Irwin Financial Corporation 500 Washington Street, Columbus, Indiana 47201 - -------------------------------------------------------------------------------- March 30, 1998 Notice of Annual Meeting of Shareholders - -------------------------------------------------------------------------------- To the Shareholders: The Annual Meeting of Shareholders of Irwin Financial Corporation (the "Corporation") will be held at the main offices of the Corporation, 500 Washington Street, Columbus, Indiana, on Thursday, April 30, 1998 at 4:00 p.m., Columbus time, for the following purposes: 1. to elect a Board of Directors to serve for the ensuing year; 2. to act upon the confirmation of independent auditors for the calendar year 1998; 3. to hear such reports as may be presented; and 4. to transact such other business as may properly come before the meeting or any adjournment thereof. Registration of shareholders will start at 3:15 p.m. and the meeting will start at 4:00 p.m. Following the meeting, refreshments will be served. I encourage you to date, sign, and mail the enclosed proxy in the postpaid envelope that is provided. If you are present at the meeting and desire to do so, you may revoke your proxy and vote in person. A copy of the Corporation's Annual Report to Shareholders for 1997 is enclosed and a Proxy Statement accompanies this notice. By Order of the Board of Directors Matt Souza, Secretary 3 Proxy Statement of Irwin Financial Corporation - -------------------------------------------------------------------------------- For Annual Meeting of Shareholders to be held April 30, 1998 General Information - -------------------------------------------------------------------------------- This proxy statement and the accompanying form of proxy are furnished in connection with the solicitation by the Board of Directors of Irwin Financial Corporation (the "Corporation") of proxies to be used at the Corporation's Annual Meeting of Shareholders on Thursday, April 30, 1998, at the main offices of the Corporation, Columbus, Indiana, at 4:00 p.m., Columbus time, or any adjournment thereof. The costs of the solicitation of proxies in the accompanying form will be borne by the Corporation. The solicitation of proxies will be limited to the use of the mails. A shareholder who signs and returns a proxy in such form will have the power to revoke it at any time before it is exercised by giving notice of revocation to the Secretary of the Corporation. All shares represented by the accompanying proxy, if the proxy is executed and returned, will be voted as directed by the shareholder. If a shareholder executes and returns a proxy, but makes no direction as to such shareholder's vote, then the shares will be voted on each matter to come before the meeting in accordance with the recommendation of the Board of Directors. The main offices of the Corporation are located at 500 Washington Street, Columbus, Indiana 47201. This proxy statement will be mailed to shareholders on or about March 30, 1998. 1. 4 Voting Securities and Principal Holders - -------------------------------------------------------------------------------- Only shareholders of record at the close of business on March 12, 1998 will be entitled to vote. On March 12, 1998, there were 10,903,149 common shares outstanding and entitled to vote. Each common share is entitled to one vote on each matter to be voted on at the meeting. The following information is given as of March 12, 1998, for persons known by management to beneficially own more than 5% of the common shares of the Corporation. All of the shares listed are beneficially owned through voting and investment power held solely by the reported owner, except as otherwise indicated. - -------------------------------------------------------------------------------- Title of Amount and Nature of Class Name and Address Beneficial Ownership % of Class ---------------------------------------------------------------------------------- Common IFC Trust Under 2,580,296(1) 23.67% Shares Agreement dated 6/29/90, Clementine M. Tangeman, Donor Irwin Miller, Trustee 301 Washington Street Columbus, Indiana Common Irwin Miller 2,647,251(1,2) 24.28% Shares 301 Washington Street Columbus, Indiana Common William I. Miller 5,400,351(1,3) 49.53% Shares 500 Washington Street Columbus, Indiana ---------------------------------------------------------------------------------- 1. Certain shares owned by the IFC Trust (2,580,296 shares which were donated to the Trust by the Estate of Mrs. Clementine Tangeman) and Mr. Irwin Miller (2,580,272 shares) are subject to an irrevocable proxy held by Mr. William I. Miller to vote such shares. Mr. William I. Miller holds a right to acquire these same 5,160,568 shares, pursuant to options purchased by Mr. Miller from Mrs. Clementine Tangeman and Mr. Irwin Miller, within 60 days but subject to certain contingencies. 2. Includes 60,000 shares owned by Mr. Irwin Miller's wife, Xenia S. Miller, as to which Mr. Miller holds no voting or investment power and for which Mr. Miller expressly disclaims any beneficial interest: 4,512 shares as to which Mr. Miller holds voting and investment power; 2,267 shares held for the account of Mr. Irwin Miller under the Corporation's Outside Director Restricted Stock Compensation Plan as to which Mr. Miller holds sole voting power but no investment power; and 200 shares which Mr. Miller has the right to acquire within 60 days of the record date through the exercise of stock options. See "Outside Director Restricted Stock Compensation Plan." 3. See Footnote 1 above. Includes 11,406 shares that Mr. Miller is the custodian of on behalf of his children and for which Mr. Miller expressly disclaims any beneficial interest and 143,470 shares which Mr. Miller has the right to acquire within 60 days of the record date through the exercise of stock options. 2. 5 Security Ownership of Management: The following information is given as of March 12, 1998 for the nominees for directors, individually, and all executive officers of the Corporation as a group. - -------------------------------------------------------------------------------- Title of Name of Amount and Nature of Class Beneficial Owner Beneficial Ownership(4, 5) % of Class ---------------------------------------------------------------------------------- Common Shares Sally A. Dean(3) 4,894 .04% Common Shares David W. Goodrich(3) 7,495 .07% Common Shares John T. Hackett(3) 13,608 .12% Common Shares William H. Kling(3) 3,996 .04% Common Shares Brenda J. Lauderback(3) 1,424 .01% Common Shares John C. McGinty, Jr.(3) 5,702 .05% Common Shares Irwin Miller(3) 2,647,251(1) 24.28% Common Shares William I. Miller(3) 5,400,351(2) 49.53% Common Shares John A. Nash(3) 307,675 2.82% Common Shares Lance R. Odden(3) 5,411 .05% Common Shares Theodore M. Solso(3) 9,206 .08% Common Shares Director Nominees and Executive Officers as a Group (23 persons) 6,122,469(5) 56.15% ---------------------------------------------------------------------------------- 1. See Footnotes 1 and 2 under "Voting Securities and Principal Holders." 2. See Footnotes 1 and 3 under "Voting Securities and Principal Holders." 3. Director nominee. 