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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K/A
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO .
COMMISSION FILE NUMBER 0-6835
IRWIN FINANCIAL CORPORATION
(Exact Name of Corporation as Specified in its Charter)
INDIANA 35-1286807
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
500 WASHINGTON STREET COLUMBUS, INDIANA 47201
(Address of Principal Executive (Zip Code)
Offices)
(812) 376-1909
(Corporation's Telephone Number, Including Area Code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Title of Class: Common Stock*
Title of Class: 9.25% Cumulative Trust Preferred Securities issued by IFC
Capital Trust I and the guarantee with respect thereto.
Title of Class: 10.50% Cumulative Trust Preferred Securities issued by IFC
Capital Trust II and the guarantee with respect thereto.
Title of Class: 8.75% Cumulative Trust Preferred Securities issued by IFC
Capital Trust III and the guarantee with respect thereto.
Indicate by check mark whether the Corporation: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Corporation was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Corporation's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of
the Corporation was $277,671,410 as of March 11, 2002. As of March 11, 2002,
there were outstanding 27,534,021 common shares of the Corporation.
* Includes associated rights.
DOCUMENTS INCORPORATED BY REFERENCE
SELECTED PORTIONS OF THE FOLLOWING DOCUMENTS PART OF FORM 10-K INTO WHICH INCORPORATED
--------------------------------------------------- -----------------------------------------
Definitive Proxy Statement for Annual Meeting of Part III
Shareholders to be held April 25, 2002
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
EXPLANATORY NOTE:
This Form 10-K/A is being filed to correct an inadvertent error in Item 8
of our Annual Report on Form 10-K for the year ended December 31, 2001. On page
66, the Report of Independent Accountants incorrectly referred to Note 23 in the
date of the audit opinion. The correct reference should have been to Note 24.
There are no other changes to Item 8 or to the Annual Report on Form 10-K for
the year ended December 31, 2001.
ITEM 8. FINANCIAL STATEMENTS
Management Report on Responsibility for Financial Reporting
The management of Irwin Financial Corporation and its subsidiaries has the
responsibility of preparing the accompanying financial statements and for their
integrity and objectivity. The statements were prepared in conformity with
generally accepted accounting principles and are not misstated due to material
fraud or error. The financial statements include amounts that are based on
management's best estimates and judgments. Management also prepared the other
information in the annual report and is responsible for its accuracy and
consistency with the financial statements.
Our financial statements have been audited by PricewaterhouseCoopers LLP,
independent certified public accountants. Management has made available to
PricewaterhouseCoopers all of Irwin Financial's financial records and related
data, as well as the minutes of stockholders' and directors' meetings.
Furthermore, management believes that all representations made to
PricewaterhouseCoopers during its audit were valid and appropriate.
Management of Irwin Financial has established and maintains a system of
internal control that provides reasonable assurance as to the integrity and
reliability of the financial statements, the protection of assets from
unauthorized use or disposition, and the prevention and detection of fraudulent
financial reporting. Assessments of the system of internal control are based on
criteria for effective internal control over financial reporting described in
"Internal Control-Integrated Framework" issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Management continually monitors the
system of internal control for compliance. Irwin Financial maintains a strong
internal auditing program that independently assesses the effectiveness of the
internal controls and recommends possible improvements. In addition, as part of
its audit of our financial statements, PricewaterhouseCoopers completed an
assessment of selected internal accounting controls to establish a basis for
reliance on these controls in determining the nature, timing, and extent of
audit-tests to be applied. Management has considered the internal auditor's and
PricewaterhouseCoopers' recommendations concerning our system of internal
control and has taken actions to respond appropriately to these recommendations
that we believe are cost effective in the circumstances. Management believes
that our system of internal control is adequate to accomplish the objectives
discussed herein.
Management also recognized its responsibility for fostering a strong
ethical climate so that our affairs are conducted according to the highest
standards of personal and corporate conduct. This responsibility is
characterized and reflected in our Guiding Philosophy, which is publicized
throughout Irwin Financial Corporation. This responsibility is also reflected in
the individual Codes of Conduct of each major operating subsidiary. These Codes
of Conduct address, among other things, the necessity of ensuring open
communication within Irwin Financial; potential conflicts of interests;
compliance with all domestic and foreign laws, including those related to
financial disclosures; and a confidentiality of proprietary information. Irwin
Financial maintains a systematic program to assess compliance with these
policies.
/s/ John A. Nash /s/ Gregory F. Ehlinger
1
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors
Irwin Financial Corporation
Columbus, Indiana
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of income, of changes in shareholders' equity
and of cash flows present fairly, in all material respects, the financial
position of Irwin Financial Corporation and its subsidiaries at December 31,
2001 and 2000, and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 2001, in conformity with
accounting principles generally accepted in the United States of America. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America, which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
Chicago, Illinois
January 22, 2002, except as to Note 24, which is as of February 25, 2002.
2
IRWIN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, DECEMBER 31,
2001 2000
-------------- --------------
(IN THOUSANDS, EXCEPT FOR SHARES)
ASSETS:
Cash and cash equivalents................................... $ 158,291 $ 83,493
Interest-bearing deposits with financial institutions....... 14,247 36,400
Trading assets -- Note 3.................................... 216,684 154,921
Investment securities -- Note 4............................. 38,796 37,095
Loans held for sale......................................... 503,757 579,788
Loans and leases, net of unearned income -- Note 5.......... 2,137,747 1,234,922
Less: Allowance for loan and lease losses -- Note 6......... (22,283) (13,129)
---------- ----------
2,115,464 1,221,793
Servicing assets -- Note 7................................ 228,624 130,522
Accounts receivable......................................... 41,996 69,224
Accrued interest receivable................................. 14,063 12,979
Premises and equipment -- Note 8............................ 34,988 29,409
Other assets................................................ 72,885 66,805
---------- ----------
Total assets...................................... $3,439,795 $2,422,429
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Deposits
Noninterest-bearing....................................... $ 533,983 $ 263,159
Interest-bearing.......................................... 889,448 517,127
Certificates of deposit over $100,000..................... 885,587 663,044
---------- ----------
2,309,018 1,443,330
Short-term borrowings -- Note 10............................ 487,963 475,502
Long-term debt -- Note 11................................... 29,654 29,608
Other liabilities........................................... 189,889 136,897
Company-obligated mandatorily redeemable preferred
securities of subsidiary trust -- Note 12................. 190,948 147,167
---------- ----------
Total liabilities................................. 3,207,472 2,232,504
---------- ----------
Commitments and contingencies -- Note 13
Shareholders' equity
Preferred stock, no par value -- authorized 4,000,000
shares; issued 96,336 shares as of December 31, 2001
and December 31, 2000.................................. 1,386 1,386
Common stock, no par value -- authorized 40,000,000
shares; issued 23,402,080 shares as of December 31,
2001 and December 31, 2000; including 2,096,947 and
2,376,119 shares in treasury as of December 31, 2001
and December 31, 2000, respectively.................... 29,965 29,965
Additional paid-in capital................................ 4,426 4,331
Minority interest......................................... 658 1,055
Deferred compensation..................................... (449) (503)
Accumulated other comprehensive loss, net of deferred
income tax benefit of $130 and $305 in 2001 and 2000,
respectively........................................... (325) (459)
Retained earnings......................................... 241,725 201,729
---------- ----------
277,386 237,504
Less treasury stock, at cost...................... (45,063) (47,579)
---------- ----------
Total shareholders' equity........................ 232,323 189,925
---------- ----------
Total liabilities and shareholders' equity........ $3,439,795 $2,422,429
========== ==========
The accompanying notes are an integral part of the consolidated financial
statements.
3
IRWIN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------------
2001 2000 1999
---------- ---------- ----------
(IN THOUSANDS, EXCEPT FOR PER SHARE)
INTEREST INCOME:
Loans and leases............................................ $128,157 $ 93,251 $ 48,978
Loans held for sale......................................... 102,679 71,141 66,682
Trading account............................................. 31,980 15,584 6,275
Investment securities:
Taxable................................................... 4,913 4,161 3,755
Tax-exempt................................................ 247 250 271
Federal funds sold.......................................... 257 143 652
-------- -------- --------
Total interest income............................... 268,233 184,530 126,613
-------- -------- --------
INTEREST EXPENSE:
Deposits.................................................... 73,340 52,815 25,220
Short-term borrowings....................................... 29,656 32,610 28,425
Long-term debt.............................................. 2,320 2,348 1,149
Preferred securities distribution........................... 15,768 5,761 4,697
-------- -------- --------
Total interest expense.............................. 121,084 93,534 59,491
-------- -------- --------
Net interest income......................................... 147,149 90,996 67,122
Provision for loan and lease losses......................... 17,505 5,403 4,443
-------- -------- --------
Net interest income after provision for loan and lease
losses.................................................... 129,644 85,593 62,679
-------- -------- --------
OTHER INCOME:
Loan origination fees....................................... 64,303 52,696 41,024
Gain from sales of loans.................................... 207,538 77,047 74,834
Loan servicing fees......................................... 67,362 58,939 60,581
Amortization and impairment of servicing assets............. (50,134) (39,529) (15,702)
-------- -------- --------
Net loan administration income............................ 17,228 19,410 44,879
-------- -------- --------
Gain on sale of mortgage servicing assets................... 8,394 27,528 37,801
Trading gains/(losses)...................................... (32,412) 14,399 (8,296)
Other....................................................... 6,340 20,631 13,827
-------- -------- --------
271,391 211,711 204,069
-------- -------- --------
OTHER EXPENSE:
Salaries.................................................... 184,427 124,639 114,303
Pension and other employee benefits......................... 26,616 20,359 18,402
Office expense.............................................. 16,862 13,783 13,181
Premises and equipment...................................... 30,702 26,812 24,052
Marketing and development................................... 4,202 13,071 8,962
Professional Fees........................................... 11,192 7,013 4,684
Other....................................................... 53,419 32,285 30,527
-------- -------- --------
327,420 237,962 214,111
-------- -------- --------
Income before income taxes.................................. 73,615 59,342 52,637
Provision for income taxes.................................. 28,624 23,676 19,481
-------- -------- --------
Income before minority interest............................. 44,991 35,666 33,156
Minority interest in losses of subsidiaries................. (350) -- --
-------- -------- --------
Income before cumulative effect of change in accounting
principle................................................. 45,341 35,666 33,156
Cumulative effect of change in accounting principle, net of
tax....................................................... 175 -- --
-------- -------- --------
Net income.................................................. $ 45,516 $ 35,666 $ 33,156
======== ======== ========
Earnings per share before cumulative effect of change in
accounting principle:
Basic -- Note 18.......................................... $ 2.14 $ 1.70 $ 1.54
======== ======== ========
Diluted -- Note 18........................................ $ 1.99 $ 1.67 $ 1.51
======== ======== ========
Earnings per share:
Basic -- Note 18.......................................... $ 2.15 $ 1.70 $ 1.54
======== ======== ========
Diluted -- Note 18........................................ $ 2.00 $ 1.67 $ 1.51
======== ======== ========
Dividends per share......................................... $ 0.26 $ 0.24 $ 0.20
======== ======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
4
IRWIN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000, AND 1999
ACCUMULATED
OTHER ADDITIONAL
RETAINED COMPREHENSIVE DEFERRED MINORITY PAID IN COMMON PREFERRED
TOTAL EARNINGS INCOME (LOSS) COMPENSATION INTEREST CAPITAL STOCK STOCK
-------- -------- ------------- ------------ -------- ---------- ------- ---------
Balance at January 1,
1999...................... $145,233 $142,232 $ 85 -- $ -- $2,595 $29,965 $ --
Net income................ 33,156 33,156
Unrealized gain on
investment securities
net of $104 tax
benefit................. (155) (155)
--------
Total comprehensive
income............ 33,001
--------
Cash dividends.............. (4,287) (4,287)
Tax benefit on stock option
exercises................. 1,055 1,055
Treasury stock:
Purchase of 800,052
shares.................. (18,314)
Sales of 232,073 shares... 2,608 600
-------- -------- ----- ----- ------ ------ ------- ------
Balance December 31, 1999... $159,296 $171,101 $ (70) -- $ -- $4,250 $29,965 $ --
======== ======== ===== ===== ====== ====== ======= ======
Net income................ 35,666 35,666
Unrealized gain on
investment securities
net of $43 tax
liability............... 64 64
Foreign currency adjustment
net of $43 tax benefit.... (66) (66)
Minimum pension liability
net of $257 tax benefit... (387) (387)
--------
Total comprehensive
income............ 35,277
Deferred compensation....... (503) (503)
Cash dividends.............. (5,038) (5,038)
Tax benefit on stock option
exercises................. 136 136
Treasury stock:
Purchase of 220,948
shares.................. (3,414)
Sales of 142,132 shares... 1,730 (55)
Issuance of 96,336 shares of
preferred stock........... 1,386 1,386
Minority Interest........... 1,055 1,055
-------- -------- ----- ----- ------ ------ ------- ------
Balance December 31, 2000... $189,925 $201,729 $(459) $(503) $1,055 $4,331 $29,965 $1,386
======== ======== ===== ===== ====== ====== ======= ======
Net income................ 45,516 45,516
Unrealized gain on
investment securities
net of $53 tax
liability............... 80 80
Foreign currency
adjustment net of $221
tax benefit............. (333) (333)
Minimum pension liability
net of $257 tax
liability............... 387 387
--------
Total comprehensive
income............ 45,650
Deferred compensation....... 54 54
Cash dividends.............. (5,520) (5,520)
Tax benefit on stock option
exercises................. 2,451 2,451
Treasury stock:
Purchase of 136,089
shares.................. (3,223)
Sales of 415,261 shares... 3,383 (2,356)
Minority Interest........... (397) (397)
-------- -------- ----- ----- ------ ------ ------- ------
Balance December 31, 2001... $232,323 $241,725 $(325) $(449) $ 658 $4,426 $29,965 $1,386
======== ======== ===== ===== ====== ====== ======= ======
TREASURY
STOCK
--------
Balance at January 1,
1999...................... $(29,644)
Net income................
