Irwin Financial Corporation 1994 Proxy Irwin Financial Corporation 500 Washington Street, Columbus, Indiana 47201 April 4, 1995 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 Tuesday, May 9, 1995 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 1995; 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 urge you to date, sign, and mail the enclosed proxy promptly 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 1994 is enclosed and a Proxy Statement accompanies this notice. By Order of the Board of Directors MATTHEW F. SOUZA, Secretary Proxy Statement of Irwin Financial Corporation For Annual Meeting of Shareholders to be held May 9, 1995 General Information This proxy statement and the accompanying form of proxy is furnished in connection with the solicitation by the Board of Directors of Irwin Financial Corporation (the "Corporation") of proxies to be used at the Annual Meeting of Shareholders on Tuesday, May 9, 1995, 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 April 4, 1995. Voting Securities and Principal Holders Only shareholders of record at the close of business on March 21, 1995, will be entitled to vote. On March 21, 1995, there were 5,619,689 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 21, 1995, 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. Amount and Nature of Title of Class Name and Address Beneficial Ownership % of Class Common Shares Clementine Tangeman 301 Washington Street Columbus, Indiana 1,290,148(1) 22.96% Common Shares Irwin Miller 301 Washington Street Columbus, Indiana 1,318,392(1,2) 23.46% Common Shares William I. Miller 500 Washington Street Columbus, Indiana 2,652,894(1,3) 47.21% 1. Certain shares owned by Mrs. Clementine Tangeman (1,290,148 shares) and Mr. Irwin Miller (1,290,136 shares) are subject to an irrevocable proxy to vote such shares held by Mr. William I. Miller. Mr. William I. Miller holds a right to acquire these same 2,580,284 shares, pursuant to options purchased by Mr. Miller from Mrs. Tangeman and Mr. Irwin Miller, within 60 days but subject to certain contingencies. 2. Includes 26,000 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 and 744 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. See "Outside Director Restricted Stock Compensation Plan." 3. See Footnote 1 above. Includes 21,850 shares which Mr. Miller has the right to acquire within 60 days of the record date through the exercise of stock options. Security Ownership of Management: The following information is given as of March 21, 1995 for the nominees for director as well as for the executive officers named in the Summary Compensation Table and for the nominees for director and all executive officers of the Corporation as a group. Amount and Name of Nature of % of Title of Class Beneficial Owner Beneficial Ownership4 Class Common Shares Sally A. Dean(3) 1,110 .02% Common Shares David W. Goodrich(3) 4,858 .09% Common Shares John T. Hackett(3) 6,172 .11% Common Shares William H. Kling(3) 500 .01% Common Shares John C. McGinty, Jr.(3) 2,330 .04% Common Shares Irwin Miller(3) 1,318,392(1) 23.46% Common Shares Lance R. Odden(3) 1,168 .02% Common Shares James T. Sakai(3) 3,753 .07% Common Shares Theodore M. Solso(3) 3,176 .06% Common Shares William I. Miller(3) 2,652,894(2) 47.21% Common Shares John A. Nash(3) 204,475 3.64% Common Shares Michael F. Ryan 67,875 1.21% Common Shares Thomas D. Washburn 49,203 .88% Common Shares David C. Fulton 6,739 .12% Common Shares Director Nominees and Executive Officers as a Group (20 persons) 3,062,626(5) 54.50% 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 (110 shares), Goodrich (760 shares), Hackett (760 shares), McGinty, Jr. (760 shares), Irwin Miller (744 shares), Odden (760 shares), Sakai (760 shares), and Solso (176 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 (21,850 shares), Nash (108,800 shares), Ryan (12,313 shares), Washburn (36,687 shares) Fulton (3,150 shares) and other executive officers (15,373 shares). Also includes an aggregate of 4,830 shares held for the accounts of eight 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. 