As filed with the Securities and Exchange Commission on September 18, 2001. Registration No. 333- ---------------------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------------------------------------------------------------------------------------------------------------------- FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ---------------------------------------------------------------------------------------------------------------------------- IRWIN FINANCIAL CORPORATION (Exact Name of Registrant as Specified in its Charter) Indiana 6712 35-1286807 (State or Other Jurisdiction of Incorporation (Primary Standard Industrial (I.R.S. Employer Identification or Organization) Classification Code Number) Number) 500 Washington Street Columbus, Indiana 47201 (812) 376-1909 (Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices) Ellen Z. Mufson Vice President, Legal 500 Washington Street Columbus, Indiana 47201 (812) 376-1909 (Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent for Service) ---------------------------------------------------------------------------------------------------------------------------- Copies to: Jennifer R. Evans, Esq. Thomas C. Erb, Esq. Vedder, Price, Kaufman & Kammholz Tom W. Zook, Esq. 222 North LaSalle Street, Suite 2600 Lewis, Rice & Fingersh, L.C. Chicago, Illinois 60601 500 N. Broadway, Suite 2000 (312) 609-7500 St. Louis, Missouri 63102 (314) 444-7600 ---------------------------------------------------------------------------------------------------------------------------- APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after the Registration Statement becomes effective. ---------------------------------------------------------------------------------------------------------------------------- If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. / / If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. / / ---------------------------------------------------------------------------------------------------------------------------- CALCULATION OF REGISTRATION FEE Title of Each Class of Securities to be Registered Proposed Maximum Aggregate Price Offering Amount of Registration Fee Common shares, no par value* $75,000,000 $18,750 ---------------------------------------------------------------------------------------------------------------------------- * Including preferred share purchase rights. The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine. ---------------------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------------------- The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. SUBJECT TO COMPLETION, DATED SEPTEMBER 18, 2001 PROSPECTUS Shares [logo] IRWIN FINANCIAL CORPORATION Common Shares ---------------------------------------------------------------------------------------------------------------------------- We are offering common shares. Our common shares are quoted on the Nasdaq National Market under the symbol "IRWN." On September 17, 2001, the last reported sale price of our common shares as reported on the Nasdaq National Market was $19.10 per share. Investing in our common stock involves risks. See "Risk Factors" beginning on page 10. ---------------------------------------------------------------------------------------------------------------------------- Per Share Total Public offering price $ $ Underwriting discount $ $ Proceeds to Irwin Financial Corporation $ $ This is a firm commitment underwriting. The underwriters have been granted a 30-day option to purchase up to an additional common shares to cover over-allotments, if any. The common shares being offered are not savings accounts, deposits or obligations of any bank and are not insured by any insurance fund of the Federal Deposit Insurance Corporation or any other governmental organization. Neither the Securities and Exchange Commission nor any other state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. Keefe, Bruyette & Woods, Inc. Stifel, Nicolaus & Company Incorporated J.J.B. Hilliard, W.L. Lyons, Inc. Howe Barnes Investments, Inc. The date of this prospectus is , 2001 ---------------------------------------------------------------------------------------------------------------------------- IRWIN FINANCIAL CORPORATION Commercial Mortgage Home Equity Equipment Venture Banking Banking Lending Leasing Capital o Irwin Union Bank o Irwin Mortgage o Irwin Home Equity o Irwin Capital o Irwin Ventures LLC and Trust; Irwin Corporation Corporation Holdings Union Bank, F.S.B. Corporation o Founded in 1871 and o 1981 Acquisition o 1994 Start-up o 1999 Start-up o 1999 Start-up 2000, respectively o 16% of 2000 o 46% of 2000 o 35% of 2000 o 1% of 2000 o 2% of 2000 consolidated consolidated net consolidated net consolidated net consolidated net net revenues revenues revenues revenues revenues o Focuses on o Originates, sells o Originates and o Funding source for o Investor in early stage commercial and and services services leasing companies, companies in financial personal banking conforming first prime-quality, high brokers and services or financial needs of small mortgage loans loan-to-value home vendors services-related businesses and equity loans technology business owners o Locations in o National scope, o National scope, o U.S. and Canadian o National focus Indiana, Michigan, emphasis on first- emphasis on debt focus Arizona, Missouri, time home buyers consolidation Nevada, Utah and and small brokers products Kentucky o $4.4 billion in o $452 million in o Acquired 78% originations in originations in the ownership interest the first six first six months of in a Canadian months of 2001 2001 equipment leasing company in July 2000 o Began franchise equipment leasing business in August 2001 o Loan portfolio of o $10.5 billion o $2.0 billion o Lease portfolio of o Five portfolio $1.3 billion as of servicing managed portfolio $196 million as of investments totaling June 30, 2001 portfolio as of as of June 30, 2001 June 30, 2001 $10.0 million as of June 30, 2001 June 30, 2001 o Headquarters in o Headquarters in o Headquarters in San o Headquarters in o Headquarters in Columbus, IN Indianapolis, IN Ramon, CA Bellevue, WA Columbus, IN i ---------------------------------------------------------------------------------------------------------------------------- SUMMARY This summary highlights information contained elsewhere in this prospectus. Because this is a summary, it may not contain all of the information that is important to you. Therefore, you also should read the more detailed information set forth in this prospectus, including our consolidated financial statements and the related notes included in this prospectus before you make your investment decision. Unless otherwise noted, all information in this prospectus assumes that the underwriters will not exercise the option to purchase additional shares to cover over-allotments from us in the offering. Irwin Financial Corporation We are a diversified financial services company headquartered in Columbus, Indiana with $3.3 billion in assets at June 30, 2001. We focus primarily on the extension of credit to consumers and small businesses as well as providing the ongoing servicing of those customer accounts. We currently operate five major lines of business through our direct and indirect subsidiaries. Our major lines of business are: commercial banking, mortgage banking, home equity lending, equipment leasing and venture capital. We believe our historical growth and profitability is the result of our endeavors to pursue complementary consumer and commercial lending niches through our bank holding company structure, our experienced management, our diverse product and geographic markets, and our willingness and ability to align the compensation structure of each of our lines of business with the interests of our stakeholders. Through various economic environments and cycles, we have had a relatively stable revenue and earnings stream on a consolidated basis generated primarily through internal growth rather than acquisitions. Over the five-year and ten-year periods ending December 31, 2000, respectively, our financial performance has been as follows: o o our return on average equity averaged 21.11% and 22.04%; o our diluted earnings per common share compounded at an average annual growth rate of 14.25% and 20.99%; o our net revenues1 compounded at an average annual growth rate of 13.19% and 19.44%; ---------------------------------------------------------------------------------------------------------------------------- 1 Net revenues consist of net interest income plus noninterest income. o our nonperforming assets to total assets averaged 0.61% and 0.52%; o our annual net charge-offs to average loans and leases averaged 0.36% and 0.42%; and o our book value per common share compounded at an average annual growth rate of 14.47% and 18.95%. Our banking subsidiary, Irwin Union Bank and Trust Company, was organized in 1871 and we formed the holding company in 1972. Our direct and indirect major subsidiaries include Irwin Union Bank and Trust, a commercial bank, which together with Irwin Union Bank, F.S.B., conducts our commercial banking activities; Irwin Mortgage Corporation, a mortgage banking company acquired in 1981; Irwin Home Equity Corporation, a consumer home equity lending company formed in 1994; Irwin Capital Holdings Corporation, an equipment leasing subsidiary; and Irwin Ventures LLC, a venture capital company. At August 31, 2001, we and our subsidiaries had a total of 2,708 employees, including full-time and part-time employees. 