<PAGE>
Registration No. 333-_____
As filed with the Securities and Exchange
Commission on February 20, 1998
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
FORM S-8
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------
Northwest Bancorp, Inc.
(Exact Name of Registrant as Specified in its Charter)
Pennsylvania 23-2900888
(State of Incorporation) (IRS Employer Identification No.)
Liberty Street and Second Avenue,
Warren, Pennsylvania 16365
(Address of Principal Executive Offices)
--------------------
Northwest Savings Bank and Northwest Bancorp, MHC
1995 Stock Option Plan
Northwest Savings Bank and Northwest Bancorp, MHC
1995 Recognition and Retention Plan
for Employees and Outside Directors
(Full Title of the Plans)
Copies to:
John O. Hanna Kenneth R. Lehman, Esquire
President and Chief Executive Officer Edward A. Quint, Esquire
Northwest Bancorp, Inc. Luse Lehman Gorman Pomerenk & Schick
Liberty Street and Second Avenue A Professional Corporation
Warren, Pennsylvania 16365 5335 Wisconsin Ave., N.W., #400
(814) 726-2140 Washington, D.C. 20015
(202) 274-2000
(Name, Address and Telephone
Number of Agent for Service)
--------------------
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933 check the following box. [X]
<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Title of Proposed Proposed
Securities Amount Maximum Maximum Amount of
to be to be Offering Price Aggregate Registration
Registered Registered (1) Per Share Offering Price Fee
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par
value $.10 per share 1,319,370 shares (2) $ 6.39 (3) $8,430,774 $2,487
Common Stock, par
value $.10 per share 4,000 shares (4) $ 14.00 (3) $56,000 $17
Total: 1,323,370 shares $8,486,774 $2,504
================ ========== ======
</TABLE>
- --------------
(1) Together with an indeterminate number of additional shares which may be
necessary to adjust the number of shares reserved for issuance pursuant to
the Northwest Savings Bank and Northwest Bancorp, MHC1995 Stock Option Plan
(the "1995 Stock Option Plan"), and the Northwest Savings Bank and
Northwest Bancorp, MHC 1995 Recognition and Retention Plan for Employees
and Outside Directors (the "1995 Recognition and Retention Plan") as the
result of a stock split, stock dividend or similar adjustment of the
outstanding Common Stock of Northwest Bancorp, Inc. pursuant to 17 C.F.R.
(S) 230.416(a).
(2) Represents the number of shares currently reserved for issuance pursuant to
the 1995 Stock Option Plan.
(3) Determined by the exercise price of the options pursuant to 17 C.F.R.
(S) 230.457(h)(1).
(4) Represents the number of shares currently reserved for issuance pursuant to
the 1995 Recognition and Retention Plan.
-------------------------------
This Registration Statement shall become effective upon filing in
accordance with Section 8(a) of the Securities Act of 1933 and 17 C.F.R.
(S) 230.462.
2
<PAGE>
PART I.
Items 1 and 2. Plan Information and Registrant Information and Employee Plan
Annual Information
This Registration Statement relates to the registration of (i) 1,319,370
shares of Common Stock reserved for issuance and delivery upon the exercise of
options under the 1995 Stock Option Plan and (ii) 4,000 shares of Common Stock
reserved for issuance and delivery pursuant to the 1995 Recognition and
Retention Plan. Documents containing the information required by Part I of the
Registration Statement have been or will be sent or given to participants in the
1995 Stock Option Plan and the 1995 Recognition and Retention Plan as
appropriate, as specified by Securities Act Rule 428(b)(1). Such documents are
not filed with the Securities and Exchange Commission (the "Commission" or
"SEC") either as part of this Registration Statement or as prospectuses or
prospectus supplements pursuant to Rule 424 in reliance on Rule 428.
PART II.
Item 3. Incorporation of Documents by Reference
All documents filed by the Company pursuant to Sections 13(a) and (c),
14 or 15(d) of the Exchange Act after the date hereof and prior to the filing of
a post-effective amendment which indicates that all securities offered hereby
have been sold or which deregisters all securities then remaining unsold, shall
be deemed to be incorporated by reference into this registration statement and
be part hereof from the date of filing of such documents. Any statement
contained in this Registration Statement, or in a document incorporated by
reference herein, shall be deemed to be modified or superseded for purposes of
this Registration Statement to the extent that a statement contained herein, or
in any other subsequently filed document which also is incorporated by reference
herein, modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Registration Statement.
The following documents filed or to be filed with the Commission are
incorporated by reference in this Registration Statement:
(A) Annual Report on Form 10-K of Northwest Savings Bank for the
fiscal year ended June 30, 1997.
(B)(1) Quarterly Report on Form 10-Q of Northwest Savings Bank for the
quarter ended September 30, 1997.
(B)(2) Quarterly Report on Form 10-Q of Northwest Savings Bank for the
quarter ended December 31, 1997.
(C) The description of the Common Stock contained in the Registration
Statement on Form S-4 (Commission File No. 333-31687), originally filed by the
Company with the SEC under the Securities Act of 1933 on July 21, 1997.
Item 4. Description of Securities
Not applicable.
Item 5. Interests of Named Experts and Counsel
None.
3
<PAGE>
Item 6. Indemnification of Directors and Officers
Article VI of the Registrant's Bylaws provide for the
following indemnification for Directors and Officers.
6.1 Third Party Actions. The Corporation shall indemnify any
-------------------
person who was or is a party, or is threatened to be made a party, to
any threatened, pending or completed action or proceeding, whether
civil, criminal, administrative or investigative (other than an action
by or in the right of the Corporation), by reason of the fact that he
is or was a director or officer of the Corporation, or is or was
serving at the request of the Corporation as a representative of
another domestic or foreign corporation for profit or not-for-profit,
partnership, joint venture, trust or other enterprise, against expenses
(including attorney's fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with
the action or proceeding if he acted in good faith and in a manner he
reasonably believed to be in, or not opposed to, the best interests of
the Corporation and, with respect to any criminal proceeding, had no
reasonable cause to believe his conduct was unlawful, provided that the
Corporation shall not be liable for any amounts which may be due to any
such person in connection with a settlement of any action or proceeding
effected without its prior written consent or any action or proceeding
initiated by any such person (other than an action or proceeding to
enforce rights to indemnification hereunder).
6.2 Derivative and Corporate Actions. The Corporation shall
--------------------------------
indemnify any person who was or is a party, or is threatened to be made
a party, to any threatened, pending or completed action by or in the
right of the Corporation to procure a judgment in its favor by reason
of the fact that he is or was a director or officer of the Corporation
or is or was serving at the request of the Corporation as a
representative of another domestic or foreign corporation for profit or
not-for-profit, partnership, joint venture, trust or other enterprise,
against expenses (including attorney's fees) actually and reasonably
incurred by him in connection with the defense or settlement of the
action if he acted in good faith and in a manner he reasonably believed
to be in, or not opposed to, the best interests of the Corporation,
provided that the Corporation shall not be liable for any amounts which
may be due to any such person in connection with a settlement of any
action or proceeding affected without its prior written consent.
Indemnification shall not be made under this Section 6.2 in respect of
any claim, issue or matter as to which the person has been adjudged to
be liable to the Corporation unless and only to the extent that the
court of common pleas of the judicial district embracing the county in
which the registered office of the Corporation is located or the court
in which the action was brought determines upon application that,
despite the adjudication of liability but in view of all the
circumstances of the case, the person is fairly and reasonably entitled
to indemnity for the expenses that the court of common pleas or other
court deems proper.
6.3 Mandatory Indemnification. To the extent that a
-------------------------
representative of the Corporation has been successful on the merits or
otherwise in defense of any action or proceeding referred to in Section
6.1 or Section 6.2 or in defense of any claim, issue or matter therein,
he shall be indemnified against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection therewith.
6.4 Procedure for Effecting Indemnification. Unless ordered by
---------------------------------------
a court, any indemnification under Section 6.1 or Section 6.2 shall be
made by the Corporation only as authorized in the specific case upon a
determination that indemnification of the representative is proper in
the circumstances because he has met the applicable standard of conduct
set forth in those sections. The determination shall be made:
(1) by the Board of Directors by a majority vote of a quorum
consisting of directors who were not parties to the action or
proceeding;
4
<PAGE>
(2) if such a quorum is not obtainable, or if obtainable and a
majority vote of a quorum of disinterested directors so directs, by
independent legal counsel in a written opinion; or
(3) by the stockholders.
6.5 Advancing Expenses. Expenses (including attorneys' fees)
------------------
incurred in defending any action or proceeding referred to in this
Article VI shall be paid by the Corporation in advance of the final
disposition of the action or proceeding upon receipt of an undertaking
by or on behalf of the director or officer to repay the amount if it is
ultimately determined that he is not entitled to be indemnified by the
Corporation as authorized in this Article VI or otherwise.
6.6 Insurance. The Corporation shall have the power to
---------
purchase and maintain insurance on behalf of any person who is or was a
representative of the Corporation or is or was serving at the request
of the Corporation as a representative of another domestic or foreign
corporation for profit or not-for-profit, partnership, joint venture,
trust or other enterprise against any liability asserted against him
and incurred by him in any such capacity, or arising out of his status
as such, whether or not the Corporation would have the power to
indemnify him against that liability under the provisions of this
Article VI.