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 21, 1995: (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 1994; 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. Name, Age, Year % of 1994 Directorships of Appointment Meetings in Other Public and Principal Occupation Attended Corporations and Other Positions Sally A. Dean, 46, 1995 N/A President of the Consultant; Senior Advisor, Board of Trustees, Dillon, Read & Co. (investment bank), Randolph Macon 1991-1992; Senior Vice President, Woman’s College, Dillon, Read & Co., 1986-1990. Trustee, Paideia School David W. Goodrich, 47, 1986 Executive Vice President and 89% Chairman of Methodist Treasurer, F.C. Tucker Company, Hospital of Indiana; Inc. (realty company) Board Member of Citizens Gas and Coke Utility; American United Life Insurance Company *John T. Hackett, 62, 1981 Managing General Partner, CID 60% Board Member of Equity Partners, L.P. (a private Meridian Insurance equity investment partnership); Group, Inc.; Wabash Vice President--Finance and National Corp.; Ball Administration, Indiana Corporation. University, 1989 to 1991 William H. Kling, 52, 1992 President, Minnesota Public Radio 100% Board Member of The 1966 to present (regional St. Paul Companies; network of 28 public radio The Wenger stations) President, Greenspring Corporation; Company 1987 to present Continental (diversified media, direct Cablevision of St. Paul; marketing and mail order company) several Funds of the Capital Group American Funds. *John C. McGinty, Jr. 44, 1991 President, Southeastern Indiana 100% Health Management, Inc. (health care management company); President, Columbus Regional Hospital Irwin Miller, 85, 1939 (1) Former Chairman of Cummins Engine 43% Board Member of Company, Inc. (manufacturer of Cummins Engine diesel engines) Company, Inc.; Member of the Business Council; The American Academy of Arts and Sciences; American Philosophical Society *William I. Miller, 38, 1985 100% Board Member of Chairman of the Corporation; 1984- Cummins Engine 90 President, Irwin Management Company, Inc.; The Company, Inc. (private management Tennant Company; New company) Perspective Fund, Inc.; Board Chairman of Public Radio International; Trustee of EuroPacific Growth Fund; Taft School *John A. Nash, 57, 1972 100% Chairman of the Executive Committee and President of the Corporation Lance R. Odden, 55, 1991 100% President, Taft School (private educational institution), Headmaster since 1972 James T. Sakai, 68, 1976 91% Chairman of Contour Hardening, Inc. (metals treatment equipment manufacturer) *Theodore M. Solso, 48, 1993 100% Board Member of President and Chief Operating Cyprus AMAX Minerals Officer, Cummins Engine Company, Company; Trustee of Inc. (manufacturer of diesel DePauw University engines); Executive Vice President-Operations, 1992-1995; prior to 1992 Vice President and General Manager-Engine Business of Cummins Engine Company, Inc. *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. 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 with the exception of a gift by Mr. Thomas D. Washburn, Senior Vice President, of 60 shares to a bona fide charity in December, 1994 which was inadvertently reported as a gift of 50 shares. When this oversight was discovered, Mr. Washburn immediately amended the gift transaction report. Director Meetings and Committees The Board of Directors of the Corporation held five regular meetings in 1994. 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 1994, the Audit Committee was composed of directors Sakai, Hackett, and McGinty, Jr. The Committee held four meetings during 1994. 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. In 1994, the members of the Committee were directors Goodrich, Kling and Sakai. The Compensation Committee held two meetings in 1994. 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 1994, the members of the Nominating Committee were directors Irwin Miller, Goodrich, McGinty Jr., W. Miller, Nash and Odden. The Nominating Committee held two meetings in 1994. Outside Director Restricted Stock Compensation Plan: The Outside Director Restricted Stock Compensation Plan covers only outside non- employee directors of the Corporation and its subsidiaries. Under the outside directors’ fee schedule, effective January 1, 1995, each outside director of the Corporation may earn a retainer of $8,000 for one year's service. The retainer is payable in cash or in common shares issued pursuant to the Plan. The Plan permits the grant of up to 135,000 common shares over a ten-year period. The Plan allows an outside director to elect to receive an annual retainer in cash or in common shares with a market value equivalent to the cash retainer. 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, the members of which are not eligible to participate in the Plan. 