipping Containers)
Carolyn A. Lickerman Homemaker
John C. McGinty, Jr. President, Southeastern
Indiana Health Management, Inc.
President, Columbus Regional Hospital
William I. Miller Chairman, Irwin Financial Corporation
John A. Nash President,
Irwin Financial
Corporation
Charles A. Rau, M.D. Physician
John S. Spangler President,
Milestone Contractors, L.P.
Christine M. Vujovich Vice President, Cummins Engine Company,
Inc. Charles H. Watson President, Historic Columbus
Development, Inc.
(Community Development Organization)
XXXPAGE 20XXX
Irwin Union Bank and Trust Company
Senior Officers
Claude E. Davis President
Bradley J. Kime Executive Vice President
Kevin P. Barr Senior Vice President and Chief Financial
Officer
William P. Guffey Senior Vice President and Senior
Lending Officer
Albert C. Roszczyk Senior Vice President-Bartholomew County
William S. Beitler President-Shelby County
Karen S. Coldiron President-Decatur County
Brian D. Hall President-Monroe County
Robert L. Phillips President-Johnson County
William R. Redman President-Hamilton County
Donald J. Stuart President-Irwin Union Advisory Services
Gloria C. Bennett Vice President-Investments and Funds
Management
David S. Brooks Vice President- Bartholomew County
Debora L. Cox Vice President-Operations
Patrick K. Crimmins Vice President- Bartholomew County
Bradley R. Davis Vice President-Controller
Dyar Forkert Vice President- Decatur County
Joseph B. Hauersperger Vice President-Shelby County
William A. Helmbrecht Vice President-Bartholomew County
Carrie K. Houston Vice President-Human Resources
James D. Keller Vice President-Bartholomew County
Dianne Kelly Vice President-Jackson County
Jay N. Morris Vice President-Johnson County
Ellen Z. Mufson Vice President-Legal Counsel and
Assistant Secretary
James D. Parcell Vice President-Bartholomew County
Rick L. Smith Vice President- Jackson County
Barbara A. Smitherman Vice President-Bartholomew County
Jill A. Stanton Vice President-Mortgage Lending
Jerrie H. Suckow Vice President-Bartholomew County
Craig Teegarden Vice President-Johnson County
Selected Financial Data
(In thousands) 1996 1995
Net interest income $4,574 $1,298
Gain on sale of loans 7,798 2,985
Loan servicing fees 4,573 13
Other income 141 229
----------------------
Total net revenues 17,086 4,525
Operating expenses $17,902 7,745
----------- ----------
Pre-tax loss ($816) ($3,220)
======= ========
Selected Balance Sheet Data at End of Period:
Home equity loans net of loan loss
allowance $117,588 $36,225
XXXPAGE 21XXX
Excess servicing 15,343 5,683
Total assets 147,088 51,611
Short-term debt 129,627 24,981
Shareholders' equity 13,221 5,538
Selected Operating Data:
Loan Volume:
Lines of credits 80,724 87,420
Loans 88,396 -
Servicing portfolio:
Balance at December 31, 230,450 86,691
Weighted average coupon rate:
Lines of credit 12.80% 13.61%
Loans 14.08% -
Overview & Strategy:
The home equity line of business includes Irwin Home Equity
and the related activities of Irwin Union Bank. Irwin Home Equity is
located in San Ramon, California and was incorporated in late 1994.
The company began marketing home equity loans in early 1995 through
direct mail and telemarketing and currently markets in 16 states.
The business has the option to either hold the loans in portfolio or
securitize and service them. If the loans are held in portfolio, many
costs incurred during the period to produce the loans are expensed
immediately, whereas the revenue from the loans accrues over the lives of
the loans. Alternatively, if the loans are securitized and sold on the
secondary market to investors, a portion of the present value of the
future net revenues from the loans will be recognized in the current period,
helping to offset the expenses incurred in producing the loans.
1996 Review:
The home equity lending business recorded a pre-tax loss of $0.8 million in
1996, compared to a $3.2 million pre-tax loss in 1995.
Loan Originations:
During 1996 the home equity lending business originated $169.1 million of
home equity loans, up 93.5% from 1995 volume of $87.4 million.
The business securitized and delivered $79.9 million of loans in 1996 which
generated a pre-tax gain of $6.8 million. This compares to a
$3.0 million gain recognized in 1995 on the sale of $51.6 million of loans.
In addition to the $79.9 million of loans that were delivered in 1996,
another $60.1 million were securitized. These loans will be delivered in the
first quarter of 1997, and the gain on the sale will be recognized at that
time. During 1996, the business also recorded a one-time $1.0 million
pre-tax adjustment to the gain recorded on the 1995 securitization. The
adjustment resulted from the substitution of a letter of credit in
1996 for the cash reserve which had been in place when the transaction was
recorded. This revised approach to providing for reserves caused the 1995
gain to be higher than it would have been under the previous approach. If the
business uses letters of credit in future transactions, the resulting gains
are expected to be similarly affected.
Servicing Portfolio:
(In thousands) 1996 1995
Balance at December 31 $230,450 $86,691
Delinquency ratio 0.67% 0.85%
XXXPAGE 22XXX
The home equity lending business continues to service loans it has
securitized. The servicing portfolio, which includes loans held on the
company's books as well as securitized loans, increased 165.8% from 1995.
The business earns a servicing fee equal to one percent of the
outstanding principal balance of the securitized loans. Servicing fee income
increased to $4.6 million in 1996 from $12.9 thousand in 1995. The
level of fees in 1995 reflects the fact that loans were not securitized until
late in the year.
Net Interest Income:
As a result of the increased loan volume in 1996, net interest income before
loan loss provision was up 234.6% to $5.6 million. The loan loss
provision also increased to $983.5 thousand from $363.0 thousand. Net charge-
offs for the home equity lending business were $37.0 thousand in
1996 as compared to $2.1 thousand in 1995.
Operating Expenses
(In thousands, except for number of employees) 1996 1995
Salaries and employee benefits $8,663 $3,995
Marketing and development 5,063 2,601
Other 4,176 1,149
---------------------
Total operating expenses $17,902 $7,745
======= =======
Number of employees at December 31, 159 107
Balance Sheet:
The home equity lending business had $118.2 million of loans outstanding at
December 31, 1996. This compares to $36.4 million at the end of 1995. The
loan loss allowance also increased to $589.4 thousand at December 31, 1996
from $146.6 thousand in 1995.
1997 Outlook:
During 1997, the home equity lending business looks to develop its business
further and to increase its loan production volume. The business plans to
continue exploring new products, funding alternatives, and markets
where its skills in identifying customers well served by direct marketing of
products uniquely tailored to their needs can be best applied.
The business will maintain the flexibility of either holding the loans it
produces in portfolio or securitizing them in order to accelerate the
recognition of income. Management will evaluate these options throughout the
year in light of market conditions and financial objectives.
Employees:
As of December 31, 1996, the home equity business employed 159 people. Total
employment expense in 1996 was $8.6 million or 48.4% of total operating
expenses.