4. For director nominees, Dean (2,394 shares), Goodrich (1,834 shares), Hackett (1,064 shares), Kling (2,796 shares), Lauderback (1,144 shares), McGinty (3,212 shares), Irwin Miller (2,267 shares), Odden (2,795 shares), and Solso (2,654 shares), includes shares as to which the director nominee holds sole voting power but no investment power under the Corporation's Outside Director Restricted Stock Compensation Plan. 5. Includes shares which the following director nominees and executive officers have the right to acquire within 60 days of the record date through the exercise of stock options: William Miller (143,470 shares), Nash (127,285 shares), other director nominees and executive officers (174,510 shares). Also includes an aggregate of 20,160 shares held for the accounts of nine director nominees as to which the director nominees hold sole voting power, but limited or no investment power. See "Outside Director Restricted Stock Compensation Plan" and Footnote 4 above. 3. 6 1. Election of Directors - -------------------------------------------------------------------------------- Eleven directors are to be elected to the Corporation's Board of Directors at the Annual Meeting. Proxies granted for use at the Annual Meeting cannot be voted for more than eleven nominees. Directors are elected annually to hold office until the next Annual Meeting of Shareholders and until their successors are elected and have qualified. The persons named as Proxies in the accompanying form of proxy will, unless otherwise indicated in the form of proxy, vote the shares covered by proxies for the election of the nominees named in the following table. Management has no reason to believe that any nominee named herein will be unable to serve. However, should any nominee for director become unavailable for election, and unless the Board of Directors or the Executive Committee shall reduce the size of the Board to a number that shall be equal to the number of nominees who are able and willing to serve, the persons named in the accompanying form of proxy will vote for a substitute who will be designated by the Board of Directors or the Executive Committee. The following table sets forth, as of March 12, 1998 (a) the name, age, year in which the nominee was first elected as a director of the Corporation or of Irwin Union Bank and Trust Company, and principal occupation for the past five years of each nominee for election as a director; (b) the percentage of the total number of meetings of the Board of Directors of the Corporation, and meetings of committees of the Board of Directors of the Corporation of which the director is a member, attended by each director during 1997; and (c) all other directorships held by each nominee in other corporations subject to the reporting requirements of the Securities Exchange Act of 1934 and in any investment company. There are no family relationships among any of the director nominees or executive officers, except that William I. Miller is the son of Irwin Miller. --------------------------------------------------------------------------------------- Sally A. Dean Sally A. Dean (Director since 1995) Ms. Dean is a retired Senior Vice President of Dillon, Read & Co. Inc. (investment bank). She serves as Trustee and is Immediate Past President of the Board of Trustees, Randolph-Macon Woman's College. In 1997, Ms. Dean attended 100% of the Corporation's Board and Committee meetings of which she is a member. Age 49. --------------------------------------------------------------------------------------- 4. 7 David W. Goodrich David W. Goodrich (Director since 1986) Mr. Goodrich is Executive Vice President and Treasurer, F.C. Tucker Company, Inc. (realty company). He is the Vice Chairman of Clarion Health Partners, Inc., and a board member of Citizens Gas and Coke Utility and American United Life Insurance Company. In 1997, Mr. Goodrich attended 100% of the Corporation's Board and Committee meetings of which he is a member. Age 50. --------------------------------------------------------------------------------------- John T. Hackett John T. Hackett* (Director since 1981) Mr. Hackett is Managing General Partner of CID Equity Partners, L.P. (a private equity investment partnership). He is a board member of Meridian Insurance Group, Inc., the Wabash National Corp., and the Ball Corporation. In 1997, Mr. Hackett attended 90% of the Corporation's Board and Committee meetings of which he is a member. Age 65. --------------------------------------------------------------------------------------- William H. King William H. Kling (Director since 1993) Mr. Kling has been President of Minnesota Public Radio since 1966(regional network of 30 public radio stations). In 1987, he became the President of the Greenspring Company (a diversified media, direct marketing, and mail order company). He is a board member of The St. Paul Companies, The Wenger Corporation, Continental Cablevision of St. Paul, and several Funds of the American Funds family of the Capital Group. In 1997, Mr. Kling attended 100% of the Corporation's Board and Committee meetings of which he is a member. Age 55. --------------------------------------------------------------------------------------- Brenda J. Lauderback Brenda J. Lauderback (Director since 1996) Ms. Lauderback was President of the Wholesale Group of the Nine West Group, Inc. until March 1, 1998. (manufacturer, wholesale, and retail distributor of women's shoes and accessories). She is a board member of Consolidated Stores, a Trustee for the Hord Foundation, and serves on the Advisory Committee of For All Kids Foundation. In 1997, Ms. Lauderback attended 83% of the Corporation's Board meetings. Age 47. --------------------------------------------------------------------------------------- John C. McGinty, Jr. John C. McGinty, Jr.* (Director since 1991) Mr. McGinty is President of Peregrine Associates, Inc.(healthcare, governance, and leadership consulting firm). He is the Managing Director of The Greeley Company (healthcare leadership consulting, strategic planning, education, and publications). From 1986 to 1997, Mr. McGinty was the President and Chief Executive Officer of Southeastern Indiana Health Management, Inc. and Columbus Regional Hospital. In 1997, Mr. McGinty attended 100% of the Corporation's Board and Committee meetings of which he is a member. Age 47. --------------------------------------------------------------------------------------- 5. 8 Irwin Miller Irwin Miller(1) (Director since 1939) Mr. Miller is the Former Chairman of Cummins Engine Company, Inc. (manufacturer of diesel engines). He is a director of Cummins Engine Company, Inc. and a member of the Business Council, The American Academy of Arts and Sciences, and the American Philosophical Society. In 1997, Mr. Miller attended 38% of the Corporation's Board and Committee meetings of which he is a member. Age 88. --------------------------------------------------------------------------------------- William I. Miller William I. Miller* (Director since 1985) Mr. Miller is Chairman of Irwin Financial Corporation. He is a director of Cummins Engine Company, Inc., The Tennant Company, and the New Perspective Fund, Inc. of the American Funds family of the Capital Group. He is Chairman of the Board of Public Radio International, a Trustee of EuroPacific Growth Fund of the American Funds family of the Capital Group, and of Taft School. In 1997, Mr. Miller attended 100% of the Corporation's Board and Committee meetings of which he is a member. Age 41. --------------------------------------------------------------------------------------- John A. Nash John A. Nash* (Director since 1972) Mr. Nash is Chairman of the Executive Committee and the President of Irwin Financial Corporation. He is the Past Chairman of the Columbus Indiana Economic Development Board and the Chairman of the Board of Trustees of Columbus Regional Hospital. In 1997, Mr. Nash attended 100% of the