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 1994, director nominees Goodrich, Hackett, McGinty, Jr., Irwin Miller, Odden, Sakai, and Solso participated in the Plan. A three-year grant was made to each director participant in 1992 pursuant to the Plan. At present, a total of 4,830 common shares are registered in the names of the participating director nominees. Other grants made under the Plan since its inception in 1989 total 24,042 common shares. Directors' Fees: In addition to the annual retainer described above, each outside director of the Corporation received in 1994, $500 for attendance at each meeting of the Board of Directors of the Corporation or each subsidiary Board meeting and $250 for attendance at each meeting of a committee of the Board of Directors and each meeting of a committee of the Board of Directors of a subsidiary company. 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. 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, 1992, 1993 and 1994: SUMMARY COMPENSATION TABLE Long-Term All Other Annual Compensation1,4 Compensation Compen- Awards sation7 ---------------------------------------------------------------------------- Name & Principal Year Salary(2) Bonus(3) Option/ Position (b) (c) (d) SAR (#)(g) (I) ------------------------------------------------------------------------- William I. Miller 1994 $260,000 $266,328 16,600 $ 37,0805,6 Chairman 1993 $235,833 $244,620 14,400 $ 29,953 1992 $221,667 $233,531 14,000 $ 21,416 John A. Nash 1994 $240,000 $214,816 11,800 $118,9505,6 President 1993 $225,833 $208,380 12,800 $ 45,941 1992 $215,833 $201,377 14,000 $ 44,504 David C. Fulton 1994 $185,000 $193,506 0 $ 12,2096 President-Inland 1993 $170,000 $253,638 0 $ 17,5636 Mortgage Corporation 1992 $153,750 $237,945 0 $ 24,226 Michael F. Ryan 1994 $170,414 $112,251 7,350 $ 18,6215,6 President-Irwin Union 1993 $166,335 $ 84,907 7,600 $ 14,443 Bank and Trust Company 1992 $145,667 $113,750 8,400 $ 7,918 Thomas D. Washburn 1994 $140,333 $109,710 5,350 $ 3,6006 Senior Vice President 1993 $130,833 $107,021 5,200 $ 1,200 and Chief Financial 1992 $122,083 $ 89,419 5,000 $ 2,331 Officer 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 and profit sharing 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 as follows: Qualified Corporate Name SERP Savings Plan Life Insurance 1994 1994 1994 William I. Miller $ 33,480 $3,600 0 John A. Nash $115,350 $3,600 0 Michael F. Ryan $ 15,021 $3,600 0 Thomas D. Washburn 0 $3,600 0 David C. Fulton 0 $5,080 $7,129 Stock Options and Stock Appreciation Rights The following table contains information concerning the grant of stock options and tandem limited stock appreciation rights ("SARs") under the Corporation's 1992 Stock Option Plan to the named executive officers: OPTION/SAR GRANTS IN LAST FISCAL YEAR ------------------------------------------------------------------------------ Percent Alternative of Total to (f) and(g) Options/ Grant Date SARs Value Options/ Granted to Exercise Grant SARs Employees or base Date Granted in Fiscal Price Expiration Present Name Year ($/SH) Date Value (a) (b) (c) (d) (e) (h) ------------------------------------------------------------------------ William I. Miller 16,600 13% $22.75 4/6/04 $178,450 John A. Nash 11,800 9% $22.75 4/6/04 $126,850 Michael F. Ryan 7,350 6% $22.75 4/6/04 $ 79,013 Thomas D. Washburn 5,350 4% $22.75 4/6/04 $ 57,513 David C. Fulton 0 0 n/a n/a 0 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 0.30, an expected future dividend yield of 0.015, and a risk-free rate of return of 0.0728. The Binomial model suggests a valuation of $10.75 per share under these assumptions. The Black-Scholes option pricing model would suggest a valuation of $10.60 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. 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 Number of Value of Acquired Unexercised Unexercised on Options/SARs In-the-Money Exercise Value at Fiscal Options/SARs (#) Realized Year-end at Fiscal Name Year-end (1) (a) (b (c) (d) (e) --------------------------------------------------------------------------- Exercis- Unexercis- Exercis- Unexercis- able able able sable William I n/a n/a 21,850 23,150 $ 206,734 $135,354 Miller John A. Nash n/a n/a 108,800 18,750 $2,108,787 $117,258 Michael F. Ryan n/a n/a 12,313 11,413 $ 511,378 $ 70,982 Thomas D. 2,025 $44,118 36,687 7,863 $ 717,710 $ 46,739 Washburn David C. n/a n/a 3,150 0 $ 70,277 0 Fulton 1. The 1994 year-end stock price was $26.75 per share. Long-Term Incentive Plans The following table provides information