6.7 Modification. The duties of the Corporation to indemnify
------------
and to advance expenses to a director or officer provided in this
Article VI shall be in the nature of a contract between the Corporation
and each such person, and no amendment or repeal of any provision of
this Article VI shall alter, to the detriment of such person, the right
of such person to the advance of expenses or indemnification related to
a claim based on an act or failure to act which took place prior to
such amendment or repeal.
Item 7. Exemption From Registration Claimed.
Not applicable.
Item 8. List of Exhibits.
The following exhibits are filed with or incorporated by reference into
this Registration Statement on Form S-8:
4.1 Northwest Savings Bank and Northwest Bancorp, MHC 1995 Stock
Option Plan (Incorporated by reference from Exhibit 10.5 of
the Registrant's Registration Statement on Form S-4
(Registration No. 333-31687), originally filed with the SEC on
July 21, 1997).
4.2 Northwest Savings Bank and Northwest Bancorp, MHC 1995
Recognition and Retention Plan (Incorporated from reference to
Exhibit 10.6 of the Registrant's Registration Statement on
Form S-4 (Registration No. 333-31687), originally filed with
the SEC on July 21, 1997).
5 Opinion of Luse Lehman Gorman Pomerenk & Schick, A
Professional Corporation as to the legality of the Common
Stock registered hereby.
23.1 Consent of Luse Lehman Gorman Pomerenk & Schick, A
Professional Corporation (contained in the opinion included as
Exhibit 5).
23.2 Consent of KPMG Peat Marwick LLP.
5
<PAGE>
99.1 Quarterly Report on Form 10-Q of Northwest Savings Bank for
the fiscal quarter ended September 30, 1997.
99.2 Quarterly Report on Form 10-Q of Northwest Savings Bank for
the fiscal quarter ended December 31, 1997.
Item 9. Undertakings
The undersigned Registrant hereby undertakes:
1. To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement to include any
material information with respect to the Registration Statement not previously
disclosed in this Registration Statement or any material change to such
information in this Registration Statement;
2. That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new Registration Statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof;
3. To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the 1995 Stock Option Plan and the 1995 Recognition and Retention Plan; and
4. That, for purposes of determining any liability under the Securities
Act of 1933, each filing of the Registrant's annual report pursuant to Section
13(a) or 15(d) of the Securities Exchange Act of 1934 that is incorporated by
reference in the Registration Statement shall be deemed to be a new Registration
Statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
5. Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
6
<PAGE>
EXHIBIT INDEX
Exhibit Number Description
-------------- -----------
5 Opinion of Luse Lehman Gorman Pomerenk & Schick, A
Professional Corporation as to the legality of the
Common Stock registered hereby.
23.1 Consent of Luse Lehman Gorman Pomerenk & Schick,
A Professional Corporation (contained in the opinion
included as Exhibit 5)
23.2 Consent of KPMG Peat Marwick LLP.
99.1 Quarterly Report on Form 10-Q of Northwest Savings
Bank for the fiscal quarter ended September 30, 1997.
99.2 Quarterly Report on Form 10-Q of Northwest Savings
Bank for the fiscal quarter ended December 31, 1997.
7
<PAGE>
SIGNATURES
The Registrant. Pursuant to the requirements of the Securities Act of
1933, the registrant certifies that it has reasonable grounds to believe that it
meets all of the requirements for filing on Form S-8 and has duly caused this
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Warren, State of Pennsylvania, on this 17th day
of February, 1998.
Northwest Bancorp, Inc.
By: /s/ John O. Hanna
-----------------
John O. Hanna, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the date indicated.
<TABLE>
<S> <C>
By: /s/ John O. Hanna By: /s/ William J. Wagner
----------------- ---------------------
John O. Hanna, President, Chief William J. Wagner, Executive Vice
Executive Officer and Director President, Chief Financial Officer, Chief
(Principal Executive Officer) Operating Officer and Director
(Principal Financial and Accounting Officer)
Date: February 17, 1998 Date: February 17, 1998
By: /s/ Richard L. Carr By: /s/ Thomas K. Creal, III
------------------- ------------------------
Richard L. Carr, Director Thomas K. Creal, III, Director
Date: February 17, 1998 Date: February 17, 1998
By: /s/ John J. Doyle By: /s/ Robert G. Ferrier
----------------- ---------------------
John J. Doyle, Director Robert G. Ferrier, Director
Date: February 17, 1998 Date: February 17, 1998
By: /s/ Richard E. McDowell By: /s/ Joseph T. Stadler
----------------------- ---------------------
Richard E. McDowell, Director Joseph T. Stadler, Director
Date: February 17, 1998 Date: February 17, 1998
By: /s/ Walter J. Yahn By: /s/ John S. Young
------------------ -----------------
Walter J. Yahn, Director John S. Young, Director
Date: February 17, 1998 Date: February 17, 1998
</TABLE>
<PAGE>
EXHIBIT 5
[LETTERHEAD OF LUSE LEHMAN GORMAN POMERENK & SCHICK, P.C.]
February 18, 1998 (202) 274-2000
Board of Directors
Northwest Bancorp, Inc.
Liberty Street and Second Avenue
Warren, Pennsylvania 16365-2353
Re: Northwest Bancorp, Inc.
Registration Statement on Form S-8
------------------------------------------
Ladies and Gentlemen:
You have requested the opinion of this firm as to certain matters in
connection with the offer and sale of Northwest Bancorp, Inc. (the "Company")
common stock, par value $.10 per share (the "Common Stock"), pursuant to the
Northwest Savings Bank and Northwest Bancorp, MHC 1995 Stock Option Plan and the
Northwest Savings Bank and Northwest Bancorp, MHC 1995 Recognition and Retention
Plan (the "Plans"). We have reviewed the Company's Certificate of Incorporation,
Registration Statement on Form S-8 (the "Form S-8"), as well as applicable
statutes and regulations governing the Company and the offer and sale of the
Common Stock.
Based on the foregoing, we are of the following opinion:
Upon the effectiveness of the Form S-8, the Common Stock, when sold in
connection with the exercise of options granted pursuant to the Plans,
will be legally issued, fully paid and non-assessable.
This opinion has been prepared solely for the use of the Company in
connection with the preparation and filing of the Form S-8, and should not be
used for any other purpose or relied upon by any other person without the prior
written consent of this firm. We hereby consent to the use of this opinion in
the Form S-8.
Very truly yours,
/s/ Luse Lehman Gorman Pomerenk & Schick
----------------------------------------
LUSE LEHMAN GORMAN POMERENK & SCHICK
A Professional Corporation
<PAGE>
Exhibit 23.2
INDEPENDENT AUDITORS' CONSENT
-----------------------------
The Board of Directors
Northwest Bancorp, Inc.:
We consent to the incorporation by reference in this Registration Statement on
Form S-8 of Northwest Bancorp, Inc., of our report dated August 15, 1997, with
respect to the consolidated financial statements of Northwest Savings Bank and
subsidiaries as of June 30, 1997 and 1996, and for each of the years in the
three-year period ended June 30, 1997.
/s/ KPMG Peat Marwick LLP
Pettsburgh, Pennsylvania
February 18, 1998
<PAGE>
Exhibit 99.1
FEDERAL DEPOSIT INSURANCE CORPORATION
WASHINGTON, D.C. 20429
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED SEPTEMBER 30, 1997
FDIC Certificate No. 28 178-6
Northwest Savings Bank
-----------------------------------------------
(Exact name of registrant as specified in its charter)
Pennsylvania
--------------------------------
(State or other jurisdiction of incorporation or organization)
23-2790930
------------------------------
(I.R.S. Employer Identification No.)
Second at Liberty Avenue
Warren, Pennsylvania 16365
- ------------------------- -----
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (814) 726-2140
Not applicable
-----------------------------------------------
(Former name, former address and former fiscal year,
if change 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: There were 23,376,560
shares of the Bank's common stock outstanding as of September 30, 1997.