1 ---------------------------------------------------------------------------------------------------------------------------- The following table summarizes our financial performance over the past five years and the first six months of 2001: At or For Six Months Ended At or For June 30, Year Ended December 31, 2001 2000 2000 1999 1998 1997 1996 (dollars in thousands except per share data) Net income $ 21,979 $ 16,987 $ 35,666 $ 33,156 $ 30,503 $ 24,444 $ 22,428 Earnings per common share (diluted) 0.97 0.80 1.67 1.51 1.38 1.08 0.98 Total assets 3,261,657 1,991,809 2,422,429 1,680,847 1,946,179 1,496,794 1,300,122 Loans held for sale 1,016,792 543,673 579,788 508,997 936,788 528,739 446,898 Loans and leases, net 1,471,168 928,971 1,221,793 724,869 547,103 602,281 526,175 Total deposits 1,928,886 1,230,499 1,443,330 870,318 1,009,211 719,596 640,153 Total shareholders' equity 210,265 172,817 189,925 159,296 145,233 127,989 118,903 Return on average assets(1) 1.57 % 1.88 % 1.76 % 2.01 % 1.85 % 1.94 % 1.95 % Return on average equity(1) 22.51 20.64 20.83 21.51 22.84 19.80 20.58 Net interest margin(1) 5.10 5.22 5.36 5.01 4.09 4.95 5.12 ---------------------------------------------------------------------------------------------------------------------------- (1) Annualized for interim periods. Strategy Our strategy is to maintain a diverse revenue stream by focusing on niches in financial services where we believe we can optimize the productivity of our capital and where our experience and expertise can provide a competitive advantage. Our operational objectives are premised on simultaneously achieving three goals: creditworthiness, profitability and growth. We refer to this as creditworthy, profitable growth. We believe we must continually balance these goals in order to deliver long-term value to all of our stakeholders. We have developed a four-part business plan to meet these goals: o o We focus on product or market niches in financial services that we believe are underserved and in which customers are willing to pay a premium for value-added services. o We enter niches only when we have attracted excellent senior managers who have proven track records in the niche for which they are responsible. o We diversify our revenues and allocate our capital across complementary lines of business as a key part of our risk management. Our lines of business are cyclical, but when combined in an appropriate mix, we believe they provide sources of diversification and opportunities for growth in a variety of economic conditions. o We reinvest on an ongoing basis in the development of new and existing opportunities. Major Lines of Business We are a regulated bank holding company. At the parent level, we work actively to add value to our lines of business by interacting with the management teams, capitalizing on interrelationships, providing centralized services and coordinating overall organizational decisions. Under this organizational structure, our separate businesses hold and fund the majority of their assets through Irwin Union Bank and Trust. This provides additional liquidity and results in regulatory oversight of each of our lines of business. 2 ---------------------------------------------------------------------------------------------------------------------------- The following table shows our net income (loss) by line of business: Six Months Ended June 30, Year Ended December 31, 2001 2000 2000 1999 1998 1997 1996 (in thousands) Commercial banking $ 3,142 $ 3,553 $ 7,090 $ 7,345 $ 6,509 $ 5,587 $ 4,254 Mortgage banking 14,488 6,249 13,006 23,063 28,853 21,300 20,422 Home equity lending 9,457 6,554 18,494 12,606 (6,668 ) 1,710 (816 ) Equipment leasing (968 ) (1,799 ) (2,563 ) (843 ) -- -- -- Venture capital (3,007 ) 4,243 2,723 656 -- -- -- Other(1) (1,133 ) (1,813 ) (3,086 ) (9,671 ) 1,809 (4,153 ) (1,432 ) Total consolidated net $ 21,979 $ 16,987 $ 35,666 $ 33,156 $ 30,503 $ 24,444 $ 22,428 income ---------------------------------------------------------------------------------------------------------------------------- (1) Includes parent, medical equipment leasing and consolidating entries. Commercial Banking Our commercial banking line of business focuses on providing credit, cash management and personal banking products to small businesses and business owners. Services include a full line of consumer, mortgage and commercial loans, as well as personal and commercial checking accounts, savings and time deposit accounts, personal and business loans, credit card services, money transfer services, financial counseling, property, casualty, life and health insurance agency services, trust services, securities brokerage, and safe deposit facilities. We offer commercial banking services through our banking subsidiaries, Irwin Union Bank and Trust, an Indiana state-chartered commercial bank, and Irwin Union Bank, F.S.B., a federal savings bank. We formed the federal savings bank to provide us the flexibility to expand our commercial banking line of business into markets where commercial banks like Irwin Union Bank and Trust are not permitted to branch under current law. We sell a substantial majority of the commercial loans we originate at Irwin Union Bank, F.S.B. to Irwin Union Bank and Trust. We have offices throughout nine counties in central and southern Indiana; Kalamazoo, Grandville and Traverse City, Michigan; Carson City and Las Vegas, Nevada; Brentwood, Missouri; Louisville, Kentucky; Salt Lake City, Utah; and Phoenix, Arizona. In this prospectus, we refer to our bank subsidiaries together as the bank. Our strategy is to expand our commercial banking line of business into selected new markets. We target economically strong metropolitan markets where we believe recent bank consolidation has negatively impacted customers. We believe that this consolidation has led to disenchantment with the delivery of financial services to the small business community among both the owners of those small businesses and the senior banking officers who had been providing services to them. In markets that management identifies as attractive opportunities, the bank seeks to hire senior commercial loan officers who have strong local ties and who can focus on providing personalized lending services to small businesses in that market. 3 ---------------------------------------------------------------------------------------------------------------------------- The following table shows selected financial data for our commercial banking line of business: At or For Six Months Ended At or For June 30, Year Ended December 31, 2001 2000 2000 1999 1998 1997 1996 (dollars in thousands) Commercial Banking: Net income $ 3,142 $ 3,553 $ 7,090 $ 7,345 $ 6,509 $ 5,587 $ 4,254 Total assets 1,443,534 950,887 1,167,559 789,560 607,992 539,233 503,507 Total loans 1,277,658 873,339 1,067,980 720,493 514,950 410,272 336,580 Total deposits 1,305,352 825,408 998,892 710,899 567,526 486,481 453,879 Return on average assets 0.50 % 0.83 % 0.74 % 1.08 % 1.15 % 1.08 % 0.91 % Return on average equity 8.71 12.39 12.31 13.89 15.48 15.42 13.41 Net interest margin 3.76 4.47 4.25 4.82 4.75 4.61 4.67 Efficiency ratio 70.42 71.58 71.00 68.06 66.60 64.62 69.66 Nonperforming assets to total assets 0.17 0.21 0.23 0.15 0.31 0.60 0.76 Net charge-offs to average loans 0.13 0.14 0.12 0.16 0.13 0.34 0.34 Mortgage Banking In our mortgage banking line of business we originate, purchase, sell and service conventional and government agency-backed residential mortgage loans throughout the United States. We established this line of business when we acquired our subsidiary, Irwin Mortgage Corporation, in 1981. Most of our mortgage originations either are insured by an agency of the federal government, such as the Federal Housing Authority, or FHA, and the Veterans Administration, or VA, or, in the case of conventional mortgages, meet requirements for resale to the Federal National Mortgage Association, or FNMA, or the Federal Home Loan Mortgage Corporation, or FHLMC. This allows us to remove substantially all of the credit risk of these loans from our balance sheet. Irwin Mortgage sells mortgage loans to institutional and private investors but may retain servicing rights to the loans it originates or purchases from correspondents. We believe this balance between mortgage loan originations and mortgage loan servicing provides us a natural hedge against interest rate changes, which helps stabilize our revenue stream. We originate mortgage loans through retail offices, direct marketing and our Internet website. We also purchase mortgage loans through mortgage brokers. We consider this part of our business wholesale lending. At August 31, 2001, Irwin Mortgage operated 96 production and satellite offices in 28 states. Our mortgage banking line of business is currently our largest contributor to revenue, comprising 52.5% of our total revenues for the six months ended June 30, 2001, compared to 49.8% for the first six months of 2000. Our mortgage banking line of business contributed 65.92% of our net income for the first six months of 2001, compared to 36.79% for the same period in 2000. 4 ---------------------------------------------------------------------------------------------------------------------------- The following table shows selected financial data for our mortgage banking line of business: At or For Six Months Ended At or For June 30, Year Ended December 31, 2001 2000 2000 1999 1998 1997 1996 (dollars in thousands) Mortgage Banking: Net income $ 14,488 $ 6,249 $ 13,006 $ 23,063 $ 28,853 $ 21,300 $ 20,422 Gain on sale of loans 44,436 22,508 45,601 72,395 97,724 53,332 41,333 Loan servicing fees 24,798 26,337 50,309 54,247 55,217 50,194 45,573 Gain on sale of bulk servicing 5,781 5,723 27,528 9,005 829 1,512 1,224 Total net revenue 99,146 69,815 140,932 180,767 207,238 147,657 135,310 Total mortgage originations 4,359,940 1,942,990 4,091,573 5,876,750 8,944,615 5,397,338 5,085,625 Refinancings to total originations 52.88 % 14.02 % 16.39 % 28.64 % 49.54 % 22.53 % 18.95 % Servicing sold to production 39.50 78.71 99.35 79.89 56.95 71.82 60.87 Owned first mortgage servicing portfolio $ 10,474,246 $ 10,261,375 $ 9,196,513 $ 10,488,112 $ 11,242,470 $ 10,713,549 $ 10,810,988 Bulk sales of servicing 636,403 871,593 2,526,006 1,216,718 99,929 536,971 1,481,350 Servicing assets 170,723 133,010 121,555 132,648 113,131 81,610 71,715 Weighted average coupon 7.54 % 7.68 % 7.76 % 7.51 % 7.56 % 7.85 % 7.83 % Home Equity Lending In our home equity lending line of business, we originate, purchase, securitize and service home equity loans and lines of credit nationwide. We generally sell the loans through securitization transactions. We continue to service the loans we securitize. We target creditworthy, homeowning consumers who are active, unsecured credit card debt users. Target