<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
AMENDMENT NO. 1
(X) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998
or
( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ______________ to _______________
Commission File Number 0-23817
-------
Northwest Bancorp, Inc.
------------------------------------------------
(Exact name of registrant as specified in its charter)
Pennsylvania 23-2900888
-------------------------------- --------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Liberty Street at Second Avenue, Warren Pennsylvania 16365
- ---------------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(814) 726-2140
--------------
(Registrant's telephone number, including area code)
Not applicable
-----------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
------ ------
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date:
Common Stock (.10 par value) 46,837,755 shares outstanding as of March 31, 1998.
<PAGE>
NORTHWEST BANCORP, INC. AND SUBSIDIARIES
INDEX
PART I FINANCIAL INFORMATION PAGE
Item 1. Financial Statements 1 - 8
- Consolidated Statements of Financial Condition
- Consolidated Statements of Income
- Consolidated Statements of Stockholders' Equity
- Consolidated Statements of Cash Flows
- Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of 9 - 20
Financial Condition and Results of
Operations
Item 3. Market Risk 21 - 22
PART II OTHER INFORMATION 22 - 25
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
NORTHWEST BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
ASSETS 1998 1997
- ----------------------------------------------------------------------- ---------------- ---------------
<S> <C> <C>
CASH AND CASH EQUIVALENTS $ 20,155 13,747
INTEREST-EARNING DEPOSITS IN OTHER FINANCIAL
INSTITUTIONS 17,926 57,765
MARKETABLE SECURITIES AVAILABLE FOR SALE 332,425 259,720
MARKETABLE SECURITIES HELD-TO-MATURITY (MARKET
VALUE OF $182,394 AND $152,744) 182,462 153,980
---------------- ---------------
TOTAL CASH, INTEREST-EARNING DEPOSITS AND
MARKETABLE SECURITIES 552,968 485,212
LOANS RECEIVABLE, NET OF ALLOWANCE FOR ESTIMATED
LOSSES OF $14,906 AND $13,611 1,772,490 1,536,498
ACCRUED INTEREST RECEIVABLE 13,167 11,027
REAL ESTATE OWNED 3,779 4,549
FEDERAL HOME LOAN BANK STOCK, AT COST 13,444 12,144
PREMISES AND EQUIPMENT, NET 25,332 21,481
GOODWILL AND OTHER INTANGIBLES 22,707 11,586
OTHER ASSETS 5,677 8,866
---------------- ---------------
TOTAL ASSETS $ 2,409,564 2,091,363
================ ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
- -----------------------------------------------------------------------
LIABILITIES:
DEPOSITS $ 1,985,003 1,640,815
BORROWED FUNDS 182,424 223,458
ADVANCES BY BORROWERS FOR TAXES AND INSURANCE 11,815 12,985
ACCRUED INTEREST PAYABLE 3,405 4,312
OTHER LIABILITIES 11,598 11,299
---------------- ---------------
TOTAL LIABILITIES 2,194,245 1,892,869
MINORITY INTEREST IN SUBSIDIARY 2,060 0
SHAREHOLDERS' EQUITY:
COMMON STOCK, $.10 PAR VALUE: 100,000,000 SHARES
AUTHORIZED, 46,837,755 AND 46,752,000 ISSUED
AND OUTSTANDING, RESPECTIVELY 4,684 2,338
PAID-IN CAPITAL 66,780 67,854
RETAINED EARNINGS 141,307 131,423
NET UNREALIZED GAIN/(LOSS) ON SECURITIES AVAILABLE-
FOR- SALE, NET OF INCOME TAXES 3,171 1,026
UNEARNED EMPLOYEE STOCK OWNERSHIP PLAN SHARES (1,412) (2,358)
UNEARNED RECOGNITION AND RETENTION PLAN SHARES (1,271) (1,789)
---------------- ---------------
213,259 198,494
---------------- ---------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,409,564 2,091,363
================ ===============
</TABLE>
See accompanying notes to unaudited consolidated financial statements
1
<PAGE>
NORTHWEST BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED MARCH 31, ENDED MARCH 31,
1998 1997 1998 1997
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
INTEREST INCOME:
LOANS RECEIVABLE $ 36,358 32,001 104,983 93,351
MORTGAGE-BACKED SECURITIES 5,066 4,604 14,596 14,161
INVESTMENT SECURITIES 2,722 1,607 7,092 4,873
INTEREST EARNING DEPOSITS 222 94 536 361
------------ ------------ ----------- -----------
TOTAL INTEREST INCOME 44,368 38,306 127,207 112,746
INTEREST EXPENSE:
SAVINGS DEPOSITS 21,968 18,354 62,467 53,763
BORROWED FUNDS 1,814 1,849 6,597 6,168
------------ ------------ ----------- -----------
TOTAL INTEREST EXPENSE 23,782 20,203 69,064 59,931
NET INTEREST INCOME 20,586 18,103 58,143 52,815
PROVISION FOR POSSIBLE LOAN LOSSES 1,111 574 2,382 1,185
------------ ------------ ----------- -----------
NET INTEREST INCOME AFTER PROVISION
FOR POSSIBLE LOAN LOSSES 19,475 17,529 55,761 51,630
NONINTEREST INCOME:
LOAN SERVICE CHARGES 270 248 816 749
SERVICE FEES ON DEPOSIT ACCOUNTS 559 337 1,591 1,040
GAIN ON SALE OF MARKETABLE SECURITIES (NET) 749 0 749 901
LOSS ON SALE OF LOANS (NET) (363) (84) (658) (366)
GAIN/(LOSS) ON SALE OF REAL ESTATE OWNED 135 91 87 412
GAIN ON SALE OF OTHER REAL ESTATE 339 0 339 0
DIVIDENDS ON FHLB STOCK 214 173 636 516
OTHER OPERATING INCOME 659 710 2,109 1,987
------------ ------------ ----------- -----------
TOTAL NONINTEREST INCOME 2,562 1,475 5,669 5,239
NONINTEREST EXPENSES:
COMPENSATION AND EMPLOYEE BENEFITS 7,418 6,461 20,777 19,240
PREMISES AND OCCUPANCY COSTS 1,493 1,417 4,075 3,891
OFFICE OPERATIONS EXPENSE 910 785 2,726 2,188
SAIF RECAPITALIZATION ASSESSMENT 0 0 0 8,565
FEDERAL INSURANCE PREMIUMS 262 245 779 1,049
DATA PROCESSING 348 382 1,051 895
CHECK PROCESSING AND ATM EXPENSE 566 328 1,418 1,103
BANK SERVICE CHARGES 292 220 780 686
MARKETING 246 544 890 1,260
LEGAL, AUDIT AND PROFESSIONAL EXPENSE 173 198 661 660
REAL ESTATE OWNED EXPENSE 180 93 545 518
AMORTIZATION EXPENSE 577 240 1,222 1,034
OTHER EXPENSES 624 518 1,441 1,149
------------ ------------ ----------- -----------
TOTAL NONINTEREST EXPENSE 13,089 11,431 36,365 42,238
INCOME BEFORE INCOME TAXES 8,948 7,573 25,065 14,631
STATE AND FEDERAL INCOME TAXES 3,231 2,977 9,570 6,003
MINORITY INTEREST IN NET LOSS 2 0 2 0
------------ ------------ ----------- -----------
NET INCOME $ 5,719 4,596 15,497 8,628
============ ============ =========== ===========
BASIC AND DILUTED EARNINGS PER SHARE $ 0.12 0.10 0.33 0.19
============ ============ =========== ===========
</TABLE>
EARNINGS PER SHARE ADJUSTED FOR STOCK SPLIT EFFECTIVE NOVEMBER 14, 1997
See accompanying notes to unaudited consolidated financial statements.