Unrealized gain on
investment securities
net of $104 tax
benefit.................
Total comprehensive
income............
Cash dividends..............
Tax benefit on stock option
exercises.................
Treasury stock:
Purchase of 800,052
shares.................. (18,314)
Sales of 232,073 shares... 2,008
--------
Balance December 31, 1999... $(45,950)
========
Net income................
Unrealized gain on
investment securities
net of $43 tax
liability...............
Foreign currency adjustment
net of $43 tax benefit....
Minimum pension liability
net of $257 tax benefit...
Total comprehensive
income............
Deferred compensation.......
Cash dividends..............
Tax benefit on stock option
exercises.................
Treasury stock:
Purchase of 220,948
shares.................. (3,414)
Sales of 142,132 shares... 1,785
Issuance of 96,336 shares of
preferred stock...........
Minority Interest...........
--------
Balance December 31, 2000... $(47,579)
========
Net income................
Unrealized gain on
investment securities
net of $53 tax
liability...............
Foreign currency
adjustment net of $221
tax benefit.............
Minimum pension liability
net of $257 tax
liability...............
Total comprehensive
income............
Deferred compensation.......
Cash dividends..............
Tax benefit on stock option
exercises.................
Treasury stock:
Purchase of 136,089
shares.................. (3,223)
Sales of 415,261 shares... 5,739
Minority Interest...........
--------
Balance December 31, 2001... $(45,063)
========
The accompanying notes are an integral part of the consolidated financial
statements.
5
IRWIN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------------
2001 2000 1999
------------ ----------- -----------
(IN THOUSANDS)
NET INCOME.................................................. $ 45,516 $ 35,666 $ 33,156
ADJUSTMENTS TO RECONCILE NET INCOME TO CASH PROVIDED (USED)
BY OPERATING ACTIVITIES:
Depreciation, amortization, and accretion, net.............. 9,097 9,114 8,535
Amortization and impairment of servicing assets............. 50,134 39,529 15,702
Provision for loan and lease losses......................... 17,505 5,403 4,443
Deferred income tax......................................... 26,245 21,702 15,543
Gain on sale of mortgage servicing assets................... (8,394) (27,528) (37,801)
Gain from sale of loans..................................... (207,538) (77,047) (74,834)
Originated and purchased mortgage servicing assets.......... (151,821) (57,165) (84,653)
Originations of loans held for sale......................... (10,375,401) (5,317,528) (6,316,257)
Proceeds from sale of mortgage servicing assets............. 11,979 53,142 85,380
Proceeds from the sale of loans held for sale............... 10,331,270 5,323,784 6,818,882
Net increase in trading assets.............................. (61,763) (95,896) (26,877)
Decrease (increase) in accounts receivable.................. 27,228 (49,415) 21,672
Other, net.................................................. 14,160 23,160 (1,828)
------------ ----------- -----------
Net cash provided (used) by operating activities.......... (271,783) (113,079) 461,063
------------ ----------- -----------
LENDING AND INVESTING ACTIVITIES:
Proceeds from maturities/calls of investment securities:
Held-to-maturity.......................................... 4,114 1,286 12,058
Available-for-sale........................................ 2,441 26 159
Proceeds from sales of investment securities:
Available-for-sale........................................ -- -- 3,118
Purchase of investment securities:
Held-to-maturity.......................................... (437) (781) (34)
Available-for-sale........................................ (7,692) -- (5,899)
Net increase (decrease) in interest-bearing deposits with
financial institutions.................................... 22,153 (9,615) (8,344)
Net increase in loans, excluding sales...................... (733,433) (533,848) (205,137)
Sale of mortgage loans by commercial bank................... 149,957 31,521 22,928
Acquisition of Onset Capital Corporation, net of cash
acquired.................................................. -- (837) --
Other, net.................................................. (10,760) (11,922) (6,520)
------------ ----------- -----------
Net cash used by lending and investing activities......... (573,657) (524,170) (187,671)
------------ ----------- -----------
FINANCING ACTIVITIES:
Net increase (decrease) in deposits......................... 865,688 573,012 (138,893)
Net increase (decrease) in short-term borrowings............ 12,461 2,399 (171,758)
Proceeds from issuance long-term debt....................... -- -- 30,000
Repayments of long-term debt................................ -- (176) (3,055)
Proceeds from the issuance of trust preferred securities.... 45,000 103,500
Proceeds from issuance of preferred stock................... -- 1,386 --
Purchase of treasury stock for employee benefit plans....... (3,223) (3,414) (18,314)
Proceeds from sale of stock for employee benefit plans...... 5,834 1,866 2,608
Dividends paid.............................................. (5,520) (5,038) (4,287)
------------ ----------- -----------
Net cash provided (used) by financing activities.......... 920,240 673,535 (303,699)
------------ ----------- -----------
Effect of exchange rate changes on cash..................... (2) (8) --
------------ ----------- -----------
Net increase in cash and cash equivalents................... 74,798 36,278 (30,307)
Cash and cash equivalents at beginning of period............ 83,493 47,215 77,522
------------ ----------- -----------
Cash and cash equivalents at end of period.................. $ 158,291 $ 83,493 $ 47,215
============ =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period:
Interest.................................................. $ 123,058 $ 81,989 $ 52,456
============ =========== ===========
Income taxes.............................................. $ 7,357 $ 13,864 $ 14,328
============ =========== ===========
Non cash Transactions:
Mortgage loans held for sale transferred to loans and
leases.................................................. $ 327,700 $ -- $ --
============ =========== ===========
The accompanying notes are an integral part of the consolidated financial
statements.
6
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation: Irwin Financial Corporation and its subsidiaries provide
financial services throughout the United States and Canada. We are engaged in
the mortgage banking, home equity lending, commercial banking, equipment
leasing, and venture capital lines of business. Intercompany balances and
transactions have been eliminated in consolidation.
Use of Estimates: The preparation of financial statements in conformity
with generally accepted accounting principles requires us to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Foreign Currency: Assets and liabilities denominated in Canadian dollars
are translated into U.S. dollars at rates prevailing on the balance sheet date;
income and expenses are translated at average rates of exchange for the year.
Unrealized foreign currency translation gains and losses (net of hedging
activities and related income taxes) are recorded in accumulated other
comprehensive income in shareholders' equity.
Securities: Those securities that we have the positive intent and ability
to hold until maturity are classified as "held-to-maturity" and are stated at
cost adjusted for amortization of premium and accretion of discount. Securities
that might be sold prior to maturity are classified as "available-for-sale" and
are stated at fair value. Unrealized gains and losses on available for sale
investments, net of the future tax impact, are reported as a separate component
of shareholders' equity until realized. Investment gains and losses are based on
the adjusted cost of the specific security.
Trading Assets: Trading assets are stated at fair value. Unrealized gains
and losses are included in earnings. Included in trading assets are residual
interests. When we sell receivables in securitizations of home equity loans and
lines of credit, we retain residual interests, a servicing asset, one or more
subordinated tranches, and in some cases a cash reserve account, all of which
are retained interests in the securitized receivables. Gain or loss on the sale
of the receivables depends in part on the previous carrying amount of the
financial assets involved in the transfer, allocated between the assets sold and
the retained interests based on their relative fair value at the date of
transfer.
To obtain fair value of residual interests, quoted market prices are used
if available. However, quotes are generally not available for residual
interests, so we generally estimate fair value based on the present value of
expected cash flows estimated using management's best estimates of the key
assumptions -- prepayment speeds, credit losses, forward yield curves, and
discount rates commensurate with the risks involved. Adjustments to carrying
values are recorded as trading gains or losses.
Loans Held For Sale: Loans held for sale are carried at the lower of cost
or market, determined on an aggregate basis for both performing and
nonperforming loans. Market value is determined by outstanding commitments or by
current investor yield requirements.
Loans: Loans are carried at cost. Loan origination fees and costs are
deferred and the net amounts are amortized as an adjustment to yield. When loans
are sold, deferred fees and costs are included with outstanding principal
balances to determine gains or losses. Interest income on loans is computed
daily based on the principal amount of loans outstanding. The accrual of
interest income is discontinued when a loan becomes 90 days past due as to
principal or interest. Management may elect to continue the accrual of interest
when the estimated net realizable value of collateral is sufficient to cover the
principal balance and accrued interest.
Direct Financing Leases: Interest and service charges, net of initial
direct costs, are deferred and reported as income in decreasing amounts over the
life of the lease, which averages three to four years, so as to provide an
approximate constant yield on the outstanding principal balance.
Allowance for Loan and Lease Losses: The allowance for loan and lease
losses is maintained at a level considered adequate to provide for loan and
lease losses and is based on management's evaluation of inherent losses in the
portfolio. Loans are considered impaired if it is probable that we will be
unable to collect the scheduled payments of principal or interest when due
according to the contractual terms of the loan
7
agreement. The measurement of impaired loans is generally based on the present
value of expected future cash flows discounted at the historical effective
interest rate, except that all collateral-dependent loans are measured for
impairment based on the fair value of the collateral.
Servicing Assets: When we securitize or sell loans, we generally retain
the right to service the underlying loans sold. A portion of the cost basis is
allocated to this servicing asset based on its fair value relative to the loan
as a whole. We use the market prices under comparable servicing sale contracts,
when available, or alternatively use a valuation model that calculates the
present value of future cash flows to determine the fair value of the servicing
assets. In using this valuation method, we incorporate assumptions that we
believe market participants would use in estimating future net servicing income,
which include estimates of the cost of servicing per loan, the discount rate,
float value, an inflation rate, ancillary income per loan, prepayment speeds,
and default rates. Servicing assets are amortized over the estimated lives of
the related loans, which are grouped based on loan characteristics, in
proportion to estimated net servicing income.
In determining servicing value impairment, the servicing portfolio was
stratified into its predominant risk characteristics, principally by interest
rate. These segments of the portfolio are valued, using market prices under
comparable servicing sale contracts, when available, or alternatively, using the
same model as was used to originally determine the fair value at origination,
using current market assumptions. The calculated value is then compared with the
book value of each stratum to determine the required reserve for impairment. The
impairment reserve fluctuates as interest rates change and, therefore, no
reasonable estimate can be made as to future increases or declines in reserve
levels.