Irwin Home Equity Corporation
Directors and Senior Officers
Directors
Elena Delgado President,
Irwin Home Equity Corporation
William I. Miller Chairman,
XXXPAGE 23XXX
Irwin Financial Corporation
John A. Nash President,
Irwin Financial Corporation
Thomas D. Washburn Senior Vice President,
Irwin Financial Corporation
Senior Officers
Elena Delgado President
Spencer J. Carlsen Vice President- Production
Edwin K. Corbin Vice President-Finance and Servicing
Kathryn J. Diamond Vice President-Credit Risk Management
J. Christopher Huseby Vice President- Marketing and Business
Development
Sunita Liggin Vice President-Human Resources
Jocelyn Martin-Leano Vice President- Operations Support
Jack Nichols Vice President-Information Services
Fern Prosnitz Vice President-Legal Counsel
Business Profile:
Equipment Leasing
Selected Financial Data
(In thousands) 1996 1995 1994 1993 1992
Net interest income $3,622 $3,409 $4,339 $3,638 $2,349
Noninterest income 418 300 123 47 33
----------------------------------------------
Total net revenues 4,040 3,709 4,462 3,685 2,382
Operating expenses 4,181 4,043 3,589 3,133 2,278
Pre-tax income
(loss) $(141) $(334) $873 $552 $104
======= ======= ==== ==== ====
Lease and loan
volume $36,624 $24,951 $23,585 $22,922 $19,140
Net leases and loans
outstanding 53,632 45,765 42,989 37,401 27,738
Number of leases and
loans outstanding 9.186 7.766 7.209 6.438 5.032
Average new lease and
loan size $9.298 $9.027 $9.152 $8.663 $8.180
Overview & Strategy:
The equipment leasing line of business is made up of Affiliated Capital Corp.
and the related activities of Irwin Union Bank. Affiliated is a
small-ticket leasing company headquartered in Northbrook, Illinois, focused
on the medical equipment industry. The company was started by
Irwin Financial in 1990 when it hired the staff and acquired the rights to
the customers and vendors of the predecessor company which had
been in business since 1983.
The strategy of the equipment leasing business is to establish relationships
with manufacturers and distributors of medical equipment and to
place leases with medical professionals through the sales representatives of
these vendors. This allows the business to place leases nationwide
despite the fact that all employees are located in Northbrook. In response to
changing customer needs, in 1995 the business
XXXPAGE 24XXX
began entering into private-label financing agreements with several equipment
manufacturers and began offering a revolving credit product to
complement its lease products.
The business focuses on relatively low cost (under $50,000) equipment for
health care professionals. In general, this equipment provides low cost
treatment that is often preventative in nature. Markets covered include
both hospitals and alternate care sites.
1996 Review:
Equipment leasing recorded a pre-tax loss of $140.8 thousand in 1996,
compared with a pre-tax loss of $333.7 thousand in 1995 and pre-tax income of
$872.6 in 1994. As a result of the strategy changes implemented in
late 1995, lease and loan volume increased to $36.6 million in 1996, up
46.8% from $25.0 million in 1995 and 55.3% from $23.6 million in
1994. However, because of increased competition in the equipment leasing
industry which created margin pressures, net interest income did not
increase commensurately. Net interest income totaled $3.6 million in 1996,
an increase of $212.9 thousand or 6.2% from 1995 and a decrease
of $717.4 thousand or 16.5% from 1994. Operating expenses were $4.2 million
for the year, 3.4% higher than 1995 and 16.5% higher than 1994.
1997 Outlook:
Competition in the small-ticket leasing industry is expected to remain
strong in 1997. The equipment leasing business will strive to remain
competitive with larger lessors using a strategy that focuses on adding
value through product differentiation to targeted business partners.
The challenge for the business is to demonstrate that this strategy can
achieve an attractive rate of return on equity in the long run.
Employees:
As of December 31, 1996, equipment leasing employed 38 people. Total
employment expense in 1996 was $2.0 million or 48.0% of total
operating expenses.
Affiliated Capital Corp.
Directors and Senior Officers
Directors
Robert P. Albert President,
Affiliated Capital Corp.
David E. Levine Senior Vice President,
Affiliated Capital Corp.
William I. Miller Chairman,
Irwin Financial Corporation
John A. Nash President,
Irwin Financial Corporation
Thomas D. Washburn Senior Vice President,
Irwin Financial Corporation
Senior Officers
Robert P. Albert President
David E. Levine Senior Vice President
Vincent F. D'Andrea Vice President and Controller
Stuart A. Simon Vice President-Sales
David M. Tustison Vice President-Strategic Planning
Other Irwin Financial Businesses
XXXPAGE 25XXX
During the third quarter of 1996, the Corporation exited the brokered
certificate of deposit and institutional brokerage businesses
which were the sole businesses operated by the Investor Services line of
business. A sale of selected assets of the brokered certificate of
deposit program was completed in the third quarter, and its impact on
earnings was not material. Parent company results in each period
include the results of investor services.
The results of parent company operations combined with Investor Services
results and consolidating entries are summarized below:
(In thousands) 1996 1995 1994
Net revenues $15,494 $17,986 $7,536
Operating expenses (5,353) (4,068) (3,665)
Tax credit 903 2,275 238
-------------------------------
11,044 16,193 4,109
Investor services (283) 177 (186)
Eliminations (12,052) (15,703) (5,358)
----------------------------------
Net income (loss) $(1,291) $667 $(1,435)
Dividends from subsidiaries are recorded as parent company revenues but are
eliminated in determining consolidated net income. Tax benefits result from
the operating losses generated by the home equity and equipment
leasing businesses whose results have been reported pre-tax.
Each subsidiary pays taxes to the parent company at the statutory rate.
Subsidiaries also pay fees to the parent company to cover direct and
indirect services. In addition, services are provided from one subsidiary to
another. Intercompany income and expenses are calculated on an arm's length,
external market basis.
Consolidated Income Statement Analysis: Pre-tax income for 1996 totaled
$37.3 million, up 14.9% from 1995 and 24.0% from 1994. The effective income
tax rate was 39.8% in 1996, 38.1% in 1995, and 39.4% in 1994. Please see
Note 16 of Notes to the Consolidated Financial Statements for more
information on income taxes.
Net interest revenue for 1996 totaled $47.8 million, up 28.1% from 1995 and
45.9% from 1994. The increase was due to a combination of increased loan
volume at the community bank and home equity lending business and higher
mortgage loan originations at the mortgage bank. Net interest margin was
4.94% in 1996, compared to 4.93% in 1995 and 5.03% in 1994. See page 70
for further analysis of the net interest margin.
The following table sets forth, for the periods indicated, a summary of the
changes in interest earned and interest paid resulting from changes
in volume and rates for the major components of interest-earning assets and
interest-bearing liabilities on a fully taxable equivalent basis:
1996 Over 1995 1995 Over 1994
(In thousands) Volume Rate Total Volume Rate Total
Interest Income:
Loans and leases $13,248 $778 $14,026 $8,550 $3,210 $11,760
Mortgage loans held
for sale 6,760 3,456 10,216 3,931 89 4,020
XXXPAGE 26XXX
Taxable investment
securities 21 51 72 (993) 605 (388)
Tax-exempt
securities (171) (63) (234) (76) 82 6
Interest-bearing deposits
with financial
institutions 28 78 106 (390) 203 (187)
Federal funds
sold (619) (127) (746) (310) 583 273
--------------------------------------------------
Total 19,267 4,173 23,440 10,712 4,772 15,484
---------------------------------------------------
Interest Expense:
Money market
checking 254 (233) 21 60 146 206
Money market
savings (88) (49) (137) (221) 108 (113)
Regular savings (23) (134) (157) (44) 458 414
Time deposits (268) 3,406 3,138 5,779 (537) 5,242
Short-term
borrowings 6,451 3,685 10,136 2,071 2,884 4,955
Long-term debt 78 (22) 56 10 221 231
-----------------------------------------------------
Total 6,404 6,653 13,057 7,655 3,280 10,935
-----------------------------------------------------
Net interest
revenue $12,863 $(2,480) $10,383 $3,057 $1,492 $4,549
Note: Variance not solely due to rate or volume is allocated on the basis
of the absolute relationship between volume variances and rate variances.