<PAGE>
NORTHWEST SAVINGS BANK 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 - 16
Financial Condition and Results of
Operations
PART II OTHER INFORMATION 17 - 20
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
NORTHWEST SAVINGS BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
ASSETS 1997 1997
- -------------------------------------------------------------------- ------------- ------------
<S> <C> <C>
CASH AND CASH EQUIVALENTS $ 12,667 13,747
INTEREST-BEARING DEPOSITS IN OTHER FINANCIAL
INSTITUTIONS 13,791 57,765
MARKETABLE SECURITIES AVAILABLE FOR SALE 269,493 259,720
MARKETABLE SECURITIES HELD-TO-MATURITY (MARKET VALUE
OF $155,552 AND $152,744) 156,300 153,980
----------- -----------
TOTAL CASH, INTEREST-BEARING DEPOSITS AND
MARKETABLE SECURITIES 452,251 485,212
LOANS RECEIVABLE, NET OF ALLOWANCE FOR ESTIMATED
LOSSES OF $13,828 AND $13,611 1,580,013 1,536,498
ACCRUED INTEREST RECEIVABLE 11,294 11,027
REAL ESTATE OWNED 4,611 4,549
FEDERAL HOME LOAN BANK STOCK, AT COST 12,144 12,144
PREMISES AND EQUIPMENT, NET 21,886 21,481
GOODWILL AND OTHER INTANGIBLES 11,324 11,586
OTHER ASSETS 7,221 8,866
----------- -----------
TOTAL ASSETS $ 2,100,744 2,091,363
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------
LIABILITIES:
DEPOSITS $ 1,688,962 1,640,815
BORROWED FUNDS 183,873 223,458
ADVANCES BY BORROWERS FOR TAXES AND INSURANCE 6,631 12,985
ACCRUED INTEREST PAYABLE 6,321 4,312
OTHER LIABILITIES 12,515 11,299
----------- -----------
TOTAL LIABILITIES 1,898,302 1,892,869
SHAREHOLDERS' EQUITY:
COMMON STOCK, $.10 PAR VALUE: 50,000,000 SHARES
AUTHORIZED, 23,376,560 AND 23,376,000 ISSUED AND
OUTSTANDING AT 9/30/97 AND 6/30/97, RESPECTIVELY 2,338 2,338
PAID-IN CAPITAL 67,860 67,854
RETAINED EARNINGS 134,390 131,423
NET UNREALIZED GAIN/(LOSS) ON SECURITIES AVAILABLE-
FOR-SALE, NET OF INCOME TAXES 2,001 1,026
UNEARNED EMPLOYEE STOCK OWNERSHIP PLAN SHARES (2,358) (2,358)
UNEARNED RECOGNITION AND RETENTION PLAN SHARES (1,789) (1,789)
----------- -----------
202,442 198,494
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,100,744 2,091,363
=========== ===========
</TABLE>
See accompanying notes to unaudited consolidated financial statements
1
<PAGE>
NORTHWEST SAVINGS BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED SEPTEMBER 30,
1997 1996
-------- --------
<S> <C> <C>
INTEREST INCOME:
LOANS RECEIVABLE $ 33,905 30,504
MORTGAGE-BACKED SECURITIES 4,788 4,785
INVESTMENT SECURITIES 2,136 1,639
INTEREST EARNING DEPOSITS 107 112
-------- --------
TOTAL INTEREST INCOME 40,936 37,040
INTEREST EXPENSE:
SAVINGS DEPOSITS 19,804 17,367
BORROWED FUNDS 2,360 2,274
-------- --------
TOTAL INTEREST EXPENSE 22,164 19,641
NET INTEREST INCOME 18,772 17,399
PROVISION FOR POSSIBLE LOAN LOSSES 660 217
-------- --------
NET INTEREST INCOME AFTER PROVISION
FOR POSSIBLE LOAN LOSSES 18,112 17,182
NONINTEREST INCOME:
LOAN SERVICE CHARGES 269 277
SERVICE FEES ON DEPOSIT ACCOUNTS 492 339
GAIN ON SALE OF MARKETABLE SECURITIES (NET) 0 0
LOSS ON SALE OF LOANS (NET) (180) (54)
GAIN/(LOSS) ON SALE OF REAL ESTATE OWNED (66) 198
DIVIDENDS ON FHLB STOCK 210 173
OTHER OPERATING INCOME 803 638
-------- --------
TOTAL NONINTEREST INCOME 1,528 1,571
NONINTEREST EXPENSES:
COMPENSATION AND EMPLOYEE BENEFITS 6,671 6,341
PREMISES AND OCCUPANCY COSTS 1,324 1,219
OFFICE OPERATIONS EXPENSE 832 647
SAIF RECAPITALIZATION ASSESSMENT 0 8,565
FEDERAL INSURANCE PREMIUMS 254 804
DATA PROCESSING 301 260
CHECK PROCESSING AND ATM EXPENSE 336 391
BANK SERVICE CHARGES 241 227
MARKETING 340 266
LEGAL, AUDIT AND PROFESSIONAL EXPENSE 260 247
REAL ESTATE OWNED EXPENSE 184 141
AMORTIZATION EXPENSE 272 502
OTHER EXPENSES 329 339
-------- --------
TOTAL NONINTEREST EXPENSE 11,344 19,949
INCOME BEFORE INCOME TAXES 8,296 (1,196)
STATE AND FEDERAL INCOME TAXES 3,459 (364)
-------- --------
NET INCOME $ 4,837 (832)
======== ========
EARNINGS PER SHARE $ 0.21 (0.04)
======== ========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
2
<PAGE>
NORTHWEST SAVINGS BANK AND SUBSIDIARIES
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 6/30/97 23,376,000 $ 2,338 67,854 131,423 1,026 (2,358) (1,789) 198,494
Net income -- -- -- 4,837 -- -- -- 4,837
Exercise of stock options 560 -- 6 -- -- -- -- 6
Dividends declared -- -- -- (1,870) -- -- -- (1,870)
Change in unrealized gain on
securities, net of tax -- -- -- -- 975 -- -- 975
---------- --------- --------- -------- --------- ---------- ---------- ----------
Ending balance at 9/30/97 23,376,560 $ 2,338 67,860 134,390 2,001 (2,358) (1,789) 202,442
========== ========= ========= ======== ========= ========== ========== ==========
</TABLE>
<PAGE>
NORTHWEST SAVINGS BANK AND SUBSIDIARIES
Consolidated Statement of Cash Flows
For the Three Months Ended September 30, 1997 and 1996
(Dollars in thousands)
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
9/30/97 9/30/96
---------------- ----------------
<S> <C> <C>
OPERATING ACTIVITIES
Net Income (Loss) $ 4,837 (832)
Adjustments to reconcile net income to net cash
provided by operations
Provision for possible loan losses 660 217
Net loss (gain) on sales of assets 246 (199)
Depreciation and amortization expense 796 460
Amortization of deferred loan fees (93) (249)
Decrease (increase) in other assets 1,042 (2,076)
Increase (decrease) in other liabilities 2,580 12,821
Amortization of premiums (discounts)
on marketable securities (97) (112)
Noncash compensation expense related to
stock benefit plans 651 582
Other - -
---------------- ----------------
Net cash provided by operating activities 10,622 10,612
INVESTING ACTIVITIES
Purchase of marketable securities held-to-maturity (5,415) 0
Purchase of marketable securities available-for-sale (18,622) (1,646)
Proceeds from maturities and principal reductions
of marketable securities held-to-maturity 3,158 4,322
Proceeds from maturities and principal reductions
of marketable securities available-for-sale 10,455 2,402
Proceeds from sales of marketable securities - -
Loan originations (152,139) (144,220)
Purchases of Loans - -
Proceeds from loan maturities and principal
reductions 97,496 89,855
Proceeds from loan sales 9,860 18,560
Purchase of Federal Home Loan Bank Stock - -
Proceeds from sale of real estate owned 393 1,151
Purchase of real estate for investment (261) (273)
Purchase of premises and equipment (939) (743)
Payment for acquisitions, net of cash acquired - -
---------------- ----------------
Net cash used by investing activities (56,014) (30,592)
</TABLE>
(Continued)
<PAGE>
NORTHWEST SAVINGS BANK AND SUBSIDIARIES
Consolidated Statement of Cash Flows
(Dollars in thousands)
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
9/30/97 9/30/96
---------------- ----------------
<S> <C> <C>
FINANCING ACTIVITIES
Increase in deposits, net $ 48,147 82,884
Proceeds from long-term borrowings 11,769 15,000
Repayments of long-term borrowings (16,289) (9,732)
Net increase (decrease) in short-term borrowings (35,065) (68,471)
Increase (decrease) in advances by borrowers for
taxes and insurance (6,354) (5,884)
Common stock acquired by ESOP - -
Cash dividends paid (1,870) (1,870)
Proceeds from sale of stock - -
Capitalization of Northwest Bancorp, MHC - -
---------------- ----------------
Net cash provided by financing activities 338 11,927
Net increase (decrease) in cash and cash equivalents $ (45,054) (8,053)
================ ================
Cash and cash equivalents at beginning of period $ 71,512 44,304
Net increase (decrease) in cash and cash equivalents (45,054) (8,053)
---------------- ----------------
Cash and cash equivalents at end of period $ 26,458 36,251
================ ================
Supplemental cash flow disclosure:
Cash paid during the year for:
Interest on deposits and borrowings (including interest
credited to deposit accounts of $13,133 and $11,915,
respectively) $ 20,154 $ 18,738
================ ================
Income taxes $ 1,218 $ 725
================ ================
Non-cash investing and financing activities:
Loan foreclosures and repossessions $ 521 $ 486
================ ================
Sale of real estate owned financed by the Bank $ 2 $ 36
================ ================
</TABLE>
<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
ended September 30, 1997 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 Savings Bank and its wholly owned subsidiaries, Northwest
Financial Services, Inc., Northwest Consumer Discount Company, Northwest
Mortgage Corporation, Northwest Capital Group, Inc., Rid Fed, Inc., Northwest
Finance Company and Great Northwest Corporation. 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 Bank 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 consolidated 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 borrowings.