Derivative Instruments: Effective January 1, 2001, we adopted the
provisions of Statement of Financial Accounting Standards ("SFAS") No. 133,
"Accounting for Derivative Instruments and Hedging Activities," as amended.
Under the provisions of this standard, all derivative instruments have been
recorded at fair value as assets or liabilities in the December 31, 2001
consolidated balance sheet. Unrealized holding gains and losses from all
derivative instruments classified as fair value hedges or freestanding
derivative instruments have been recorded in the consolidated statement of
income. The adoption of SFAS 133 resulted in a cumulative change in accounting
principle, increasing net income by $175 thousand in 2001.
We utilize certain derivative instruments that do not qualify for hedge
accounting treatment under SFAS No. 133. These derivatives are accounted for as
trading securities and marked to market on the income statement. While we do not
seek GAAP hedge accounting treatment for most of these instruments, their
economic purpose is to hedge existing exposures to either interest rate risk or
foreign currency risk.
We enter into forward contracts to protect against interest rate
fluctuations from the date of mortgage loan commitment until the loans are sold.
At December 31, 2001, we designated the portion of these transactions hedging
the closed mortgage loans as hedges that qualify for hedge accounting treatment
under SFAS 133. The basis of the hedged closed loans is adjusted for changes in
value associated with the risk being hedged. The effect of these hedging
activities, which do not have a material impact on our net income, was recorded
through earnings as gain from sale of loans. Hedge ineffectiveness recorded in
gains from sale of loans related to these hedging activities was immaterial.
Additionally, we enter into commitments to originate loans whereby the
interest rate on the loan is determined prior to funding (rate lock
commitments). Rate lock commitments on loans intended to be sold are currently
considered to be derivatives. At the time of interest rate lock commitment, no
gain or loss is recognized. Any subsequent changes in fair value are recorded in
earnings. These derivatives are recorded on the balance sheet at fair value at
period end.
Premises and Equipment: Premises and equipment are recorded at cost.
Depreciation is determined by the straight-line method.
Venture Capital Investments: Venture capital investments held by Irwin
Ventures, LLC are carried at fair value with changes in fair value recognized in
other income. The investment committee of Irwin Ventures determines the value of
these nonpublicly traded investments at the end of each reporting period based
upon review of the investee's financial results, condition, and prospects.
Changes in estimated fair values can also be made when an event such as a new
round of funding from other private equity investors would cause a change
8
in estimated market value. In the future, should the company have investments in
publicly-traded securities, it would look to the traded market value of the
investments as the basis of its mark-to-market.
Other Assets: Included in other assets at December 31, 2001 and 2000 are
$4.4 million and $2.8 million of real estate properties acquired as a result of
foreclosure. Other real estate owned is carried at the lower of the recorded
investment in the related loan or fair value of the property less estimated
costs to sell.
Income Taxes: A consolidated tax return is filed for all eligible
entities. Deferred income taxes are computed using the liability method, which
establishes a deferred tax asset or liability based on temporary differences
between the tax basis of an asset or liability and the basis recorded in the
financial statements.
Cash and Cash Equivalents Defined: For purposes of the statement of cash
flows, we consider cash and due from banks to be cash equivalents.
Recent Accounting Developments: In September 2000, the FASB issued SFAS
No. 140, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities." SFAS No 140, which replaces SFAS No. 125,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities," provides accounting and reporting standards for securitizations
and other transfers of assets. The Standard is based on the application of a
financial components approach that focuses on control, and provides consistent
standards for distinguishing transfers of financial assets that are sales from
transfers that are secured borrowings. The Standard requires disclosure of
information about securitized assets, including principal outstanding of
securitized and other managed assets, accounting policies, key assumptions
related to the determination of the fair value of residual interests,
delinquencies and credit losses. The accounting requirements of this Standard
were effective for transfers and servicing of financial assets and
extinguishments of liabilities occurring after March 31, 2001. Adoption of this
statement did not have a material impact on our financial position or results of
operations.
On June 29, 2001 the FASB approved SFAS No. 141, "Business Combinations,"
and No. 142 "Goodwill and Other Intangible Assets." SFAS 141 eliminates the
pooling-of-interests method of accounting -- requiring that purchase accounting,
with its recognition of intangible assets separately from goodwill, be applied
to all business combinations initiated after June 30, 2001.
Under the provisions of SFAS 142, goodwill will no longer be amortized
against earnings. Instead, goodwill and intangible assets deemed to have an
indefinite life will be reviewed for impairment at least annually. The
amortization period of intangible assets with finite lives will no longer be
limited to forty years. This standard became effective January 1, 2002. We
discontinued the amortization of goodwill with a net carrying value of $1.8
million on the date of adoption and annual amortization of $0.2 million that
resulted from business combinations prior to the adoption of SFAS 141. In
addition, we will record an after tax benefit of $0.5 million, as a cumulative
effect of a change in accounting principle, representing the write-off of
negative goodwill at January 1, 2002 arising from a prior business combination.
The FASB has also issued SFAS No. 143, "Accounting for Asset Retirement
Obligations," and SFAS No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets." SFAS 143 addresses accounting for the retirement of tangible
long-lived assets and the associated asset retirement costs. The effective date
is for fiscal years beginning after June 15, 2002. SFAS 144, effective for
fiscal years beginning after December 15, 2001, supersedes FASB No. 121
"Accounting for the Impairment of long-Lived Assets to Be Disposed Of" and APB
Opinion No. 30, "Reporting the Results of Operations -- Reporting the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions," for the disposal of a segment of a business.
Management does not believe the implementation of SFAS 143 or SFAS 144 will have
a material effect on our earnings or financial condition.
Reclassifications: Certain amounts in the 2000 and 1999 consolidated
financial statements have been reclassified to conform to the 2001 presentation.
These changes had no impact on previously reported net income or shareholders'
equity.
9
NOTE 2 -- RESTRICTIONS ON CASH AND INTEREST-BEARING DEPOSITS WITH FINANCIAL
INSTITUTIONS
Irwin Union Bank and Trust Company and Irwin Union Bank, F.S.B. are
required to maintain reserve balances with the Federal Reserve Bank. The amount
of the reserve balance at December 31, 2001 was $7.5 million. Additionally, we
are required to maintain reserve funds in connection with our loan
securitization activities. Included in accounts receivable at December 31, 2001
is $0.5 million of these reserve funds.
NOTE 3 -- SALES OF RECEIVABLES
During 2001 and 2000, we sold home equity loans and lines of credit in
securitization transactions resulting in the creation of residual interests and
a servicing asset. Residual interests totaling $199.1 million and $152.6
million, respectively, are included in trading assets at December 31, 2001 and
2000, respectively. We receive annual servicing fees of approximately 0.75% to
1.0% of the outstanding balance and rights to future cash flows arising after
the investors in the securitization trust have received the return for which
they contracted. The investors and the securitization trusts have no recourse to
our other assets for failure of debtors to pay when due. Our residual interests
are subordinate to investors' interests. The value of the residual interests are
subject to prepayment, credit, and interest rate risks in the transferred
financial assets.
We recognized pretax gains of $91.6 million, $47.0 million, and $23.7
million on the securitization of home equity loans and lines of credit at our
home equity line of business during 2001, 2000, and 1999, respectively.
Key economic assumptions used in measuring the fair value of residual
interests at the date of securitization resulting from securitizations completed
during the year 2001 (weighted based on principal amounts securitized) were as
follows:
Prepayment speed (annual rate)................ 18.78%
Weighted-average life (in years).............. 3.57
Expected credit losses (annual rate).......... 2.27%
Residual cash flows discounted at............. 16.85
Interest rates on adjustable notes............ LIBOR plus contractual spread ranging from 18
to 200 basis points
The table shown above aggregates each of the securitization transactions by
the line of business completed in 2001 into a single set of assumptions. In
accounting for the residual assets, we analyze interests on a security by
security basis and perform analysis at the loan level.
At December 31, 2001, key economic assumptions and the sensitivity of the
current fair value of residual cash flows to immediate 10 percent and 25 percent
adverse changes in those assumptions are as follows:
HOME EQUITY LOANS AND LINES OF CREDIT
-------------------------------------
(DOLLARS IN THOUSANDS)
Balance sheet carrying value of residual interests -- fair
value..................................................... $199,071
Weighted-average life (in years)............................ 2.72
Prepayment speed assumptions (annual rate).................. 24.84%
Impact on fair value of 10% adverse change (27.32%)......... $ (3,395)
Impact on fair value of 25% adverse change (31.05%)......... (7,919)
Expected credit losses (annual rate)........................ 2.83%
Impact on fair value of 10% adverse change (3.11%).......... $ (8,731)
Impact on fair value of 25% adverse change (3.54%).......... (21,135)
Residual cash flows discount rate (annual).................. 18.54%
Impact on fair value of 10% adverse change (20.39%)......... $ (8,124)
Impact on fair value of 25% adverse change (23.18%)......... (19,243)
These sensitivities are hypothetical and should be considered with caution.
As the figures indicate, changes in fair value based on a 10 percent and 25
percent variation in assumptions generally cannot be
10
extrapolated because the relationship of the change in assumption to the change
in fair value may not be linear. Also, in this table, the effect of a variation
in a particular assumption on the fair value of the retained interest is
calculated without changing any other assumption; in reality, changes in one
factor may result in changes in another (for example, increases in market
interest rates may result in lower prepayments and increased credit losses),
which might magnify or counteract the sensitivities.
Static pool credit losses are calculated by summing the actual and
projected future credit losses and dividing them by the original balance of each
pool of assets. The amount shown here for each year is calculated based on all
securitizations occurring in that year.
Actual and projected credit losses (%) as of:
HOME EQUITY LOANS AND LINES OF CREDIT SECURITIZED IN
---------------------------------------------------------------------------
1995 1996 1997 1998 1999 2000 2001
------- -------- -------- -------- -------- -------- ----------
DECEMBER 31, 2001 (DOLLARS IN THOUSANDS)
Actual to date........... 2.29% 1.04% 1.12% 0.90% 2.19% 2.11% 0.14%
Projected remaining...... -- -- 0.08 0.48 1.4 4.13 8.62
------- -------- -------- -------- -------- -------- ----------
Total losses............. 2.29 1.04 1.20 1.38 3.59 6.24 8.76
Original balance
securitized............ $51,584 $139,996 $229,994 $160,470 $433,606 $781,914 $1,042,462
The table below summarizes the cash flows received from (paid to)
securitization trusts during the year ended December 31, 2001 ($ in thousands):
Proceeds from new securitizations........................... $1,072,177
Collections used by the trust to purchase new home equity
loan balances............................................. 6,501
Servicing fees received..................................... 10,741
Cash flows received on residual interests*.................. 45,645
Cash received upon release from reserve accounts............ 135
Purchases of delinquent or foreclosed assets................ (701)
Servicing advances.......................................... (42,483)
Reimbursements of servicing advances........................ 43,319
---------------
* Cash flows received on residual interests are net of $31.9 million used to
over-collateralize the trusts. During 2001, $6.0 million was paid to
over-collateralize the trusts at the time of securitization.
11
Historical loss and delinquency amounts for the managed portfolio for the
year ended December 31, 2001 were as follows (dollars in thousands):
DELINQUENT
TOTAL PRINCIPAL PRINCIPAL
AMOUNT OF OVER 60 DAYS***
LOANS AT -----------------
DECEMBER 31, YEAR ENDED
2001 DECEMBER 31, 2001
--------------- -----------------
Home equity loans and lines of credit....................... $2,317,975 $121,666
Comprised of:
Loans owned*:
Loans....................................................... $ 350,433 $ 15,198
Loans securitized, servicing and residual retained**........ 1,714,109 89,422
---------- --------
Total owned portfolio....................................... 2,064,542 104,620
---------- --------
Loans managed but not owned:
Loans securitized, servicing retained, residual sold**...... $ 216,512 $ 17,046
Loans and residual sold, servicing retained................. 36,921 --
Total managed but not owned................................. 253,433 17,046
---------- --------
Total managed loans......................................... $2,317,975 $121,666
========== ========
---------------
* Loans owned are loans held for investment or loans in which we retain a
subordinate interest and retain a risk of loss
** Represents the principal amount of the loan. Residual interests held for
securitized assets are excluded from this table because they are recognized
separately.