concerning an award made during the last fiscal year to the named executive officer under the Inland Mortgage Corporation Long-Term Incentive Plan. The award represents an accrued liability by Inland Mortgage Corporation for the benefit of the named executive officer. Amounts payable are determined by measuring annual growth in stockholders' equity and mortgage loan servicing portfolio value at Inland Mortgage. Potential awards are calculated as three percent of such growth in years in which return on equity of Inland Mortgage exceeds ten percent. Awards are subject to a vesting schedule that is tied to years of employment and participation in the Plan. No amounts have been paid or distributed under the Plan to date. Distribution and vesting of benefits under the Plan are subject to certain future events. LONG-TERM INCENTIVE PLANS AWARDS IN LAST FISCAL YEAR ---------------------------------------------------- Number of Estimated Future Shares, Performance or Under Non-Stock Units or Other Period Price-Based Plans Name Other Rights Until Maturation ($ or #) (a) (b) (c) (d) -------------------------------------------------------------------------- David C. Fulton $560,628 Payable upon Retirement $560,628 PENSION PLAN TABLE Years of Service REMUNERATION 15 20 25 30 35 $ 50,000 12,300 16,300 20,400 21,300 22,100 75,000 19,600 26,100 32,600 34,300 35,900 100,000 26,900 35,800 44,800 47,300 49,700 125,000 34,200 45,600 57,000 60,300 63,500 150,000 41,500 55,300 69,200 73,300 77,300 175,000 41,500 55,300 69,200 73,300 77,300 200,000 41,500 55,300 69,200 73,300 77,300 236,000 41,500 55,300 69,200 73,300 77,300 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, 1994. At normal retirement, the Plan provides a monthly benefit equal to 1.3% of average monthly compensation times benefit service not in excess of 25 years, plus .65% of average monthly compensation in excess of Social Security covered compensation times benefit service not in excess of 35 years. 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 table above does not reflect reductions resulting from the receipt of Social Security benefits. The current years of service at December 31, 1994, for the individuals named in the compensation tables above, are as follows: Mr. Nash (28), Mr. Ryan (18), Mr. Washburn (18) and Mr. Miller (4). Mr. Fulton is not covered by the Plan. 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 and Michael F. Ryan. A similar Plan was approved prior to 1992 for John A. Nash. The Plan provides Messrs. Miller & Ryan 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 Members of the Compensation Committee of the Corporation's Board of Directors during 1994 were outside directors Goodrich, Kling, and Sakai. No Committee member was, during 1994, 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 Mr. David W. Goodrich, Mr. William H. Kling, and Mr. James T. Sakai. Set forth below is a report submitted by Messrs. Goodrich, Kling and Sakai in their capacity as the Board's Compensation Committee addressing the Corporation's compensation policies for 1994. 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. 1. 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 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 shareholder's 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. Four different market compensation comparisons were considered for the Chairman in 1994. 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 more available, it will be used as additional support for compensation decisions. 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. 2. 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 1994 was $260,000, up 10.2% from 1993. 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 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. There is no payout until a minimum threshold of performance, usually greater than half the target level, 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. For example, if the performance required to produce twice the target level of bonus were set at approximately the 90th percentile of industry performance, base salary plus twice the target level of bonus produces total compensation no higher than the 90th percentile for the industry. 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. 