customers are underwritten using proprietary models based on several criteria, including the customers' previous use of credit. We market our home equity products through direct mail and telemarketing, mortgage brokers and correspondent lenders nationwide and through Internet-based solicitations. We established this line of business when we formed Irwin Home Equity in 1994 as our subsidiary. Irwin Home Equity is headquartered in San Ramon, California and became a subsidiary of Irwin Union Bank and Trust in 2001. In 1997 and 1998, we significantly redesigned our product offerings, introducing new products with origination fees and early repayment options. We also introduced home equity loans with loan-to-value ratios of up to 125% of their collateral value. Home equity loans with loan-to-value ratios greater than 100% are priced with higher coupons than home equity loans with loan-to-value ratios less than 100% to compensate for the increased risk. For the six months ended June 30, 2001, home equity loans with loan-to-value ratios greater than 100% made up 58% of our loan originations. For most of our home equity product offerings, we offer customers the choice to accept an early repayment fee in exchange for a lower interest rate. A typical early repayment option provides for a fee equal to up to six months' interest that is payable if the borrower chooses to repay the loan during the first three to five years of its term. Approximately 79.6%, or $0.9 billion, of our home equity loan servicing portfolio at June 30, 2001 has early repayment fees. This portfolio does not include our floating rate lines of credit. We expect to continue to expand our home equity lending line of business through the development of new products, the extension of existing products to new customers, and increased sales through our indirect distribution channels. These include brokers, correspondent lenders and Internet sites. 5 ---------------------------------------------------------------------------------------------------------------------------- The environment for high loan-to-value home equity lending has become more favorable during the past two years, with the exit of many home equity lenders who did not survive the competitive pressures and significant refinance activity of 1998. This has helped our recent expansion in this line of business. The following table shows selected financial data for our home equity lending line of business: At or For At or For Six Months Ended Year Ended June 30, December 31, 2001 2000 2000 1999 1998 1997 1996 (dollars in thousands) Home Equity Lending: Net interest income $ 28,876 $ 14,039 $ 35,593 $ 18,852 $ 5,495 $ 7,129 $ 7,755 Gain on sale of loans 33,307 18,801 30,340 23,998 18,610 15,908 7,798 Loan servicing fees 6,287 3,113 7,559 4,907 3,323 2,145 710 Total net revenue 65,018 43,506 103,447 50,566 23,941 21,777 15,420 Operating expense 49,256 32,685 72,623 35,557 30,609 20,067 16,236 Net income (loss) 9,457 6,554 18,494 12,606 (6,668 ) 1,710 (816 ) Loan and line of credit volume 452,161 408,073 1,225,955 439,507 389,673 214,518 169,120 Secondary market delivery 401,975 356,228 774,610 430,743 294,261 210,057 79,936 Total servicing portfolio 1,985,946 1,153,320 1,822,856 842,403 581,241 358,166 230,450 Interest-only strips(1) 189,206 95,440 152,614 57,883 32,321 22,134 12,661 Weighted average yield on loans 13.35 % 12.67 % 13.09 % 12.33 % 11.86 % 13.97 % 14.08 % Weighted average yield on lines of credit 12.25 13.72 14.04 12.72 11.89 12.96 12.80 Gain on sale to total loans securitized 8.29 5.28 3.92 5.57 6.32 7.57 9.76 Delinquency ratio 4.5 2.1 4.3 2.7 1.3 1.5 0.7 Return on average equity(2) 20.29 23.25 30.57 17.12 (15.79 ) 7.33 (5.20 ) ---------------------------------------------------------------------------------------------------------------------------- (1) Included in trading assets on our consolidated balance sheets. (2) Annualized for interim periods. Equipment Leasing In our equipment leasing line of business, we originate transactions from an established North American network of brokers and vendors and through direct sales to franchisees. We also use an e-commerce system that provides automated credit scoring, documentation and portfolio management services. The majority of our leases are full payout (i.e., no residual), small-ticket assets secured by commercial equipment. We finance a variety of commercial and office equipment types and try to limit the industry and geographic concentrations in our lease portfolio. We established this line of business in 1999 when we formed Irwin Business Finance Corporation, our United States equipment leasing company. We acquired Onset Capital Corporation, a Canadian equipment leasing company, in July 2000. These companies originate and service small- to medium-sized equipment leases and loans. We established Irwin Capital Holdings Corporation in April 2001 as a subsidiary of Irwin Union Bank and Trust to serve as the parent company for both our United States and Canadian leasing companies. Because it is in a development stage, management anticipates that 6 ---------------------------------------------------------------------------------------------------------------------------- our equipment leasing line of business will not break even until at least mid-2002. Our equipment leasing line of business had a total portfolio of $196.0 million as of June 30, 2001. Venture Capital In our venture capital line of business, we make minority investments in early stage companies in the financial services industry and related fields that intend to use technology as a key component of their competitive strategy. We established this line of business when we formed Irwin Ventures in the third quarter of 1999. We provide Irwin Ventures' portfolio companies the benefit of our management experience in the financial services marketplace. In addition, we expect that contacts made through venture activities may benefit management of our other lines of business through the sharing of technologies and market opportunities. In August 1999, Irwin Ventures established Irwin Ventures Incorporated SBIC, which has received a small business investment company license from the Small Business Administration. Our venture capital line of business had investments in five private companies as of June 30, 2001, with an aggregate investment cost of $8.08 million and a carrying value of $10.15 million. Our principal executive offices are located at 500 Washington Street, P.O. Box 929, Columbus, Indiana 47201. Our telephone number is (812) 376-1909. The Offering Common shares shares offered Offering price per common share $ Common shares to be outstanding after the offering shares(1) Use of proceeds We intend to use the net proceeds from this offering to support future growth of our lines of business, and for other general corporate purposes. We anticipate that all or substantially all of the net proceeds of this offering will be contributed as capital to the bank, since we use the bank to fund assets for the majority of our lines of business. In particular, we expect to use the majority of the capital to support funding in our commercial banking, home equity lending, and leasing lines of business. Risk factors See "Risk Factors" beginning on page 10 and other information included in this prospectus for a discussion of factors you should consider carefully before deciding to invest in our common shares. Nasdaq National Market symbol IRWN(2) ---------------------------------------------------------------------------------------------------------------------------- (1) The number of shares to be outstanding after this offering excludes, as of , 2001, shares issuable upon exercise of outstanding employee stock options, shares issuable upon the conversion of outstanding convertible trust preferred securities and shares issuable upon the conversion of the outstanding shares of our Series A, Series B and Series C convertible preferred shares. (2) Our common shares were approved for listing on the New York Stock Exchange on September 5, 2001, under the symbol "IFC." We currently expect that trading of our shares on the New York Stock Exchange will commence on or before commencement of this offering. 7 ---------------------------------------------------------------------------------------------------------------------------- SUMMARY CONSOLIDATED FINANCIAL DATA The summary consolidated financial data presented below for, and as of the end of, each of the years in the five-year period ended December 31, 2000, are derived from our historical financial statements. Our consolidated financial statements for each of the five years ended December 31, 2000 have been audited by PricewaterhouseCoopers LLP, independent accountants. The summary data presented below for the six-month periods ended June 30, 2001 and 2000, are derived from our unaudited financial statements. In our opinion, all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of results as of or for the six-month periods indicated have been included. This information should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements and the notes thereto included elsewhere in this prospectus. Results for past periods are not necessarily indicative of results that may be expected for any future period, and results for the six-month period ended June 30, 2001, are not necessarily indicative of results that may be expected for the entire year ending December 31, 2001. At or For Six Months Ended At or For June 30, Year Ended December 31, 2001 2000 2000 1999 1998 1997 1996 (dollars in thousands, except per share data) Statements of Income Data: Net interest income $ 62,953 $ 40,030 $ 90,996 $ 67,122 $ 59,201 $ 50,386 $ 50,020 Provision for loan and lease losses (4,356 ) (2,254 ) (5,403 ) (4,443 ) (5,995 ) (6,238 ) (4,553 ) Net interest income after provision for loan and lease losses 58,597 37,776 85,593 62,679 53,206 44,148 45,467 Noninterest income: Loan origination fees 28,214 16,875 36,066 41,024 60,013 41,370 43,779 Gain on sale of loans 81,061 40,011 93,677 74,834 75,201 39,210 34,248 Loan servicing fees 31,627 29,923 58,939 60,581 57,284 53,257 46,877 Amortization and impairment of servicing