*** Includes bankruptcies, foreclosures and other real estate owned.
Actual credit losses, net of recoveries, on the managed portfolios during the
year ended December 31, 2001 were $35.4 million related to loans securitized and
loans held for investment. Of this amount, $10.0 million relates to unsold loans
while $25.4 million relates to securitized loans.
NOTE 4 -- INVESTMENT SECURITIES
The amortized cost, fair value, and carrying value of investments held at
December 31, 2001 are as follows:
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR CARRYING
COST GAINS LOSSES VALUE VALUE
--------- ---------- ---------- ------- --------
(IN THOUSANDS)
Held-to-maturity:
Obligations of states and political
subdivisions................................. $ 4,425 $113 $ -- $ 4,538 $ 4,425
Mortgage-backed securities..................... 1,507 28 -- 1,535 1,507
Other.......................................... 133 -- -- 133 133
------- ---- ----- ------- -------
Total held-to-maturity....................... 6,065 141 -- 6,206 6,065
------- ---- ----- ------- -------
Available-for-sale:
U.S. Treasury and government obligations....... 29,251 78 -- 29,329 29,329
Mortgage-backed securities..................... 2,671 46 -- 2,717 2,717
Other.......................................... 685 -- -- 685 685
------- ---- ----- ------- -------
Total available-for-sale..................... 32,607 124 -- 32,731 32,731
------- ---- ----- ------- -------
Total investments............................ $38,672 $265 $ -- $38,937 $38,796
======= ==== ===== ======= =======
12
The amortized cost, fair value, and carrying value of investments held at
December 31, 2000 are as follows:
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR CARRYING
COST GAINS LOSSES VALUE VALUE
--------- ---------- ---------- ------- --------
(IN THOUSANDS)
Held-to-maturity:
U.S. Treasury and government obligations....... $21,006 $-- $ (1) $21,005 $21,006
Obligations of states and political
subdivisions................................. 4,586 71 (1) 4,656 4,586
Mortgage-backed securities..................... 2,059 (1) -- 2,058 2,059
------- --- ---- ------- -------
Total held-to-maturity....................... 27,651 70 (2) 27,719 27,651
------- --- ---- ------- -------
Available-for-sale:
U.S. Treasury and government obligations....... 4,992 -- 1 4,993 4,993
Mortgage-backed securities..................... 3,103 -- (10) 3,093 3,093
Other.......................................... 1,358 -- -- 1,358 1,358
------- --- ---- ------- -------
Total available-for-sale..................... 9,453 -- (9) 9,444 9,444
------- --- ---- ------- -------
Total investments............................ $37,104 $70 $(11) $37,163 $37,095
======= === ==== ======= =======
The amortized cost and estimated value of debt securities at December 31,
2001, by contractual maturity, are shown below. Expected maturities will differ
from contractual maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.
AMORTIZED FAIR
COST VALUE
--------- -------
(IN THOUSANDS)
Held-to-maturity:
Due in one year or less................................... $ 268 $ 268
Due after one year through five years..................... 1,095 1,095
Due after five years through ten years.................... 1,215 1,258
Due after ten years....................................... 1,980 2,050
------- -------
4,558 4,671
Mortgage-backed securities.................................. 1,507 1,535
------- -------
6,065 6,206
------- -------
Available-for-sale:
Due in one year or less................................... $ 3,682 $ 3,760
Due after ten years....................................... 26,254 26,254
------- -------
29,936 30,014
Mortgage-backed securities.................................. 2,671 2,717
------- -------
32,607 32,731
------- -------
Total investments...................................... $38,672 $38,937
======= =======
Investment securities amounting to $12.8 million were pledged as collateral
for borrowings and for other purposes on December 31, 2001. During 2001 and 2000
there were no sales of "available for sale" investments. During 1999, sales of
"available for sale" investments with proceeds of $3.1 million resulted in a
gross loss of $1.2 thousand. Additionally in 2001, 2000, and 1999,
"held-to-maturity" investments totaling $0.3 million, $2.9 million and $1.8
million, respectively, were called. Calls in 2001 and 2000 resulted in gross
losses of $0.4 thousand and $23.1 thousand, respectively. Calls in 1999 were at
par.
13
NOTE 5 -- LOANS AND LEASES
Loans and leases are summarized as follows:
DECEMBER 31,
------------------------
2001 2000
---------- ----------
(IN THOUSANDS)
Commercial, financial and agricultural...................... $1,055,307 $ 677,066
Real estate-construction.................................... 287,228 220,485
Real estate-mortgage........................................ 490,111 122,301
Consumer.................................................... 38,489 56,785
Direct financing leases
Domestic.................................................. 232,527 116,867
Foreign................................................... 91,816 72,864
Unearned income
Domestic.................................................. (44,183) (21,570)
Foreign................................................... (13,548) (9,876)
---------- ----------
Total............................................. $2,137,747 $1,234,922
========== ==========
In 2001, $327.7 million of loans held for sale at the home equity lending
line of business were reclassified to loans and leases. These loans are included
in the real estate-mortgage category above.
Commercial loans are extended primarily to local regional businesses in the
market areas of Irwin Union Bank. We also provide consumer loans to the
customers in those markets. Real estate loans and direct financing leases are
extended throughout the United States and Canada.
Irwin Union Bank and Trust, in the normal course of business, makes loans
to directors, officers, and organizations and individuals with which they are
associated at market rates. Such loans amounted to $1.9 million and $2.4 million
at December 31, 2001 and 2000, respectively. During 2001, $0.9 million of new
loans were made and repayments totaled $1.0 million.
NOTE 6 -- ALLOWANCE FOR LOAN AND LEASE LOSSES
Changes in the allowance for loan and lease losses are summarized below:
DECEMBER 31,
------------------------------
2001 2000 1999
-------- ------- -------
(IN THOUSANDS)
Balance at beginning of year................................ $ 13,129 $ 8,555 $ 9,888
Acquisition of Onset Capital................................ -- 1,908 --
Provision for loan and lease losses......................... 17,505 5,403 4,443
Reduction due to sale of loans and leases................... (6) -- (3,126)
Reduction due to reclassification of loans.................. -- (16) (922)
Foreign currency adjustment................................. (140) (19) --
Recoveries.................................................. 2,236 466 503
Charge-offs................................................. (10,441) (3,168) (2,231)
-------- ------- -------
Balance at end of year...................................... $ 22,283 $13,129 $ 8,555
======== ======= =======
At December 31, 2001, 2000, and 1999, the recorded investment in loans for
which impairment has been recognized in accordance with SFAS No. 114 and SFAS
No. 118 totaled $33.1 million, $7.4 million, and $0.9 million, respectively.
These loans had a corresponding valuation allowance of $4.2 million, $820
thousand, and $204 thousand, respectively, based on the fair value of the loans'
collateral. We recognized $2.3 million, $521 thousand, and $38 thousand of
interest income on these loans in 2001, 2000, and 1999, respectively.
14
NOTE 7 -- SERVICING ASSETS
Included on the consolidated balance sheet at December 31, 2001 and 2000
are $228.6 million and $130.5 million, respectively, of capitalized servicing
assets. These amounts relate to the principal balances of loans serviced by us
for investors. Although they are not generally held for purposes of sale, there
is an active secondary market for servicing assets.
MORTGAGE SERVICING ASSET:
DECEMBER 31,
--------------------
2001 2000
-------- --------
(IN THOUSANDS)
Beginning Balance........................................... $130,522 $138,500
Additions................................................... 151,821 57,165
Amortization and impairment................................. (50,134) (39,529)
Reduction for servicing sales............................... (3,585) (25,614)
-------- --------
$228,624 $130,522
======== ========
We have established a valuation allowance to record servicing assets at
their fair market value. Changes in the allowance are summarized below:
DECEMBER 31,
-------------------------------
2001 2000 1999
-------- ------- --------
(IN THOUSANDS)
Balance at beginning of year................................ $ 14,204 $ 401 $ 11,720
Provision for impairment.................................... 11,321 13,803 (11,319)
Permanent impairment*....................................... (12,030) -- --
-------- ------- --------
Balance at end of year...................................... $ 13,495 $14,204 $ 401
======== ======= ========
---------------
* Permanent impairment was recorded in conjunction with a portfolio
restratification change made when we updated predominant risk characteristics
inherent in the portfolio of servicing rights during 2001.
At December 31 2001, key economic assumptions and the sensitivity of the
current carrying value of mortgage servicing rights to immediate 10% and 20%
adverse changes in those assumptions are as follows ($ in thousands):
Carrying amount of mortgage servicing rights................ $228,624
Constant prepayment speeds.................................. 13.86%
Impact on fair value of 10% adverse change (15.2%).......... (9,723)
Impact on fair value of 20% adverse change (16.6%).......... (18,238)
Discount Rate............................................... 10.47%
Impact on fair value of 10% adverse change (11.51%)......... (6,474)
Impact on fair value of 20% adverse change (12.55%)......... (12,332)
These sensitivities are hypothetical and should be used with caution. As
the figures indicate, changes in value based on a 10% and 20% variation in
assumptions generally cannot be extrapolated because the relationship of the
change in assumption to the change in value may not be linear. Also, in this
table, the effect of a variation in a particular assumption on the value of the
residual interest is calculated without changing any other assumption; in
reality, changes in one factor may result in changes in another (for example,
increases in market interest rates may result in lower prepayments and increased
credit losses), which might magnify or counteract the sensitivities.
Included in the servicing assets are $211.2 million and $121.6 million of
servicing assets related to the mortgage bank at December 31, 2001 and 2000,
respectively. The servicing assets at the mortgage bank had a
15
fair value of $239.7 million and $165.1 million at December 31, 2001 and 2000,
respectively. Below is a rollforward of the mortgage bank's servicing portfolio
balance:
SERVICING PORTFOLIO:
DECEMBER 31,
-----------------------
2001 2000 1999
----- ----- -----
(IN BILLIONS)
Beginning Portfolio......................................... $ 9.2 $10.5 $11.2
Add:
Originations of servicing rights.......................... 9.2 3.7 5.9
Deduct:
Sale of servicing rights.................................. (2.3) (4.1) (4.7)
Run-off................................................... (3.2) (0.9) (1.9)
----- ----- -----
Ending Portfolio............................................ $12.9 $ 9.2 $10.5
===== ===== =====
Key economic assumptions used in measuring the carrying value of mortgage
servicing rights at the mortgage bank at the date of securitization resulting
from deliveries completed during the year 2001 (weighted based on principal
amount of deliveries) were as follows:
Weighted average prepayment rate (annual rate).............. 13.86%
Weighted average life (in years)............................ 8.24
Weighted average discount rate.............................. 9.89%
NOTE 8 -- PREMISES AND EQUIPMENT
Premises and equipment are summarized as follows:
DECEMBER 31,
----------------------------------
USEFUL
2001 2000 LIVES
-------- -------- ----------
(IN THOUSANDS)
Land...................................................... $ 2,263 $ 1,737 n/a
Building and leasehold improvements....................... 19,742 17,410 7-40 years
Furniture and equipment................................... 49,001 40,660 3-10 years
-------- --------
71,006 59,807
Less accumulated depreciation............................. (36,018) (30,398)
-------- --------
Total........................................... $ 34,988 $ 29,409
======== ========
Amounts charged to non-interest expense for depreciation amounted to $5.2
million, $5.9 million, and $4.5 million in 2001, 2000, and 1999, respectively.
NOTE 9 -- LEASE OBLIGATIONS
At December 31, 2001, we leased certain branch locations and office
equipment used in our operations.
Operating lease rental expense was $19.8 million in 2001, $17.8 million in
2000, and $16.5 million in 1999.