The consolidated provision for loan losses for 1996 was $4.5 million, up
44.8% from 1995 and 157.7% from 1994. More information on this
subject is contained in the section on credit risk.
Other income increased 34.6% in 1996 to $153.6 million. This compares to
$114.1 million in 1995 and $85.9 million in 1994. The most significant
increases came in the categories related to mortgage banking and home equity
lending activities which were previously discussed on pages 32 and 46.
Other expenses in 1996 totaled $159.7 million, up 37.8% from 1995 and 83.9%
from 1994. The 1996 increase in consolidated other expense of $43.8
million was mostly due to operating expenses associated with expanded
mortgage and home equity loan production.
Consolidated Balance
Sheet Analysis:
Total assets at year-end 1996 were $1.3 billion, up 25.6% from 1995 and
97.7%:from 1994. However, changes in the average balance sheet are a more
accurate reflection of the actual changes in the level of activity on the
balance sheet. Average assets were $1.2 billion in 1996, up 30.5% from
1995 and 53.7% from 1994. Mortgage loans held for sale increased by $93.2
million, while loans and leases increased by $127.5 million or 34.5%
on average in 1996.
The Corporation's commercial loans are extended primarily to local regional
businesses and to local farming operations in the market area of
Irwin Union Bank. The Corporation also extends credit to consumers through
installment loans and revolving credit arrangements. The majority
of the remaining
XXXPAGE 27XXX
portfolio consists of residential mortgage loans (1-4 family
dwellings) and mortgage loans on commercial property. Loans by major
category at the end of the last five years were as follows:
Loans by Category:
At December 31,
(In thousands) 1996 1995 1994 1993 1992
Commercial, financial,
and agricultural $179,650 $150,312 $136,083 $121,024 $108,964
Real estate
construction 48,991 36,126 21,960 21,258 15,890
Real estate mortgage 210,697 108,351 47,423 30,805 25,177
Consumer 38,371 67,756 55,323 41,101 30,626
Direct lease financing 62,372 60,979 58,348 52,555 38,082
Unearned income (11,030) (10,999) (10,726) (10,627) (8,380)
------------------------------------------------
Total $529,051 $412,525 $308,411 $256,116 $210,359
Maturity Distribution of Loans: After
One But
At December 31. 1996 Within Within After
(In thousands) One Year Five Years Five Years Total
Commercial, financial, and
agricultural $33,843 $56,688 $89,119 $179,650
Real estate construction 48,991 - - 48,991
Real estate mortgage 81,908 11,424 117,365 210,697
Consumer loans 6,325 29,161 2,885 38,371
Direct lease financing - 62,372 - 62,372
--------
Total $540,081
=======
Loans due
after one year with:
Fixed interest rates $207,135
Variable interest rates
161,879
----------
Total $369,014
On average, investment securities decreased $1.3 million in 1996 to $65.4
million. The carrying value of investments at December 31, 1996 includes
$51.2 thousand of unrealized losses on available-for-sale securities.
The book value of investment securities at the end of the last three years
is as follows:
At December 31, (In thousands) 1996 1995 1994
Held-to-Maturity:
U.S. Treasury and Government
obligations $38,317 $26,914 $41,826
Obligations of states and political
subdivisions 4,466 6,490 7,549
Mortgage-backed securities 7,154 8,859 9,982
Corporate obligations - - 1,000
-----------------------------
Total held-to-maturity 49,937 42,263 60,357
XXXPAGE 28XXX
Available-for-Sale:
U.S. Treasury and Government
obligations 19,924 15,359 13,834
Mortgage-backed securities 3,237 3,247 3,166
Other 26 - -
-------------------------------
Total available-for-sale 23,187 18,606 17,000
----------------------------------
Total investments $73,124 $60,869 $77,357
Maturity Distribution of Investment Securities:
After
After Five
One But But
Within Within Within After
One Five Ten Ten
Years Years Years Years
At December 31, 1996
(In thousands)
U.S. Treasury and
Government
obligations $12,808 $33,247 $ - $12,186
Obligations of states and political
subdivisions 481 1,437 1,173 1,375
Mortgage-backed securities 106 356 1,522 8,407
Other 26 - - -
-----------------------------------------
Total $13,421 $35,040 $2,695 $21,968
======= ======= ====== =======
Weighted Average Yield:
Held-to-maturity 6.95% 6.50% 8.64% 7.39%
Available-for-sale 5.72% 6.30% -% 6.25%
The weighted average yield on state and municipal obligations has been
calculated on a fully taxable equivalent basis, assuming a 34.5% tax
rate.
Deposits averaged $632.2 million during 1996, compared to $526.1 million in
1995 and $467.1 million in 1994. Demand deposits were up 78.2%
on average, or $104.7 million from 1995. A significant portion of demand
deposits is related to deposits at Irwin Union Bank which
are associated with escrow accounts held on loans in the servicing portfolio
of Inland Mortgage. These escrow accounts averaged $179.0 million in 1996.
Maturities of certificates of deposit of $100 thousand or more are set forth
in the following table:
At December 31, (In thousands) 1996 1995 1994
Under 3 months $47,907 $27,131 $9,197
3 to 6 months 5,127 6,299 4,581
6 to 12 months 7,493 14,378 4,248
After 12 months 5,977 6,268 3,448
------------------------------
Total $66,504 $54,076 $21,474
Short-term borrowings averaged $334.3 million in 1996, compared to $217.3
million in 1995 and $167.8 million in 1994. The increase in 1996 is
due to the increase in mortgage loan closings in 1996.
XXXPAGE 29XXX
The following table shows the distribution of the Corporation's short-term
borrowings and the weighted average rates at the end of each of the
last three years. Also provided are the maximum borrowings and the average
borrowings as well as weighted average interest rates for the last
three years.
Repurchase
Agreements
& Drafts Federal
Payable Home
Related to Loan Bank
Mortgage Borrowings Lines
Loan Commercial & Federal of
(In thousands) Closings Paper Funds Credit
Year Ended 1996 $264,998 $17,175 $74,118 $105,592
December 31: 1995 225,873 21,723 40,000 22,683
1994 75,944 15,538 199 2,300
Weighted average 1996 4.65% 5.95% 5.80% 6.68%
interest rates at 1995 4.32 6.32 6.02 7.35
year-end: 1994 4.59 5.65 5.75 8.50
Maximum amount 1996 $270,516 $27,214 $121,000 $135,442
outstanding at any 1995 271,694 21,723 52,448 38,596
month's end: 1994 159,650 19,996 26,000 5,600
Average amount 1996 $218,810 $23,794 $44,139 $47,561
outstanding during 1995 155,726 19,125 20,497 6,109
the year: 1994 146,799 17,372 3,140 507
Weighted average 1996 3.78% 6.02% 5.80% 6.80%
interest rate during 1995 4.12 6.41 6.03 8.06
the year: 1994 3.62 4.63 5.71 7.14
Capital:
Shareholders' equity averaged $109.0 million in 1996, up 22.6% from 1995 and
43.0% from 1994. Year-end shareholders' equity of $118.9 million
represented book value per share of $10.46, compared to $8.76 and $7.21 at
December 31, 1995 and 1994, respectively.