assets (16,405 ) (12,809 ) (39,529 ) (15,702 ) (35,388 ) (16,355 ) (14,331 ) Gain on sale of servicing assets 5,781 5,722 27,528 37,801 43,308 32,631 16,378 Trading gains (losses) (3,300 ) 8,291 14,399 (8,296 ) 1,366 (1,961 ) -- Gain from sale of leasing assets -- -- -- -- 5,241 -- -- Other 3,248 14,448 20,631 13,827 11,832 8,696 8,699 Total noninterest income 130,226 102,461 211,711 204,069 218,857 156,848 135,650 Noninterest expense 152,976 111,971 237,962 214,111 221,206 158,818 143,829 Income before income taxes 35,847 28,266 59,342 52,637 50,857 42,178 37,288 Provision for income taxes 14,254 11,279 23,676 19,481 20,354 17,734 14,860 Income before minority interest 21,593 16,987 35,666 33,156 30,503 24,444 22,428 Minority interest (211 ) -- -- -- -- -- -- Income before cumulative effect of change in accounting principle 21,804 16,987 35,666 33,156 30,503 24,444 22,428 Cumulative effect of change in accounting principle, net of tax 175 -- -- -- -- -- -- Net income available to common shareholders $ 21,979 $ 16,987 $ 35,666 $ 33,156 $ 30,503 $ 24,444 $ 22,428 Mortgage loan originations $ 4,359,940 $ 1,942,990 $ 4,091,573 $ 5,876,750 $ 8,944,615 $ 5,397,338 $ 5,085,625 Home equity loan originations 452,161 408,073 1,225,955 439,507 389,673 214,518 169,120 Common Share Data: Earnings per share: Basic $ 1.04 $ 0.81 $ 1.70 $ 1.54 $ 1.40 $ 1.10 $ 0.99 Diluted 0.97 0.80 1.67 1.51 1.38 1.08 0.98 Cash dividends per share 0.13 0.12 0.24 0.20 0.16 0.14 0.12 Book value per share 9.86 8.17 8.97 7.55 6.70 5.82 5.23 Dividend payout ratio 12.53 % 14.82 % 14.13 % 12.93 % 11.39 % 12.74 % 12.15 % 8 ---------------------------------------------------------------------------------------------------------------------------- Balance Sheet Data: Assets $ 3,261,657 $ 1,991,809 $ 2,422,429 $ 1,680,847 $ 1,946,179 $ 1,496,794 $ 1,300,122 Trading assets 191,947 96,094 152,805 59,025 32,148 22,133 12,661 Loans held for sale 1,016,792 543,673 579,788 508,997 936,788 528,739 446,898 Loans and leases 1,486,386 939,026 1,234,922 733,424 556,991 611,093 533,050 Allowance for loan and lease losses 15,218 10,054 13,129 8,555 9,888 8,812 6,875 Servicing assets 181,329 139,876 132,638 138,500 117,129 83,044 72,122 Deposits 1,928,886 1,230,499 1,443,330 870,318 1,009,211 719,596 640,153 Short-term borrowings 776,926 410,971 475,502 473,103 644,861 512,275 461,866 Long-term debt 29,631 12,743 29,608 29,784 2,839 7,096 17,659 Trust preferred securities 147,193 64,949 147,167 48,071 47,999 47,927 -- Shareholders' equity 210,265 172,817 189,925 159,296 145,233 127,983 118,903 Owned first mortgage servicing portfolio 10,474,246 10,261,375 9,196,513 10,488,112 11,242,470 11,713,549 10,810,988 Managed home equity portfolio 1,985,946 1,153,320 1,822,856 842,403 581,241 358,166 230,450 Selected Financial Ratios: Performance Ratios: Return on average assets(1) 1.57 % 1.88 % 1.76 % 2.01 % 1.85 % 1.94 % 1.95 % Return on average equity(1) 22.51 20.64 20.83 21.51 22.84 19.80 20.58 Net interest margin(1)(2)(3) 5.10 5.22 5.36 5.01 4.09 4.95 5.12 Noninterest income to revenues(4) 67.41 71.91 69.94 75.25 78.71 75.69 73.06 Efficiency ratio(5) 79.19 78.58 78.61 78.95 79.55 76.64 77.46 Loans and leases to deposits(6) 77.06 76.31 85.56 84.27 55.19 84.92 83.27 Average interest-earning assets to average interest-bearing liabilities 114.96 117.63 113.51 133.32 135.06 138.32 131.18 Asset Quality Ratios: Allowance for loan and lease losses to: Total loans and leases 1.02 % 1.07 % 1.06 % 1.17 % 1.78 % 1.45 % 1.29 % Non-performing loans and leases 155.52 204.77 181.79 198.72 84.28 114.72 95.81 Net charge-offs to average loans and leases(1) 0.18 0.09 0.28 0.27 0.33 0.46 0.36 Net home equity charge-offs to managed home equity portfolio(1) 0.72 0.36 0.57 0.36 0.37 0.29 0.02 Non-performing assets to total assets 0.49 0.37 0.42 0.48 0.78 0.64 0.72 Non-performing assets to total loans and other real estate owned 1.06 0.78 0.81 1.09 2.74 1.55 1.30 Capital Ratios: Average shareholders' equity to average assets 6.96 % 9.10 % 8.46 % 9.33 % 8.09 % 9.78 % 9.46 % Tier 1 capital ratio 7.81 9.50 8.87 11.39 11.63 13.56 12.20 Tier 1 leverage ratio 9.84 12.06 12.41 12.77 10.51 12.06 9.84 Total risk-based capital ratio 11.42 11.24 13.59 13.50 12.25 14.85 12.88 ---------------------------------------------------------------------------------------------------------------------------- (1) Certain financial ratios for interim periods have been annualized. (2) Net interest income divided by average interest-earning assets. (3) Calculated on a tax-equivalent basis. (4) Revenues consist of net interest income plus noninterest income. (5) Noninterest expense divided by net interest income plus noninterest income. (6) Excludes loans held for sale. 9 ---------------------------------------------------------------------------------------------------------------------------- RISK FACTORS An investment in our common shares involves a number of risks. We urge you to read all of the information contained in this prospectus. In addition, we urge you to consider carefully the following factors in evaluating an investment in our common shares. Risks Relating to General Economic Conditions and Interest Rates. We may be adversely affected by a general deterioration in economic conditions. The risks associated with our business become more acute in periods of a slowing economy or recession, which may be accompanied by a decrease in demand for consumer and commercial credit and declining real estate and other asset values. Delinquencies, foreclosures and losses generally increase during economic slowdowns or recessions. We expect that our servicing costs and credit losses will increase during periods of economic slowdown or recession. In our residential mortgage and home equity lending lines of business, a material decline in real estate values may reduce the ability of borrowers to use home equity to support borrowings and increases the loan-to-value ratios of loans we have previously made, thereby weakening collateral coverage and increasing the possibility of a loss in the event of a default. The volume of our home equity loans has increased significantly during the last several years during which the national economy has been relatively strong, with volume in 2000 up 214.6% from volume in 1998. The 30-day and greater delinquency ratio for our home equity portfolio was 4.50% at June 30, 2001, up from 4.31% and 2.70% at December 31, 2000 and 1999, respectively. If the default rates on these relatively unseasoned loans increase beyond our current forecast, due to an economic slowdown, recession or otherwise, our default assumptions for the interest-only strips would change and we may have to recognize a trading loss with respect to these interest-only strips during the period in which these defaults or changes in assumptions occur. Any substantial period of increased delinquencies, foreclosures, losses or increased costs could adversely affect our ability to sell loans or other assets through securitizations and increase the costs associated with this activity. This could adversely affect our financial condition and results of operations. We may be adversely affected by interest rate changes. We and our subsidiaries are subject to interest rate risk in our consumer and commercial lending businesses, although interest rate sensitivity impacts our various lines of business differently. Changes in interest rates likely will affect the pricing of loans and deposits and the value that we can recognize on the sale of mortgage and home equity loan originations or servicing portfolios. Interest rates tend to have opposite effects on the loan production aspect and the servicing aspect of these two lines of business. Reductions in interest rates may expose us to write-downs in the carrying value of the mortgage servicing and other servicing assets we hold on our balance sheet. These assets are recorded at the lower of their cost or market value and a valuation allowance is recorded for any impairment. Decreasing interest rates often lead to increased prepayments in the underlying loans and could require that we write down the carrying value of these servicing assets. This, in turn, could adversely affect our results of operations during the period in which the impairment occurs. Reductions in interest rates also may cause trading losses related to interest-only strips that we often retain when selling or securitizing home equity loans. These assets are reflected on our balance sheet at their fair value with subsequent unrealized gain or loss recorded in our results of operations for any period in which the fair value changes. Fair value is based on a discounted cash flow analysis that takes into account, among other things, prepayment assumptions regarding the underlying loans. Decreasing interest rates often lead to an increase in actual and projected prepayments in the 10 ---------------------------------------------------------------------------------------------------------------------------- underlying loans. This could require that we recognize a trading loss with respect to our interest-only strips during the period in which the interest rates decrease. Our commercial lending and equipment leasing lines of business mainly depend on earnings derived from net interest income. Net interest income is the difference between interest earned on loans and investments and the interest expense paid on other borrowings, including deposits at our banks. Our interest income and interest expense are affected by general economic conditions and by the policies of regulatory authorities, including the monetary policies of the Federal Reserve. Although we have taken measures intended to manage the risks of operating in changing interest rate environments, we may not be able to mitigate interest rate sensitivity effectively. Our risk management techniques include modeling interest rate scenarios, using financial hedging instruments, match-funding certain loan assets, selling selected servicing rights and maintaining a strong loan production operation to offset interest rate risk. There are costs and risks associated with our risk management techniques, and these could be substantial. Finally, to