Corporation's Board and Committee meetings of which he is a member. Age 60. --------------------------------------------------------------------------------------- Lance R. Odden Lance R. Odden (Director since 1991) Mr. Odden is President of Taft School (private educational institution). He has been Headmaster since 1972. Mr. Odden is a Trustee of the National Association of Independent Schools, The Gunnery School, and The Mattuck Museum. In 1997, Mr. Odden attended 100% of the Corporation's Board and Committee meetings of which he is a member. Age 58. --------------------------------------------------------------------------------------- Theodore M. Solso Theodore M. Solso* (Director since 1993) Mr. Solso is President and Chief Operating Officer of Cummins Engine Company, Inc. He served as Executive Vice President and Chief Operating Officer of Cummins during 1994 and 1995. Mr. Solso was Executive Vice President-Operations of Cummins from 1992 to 1994. He is a board member of the Amoco Corporation, Cyprus AMAX Minerals Company, and Cummins Engine Company, Inc., and a Trustee of DePauw University. In 1997, Mr. Solso attended 100% of the Corporation's Board meetings. Age 51. --------------------------------------------------------------------------------------- 6. 9 * Member of the Executive Committee 1. Includes service as a director of Irwin Union Bank and Trust Company prior to the formation of the Corporation in 1972. In August, 1997, the Board of Directors, pursuant to the By-Laws of the Corporation, decreased the number of Director positions on the Corporation's Board of Directors to eleven. There are no material proceedings to which any director, executive officer, or affiliate of the Corporation, any owner of record or beneficial owner of more than five percent of any class of voting securities of the Corporation, or any associate of any such director, executive officer, affiliate, or security holder is a party adverse to the Corporation or any of its subsidiaries or has a material interest adverse to the Corporation or any of its subsidiaries. Compliance with Section 16(a) of the Securities Exchange Act of 1934 Section 16(a) of the Securities Exchange Act of 1934 requires the Corporation's directors and executive officers, and persons who own more than ten percent of a registered class of the Corporation's equity securities, to file with the Securities and Exchange Commission initial reports of ownership and reports of changes in ownership of common shares and other equity securities of the Corporation. Executive officers, directors, and greater than ten percent shareholders are required by SEC regulation to furnish the Corporation with copies of all Section 16(a) forms they file. To the Corporation's knowledge, based solely on a review of the copies of such reports furnished to the Corporation and written representations that no other reports were required, all Section 16(a) filing requirements applicable to its executive officers, directors, and greater than ten percent shareholders were met. 7. 10 Director Meetings and Committees - -------------------------------------------------------------------------------- The Board of Directors of the Corporation held six meetings in 1997. The Corporation's Audit Committee has primary responsibility for the discharge of the following functions: recommendation of the firm to be employed as the Corporation's independent auditors; consultation with the independent auditors with regard to the plan of audit; review, in consultation with the independent auditors, of the report of audit, or proposed report of audit, and the accompanying management letter, if any; review and direction of the work performed by the internal audit department of the Corporation; review of regulatory examination reports received by the Corporation and its subsidiaries; and consultation with the independent and internal auditors with regard to the adequacy of internal controls. In 1997, the Audit Committee was composed of directors Dean, Hackett, and McGinty. The Committee held four meetings during 1997. The Corporation's Compensation Committee reviews and considers recommendations from management concerning the executive compensation policies, employee benefit plans and salary administration program of the Corporation, which includes an annual review of the total compensation and recommended adjustments for all officers of the Corporation and its subsidiaries. The Committee administers the Management Performance Plan and the Long-Term Performance Plan. The Committee also administers existing stock option and employee savings plans. The deliberations of the Committee are reported to the Board of Directors for review and approval. Until April 29, 1997, the members of the Committee were directors Goodrich, Kling and Sakai. Mr. Sakai retired on April 29, 1997. On that same date, Sally A. Dean became a member of the Committee. The current Committee members are Dean, Goodrich, and Kling. The Compensation Committee held two meetings in 1997. The Corporation's Nominating Committee makes recommendations to the Board of Directors regarding general qualifications for nominees as directors, desired areas of community and business representation, size of the Board of Directors, director compensation, and the retirement policy for directors. On the basis of these general determinations, the Committee recommends qualified individuals to serve as directors. Shareholder recommendations for nominees will be accepted by the Committee; however, no formal procedures have been developed to consider such recommendations. In 1997, the members of the Nominating Committee were directors Irwin Miller, Goodrich, McGinty, W. Miller, Nash, and Odden. The Nominating Committee held two meetings in 1997. The Corporation's Executive Committee acts on the Board's behalf at such times as may be designated by the Board pursuant to the conduct of the business of the Board. In 1997, the members of the Executive Committee were directors Hackett, McGinty, W. Miller, Nash, and Solso. The Executive Committee held no meetings in 1997. Outside Director Compensation: Under the outside directors' fee schedule, effective January 1, 1997, each outside director of the Corporation earns a retainer of $15,000 for one year's service. $5,000 of the retainer is paid in the form of stock options. The remainder of the 8. 11 retainer is payable in cash, additional stock options, or in common shares issued pursuant to the Outside Director Restricted Stock Compensation Plan. In addition to the annual retainer described above, in 1997 each outside director of the Corporation received $1,000 for attendance at each meeting of the Board of Directors of the Corporation, $1,000 for attendance at each meeting of a subsidiary Board, $500 for attendance at each meeting of a committee of the Board of Directors, and $350 for attendance at each meeting of a committee of the Board of Directors of a subsidiary company. The Outside Director Restricted Stock Compensation Plan (the "Plan") covers only non-employee directors of the Corporation and its subsidiaries. The Plan allows an outside director to elect to receive an annual retainer and meeting fees in cash or in common shares with a market value equivalent to the cash retainer. The Plan permits the grant of up to 270,000 common shares over a ten-year period. Grants under the Plan may be for one or more years of future service, and in such cases, the common shares granted under the Plan are forfeitable until vested in accordance with the Plan. The Plan is administered by a