Under SFAS 125, an entity recognizes all financial and servicing assets it
controls
6
<PAGE>
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 Bank.
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. Earlier adoption of this statement is not permitted. The
following table presents the effects on earnings per share upon the adoption of
SFAS 128:
September 30,
--------------
1997 1996
----- ------
Basic $0.21 ($0.04)
Diluted $0.21 ($0.04)
The impact of this statement on future earnings per share is largely dependent
upon future share prices and the amount of stock options outstanding.
7
<PAGE>
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. No material changes are anticipated to the Bank'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 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.
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 is not expected to have a material impact
on the consolidated financial statements of the Bank.
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 September 30,
- -----------------------------------------------------------------------------
1997
- ----
Assets
- ------
At September 30, 1997, the Bank had total assets of $2.101 billion, an increase
of approximately $9.4 million, or .45%, from $2.091 billion at June 30, 1997.
This increase was funded primarily from a $48.1 million increase in deposits and
a $3.9 million increase in equity which was partially offset by a $39.6 million
decrease in borrowed funds.
Cash and cash equivalents, interest-bearing deposits and marketable securities
totaled $452.3 million at September 30, 1997, a decrease of $32.9 million, or
6.8%, from $485.2 million at June 30, 1997. This decrease resulted primarily
from the maturity of retail repurchase agreements. Net loans receivable
increased by $43.5 million, or 2.8%, to $1.580 billion at September 30, 1997
from $1.536 billion at June 30, 1997 as loan demand remained strong in all of
the Bank's market areas.
Liabilities
- -----------
Deposits increased by $48.1 million, or 2.9%, to $1.689 billion at September 30,
1997 from $1.641 billion at June 30, 1997. This increase resulted from normal
deposit growth in existing offices as well as the successful integration and
growth of new offices. Borrowed funds decreased by $39.6 million, or 17.7%, to
$183.9 million at September 30, 1997 from $223.5 million at June 30, 1997 as the
Bank's deposit growth was used to replace overnight borrowings from the FHLB
which had matured. Advances by borrowers for taxes and insurance decreased by
$6.4 million, or 49.2%, to $6.6 million at September 30, 1997 from $13.0 million
at June 30, 1997. This decrease typically occurs in the third calendar quarter
of each year as real estate taxes are paid for a substantial number of the
Bank's mortgage customers.
Capital Resources and Liquidity
- -------------------------------
Total capital at September 30, 1997 was $202.4 million, an increase of $3.9
million, or 2.0%, from $198.5 million at June 30, 1997. This increase was
primarily attributable to net income for the three month period of $4.8 million
which was partially offset by the payment of dividends in the amount of $1.9
million. Also contributing to this increase in capital was an increase in the
net unrealized gain on securities available-for-sale in the amount of $975,000.
9
<PAGE>
The Bank is 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
Bank's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve quantitative measures of the Bank's assets,
liabilities and certain off-balance sheet items as calculated under regulatory
accounting practices. The Bank'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 Bank 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 September 30, 1997, all regulatory capital requirements were exceeded.
The actual, required, and well capitalized levels as of September 30, 1997 and
June 30, 1997 are as follows: (in thousands)
<TABLE>
<CAPTION>
September 30, 1997
To be well
Actual Required Capitalized
---------------- ---------------- ------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
GAAP Capital 202,442 9.64% - - - -
Total Capital (to Risk
weighted assets) 203,280 18.32% 88,781 8.00% 110,976 10.00%
Tier 1 Capital (to Risk
weighted assets) 189,452 17.92% 44,390 4.00% 66,585 6.00%
Tier 1 Capital (core)
(To average assets) 189,452 9.41% 63,381 3.00% 105,634 5.00%
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
June 30, 1997
To be well
Actual Required Capitalized
----------------- ---------------- ------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
GAAP Capital 198,494 9.49% - - - -
Total Capital (to Risk
weighted assets) 199,795 18.36% 87,071 8.00% 108,839 10.00%
Tier 1 Capital (to Risk
weighted assets) 186,190 17.11% 43,536 4.00% 65,303 6.00%
Tier 1 Capital (core)
(To average assets) 186,190 9.11% 61,319 3.00% 102,199 5.00%
</TABLE>
At September 30, 1997 the Bank was required by FDIC regulations to maintain
minimum levels of liquid assets. The Bank's internal liquidity requirement is
based upon a percentage of deposits and borrowings ("liquidity ratio"). The
Bank historically has maintained a level of liquid assets in excess of
regulatory and internal requirements, and the Bank's liquidity ratio at
September 30, 1997 was 23.72%. The Bank 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 Bank'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 Bank 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 $1.1 million, or 7.3%, to
$16.1 million at September 30, 1997 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 Bank's asset quality.
11
<PAGE>
<TABLE>
<CAPTION>
September 30, 1997 June 30, 1997
------------------ -------------
<S> <C> <C>
Loans accounted for on a nonaccrual basis:
One-to four family residential loans 6,565 6,229
Multifamily and commercial loans 2,638 2,585
Consumer loans 1,714 1,161
Commercial business loans 570 455
------ ------
Total 11,487 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: 4,611 4,549
------ ------
Total nonperforming assets 16,098 14,979
====== ======
Total nonperforming assets as a
percentage of total assets: .77% .72%
====== =======
</TABLE>
Comparison of Operating Results for the Three Months Ended September 30, 1997
- -----------------------------------------------------------------------------
and 1996
- --------
General
- -------
Northwest Savings Bank's net income for the three months ended September 30,
1997 was $4.8 million compared to $4.3 million, exclusive of a one-time
assessment of $5.1 million (after tax) to recapitalize the SAIF, for the three
months ended September 30, 1996. This $500,000 increase in net income resulted
primarily from a $1.4 million increase in net interest income which was
partially offset by a $443,000 increase in the provision for possible loan
losses.
Net Interest Income
- -------------------
For the three months ended September 30, 1997, total interest income increased
by $3.9 million, or 10.5%, to $40.9 million compared to $37.0 million for the
three months ended September 30, 1996. This increase primarily resulted from a
$194.7 million, or 10.7%, increase in average interest earning assets to $2.008
billion for the three months ended September 30, 1997 from $1.813 billion for
the three months ended September 30, 1996. The yield on average interest
earning assets decreased slightly to 8.15% for the three months ended September
30, 1997 from 8.17% for the same period last year. In addition to internal
growth, the increase in average interest earning assets was assisted by the
acquisition of Bridgeville Savings Bank on February 21, 1997 with assets of
approximately $56.0 million.
12
<PAGE>
Interest income on loans receivable increased by $3.4 million, or 11.1%, to
$33.9 million for the quarter ended September 30, 1997 compared to $30.5 million
during the same quarter last year. This increase resulted primarily from a
$164.4 million, or 11.8%, increase in average loans outstanding to $1.557
billion for the quarter ended September 30, 1997 from $1.392 billion for the
first quarter last year. Loan balances increased because of strong loan demand
throughout the Bank's market area as well as the Bridgeville acquisition which
contributed net loans of approximately $20.3 million. Partially offsetting the
effects of the increase in average balance was a decrease in the yield on
average loans to 8.71% for the quarter ended September 30, 1997 from 8.76% for
the comparable period last year. The decrease in average yield was primarily a
result of the prepayment of higher interest rate loans, the proceeds from which
were invested in loans with lower interest rates.
Interest income on mortgage-backed securities remained consistent at $4.8
million for the three months ended September 30, 1997 and 1996 as the average
balance and average yield on mortgage-backed securities remained constant at
$289.5 million and 6.61%, respectively. The average balance remained unchanged
as principal payments were offset by the acquisition of $20.6 million of
securities from the Bridgeville transaction.
Interest income on investment securities increased by $497,000, or 30.3%, to
$2.1 million for the three months ended September 30, 1997 from $1.6 million for
the three months ended September 30, 1996. This increase primarily resulted
from a $26.8 million, or 25.7%, increase in the average balance of investment
securities to $131.2 million for the quarter ended September 30, 1997 from
$104.4 million for the same quarter last year. These increases in average
balance and average yield resulted from the Bank purchasing additional
securities for the investment portfolio at higher interest rates in an effort to
increase net interest income and was assisted by the acquisition of
approximately $9.0 million from the Bridgeville transaction.
Interest income on interest-bearing deposits remained essentially unchanged at
$107,000 and $112,000, respectively for the first quarter of 1997 and 1996. The
average balance of interest-bearing deposits increased by $3.6 million, or
13.3%, to $30.7 million for the three months ended September 30, 1997 from
$27.1 million for the three months ended September 30, 1996. This increase was
offset by a decrease in the average yield to 1.40% for the quarter ended
September 30, 1997 from 1.65% for the same period last year.