reduce the effect interest rates have on our businesses, we periodically invest in derivatives and other interest-sensitive instruments. While our intent in purchasing these instruments is to reduce our overall interest rate sensitivity, the performance of these instruments is, at times, unpredictable, and we may be unsuccessful in hedging our risks of loss. This could cause us to incur additional losses. Risks Relating to an Investment in Us. We are the defendant in a class action lawsuit called Culpepper v. Inland Mortgage Corporation that could subject us to material liability. Our subsidiary, Irwin Mortgage Corporation, which was formerly known as Inland Mortgage Corporation, is the defendant in a class action lawsuit called Culpepper v. Inland Mortgage Corporation. The plaintiffs originally filed this lawsuit in 1996 in federal district court in Northern Alabama. The plaintiffs claim that certain payments that our subsidiary made to the plaintiffs' mortgage brokers are unlawful under the federal Real Estate Settlement Procedures Act, commonly known as RESPA. We describe the history of the Culpepper case in greater detail under "Legal Proceedings," beginning on page 74. Numerous class action lawsuits have been, and continue to be, filed throughout the United States against mortgage lenders alleging violations of RESPA. While appeals are pending in a number of cases across the country, the Culpepper case is the only case to date in which a federal circuit court of appeals has upheld a lower court's grant of class action certification in favor of the plaintiffs. This happened on June 15, 2001. The case is now proceeding in the federal district court. In response to the court of appeals' decision unfavorable to us, the plaintiffs filed a motion for partial summary judgment in July 2001 asking the federal district court to find that our subsidiary is liable for violating RESPA. We recently filed our motion in opposition to the plaintiffs' motion for partial summary judgment. The court could rule on these motions at any time. If the court finds that Irwin Mortgage violated RESPA, Irwin Mortgage could be liable for damages equal to three times the amount of that portion of payments made to the mortgage brokers that is ruled unlawful. We have not yet determined the number of class members, but we expect that the borrowers meeting the class specifications will be a substantial number. We intend to vigorously defend this lawsuit and believe we have available numerous defenses to the claims. At this stage of the litigation we are unable to reasonably estimate the amount of potential loss we could suffer, and we have not established any reserves related to this case. We expect that an adverse outcome in this litigation could subject us to significant monetary damages and this amount could be material to our financial position. Adverse developments in this 11 ---------------------------------------------------------------------------------------------------------------------------- litigation, or negative publicity regarding this litigation, or the possibility of additional RESPA litigation in the mortgage industry generally and against us in particular, also could cause the trading price of our common shares to decline. We may face challenges in managing our rapid growth. Our home equity and commercial lending businesses have grown rapidly over the past 12 months. We contemplate continued significant growth in these lines of business, and in our equipment leasing business, as we implement our strategic plans. For this reason, the financial assets that we manage are likely to increase significantly following this offering. This growth may strain our existing managerial resources and internal monitoring, accounting and reporting systems. If we are unable to expand the capabilities of our internal reporting and monitoring systems or to hire qualified personnel as needed to keep pace with our growth, our existing risk management may suffer and we could incur unanticipated losses. Rapid growth may also adversely impact our profitability. Our business may be affected adversely by the highly regulated environment in which we operate. We and our subsidiaries are subject to extensive federal and state regulation and supervision. Our failure to comply with these requirements can lead to, among other remedies, termination or suspension of our licenses, rights of rescission for borrowers, class action lawsuits and administrative enforcement actions. Recently enacted, proposed and future legislation and regulations have had, will continue to have or may have significant impact on the financial services industry. Regulatory or legislative changes could cause us to change or limit some of our consumer loan products or the way we operate our different lines of business. It is possible that future changes could affect the profitability of some or all of our lines of business. Consumer loan originations are highly regulated and recent regulatory initiatives have focused on the mortgage and home equity markets. Federal, state and local government agencies and/or legislators have begun to consider, and in some instances have adopted, legislation to restrict lenders' ability to charge rates and fees in connection with residential mortgage loans. In general, these proposals involve lowering the existing federal Homeownership and Equity Protection Act thresholds for defining a "high-cost" loan, and establishing enhanced protections and remedies for borrowers who receive these loans. The proposed legislation has also included various loan term restrictions, such as limits on balloon loan features. Frequently referred to generally as "predatory lending" legislation, many of these laws and rules extend beyond curbing predatory lending practices to restrict commonly accepted lending activities, including some of our activities. For example, some of these laws and rules prohibit any form of prepayment charge or severely restrict a borrower's ability to finance the points and fees charged in connection with his or her loan. Passage of these laws could limit our ability to impose various fees and charge what we believe are risk-based interest rates on various types of consumer loans and may impose additional regulatory restrictions on our business in certain states. In September 2000, our banking regulators issued a proposal to change the capital treatment of residual interests from loans securitized by banks and other financial institutions. We believe the rules being proposed are intended to limit the use of residual interests, including interest-only strips, which often are retained by lenders like us when securitizing a pool of loans. These regulations may require institutions that have these residual interests to hold additional capital against the fair value of the residual interests and will also require that amounts of these residual interests in excess of certain specified limits be deducted from capital. If these rules are adopted, we may need to modify our use of securitization structures that create interest-only strips or hold additional capital against these assets, principally in our home equity lending line of business. This, in turn, could change the revenue recognition pattern in that line of our business as well as in others. 12 ---------------------------------------------------------------------------------------------------------------------------- These and other potential changes in government regulation or policies could increase our costs of doing business and could affect our operations adversely. Our operations may be adversely affected if we are unable to secure adequate funding; our reliance on wholesale funding sources and securitizations exposes us to potential liquidity risk and earnings volatility. Due to balance sheet growth, in recent quarters we have increased our reliance on wholesale funding, such as short-term credit facilities, Federal Home Loan Bank borrowings and brokered deposits. Because wholesale funding sources are affected by general capital market conditions, the availability of funding from wholesale lenders may be dependent on the confidence these investors have in commercial and consumer finance businesses. The continued availability to us of these funding sources is uncertain, and we could be adversely impacted if our specialized financial services areas become disfavored by wholesale lenders. In addition, brokered deposits may be difficult for us to retain or replace at attractive rates as they mature. Our financial flexibility will be severely constrained if we are unable to renew our wholesale funding or if adequate financing is not available in the future at acceptable rates of interest. We may not have sufficient liquidity to continue to fund new loans or lease originations and we may need to liquidate loans or other assets unexpectedly in order to repay obligations as they mature. We regularly sell the majority of our first and second mortgage loan originations into the secondary market through the use of securitizations. At times, some of our financial assets, such as nontraditional, high loan-to-value home equity loans, may not be readily marketable, and we may not be able to sell assets at favorable prices when necessary. This could adversely affect our liquidity and funding for future originations and purchases of loans. Additionally, adverse changes in the securitization market could impair our ability to originate, purchase and sell home equity loans or other assets on a favorable or timely basis. Securitizations are an important part of our strategy in our home equity lending line of business. We generate revenue and net income on a regular basis through gains on sales of loans in these securitization transactions. During the first half of 2001, we securitized $402.0 million of loans, generating a pre-tax gain of $38.7 million. During 2000, we securitized $774.6 million of loans, generating a pre-tax gain of $52.6 million. Any delay in planned sales of loans or other asset pools might result in earnings fluctuations that could be significant. We have credit risk inherent in our asset portfolios and in certain assets that we have sold