16
The future minimum rental payments required under noncancellable operating
leases with initial or remaining terms of one year or more are summarized as
follows:
YEAR ENDED DECEMBER 31: (IN THOUSANDS)
2002...................................................... $17,076
2003...................................................... 11,206
2004...................................................... 9,481
2005...................................................... 7,427
2006...................................................... 5,526
Thereafter................................................ 2,031
-------
Total minimum rental payments..................... $52,747
=======
NOTE 10 -- SHORT-TERM BORROWINGS
Short-term borrowings are summarized as follows:
DECEMBER 31,
--------------------
2001 2000
-------- --------
(IN THOUSANDS)
Repurchase agreements & drafts payable related to mortgage
loan closings............................................. $154,157 $ 64,557
Commercial paper............................................ 11,123 11,346
Federal Home Loan Bank borrowings........................... 212,000 153,000
Federal funds............................................... 35,200 20,000
Lines of credit and other borrowings........................ 75,483 226,599
-------- --------
$487,963 $475,502
======== ========
Weighted average interest rate.............................. 4.64% 6.79%
Repurchase agreements at December 31, 2001 and 2000, include $0.1 million
and $0.1 million in mortgages sold under agreements to repurchase that are used
to fund mortgages prior to sale in the secondary market. These repurchase
agreements are collateralized by mortgage loans held for sale.
Drafts payable related to mortgage loan closings totaled $154.0 million and
$64.5 million at December 31, 2001 and 2000. These borrowings are related to
mortgage closings at the end of December which have not been presented to the
banks for payment. When presented for payment, these borrowings will be funded
internally or by borrowing from the lines of credit.
Commercial paper includes $11.1 million and $5.7 million at December 31,
2001 and 2000, respectively, payable to a company controlled by a significant
shareholder and director of Irwin Financial.
Federal funds and Federal Home Loan Bank borrowings are collateralized by
mortgage loans held for sale.
We also have lines of credit available of $813.3 million to fund loan
originations and operations. Interest on the lines of credit is payable monthly
or quarterly with rates ranging from 1.9% to 7.4%.
NOTE 11 -- LONG-TERM DEBT
Long-term debt consists of a note payable for $30.0 million with an
interest rate of 7.58%. This debt is carried on the balance sheet net of
capitalized fees of $0.3 million and $0.4 million as of December 31, 2001, and
2000, respectively. The entire principle of this note will mature on July 7,
2014.
NOTE 12 -- COMPANY-OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF
SUBSIDIARY TRUSTS
In January 1997, we issued $50.0 million of trust preferred securities
through IFC Capital Trust I, our wholly-owned statutory business trust
subsidiary created under the laws of Delaware. The securities were
17
issued at $25 per share with a cumulative dividend rate of 9.25%, payable
quarterly. In connection with the issuance of the securities, we sold an
equivalent amount of subordinated debentures to the trust. The securities have
an initial maturity of 30 years with a 19-year extension option. The securities
are callable at par after five years. The securities are shown on the balance
sheet at December 31, 2001 net of $1.8 million of capitalized issuance costs.
The sole assets of IFC Capital Trust I are our subordinated debentures with a
principal balance of $51.5 million, an interest rate of 9.25%, and an initial
maturity of 30 years with a 19-year extension option. These funds are considered
Tier 1 qualifying capital.
In November 2000, we issued $51.75 million of trust preferred securities
through IFC Capital Trust II and $51.75 million of convertible trust preferred
securities through IFC Capital Trust III, wholly-owned statutory business trust
subsidiaries created under the laws of Delaware. The securities were issued at
$25 per share with cumulative dividend rates of 10.5% and 8.75%, respectively,
payable quarterly. They have an initial maturity of 30 years. The trust
preferred securities are not convertible into our common shares. The convertible
trust preferred securities have an initial conversion ratio of 1.261 shares of
common stock for each convertible preferred security (equivalent to an initial
conversion price of $19.825 per share of common stock). The securities are shown
on the balance sheet at December 31, 2001, net of $4.4 million of capitalized
issuance costs. The sole assets of IFC Capital Trust II and III are our
subordinated debentures with principal balances of $53.35 million each, interest
rates of 10.5% and 8.75%, respectively, and an initial maturity of 30 years. The
subordinated debentures of IFC Capital Trust II are callable at par after five
years. Both issues are Tier 1 qualifying capital elements.
In July 2001, we issued $15 million of trust preferred securities in a
private placement transaction through IFC Capital Trust IV, our wholly-owned
statutory business trust subsidiary created under the laws of Delaware. In
connection with the issuance of the trust preferred securities, we sold an
equivalent amount of subordinated debentures to the trust. These subordinated
debentures will mature on July 25, 2031, which date may be shortened to a date
not before July 25, 2006, if certain conditions are met. The securities are
shown on the balance sheet at December 31, 2001, net of $0.5 million of
capitalized issuance costs. The cumulative dividend rate payable on the trust
preferred securities and the subordinated debentures is 10.25%, payable
semiannually on January 25 and July 25 of each year. These funds are considered
Tier 1 qualifying capital.
In November 2001, we issued $30 million of trust preferred securities in a
private placement transaction through IFC Capital Trust V, a wholly-owned
statutory business trust subsidiary created under the laws of Delaware. In
connection with the issuance of the trust preferred securities, we sold an
equivalent amount of subordinated debentures to the trust. These subordinated
debentures will mature in 2031, with an option to call them at par after five
years. The securities are held on the balance sheet at December 31, 2001, net of
$0.9 million of capitalized issuance costs. The cumulative dividend rate payable
on the trust preferred securities and the subordinated debentures is 9.95%,
payable semiannually on June 8 and December 8 of each year. These funds are
considered Tier 1 qualifying capital.
NOTE 13 -- COMMITMENTS AND CONTINGENCIES
Our subsidiary, Irwin Mortgage Corporation is a defendant in a class action
lawsuit in the United States District Court for the northern District of Alabama
alleging that Irwin Mortgage violated the federal Real Estate Settlement
Procedures Act (RESPA) relating to Irwin Mortgage's payment of broker fees to
mortgage brokers. A second suit was filed September, 2001 seeking consolidation
with this case. In July, 2001, the plaintiffs filed a motion for partial summary
judgment asking the court to find Irwin Mortgage summarily liable for violating
RESPA. Irwin Mortgage filed a motion in opposition and these motions are now
pending before the district court.
In November, 2001, by order of the district court, the parties filed
supplemental briefs analyzing the impact of a new HUD policy statement that
explicitly disagrees with the judicial interpretation of RESPA by the Court of
Appeals for the 11th Circuit in its ruling upholding class certification in this
case. Irwin Mortgage filed a petition for certiorari with the United States
Supreme Court seeking review of the 11th Circuit's class certification ruling
and also filed a motion in the district court seeking a stay of further
proceedings until the 11th Circuit renders decisions in the other three RESPA
cases pending before it. The Supreme Court denied
18
Irwin Mortgage's petition. On March 8, 2002, the district court granted Irwin
Mortgage's motion to stay proceedings in this case.
At this stage of the litigation we are unable to determine the outcome or a
reasonable estimate of potential loss. However, we expect that an adverse
outcome in this lawsuit could result in substantial monetary damages that could
be material to our financial position. We have not established any reserves for
this case or for the second suit that seeks consolidation with this one. The
second case, which seeks class action status and contains allegations similar to
those in the first case, has been stayed until the 11th Circuit renders
decisions in the other three RESPA cases pending before it. An adverse outcome
in the second case could cause the company to suffer material losses.
In January, 2001, we and two subsidiaries, Irwin Leasing Corporation
(formerly Affiliated Capital Corp.) and Irwin Equipment Finance Corporation, our
indirect and direct subsidiaries, respectively (for purposes of this paragraph,
the Irwin companies), were served as defendants in an action filed in the U.S.
District Court for the Middle District of Pennsylvania. The suit alleges that a
manufacturer/importer of certain medical devices made misrepresentations to
health care professionals and to government officials to improperly obtain
Medicare reimbursement for treatment using the devices, and that the Irwin
companies, through Affiliated Capital's financing activities, aided in making
the alleged misrepresentations. The Irwin companies filed a motion to dismiss on
February 12, 2001. On August 10, 2001, the court granted our motion in part by
dismissing us and Irwin Equipment Finance as defendants in the suit. Irwin
Leasing remains a defendant. We have not established any reserves for this case.
Because the case is in the early stages of litigation, we are unable at this
time to form a reasonable estimate of the amount of potential loss, if any, that
we could suffer.
In May, 2001, Irwin Union Bank and Trust and Irwin Home Equity, our direct
and indirect subsidiaries, respectively (for purposes of this paragraph, Irwin),
received notice that they were named as defendants in a lawsuit filed in the
U.S. District Court for the District of Rhode Island. The suit alleges that
Irwin's disclosures and closing procedure for certain home equity loans did not
comply with certain provisions of the Truth in Lending Act. The suit also
requests that the court certify a plaintiff class in this action. On June 18,
2001, Irwin filed a motion with the court to compel arbitration pursuant to the
provisions in the home equity loan agreement. On October 20, 2001, the Court
entered judgment in favor of Irwin compelling arbitration and dismissing the
plaintiffs' complaint. The plaintiffs have appealed. We have not established any
reserves for this case. If arbitration is ultimately upheld, we do not expect to
suffer material loss in this case.
In an amended complaint, our subsidiary Irwin Union Bank and Trust was
named in place of our indirect subsidiary, Irwin Home Equity, as a defendant in
a suit originally filed in July, 2001 in the U.S. District Court for the
District of Massachusetts. The suit relates to a loan purchased by Irwin Union
Bank and Trust and serviced by Irwin Home Equity. The plaintiff alleges that the
loan documents did not comply with certain provisions of the Truth in Lending
Act relating to high rate loans. The suit also requests that the court certify a
plaintiff class in this action. Irwin Union Bank and Trust filed an answer to
the amended complaint denying plaintiff's allegations. Because the case is in
the early stages of litigation, we are unable at this time to form a reasonable
estimate of the amount of potential loss, if any, that we could suffer. We have
not established any reserves for this case.
On January 25, 2002, a jury awarded the plaintiffs damages of $1.434
million jointly and severally against defendants, including our subsidiary Irwin
Mortgage, in a case filed in August 1998 in the Baltimore, Maryland, City
Circuit Court. The nine plaintiffs alleged that a home rehabilitation company
defrauded them by selling them defective homes at inflated prices and that Irwin
Mortgage, which provided the plaintiff borrowers mortgage loans on the home
purchases, participated in the fraud. Prior to the outcome of the jury trial, we
had no reserves for this case. On February 6, 2002, plaintiffs filed a petition
for attorney's fees. On the same date, Irwin Mortgage filed post-trial motions
for judgment notwithstanding the verdict, new trial and/or remittitur, which is
a request for the court to reduce the amount of damages awarded by the jury. If
the court denies Irwin's post-trial motion, Irwin plans to appeal and will
continue to defend this case vigorously.
We and our subsidiaries are from time to time engaged in various matters of
litigation including the matters described above, other assertions of improper
or fraudulent loan practices or lending violations, and other matters, and we
have a number of unresolved claims pending. In addition, as part of the ordinary
course
19
of business, we and our subsidiaries 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 our regular business activities. While the
ultimate liability with respect to these other litigation matters and claims
cannot be determined at this time, we believe that damages, if any, and other
amounts relating to pending matters are not likely to be material to our
consolidated financial position, results of operations, or cash flows, except as
described above. Reserves have been established for these various matters of
litigation, when appropriate, based upon the advice of legal counsel.
NOTE 14 -- FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
In the normal course of business we are party to certain financial
instruments with off-balance sheet risk to meet the financial needs of our
customers. These financial instruments include loan commitments and standby
letters of credit. Those instruments involve, to varying degrees, elements of
credit and interest rate risk in excess of the amounts recognized on the
consolidated balance sheet.
Our exposure to credit loss, in the form of nonperformance by the
counterparty on commitments to extend credit and standby letters of credit, is
represented by the contractual amount of those instruments. Collateral pledged
for standby letters of credit and commitments varies but may include accounts
receivable; inventory; property, plant, and equipment; and residential real
estate. Total outstanding commitments to extend credit at December 31, 2001,
were $157.6 million. These loan commitments include $120.8 million of floating
rate loan commitments and $36.8 million of fixed rate loan commitments related
to commercial banking activities. We had approximately $26.1 million and $14.6
million in irrevocable standby letters of credit outstanding at December 31,
2001 and 2000, respectively.