Interest expense increased by $2.6 million, or 13.3%, to $22.2 million for the
three months ended September 30, 1997 from $19.6 million for the three months
ended September 30, 1996. This increase resulted primarily from a $191.1
million, or 11.4%, increase in the average balance of interest-bearing
liabilities to $1.861 billion for the quarter ended September 30, 1997 from
$1.670 billion for the quarter ended September 30, 1996. In addition, the
average cost of funds increased slightly to 4.76% for the quarter ended
September 30, 1997 from 4.70% for comparable period last year. The increase in
average interest-bearing liabilities resulted primarily from internal deposit
growth along with the acquisition of Bridgeville which contributed $34.6 million
of deposits. Also contributing to the growth of interest-bearing liabilities
was a $19.1 million, or
13
<PAGE>
11.1%, increase in average borrowed funds to $191.5 million for the quarter
ended September 30, 1997 from $172.4 million for the quarter ended September 30,
1996. The increase in borrowed funds consisted primarily of Federal Home Loan
Bank advances which were used to fund the increases in the Bank's portfolio of
loans and investment securities in order to enhance the Bank's net interest
income. The increase in the average cost of funds resulted primarily from
increases in the rates offered on certificates of deposit as well as continued
competitive pressure for deposit accounts.
As a result of the foregoing changes in interest income and interest expense,
net interest income increased by $1.4 million, or 8.0%, to $18.8 million for the
three months ended September 30, 1997 compared to $17.4 million for the three
months ended September 30, 1996.
Provision for Loan Losses
- -------------------------
The provision for possible loan losses increased to $660,000 for the three
months ended September 30, 1997 from $217,000 for the three months ended
September 30,1996. The Bank has increased its provision for possible loan
losses as a result of the significant growth in its loan portfolio over the past
twelve months.
Noninterest Income
- ------------------
Noninterest income decreased slightly by $43,000, or 2.7%, to $1.5 million for
the three months ended September 30, 1997 from $1.6 million for the three months
ended September 30, 1996 as increases in losses on the sale of loans and REO
properties of $126,000 and $264,000, respectively, were partially offset by
increases in the fees on deposit accounts and insurance income of $153,000 and
$165,000, respectively.
Noninterest Expense
- -------------------
Excluding the one-time assessment of $8.6 million in the prior year to
recapitalize the FDIC's SAIF, noninterest expense remained unchanged at $11.3
million for the three months ended September 30, 1997 and 1996. Normal
increases related to inflation and growth were experienced in compensation
expense of $330,000, or 5.2%, occupancy expense of $105,000, or 8.6%, and office
operations expense of $185,000, or 28.6%. Offsetting these increases was a
decrease in federal deposit insurance expense of $550,000, or 68.4%, due to a
decrease in premiums to .064% of insured deposits from .23% of insured deposits
as a result of the SAIF resolution. In addition, the amortization of
intangibles expense decreased by $230,000, or 45.8%, because of a one-time
charge of $350,000 in the prior year to write-off an intangible related to the
restructuring of the Bank's mortgage banking operations.
14
<PAGE>
Income Taxes
- ------------
The provision for income taxes for the three months ended September 30, 1997
increased by $3.8 million to $3.5 million from a benefit of $364,000 for the
same period last year. This increase primarily resulted from an increase in
income before taxes of $9.5 million, to $8.3 million in the current year from a
loss of $1.2 million last year due primarily to the one-time SAIF assessment of
$8.6 million accrued for in the first quarter of the prior year.
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 Bank'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 September 30, 1997 and 1996
Rate/
Rate Volume Volume Total
---- ------ ------ -----
Interest earning assets:
Loans receivable $(180) 3,602 (21) 3,401
Mortgage-backed securities 2 1 - 3
Investment securities 61 420 16 497
Other interest bearing deposits (17) 15 (2) (5)
----- ----- --- -----
Total interest earning assets (134) 4,037 (8) 3,896
Interest bearing liabilities:
Passbook and statement savings 42 52 1 95
Now accounts (4) 150 (1) 146
Money market demand accounts 3 18 - 21
Certificate accounts 251 1,889 36 2,175
Borrowed funds (149) 251 (16) 86
----- ----- --- -----
Total interest bearing liabilities 144 2,360 20 2,523
Net change in interest income $(277) 1,678 (27) 1,373
===== ===== === =====
15
<PAGE>
Average Balance Sheet
(Dollars in Thousands)
The following table sets forth certain information relating to the Bank'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 September 30,
1997 1996
------------------------------- -------------------------------
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) $1,556,659 33,905 8.71% 1,392,255 30,504 8.76%
Mortgage-backed securities (c) (e) 289,534 4,788 6.61 289,500 4,785 6.61
Investment securities (b) (c) (d) (e) 131,152 2,136 6.51 104,394 1,639 6.28
Other interest-bearing deposits 30,662 107 1.40 27,124 112 1.65
---------- ------- ---------- ----------
Total interest earning assets 2,008,007 40,936 8.15 1,813,273 37,040 8.17
Noninterest earning assets 83,670 76,249
---------- ----------
Total assets $2,091,677 1,889,522
========== ==========
Liabilities and Shareholders' Equity:
- ------------------------------------------
Interest bearing liabilities:
Passbook and Statement Savings $ 285,089 2,483 3.48 279,022 2,388 3.42
Now accounts 228,679 1,114 1.95 197,932 968 1.96
Money market demand accounts 83,103 703 3.38 81,000 682 3.37
Certificate accounts 1,073,076 15,504 5.78 939,890 13,329 5.67
Borrowed funds (f) 191,474 2,360 4.93 172,440 2,274 5.27
---------- ------- ---------- ----------
Total interest bearing liabilities 1,861,421 22,164 4.76 1,670,284 19,641 4.70
Noninterest bearing liabilities 30,463 29,298
---------- ----------
Total liabilities 1,891,884 1,699,582
Retained earnings 199,793 189,940
---------- ----------
Total liabilities and equity $2,091,677 1,889,522
========== ==========
Net interest income/Interest rate spread $18,772 3.39% $ 17,399 3.47%
======= ==========
Net interest earning assets $ 146,586 $ 142,989
========== ==========
Net interest margin 3.74% 3.84%
Ratio of interest earning assets to
interest bearing liabilities 1.08 X 1.09 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.
16
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
- -------------------------
Northwest Savings Bank and Northwest Bancorp, 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 Northwest's initial public offering in November 1994. It alleges that
Northwest 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 Bank previously obtained the dismissal of a lawsuit
brought by the same counsel in federal court making similar allegations under
federal law. Management intends to defend this lawsuit vigorously.
There are various other claims and lawsuits which involve the Bank as either
plaintiff or defendant that are incidental to the Bank's business. In the
opinion of management, none of these actions, either individually or in the
aggregate, are expected to have a material adverse effect on the results of the
Bank's operations.
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
- -----------------------------------------------------------
None
Item 5. Other Information
- -------------------------
Holding Company Reorganization
- ------------------------------
The Board of Directors of Northwest Savings Bank has approved a plan to
reorganize the Bank into a two-tier holding company structure. The plan calls
for the formation of a new, state chartered stock holding company which will
become the parent of Northwest Savings Bank and in turn own 100% of the Bank's
common stock. The current shareholders of Northwest Savings Bank will in turn
exchange their existing Bank shares for an equivalent number of shares of the
holding company. This two-tier holding company structure will give Northwest
greater flexibility by maintaining the benefits of the mutual holding company
while capitalizing on the additional
17
<PAGE>
opportunities available to stock holding companies. All regulatory approvals for
this transaction have been received.
Stock Split
- -----------
On October 15, 1997 the Bank announced a 2 for 1 stock split in the form of a
100% stock dividend. The terms of the stock dividend call for each shareholder
of record as of November 1, 1997 to receive one additional share of Northwest
stock for each share held on that date. Such shares will be distributed on
November 14, 1997. The Bank's Board of Directors declared the split in an
effort to increase the liquidity and trading activity of the stock. In
addition, the stock will become more available and affordable to a broader base
of investors, many of whom are customers of the Bank.
Business Combinations
- ---------------------
On October 14 1997 the Bank purchased the deposit accounts of a First Western
Bank branch office located in Oil City, Pennsylvania. The branch office had
deposits of approximately $11.6 million and was accounted for using the purchase
method of accounting.
In June 1997, the Bank 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
year. This acquisition will be recorded using the purchase method of
accounting.
In September 1997, the Bank entered into a definitive agreement with National
City Bank of Pennsylvania to acquire nine offices, and the related deposit
accounts, located in Northwest Pennsylvania. The offices have deposits totaling
approximately $157.0 million and the acquisition will be recorded using the
purchase method of accounting.