but continue to service. In our businesses, some borrowers may not repay loans that we make to them. Like all financial institutions, we maintain an allowance for loan and lease losses to absorb the level of losses that we think is probable in our portfolios. However, our allowance for loan and lease losses may not be sufficient to cover the loan and lease losses that we actually may incur. While we maintain a reserve at a level management believes is adequate, our charge-offs could exceed these reserves. Our strategy in our commercial banking line of business is to expand into new markets outside our traditional markets in south-central Indiana using offices staffed by senior commercial loan officers who come to us from other commercial banks in these new markets. As of June 30, 2001, $488.1 million of our total loans, representing 38.2% of our total loan portfolio, were outside of our south-central Indiana markets where we have opened branch offices since 1999. The majority of these loans are commercial loans and many of these borrowers may not have experienced a complete business or economic cycle since they have been loan customers of ours. We cannot be sure that our loan loss experience with these new borrowers in these newer markets will be consistent with our loan loss experience in our traditional south-central Indiana markets. Because we have only a limited lending 13 ---------------------------------------------------------------------------------------------------------------------------- history with these customers, our ability to assess whether our loan loss reserve is adequate is less certain. Our actual loan loss experience in these markets may cause us to increase our reserves. In our home equity lending line of business, some assets are reflected on our balance sheet at the net present value of the expected future revenue stream of the instruments, measured at the time we sell the underlying portfolio of loans. These assets are interest-only instruments and generally represent residual interests in loans that we have sold or securitized. From time to time we also may purchase interest-only instruments that relate to portfolios of loans securitized by others. We are exposed to continuing credit risk on these assets. Payment defaults by borrowers could exceed the default assumptions we used. If we do not collect the expected amount of interest, the value of our residual interests in the loans will be impaired. Our future earnings will be affected adversely because we are required to record a trading loss equal to impairment of the residual. In addition, we project the expected cash flows over the life of the residual interest using certain assumptions that are subject to prepayment, credit and interest rate risks. If our actual experience as to timing, frequency or security of loans differs materially from the assumptions used, future cash flows and earnings in our home equity lending line of business could be negatively impacted. If we experience defaults by borrowers in any of our businesses to a greater extent than anticipated, our earnings could be negatively impacted. We use innovative business strategies in order to gain competitive advantage in our consumer lending niches. Innovative product design is important to us to differentiate us in consumer lending. We have developed our lines of business by identifying underserved niches that we believe offer us a competitive opportunity. For this reason, the performance of our financial assets may be less predictable than those of lenders that offer only conventional mortgage and home equity loans. We may not have the same history of delinquency and loss experience to utilize in pricing and structuring some of our products as do lenders offering more seasoned asset types, and it may be more difficult to sell or securitize novel loan types. We may also be impacted by changes in evolving generally accepted accounting principles, unanticipated financial reporting requirements and regulatory uncertainties since accounting and regulatory treatment may not be well established for some of our innovative strategies. We may need additional capital in the future and adequate financing may not be available to us on acceptable terms, or at all. Should our growth continue in excess of our ability to generate capital internally to support our plans, we may need to seek additional capital in the future to fund our operations. We may not be able to obtain additional debt or equity financing, or, if available, it may not be in amounts and on terms acceptable to us. If we are unable to obtain the funding we need, we may be unable to develop our products and services, take advantage of future opportunities or respond to competitive pressures, which could have a material adverse effect on us. In addition, if we pursue subsequent offerings of our common shares, the sale of the common shares will dilute your equity interest in us. We rely heavily on our management team and key personnel, and the unexpected loss of key managers and personnel may affect our operations adversely. Each line of our five lines of business has a separate management team that operates its niche as a separate business unit. Our overall financial performance depends heavily on the results of these different specialized financial services businesses. Our success to date has been influenced strongly by our ability to attract and to retain senior management that is experienced in banking and financial services. Our ability to retain executive officers and the current management teams of each of our lines of business will continue to be important to successfully implement our strategies. 14 ---------------------------------------------------------------------------------------------------------------------------- Our lending officers in our newer banking markets have primary contact with our new customers in these markets and maintain strong community ties and personal banking relationships with our customer base, which is a key aspect of our business strategy and in increasing our market presence. We are dependent on these new lending officers to maintain and increase our growth in these markets. The unexpected loss of the services of any key management or personnel, or the inability to recruit and retain qualified management and key personnel in the future, could have an adverse effect on our business and financial results. Ownership of our common stock is concentrated in persons affiliated with us. Our Chairman, William I. Miller, currently has voting control over more than 50% of our common shares and is expected to substantially control the vote of our common shares after this offering. Together with Mr. Miller, directors and executive officers of Irwin will beneficially own approximately % of our common shares after the offering. These persons likely have the ability to substantially control the outcome of all shareholder votes and to direct our affairs and business. This voting power would enable them to cause actions to be taken that may prove to be inconsistent with the interests of non-affiliated shareholders. Our future success depends on our ability to compete effectively in highly competitive financial services industry. The financial services industry, including commercial banking, mortgage banking, home equity lending and equipment leasing, is highly competitive, and we and our operating subsidiaries encounter strong competition for deposits, loans and other financial services in all of our market areas in each of our lines of business. Our principal competitors include other commercial banks, savings banks, savings and loan associations, mutual funds, money market funds, finance companies, trust companies, insurers, leasing companies, credit unions, mortgage companies, private issuers of debt obligations, venture capital firms, and suppliers of other investment alternatives, such as securities firms. Many of our non-bank competitors are not subject to the same degree of regulation as we and our subsidiaries are and have advantages over us in providing certain services. Many of our competitors are significantly larger than we are and have greater access to capital and other resources. Also, our ability to compete effectively in our lines of business is dependent on our ability to adapt successfully to technological changes within the banking and financial services industry generally. Our shareholder rights plan, provisions in our restated articles of incorporation, our by-laws, and Indiana law may delay or prevent an acquisition of us by a third party. Our Board of Directors has implemented a shareholder rights plan. The rights have certain anti-takeover effects. The overall effects of the plan may be to render more difficult or to discourage a merger, tender offer or proxy contest, the assumption of control by a holder of a larger block of our shares and the removal of incumbent directors and key management even if such removal would be beneficial to shareholders generally. If triggered, the rights will cause substantial dilution to a person or group that attempts to acquire us without approval of our Board of Directors, and under certain circumstances, the rights beneficially owned by the person or group may become void. The plan also may have the effect of limiting shareholder participation in certain transactions such as mergers or tender offers whether or not such transactions are favored by incumbent directors and key management. In addition, our executive officers may be more likely to retain their positions with us as a result of the plan, even if their removal would be beneficial to shareholders generally. Our restated articles of incorporation and our by-laws as well as Indiana law contain provisions that make it more difficult for a third party to acquire us without the consent of our Board of Directors. These provisions also could discourage proxy contests and may make it more difficult for you and other shareholders to elect your own representatives as directors and take other corporate actions. 