Prior to the adoption of SFAS No. 122 in the second quarter of 1995, mortgage
banking accounting did not allow the full value of mortgage servicing rights
to be reflected on the balance sheet. Since a significant portion of
the Corporation's mortgage servicing portfolio was generated prior to the
adoption of the new accounting standard, it represents substantial
economic value which is not recorded on the balance sheet. The following
table demonstrates the estimated after-tax value of the servicing
portfolio at December 31:
(In thousands) 1996 1995 1994
Total loans serviced $10,810,988 $10,301,914 $8,818,502
Value (@ 1.5%) $162,165 $154,529 $132,278
Less capitalized servicing 70,551 51,783 20,302
Tax liability (@ 40%) 36,646 41,098 44,791
---------------------------------------
Net value $54,968 $61,648 $67,185
XXXPAGE 30XXX
======= ======== =========
Per share of common stock $4.84 $5.44 $5.97
With the implementation of the new accounting standard in 1995, this
off-balance sheet value will decline over future years and eventually be
reduced to zero.
Total book value per share including the value of the servicing portfolio
was $15.30 at December 31, 1996, up from $14.20 and $13.18 at
December 31, 1995 and 1994, respectively.
(In thousands) 1996 1995 1994
Tier 1 capital $117,416 $92,554 $80,966
Tier 2 capital 6,594 4,620 3,863
--------------------------------
Total risk-based capital $124,010 $97,174 $84,829
======== ======= =======
Risk-weighted assets $871,460 $670,675 $442,315
=========================================================
Risk-based ratios:
Tier 1 capital 13.47% 13.80% 18.31%
Total capital 14.23 14.49 19.18
Tier 1 leverage ratio 9.84 10.57 10.82
Ending shareholders'
equity to assets 9.12 9.56 12.29
Average shareholders'
equity to assets 9.46 10.07 10.17
Capital is a major focus of regulatory attention, with both book and
risk-based capital standards used as capital adequacy
measures. Unless an institution has adequate capital in the opinion of the
regulators, they may withhold approval for new activities or
force additions to capital. Therefore, the Corporation considers both the
regulator's viewpoint and its own analysis of the capital
structure and leverage amounts that are consistent with underlying business
risks.
At year-end 1996, the Corporation's total risk-adjusted capital ratio was
14.23% compared to a current regulatory minimum of 8.0%. The Corporation's
ending equity to assets ratio for 1996 was 9.12%. However, as previously
discussed, temporary conditions which existed at year end make the average
balance sheet ratio a more accurate measure of capital. The Corporation's
average equity to assets ratio for 1996 was 9.46%.
In January 1997, the Corporation issued $50,000,000 of trust preferred
securities through a trust created and controlled by the Corporation. The
securities, which are publicly traded, were issued at $25 per share with a
cumulative dividend rate of 9.25%, payable quarterly. They have an initial
maturity of 30 years with a 19-year extension option which the
Corporation can exercise at any point during the first 30 years. The
securities are callable at par after five years, or immediately, in the
event of an adverse tax development affecting the Corporation's
classification of the securities for federal income tax purposes. The
securities are not convertible into common stock of the Corporation.
Stock Prices and Dividends:
The common stock of Irwin Financial is quoted on the National Association
of Securities Dealers Automated Quotation System National Market
System (NASDAQ-NMS- trading symbol, IRWN). The following table sets forth
certain information regarding trading in, and cash dividends paid
with respect to, the shares of the Corporation's common stock in each
quarter of the three most recent calendar years.
XXXPAGE 31XXX
Total
Quarter Cash Dividends
1994 *High *Low *End *Dividends *For Year
First quarter $123/4 $107/8 $113/8 $0.045
Second quarter 117/8 101/4 111/8 0.045
Third quarter 14 101/2 135/8 0.045
Fourth quarter 137/8 123/4 133/8 0.045 $0.18
1995
First quarter $157/8 $133/4 $151/2 $0.055
Second quarter 175/8 151/2 171/4 0.055
Third quarter 181/4 171/4 173/4 0.055
Fourth quarter 201/8 175/8 20 0.055 $0.22
1996
First quarter $223/4 $193/4 $221/8 $0.060
Second quarter 221/4 195/8 195/8 0.060
Third quarter 215/8 177/8 211/4 0.060
Fourth quarter 243/4 211/4 243/4 0.060 $0.24
*Adjusted for December 30, 1996 two-for-one stock split.
The Corporation expects to continue its policy of paying regular cash
dividends, although there is no assurance as to future dividends because they
are dependent on future earnings, capital requirements, and financial
condition. On February 19, 1997, the Corporation's Board of
Directors approved an increase in the first quarter dividend to $0.07 per
share, payable in March 1997. Dividends by the Irwin Union Bank to
the Corporation are restricted by banking law. See Note 15 of Notes to
the Consolidated Financial Statements.
Risk Management:
As a financial intermediary, Irwin Financial Corporation is engaged in
businesses which involve the assumption of financial risks including:
- Credit risk
- Liquidity risk
- Interest rate risk
Each line of business that assumes financial risk uses a formal process to
manage this risk. In all cases, the objectives are to ensure that
risk is contained within prudent levels and that we are adequately
compensated for the level of risk assumed. The Chairman, the President, and
the Chief Financial Officer of the parent company participate in each
subsidiary's risk management process.
Credit Risk:
The assumption of credit risk is a key source of earnings for the community
bank, home equity lending, and equipment leasing businesses. In
addition, the mortgage banking business assumes some credit risk despite the
fact that its mortgages are typically insured. The credit risk
in the loan portfolio of the community bank and home equity lending business
has the most potential to have a significant effect on consolidated
financial performance.
XXXPAGE 32XXX
The community bank and home equity lending business manage credit risk
through the use of lending policies, credit analysis and approval
procedures, periodic loan reviews, and personal contact with borrowers.
Loans over a certain size are reviewed by a loan committee prior to
approval.
The equipment leasing business manages credit risk in a manner similar to
that used by the community bank and the home equity business. It
uses lending policies, credit analysis procedures and personal contact
with lessees.
An allowance for loan and lease losses is established as an
estimate of the potential credit risk of the loans and leases held by the
Corporation. In determining the adequacy of this allowance,
management evaluates the creditworthiness of significant borrowers, past
loan and lease loss experience, and current and anticipated economic
conditions. The allowance is increased by provisions against income and
recoveries of loans and leases previously charged off. Loans and leases
that are determined by management to be uncollectible are charged
against the allowance. The table on page 64 analyzes the consolidated
allowance for possible loan and lease losses over the past five years.
Net charge-offs in 1996 were $1.8 million, down 15.2% from 1995, and up
53.9% from 1994. Net charge-offs to average loans and leases was
0.36%, compared to 0.57% in 1995 and 0.41% in 1994. The provision for loan
and lease losses was $4.5 million, 249.9% of net charge-offs. The coverage
ratio was 146.3% in 1995 and 149.3% in 1994.
At year end, the allowance for possible loan and lease losses was 1.25% of
loans and leases, compared to 1.12% in 1995 and 1.25% in 1994.
Total nonperforming loans and leases at year end were $5.0 million, compared
to $2.4 million at the end of 1995 and $2.8 million at the end of
1994. Nonperforming loans and leases as a percent of total loans and leases
were 0.94% at year-end 1996, compared to 0.58% in 1995 and 0.90% in 1994.