2
<PAGE>
NORTHWEST BANCORP, INC. AND SUBSIDIAREIS
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Unrealized Unearned Unearned
Gain on Employee Recognition
Common Stock Securities Stock and Total
------------------------- Paid-in Retained Available- Ownership Retention Shareholders'
Shares Amount Capital Earnings For-Sale Plan Shares Plan Shares Equity
------------- --------- --------- ---------- ----------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Beginning balance at 6/30/96 *46,752,000 $ 2,338 67,671 125,239 1,325 (3,328) (2,594) 190,651
Net income - - - 8,628 - - - 8,628
Exercise of stock options - - - - - - - 0
ESOP shares released - - 183 - - 970 - 1,153
RRP shares released - - - - - - 805 805
Dividends declared - - - (5,611) - - - (5,611)
Change in unrealized gain on
securities, net of tax - - - - (1,528) - - (1,528)
------------- --------- --------- ---------- ----------- ------------ ------------ -------------
Ending balance at 3/31/97 46,752,000 $ 2,338 67,854 128,256 (203) (2,358) (1,789) 194,098
============= ========= ========= ========== =========== ============ ============ =============
<CAPTION>
Unrealized Unearned Unearned
Gain on Employee Recognition
Common Stock Securities Stock and Total
------------------------- Paid-in Retained Available- Ownership Retention Shareholders'
Shares Amount Capital Earnings For-Sale Plan Shares Plan Shares Equity
------------- --------- --------- ---------- ----------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Beginning balance at 6/30/97 *46,752,000 $ 4,676 65,516 131,423 1,026 (2,358) (1,789) 198,494
Net income - - - 15,497 - - - 15,497
Exercise of stock options 85,755 8 382 - - - - 390
ESOP shares released - - 882 - - 946 - 1,828
RRP shares released - - - - - - 518 518
Dividends declared - - - (5,613) - - - (5,613)
Change in unrealized gain on
securities, net of tax - - - - 2,145 - - 2,145
------------- --------- --------- ---------- ----------- ------------ ------------ -------------
Ending balance at 3/31/98 46,837,755 $ 4,684 66,780 141,307 3,171 (1,412) (1,271) 213,259
============= ========= ========= ========== =========== ============ ============ =============
</TABLE>
* Adjusted for stock split effective November 14, 1997
3
<PAGE>
NORTHWEST BANCORP, INC. AND SUBSIDIARIES
Consolidated Statement of Cash Flows
For the Three and Nine Months Ended March 31, 1998 and 1997
(Dollars in thousands)
<TABLE>
<CAPTION>
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
3/31/98 3/31/97 3/31/98 3/31/97
------------- -------------- ------------ ------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net Income $ 5,719 4,596 15,497 8,628
Adjustments to reconcile net income to net cash
provided by operations
Provision for possible loan losses 1,111 574 2,382 1,185
Net loss (gain) on sales of assets (860) (17) (517) (1,017)
Depreciation and amortization expense 1,614 701 3,349 1,579
Amortization of deferred loan fees (201) (75) (414) (506)
Decrease (increase) in other assets (691) 2,573 872 4,039
Increase (decrease) in other liabilities 5,858 3,343 (1,488) 2,749
Amortization of premiums (discounts)
on marketable securities (69) (107) (244) (325)
Noncash compensation expense related to
stock benefit plans 845 520 2,285 1,193
Other (141) (15) (30) (377)
------------- -------------- ------------ ------------
Net cash provided by operating activities 13,185 12,093 21,692 17,148
INVESTING ACTIVITIES
Purchase of marketable securities held-to-maturity - - (28,368) -
Purchase of marketable securities available-for-sale (79,816) (14,245) (125,919) (16,391)
Proceeds from maturities and principal reductions
of marketable securities held-to-maturity 9,049 6,210 22,382 14,976
Proceeds from maturities and principal reductions
of marketable securities available-for-sale 8,430 1,594 22,445 6,579
Proceeds from sales of marketable securities 35,099 - 35,099 15,455
Loan originations (228,626) (124,617) (540,016) (411,531)
Proceeds from loan maturities and principal
reductions 111,042 91,695 306,020 279,182
Proceeds from loan sales 5,823 7,821 21,556 39,159
Purchase of Federal Home Loan Bank Stock (1,300) (973) (1,300) (973)
Proceeds from sale of real estate owned 899 442 2,545 1,989
(Purchase) sale of real estate for investment 624 - 176 (301)
Purchase of premises and equipment (936) (1,186) (2,698) (2,778)
Payment for acquisitions, net of cash deposits received (736) (13,959) 151,935 (13,959)
------------- -------------- ------------ ------------
Net cash used by investing activities (140,448) (47,218) (136,143) (88,593)
</TABLE>
(Continued)
4
<PAGE>
NORTHWEST BANCORP, INC. AND SUBSIDIARIES
Consolidated Statement of Cash Flows
(Dollars in thousands)
<TABLE>
<CAPTION>
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
3/31/98 3/31/97 3/31/98 3/31/97
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
FINANCING ACTIVITIES
Increase in deposits, net $ 29,929 44,349 128,512 138,219
Proceeds from long-term borrowings 21,075 - 73,421 66,100
Repayments of long-term borrowings (22,563) (2,515) (56,141) (48,398)
Net increase (decrease) in short-term borrowings 70,155 (1,807) (58,314) (80,304)
Increase (decrease) in advances by borrowers for
taxes and insurance 138 (656) (1,231) (2,029)
Proceeds from options exercised 224 - 385 -
Cash dividends paid (1,872) (1,871) (5,612) (5,611)
------------ ------------ ----------- -----------
Net cash provided by financing activities 97,086 37,500 81,020 67,977
Net increase (decrease) in cash and cash equivalents $ (30,177) 2,375 (33,431) (3,468)
============ ============ =========== ===========
Cash and cash equivalents at beginning of period $ 68,258 38,461 71,512 44,304
Net increase (decrease) in cash and cash equivalents (30,177) 2,375 (33,431) (3,468)
------------ ------------ ----------- -----------
Cash and cash equivalents at end of period $ 38,081 40,836 38,081 40,836
============ ============ =========== ===========
Supplemental cash flow disclosure:
Cash paid during the year for:
Interest on deposits and borrowings (including
interest credited to deposit
accounts of $16,531, $11,881,
$47,406 and $37,413, respectively) $ 24,037 18,461 69,969 58,470
============ ============ =========== ===========
Income taxes $ 1,250 4,117 7,588 9,373
============ ============ =========== ===========
Non-cash investing and financing activities:
Loan foreclosures and repossessions $ 326 72 1,912 923
============ ============ =========== ===========
Sale of real estate owned financed by the Bank $ 5 18 32 71
============ ============ =========== ===========
The Bank acquired certain branch assets and assumed
certain liabilities. In conjunction with the
acquisitions, the assets acquired and liabilities
assumed were as follows:
Fair value of assets acquired $ 55,908 59,560 69,992 59,560
Cash received (paid) (3,920) (18,772) 148,751 (18,772)
Minority Interest (2,060) - (2,060) -
------------ ------------ ----------- -----------
Liabilities assumed $ 49,928 40,788 216,683 40,788
============ ============ =========== ===========
</TABLE>
5
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION
---------------------
The accompanying unaudited consolidated financial statements have been prepared
in accordance with instructions for form 10-Q and, accordingly, do not include
information for footnotes necessary for a complete presentation of financial
position, results of operations and cash flows in conformity with generally
accepted accounting principles. In the opinion of management, all adjustments,
consisting of normal recurring adjustments, have been included which are
necessary for a fair presentation of financial position and results of
operations. The consolidated statements have been prepared using the accounting
policies described in the financial statements included in Northwest Savings
Bank's Annual Report and on Form 10-K for the fiscal year ended June 30, 1997.
Certain items previously reported have been reclassified to conform with the
current year's reporting format. The results of operations for the three months
and nine months ended March 31, 1998 are not necessarily indicative of the
results that may be expected for the entire year.