15 ---------------------------------------------------------------------------------------------------------------------------- Our by-laws do not permit cumulative voting of shareholders in the election of directors, allowing the holders of a majority of our outstanding shares to control the election of all our directors. We have a staggered board which means that only one-third of our board can be replaced by shareholders at any annual meeting. Directors may not be removed by shareholders. For these reasons, our Chairman, William I. Miller, who will continue to control the vote of a substantial portion of our common shares after this offering, will likely be able to exercise effective control over the outcome of any shareholder vote. Our by-laws also provide that only our Board of Directors, and not our shareholders, may adopt, alter, amend and repeal our by-laws. Indiana law provides several limitations that may discourage potential acquirers from purchasing our common shares. In particular, Indiana law prohibits business combinations with a person who acquires 10% or more of our common shares during the five year period after the acquisition of 10% by that person or entity, unless the acquirer receives prior approval for the acquisition of the shares or business combination from our Board of Directors. These and other provisions of Indiana law and our governing documents may have the effect of delaying, deferring or preventing a transaction or a change in control that might be in the best interest of our shareholders. SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS Certain statements contained in this prospectus constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and are including this statement for purposes of invoking these safe harbor provisions. You can identify these statements from our use of the words "estimate," "project," "believe," "intend," "anticipate," "expect," "target" and similar expressions. These forward-looking statements may include, among other things: o o statements and assumptions relating to projected growth; anticipated improvements in earnings, earnings per share, and other financial performance measures as well as management's long-term performance goals; o statements relating to the anticipated effects on results of operations or financial condition from expected developments or events; o statements relating to our business and growth strategies, including potential acquisitions; and o any other statements or assumptions that are not historical facts. Forward-looking statements involve known and unknown risks, uncertainties and other important factors that could cause our actual results, performance or achievements, or industry results, to differ materially from our expectations of future results, performance or achievements expressed or implied by these forward-looking statements. In addition, our past results of operations do not necessarily indicate our future results. We discuss these and other uncertainties in the "Risk Factors" section of this prospectus beginning on page 10. 16 ---------------------------------------------------------------------------------------------------------------------------- THE COMPANY We are a diversified financial services company headquartered in Columbus, Indiana with $3.3 billion in assets at June 30, 2001. We focus primarily on the extension of credit to consumers and small businesses as well as providing the ongoing servicing of those customer accounts. We currently operate five major lines of business through our direct and indirect subsidiaries. Our major lines of business are: commercial banking, mortgage banking, home equity lending, equipment leasing and venture capital. We believe our historical growth and profitability is the result of our endeavors to pursue complementary consumer and commercial lending niches through our bank holding company structure, our experienced management, our diverse product and geographic markets, and our willingness and ability to align the compensation structure of each of our lines of business with the interests of our stakeholders. Through various economic environments and cycles, we have had a relatively stable revenue and earnings stream on a consolidated basis generated primarily through internal growth rather than acquisitions. Over the five-year and ten-year periods ending December 31, 2000, respectively, our financial performance has been as follows: o o our return on average equity averaged 21.11% and 22.04%; o our diluted earnings per common share compounded at an average annual growth rate of 14.25% and 20.99%; o our net revenues(1) compounded at an average annual growth rate of 13.19% and 19.44%; ---------------------------------------------------------------------------------------------------------------------------- (1) Net revenues consist of net interest income plus noninterest income. o our nonperforming assets to total assets averaged 0.61% and 0.52%; o our annual net charge-offs to average loans and leases averaged 0.36% and 0.42%; and o our book value per common share compounded at an average annual growth rate of 14.47% and 18.95%. Our banking subsidiary, Irwin Union Bank and Trust, was organized in 1871 and we formed the holding company in 1972. Our direct and indirect major subsidiaries include Irwin Union Bank and Trust, a commercial bank, which together with Irwin Union Bank, F.S.B., conducts our commercial banking activities; Irwin Mortgage Corporation, a mortgage banking company acquired in 1981; Irwin Home Equity Corporation, a consumer home equity lending company formed in 1994; Irwin Capital Holdings Corporation, an equipment leasing subsidiary; and Irwin Ventures LLC, a venture capital company. At August 31, 2001, we and our subsidiaries had a total of 2,708 employees, including full-time and part-time employees. Strategy Our strategy is to maintain a diverse revenue stream by focusing on niches in financial services where we believe we can optimize the productivity of our capital and where our experience and expertise can provide a competitive advantage. Our operational objectives are premised on simultaneously achieving three goals: creditworthiness, profitability and growth. We refer to this as creditworthy, profitable growth. We believe we must continually balance these goals in order to deliver long-term value to all of our stakeholders. We have developed a four-part business plan to meet these goals: o o Identify underserved niches. We focus on product or market niches in financial services that we believe are underserved and in which customers are willing to pay a premium for value-added services. We don't believe it is necessary to be the largest or leading market share company in 17 ---------------------------------------------------------------------------------------------------------------------------- o any of our product lines, but we do believe it is important that we are viewed as a preferred provider in niche segments of those product offerings. o Hire exceptional management with niche expertise. We enter niches only when we have attracted excellent senior managers who have proven track records in the niche for which they are responsible. We structure our companies so these managers are encouraged to focus only on their area of expertise and lines of business. In addition, we believe our willingness to offer minority ownership positions in our lines of business to these managers provides them with the long-term incentive to achieve creditworthy, profitable growth. We also employ a similar strategy when looking to expand our lines of business. Each line of our five lines of business has a separate management team that operates its niche as a separate business unit responsible for performance goals specific to that particular line of business. Our structure allows the senior managers of each line of business to focus their efforts on understanding their customers and meeting the needs of the markets they serve. This structure also promotes accountability among managers of each enterprise. o Diversify capital and earnings risk. We diversify our revenues and allocate our capital across complementary lines of business as a key part of our risk management. Our lines of business are cyclical, but when combined in an appropriate mix, we believe they provide sources of diversification and opportunities for growth in a variety of economic conditions. For example, both the origination and servicing of residential mortgage loans are very cyclical businesses, tied to changes in interest rates. We believe our participation in these markets has been profitable over time due to our dedication to participating in both segments of the mortgage banking business, rather than one or the other, which would otherwise leave us more susceptible to swings in interest rates. o Reinvest in new opportunities. We reinvest on an ongoing basis in the development of new and existing opportunities. As a result of our attention to long-term value creation, we believe it is important at times to limit short-term growth by investing for future return. Since the selection of excellent managers is an important part of our growth strategy, we are biased toward seeking new growth through organic expansion of existing lines of business or the initiation of a new line through a start-up, utilizing the managers we select to focus on a single line of business. Over the past 10 years, we have made only a few acquisitions and those have typically been in non-competitive situations. LOGO 18 ---------------------------------------------------------------------------------------------------------------------------- Major Lines of Business We are a regulated bank holding company and we conduct our consumer and commercial lending businesses through various operating subsidiaries. At the parent level, we work actively to add value to our lines of business by interacting with the management teams, capitalizing on interrelationships, providing centralized services and coordinating overall organizational decisions. Under this organizational structure, our separate businesses hold and fund the majority of their assets through Irwin Union Bank and Trust. This provides additional liquidity and results in regulatory oversight of each of our lines of business. The following table shows our net