NOTE 15 -- DERIVATIVE FINANCIAL INSTRUMENTS
Financial derivatives are used as part of the overall asset/liability
management process. These instruments are used to manage risk-related to changes
in interest and foreign currency fluctuations. Our portfolio of derivative
financial instruments generally consist of forward contracts and interest rate
lock commitments relating to mortgage banking activities, financial futures
contracts, interest rate caps, forward foreign exchange contracts, and interest
rate swaps.
We enter into forward contracts to protect against interest rate
fluctuations from the date of mortgage loan commitment until the loans are sold.
At December 31, 2001, we designated the portion of these transactions hedging
the closed mortgage loans as hedges that qualify for hedge accounting treatment
under SFAS 133. The notional amount of these contracts (which does not represent
the amount at risk) totaled $646.7 million and $308.2 million at December 31,
2001 and 2000, respectively. The basis of the hedged closed loans is adjusted
for changes in value associated with the risk being hedged. We value these
contracts at period end based upon the current secondary market value of
securities with similar characteristics. The carrying amount and fair value of
these derivatives at December 31, 2001 was $0.7 million. Hedge ineffectiveness
recorded in gains from sales of loans related to these hedging activities was
immaterial. The effect of these hedging activities was recorded through earnings
as gain from sale of loans.
We enter into commitments to originate loans whereby the interest rate on
the loan is determined prior to funding (rate lock commitments). Rate lock
commitments on loans intended to be sold are considered to be derivatives and
are recorded at fair value. We value these commitments at period end based upon
the current secondary market value of securities with similar characteristics.
At December 31, 2001, we had a notional amount of rate lock commitments
outstanding totaling $326.5 million with a fair value of $0.9 million. Changes
in fair value of these derivatives are recorded in earnings.
Financial futures contracts or interest rate floors are used periodically
to hedge the value of servicing assets against declining interest rates which
increase prepayment activity and decrease the value of the servicing asset. To
the extent that interest rates increase, the value of servicing assets increases
while the value of these derivative instruments declines. As of December 31,
2001, our servicing asset derivative instruments had a positive fair value of
$17.5 million on a notional amount of $17.4 billion.
20
Derivative instruments are also used to protect the value of residual
interests. Interest rate caps are used when interest on securitized loans is
received at a fixed rate and paid to mortgage backed security holders at a
variable rate of interest. As interest rates change, the value of the residual
interests and interest rate caps move in opposite directions. At December 31,
2001, the carrying value of the interest rate caps was $0.1 million and the
notional amount was $16.9 million.
We enter into foreign currency contracts to protect the value of
intercompany loans made to Onset, our Canadian leasing company, against changes
in the exchange rate. We had a notional amount of $38.1 million in forward
contracts outstanding as of December 31, 2001.
The Canadian leasing company uses interest rate swaps to neutralize
repricing risk associated with its funding source. At December 31, 2001, we had
two interest rate swaps with a notional value of $16.0 million and $14.3
million. The interest rate swaps amortize on a schedule that is designed to
match the principal pay down of the loan portfolio and have a final maturity of
May 25, 2004. We can reduce the notional value of the swaps by up to 10% if
prepayments on the loans are greater than originally anticipated.
NOTE 16 -- REGULATORY MATTERS
Irwin Financial and our bank subsidiaries, Irwin Union Bank and Trust and
Irwin Union Bank, F.S.B. are subject to various regulatory capital requirements
administered by the federal and state banking agencies. Under capital adequacy
guidelines, Irwin Financial, Irwin Union Bank and Trust, and Irwin Union Bank,
F.S.B., must meet specific capital guidelines that involve quantitative measures
of their assets, liabilities, and certain off-balance sheet items as calculated
under regulatory accounting practices. Capital amounts and classification are
also subject to qualitative judgments by the regulators about components, risk
weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require minimum amounts and ratios (set forth in the following table) of total
and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as
defined), and Tier 1 capital to average assets (as defined). We believe, as of
December 31, 2001, that we have met all capital adequacy requirements to which
we are subject.
As of December 31, 2001, we were categorized as well capitalized under the
regulatory framework for prompt corrective action. To be categorized as well
capitalized, Irwin Financial, Irwin Union Bank and Trust, and Irwin Union Bank,
F.S.B., must exceed minimum total risk-based, Tier 1 risk-based, and Tier 1
capital to average assets ratios. There have been no conditions or events
subsequent to December 31, 2001 that we believe have changed our being well
capitalized.
21
The actual capital amounts and ratios of Irwin Financial, Irwin Union Bank
and Trust, and Irwin Union Bank, F.S.B. are presented in the following table:
ADEQUATELY WELL
ACTUAL CAPITALIZED CAPITALIZED
----------------- ----------------- -----------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
-------- ----- -------- ----- -------- -----
(IN THOUSANDS)
AS OF DECEMBER 31, 2001:
Total Capital (to Risk-Weighted
Assets):
Irwin Financial Corporation....... $468,337 10.8% $346,408 8.0% $433,010 10.0%
Irwin Union Bank and Trust........ 363,735 10.8 268,663 8.0 335,829 10.0
Irwin Union Bank, F.S.B........... 17,135 34.8 3,939 8.0 4,923 10.0
Tier 1 Capital (to Risk-Weighted
Assets):
Irwin Financial Corporation....... 295,021 6.8 173,204 4.0 259,806 6.0
Irwin Union Bank and Trust........ 342,153 10.2 134,332 4.0 201,497 6.0
Irwin Union Bank, F.S.B........... 17,074 34.7 N/A 2,954 6.0
Tier 1 Capital (to Average Assets):
Irwin Financial Corporation....... 295,021 9.4 126,091 4.0 157,613 5.0
Irwin Union Bank and Trust........ 342,153 10.9 125,344 4.0 156,680 5.0
Core Capital (to Adjusted Tangible
Assets)
Irwin Union Bank, F.S.B........... 17,074 9.4 7,293 4.0 9,117 5.0
Tangible Capital (to Tangible
Assets)
Irwin Union Bank, F.S.B........... 17,074 9.4 2,735 1.5 N/A
AS OF DECEMBER 31, 2000:
Total Capital (to Risk-Weighted
Assets):
Irwin Financial Corporation....... $384,144 12.9% $226,153 8.0% $282,691 10.0%
Irwin Union Bank and Trust........ 283,611 10.3 220,180 8.0 275,225 10.0
Irwin Union Bank, F.S.B........... 6,636 105.9 501 8.0 627 10.0
Tier 1 Capital (to Risk-Weighted
Assets):
Irwin Financial Corporation....... 250,825 8.4 113,076 4.0 169,614 6.0
Irwin Union Bank and Trust........ 271,037 9.9 110,090 4.0 165,135 6.0
Irwin Union Bank, F.S.B........... 6,636 105.9 N/A 376 6.0
Tier 1 Capital (to Average Assets):
Irwin Financial Corporation....... 250,825 12.4 80,823 4.0 101,028 5.0
Irwin Union Bank and Trust........ 271,037 12.7 85,600 4.0 106,999 5.0
Core Capital (to Adjusted Tangible
Assets)
Irwin Union Bank, F.S.B........... 12,738 51.9 510 4.0 637 5.0
Tangible Capital (to Tangible
Assets)
Irwin Union Bank, F.S.B........... 12,738 51.9 191 1.5 N/A
22
ADEQUATELY WELL
ACTUAL CAPITALIZED CAPITALIZED
----------------- ----------------- -----------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
-------- ----- -------- ----- -------- -----
(IN THOUSANDS)
AS OF DECEMBER 31, 1999:
Total Capital (to Risk-Weighted
Assets):
Irwin Financial Corporation....... $246,183 13.5% 145,891 8.0% 182,363 10.0%
Irwin Union Bank and Trust........ 144,305 10.0 115,295 8.0 144,119 10.0
Tier 1 Capital (to Risk-Weighted
Assets):
Irwin Financial Corporation....... 207,627 11.4 72,945 4.0 109,418 6.0
Irwin Union Bank and Trust........ 136,864 9.5 57,647 4.0 86,471 6.0
Tier 1 Capital (to Average Assets):
Irwin Financial Corporation....... 207,627 12.8 65,046 4.0 81,307 5.0
Irwin Union Bank and Trust........ 136,864 11.0 50,349 4.0 62,936 5.0
NOTE 17 -- FAIR VALUES OF FINANCIAL INSTRUMENTS
Fair value estimates, methods and assumptions are set forth below for our
financial instruments:
Cash and cash equivalents: The carrying amounts reported in the balance
sheet for cash and cash equivalents approximate those assets' fair values.
Interest-bearing deposits with financial institutions, Loans, Loans held
for sale, Deposit liabilities, Short-term borrowings, Long-term debt, and
Company-obligated mandatorily redeemable preferred securities of subsidiary
trust: The fair values were estimated using discounted cash flow analyses,
using interest rates currently being offered for like assets with similar terms,
to borrowers with similar credit quality, and for the same remaining maturities.
Trading assets: The carrying amounts reported in the balance sheet for
trading assets approximate those assets' fair values.
Investment securities: Fair values for investment securities were based on
quoted market prices when available. For securities that had no quoted market
prices, fair values were estimated by discounting future cash flows using
current rates on similar securities.
Forward contract commitments: The unrealized gains and losses of forward
contract commitments is based on the difference between the settlement values of
those commitments and the quoted market values of the underlying securities.
Derivative instruments: The carrying amounts reported in the balance sheet
for derivative instruments approximate those assets' fair values. The estimated
fair values of derivative instruments are determined using methodologies
discussed in Note 15.
Loan commitments -- commercial bank: No value is assigned for unfunded
commitments as these primarily represent commitments to land at market rates
tied to short term indices.
23
The estimated fair values of our financial instruments at December 31, are
as follows:
2001 2000
---------------------------- ----------------------------
CARRYING ESTIMATED FAIR CARRYING ESTIMATED FAIR
AMOUNT VALUE AMOUNT VALUE
---------- -------------- ---------- --------------
(IN THOUSANDS)
FINANCIAL ASSETS:
Cash and cash equivalents.............. $ 158,291 $ 158,291 $ 83,493 $ 83,493
Interest-bearing deposits with
financial institutions............... 14,247 14,257 36,400 36,442
Trading assets......................... 216,684 216,684 154,921 154,921
Investment securities.................. 38,796 38,937 37,095 37,163
Loans held for sale.................... 503,757 505,076 579,788 579,788
Loans, net of unearned discount........ 1,871,135 1,919,336 1,078,604 1,145,129
Servicing asset........................ 257 257
FINANCIAL LIABILITIES:
Deposits............................... 2,309,018 2,296,929 1,443,330 1,452,024
Short-term borrowings.................. 487,963 488,361 475,502 478,342
Long-term debt......................... 29,654 30,334 29,608 30,597
Company-obligated mandatorily
redeemable preferred securities of
subsidiary trust..................... 190,948 208,102 147,167 157,681
2001 2000
-------------------------- --------------------------
NOTIONAL ESTIMATED FAIR NOTIONAL ESTIMATED FAIR
AMOUNT VALUE AMOUNT VALUE
-------- -------------- -------- --------------
OFF BALANCE SHEET:
Loan commitments -- commercial bank...... $157,576 $ -- $ 36,521 $ --
Interest rate lock commitments(1)........ N/A N/A 643,289 --
Standby letters of credit................ 22,661 -- 14,649 --
Forward contract commitments(1).......... N/A N/A 308,208 704
---------------
(1) Due to the adoption of SFAS 133, these commitments are considered
derivatives and are included on balance sheet at December 31, 2001.
The fair value estimates consider relevant market information when
available. Because no market exists for a significant portion of our financial
instruments, fair value estimates are determined based on present value of
estimated cash flows and consider various factors, including current economic
conditions and risk characteristics of certain financial instruments. Changes in
factors, or the weight assumed for the various factors, could significantly
affect the estimated values.
The fair value estimates are presented for existing on- and off-balance
sheet financial instruments without attempting to estimate the value of our
long-term relationships with depositors and the benefit that results from the
low cost funding provided by deposit liabilities. In addition, significant
assets which were not considered financial instruments and were therefore not a
part of the fair value estimates include lease receivables, and premises and
equipment.