(2) PRINCIPLES OF CONSOLIDATION
---------------------------
The accompanying unaudited consolidated financial statements include the
accounts of Northwest Bancorp, Inc. and its wholly owned subsidiaries, Northwest
Savings Bank, Northwest Consumer Discount Company, Northwest Finance Company,
Northwest Mortgage Corporation, Northwest Financial Services, Inc., Northwest
Capital Group, Inc., Rid Fed, Inc., Great Northwest Corporation and its majority
owned subsidiary Jamestown Savings Bank. All significant intercompany items
have been eliminated.
(3) ACCOUNTING DEVELOPMENTS
-----------------------
In October of 1995, the FASB released SFAS 123 "Accounting for Stock-Based
Compensation" ("SFAS 123"). SFAS 123 establishes a fair value based method for
stock-based compensation plans. SFAS 123 permits entities to expense an
estimated fair value of employee stock options or to continue to measure
compensation costs for these plans using the intrinsic value accounting method
contained in APB Opinion No. 25. Entities that elect to continue to use the
intrinsic value method must provide pro forma disclosures of net income and
earnings per share as if the fair value method of accounting had been applied.
For fiscal 1997 and 1998, the Company has elected to continue to use the
intrinsic value method under APB Opinion No. 25 and will disclose the pro forma
effects of SFAS 123 in the footnotes to the annual audited financial statements.
In June 1996, the FASB released SFAS 125 "Accounting for Transfers and Servicing
of Financial Assets and Extinguishment of Liabilities" ("SFAS 125"). SFAS 125
provides accounting and reporting standards for transfers and servicing of
financial assets and extinguishment of liabilities and distinguishes transfers
of financial assets that are sales from transfers that are secured
6
<PAGE>
borrowings. Under SFAS 125, an entity recognizes all financial and servicing
assets it controls and liabilities it has incurred and does not recognize
financial assets it no longer controls and liabilities that have been
extinguished. This financial-components approach focuses on the assets and
liabilities that exist after the transfer. SFAS 125 also extends the "available-
for-sale" or "trading" approach in SFAS 115, "Accounting for Certain Investments
in Debt and Equity Securities," to non-security financial assets that can
contractually be prepaid or otherwise settled in such a way that the holder of
the asset would not recover substantially all of its recorded investment. Thus,
non-security financial assets that are subject to prepayment risks that could
prevent recovery of substantially all of the recorded amount are to be reported
at fair value with the change in fair value accounted for depending on the
asset's classification as "available-for-sale" or "trading". SFAS 125 is
generally effective for transfers and servicing of financial assets and
extinguishment of liabilities occurring after December 31, 1996, with certain
provisions having been delayed until after December 31, 1997 by SFAS 127,
"Deferral of Effective Date of Certain Provisions of FASB Statement No.125, an
amendment of Statement No. 125." Also, the extension of SFAS 115 approach to
certain non-security financial assets and the amendment to SFAS 115 is effective
for financial assets held on or acquired after January 1, 1997. The adoption of
SFAS 125 did not have a material impact on the consolidated financial statements
of the Company.
In February 1997, the FASB released SFAS 128 "Earnings Per Share" ("SFAS 128").
SFAS 128 supercedes APB Opinion No. 15 "Earnings Per Share" and specifies the
computation, presentation and disclosure requirements for earnings per share
(EPS) for entities with publicly held stock or potential common stock.
Essentially, this promulgation replaces the primary EPS and fully diluted EPS
presentations under APB Opinion No. 15 with a basic EPS and diluted EPS
presentation. It also requires dual presentation of basic and diluted EPS on
the face of the income statement for all entities with a complex capital
structure and requires a reconciliation of the components of basic and diluted
EPS. Basic EPS excludes common stock equivalents and dilution and is computed
by dividing income available to common shareholders by the weighted-average
number of common shares outstanding for the period. Diluted EPS reflects the
potential dilution that could occur if securities or other contracts to issue
common stock were exercised or converted into common stock or resulted in the
issuance of common stock that then shared in the earnings of the company. SFAS
128 is effective for financial statements for both interim and annual periods
ending after December 15, 1997 and requires restatement of all prior period EPS
data presented.
In February 1997, the FASB released SFAS 129 "Disclosure of Information about
Capital Structure" ("SFAS 129") effective for financial statements for periods
ending after December 15, 1997. SFAS 129 summarizes previously issued
disclosure guidance contained within APB Opinion Nos. 10 and 15 as well as SFAS
47, and, as such, there were no material changes to the Company's disclosures
pursuant to the adoption of SFAS 129.
In June 1997, the FASB released SFAS 130 "Reporting Comprehensive Income" ("SFAS
130"), which establishes standards for reporting and display of comprehensive
income and its components in a full set of general purpose financial statements.
Comprehensive income is defined as "the change in equity of a business
enterprise during a period from transactions and other events and
7
<PAGE>
circumstances from nonowner sources. It includes all changes in equity during a
period except those resulting from investments by owners and distributions to
owners." The comprehensive income and related cumulative equity impact of
comprehensive income items will be required to be disclosed prominently as part
of the notes to the financial statements. This statement is effective for fiscal
years beginning after December 15, 1997 and will not have a material impact on
the consolidated financial statements of the Company.
In June 1997, the FASB released SFAS 131 "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS 131"). SFAS 131 establishes
standards for reporting financial information from operating segments in annual
and interim financial statements. It also establishes standards for related
disclosures about products and services, geographic areas, and major customers.
SFAS 131 uses a "management approach" concept as the basis for identifying
reportable segments which focuses on financial information as used internally by
an enterprise's decision makers. This statement is effective for periods
beginning after December 15, 1997 and will not have a material impact on the
consolidated financial statements of the Company.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
DISCUSSION OF FINANCIAL CONDITION CHANGES FROM JUNE 30, 1997 TO MARCH 31, 1998
- ------------------------------------------------------------------------------
ASSETS
- ------
At March 31, 1998, the Company had total assets of $2.410 billion, an increase
of approximately $318.2 million, or 15.2%, from $2.091 billion at June 30, 1997.
This increase was funded primarily by a $344.2 million increase in deposits and
a $14.8 million increase in equity which was partially offset by a $41.1 million
decrease in borrowed funds.
Cash and cash equivalents, interest-earning deposits and marketable securities
totaled $553.0 million at March 31, 1998, an increase of $67.8 million, or
14.0%, from $485.2 million at June 30, 1997. This increase resulted primarily
from investing the cash received from the branch acquisitions of First Western
Bank and National City Bank (See Item 5 - Other Information -Business
Combinations), the proceeds from which were $11.6 million and $141.1 million,
respectively. In addition, the acquisition of a majority ownership of Jamestown
Savings Bank ("Jamestown") accounted for approximately $25.5 million of the
increase in cash and investments (See Item 5 - Other Information - Business
Combinations). Net loans receivable increased by $236.0 million, or 15.4%, to
$1.772 billion at March 31, 1998 from $1.536 billion at June 30, 1997 as loan
demand remained strong in all of the Company's market areas. The addition of
Jamestown accounted for $27.7 million of this increase in net loans receivable.
Goodwill and other intangibles increased by $11.1 million, or 95.7%, to $22.7
million at March 31, 1998 from $11.6 million at June 30, 1997 as a result of the
premium paid for the aforementioned acquisitions.
LIABILITIES
- -----------
Deposits increased by $344.2 million, or 21.0%, to $1.985 billion at March 31,
1998 from $1.641 billion at June 30, 1997. This increase resulted primarily
from the acquisition of one First Western Bank branch office and nine National
City Bank branch offices with deposits of $11.8 million and $154.3 million,
respectively. In addition, the acquisition of Jamestown Savings Bank accounted
for approximately $50.0 million of the increase in deposits. Normal deposit
growth in existing offices as well as the successful integration and growth of
new offices accounted for the remaining increase of $128.1 million . Borrowed
funds decreased by $41.1 million, or 18.4%, to $182.4 million at March 31, 1998
from $223.5 million at June 30, 1997 as the Company's deposit growth was used to
replace overnight borrowings from the FHLB.