3. Formulation of the Chairman's Compensation. The Chairman's current compensation package includes a base salary of $270,000 plus an annual bonus at target performance of 45% of base salary or $121,500. As noted above, there is no single, clear measure of market compensation for executive positions in the Corporation. The Compensation Committee used four different market surveys for the Chairman's position in 1994. Based on these surveys, estimates of the 25th percentile, median, and 75th percentile points of total annual compensation were made. Based on these estimates, the Committee approved a package of base salary plus annual bonus which was intended to produce total annual compensation from a low of approximately the 41st percentile with no payout to a high of approximately the 60th percentile of total annual compensation based on data available at the time the package was approved. Actual total cash compensation paid to the Chairman for 1994 was $526,328, up 9.3% from 1993. Return on equity for 1994 was 23.91%, compared to 24.91% in 1993. We believe that both returns are in the top decile of peer performance. Total shareholder return (including dividends and price appreciation) was 8.5% for 1994 and 10.0% for 1993 for Irwin Financial. This compares to 0.6% in 1994 and 22.9% in 1993 for the Russell 2000 Financial Services Sector Index. For long-term incentive compensation purposes, the Chairman received an option grant of 16,600 shares in 1994 at an exercise price of $22.75 per share (representing the mean between the bid and asked prices on the grant date). The Chairman also received a grant of 14,400 shares in 1993 at an exercise price of $22.13 (split adjusted) per share and a grant of 14,000 shares in 1992 at an exercise price of $11.81 (split adjusted) per share. These three 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 these options at grant date was $175,960 to $178,450. David W. Goodrich William H. Kling James T. Sakai 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 persons and did not involve more than the normal risk of collectibility or present other unfavorable features. Companies controlled by Irwin Miller, Clementine Tangeman and William I. Miller purchased commercial paper from the Corporation from time to time during the year. The maximum amount outstanding during 1994 was $13,803,387 and the amount outstanding at year end was $11,186,668. 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 Mrs. 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 1994 of approximately $17,990. The commissions paid were at the same rate as those prevailing on comparable sales to the general public. During 1994, the Corporation made payments totaling $38,628 to a company controlled by Messrs. Miller and Mrs. 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. Irwin Union Bank has leased, on a year-to-year basis, certain properties for parking purposes in downtown Columbus, Indiana from a partnership owned and controlled by Mr. Irwin Miller and Mrs. Tangeman and a company controlled by Mr. Miller and Mrs. Tangeman. The aggregate annual rental for the parking space is $3,840. In the opinion of management, these lease terms are comparable to those unaffiliated persons would charge. Inland Mortgage has a correspondent relationship with Fulton Financial Corp., a mortgage broker located in Cleveland, Ohio. The President of Fulton Financial Corp., Thomas Q. Fulton, is a brother of David C. Fulton, an executive officer of the Corporation. In 1994, Inland Mortgage purchased $19 million of mortgage loans at market prices from Fulton Financial Corp. This amounted to approximately 1.6% of the total mortgage loans purchased by Inland Mortgage from correspondents in 1994. 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 The St. Paul Companies to its customers. Director Nominee Kling is also a director of The St. Paul Companies. In 1994, Irwin Union Insurance, Inc. received gross agency commissions of $60,810 from The St. Paul Companies. 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 1995. No member of the firm has any material interest, financial or otherwise, in the Corporation or any of its subsidiaries. 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. 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 1994, 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, 1995. Deadline for Shareholder Proposals for 1996 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 24, 1995, in order for the proposals to be considered for inclusion in the Corporation's proxy statement and form of proxy for the 1996 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. MATTHEW F. SOUZA, Secretary April 4, 1995