NOTE 18 -- SHAREHOLDERS' EQUITY
We have a stock plan that provides up to 300,000 shares to be used to
compensate Business Development Board members of Irwin Union Bank and Trust and
Irwin Union Bank, F.S.B. As of December 31, 2001 and 2000, 8,071 shares and
7,378 shares were issued at a weighted average price of $22.13 and $16.17,
respectively.
We also have a stock plan to compensate our Directors with our common
stock, if so elected, in lieu of cash for their annual retainer and meeting
fees. The number of shares issued under the plan is based on the current market
value of our common stock. In 2001 and 2000, respectively, we granted 5,466 and
8,678 shares
24
under the 1999 plan at a weighted average fair value of $21.89 and $19.63. In
addition, we have an employee stock purchase plan for all qualified employees.
The plan provides for employees to purchase common stock through payroll
deduction at approximately 85% of the current market value.
We have two stock option plans (established in 1997 and 1992) that provide
for the issuance of 2,840,000 shares of non-qualified and incentive stock
options. In addition, the 2001 stock plan provides for the issuance of 2,000,000
of non-qualified and incentive stock options, stock appreciation rights,
restricted stock, and phantom stock units. An additional 2,000,000 of stock
appreciation rights may be granted under this plan For all plans, the exercise
price of each option, which has a ten-year life and a vesting period of four
years beginning the year granted, is equal to the market price of our stock on
the grant date. Vested outstanding stock options have been considered as common
stock equivalents in the computation of diluted earnings per share. In 2001, we
awarded 3,952 shares of common stock in restricted stock grants at a weighted
average fair value of $25.30 through this plan.
Activity in the above plans for 2001, 2000, and 1999 is summarized as
follows:
2001 2000 1999
-------------------------- -------------------------- --------------------------
WEIGHTED- WEIGHTED- WEIGHTED-
NUMBER OF AVERAGE NUMBER OF AVERAGE NUMBER OF AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES EXERCISE PRICE
--------- -------------- --------- -------------- --------- --------------
Outstanding at the
beginning of the year.... 1,616,259 $13.37 1,328,090 $12.50 1,257,050 $ 9.68
Granted.................. 416,197 22.13 351,934 16.67 216,155 24.02
Exercised................ (329,053) 5.25 (32,400) 5.56 (137,600) 4.19
Canceled................. (19,095) 20.87 (31,365) 21.60 (7,515) 24.59
--------- --------- ---------
Outstanding at the of the
year..................... 1,684,308 17.04 1,616,259 13.37 1,328,090 12.50
========= ========= =========
Exercisable at the end of
the year................. 1,162,817 $15.46 1,210,356 $11.30 1,045,659 $ 9.64
========= ========= =========
The table below shows options outstanding and exercisable by price range as
of December 31, 2001:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------------------- ---------------------------------
WEIGHTED
NUMBER AVERAGE WEIGHTED NUMBER WEIGHTED
RANGE OF OUTSTANDING REMAINING AVERAGE EXERCISABLE AVERAGE
EXERCISE PRICES AS OF 12/31/2001 CONTRACTUAL LIFE EXERCISE PRICE AS OF 12/31/2001 EXERCISE PRICE
------------------------------ ---------------- ---------------- -------------- ---------------- --------------
$ 5.53 - $10.66............... 454,343 3.35 $ 8.27 454,343 $ 8.27
$13.69 - $16.50............... 220,111 6.07 $14.03 194,853 $13.89
$16.97 - $21.28............... 311,401 8.37 $17.26 153,731 $17.18
$21.38 - $23.97............... 357,388 9.15 $21.83 106,737 $22.13
$24.09 - $28.56............... 341,065 7.39 $25.44 253,153 $25.71
--------- ---- ------ --------- ------
$ 5.53 - $28.56............... 1,684,308 6.68 $17.04 1,162,817 $15.46
The fair value of each option was estimated to be $11.43, $9.32, and $10.97
on the date of the grant using the binomial option-pricing model with the
following assumptions for 2001, 2000, and 1999, respectively: risk free interest
rates of 5.22%, 6.13%, and 5.20%; dividend yield of 1.00% for 2001 and 2000, and
0.83% for 1999; and volatility of 40% for 2001 and 2000, and 28.7% for 1999.
We have not recognized compensation cost for the three non-qualified and
incentive stock option plans or the Employee Stock Purchase Plan. Had
compensation cost been determined based on the fair value at the
25
grant dates, our net income and earnings per share would have been reduced to
the pro forma amounts indicated below:
2001 2000 1999
------- ------- -------
(IN THOUSANDS)
Net income
As reported............................................... $45,516 $35,666 $33,156
Pro forma................................................. 43,629 34,365 32,176
Basic earnings per share
As reported............................................... 2.15 1.70 1.54
Pro forma................................................. 2.06 1.64 1.49
Diluted earnings per share
As reported............................................... 2.00 1.67 1.51
Pro forma................................................. 1.90 1.61 1.49
NOTE 19 -- EARNINGS PER SHARE
Earnings per share calculations are summarized as follow:
BASIC EFFECT OF EFFECT OF EFFECT OF DILUTED
EARNINGS STOCK PREFERRED CONVERTIBLE EARNINGS
PER SHARE OPTIONS SHARES SHARES PER SHARE
--------- --------- --------- ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
2001
Net income before cumulative effect of change
in accounting principle.................... $45,341 $ -- $ -- $2,801 $48,142
Shares........................................ 21,175 292 96 2,610 24,173
------- ------ ------ ------ -------
Per-Share Amount.............................. 2.14 (0.03) (0.01) (0.11) 1.99
------- ====== ====== ====== -------
Cumulative effect of change in accounting
principle.................................. 175 175
------- -------
Per-Share Amount.............................. 0.01 0.01
------- -------
Net income.................................... 45,516 48,317
------- -------
Per-Share Amount.............................. $ 2.15 $ 2.00
======= =======
2000
Net income.................................... $35,666 $ -- $ -- $ 295 $35,961
Shares........................................ 20,973 281 78 261 21,593
------- ------ ------ ------ -------
Per-Share Amount.............................. $ 1.70 $(0.02) $(0.01) $ -- $ 1.67
======= ====== ====== ====== =======
1999
Net income.................................... $33,156 $ -- $33,156
Shares........................................ 21,530 356 N/A N/A 21,886
------- ------ -------
Per-Share Amount.............................. $ 1.54 $(0.03) $ 1.51
======= ====== =======
In 2001, 562,764 shares related to stock options were not included in the
dilutive earnings per share calculation because they were antidilutive.
26
NOTE 20 -- INCOME TAXES
Income tax expense is summarized as follows:
2001 2000 1999
------- ------- -------
(IN THOUSANDS)
CURRENT:
Federal................................................... $ 2,578 $ 1,374 $ 3,251
State..................................................... (199) 600 687
------- ------- -------
2,379 1,974 3,938
======= ======= =======
DEFERRED:
Federal................................................... 22,876 18,000 14,580
State..................................................... 3,369 3,702 963
------- ------- -------
26,245 21,702 15,543
======= ======= =======
INCOME TAX EXPENSE:
Federal................................................... 25,454 19,374 17,831
State..................................................... 3,170 4,302 1,650
------- ------- -------
$28,624 $23,676 $19,481
======= ======= =======
Our net deferred tax liability, which is included in other liabilities on
the consolidated balance sheet, consisted of the following:
DECEMBER 31,
-------------------
2001 2000
-------- --------
(IN THOUSANDS)
Mortgage servicing.......................................... $(83,974) $(48,912)
Deferred securitization income.............................. (43,023) (34,438)
Loan and lease loss reserve................................. 13,499 4,958
Deferred origination fees and costs......................... 2,090 1,786
Deferred compensation....................................... 7,779 5,097
Retirement benefits......................................... 310 1,155
Fixed assets................................................ (3,096) (1,919)
Net operating loss carryforwards............................ 6,001 --
Other, net.................................................. 2,075 179
-------- --------
Net deferred tax liability.................................. $(98,339) $(72,094)
======== ========
At December 31, 2001, we have a deferred tax asset of $6.0 million relating
to net operating loss carry forwards. These loss carryforwards, if not utilized,
expire beginning in 2020.
A reconciliation of income tax expense to the amount computed by applying
the statutory income tax rate to income before income taxes is summarized as
follows:
2001 2000 1999
------- ------- -------
(IN THOUSANDS)
Income taxes computed at the statutory rate................. $25,765 $20,770 $18,423
Increase (decrease) resulting from:
Nontaxable interest from investment securities and
loans.................................................. (141) (136) (410)
State franchise tax, net of federal benefit............... 2,060 2,796 2,121
Change in deferred tax asset or liability resulting from
tax rate change........................................ -- -- (1,055)
Other items -- net........................................ 940 246 402
------- ------- -------
$28,624 $23,676 $19,481
======= ======= =======
27
NOTE 21 -- EMPLOYEE RETIREMENT PLANS
We have a contributory retirement and savings plan that covers all
employees and meets requirements of Section 401(k) of the Internal Revenue Code.
Employees may contribute up to 14% of their compensation to the plan which is
matched by 60% by us up to 5% of the employee's compensation.
The matching vests 20% after one year, 40% after two years, 60% after three
years, 80% after four years, and 100% after 5 years. The expense to match
employee contributions for the years ended December 31, 2001, 2000 and 1999 was
approximately $1.0 million, $1.1 million and $1.0 million, respectively.
We have a defined benefit plan covering eligible employees of adopting
subsidiaries. The benefits are based on years of service and the employees'
compensation during their employment. Contributions are intended to provide not
only for benefits attributed to service to date but also for those expected to
be earned in the future.
Plan assets are primarily invested in corporate and U.S. bonds, mutual
funds and cash equivalents. The mutual funds are invested primarily in common
stocks and bonds.
The following table sets forth amounts recognized in our balance sheet:
DECEMBER 31,
-----------------
2001 2000
------- -------
(IN THOUSANDS)
Funded status............................................... $(2,140) $(2,775)
Unrecognized prior service cost............................. 131 156
Unrecognized net actuarial loss............................. 5,287 2,578
Adjustment for minimum liability............................ -- (800)
------- -------
Accrued pension cost........................................ $ 3,278 $ (841)
======= =======
Weighted average assumptions:
Discount rate............................................. 7.00% 7.25%
Return on plan assets..................................... 8.50% 8.50%
Rate of compensation increase
Bank Employees......................................... 3.75% 3.75%
All Other Employees.................................... 4.00% 4.00%
A reconciliation of the change in projected benefit obligation and plan
assets is presented below:
2001 2000
------- -------
(IN THOUSANDS)
Benefit obligation at January 1,............................ $13,441 $10,531
Service cost................................................ 750 623
Interest cost............................................... 971 819
Actuarial loss.............................................. 669 1,811
Benefits paid............................................... (330) (343)
------- -------
Benefit obligation at December 31,.......................... $15,501 $13,441
======= =======
Fair value plan assets at January 1,........................ $10,666 $11,602
Actual return on plan assets................................ (1,275) (1,135)
Benefits paid............................................... (330) (343)
Employer contributions...................................... 4,300 542
------- -------
Fair value plan assets at December 31,...................... $13,361 $10,666
======= =======
28
The net pension cost for 2001, 2000 and 1999 included the following
components:
2001 2000 1999
----- ------- -----
(IN THOUSANDS)
Service cost................................................ $ 750 $ 650 $ 627
Interest cost............................................... 971 819 713
Expected return on plan assets.............................. (888) (1,040) (906)
Amortization of prior service cost.......................... 25 25 25
Amortization of actuarial loss.............................. 123 -- --
----- ------- -----
Net pension cost............................................ $ 981 $ 454 $ 459
===== ======= =====
NOTE 22 -- INDUSTRY SEGMENT INFORMATION
We have five principal segments that provide a broad range of financial
services throughout the United States and Canada. The Mortgage Banking line of
business originates, sells, and services residential first mortgage loans. The
Home Equity Lending line of business originates and services home equity loans.
The Commercial Banking line of business provides commercial banking services.
The Equipment Leasing line of business leases commercial equipment. The Venture
Capital line of business invests in early-stage companies that could transform
the way financial services are delivered. Our other segment primarily includes
the parent company and eliminations.