CAPITAL RESOURCES AND LIQUIDITY
- -------------------------------
Total capital at March 31, 1998 was $213.3 million, an increase of $14.8
million, or 7.5%, from $198.5 million at June 30, 1997. This increase was
primarily attributable to net income for the
9
<PAGE>
nine month period of $15.5 million which was partially offset by the payment of
dividends in the amount of $5.6 million. Also contributing to this increase in
capital was a $2.7 million increase resulting from the release of common stock
relating to the Company's employee stock benefit plans as well as an increase in
the net unrealized gain on securities available-for-sale in the amount of $2.1
million.
The Company and its subsidiaries are subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory - and possibly
additional discretionary - actions by the regulators that, if undertaken, could
have a direct material effect on the Company's financial statements. Under
capital adequacy guidelines and the regulatory framework for prompt corrective
action, the Company must meet specific capital guidelines that involve
quantitative measures of the Company's assets, liabilities and certain off-
balance sheet items as calculated under regulatory accounting practices. The
Company's capital amounts and classification are also subject to qualitative
judgements by the regulators about components, risk weightings and other
factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Company to maintain minimum amounts and ratios (set forth in the
table below) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier I capital to average assets (as
defined).
As of March 31, 1998, all regulatory capital requirements were exceeded. The
actual, required, and well capitalized levels as of March 31, 1998 and June 30,
1997 are as follows: (in thousands)
<TABLE>
<CAPTION>
March 31, 1998
To be well
Actual Required Capitalized
----------------- ---------------- -----------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Total Capital (to Risk
weighted assets):
Northwest Bancorp, Inc. 204,913 16.35% 100,266 8.00% 125,332 10.00%
Northwest Savings Bank 193,871 15.83% 97,966 8.00% 122,458 10.00%
Jamestown Savings Bank 6,063 25.92% 1,871 8.00% 2,339 10.00%
Tier 1 Capital (to Risk
weighted assets):
Northwest Bancorp, Inc. 189,991 15.16% 50,133 4.00% 75,199 6.00%
Northwest Savings Bank 179,174 14.63% 48,983 4.00% 73,475 6.00%
Jamestown Savings Bank 5,832 24.93% 936 4.00% 1,403 6.00%
Tier 1 Capital (core)
(To average assets):
Northwest Bancorp, Inc. 189,991 7.98% 71,396 3.00% 118,993 5.00%
Northwest Savings Bank 179,174 7.78% 69,093 3.00% 115,154 5.00%
Jamestown Savings Bank 5,832 12.39% 1,412 3.00% 2,353 5.00%
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
June 30, 1997 (Northwest Savings Bank Only)
To be well
Actual Required Capitalized
----------------- ---------------- ----------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Total Capital (to Risk
weighted assets):
Northwest Savings Bank 199,795 18.36% 87,071 8.00% 108,839 10.00%
Tier 1 Capital (to Risk
weighted assets):
Northwest Savings Bank 186,190 17.11% 43,536 4.00% 65,303 6.00%
Tier 1 Capital (core)
(To average assets):
Northwest Savings Bank 186,190 9.11% 61,319 3.00% 102,199 5.00%
</TABLE>
At March 31, 1998 the Company's banking subsidiaries, Northwest Savings Bank and
Jamestown Savings Bank, were required by FDIC regulations to maintain minimum
levels of liquid assets. The Company's internal liquidity requirement is based
upon a percentage of deposits and borrowings ("liquidity ratio"). The Company
historically has maintained a level of liquid assets in excess of regulatory and
internal requirements, and the Company's liquidity ratio at March 31, 1998 was
24.33%. The Company adjusts its liquidity levels in order to meet funding needs
for deposit outflows, payment of real estate taxes and insurance on mortgage
loan escrow accounts, repayment of borrowings, when applicable, and loan
commitments.
NONPERFORMING ASSETS
- --------------------
The following table sets forth information with respect to the Company's
nonperforming assets. Nonaccrual loans are those loans on which the accrual of
interest has ceased. Loans are placed on nonaccrual status when they are more
than 90 days contractually delinquent. Other nonperforming assets represent
property acquired by the Company through foreclosure or repossession.
Foreclosed property is carried at the lower of its fair value or the principal
balance of the related loan. Nonperforming assets increased $1.6 million, or
10.7%, to $16.6 million at March 31, 1998 from $15.0 million at June 30, 1997.
Management believes that this increase is cyclical in nature and does not
indicate a permanent downward trend in the Company's asset quality.
11
<PAGE>
March 31, 1998 June 30, 1997
-------------- -------------
Loans accounted for on a nonaccrual basis:
One-to four family residential loans 7,140 6,229
Multifamily and commercial loans 2,316 2,585
Consumer loans 2,570 1,161
Commercial business loans 840 455
------ ------
Total 12,866 10,430
====== ======
Total nonperforming loans as a
percentage of net loans receivable: .73% .68%
====== ======
Total real estate acquired through
foreclosure and other real estate owned: 3,779 4,549
------ ------
Total nonperforming assets 16,645 14,979
====== ======
Total nonperforming assets as a
percentage of total assets: .69% .72%
====== ======
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS AND NINE MONTHS ENDED MARCH
- --------------------------------------------------------------------------------
31, 1998 AND 1997
- -----------------
GENERAL
- -------
Northwest Bancorp, Inc. had net income for the three months ended March 31, 1998
of $5.7 million compared to $4.6 million for the three months ended March 31,
1997. Excluding nonrecurring gains of approximately $675,000, net of income
tax, from the sale of assets in the current quarter, core earnings for the three
months ended March 31, 1998 increased by approximately $450,000, or 9.8%, to
$5.0 million compared to the same period last year. This increase in net income
resulted primarily from a $2.5 million increase in net interest income which was
partially offset by a $1.7 million increase in noninterest expense.
NET INTEREST INCOME
- -------------------
For the three months ended March 31, 1998, total interest income increased by
$6.1 million, or 15.9%, to $44.4 million compared to $38.3 million for the three
months ended March 31, 1997. This increase primarily resulted from a $319.8
million, or 17.0%, increase in average interest earning assets to $2.201 billion
for the three months ended March 31, 1998 from $1.881 billion for the three
months ended March 31, 1997. The yield on average interest earning assets
decreased to 8.06% for the three months ended March 31, 1998 from 8.15% for the
same period last year. In addition to substantial growth both internally and
through the successful integration
12
<PAGE>
of new offices, the increase in average interest earning assets was assisted by
the acquisition of a majority ownership of Jamestown Savings Bank, with assets
of $55.7 million. The decrease in the overall yield on interest earning assets
is reflective of the lower market interest rates in general.
Interest income on loans receivable increased by $4.4 million, or 13.8%, to
$36.4 million for the quarter ended March 31, 1998 compared to $32.0 million
during the same quarter last year. This increase resulted primarily from a
$218.1 million, or 14.9%, increase in average loans outstanding to $1.682
billion for the quarter ended March 31, 1998 from $1.464 billion for the third
quarter last year. Loan balances increased because of strong loan demand
throughout the Company's market area as well as the addition of Jamestown
Savings Bank which contributed net loans of approximately $27.7 million.
Partially offsetting the increase in volume was a decrease in the yield on
average loans to 8.65% for the quarter ended March 31, 1998 from 8.74% for the
comparable period last year primarily as a result of mortgage loan prepayments,
the proceeds from which were used to fund additional loans at lower rates of
interest.