income (loss) by line of business for the past five years and the first six months of 2001: Six Months Ended June 30, Year Ended December 31, 2001 2000 2000 1999 1998 1997 1996 (in thousands) Net income (loss): Commercial banking $ 3,142 $ 3,553 $ 7,090 $ 7,345 $ 6,509 $ 5,587 $ 4,254 Mortgage banking 14,488 6,249 13,006 23,063 28,853 21,300 20,422 Home equity lending 9,457 6,554 18,494 12,606 (6,668 ) 1,710 (816 ) Equipment leasing (968 ) (1,799 ) (2,563 ) (843 ) -- -- -- Venture capital (3,007 ) 4,243 2,723 656 -- -- -- Other(1) (1,133 ) (1,813 ) (3,086 ) (9,671 ) 1,809 (4,153 ) (1,432 ) Total consolidated net income $ 21,979 $ 16,987 $ 35,666 $ 33,156 $ 30,503 $ 24,444 $ 22,428 ---------------------------------------------------------------------------------------------------------------------------- (1) Includes parent and consolidating entries and results attributable to our medical equipment leasing business which we exited in 1998. Commercial Banking Our commercial banking line of business focuses on providing credit, cash management and personal banking products to small businesses and business owners. We offer a full line of consumer, mortgage and commercial loans, as well as personal and commercial checking accounts, savings and time deposit accounts, personal and business loans, credit card services, money transfer services, financial counseling, property, casualty, life and health insurance agency services, trust services, securities brokerage and safe deposit facilities. We offer commercial banking services through our banking subsidiaries, Irwin Union Bank and Trust, an Indiana state-chartered commercial bank, and Irwin Union Bank, F.S.B., a federal savings bank. We formed the federal savings bank to provide us the flexibility to expand our commercial banking line of business into markets where commercial banks like Irwin Union Bank and Trust are not permitted to branch under current law. We sell a substantial majority of the commercial loans we originate at Irwin Union Bank, F.S.B. to Irwin Union Bank and Trust. o o Irwin Union Bank and Trust Company--headquartered in Columbus, Indiana and organized in 1871, is a full service Indiana state-chartered commercial bank with offices currently located throughout nine counties in central and southern Indiana, as well as in Kalamazoo, Grandville (near Grand Rapids), Traverse City and Lansing, Michigan, and Carson City, Nevada; and o Irwin Union Bank, F.S.B.--headquartered in Louisville, Kentucky, is a full-service federal savings bank that began operations in December 2000. Currently we have offices located in Brentwood, Missouri (near St. Louis), Louisville, Kentucky, Salt Lake City, Utah, Las Vegas, Nevada and Phoenix, Arizona. 19 ---------------------------------------------------------------------------------------------------------------------------- o The following table shows selected financial information for our commercial banking line of business: At or For Six Months Ended At or For June 30, Year Ended December 31, 2001 2000 2000 1999 1998 1997 1996 (dollars in thousands) Commercial Banking: Net income $ 3,142 $ 3,553 $ 7,090 $ 7,345 $ 6,509 $ 5,587 $ 4,254 Total assets 1,443,534 950,887 1,167,559 789,560 607,992 539,233 503,507 Total loans 1,277,658 873,339 1,067,980 720,493 514,950 410,272 336,580 Total deposits 1,305,352 825,408 998,892 710,899 567,526 486,481 453,879 Return on average assets 0.50 % 0.83 % 0.74 % 1.08 % 1.15 % 1.08 % 0.91 % Return on average equity 8.71 12.39 12.31 13.89 15.48 15.42 13.41 Net interest margin 3.76 4.47 4.25 4.82 4.75 4.61 4.67 Efficiency ratio 70.42 71.58 71.00 68.06 66.60 64.62 69.66 Nonperforming assets to total assets 0.17 0.21 0.23 0.15 0.31 0.60 0.76 Net charge-offs to average loans 0.13 0.14 0.12 0.16 0.13 0.34 0.34 Strategy Our strategy is to expand our commercial banking line of business into selected new markets. We target economically strong metropolitan markets where we believe recent bank consolidation has negatively impacted customers. We believe that this consolidation has led to disenchantment with the delivery of financial services to the small business community among both the owners of those small businesses and the senior banking officers who had been providing services to them. In markets that management identifies as attractive opportunities, the bank seeks to hire senior commercial loan officers who have strong local ties and who can focus on providing personalized lending services to small businesses in that market. Our strategy is to expand only in markets that satisfy the following criteria: o o the market is a metropolitan area with attractive business demographics displaying evidence of sustainable growth; o recent banking merger and acquisition activity has occurred in the market where management believes that the acquiror is viewed by customers as an outsider and/or not responsive to local small business needs; and o we are able to attract experienced, senior banking staff to manage the new market. We expect consolidation to continue in the banking and financial services industry and plan to capitalize on the opportunities brought about in this environment by continuing the bank's growth strategy for small business banking in new markets throughout the United States. Our focus will be to provide personalized banking services to small businesses, using experienced lenders with a strong presence in those cities affected by the industry-wide consolidations. In addition to its market expansion, our commercial bank intends to develop further its banking products that satisfy the needs of the small business borrowers and its insurance and investment operations in order to provide a full range of financial services to its customers. On average, we anticipate our new banking offices will break even approximately 18 months after they are opened, and we estimate that a banking office will achieve targeted levels of profitability in approximately five years, in an average market. Some markets will experience growth and profitability at greater or lesser rates than we currently expect because of many factors, including execution of our strategy, accuracy in assessing market potential, and success in recruiting senior lenders and other staff. Over time, we may choose to leave certain markets if these factors limit profitability. 20 ---------------------------------------------------------------------------------------------------------------------------- The following tables show the geographic composition of our commercial banking loans and our deposits: December 31, June 30, 2001 2000 1999 1998 Percent Percent Percent Percent Loans of Loans of Loans of Loans of Outstanding Total Outstanding Total Outstanding Total Outstanding Total (dollars in thousands) Southern Indiana $ 518,498 40.6 % $ 519,863 48.7 % $ 469,991 65.3 % $ 398,705 77.4 % Indianapolis MSA 271,051 21.2 263,047 24.6 195,399 27.1 116,245 22.6 Markets entered since 488,109 38.2 285,070 26.7 55,103 7.6 -- -- 1999(1) Total $ 1,277,658 100.0 % $ 1,067,980 100.0 % $ 720,493 100.0 % $ 514,950 100.0 % December 31, June 30, 2001 2000 1999 1998 Percent Percent Percent Percent of of of of Deposits Total Deposits Total Deposits Total Deposits Total (dollars in thousands) Southern Indiana $ 978,191 74.9 % $ 886,099 88.8 % $ 659,803 92.8 % $ 530,622 93.5 % Indianapolis MSA 110,799 8.5 61,401 6.1 43,731 6.2 36,904 6.5 Markets entered since 216,362 16.6 51,392 5.1 7,364 1.0 -- -- 1999(1) Total $ 1,305,352 100.0 % $ 998,892 100.0 % $ 710,898 100.0 % $ 567,526 100.0 % ---------------------------------------------------------------------------------------------------------------------------- (1) Includes offices in Kalamazoo, Grandville, Traverse City and Lansing, Michigan; Brentwood, Missouri; Louisville, Kentucky; Salt Lake City, Utah; Las Vegas, Nevada; and Phoenix, Arizona. Mortgage Banking In our mortgage banking line of business, we originate, purchase, sell, and service conventional and government agency-backed residential mortgage loans throughout the United States. We established this line of business when we acquired our subsidiary, Irwin Mortgage Corporation, in 1981. Most of our mortgage originations either are insured by an agency of the federal government, such as the FHA or the VA, or, in the case of conventional mortgages, meet requirements for resale to the FNMA or the FHLMC. This allows us to remove substantially all of the credit risk of these loans from our balance sheet. Irwin Mortgage sells mortgage loans to institutional and private investors but may retain servicing rights to the loans it originates or purchases from correspondents. We believe this balance between mortgage loan originations and mortgage loan servicing provides us a natural hedge against interest rate changes, which helps stabilize our revenue stream. At August 31, 2001, Irwin Mortgage operated 96 production and satellite offices in 28 states. Our mortgage banking line of business is currently our largest contributor to revenue, comprising 52.5% of our total revenues for the six months ended June 30, 2001 compared to 49.8% of the first six months of 2000. Our mortgage banking line of business contributed 65.92% of our net income for the first six months of 2001, compared to 36.79% for the same period in 2000. 21 ---------------------------------------------------------------------------------------------------------------------------- The following table shows selected financial data for our mortgage banking line of business: At or For Six Months Ended At or For June 30, Year Ended December 31, 2001 2000 2000 1999 1998 1997 1996 (dollars in thousands) Mortgage Banking: Net income $ 14,488 $ 6,249 $ 13,006 $ 23,063 $ 28,853 $ 21,300 $ 20,422 Gain on sale of loans 44,436 22,508 45,601 72,395 97,724 53,332 41,333 Loan servicing fees 24,798 26,337 50,309 54,247 55,217 50,194 45,573 Gain on sale of bulk servicing 5,781 5,723 27,528 9,005 829 1,512 1,224 Total net revenue 99,146 69,815 140,932 180,767 207,238 147,657 135,310 Total mortgage originations 4,359,940 1,942,990 4,091,573 5,876,750 8,944,615 5,397,338 5,085,625 Refinancings to total originations 52.88 % 14.02 % 16.39 % 28.64 % 49.54 % 22.53 % 18.95 % Servicing