Other real estate owned totaled $2.2 million at December 31, 1996, up
from $0.3 million in 1995 and $0.5 in 1994. Total nonperforming assets
were $7.2 million, or 0.55% of total assets at December 31, 1996, as
compared to $2.7 million or 0.26% at year-end 1994 and $3.3 million or
0.50% at the end of 1994.
Analysis of Allowance for Loan and Lease Losses
(In Thousands) 1996 1995 1994 1993 1992
Loans and leases
outstanding at end
of period, net of
unearned income $529,051 $412,525 $308,411 $256,116 $210,359
=================================================
Average loans and
leases for the
period, net of
unearned
income $496,729 $369,220 $279,389 $232,898 $195,161
==================================================
Allowance for loan and lease losses:
Balance beginning of
period $4,620 $3,863 $3,293 $3,220 $2,282
Charge-offs:
Commercial, financial,
and agricultural
loans 495 845 266 1,074 626
Real estate mortgage
loans 37 2 - - -
Consumer loans 959 953 543 387 392
Lease financing 883 690 757 323 207
-----------------------------------------------
Total charge-offs 2,374 2,490 1,566 1,784 1,225
------- -------- ------ ------- -------
XXXPAGE 34XXX
Recoveries:
Commercial, financial, and
agricultural loans 133 2 34 82 21
Consumer loans 214 197 180 94 204
Lease financing 246 191 195 104 28
---------------------------------------------
Total recoveries 593 390 409 280 253
--------------------------------------------
Net charge-offs (1,781) (2,100) (1,157) (1,504) (972)
Reduction due to
sale of loans (695) (216) - - -
Provision charged to
expense 4,450 3,073 1,727 1,577 1,910
------------------------------------------------
Balance end of
period $6,594 $4,620 $3,863 $3,293 $3,220
====== ====== ====== ====== =======
Allowance for loan and lease losses:
By category of loans and leases Commercial,
financial, and
agricultural loans $3,676 $2,349 $2,586 $2,031 $1,635
Consumer loans 1,974 1,420 767 650 1,122
Lease financing 944 851 510 612 463
----------------------------------------------
Total $6,594 $4,620 $3,863 $3,293 $3,220
====== ====== ====== ======= ======
Ratios:
Net charge-offs to average loans
and leases 0.36% 0.57% 0.41% 0.65% 0.50%
Allowance for loan losses to average
loans and leases 1.33% 1.25% 1.38% 1.41% 1.65%
Allowance for loan losses
to loans and leases
outstanding 1.25% 1.12% 1.25% 1.29% 1.53%
Nonperforming Assets
(In thousands) 1996 1995 1994 1993 1992
Accruing loans past
due 90 days or more:
Commercial, financial,
and agricultural
loans $256 $418 $113 $800 $7
Real estate mortgages 234 - - 141 12
Consumer loans 205 202 93 88 121
------- ------ ------- ------ -----
695 620 206 1,029 140
------- ------ ------- ------ -----
Nonaccrual loans and leases:
Commercial, financial, and
agricultural loans
2,739 670 1,523 1,373 1,500
Real estate mortgages 260 694 689 848 1,540
Consumer loans - - - 39 55
Lease financing
receivables 1,261 415 363 242 299
-------- ------- -------- ----- -------
XXXPAGE 34XXX
4,260 1,779 2,575 2,502 3,394
-----------------------------------------------
Total nonperforming loans and
leases 4,955 2,399 2,781 3,531 3,534
-------- -------- -------- ------- --------
Other real estate
owned 2,239 295 489 623 1,085
-------- -------- --------- ------- -------
Total nonperforming
assets $7,194 $2,694 $3,270 $4,154 $4,619
====== ====== ====== ====== ======
Nonperforming loans and leases to total
loans and leases 0.94% 0.58% 0.90% 1.38% 1.68%
--------------------------------------------------
Nonperforming assets to total
assets 0.55% 0.26% 0.50% 0.47% 0.77%
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
(In thousands) 1996 1995 1994
Interest which would have been recorded
under original terms
Renegotiated $- $- $-
Nonaccrual 309 178 232
----- ---- -----
309 178 232
----- ----- -----
Interest income actually recorded
Renegotiated - - -
Nonaccrual 150 55 110
---- ---- ----
150 55 110
----- ------ -----
Reduction in interest income $159 $123 $122
No loans were made to foreign borrowers and no loan concentrations existed
of more than 10% of total loans to borrowers engaged in similar activities
that would be similarly affected by economic or other conditions.
Generally, the accrual of income is discontinued when the full collection of
principal or interest is in doubt, or when the payment of
principal or interest has become contractually 90 days past due unless the
obligation is both well secured and in the process of collection.
Further information regarding the balance of nonaccrual loans at December 31,
1996 and related payment information is as follows:
Analysis of Nonaccrual Loans
Contractual Cash interest payments
Book balance balance applied as
December 31, December 31, interest reduction
(In thousands) 1996 1996 income of principal
XXXPAGE 35XXX
Contractually past due with:
substantial
performance $168 $168 $9 $5
limited performance 2,463 2,849 104 562
no performance 963 1,267 - -
Contractually current, however:
payment in full of principal or
interest in doubt 666 666 37 19
----- ------ ----- -----
Total $4,260 $4,950 $150 $586
Liquidity:
Liquidity is the availability of funds to meet the daily requirements of
the business. For financial institutions, demand for funds comes principally
from extensions of credit and withdrawal of deposits. Liquidity is provided
by asset maturities or sales and through short-term borrowings.
The objectives of liquidity management are to ensure that funds will be
available to meet demands and that funds are available at a
reasonable cost. As with other forms of financial risk, liquidity is managed
separately at each of our lines of business. In the case of
Irwin Union Bank, this occurs at the monthly meeting of the Asset-Liability
Management Committee.
Since loans and leases are substantially less marketable than securities,
the ratio of total loans to total deposits is the traditional measure of
liquidity for banks and bank holding companies. At year-end 1996, this ratio
stood at 81.6%. The Corporation is able to maintain this position of high
liquidity without a substantial sacrifice in the form of a lower net interest
margin due to the position in mortgage loans held for sale. These loans
carry an interest rate equal to the current market rate for mortgage loans.
However, liquidity is significantly improved since all mortgage loans
held for sale are in the process of being securitized and sold. The holding
period for an individual loan typically does not exceed 90 days.
Interest Rate Sensitivity:
Interest rate sensitivity refers to the potential for changes in market rates of
interest to cause changes in net interest income. Since net interest income
is a major source of income, it is important that potential
changes are managed prudently.
The Asset-Liability Management Committee of Irwin Union Bank monitors the
repricing structure of both assets and liabilities over various time
horizons. Exposure to changes in interest rates is evaluated by modeling the
repricing characteristics of the portfolio under multiple rate scenarios.
Formal policies approved by the Bank's Board of Directors ensure
that exposure to changes in net interest revenues is maintained within
acceptable levels.
The mortgage banking business assumes a form of interest rate risk by
entering into commitments to extend loans to borrowers at a fixed price
for a limited period of time. Loans are also held temporarily until a pool
is formed. Once again, a formal policy ensures that this risk is
controlled. The home equity and equipment leasing businesses are exposed to
potential interest rate risk that is similar to the lending operations of
the community bank.
Rate sensitivity at the community bank can typically be managed by
controlling the maturity of loans, securities, and deposits. The
community bank may also use financial futures or interest rate swaps from
time to time. The mortgage bank buys commitments to deliver loans
at a fixed price to manage risk. The policy at both the home equity lending
business and the equipment leasing business is to match-fund all
assets. In some cases, the Corporation uses internal hedges to allow for the
risk characteristics of one line of business to offset those of another.