18
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
- ----------------------------------------
(a) Exhibit No. 11 Statement re: computation of per share earnings
Three Months Three Months
Ended Ended
Sept. 30, 1997 Sept. 30, 1996
-------------- --------------
Net income $ 4,837,188 $ (832,056)
Weighted average common shares
outstanding 23,135,842 23,037,104
Common stock equivalents due to effect
of stock options 279,845 (14,871)
----------- -----------
Total weighted average common shares and
equivalents outstanding 23,415,687 23,022,233
Primary earnings per share $ 0.21 $ (0.04)
=========== ===========
Total weighted average common shares and
equivalents outstanding 23,415,687 23,022,233
Additional dilutive shares using end of
period market value versus average market
value for the computation of stock options
under the treasury stock method 67,640 (12,580)
----------- -----------
Total weighted average common shares and
equivalents for fully diluted computation 23,483,327 23,009,653
Fully diluted earnings per share $ 0.21 $ (0.04)
=========== ===========
(b) No Form 8-K reports were filed during the quarter
19
<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 SAVINGS BANK
Date: Nov. 13, 1997 By: /s/ John O. Hanna
------------------
John O. Hanna
President and Chief Executive Officer
Date: Nov. 13, 1997 By: /s/ William J. Wagner
----------------------
William J. Wagner
Chief Operating Officer
Chief Financial Officer
20
<PAGE>
Exhibit 99.2
FEDERAL DEPOSIT INSURANCE CORPORATION
WASHINGTON, D.C. 20429
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED DECEMBER 31, 1997
FDIC Certificate No. 28 178-6
Northwest Savings Bank
-----------------------------------------------
(Exact name of registrant as specified in its charter)
Pennsylvania
--------------------------------
(State or other jurisdiction of incorporation or organization)
23-2790930
------------------------------
(I.R.S. Employer Identification No.)
Second at Liberty Avenue
Warren, Pennsylvania 16365
- ------------------------- -----
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (814) 726-2140
Not applicable
-----------------------------------------------
(Former name, former address and former fiscal year,
if change 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: There were 46,797,680
shares of the Bank's common stock outstanding as of December 31, 1997.
<PAGE>
NORTHWEST SAVINGS BANK 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
PART II OTHER INFORMATION 21 - 24
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
NORTHWEST SAVINGS BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
ASSETS 1997 1997
- -------------------------------------------------------------------- ----------- -----------
<S> <C> <C>
CASH AND CASH EQUIVALENTS $ 21,470 13,747
INTEREST-EARNING DEPOSITS IN OTHER FINANCIAL
INSTITUTIONS 46,788 57,765
MARKETABLE SECURITIES AVAILABLE FOR SALE 296,535 259,720
MARKETABLE SECURITIES HELD-TO-MATURITY (MARKET
VALUE OF $169,665 AND $152,744) 169,128 153,980
----------- -----------
TOTAL CASH, INTEREST-EARNING DEPOSITS AND
MARKETABLE SECURITIES 533,921 485,212
LOANS RECEIVABLE, NET OF ALLOWANCE FOR ESTIMATED
LOSSES OF $14,048 AND $13,611 1,634,587 1,536,498
ACCRUED INTEREST RECEIVABLE 11,488 11,027
REAL ESTATE OWNED 4,329 4,549
FEDERAL HOME LOAN BANK STOCK, AT COST 12,144 12,144
PREMISES AND EQUIPMENT, NET 22,888 21,481
GOODWILL AND OTHER INTANGIBLES 23,421 11,586
OTHER ASSETS 6,038 8,866
----------- -----------
TOTAL ASSETS $ 2,248,816 2,091,363
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------
LIABILITIES:
DEPOSITS $ 1,905,311 1,640,815
BORROWED FUNDS 113,757 223,458
ADVANCES BY BORROWERS FOR TAXES AND INSURANCE 11,616 12,985
ACCRUED INTEREST PAYABLE 3,661 4,312
OTHER LIABILITIES 6,509 11,299
----------- -----------
TOTAL LIABILITIES 2,040,854 1,892,869
SHAREHOLDERS' EQUITY:
COMMON STOCK, $.10 PAR VALUE: 100,000,000 SHARES
AUTHORIZED, 46,797,680 AND 46,752,000 ISSUED
AND OUTSTANDING, RESPECTIVELY 4,680 2,338
PAID-IN CAPITAL 65,679 67,854
RETAINED EARNINGS 137,460 131,423
NET UNREALIZED GAIN/(LOSS) ON SECURITIES AVAILABLE-
FOR-SALE, NET OF INCOME TAXES 3,919 1,026
UNEARNED EMPLOYEE STOCK OWNERSHIP PLAN SHARES (2,358) (2,358)
UNEARNED RECOGNITION AND RETENTION PLAN SHARES (1,418) (1,789)
----------- -----------
207,962 198,494
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,248,816 2,091,363
=========== ===========
</TABLE>
See accompanying notes to unaudited consolidated financial statements
1
<PAGE>
NORTHWEST SAVINGS BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED DECEMBER 31, ENDED DECEMBER 31,
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
INTEREST INCOME:
LOANS RECEIVABLE $ 34,720 30,846 68,625 61,350
MORTGAGE-BACKED SECURITIES 4,742 4,772 9,530 9,557
INVESTMENT SECURITIES 2,234 1,627 4,370 3,266
INTEREST EARNING DEPOSITS 207 155 314 267
----------- ----------- ----------- -----------
TOTAL INTEREST INCOME 41,903 37,400 82,839 74,440
INTEREST EXPENSE:
SAVINGS DEPOSITS 20,695 18,042 40,499 35,409
BORROWED FUNDS 2,423 2,045 4,783 4,319
----------- ----------- ----------- -----------
TOTAL INTEREST EXPENSE 23,118 20,087 45,282 39,728
NET INTEREST INCOME 18,785 17,313 37,557 34,712
PROVISION FOR POSSIBLE LOAN LOSSES 611 394 1,271 611
----------- ----------- ----------- -----------
NET INTEREST INCOME AFTER PROVISION
FOR POSSIBLE LOAN LOSSES 18,174 16,919 36,286 34,101
NONINTEREST INCOME:
LOAN SERVICE CHARGES 277 224 546 501
SERVICE FEES ON DEPOSIT ACCOUNTS 540 364 1,032 703
GAIN ON SALE OF MARKETABLE SECURITIES (NET) 0 901 0 901
LOSS ON SALE OF LOANS (NET) (115) (228) (295) (282)
GAIN/(LOSS) ON SALE OF REAL ESTATE OWNED 18 123 (48) 321
DIVIDENDS ON FHLB STOCK 212 170 422 343
OTHER OPERATING INCOME 647 639 1,450 1,277
----------- ----------- ----------- -----------
TOTAL NONINTEREST INCOME 1,579 2,193 3,107 3,764
NONINTEREST EXPENSES:
COMPENSATION AND EMPLOYEE BENEFITS 6,688 6,438 13,359 12,779
PREMISES AND OCCUPANCY COSTS 1,258 1,255 2,582 2,474
OFFICE OPERATIONS EXPENSE 984 756 1,816 1,403
SAIF RECAPITALIZATION ASSESSMENT 0 0 0 8,565
FEDERAL INSURANCE PREMIUMS 263 0 517 804
DATA PROCESSING 402 253 703 513
CHECK PROCESSING AND ATM EXPENSE 516 384 852 775
BANK SERVICE CHARGES 247 239 488 466
MARKETING 304 450 644 716
LEGAL, AUDIT AND PROFESSIONAL EXPENSE 228 215 488 462
REAL ESTATE OWNED EXPENSE 181 284 365 425
AMORTIZATION EXPENSE 373 292 645 794
OTHER EXPENSES 488 292 817 631
----------- ----------- ----------- -----------
TOTAL NONINTEREST EXPENSE 11,932 10,858 23,276 30,807
INCOME BEFORE INCOME TAXES 7,821 8,254 16,117 7,058
STATE AND FEDERAL INCOME TAXES 2,880 3,390 6,339 3,026
----------- ----------- ----------- -----------
NET INCOME $ 4,941 4,864 9,778 4,032
=========== =========== =========== ===========
BASIC EARNINGS PER SHARE $ 0.11 0.11 0.21 0.09
=========== =========== =========== ===========
DILUTED EARNINGS PER SHARE $ 0.11 0.11 0.21 0.09
=========== =========== =========== ===========
</TABLE>
EARNINGS PER SHARE ADJUSTED FOR STOCK SPLIT EFFECTIVE NOVEMBER 14, 1997
See accompanying notes to unaudited consolidated financial statements.