The accounting policies of each segment are the same as those described in
the "Summary of Significant Accounting Policies." Below is a summary of each
segment's revenues, net income, and assets for 2001, 2000, and 1999:
MORTGAGE HOME EQUITY COMMERCIAL EQUIPMENT VENTURE
BANKING LENDING BANKING LEASING CAPITAL OTHER CONSOLIDATED
-------- ----------- ---------- --------- -------- -------- ------------
(IN THOUSANDS)
2001
Net interest income......... $ 30,959 $ 60,706 $ 43,293 $ 2,584 $ (404) $ (7,494) $ 129,644
Intersegment interest....... (667) (1,272) (194) (42) -- 2,175 $ --
Other revenue............... 199,169 64,984 14,789 1,695 (10,482) 1,236 $ 271,391
Intersegment revenues....... -- -- 210 -- 630 (840) $ --
-------- -------- ---------- -------- -------- -------- ----------
Total net revenues...... 229,461 124,418 58,098 4,237 (10,256) (4,923) 401,035
Other expense............... 166,233 96,776 40,923 8,938 661 13,889 $ 327,420
Intersegment expenses....... 1,391 562 2,577 -- -- (4,530) $ --
-------- -------- ---------- -------- -------- -------- ----------
Net income before
taxes................. 61,837 27,080 14,598 (4,701) (10,917) (14,282) 73,615
Income taxes................ 23,912 10,832 5,680 -- (4,368) (7,432) $ 28,624
-------- -------- ---------- -------- -------- -------- ----------
Income before minority
interest.............. 37,925 16,248 8,918 (4,701) (6,549) (6,850) 44,991
Minority interest........... 307 43 350
-------- -------- ---------- -------- -------- -------- ----------
Income before cumulative
effect of change in
accounting
principle............. 37,925 16,248 8,918 (4,394) (6,549) (6,807) 45,341
Cumulative effect of change
in accounting principle... 175 175
-------- -------- ---------- -------- -------- -------- ----------
Net income (loss)........... $ 38,100 $ 16,248 $ 8,918 $ (4,394) $ (6,549) $ (6,807) $ 45,516
======== ======== ========== ======== ======== ======== ==========
Assets at December 31,...... $926,946 $602,226 $1,648,294 $266,670 $ 7,421 $(11,597) $3,439,960
======== ======== ========== ======== ======== ======== ==========
29
MORTGAGE HOME EQUITY COMMERCIAL EQUIPMENT VENTURE
BANKING LENDING BANKING LEASING CAPITAL OTHER CONSOLIDATED
-------- ----------- ---------- --------- -------- -------- ------------
(IN THOUSANDS)
2000
Net interest income......... $ 18,477 $ 36,921 $ 35,774 $ 1,737 $ (597) $ (6,719) $ 85,593
Intersegment interest....... (2,719) (1,789) (295) (54) (1) 4,858 $ --
Other revenue............... 125,174 68,315 11,808 799 5,146 469 $ 211,711
Intersegment revenues....... -- -- 166 -- 420 (586) $ --
-------- -------- ---------- -------- -------- -------- ----------
Total net revenues...... 140,932 103,447 47,453 2,482 4,968 (1,978) 297,304
Other expense............... 117,188 71,479 33,327 5,024 431 10,513 $ 237,962
Intersegment expenses....... 2,199 1,144 2,446 21 -- (5,810) $ --
-------- -------- ---------- -------- -------- -------- ----------
Net income before
taxes................. 21,545 30,824 11,680 (2,563) 4,537 (6,681) 59,342
Income taxes................ 8,539 12,330 4,590 -- 1,814 (3,597) $ 23,676
-------- -------- ---------- -------- -------- -------- ----------
Net income (loss)....... $ 13,006 $ 18,494 $ 7,090 $ (2,563) $ 2,723 $ (3,084) $ 35,666
======== ======== ========== ======== ======== ======== ==========
Assets at December 31,...... $523,920 $550,526 $1,167,559 $159,773 $ 15,198 $ 5,453 $2,422,429
======== ======== ========== ======== ======== ======== ==========
1999
Net interest income......... $ 22,984 $ 20,276 $ 29,114 $ -- $ (109) $ (9,587) $ 62,678
Intersegment interest....... (3,237) (1,424) -- (18) -- 4,679 $ --
Other revenue............... 161,020 31,714 11,622 -- 1,306 (1,592) $ 204,070
Intersegment revenues....... -- -- 175 -- -- (175) $ --
-------- -------- ---------- -------- -------- -------- ----------
Total net revenues...... 180,767 50,566 40,911 (18) 1,197 (6,675) 266,748
Other expense............... 142,439 34,672 28,024 825 78 8,073 $ 214,111
Intersegment expenses....... 2,476 885 1,056 -- -- (4,417) $ --
-------- -------- ---------- -------- -------- -------- ----------
Net income before
taxes................. 35,852 15,009 11,831 (843) 1,119 (10,331) 52,637
Income taxes................ 12,789 2,403 4,486 -- 463 (660) $ 19,481
-------- -------- ---------- -------- -------- -------- ----------
Net income (loss)....... $ 23,063 $ 12,606 $ 7,345 $ (843) $ 656 $ (9,671) $ 33,156
======== ======== ========== ======== ======== ======== ==========
Assets at December 31,...... $549,966 $339,640 $ 789,560 $ 543 $ 8,096 $ (6,958) $1,680,847
======== ======== ========== ======== ======== ======== ==========
NOTE 23 -- IRWIN FINANCIAL CORPORATION (PARENT ONLY) FINANCIAL INFORMATION
The condensed financial statements of the parent company as of December 31,
2001 and 2000, and for the three years ended December 31, 2001 are presented
below:
CONDENSED BALANCE SHEET
DECEMBER 31,
--------------------
2001 2000
-------- --------
(IN THOUSANDS)
ASSETS:
Cash and short-term investments........................... $ 1,293 $ 1,127
Investment in bank subsidiary............................. 361,289 277,571
Investments in non-bank subsidiaries...................... 146,336 41,344
Loans to bank subsidiaries................................ 31,000 30,000
Loans to non-bank subsidiaries............................ 556 48,278
Other assets.............................................. 2,342 6,464
-------- --------
$542,816 $404,784
======== ========
LIABILITIES:
Short-term borrowings..................................... $ 71,123 $ 34,346
Long-term debt............................................ 225,349 181,522
Other liabilities......................................... 14,928 (1,009)
-------- --------
$311,400 $214,859
======== ========
30
DECEMBER 31,
--------------------
2001 2000
-------- --------
(IN THOUSANDS)
SHAREHOLDERS' EQUITY:
Preferred stock........................................... $ 1,386 $ 1,386
Common stock.............................................. 29,965 29,965
Other shareholders' equity................................ 200,065 158,574
-------- --------
231,416 189,925
-------- --------
$542,816 $404,784
======== ========
CONDENSED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------
2001 2000 1999
-------- -------- --------
(IN THOUSANDS)
INCOME
Dividends from non-bank subsidiaries..................... $ 451 $ 87,269 $ 15,500
Dividends from bank subsidiary........................... 10,000 37,153 14,147
Interest income.......................................... 2,221 4,949 4,800
Other.................................................... 6,555 6,635 3,200
-------- -------- --------
19,227 136,006 37,647
-------- -------- --------
EXPENSES
Interest expense......................................... 20,069 12,643 9,891
Salaries and benefits.................................... 9,111 7,906 5,398
Other.................................................... 5,874 2,933 2,672
-------- -------- --------
35,054 23,482 17,961
-------- -------- --------
Income before income taxes and equity in undistributed
income of subsidiaries................................... (15,827) 112,524 19,686
Income taxes (credits), less amounts charged to
subsidiaries............................................. (10,738) (5,966) (10,482)
-------- -------- --------
(5,089) 118,490 30,168
Equity in undistributed income of subsidiaries............. 50,605 (82,824) 2,988
-------- -------- --------
Net income....................................... $ 45,516 $ 35,666 $ 33,156
======== ======== ========
31
CONDENSED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------
2001 2000 1999
--------- --------- --------
(IN THOUSANDS)
Net income............................................... $ 45,516 $ 35,666 $ 33,156
Adjustments to reconcile net income to cash provided by
operating activities:
Equity in undistributed income of subsidiaries......... (50,605) 82,824 (2,988)
Depreciation and amortization.......................... 448 505 408
Increase (decrease) in taxes payable................... 10,130 (1,102) 4,695
Decrease in interest receivable........................ (360) (122) (159)
Increase (decrease) in interest payable................ (577) 986 763
Net change in other assets and other liabilities....... 8,268 (4,077) 4,322
--------- --------- --------
Net cash provided by operating activities...... 12,820 114,680 40,197
--------- --------- --------
Lending and investing activities:
Net decrease (increase) in loans to subsidiaries....... 46,722 7,245 (25,302)
Investments in subsidiaries............................ (138,314) (172,409) (39,122)
Net sales of premises and equipment.................... 72 314 286
--------- --------- --------
Net cash used by lending and investing
activities................................... (91,520) (164,850) (64,138)
--------- --------- --------
Financing activities:
Net increase (decrease) in borrowings.................. 36,777 (46,398) 13,778
Proceeds from long-term debt........................... 45,000 102,260 30,000
Issuance of preferred stock............................ -- 1,386 --
Purchase of treasury stock............................. (3,223) (3,414) (18,314)
Proceeds from sale of stock for employee benefit
plans............................................... 5,834 1,866 2,608
Dividends paid......................................... (5,520) (5,038) (4,287)
--------- --------- --------
Net cash provided by financing activities...... 78,868 50,662 23,785
--------- --------- --------
Net increase in cash and cash equivalents.............. 168 492 (156)
Effect of exchange rate changes on cash................ (2) (8) --
Cash and cash equivalents at beginning of year......... 1,127 643 799
--------- --------- --------
Cash and cash equivalents at end of year............... $ 1,293 $ 1,127 $ 643
========= ========= ========
Supplemental disclosures of cash flow information:
Cash paid during the year:
Interest............................................ $ 20,646 $ 11,657 $ 9,056
========= ========= ========
Income taxes........................................ $ 5,235 $ 13,769 $ 14,328
========= ========= ========
NOTE 24 -- SUBSEQUENT EVENT
In February 2002, we successfully completed a public offering that raised
$82.2 million, net of expenses, on the sale of 6,210,000 shares of common stock.
32
SIGNATURE
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
September 30, 2002 /s/ GREGORY F. EHLINGER
--------------------------------------
Gregory F. Ehlinger
Senior Vice President and
Chief Financial Officer
CERTIFICATIONS
I, William I. Miller, Chief Executive Officer of Irwin Financial
Corporation (the "Company"), certify that:
1. I have reviewed this annual report on Form 10-K/A of the Company;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
Company as of, and for, the periods presented in this annual report.
Date: September 30, 2002 /s/ WILLIAM I. MILLER
--------------------------------------
Name: William I. Miller
Title: Chief Executive Officer
I, Gregory F. Ehlinger, Chief Financial Officer of Irwin Financial
Corporation (the "Company"), certify that:
1. I have reviewed this annual report on Form 10-K/A of the Company;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
Company as of, and for, the periods presented in this annual report.
Date: September 30, 2002 /s/ GREGORY F. EHLINGER
--------------------------------------
Name: Gregory F. Ehlinger
Title: Chief Financial Officer
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Irwin Financial Corporation (the
"Company") on Form 10-K/A for the period ended December 31, 2001, as filed with
the Securities and Exchange Commission on the date hereof, (the "Report"), I,
William I. Miller, Chief Executive Officer, hereby certify, to the best of my
knowledge and belief, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934, as amended; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.
Dated: September 30, 2002 /s/ WILLIAM I. MILLER
--------------------------------------
William I. Miller
Chief Executive Officer
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Irwin Financial Corporation (the
"Company") on Form 10-K/A for the period ended December 31, 2001 as filed with
the Securities and Exchange Commission on the date hereof, (the "Report"), I,
Gregory F. Ehlinger, Chief Financial Officer of the Company, hereby certify, to
the best of my knowledge and belief, pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934, as amended; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.
Dated: September 30, 2002 /s/ GREGORY F. EHLINGER
--------------------------------------
Gregory F. Ehlinger
Chief Financial Officer