Interest income on mortgage-backed securities increased by $462,000, or 10.0%,
to $5.1 million for the three months ended March 31, 1998 compared to $4.6
million for the three months ended March 31, 1997. This increase resulted
primarily from a $33.9 million, or 12.0%, increase in the average balance of
mortgage-backed securities to $316.6 million for the three months ended March
31, 1998 from $282.7 million for the three months ended March 31, 1997. The
average balance increased primarily because of the purchase of approximately
$32.0 million of mortgage-backed securities throughout the second and third
quarters of fiscal 1998, utilizing funds received from the aforementioned branch
acquisitions. Partially offsetting the increase in average balance was a
decrease in the average yield to 6.40% for the quarter ended March 31, 1998 from
6.51% for the same quarter last year. The average yield on mortgage-backed
securities declined as a result of a large percentage of the portfolio having
variable interest rates which repriced at lower market rates.
Interest income on investment securities increased by $1.1 million, or 68.8%, to
$2.7 million for the three months ended March 31, 1998 from $1.6 million for the
three months ended March 31, 1997. The increase resulted primarily from a $69.1
million, or 66.9%, increase in the average balance of investment securities to
$172.4 million for the three months ended March 31, 1998 from $103.3 million for
the three months ended March 31, 1997. The increase in average balance was
primarily due to the investment of the proceeds received from the aforementioned
branch acquisitions as well as approximately $17.7 million from the addition of
Jamestown Savings Bank's investment portfolio. Contributing to the increase in
interest income on investment securities was an increase in the average yield to
6.31% for the quarter ended March 31, 1998 from 6.22% for the same quarter last
year. This increase in yield resulted from the purchase of $21 million of fixed
rate trust preferred securities from other financial institutions which have
higher market yields compared to other securities typically purchased by the
Company. Partially offsetting the increase in yield on trust preferred
securities was the lower nominal interest rates
13
<PAGE>
received on tax exempt securities, as the Company has placed a greater emphasis
on investing in tax exempt obligations.
Interest income on interest-earning deposits increased by $128,000, or 136.2%,
to $222,000 for the three months ended March 31, 1998 from $94,000 for the three
months ended March 31, 1997. This increase resulted primarily from an increase
in the average yield for the quarter ended March 31, 1998 to 3.00% from 1.22%
for the same period last year, which was partially offset by a slight decrease
in the average balance by $1.3 million, or 4.2%, to $29.6 million for the three
months ended March 31, 1998 from $30.9 million for the three months ended March
31, 1997. The increase in average yield is principally the result of the timing
as to when the Bank begins to earn interest on these deposits.
Interest expense increased by $3.6 million, or 17.8%, to $23.8 million for the
three months ended March 31, 1998 from $20.2 million for the three months ended
March 31, 1997. This increase resulted primarily from an increase of $326.9
million, or 18.8%, in the average balance of interest-bearing liabilities to
$2.065 billion for the quarter ended March 31, 1998 from $1.738 billion for the
quarter ended March 31, 1997. Partially offsetting the increase in volume was a
decrease in the average cost of funds to 4.61% for the three months ended March
31, 1998 from 4.65% for the comparable period last year. The increase in
average interest-bearing liabilities resulted primarily from a $342.7 million
increase in the average balance of deposits attributed primarily to the
aforementioned branch acquisitions along with the addition of Jamestown Savings
Bank which contributed deposits of $166.1 million and $49.8 million,
respectively. In addition, above average internal growth accounted for the
remaining increase of $126.8 million in deposits. Partially offsetting the
growth in deposits was a decrease of $15.8 million, or 10.4%, in average
borrowed funds to $135.7 million for the quarter ended March 31, 1998 from
$151.5 million for the quarter ended March 31, 1997. The decrease in borrowed
funds resulted primarily from the Company utilizing its deposit growth to
replace overnight borrowings from the FHLB. The decrease in the average cost of
funds was primarily the result of lower market rates on deposit accounts and
borrowed funds.
As a result of the foregoing changes in interest income and interest expense,
net interest income increased by $2.5 million, or 13.8%, to $20.6 million for
the three months ended March 31, 1998 compared to $18.1 million for the three
months ended March 31, 1997.
For the nine months ended March 31, 1998, total interest income increased by
$14.5 million, or 12.9%, to $127.2 million compared to $112.7 million for the
nine months ended March 31, 1997. This increase primarily resulted from a $253.1
million, or 13.7%, increase in average interest earning assets to $2.096 billion
for the nine months ended March 31, 1998 from $1.843 billion for the nine months
ended March 31, 1997. The yield on average interest earning assets decreased to
8.09% for the nine months ended March 31, 1998 from 8.16% for the same period
last year. The increase in average interest earning assets was primarily the
result of above average internal growth along with the previously mentioned
branch acquisitions and the addition of Jamestown
14
<PAGE>
Savings Bank. The yield on average interest earning assets declined as the
Company added interest earning assets during a period of generally lower
interest rates.
Interest income on loans receivable increased by $11.6 million, or 12.4%, to
$105.0 million for the nine months ended March 31, 1998 from $93.4 million for
the nine months ended March 31, 1997. This increase resulted primarily from a
$188.0 million, or 13.2%, increase in average loans outstanding to $1.617
billion for the nine months ended March 31, 1998 from $1.429 billion for the
same period last year. Partially offsetting the increase in average loans
outstanding was a decline in the average yield to 8.66% for the nine months
ended March 31, 1998 from 8.71% for the nine months ended March 31, 1997.
Interest income on mortgage-backed securities increased by $435,000, or 3.1%, to
$14.6 million for the nine months ended March 31, 1998 from $14.2 million for
the nine months ended March 31, 1997. This increase resulted primarily from a
$14.7 million, or 5.2%, increase in the average balance of mortgage-backed
securities to $299.4 million for the nine months ended March 31, 1998 from
$284.7 million for the same period last year. Partially offsetting the increase
in the average balance of mortgage-backed securities was a decline in the
average yield to 6.50% for the nine months ended March 31, 1998 from 6.63% for
the nine months ended March 31, 1997. Interest income on investment securities
increased by $2.2 million, or 44.9%, to $7.1 million for the nine months ended
March 31, 1998 from $4.9 million for the nine months ended March 31, 1997. This
increase resulted primarily from a $46.8 million, or 45.3%, increase in the
average balance of investment securities to $150.0 million for the nine months
ended March 31, 1998 from $103.2 million for the nine months ended March 31,
1997. Contributing to the increase in interest income on investment securities
was a slight increase in the average yield to 6.30% for the nine months ended
March 31, 1998 from 6.29% for the same period last year. Interest income on
interest-earning deposits increased by $175,000, or 48.5%, to $536,000 for the
nine months ended March 31, 1998 from $361,000 for the nine months ended March
31, 1997. This increase resulted primarily from a $3.6 million, or 13.5%,
increase in the average balance of interest-earning deposits to $30.2 million
for the nine months ended March 31, 1998 from $26.6 million for the nine months
ended March 31, 1997. Contributing to the increase in interest income on
interest-earning deposits was an increase in the average yield to 2.37% for the
nine months ended March 31, 1998 from 1.81% for the same period last year.
For the nine months ended March 31, 1998 interest expense increased by $9.2
million, or 15.4%, to $69.1 million compared to $59.9 million for the nine
months ended March 31, 1997. This increase resulted primarily from a $252.4
million, or 14.8%, increase in the average balance of interest-bearing
liabilities to $1.953 billion for the nine months ended March 31, 1998 from
$1.701 billion for the nine months ended March 31, 1997. The average cost of
funds also increased slightly to 4.71% for the nine months ended March 31, 1998
compared to 4.70% for the nine months ended March 31, 1997. The increase in
average interest-bearing liabilities resulted primarily from a $242.7 million
increase in the average balance of deposits attributed primarily to the
previously mentioned branch acquisitions along with the acquisition of Jamestown
Savings Bank. In addition, strong internal deposit growth accounted for the
remaining increase in deposits. Also contributing to the growth of interest-
bearing liabilities was a $9.7 million, or 6.1%, increase in average borrowed
funds to $169.4 million for the nine months ended March 31,
15
<PAGE>
1998 from $159.7 million for the nine months ended March 31, 1997. The increase
in borrowed funds consisted primarily of additional borrowings from the Federal
Home Loan Bank which were used to fund the increases in the Company's portfolio
of loans and investment securities in order to enhance the Company's net
interest income. The slight increase in the average cost of funds resulted
primarily from increases in the rates offered on certificates of deposit in the
first quarter of the fiscal year in response to the competitive pressure for
deposit accounts.