Committee, appointed by the Board of Directors. Directors may elect vesting of common shares issued pursuant to multiple-year grants in equal amounts at the end of each year covered by the grant or they may defer vesting until the end of the grant period. Common share certificates issued by the Plan Committee are held by the Corporation for at least two years prior to their delivery to participants. Upon cessation of a participant's service as an outside director for any reason other than ordinary retirement, permanent disability or death, non-vested common shares will revert to the Corporation. Directors have voting and dividend rights with respect to granted shares commencing on the date of grant, but may not sell, pledge, or otherwise transfer or encumber any such shares until they are vested or the director receives certificates representing such shares from the Corporation, whichever is later. During 1997, director nominees Dean, Goodrich, Hackett, Kling, Lauderback, McGinty, Irwin Miller, Odden and Solso participated in the Plan. At present, a total of 20,160 common shares are registered in the names of the participating director nominees. Other grants made under the Plan since its inception in 1989 total 49,976 common shares. A total of 70,136 shares have been granted to participants in the plan. No other fees are paid to directors for services rendered in that capacity. Directors who are officers of the Corporation or any of its subsidiaries do not receive any directors' fees. 9. 12 Executive Compensation and Other Information - -------------------------------------------------------------------------------- Summary of Cash and Certain Other Compensation - -------------------------------------------------------------------------------- The following table provides certain summary information concerning compensation paid or accrued by the Corporation and its subsidiaries, to or on behalf of the Corporation's Chairman (the Corporation does not formally use the title of Chief Executive Officer) and each of the four other most highly compensated executive officers of the Corporation for the fiscal years ended December 31, 1995, 1996 and 1997: SUMMARY COMPENSATION TABLE -------------------------------------------------------------- Long-Term Compensation All Other Annual Compensation(1,4) Awards Compensation(7) ----------------------------------------------------------------------------------------------- Name & Principal Position Year Salary(2) Bonus(3) Option/SAR(#) (a) (b) (c) (d) (g) (i) ----------------------------------------------------------------------------------------------- William I. Miller 1997 $374,600 $425,863 21,090 $ 69,481(5,6) Chairman 1996 $347,200 $437,588 20,700 $ 49,328(5,6) 1995 $296,667 $301,250 27,400 $ 37,524(5,6) ----------------------------------------------------------------------------------------------- John A. Nash 1997 $281,667 $232,902 13,620 $158,886(5,6) President 1996 $273,000 $234,250 16,900 $150,752(5,6) 1995 $261,000 $232,362 20,600 $132,057(5,6) ----------------------------------------------------------------------------------------------- Rick L. McGuire 1997 $200,000 $227,286 2,160 $ 10,172(5,8) President -- Irwin 1996 $185,000 $226,700 3,400 $ 9,772(6,8) Mortgage Corporation 1995 $170,000 $184,908 3,600 $ 6,772(6,8) ----------------------------------------------------------------------------------------------- Thomas D. Washburn 1997 $175,000 $128,709 6,250 $ 3,840(6) Senior Vice President and 1996 $161,667 $125,606 7,400 $ 2,445(6) Chief Financial Officer 1995 $151,000 $117,153 7,600 $ 3,600(6) ----------------------------------------------------------------------------------------------- Elena Delgado 1997 $166,667 $ 77,231 1,500 $ 3,840(6) President -- Irwin Home 1996 $159,583 $103,600 0 $ 3,600(6) Equity Corporation 1995 $150,000 $ 73,643 0 $ 3,600(6) ----------------------------------------------------------------------------------------------- 1. Amounts other than salary are reported on an accrual basis. 2. Includes amounts directed by the executive officer to be contributed on a pre-tax basis to Corporation savings plans. 3. Includes short-term bonus payments from the Corporation and certain subsidiaries. 4. With respect to each individual named in the Summary Compensation Table there were no perquisites or other personal benefits, securities or property which, in the aggregate, exceeded either $50,000 or 10% of the total of such individual's annual salary and bonus. 5. Includes accruals made under a Supplemental Retirement Benefit Plan. See "Supplemental Retirement Benefit Plan." (See Note 7.) 6. Includes contributions by the Corporation or certain subsidiaries to qualified savings plans. (See Note 7.) 7. Detailed information relevant to the "All Other Compensation" column in the Summary Compensation Table above is shown in the following table. 8. Excludes compensation payable to Rick L. McGuire under the terms of the Inland Mortgage Corporation Long-Term Incentive Plan disclosed elsewhere herein. (See Long-Term Incentive Plans.) 10. 13 - -------------------------------------------------------------------------------- Qualified Corporate Life Name SERP Savings Plan Insurance ----------------------------------------------------------------------------------------- 1997 1997 1997 ----------------------------------------------------------------------------------------- William I. Miller $ 65,641 $3,840 0 John A. Nash $155,046 $3,840 0 Rick L. McGuire 0 $7,400 $2,772 Thomas D. Washburn 0 $3,840 0 Elena Delgado 0 $3,840 0 ----------------------------------------------------------------------------------------- Stock Options and Stock Appreciation Rights - -------------------------------------------------------------------------------- The following table contains information concerning the grant of stock options under the Corporation's 1997 Stock Option Plan to the named executive officers: OPTION/SAR GRANTS IN LAST FISCAL YEAR -------------------------------------------------------------- Percent of Alternative to (f) Total and (g): Options/SARs Exercise Grant Date Value Options/ Granted to or Base ------------------- SARs Employees Price Expiration Grant Date Name Granted(1)(#) in Fiscal Year ($/SH) Date Present Value(2) (a) (b) (c) (d) (e) (h) -------------------------------------------------------------------------------------------------- William I. Miller 21,090 25.06% $27.375 4/29/07 $267,632 John A. Nash 13,620 16.19% $27.375 4/29/07 $172,837 Rick L. McGuire 2,160 2.57% $27.375 4/29/07 $ 27,410 Thomas D. Washburn 6,250 7.43% $27.375 4/29/07 $ 79,312 Elena Delgado 1,500 1.78% $27.375 4/29/07 $ 19,035 -------------------------------------------------------------- 1. All grants are subject to a vesting schedule where 25% of each grant is vested on the date of the grant and 25% of each grant vests on the anniversary date of each grant in each of the three years following the grant. 2. Total option values shown in Column (h) were derived using the Binomial option pricing model. Assumptions used in the valuation included an expected volatility factor of .25, an expected future dividend yield of .01, and a risk-free rate of return of .0689. The Binomial model suggests a valuation of $12.69 per share under these assumptions. The Black-Scholes option pricing model would suggest a valuation of $12.66 per share under these same assumptions. The use of a single value as shown in the table above implies a precision to stock option valuation which the Corporation does not believe exists and which therefore may cause the above table to be misleading. Accordingly, there is no assurance that the value realized on the options, if any, will be at or near the value estimated by the Binomial option pricing model. Future compensation resulting from option grants is based solely upon the performance of the Corporation's stock price. 