XXXPAGE 36XXX
As the following table shows, the consolidated one-year gap at year-end 1996
was a positive $133.2 million. This compares to a positive gap of $153.6
million at year-end 1995. The large positive gaps have been due to levels
of escrow deposits from the servicing portfolio of the mortgage bank. These
deposits are generally held in noninterest-bearing accounts at Irwin Union
Bank. However, they are invested in earning assets with rate maturities of
less than one year, including mortgage loans held for sale.
Since the gap was positive, it means that with respect to net interest
income, the Corporation was positioned to benefit from rising interest
rates, or to be harmed by declining rates. While traditional interest
rate risk focuses on the changes in net interest income due to interest
rate changes, the Corporation engages in other activities which are also
affected by interest rate changes. Principal among these are mortgage
loan origination and servicing. For example, if interest rates decline,
management expects an increase in mortgage loan origination income and
a decline in the value of mortgage servicing rights. Management attempts
to monitor this exposure to traditional interest rate risk as
well as interest rate influences on production and servicing value in a
comprehensive manner.
In addition, the static one-year gap is not a reliable measure of actual
exposure to changes in market interest rates. Consequently, management
uses simulations of the behavior of net interest revenue to determine
exposure and to develop hedging strategies.
Within 3 Months After
Interest Sensitivity:(In thousands) Months to 1 Year 1 Year
Interest-earning assets:
Interest-bearing deposits with banks $2,049 $3,294 $6,000
Taxable investment securities 16,679 15,133 36,846
Tax-exempt investment securities 95 386 3,985
Mortgages held for sale 445,100 - -
Loans, net of unearned discount 300,393 86,581 142,077
----------------------------------
Total interest-earning assets 764,316 105,394 188,908
-----------------------------------
Interest-bearing liabilities:
Money market checking 17,122 - 57,993
Money market savings 2,867 - 8,798
Regular savings 45,051 2,094 19,801
Time deposits 148,372 53,101 45,606
Short-term borrowings 456,683 5,200 -
Long-term debt 1,844 4,181 11,618
------------------------------------
Total interest-bearing liabilities 671,939 64,576 143,816
--------------------------------------
Interest sensitivity gap $92,377 $40,818 $ 45,092
======= ======= =========
Cumulative gap $92,377 $133,195 $178,287
Effects of Inflation:
The Corporation is affected by inflation primarily as it impacts interest
rates. We believe that a financial institution's ability to react to changing
interest rates is an indicator of its ability to perform in an inflationary
environment. Please see the section on interest rate sensitivity for
a discussion on this subject.
Daily Average Consolidated Balance Sheet,
Interest Rates and Interest Differential
XXXPAGE 37XXX
For the year ended December 31,
1996
Average Yield/
(In thousands) Balance Interest Rate
Assets:
Interest-earning assets:
Interest-bearing deposits with banks $10,282 $603 5.87%
Federal funds sold 24,370 1,290 5.29
Taxable investment securities 60,080 4,076 6.78
Tax-exempt investment securities (1) 5,348 504 9.43
Mortgage loans held for sale 379,027 30,943 8.16
Loans and leases, net of unearned
income (2) 496,729 52,391 10.55
----------- ----------- -------
Total interest-earning assets 975,836 89,807 9.20
----------- ----------- -------
Noninterest-earning assets:
Cash and due from banks 38,309
Premises and equipment, net 17,425
Other assets 125,689
Less allowance for possible loan
and lease losses (5,724)
---------
Total assets $1,151,535
==========
Liabilities and Shareholders'
Equity:
Interest-bearing liabilities:
Money market checking $79,704 1,571 1.97%
Money market savings 12,455 328 2.63
Regular savings 52,657 1,861 3.53
Time deposits 248,694 13,972 5.62
Short-term borrowings 334,304 22,115 6.62
Long-term debt 21,840 1,778 8.14
--------------------------------
Total interest-bearing liabilities 749,654 41,625 5.55
--------------------------------
Noninterest-bearing liabilities:
Demand deposits 238,673
Other liabilities 54,238
Shareholders' equity 108,970
-----------
Total liabilities and
shareholders' equity $1,151,535
==========
Net interest income $48,182
====
Net interest income to average interest-earning
assets 4.94%
For the year ended December 31, 1995
Average Yield/
XXXPAGE 38XXX
(In thousands) Balance Interest Rate
Assets:
Interest-earning assets:
Interest-bearing deposits with banks $9,737 $497 5.10%
Federal funds sold 35,006 2,036 5.82
Taxable investment securities 59,765 4,004 6.70
Tax-exempt investment securities (1) 6,961 738 10.60
Mortgage loans held for sale 285,808 20,727 7.25
Loans and leases, net of unearned
income (2) 369,220 38,364 10.39
-----------------------------
Total interest-earning assets 766,497 66,366 8.66
====
Noninterest-earning assets:
Cash and due from banks 36,263
Premises and equipment, net 15,011
Other assets 68,677
Less allowance for possible loan
and lease losses (4,284)
-------
Total assets $882,164
========
Liabilities and Shareholders'
Equity:
Interest-bearing liabilities:
Money market checking $68,491 1,552 2.27%
Money market savings 15,376 465 3.02
Regular savings 53,255 2,016 3.79
Time deposits 255,004 10,834 4.25
Short-term borrowings 217,289 11,979 5.51
Long-term debt 20,896 1,722 8.24
-----------------------------
Total interest-bearing liabilities 630,311 28,568 4.53
----------------------------
====
Noninterest-bearing liabilities:
Demand deposits 133,936
Other liabilities 29,050
Shareholders' equity 88,867
--------
Total liabilities and shareholders'
equity $882,164
=========
Net interest income $37,798
=======
Net interest
income to average interest-earning
assets 4.93%
For the year ended December 31, 1994
Average Yield/
(In thousands) Balance Interest Rate
XXXPAGE 39XXX
Assets:
Interest-earning assets:
Interest-bearing deposits with banks $22,627 $684 3.02%
Federal funds sold 42,466 1,763 4.15
Taxable investment securities 77,230 4,392 5.69
Tax-exempt investment securities (1) 7,764 732 9.43
Mortgage loans held for sale 231,369 16,707 7.22
Loans and leases, net of unearned
income (2) 279,389 26,604 9.52
--------------------------------------
Total interest-earning assets 660,845 50,882 7.70
====
Noninterest-earning assets:
Cash and due from banks 32,449
Premises and equipment, net 13,485
Other assets 45,746
Less allowance for possible loan
and lease losses (3,543)
--------
Total assets $748,982
========
Liabilities and Shareholders'
Equity:
Interest-bearing liabilities:
Money market checking $65,583 1,347 2.05%
Money market savings 24,864 578 2.32
Regular savings 54,770 1,601 2.92
Time deposits 125,415 5,592 4.46
Short-term borrowings 167,818 7,024 4.19
Long-term debt 20,760 1,491 7.18
--------------------------------------
Total interest-bearing liabilities 459,210 17,633 3.84
====
Noninterest-bearing liabilities:
Demand deposits 196,454
Other liabilities 17,139
Shareholders' equity 76,178
--------
Total liabilities and shareholders'
equity $748,981
==========
Net interest income $33,249
=======
Net interest
income to average interest-earning
assets
5.03%
=====
Notes:
(1) Interest is reported on a fully taxable equivalent
basis. The prevailing federal income tax rate was 34.5% in 1996, 34% in
1995 and 35% in 1994.