PROVISION FOR LOAN LOSSES
- -------------------------
The provision for possible loan losses increased by $537,000, or 93.6%, to $1.1
million for the three months ended March 31, 1998 from $574,000 for the three
months ended March 31,1997. The Company has increased its provision for possible
loan losses due to significant growth in its loan portfolio over the past twelve
months as credit quality has remained consistently strong.
The provision for possible loan losses increased to $2.4 million for the nine
months ended March 31, 1998 from $1.2 million for the nine months ended March
31, 1997. This increase also resulted from the significant growth in the
Company's loan portfolio.
NONINTEREST INCOME
- ------------------
Noninterest income increased by $1.1 million, or 73.3%, to $2.6 million for the
three months ended March 31, 1998 from $1.5 million for the three months ended
March 31, 1997. This increase was primarily due to a gain in the current
quarter of $749,000, before income tax, from the sale of investment securities
and a gain of $339,000, before income tax, from the sale of other property held
for investment. Excluding these nonrecurring gains, noninterest income was
unchanged at $1.5 million for the three months ended March 31, 1998 and 1997.
For the nine months ended March 31, 1998 noninterest income increased by
$430,000, or 8.2%, to $5.7 million compared to $5.2 million for the nine months
ended March 31, 1997. This increase was primarily the result of additional
service fees on deposit accounts relating to the introduction of a debit card
with related transaction fee income and the aforementioned gain on sale of other
property held for investment. Partially offsetting these increases was a
decrease in the sale of real estate owned ("REO") property along with additional
losses experienced on the sale of loans.
NONINTEREST EXPENSE
- -------------------
Noninterest expense increased by $1.7 million, or 14.9%, to $13.1 million for
the three months ended March 31, 1998 from $11.4 million for the three months
ended March 31, 1997. This increase was primarily attributable to increases in
compensation and benefits of $957,000, or 14.8%, to $7.4 million for the quarter
ended March 31, 1998 from $6.5 million for the same period last year. The
increase in compensation expense was primarily attributed to additional employee
stock ownership plan ("ESOP") expense recorded as a result an increase in the
average
16
<PAGE>
market price of the Company's stock. Other increases included increases in
amortization expense of $337,000, or 140.4%, as a result of the intangibles
created from the previously mentioned branch acquisitions, check processing
expenses of $238,000, or 72.6%, and office operations expense of $125,000, or
15.9%. All of these increases relate primarily to the expansion of the Company's
branch network. Partially offsetting these increases was a decrease in marketing
expense of $298,000, or 54.8%, as the prior year expense included higher
advertising costs related to the centennial year anniversary celebration.
Excluding the one-time assessment of $8.6 million in the prior year to
recapitalize the FDIC's Savings Association Insurance Fund (the "SAIF"),
noninterest expense increased by $2.7 million, or 8.0%, to $36.4 million for the
nine months ended March 31, 1998 from $33.7 million for the nine months ended
March 31, 1997. In addition to the aforementioned increase in compensation and
benefits related to the ESOP benefit plan, normal increases relating to
inflation and growth were experienced in office operations expense of $538,000,
or 24.6%, and check processing expense of $315,000, or 28.6%. Offsetting these
increases was a decrease in marketing expense of $370,000, or 29.4% and a
decrease in federal deposit insurance expense of $270,000, or 25.7%, due to a
decrease in premiums as a result of the SAIF resolution.
INCOME TAXES
- ------------
The provision for income taxes for the three months ended March 31, 1998
increased by $254,000, or 8.5%, to $3.2 million compared to $3.0 million for the
same period last year. This increase was primarily due to an increase in income
before tax of $1.3 million, or 17.1%, which was partially offset by a lower
effective tax rate as a result of additional state tax credits and the Company's
increased emphasis on investing in tax exempt assets.
The provision for income taxes increased by $3.6 million to $9.6 million for the
nine months ended March 31, 1998 from $6.0 million for the same period last
year. This increase primarily resulted from an increase in income before income
taxes of $10.5 million, to $25.1 million in the current year from $14.6 million
last year. This increase in taxable income was due primarily to the imposition
of the one-time SAIF assessment of $8.6 million which was accrued for in the
first quarter of the prior year.
YEAR 2000
- ---------
Management has initiated a comprehensive program to evaluate the Company's
computer systems and applications to determine if they will continue to operate
properly in the year 2000. The Company is utilizing both internal and external
resources to identify, implement and test for year 2000 compliance. The Company
has purchased new core application hardware and software that is year 2000
compliant and the conversion to this new system is scheduled to be completed by
the end of calendar year 1998. Management believes that with the scheduled
modifications to existing systems and the conversion to new core software, the
year 2000 issue has been properly addressed.
17
<PAGE>
AVERAGE BALANCE SHEET
(Dollars in Thousands)
The following table sets forth certain information relating to the Company's
average balance sheet and reflects the average yield on assets and average cost
of liabilities for the periods indicated. Such yields and costs are derived by
dividing income or expense by the average balance of assets or liabilities,
respectively, for the periods presented. Average balances are derived from
month-end balances.
<TABLE>
<CAPTION>
Three Months Ended March 31,
1998 1997
------------------------------- -------------------------------
Average Average
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
---------- --------- -------- ---------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Assets:
- -------------------------------------
Interest earning assets:
Loans receivable (a) (b) $1,682,239 36,358 8.65% 1,464,162 32,001 8.74%
Mortgage-backed securities (c) (e) 316,565 5,066 6.40 282,690 4,604 6.51
Investment securities (b) (c) (d) (e) 172,446 2,722 6.31 103,338 1,607 6.22
Other interest-earning deposits 29,637 222 3.00 30,929 94 1.22
---------- --------- ---------- ---------
Total interest earning assets 2,200,887 44,368 8.06 1,881,119 38,306 8.15
Noninterest earning assets 102,530 80,857
---------- ----------
Total assets $2,303,417 1,961,976
========== ==========
Liabilities and Shareholders' Equity:
- -------------------------------------
Interest bearing liabilities:
Passbook and Statement Savings $ 307,908 2,541 3.30 278,040 2,334 3.36
Now accounts 275,676 1,080 1.57 210,196 977 1.86
Money market demand accounts 103,273 922 3.57 82,009 673 3.28
Certificate accounts 1,241,942 17,425 5.61 1,015,903 14,370 5.66
Borrowed funds (f) 135,737 1,814 5.35 151,537 1,849 4.88
---------- --------- ---------- ---------
Total interest bearing liabilities 2,064,536 23,782 4.61 1,737,685 20,203 4.65
Noninterest bearing liabilities 27,822 31,649
---------- ----------
Total liabilities 2,092,358 1,769,334
Minority Interest in Subsidiary 515 0
Retained earnings 210,544 192,642
---------- ----------
Total liabilities and equity $2,303,417 1,961,976
========== ==========
Net interest income/Interest rate spread $ 20,586 3.45% $ 18,103 3.50%
========= =========
Net interest earning assets $ 136,351 $ 143,434
========== ==========
Net interest margin 3.74% 3.85%
Ratio of interest earning assets to
interest bearing liabilities 1.07 X 1.08 X
========== ==========
</TABLE>
(a) Average loans receivable includes loans held as available for sale and loans
placed on nonaccrual status.