11. 14 Option/SAR Exercises and Holdings - -------------------------------------------------------------------------------- The following table provides information, with respect to the named executive officers, concerning the exercise of options and/or SARs during the last fiscal year and unexercised options and SARs held as of the end of the fiscal year: AGGREGATED OPTIONS/SARs EXERCISED IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION/SAR VALUES --------------------------------------------------------------------------------------------------------- SHARES ACQUIRED NUMBER OF UNEXERCISED ON OPTIONS/SARS AT FISCAL VALUE OF UNEXERCISED EXERCISE VALUE YEAR-END IN-THE-MONEY OPTIONS/SARS NAME (#) REALIZED (#) AT FISCAL YEAR-END(1) --------------------------------------------------------------------------------------------------------- (D) (E) (A) (B) (C) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE --------------------------------------------------------------------------------------------------------- William I. Miller n/a n/a 126,173 33,017 $3,734,958 $621,734 John A. Nash 41,900 $1,094,069 114,505 23,815 $3,535,994 $456,864 Rick L. McGuire n/a n/a 22,740 4,220 $ 736,864 $ 82,040 Thomas D. Washburn 5,000 $ 134,825 47,063 10,287 $1,450,565 $193,866 Elena Delgado n/a n/a 375 1,125 $ 5,439 $ 16,318 --------------------------------------------------------------------------------------------------------- 1. The 1997 year-end stock price was $41.88 per share. Long-Term Incentive Plans - -------------------------------------------------------------------------------- The following table provides information concerning an award made during the last fiscal year under the Inland Mortgage Corporation Long-Term Incentive Plan to named executive Rick McGuire. The award represents an accrued liability. This award is performance based with targets established by the Board of Directors of Irwin (formerly "Inland") Mortgage Corporation. LONG-TERM INCENTIVE PLAN AWARDS IN LAST FISCAL YEAR -------------------------------------------------------------- Number of Shares, Performance or Units or Other Period Until Estimated Future Payouts Other Maturation or Under Non-Stock Price-Based Name Rights Payout Plans ($ or #) (a) (b) (c) (d) ---------------------------------------------------------------------------------- Rick L. McGuire $106,501 Deferrable Compensation $106,501 under Terms of the Plan ---------------------------------------------------------------------------------- 12. 15 PENSION PLAN TABLE -------------------------------------------------------------- Years of Service ------------------------------------------------------------------------------- Remuneration 15 20 25 30 35 ------------------------------------------------------------------------------- $ 50,000 11,800 15,700 19,600 20,300 21,000 75,000 19,100 25,400 31,800 33,300 34,800 100,000 26,400 35,200 44,000 46,300 48,600 125,000 33,700 44,900 56,200 59,300 62,400 150,000 41,000 54,700 68,400 72,300 67,200 175,000 43,900 58,600 73,200 77,500 81,700 200,000 43,900 58,600 73,200 77,500 81,700 225,000 43,900 58,600 73,200 77,500 81,700 250,000 43,900 58,600 73,200 77,500 81,700 275,000 43,900 58,600 73,200 77,500 81,700 300,000 43,900 58,600 73,200 77,500 81,700 350,000 43,900 58,600 73,200 77,500 81,700 400,000 43,900 58,600 73,200 77,500 81,700 450,000 43,900 58,600 73,200 77,500 81,700 500,000 43,900 58,600 73,200 77,500 81,700 ------------------------------------------------------------------------------- Pension Plan: A non-contributory qualified defined benefit Employees' Pension Plan is maintained by the Corporation and certain of its subsidiaries. The Plan provides principally for retirement benefits to substantially all of the officers and employees of these companies. Under the provisions of the Plan, participating companies will contribute assets sufficient to pay all benefits to Plan participants. Contributions to the Plan are actuarially determined to fund the Plan's current service cost on a current basis and to fund initial past service costs over a period of 30 years. Employees who have completed one year of service (1,000 hours worked during a 12-month period) are eligible for participation. Benefits vest after five years credited service. In addition to benefits paid to retiring employees, death and deferred termination benefits are available to employees who meet certain conditions under the Plan. The table above shows the estimated annual benefits payable, based on the assumptions indicated, under the Plan as in effect on December 31, 1997. Basic wages considered for the Plan are for the five consecutive Plan years of highest compensation, and include basic compensation, commissions, and payments from short-term bonus plans. The current years of service at December 31, 1997, for the individuals named in the compensation tables above, are as follows: Mr. Nash (31), Mr. Washburn (21), and Mr. Miller (7). Mr. McGuire and Ms. Delgado are not covered by the Plan. Benefits listed in the pension plan table are payable as straight life annuity amounts and are not subject to any deduction for Social Security or other offset amounts. The Plan was amended effective January 1, 1994. For service after January 1, 1994, Mr. Washburn will receive an additional benefit accrual equal to 13. 16 45% of his usual benefit. For service after January 1, 1994, Mr. Miller will receive an additional benefit accrual equal to 75% of his usual benefit. Supplemental Retirement Benefit Plan - -------------------------------------------------------------------------------- On May 19, 1992, the Board of Directors approved the Compensation Committee's recommendation to provide a supplemental executive retirement benefit to William I. Miller. A similar Plan was approved prior to 1992 for John A. Nash. The Plan provides Mr. Miller with an amount of company- provided benefits not provided under the Pension Plan because of the limitations imposed by Sections 415 and 401(a)(17) of the Internal Revenue Code of 1986, as amended. Criteria used to determine amounts payable under the supplemental Plan are the same as those used by the Pension Plan; that is, service with the Corporation, age at retirement and earnings. Benefits are measured in the same manner as under the Pension Plan, using credited service with the Corporation. Method of payment of the supplemental benefit is a monthly annuity payable for life, with a guarantee of 180 payments. Compensation Committee Interlocks and Insider Participation - -------------------------------------------------------------------------------- No member of the Compensation Committee of the Corporation's Board of Directors was, during 1997, an officer or employee of the Corporation or any of its subsidiaries. Board Compensation Committee Report on Executive Compensation - -------------------------------------------------------------------------------- Executive compensation is reviewed and approved annually by the Compensation Committee of the Board of Directors. Each member of the Compensation Committee is a non-employee Director. Members of the Committee are Ms. Sally A. Dean, Mr. David W. Goodrich, and Mr. William H. Kling. Set forth below is a report submitted by Ms. Dean and Messrs. Goodrich and Kling in their capacity as the Board's Compensation Committee addressing the Corporation's compensation policies for 1997. The Corporation does not formally use the title "Chief Executive Officer." The principal executive officer of the Corporation is the Chairman, Mr. William I. Miller. I. Compensation Policy for Executive Officers ------------------------------------------------------------------------- The Compensation Committee believes that compensation plans make up only one element in the overall management system of the Corporation. Furthermore, appropriate compensation policies are a necessary, but not sufficient, condition for achieving the Corporation's goals. A good compensation system will not guarantee that we achieve our goals, but a poor system can result in those goals not being achieved. This interdependence requires that the Corporation's compensation system grow out of and be consistent with our corporate philosophies and strategy. Accordingly, the kind of company we want the Corporation to be, the strategic direction we are pursuing, and the kinds of people needed to bring that vision to 14. 