2
<PAGE>
NORTHWEST SAVINGS BANK AND SUBSIDIARIES
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 23,376,000 $ 2,338 67,671 125,239 1,325 (3,328) (2,594) 190,651
Net income -- -- -- 4,032 -- -- -- 4,032
Exercise of stock options -- -- -- -- -- -- -- 0
RRP shares released -- -- -- -- -- -- 673 673
Dividends declared -- -- -- (3,740) -- -- -- (3,740)
Change in unrealized gain on
securities, net of tax -- -- -- -- (535) -- -- (535)
---------- ---------- ---------- ---------- ---------- ----------- ----------- ------------
Ending balance at 12/31/96 23,376,000 $ 2,338 67,671 125,531 790 (3,328) (1,921) 191,081
========== ========== ========== ========== ========== =========== =========== ============
<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 23,376,000 $ 2,338 67,854 131,423 1,026 (2,358) (1,789) 198,494
Net income -- -- -- 9,778 -- -- -- 9,778
Effect of stock split 23,376,000 2,338 (2,338) -- -- -- -- 0
Exercise of stock options 45,680 6 161 -- -- -- -- 167
RRP shares released -- -- -- -- -- -- 371 371
Dividends declared -- -- -- (3,741) -- -- -- (3,741)
Change in unrealized gain on
securities, net of tax -- -- -- -- 2,893 -- -- 2,893
---------- ---------- ---------- ---------- ---------- ----------- ----------- ------------
Ending balance at 12/31/97 46,797,680 $ 4,682 65,677 137,460 3,919 (2,358) (1,418) 207,962
========== ========== ========== ========== ========== =========== =========== ============
</TABLE>
<PAGE>
NORTHWEST SAVINGS BANK AND SUBSIDIARIES
Consolidated Statement of Cash Flows
For the Three and Six Months Ended December 31, 1997 and 1996
(Dollars in thousands)
<TABLE>
<CAPTION>
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
12/31/97 12/31/96 12/31/97 12/31/96
------------ ------------ ---------- ----------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net Income (Loss) $ 4,941 4,864 9,778 4,032
Adjustments to reconcile net income to net cash
provided by operations
Provision for possible loan losses 611 394 1,271 611
Net loss (gain) on sales of assets 97 (796) 343 (940)
Depreciation and amortization expense 939 418 1,735 878
Amortization of deferred loan fees (120) (182) (213) (431)
Decrease (increase) in other assets 521 3,542 1,563 1,466
Increase (decrease) in other liabilities (9,926) (13,888) (7,346) (594)
Amortization of premiums (discounts)
on marketable securities (78) (106) (175) (218)
Noncash compensation expense related to
stock benefit plans 789 564 1,440 673
Other 111 (367) 111 (422)
------------ ------------ ---------- ----------
Net cash provided by operating activities (2,115) (5,557) 8,507 5,055
INVESTING ACTIVITIES
Purchase of marketable securities held-to-maturity (22,953) - (28,368) -
Purchase of marketable securities available-for-sale (27,481) (500) (46,103) (2,146)
Proceeds from maturities and principal reductions
of marketable securities held-to-maturity 10,175 4,444 13,333 8,766
Proceeds from maturities and principal reductions
of marketable securities available-for-sale 3,560 2,583 14,015 4,985
Proceeds from sales of marketable securities - 15,455 - 15,455
Loan originations (159,251) (142,694) (311,390) (286,914)
Purchases of Loans - - - -
Proceeds from loan maturities and principal
reductions 97,482 97,632 194,978 187,487
Proceeds from loan sales 5,873 12,778 15,733 31,338
Purchase of Federal Home Loan Bank Stock - - - -
Proceeds from sale of real estate owned 1,253 396 1,646 1,547
Purchase of real estate for investment (187) (28) (448) (301)
Purchase of premises and equipment (823) (849) (1,762) (1,592)
Payment for acquisitions, net of cash acquired 152,671 - 152,671 -
------------ ------------ ---------- ----------
Net cash used by investing activities 60,319 (10,783) 4,305 (41,375)
</TABLE>
(Continued)
4
<PAGE>
NORTHWEST SAVINGS BANK AND SUBSIDIARIES
Consolidated Statement of Cash Flows
(Dollars in thousands)
<TABLE>
<CAPTION>
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
12/31/97 12/31/96 12/31/97 12/31/96
------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
FINANCING ACTIVITIES
Increase in deposits, net $ 50,436 10,986 98,583 93,870
Proceeds from long-term borrowings 40,577 51,100 52,346 66,100
Repayments of long-term borrowings (17,289) (36,151) (33,578) (45,883)
Net increase (decrease) in short-term borrowings (93,404) (10,026) (128,469) (78,497)
Increase (decrease) in advances by borrowers for
taxes and insurance 4,985 4,511 (1,369) (1,373)
Proceeds from options exercised 161 - 161 -
Cash dividends paid (1,870) (1,870) (3,740) (3,740)
------------- ------------- ------------ ------------
Net cash provided by financing activities (16,404) 18,550 (16,066) 30,477
Net increase (decrease) in cash and cash equivalents $ 41,800 2,210 (3,254) (5,843)
============= ============= ============ ============
Cash and cash equivalents at beginning of period $ 26,458 36,251 71,512 44,304
Net increase (decrease) in cash and cash equivalents 41,800 2,210 (3,254) (5,843)
------------- ------------- ------------ ------------
Cash and cash equivalents at end of period $ 68,258 38,461 68,258 38,461
============= ============= ============ ============
Supplemental cash flow disclosure:
Cash paid during the year for:
Interest on deposits and borrowings (including interest
credited to deposit accounts of $17,742, $13,617,
$30,875 and $25,532, respectively) $ 25,778 21,271 45,932 40,009
============= ============= ============ ============
Income taxes $ 5,120 410 6,338 1,135
============= ============= ============ ============
Non-cash investing and financing activities:
Loan foreclosures and repossessions $ 1,065 365 1,586 851
============= ============= ============ ============
Sale of real estate owned financed by the Bank $ 25 17 27 53
============= ============= ============ ============
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 $ 14,084 - 14,084 -
Cash received 152,671 - 152,671 -
------------- ------------- ------------ ------------
Liabilities assumed $ 166,755 - 166,755 -
============= ============= ============ ============
</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 six months ended December 31, 1997 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 Savings Bank and its wholly owned subsidiaries, Northwest
Financial Services, Inc., Northwest Consumer Discount Company, Northwest
Mortgage Corporation, Northwest Capital Group, Inc., Rid Fed, Inc., Northwest
Finance Company and Great Northwest Corporation. 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 Bank 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 consolidated 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 borrowings.
Under SFAS 125, an entity recognizes all financial and servicing assets it
controls
6
<PAGE>
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 Bank.
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 Bank'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 circumstances
from nonowner sources. It includes all changes in equity during a period except
7
<PAGE>
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 Bank.
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 Bank.
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 December 31,
- ----------------------------------------------------------------------------
1997
- ----
Assets
- ------
At December 31, 1997, the Bank had total assets of $2.249 billion, an increase
of approximately $157.5 million, or 7.5%, from $2.091 billion at June 30, 1997.
This increase was funded primarily from a $264.5 million increase in deposits
and a $9.5 million increase in equity which was partially offset by a $109.7
million decrease in borrowed funds.
Cash and cash equivalents, interest-earning deposits and marketable securities
totaled $533.9 million at December 31, 1997, an increase of $48.7 million, or
10.0%, 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. Net loans receivable increased by $98.1 million, or 6.4%, to
$1.635 billion at December 31, 1997 from $1.536 billion at June 30, 1997 as loan
demand remained strong in all of the Bank's market areas. Goodwill and other
intangibles increased by $11.8 million, or 101.7%, to $23.4 million at December
31, 1997 from $11.6 million at June 30, 1997 as a result of the premium paid for
the aforementioned branch acquisitions.
Liabilities
- -----------
Deposits increased by $264.5 million, or 16.1%, to $1.905 billion at December
31, 1997 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, normal deposit growth in existing offices as well as
the successful integration and growth of new offices accounted for the remaining
increase of $98.4 million. Borrowed funds decreased by $109.7 million, or 49.1%,
to $113.8 million at December 31, 1997 from $223.5 million at June 30, 1997 as
the Bank's deposit growth was used to replace overnight borrowings from the
FHLB.
Capital Resources and Liquidity
- -------------------------------
Total capital at December 31, 1997 was $208.0 million, an increase of $9.5
million, or 4.8%, from $198.5 million at June 30, 1997. This increase was
primarily attributable to net income for the six month period of $9.8 million
which was partially offset by the payment of dividends in the
9
<PAGE>
amount of $3.7 million. Also contributing to this increase in capital was an
increase in the net unrealized gain on securities available-for-sale in the
amount of $2.9 million.
The Bank is 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
Bank's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve quantitative measures of the Bank's assets,
liabilities and certain off-balance sheet items as calculated under regulatory
accounting practices. The Bank'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 Bank 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 December 31, 1997, all regulatory capital requirements were exceeded. The
actual, required, and well capitalized levels as of December 31, 1997 and June
30, 1997 are as follows: (in thousands)
<TABLE>
<CAPTION>
December 31, 1997
To be well
Actual Required Capitalized
--------------- --------------- ---------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
GAAP Capital 207,962 9.25% - - - -
Total Capital (to Risk
weighted assets) 194,998 16.77% 93,044 8.00% 116,305 10.00%
Tier 1 Capital (to Risk
weighted assets) 180,951 15.56% 46,522 4.00% 69,783 6.00%
Tier 1 Capital (core)
(To average assets) 180,951 8.32% 65,283 3.00% 108,806 5.00%
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
June 30, 1997
To be well
Actual Required Capitalized
--------------- --------------- ---------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
GAAP Capital 198,494 9.49% - - - -
Total Capital (to Risk
weighted assets) 199,795 18.36% 87,071 8.00% 108,839 10.00%
Tier 1 Capital (to Risk
weighted assets) 186,190 17.11% 43,536 4.00% 65,303 6.00%
Tier 1 Capital (core)
(To average assets) 186,190 9.11% 61,319 3.00% 102,199 5.00%
</TABLE>
At December 31, 1997 the Bank was required by FDIC regulations to maintain
minimum levels of liquid assets. The Bank's internal liquidity requirement is
based upon a percentage of deposits and borrowings ("liquidity ratio"). The
Bank historically has maintained a level of liquid assets in excess of
regulatory and internal requirements, and the Bank's liquidity ratio at December
31, 1997 was 25.82%. The Bank 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 Bank'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 Bank 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 $1.3 million, or 8.7%, to
$16.3 million at December 31, 1997 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 Bank's asset quality.