(2) For purposes of these computations, nonaccrual loans are
included in daily average loan amounts outstanding.
Summary of Quarterly Financial Information
XXXPAGE 40XXX
1996
Fourth Third Second First
Summary Income Information Quarter Quarter Quarter Quarter
Interest income $24,566,540 $23,062,016 $22,003,722 $19,815,562
Interest expense 12,230,121 10,591,010 9,885,847 8,918,120
Provision for loan and
lease losses 1,676,000 989,000 841,000 944,000
Noninterest income 42,833,063 38,175,986 38,338,420 34,300,235
Noninterest expense 42,340,666 40,483,443 41,092,558 35,816,441
Income taxes 4,243,000 3,672,000 3,495,000 3,449,000
---------------------------------------------------------------
Net income $6,909,816 $5,502,549 $5,027,737 $4,988,236
---------------------------------------------------------------
Net income per
common share* $0.59 $0.48 $0.44 $0.44
1995
Fourth Third Second First
Summary Income Information Quarter Quarter Quarter
Quarter
Interest income $20,631,271 $17,990,434 $14,713,938 $12,552,550
Interest expense 9,919,789 8,020,339 5,926,174 4,701,985
Provision for loan and
lease losses 933,000 910,000 580,000 650,000
Noninterest income 33,761,560 30,861,480 24,774,257 24,719,809
Noninterest expense 34,123,371 30,584,492 27,249,576 23,957,371
Income taxes 4,117,000 3,298,000 1,480,000 3,471,000
---------------------------------------------------------
Net income $5,299,671 $6,039,083 $4,252,445 $4,492,003
====== ====== ====== ======
Net income per
common share* $0.46 $0.53 $0.37 $0.39
1994
Fourth Third Second First
Summary Income Information Quarter Quarter Quarter Quarter
Interest income $12,633,617 $13,019,201 $12,421,802 $12,340,312
Interest expense 4,536,399 4,525,176 3,967,292 4,603,679
Provision for loan and
lease losses 799,000 368,000 235,000 325,000
Noninterest income 20,721,089 20,539,407 22,138,704 22,453,283
Noninterest expense 19,221,350 21,245,418 23,498,040 22,879,522
Income taxes 3,421,000 2,942,000 2,689,000 2,796,000
-----------------------------------------------------
Net income $5,376,957 $4,478,014 $4,171,174 $4,189,394
====== ====== ====== ======
Net income per
common share* $0.47 $0.38 $0.35 $0.36
XXXPAGE 41XXX
*restated for the two-for one-stock split December 30,1996
Item 8. Financial Statements and Supplementary Data
Consolidated financial statements of the Registrant and its subsidiaries
are contained in the Annual Report to Shareholders for the year ending
December 31, 1996, under the caption "1996 Financial Statements ", and are
incorporated herein by reference in response to this item. The financial
statement schedules required under Regulation S-X are filed as "Financial
Statement Schedules" pursuant to Item 14 hereof.
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
In connection with the audits of the Registrant for the two most recent
fiscal years ended December 31, 1996, the Registrant has not
changed its independent certified public accountants nor have there been any
disagreements (as defined in Instruction 4 to Item 304 of Regulation S-K)
with such accountants on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure.
PART III
Item 10. Directors and Executive Officers of the Registrant
The information contained in the proxy statement of the Registrant for the
1997 Annual Meeting of Shareholders under the caption "Election of
Directors", on pages 4 through 6, inclusive, is incorporated herein by
reference in response to this item.
Item 11. Executive Compensation
The information contained in the proxy statement of the Registrant for the
1997 Annual Meeting of Shareholders under the captions "Election of
Directors - Outside Director Restricted Stock Compensation Plan", "Executive
Compensation and Other Information" and "Board Compensation Committee
Report on Executive Compensation" on pages 7 through 13, inclusive, is
incorporated herein by reference in response to this item.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information contained in the proxy statement of the Registrant for the
1997 Annual Meeting of Shareholders, under the captions "Voting
Securities and Principal Holders" and "Security Ownership of Management",
on pages 2 and 3, inclusive, is incorporated herein by reference
in response to this item.
Item 13. Certain Relationships and Related Transactions
The information contained in the proxy statement of the Registrant for the
1997 Annual Meeting of Shareholders under the caption "Interest of
Management in Certain Transactions" on pages 18 and 19, is incorporated
herein by reference in response to this item.
XXXPAGE 42XXX
PART IV
Item 14. Exhibits, Financial Statement
Schedules, and Reports on Form 8-K
Page #
a. Documents filed as a part of this Report: Form Annual
10-K Report
1. Financial Statements:
A. Irwin Financial Corporation and
Subsidiaries:
Report of Coopers & Lybrand L.L.P.,
Independent Accountants 76
Consolidated Statement of Income
for the years ended December 31, 1996,
1995, and 1994 77
Consolidated Balance Sheet as of
December 31, 1996, and 1995 78
Consolidated Statement of Changes in
Shareholders' Equity for the years
ended December 31, 1996, 1995 and 1994 79
Consolidated Statement of Cash Flows
for the years ended December 31, 1996,
1995, and 1994 80
Notes to Consolidated Financial
Statements 81
The above listed report, financial statements,and the notes thereto, set
forth on pages 76 through 101 of the Registrant's 1996 Annual
Report to Shareholders are incorporated herein by reference.
2. Financial Statement Schedules
Report of Independent
Accountants, Coopers &
Lybrand L.L.P. 50
Schedule I - Indebtedness to
Related Parties 51
Schedules other than that listed above are omitted because they are not
required or the information is included in the Notes to Consolidated
Financial Statements.
XXXPAGE 43XXX
3. Exhibits
A. Exhibits to Form 10-K
Number Assigned Sequential Numbering
in Regulation System Page Number of
S-K Item 601 Description of Exhibit Exhibit
(2) No exhibit.
(3) (i) 3(a) Amended Articles of
Incorporation, dated
December 29, 1972.
(Incorporated by
reference to
Exhibit 3(a) to
Form 10-K
Report for year
ended December
31, 1985, File
No. 0-6835.)
3(b) Articles of
Amendment,
dated March 30,
1973.
(Incorporated
by
reference to
Exhibit 3(b) to
Form 10-K
Report for year
ended December
31, 1985, File
No. 0-6835.)
3(c) Articles of
Amendment,
dated September
4, 1990.
(Incorporated
by
reference to
Exhibit 3(d) to
Form 10-K
Report for year
ended December
31, 1990, File
No. 0-6835.)
3(d) Articles of Amendment,
dated April 30, 1992.
(Incorporated by
reference to Exhibit 3(d)
to Form 10-K Report
for year ended
December 31, 1992,
File No. 0-6835.)
3(e) Articles of Amendment,
dated April 26, 1994.
(Incorporated by
reference to Exhibit 3(e)
to Form 10-K Report for
year ended December 31,
1994, File No. 0-6835.)
3(f) Articles of Amendment, 52
dated April 30, 1996.
(ii) 3(a) Code of By-Laws as 114
amended to date.
(4) 4(a) Specimen stock certificate.
(Incorporated by
reference to Exhibit 4(a)
to Form 10-K
Report for year
ended December
31, 1994, File
No. 0-6835.)