17 life are the starting points for developing our philosophy and system of compensation. The Corporation's executive compensation system focuses on the total compensation package of the Corporation's top executives. The Corporation's objective is to correlate total compensation with company performance so that median performance relative to similar companies in its industry will produce median total compensation for individuals relative to comparable positions in peer companies, inferior performance will produce below median compensation, and superior performance will produce above median compensation. This approach requires that the Corporation start by defining the appropriate peer group, both for individual positions and the Corporation as a whole. For individual positions, this decision is based on the relative level and scope of responsibilities inherent in the position, and the talent and skills required for success. The traditional measure for the scope of responsibilities in commercial banks and bank holding companies is asset size. Mortgage banking companies generally look at both loan closing volume and loan servicing size. The Corporation's strategy is to enhance capital productivity, which is defined as generating proportionately larger streams of revenues and profits from a given capital and asset base. Accordingly, asset growth in itself is not one of the strategic objectives of the Corporation, and the Corporation's success at pursuing its strategy is not best defined by asset size. As a result, in calibrating the scope of responsibility of a given position, the Corporation looks at comparable positions in other companies in multiple asset-size groups as well as peer companies defined by other measures (such as total market capitalization or revenues) when they are available. Performance comparisons are generally made from the shareholders' perspective. That is, groups of companies are selected that may be seen as alternative investments by current and prospective investors. Even so, the Corporation's most direct competitors for executive talent are not necessarily all of the companies that would be included in a peer group selected to compare shareholder returns. Thus, although there may be some overlap, the surveys selected for compensation review purposes do not contain information on the same companies as those found in the peer group indices in the Comparison of Five-Year Cumulative Total Return graph included in this proxy statement. All of the Corporation's operating companies (including the Corporation as a separate entity) use multiple sources of both compensation and performance data. This is because experience has shown that results can vary greatly from one survey to the next. In the case of compensation market data, the Compensation Committee is provided with multiple sources of data on each executive position reviewed. When available, the information is in the form of 25th percentile, median, and 75th percentile compensation. Five different market compensation comparisons were considered for the Chairman in 1997. Historically, total compensation has been defined in surveys to include only base salary and the annual bonus. As reliable information on the present value of long-term grants becomes available, it is used as additional support for compensation decisions. 15. 18 The percent of total compensation that is variable increases with the executive's position with the Corporation. This is consistent both with the individual's influence on results and his/her economic capacity to tolerate volatility in compensation levels. In addition to information on the market level of compensation, members of the Committee review a summary of individual performance over the past year including key accomplishments, strengths, and weaknesses. They also may consider their own subjective assessments of an executive's performance and relative contribution to the organization. II. The Elements of Executive Compensation and Corporate Performance ------------------------------------------------------------------------- A. Base Salary Turning to a review of each of the elements of the total compensation package, base salary is important in achieving one of the Corporation's compensation goals which is attracting and retaining qualified executives. Base salary is generally targeted to be at the median of similar positions in the industry. Exceptions may exist when a higher level of base salary would be required to attract or retain a uniquely qualified executive officer. In order to maintain the target position, annual increases are approximately equal to the median increases in the respective industries in which our operating companies compete unless the growth of the company warrants comparison with a larger peer group with that industry. The total base salary paid to the Chairman in 1997 was $374,600, up 8% from 1996. B. Annual Short-Term Bonus The annual bonus is the component that provides a current cash compensation reward for above median current performance. Each executive officer participating in the annual bonus plan has a payment target expressed as a percentage of base salary. The Corporation believes that, when combined with properly selected performance targets, this rewards managers for making investments in future performance, valuing consistency, and managing risk. Operating company heads receive part of their target annual bonus based upon the performance of their company, and part based upon consolidated performance of the Corporation. In this way, they have a financial incentive to achieve potential synergies between operating companies. We believe that the best performance targets are those which are objectively and consistently measured, as well as easily understood by participants. Most of the bonus plans of the Corporation and its operating companies include return on equity as the key performance measure. Specific performance targets for each year are approved by the board of directors of each operating company and of the Corporation and are based upon a variety of factors including historical and expected industry performance, the estimated required rate of return by investors, and the prior year's budgeted and actual performance. Payments under the annual bonus plans vary with company performance. The formulas used to calculate payouts are based on changes in proportion with performance between three defined points: a threshold, the target, and two-times 16. 