(b) Interest income on tax-free loans and investment securities is not presented
on a taxable equivalent basis.
(c) Average balances include the effect of unrealized gains or losses on
securities held as available for sale.
(d) Average balances include FNMA and FHLMC stock.
(e) Interest income on marketable securities does not include market value
adjustments for securities available for sale.
(f) Average balances include FHLB advances, securities sold under agreements to
repurchase and other borrowings.
18
<PAGE>
AVERAGE BALANCE SHEET
(Dollars in Thousands)
The following table sets forth certain information relating to the Company's
average balance sheet and reflects the average yield on assets and average cost
of liabilities for the periods indicated. Such yields and costs are derived by
dividing income or expense by the average balance of assets or liabilities,
respectively, for the periods presented. Average balances are derived from
month-end balances.
<TABLE>
<CAPTION>
Nine Months Ended March 31,
1998 1997
------------------------------- -------------------------------
Average Average
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
---------- --------- -------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Assets:
- -------------------------------------
Interest earning assets:
Loans receivable (a) (b) $1,616,549 104,983 8.66% 1,428,566 93,351 8.71%
Mortgage-backed securities (c) (e) 299,440 14,596 6.50 284,672 14,161 6.63
Investment securities (b) (c) (d) (e) 150,003 7,092 6.30 103,216 4,873 6.29
Other interest-earning deposits 30,173 536 2.37 26,634 361 1.81
---------- -------- ---------- ----------
Total interest earning assets 2,096,165 127,207 8.09 1,843,088 112,746 8.16
Noninterest earning assets 92,064 78,861
---------- ----------
Total assets $2,188,229 1,921,949
========== ==========
Liabilities and Shareholders' Equity:
- -------------------------------------
Interest bearing liabilities:
Passbook and Statement Savings $ 294,860 7,458 3.37 273,600 7,018 3.42
Now accounts 249,336 3,365 1.80 203,740 2,925 1.91
Money market demand accounts 91,014 2,370 3.47 81,251 2,029 3.33
Certificate accounts 1,148,416 49,274 5.72 982,310 41,791 5.67
Borrowed funds (f) 169,428 6,597 5.19 159,738 6,168 5.15
---------- -------- ---------- ----------
Total interest bearing liabilities 1,953,054 69,064 4.71 1,700,639 59,931 4.70
Noninterest bearing liabilities 30,194 30,718
---------- ----------
Total liabilities 1,983,248 1,731,357
Minority Interest in Subsidiary 206 0
Retained earnings 204,775 190,592
---------- ----------
Total liabilities and equity $2,188,229 1,921,949
========== ==========
Net interest income/Interest rate spread $ 58,143 3.38% $ 52,815 3.46%
======== ==========
Net interest earning assets $ 143,111 $ 142,449
========== ==========
Net interest margin 3.70% 3.82%
Ratio of interest earning assets to
interest bearing liabilities 1.07X 1.08X
========== ==========
</TABLE>
(a) Average loans receivable includes loans held as available for sale and loans
placed on nonaccrual status.
(b) Interest income on tax-free loans and investment securities is not presented
on a taxable equivalent basis.
(c) Average balances include the effect of unrealized gains or losses on
securities held as available for sale.
(d) Average balances include FNMA and FHLMC stock.
(e) Interest income on marketable securities does not include market value
adjustments for securities available for sale.
(f) Average balances include FHLB advances, securities sold under agreements to
repurchase and other borrowings.
19
<PAGE>
RATE/VOLUME ANALYSIS
(Dollars in Thousands)
The following table represents the extent to which changes in interest rates and
changes in the volume of interest-earning assets and interest-bearing
liabilities have affected the Company's interest income and interest expense
during the periods indicated. Information is provided in each category with
respect to (i) changes attributable to changes in volume (changes in volume
multiplied by prior rate), (ii) changes attributable to changes in rate (changes
in rate multiplied by prior volume), (iii) changes in rate-volume (changes in
rate multiplied by changes in volume), and (iv) the net change.
Three months ended March 31, 1998 and 1997
<TABLE>
<CAPTION>
Rate/ Net
Rate Volume Volume Change
---- ------ ------ ------
<S> <C> <C> <C> <C>
Interest earning assets:
Loans receivable $(356) 4,766 (53) 4,357
Mortgage-backed securities (80) 552 (10) 462
Investment securities 24 1,075 16 1,115
Other interest-earning deposits 138 (4) (6) 128
----- ------ ------ ------
Total interest earning assets (274) 6,389 (53) 6,062
Interest bearing liabilities:
Passbook and statement savings (39) 250 (4) 207
Now accounts (154) 305 (48) 103
Money market demand accounts 59 175 15 249
Certificate accounts (116) 3,197 (26) 3,055
Borrowed funds 176 (193) (18) (35)
----- ------ ------ ------
Total interest bearing liabilities (74) 3,734 (81) 3,579
Net change in interest income $(200) 2,655 28 2,483
===== ====== ====== ======
Nine months ended March 31, 1998 and 1997
<CAPTION>
Rate/ Net
Rate Volume Volume Change
---- ------ ------ ------
<S> <C> <C> <C> <C>
Interest earning assets:
Loans receivable $(576) 12,284 (76) 11,632
Mortgage-backed securities (285) 735 (15) 435
Investment securities 7 2,209 3 2,219
Other interest-earning deposits 112 48 15 175
----- ------ ----- ------
Total interest earning assets (742) 15,276 (73) 14,461
Interest bearing liabilities:
Passbook and statement savings (98) 545 (7) 440
Now accounts (175) 655 (40) 440
Money market demand accounts 87 244 10 341
Certificate accounts 356 7,067 60 7,483
Borrowed funds 52 374 3 429
----- ------ ----- ------
Total interest bearing liabilities 222 8,885 26 9,133
Net change in interest income $(964) 6,391 (99) 5,328
===== ====== ===== ======
</TABLE>
20
<PAGE>
ITEM 3. MARKET RISK
As a bank holding company, the Company's primary market risk is interest rate
risk. Interest rate risk is the sensitivity of net interest income to
variations in interest rates over a specified time period. This sensitivity
results from differences in the time periods in which interest rate sensitive
assets and liabilities mature or reprice. The Company attempts to control
interest rate risk by more closely matching, within acceptable limits, the
repricing periods of its assets and liabilities. Because the Company's interest
sensitive liabilities typically have repricing periods or maturities of short
duration, the Company has attempted to shorten the maturities of its assets by
emphasizing the origination of short-term, fixed-rate consumer loans, one-to-
four family residential mortgage loans with terms of fifteen years or less and
adjustable rate mortgage loans, consumer loans and commercial loans. In
addition, the Company has purchased shorter term or adjustable-rate investment
securities and mortgage-backed securities.
The Company has a Risk Management Committee comprised of certain members of the
Board of Directors which is responsible for reviewing the Company's asset and
liability management policies. This committee meets quarterly and reviews
interest rate risks and trends, the Company's interest sensitivity position and
the liquidity and market value of the Company's investment portfolio.
In an effort to assess market risk, the Company utilizes a simulation model to
determine the effect of immediate incremental increases and decreases in
interest rates on net interest income and the market value of the Company's
equity. Certain assumptions are made regarding loan prepayments and decay rates
of passbook and NOW accounts. Because it is difficult to accurately project the
market reaction of depositors and borrowers, the effects of actual changes in
interest on these assumptions may differ from simulated results. The Company
has established the following guidelines for assessing interest rate risk:
Net interest margin simulation. Given a parallel shift of 2% in interest rates,
the estimated net interest margin may not change by more than 30% within a one-
year period.
Market value of equity simulation. The market value of the Company's equity is
the present value of the Company's assets and liabilities. Given a parallel
shift of 2% in interest rates, the market value of equity may not decrease by
more than 50% of total shareholders' equity.