XXXPAGE 44XXX
4(b) Certain instruments
defining the rights of
the holders oflong-term debt
of the Registrant and
certain of its subsidiaries,
none of which authorize a
total amount of indebtedness in
excess of 10% of the total
assets of the Registrant and
its subsidiaries on
a consolidated basis, have not
been filed as Exhibits. The
Registrant hereby agrees
to furnish a copy of any of
these agreements to
the Commission upon request.
(9) No exhibit.
(10) 10(a) Amended 1986 Stock Option
Plan.@
(Incorporated
by reference to
Exhibit
10(b) to Form
10-K Report for
year ended
December 31,
1991, File No.
06835.)
10(b) Amended and
Restated
Management
Bonus Plan.@
(Incorporated
by
reference to Exhibit
19(a) to Form
10-K Report for
year ended
December 31,
1986, File No.
06835.)
10(c) Long-Term
Management
Performance
Plan.@
(Incorporated
by
reference to Exhibit
10(d) to Form
10-K Report for
year ended
December 31,
1986, File No.
06835.)
10(d) Long-Term
Incentive Plan
- Summary of
Terms.@
(Incorporated
by
reference to Exhibit
10(e) to Form
10-K Report for
year ended
December 31,
1986, File No.
0-6835.)
10(e) Irwin
Financial
Corporation
Employees'
Stock Purchase
Plan.@
(Incorporated
by
reference to Exhibit
10(f) to Form 10-K
Report for year ended
December 31, 1991,
File No. 06835.)
10(f) Employee Stock
Purchase Plan
II.@ Incorporated by
reference to Exhibit
10(f) to Form
10-K Report for
year ended
December 31,
1994, File No.
06835.)
10(g) Amended Irwin
Financial
Corporation
Outside
Directors
Restricted
Stock
Compensation
Plan.@
(Incorporated
by
reference to Exhibit
10(g) to Form 10-K
Report for year ended
December 31, 1991,
File No. 06835.)
XXXPAGE 45XXX
10(h) Irwin Financial
Corporation 1992 Stock
Option Plan.@
(Incorporated by
reference to Exhibit
10(h) to Form 10-K
report for year ended
December 31, 1992,
File No. 06835.)
10(i) Amended Irwin
Financial
Corporation Outside
Director Restricted
Stock Compensation
Plan.@
(Incorporated by
reference to Exhibit
10(i) to Form 10-K
report for year ended
December 31, 1995, File
No. 06835.)
10(j) Inland Mortgage 129
Corporation Long
Term Incentive Plan.@
(11) 11(a) Computation of Earnings 137
Per Share.
(12) No exhibit.
(13) 13(a) Registrant's 1996 Annual 138
Report to Shareholders.
This exhibit
contains such
portions
thereof that
have been
incorporated by
reference into
this Report.
(16) No exhibit.
(18) No exhibit.
(21) 21(a) Subsidiaries of the 205
Registrant.
(22) No exhibit.
(23) 23(a) Consent of Independent 206
Accountants.
(24) No exhibit.
(27) Financial Data Schedule. 207
(28) No exhibit.
(99) 99(a) Annual Report on Form 11-K
for the Irwin Union
Corporation
Employees'
Savings Plan
for the year
ending
December 31,
1996.*
99(b) Annual Report
on Form 11K
for the Inland
Mortgage
Corporation
Employees'
Savings Plan
for the year
ending
December 31, 1996.*
@ Denotes management contract or compensatory plan.
* To be filed by amendment pursuant to Rule 15d-21.
b. Reports on Form 8-K
XXXPAGE 46XXX
None.
XXXPAGE 47XXX
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the Undersigned, thereunto duly authorized.
IRWIN FINANCIAL CORPORATION
Date: March 27, 1997 By: /s/ William I. Miller
-----------------------------
William I. Miller,
Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report on Form 10-K has been signed below by the following persons
on behalf of the Registrant and in the capacities on the dates indicated.
Capacity with
Signature Registrant Date
/s/ Sally A. Dean Director March 27, 1997
- -------------------
Sally A. Dean
/s/ David W. Goodrich Director March 27, 1997
- ----------------------
David W. Goodrich
/s/ John T. Hackett Director March 27, 1997
- -------------------
John T. Hackett
/s/ William H. Kling Director March 27, 1997
- -----------------------
William H. Kling
/s/ Brenda J. Lauderback Director March 27, 1997
- -----------------------
Brenda J. Lauderback
/s/ John C. McGinty,Jr. Director March 27, 1997
- -----------------------
John C. McGinty, Jr.
/s/ Irwin Miller Director March 27, 1997
- -----------------------
Irwin Miller
/s/ William I. Miller Director, Chairman March 27, 1997
- ----------------------- of the Board
William I. Miller (Principal Executive
Officer)
/s/ John A. Nash Director, Chairman March 27, 1997
- ----------------------- of the Executive
John A. Nash Committee
XXXPAGE 48XXX
/s/ Lance R. Odden Director March 27, 1997
- -----------------------
Lance R. Odden
/s/ James T. Sakai Director March 27, 1997
- -----------------------
James T. Sakai
/s/ Theodore M. Solso Director March 27, 1997
- -----------------------
Theodore M. Solso
/s/ Thomas D. Washburn Senior Vice President March 27, 1997
- ----------------------- (Principal Financial Officer)
Thomas D. Washburn
/s/ Marie C. Strack Vice President and March 27, 1997
- ----------------------- Controller
Marie C. Strack (Principal Accounting Officer)
XXXPAGE 49XXX
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors
Irwin Financial Corporation
Columbus, Indiana
We have audited the consolidated financial statements of Irwin Financial
Corporation and Subsidiaries as of December 31, 1996 and 1995, and
for each of the three years in the period ended December 31, 1996, which
financial statements are included on pages 77 through 101 of the 1996
Annual Report to Shareholders of Irwin Financial Corporation and
incorporated by reference herein. We have also audited the financial
statement schedules listed in the index on page 43 of this Form 10-K. These
financial statements and financial statement schedules are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and financial statement
schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Irwin
Financial Corporation and Subsidiaries as of December 31, 1996 and 1995,
and the consolidated results of their operations and their cash flows for
each of the three years in the period ended December 31, 1996 in
conformity with generally accepted accounting principles. In addition, in
our opinion, the financial statement schedules referred to above,
when considered in relation to the basic financial statements taken as a
whole, present fairly, in all material respects, the information required
to be included therein.
As described in Note 1 to the financial statements, the Corporation adopted
Statement of Financial Accounting Standards No. 122, Accounting for Mortgage
Servicing Rights, as of April 1, 1995.
/s/ Coopers & Lybrand L.L.P.
Indianapolis, Indiana
January 17, 1997
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Schedule I
SCHEDULE I - INDEBTEDNESS TO RELATED PARTIES
(In Thousands)
Col. B Col. C Col. D Col. E
Balance at Balance at
Beginning Additions Deductions End of
Name of Person of Period (1) (2) Period
Year Ended December 31, 1996:
Irwin Management Company $18,005 $632,259 $635,300 $14,964
Year Ended December 31, 1995:
Irwin Management Company $11,187 $653,074 $646,256 $18,005
Year Ended December 31, 1994:
Irwin Management Company $11,728 $561,502 $562,043 $11,187
(1) The indebtedness disclosed is the purchase of Irwin Financial
Corporation commercial paper by Irwin Management Company.
Irwin Management Company is owned by a principal shareholder
and director. Commercial paper borrowings generally
mature within three months from the date of issuance.
(2) No deductions occurred that were other than a disbursement of cash.
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