19 target. Included below is an illustrative diagram showing the general structure of our annual bonus plan payout formulas. It does not represent the actual formula for any specific plan. Example Annual Bonus Payout Formula There is no payout until a minimum threshold of performance is achieved. Payments increase proportionately until they reach target payout at target performance. Performance above target increases payments proportionately until they reach twice the target level. This point is chosen with the intent of aligning total relative compensation with relative performance. Plan payments are not capped, but the rate of increased payment slows considerably at performance levels above the level required for twice the target amount. C. Long-Term Incentives Long-term incentive plans are provided to supplement the incentive provided by annual bonus plans for building the value of the Corporation over the long term. Operating company heads may receive the majority of their long-term compensation based upon growth in the value of their subsidiary operating company. Certain holding company executive officers and some operating company executive officers are provided with long-term incentive compensation through grants of non-qualified stock options. Existing stock option plans of the Corporation include the ability to grant stock appreciation rights in addition to options. 17. 20 III. Formulation of the Chairman's Compensation ------------------------------------------------------------------------- The Chairman's current compensation package includes a base salary of $379,000 plus an annual bonus at target performance of 55% of base salary or $208,450. As noted above, there is no single, clear measure of market compensation for executive positions in the Corporation. The Compensation Committee used five different market surveys for the Chairman's position in 1997. Based on these surveys, estimates of the 25th percentile, median, and 75th percentile points of total annual compensation were made. Actual total cash compensation paid to the Chairman for 1997 was $800,463, up 2% from 1996. Return on average equity for 1997 was 19.66%, compared to 20.58% in 1996. We believe that both returns are in the top decile of peer performance. Total shareholder return (including dividends and price appreciation) was 70.6% for 1997 and 25.3% for 1996 for Irwin Financial. This compares to 20.6% in 1997 and 27.0% in 1996 for the Russell 2000 Financial Services Sector Index. For long-term incentive compensation purposes, the Chairman received an option grant of 21,090 shares in 1997 at an exercise price of $27.375 per share (representing the mean between the high and low prices on the grant date). The Chairman also has received the following grants: - -------------------------------------------------------------------------------- Year Number of Options Exercise Price ----------------------------------------------------------------------------------- 1996 20,700 $21.31 1995 27,400 15.69 1994 33,200 11.38 1993 28,800 11.06 1992 28,000 5.91 ----------------------------------------------------------------------------------- These six grants are the only long-term grants outstanding for the Chairman. Through employment of the "Black-Scholes" and "Binomial" option pricing models, respectively, we estimate that the present value of the 1997 options at grant date was $266,999 to $267,632. Sally A. Dean David W. Goodrich William H. Kling 18. 21 Comparison of Five-Year Cumulative Total Return Irwin Financial Corporation, Russell 2000 & Russell 2000 Financial Services Sector(1) - -------------------------------------------------------------------------------- Russell 2000 Measurement Period Financial Services (Fiscal Year Covered) Irwin Financial Russell 2000 Sector 1992 100 100 100 1993 110 119 123 1994 118 117 124 1995 180 150 172 1996 226 175 218 1997 386 211 283 1. The Corporation is included in both the Russell 2000 and the Russell 2000 Financial Services indices. Interest of Management in Certain Transactions - -------------------------------------------------------------------------------- Certain directors and officers of the Corporation or its subsidiaries, and the associates of such persons, were customers of and had transactions with subsidiaries of the Corporation in the ordinary course of business during the past year, including insurance services, corporate and personal trust services, and general commercial and mortgage banking business. Additional transactions may be expected to take place between such persons and these subsidiaries. All outstanding loans and commitments included in such transactions were made in the ordinary course of business and on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other employees and did not involve more than the normal risk of collectibility or present other unfavorable features. Companies controlled by Irwin Miller, the Estate of Clementine M. Tangeman, and William I. Miller purchased commercial paper from the Corporation from time to time during the year. The maximum amount outstanding during 1997 was $14,963,693.95 and the amount outstanding at year end was $10,755,018.60. In the opinion of management, the rates paid by the Corporation on these commercial paper transactions were comparable to the prevailing rates for such transactions at the time of the respective transactions. In addition to corporate and personal trust services and general banking business, companies owned or controlled by Messrs. Miller and the Estate of Clementine M. 19. 22 Tangeman purchased insurance services (offered by a subsidiary of Irwin Union Bank, Irwin Union Insurance, Inc., to the companies and to the public, generally, as a regular service) for the sale of which Irwin Union Insurance, Inc. received gross commissions in 1997 of approximately $28,063. The commissions paid were at the same rate as those prevailing on comparable sales to the general public. During 1997, the Corporation made payments totaling $45,600 to a company controlled by Messrs. Miller and the Estate of Clementine M. Tangeman in exchange for the administrative and support services of an employee of such company. In the opinion of management, such payment was comparable to, or more favorable to the Corporation than, the cost of hiring an additional employee. In 1997, a company controlled by Irwin Miller and William I. Miller reimbursed the Corporation $6,332 for the services of Gregory F. Ehlinger, who served as a director of a company in which the Messrs. Miller invested. In 1979, Irwin Union Insurance, Inc., as an independent property/casualty insurance agency, was appointed to represent and offer property/casualty and liability products of The St. Paul Companies to its customers. Director Nominee Kling is also a director of The St. Paul Companies. In 1997, Irwin Union Insurance, Inc. received gross agency commissions of $60,608.33 from The St. Paul Companies. Director Nominee Hackett is a director of Meridian Insurance Group, Inc. In 1997, Irwin Union Insurance, Inc. received gross agency commissions of $81,797.62 from Meridian Insurance Group, Inc. 2. Confirming Appointment of Auditors - -------------------------------------------------------------------------------- The Board of Directors recommends confirmation of the appointment of Coopers & Lybrand L.L.P., certified public accountants, to audit the books and accounts of the Corporation for 1998. No member of the firm has any material interest, financial or otherwise, in the Corporation or any