21
<PAGE>
The following table illustrates the simulated impact of a 1% or 2% upward or
downward movement in interest rates on net income, return on average equity,
earnings per share and market value of equity. This analysis was prepared
assuming that interest-earning asset levels at March 31, 1998 remain constant.
The impact of the rate movements was computed by simulating the effect of an
immediate and sustained shift in interest rates over a twelve month period from
the March 31, 1998 levels.
<TABLE>
<CAPTION>
Increase Decrease
-------------- --------------
<S> <C> <C> <C> <C>
Parallel shift in interest rates over the next 12 months 1.0% 2.0% 1.0% 2.0%
----- ----- ------ ----
Projected percentage increase/(decrease) in net income (6.4%) (10.2%) (3.1%) 0.6%
Projected increase/(decrease) in return on average equity (0.6%) (1.0%) (0.3%) -
Projected increase/(decrease) in earnings per share ($.03) ($.04) ($.01) -
Projected percentage increase/(decrease) in market value of equity (12.4%) (31.0%) 26.7% 44.3%
</TABLE>
The figures included in the table above represent projections which were
computed based upon certain assumptions including prepayment rates and decay
rates which cannot be accurately predicted. There are no assurances that these
assumptions and the resultant impact on the Company's financial ratios will
approximate the figures presented above.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
- -------------------------
Northwest Savings Bank and Northwest Bancorp MHC, along with unrelated parties,
have been named as defendants in a class action lawsuit filed in the Allegheny
County Court of Common Pleas. This lawsuit is brought on behalf of purchasers
of common stock in the Company's initial public offering in November 1994. It
alleges that the Company breached its contractual obligations and fiduciary
duties by carrying out the offering at a price that allegedly was not justified
by market and financial conditions. The Company previously obtained the
dismissal of a lawsuit brought by the same counsel in federal court making
similar allegations under federal law. Management intends to vigorously defend
this lawsuit.
ITEM 2. CHANGES IN SECURITIES
- -----------------------------
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
- ---------------------------------------
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- -----------------------------------------------------------
Not applicable.
22
<PAGE>
ITEM 5. OTHER INFORMATION
- -------------------------
HOLDING COMPANY REORGANIZATION
- ------------------------------
On February 17, 1998 Northwest Savings Bank effectuated the previously approved
reorganization into a two-tier holding company structure. The Bank formed a
new, state chartered stock holding company, Northwest Bancorp, Inc., which is
69.2% owned by Northwest Bancorp MHC. As a result of this reorganization,
Northwest Bancorp, Inc. became the parent company of Northwest Savings Bank and
owns 100% of the Bank's common stock. The previous shareholders of Northwest
Savings Bank stock received an equivalent number of shares of Northwest Bancorp,
Inc. This two-tier holding company structure will give the Company greater
flexibility by maintaining the benefits of the mutual holding company while
capitalizing on the additional opportunities available to stock holding
companies.
STOCK SPLIT
- -----------
On October 15, 1997 the Company announced a 2-for-1 stock split in the form of a
100% stock dividend. The terms of the stock dividend provided each shareholder
of record as of November 1, 1997 with one additional share of stock for each
share held on that date. Such shares were distributed on November 14, 1997.
BUSINESS COMBINATIONS
- ---------------------
On October 14, 1997 the Company purchased the deposit accounts of a branch
office of First Western Bank located in Oil City, Pennsylvania. The branch
office had deposits of approximately $11.8 million.
In June 1997, the Company entered into a definitive agreement to acquire Corry
Savings Bank which has one office located in Corry, Pennsylvania and assets of
approximately $29.0 million. It is expected that, subject to regulatory and
shareholder approval, this acquisition will be consummated by the end of the
fiscal year. This acquisition will be recorded using the purchase method of
accounting.
On December 12, 1997 the Company acquired nine offices and the related deposit
accounts from National City Bank of Pennsylvania. All nine offices are located
in Northwest Pennsylvania. The offices had deposits totaling approximately
$154.3 million.
On March 24, 1998 Northwest Bancorp, Inc. purchased 64.3% of the common stock of
Jamestown Savings Bank. This acquisition was recorded using the purchase method
of accounting. For financial reporting purposes, the financial results of
Jamestown Savings Bank for the seven days ended March 31, 1998 are included in
the consolidated statements of Northwest Bancorp, Inc. with the interest of the
minority ownership (35.7%) shown as a separate line item.
23
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- ----------------------------------------
(a) Exhibit No. 11 Statement re: computation of per share earnings
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
March 31,1998 March 31,1997
-------------- -------------
<S> <C> <C>
Net income $ 5,718,864 $ 4,595,558
Weighted average common shares outstanding 46,525,291 46,181,112
------------- ------------
Basic earnings per share $ 0.12 $ 0.10
============= ============
Weighted average common shares outstanding 46,525,291 46,181,112
Common stock equivalents due to effect of stock options 707,369 241,202
------------- ------------
Total weighted average common shares and
equivalents for diluted computation 47,232,660 46,422,314
Diluted earnings per share $ 0.12 $ 0.10
============= ============
<CAPTION>
Nine Months Nine Months
Ended Ended
March 31,1998 March 31,1997
-------------- -------------
<S> <C> <C>
Net income $ 15,496,784 $ 8,627,997
Weighted average common shares outstanding 46,357,693 46,109,322
------------- ------------
Basic earnings per share $ 0.33 $ 0.19
============= ============
Weighted average common shares outstanding 46,357,693 46,109,322
Common stock equivalents due to effect of stock options 682,857 120,326
------------- ------------
Total weighted average common shares and
equivalents for diluted computation 47,040,550 46,229,648
Diluted earnings per share $ 0.33 $ 0.19
============= ============
</TABLE>
Exhibit No. 27 Financial Data Schedule attached
(b) No Form 8-K reports were filed during the quarter
24
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed by the undersigned thereunto
duly authorized.
NORTHWEST BANCORP, INC.
Date: May 29, 1998 By: /s/ John O. Hanna
------- --------------------------------
John O. Hanna
President and Chief Executive Officer
Date: May 29, 1998 By: /s/ William J. Wagner
------- -------------------------------
William J. Wagner
Chief Operating Officer
Chief Financial Officer
25
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> MAR-31-1998
<CASH> 20,156
<INT-BEARING-DEPOSITS> 17,926
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 332,425
<INVESTMENTS-CARRYING> 182,462
<INVESTMENTS-MARKET> 182,394
<LOANS> 1,787,396
<ALLOWANCE> 14,906
<TOTAL-ASSETS> 2,409,564
<DEPOSITS> 1,985,003
<SHORT-TERM> 143,694
<LIABILITIES-OTHER> 26,818
<LONG-TERM> 38,730
0
0
<COMMON> 4,684
<OTHER-SE> 208,575
<TOTAL-LIABILITIES-AND-EQUITY> 213,259
<INTEREST-LOAN> 104,983
<INTEREST-INVEST> 21,688
<INTEREST-OTHER> 536
<INTEREST-TOTAL> 127,207
<INTEREST-DEPOSIT> 62,467
<INTEREST-EXPENSE> 69,064
<INTEREST-INCOME-NET> 58,143
<LOAN-LOSSES> 2,382
<SECURITIES-GAINS> 749
<EXPENSE-OTHER> 36,365
<INCOME-PRETAX> 25,065
<INCOME-PRE-EXTRAORDINARY> 25,065
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,497
<EPS-PRIMARY> 0.33
<EPS-DILUTED> 0.33
<YIELD-ACTUAL> 8.09
<LOANS-NON> 12,866
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 13,611
<CHARGE-OFFS> 1,554
<RECOVERIES> 258
<ALLOWANCE-CLOSE> 14,906
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 14,906
</TABLE>