of its subsidiaries. Although the selection and appointment of independent public accountants is not required to be submitted to a vote of the shareholders, the Board of Directors has decided, as in the past, to ask the Corporation's shareholders to confirm the appointment. The Board of Directors is responsible for selecting a new independent accounting firm at any time during the year if the Board of Directors believes, in its discretion, that such a change would be in the best interests of the Corporation and its shareholders. In accordance with past practice, management has invited representatives of Coopers & Lybrand L.L.P. to be present at the Annual Shareholders' Meeting. Management expects the representatives to attend the meeting. If present, these representatives will have an opportunity to make a statement, if they so desire, and will be available to respond to appropriate questions from shareholders. See "Director Meetings and Committees" for information regarding the Corporation's Audit Committee. Voting Procedures - -------------------------------------------------------------------------------- Shareholders owning a majority of all the common shares outstanding must be present in person or represented by proxy in order to constitute a quorum for the 20. 23 transaction of business. Thus, approximately 5,451,575 common shares will be required at the meeting for such quorum. The eleven nominees receiving the greatest number of votes at the meeting, either in person or by proxy, will be elected as directors for the ensuing year. In order to confirm the appointment of Coopers & Lybrand as the Corporation's principal auditors, a majority of the votes present at the meeting, either in person or by proxy, will be required. Proxies returned by brokers as "non-votes" on behalf of shares held in street name because the beneficial owner has withheld voting instructions, and proxies returned with abstentions, will be treated as present for purposes of determining a quorum but will not be counted as voting on any matter as to which a non-vote or abstention is indicated on the proxy. Annual Report on Form 10-K - -------------------------------------------------------------------------------- Management will furnish to any shareholder, without charge, a copy of the Corporation's Annual Report on Form 10-K for 1997, together with all financial statements, the schedules thereto, and a list of the Exhibits filed therewith. If any shareholder wishes a copy of the Exhibits filed with the Corporation's Annual Report on Form 10-K, the Corporation will furnish the Exhibits without charge. All requests for copies should be in writing and directed to Thomas D. Washburn, Chief Financial Officer, Irwin Financial Corporation, P. O. Box 929, Columbus, Indiana 47202. The Annual Report on Form 10-K will be available to requesting shareholders on or about March 31, 1998. Deadline for Shareholder Proposals for 1999 Annual Meeting - -------------------------------------------------------------------------------- As required by law, all proposals of shareholders of the Corporation which are otherwise eligible for inclusion in the Corporation's proxy material must be received at the Corporation's principal executive offices, 500 Washington Street, Columbus, Indiana 47201, prior to November 27, 1998, in order for the proposals to be considered for inclusion in the Corporation's proxy statement and form of proxy for the 1999 Annual Meeting. Miscellaneous - -------------------------------------------------------------------------------- As of the date of this proxy statement, the Board of Directors of the Corporation has no knowledge of any matters to be presented for consideration at the meeting other than the matters described herein. If (a) any matters not within the knowledge of the Board of Directors as of the date of this proxy statement should properly come before the meeting; (b) a person not named herein is nominated at the meeting for election as a director because a nominee named herein is unable to serve or for good cause will not serve; (c) any proposals properly omitted from this proxy statement and the form of proxy should come before the meeting; or (d) any matters should arise incident to the conduct of the meeting, then the proxies will be voted in accordance with the recommendation of the Board of Directors of the Corporation. Matt Souza, Secretary March 30, 1998 21. 24 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- IRWIN FINANCIAL CORPORATION PROXY FOR ANNUAL MEETING OF SHAREHOLDERS PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS The undersigned does hereby nominate, constitute, and appoint John A. Nash and William I. Miller and each of them (with full power to act without the other), with full power of substitution to each, the true and lawful Proxies of the undersigned to attend the Annual Meeting of the Shareholders of the Corporation, to be held at the main offices of the Corporation, 500 Washington Street, Columbus, Indiana, on Thursday, April 30, 1998, at 4:00 p.m. (Columbus time), or at any adjournment thereof, and to vote all shares of the Corporation which the undersigned is entitled to vote upon the matters referred to in this proxy and in the notice of said meeting to the same extent and with all the powers the undersigned would possess if personally present and voting at such meeting or at any adjournment thereof, and the Proxies are directed to: 1. Vote FOR [ ] or WITHHOLD AUTHORITY to vote for [ ] the election of the 11 directors listed below. (The Board of Directors recommends a VOTE FOR this proposal.) S. A. Dean; D. W. Goodrich; J. T. Hackett; W. H. Kling; B. J. Lauderback, J. C. McGinty, Jr.; Irwin Miller; W. I. Miller; J. A. Nash; L. R. Odden and T. M. Solso. Instructions: to withhold authority to vote for any individual nominee, print that nominee's name in the space provided below. ------------------------------------------------------------------ 2. Vote FOR [ ] or AGAINST [ ] or ABSTAIN from voting for [ ] confirmation of the appointment of the firm of Coopers & Lybrand, certified public accountants, as the Corporation's independent auditors. (The Board of Directors recommends a VOTE FOR this proposal.) 3. Vote in their discretion upon such other business as may properly come before the meeting or any adjournments thereof. (Continued on other side) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (Continued from other side) This proxy will be voted as you specify on the reverse side of this proxy card. IF NO SPECIFICATION IS MADE, THE SHARES REPRESENTED BY THE PROXY WILL BE VOTED FOR THE DIRECTORS NAMED IN THE PROXY STATEMENT, FOR THE CONFIRMATION OF THE APPOINTMENT OF COOPERS & LYBRAND AS THE CORPORATION'S INDEPENDENT AUDITORS, AND THE PROXIES MAY VOTE IN THEIR DISCRETION UPON SUCH OTHER MATTERS AS PROPERLY MAY COME BEFORE THE MEETING OR ANY ADJOURNMENT THEREOF. The undersigned acknowledges receipt of notice of said meeting and the accompanying proxy statement and hereby revokes all proxies heretofore given by the undersigned for said meeting. THIS PROXY MAY BE REVOKED AT ANY TIME PRIOR TO THE VOTING Dated: 1998 THEREOF. ------------------------------------------------ SIGN EXACTLY AS NAME(S) APPEARS HERE. ------------------------------------------------ ------------------------------------------------ (Please sign exactly as name appears on label. If there are two or more co-owners, all must sign.) IMPORTANT: Please sign, date, and return this proxy promptly in the enclosed envelope. No postage required if mailed in the United States.