11
<PAGE>
December 31, 1997 June 30, 1997
------------------ -------------
Loans accounted for on a nonaccrual basis:
One-to four family residential loans 6,801 6,229
Multifamily and commercial loans 2,429 2,585
Consumer loans 2,228 1,161
Commercial business loans 494 455
------ ------
Total 11,952 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: 4,329 4,549
------ ------
Total nonperforming assets 16,281 14,979
====== ======
Total nonperforming assets as a
percentage of total assets: .72% .72%
====== ======
Comparison of Operating Results for the Three Months and Six Months Ended
- -------------------------------------------------------------------------
December 31, 1997 and 1996
- --------------------------
General
- -------
Northwest Savings Bank's net income for the three months ended December 31, 1997
was $4.9 million which was unchanged from the same period last year. However,
excluding a one time gain of approximately $600,000, net of income tax, from the
sale of investment securities in the prior year, earnings for the quarter
actually increased by approximately $670,000, or 15.9%. This increase in net
income resulted primarily from a $1.5 million increase in net interest income
which was partially offset by a $1.0 million increase in noninterest expense.
Net Interest Income
- -------------------
For the three months ended December 31, 1997, total interest income increased by
$4.5 million, or 12.0%, to $41.9 million compared to $37.4 million for the three
months ended December 31, 1996. This increase primarily resulted from a $246.7
million, or 13.5%, increase in average interest earning assets to $2.073 billion
for the three months ended December 31, 1997 from $1.826 billion for the three
months ended December 31, 1996. The yield on average interest earning assets
decreased to 8.08% for the three months ended December 31, 1997 from 8.19% for
the same period last year. In addition to substantial growth both internally
and through the
12
<PAGE>
successful integration of new offices, the increase in average interest earning
assets was assisted by the acquisition of Bridgeville Savings Bank on February
21, 1997 with assets of approximately $56.0 million. The decrease in the overall
yield on interest earning assets is reflective of the lower market interest
rates experienced by the Bank's investment portfolio, a large percentage of
which have variable rates of interest.
Interest income on loans receivable increased by $3.9 million, or 12.7%, to
$34.7 million for the quarter ended December 31, 1997 compared to $30.8 million
during the same quarter last year. This increase resulted primarily from a
$177.8 million, or 12.4%, increase in average loans outstanding to $1.606
billion for the quarter ended December 31, 1997 from $1.428 billion for the
second quarter last year. Loan balances increased because of strong loan demand
throughout the Bank's market area as well as the Bridgeville acquisition which
contributed net loans of approximately $20.3 million. The yield on average
loans increased slightly to 8.65% for the quarter ended December 31, 1997 from
8.64% for the comparable period last year.
Interest income on mortgage-backed securities remained constant at approximately
$4.7 million for the three months ended December 31, 1997 and 1996. The
increase in the average balance of mortgage-backed securities of $13.2 million,
or 4.7%, to $292.2 million for the three months ended December 31, 1997 from
$279.0 million for the three months ended December 31, 1996 was offset by a
decrease in the average yield to 6.49% for the quarter ended December 31, 1997
from 6.84% for the same quarter last year. The average balance increased
primarily because of the purchase of approximately $27.0 million of mortgage-
backed securities in December 1997, utilizing some of the funds received from
the National City acquisitions. 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 $607,000, or 37.3%, to
$2.2 million for the three months ended December 31, 1997 from $1.6 million for
the three months ended December 31, 1996. The increase resulted primarily from
a $43.6 million, or 43.2%, increase in the average balance of investment
securities to $144.6 million for the three months ended December 31, 1997 from
$101.0 million for the three months ended December 31, 1996. The increase in
average balance was primarily due to the investment of the proceeds received
from the assumption of deposits from First Western Bank and National City Bank.
Partially offsetting this increase was a decrease in the average yield to 6.18%
for the quarter ended December 31, 1997 from 6.44% for the same quarter last
year. This lower yield was a result of purchasing investment securities during
a period of relatively low market interest rates as well as a greater emphasis
on investing in municipal securities which, because of their tax exempt status,
have lower nominal interest rates.
Interest income on interest-earning deposits increased by $52,000, or 33.5%, to
$207,000 for the three months ended December 31, 1997 from $155,000 for the
three months ended December 31, 1996. This increase resulted primarily from an
increase in the average balance of $12.2 million, or 67.4%, to $30.3 million
for the three months ended December 31, 1997 from $18.1 million
13
<PAGE>
for the three months ended December 31, 1996. This increase resulted primarily
from the proceeds of the National City acquisition. Partially offsetting this
increase was a decrease in the average yield to 2.73% for the quarter ended
December 31, 1997 from 3.42% for the same period last year. This decrease in
average yield reflected the lower market interest rates in general.
Interest expense increased by $3.0 million, or 15.1%, to $23.1 million for the
three months ended December 31, 1997 from $20.1 million for the three months
ended December 31, 1996. This increase resulted primarily from an increase of
$241.3 million, or 14.3%, in the average balance of interest-bearing liabilities
to $1.930 billion for the quarter ended December 31, 1997 from $1.688 billion
for the quarter ended December 31, 1996. In addition, the average cost of funds
increased slightly to 4.79% for the quarter ended December 31, 1997 from 4.76%
for the comparable period last year. The increase in average interest-bearing
liabilities resulted primarily from a $221.4 million increase in the average
balance of deposits attributed primarily to the First Western and National City
branch acquisitions which contributed deposits of $11.8 million and $154.3
million, respectively. In addition, strong internal growth accounted for the
remaining increase in deposit base. Also contributing to the growth of
interest-bearing liabilities was a $19.9 million, or 13.2%, increase in average
borrowed funds to $170.8 million for the quarter ended December 31, 1997 from
$150.9 million for the quarter ended December 31, 1996. The increase in
borrowed funds consisted primarily of Federal Home Loan Bank advances which were
used to fund the increases in the Bank's portfolio of loans and investment
securities in order to enhance the Bank's net interest income. The increase in
the average cost of funds resulted primarily from increases in the rates offered
on certificates of deposit, due to continued competitive pressure for deposit
accounts.
As a result of the foregoing changes in interest income and interest expense,
net interest income increased by $1.5 million, or 8.7%, to $18.8 million for the
three months ended December 31, 1997 compared to $17.3 million for the three
months ended December 31, 1996.
For the six months ended December 31, 1997, total interest income increased by
$8.4 million, or 11.3%, to $82.8 million compared to $74.4 million for the six
months ended December 31, 1996. This increase primarily resulted from a $223.8
million, or 12.3%, increase in average interest earning assets to $2.044 billion
for the six months ended December 31, 1997 from $1.820 billion for the six
months ended December 31, 1996. The yield on average interest earning assets
decreased to 8.11% for the six months ended December 31, 1997 from 8.18% for the
same period last year. The increase in average interest earning assets was
primarily the result of favorable internal growth along with the investment of
funds received from the First Western and National City branch acquisitions.
The yield on average interest earning assets declined as the Bank added interest
earning assets during a period of generally lower interest rates.
Interest income on loans receivable increased by $7.2 million, or 11.7%, to
$68.6 million for the six months ended December 31, 1997 from $61.4 million for
the six months ended December 31, 1996. This increase resulted primarily from a
$171.4 million, or 12.2%, increase in average loans outstanding to $1.582
billion for the six months ended December 31, 1997 from $1.410 billion
14
<PAGE>
for the same period last year. Partially offsetting the increase in average
loans outstanding was a slight decline in the average yield to 8.68% for the six
months ended December 31, 1997 from 8.70% for the six months ended December 31,
1996. Interest income on mortgage-backed securities remained constant at
approximately $9.5 million for the six months ended December 31, 1997 and 1996.
The average balance of mortgage-backed securities increased by $7.6 million, or
2.7%, to $291.3 million for the six months ended December 31, 1997 from $283.7
million for the six months ended December 31, 1996 but such increase was offset
by a decrease in the average yield to 6.54% for the six months ended December
31, 1997 from 6.74% for the same period last year. Interest income on investment
securities increased by $1.1 million, or 33.3%, to $4.4 million for the six
months ended December 31, 1997 from $3.3 million for the six months ended
December 31, 1996. This increase resulted primarily from a $35.1 million, or
34.2%, increase in the average balance of investment securities to $137.8
million for the six months ended December 31, 1997 from $102.7 million for the
six months ended December 31, 1996. Partially offsetting the increase in the
average balance of investment securities was a slight decline in the average
yield to 6.34% for the six months ended December 31, 1997 from 6.36% for the
same period last year. Interest income on interest-earning deposits increased by
$47,000, or 17.6%, to $314,000 for the six months ended December 31, 1997 from
$267,000 for the six months ended December 31, 1996. This increase resulted
primarily from a $9.7 million, or 41.8%, increase in the average balance of
interest-earning deposits to $32.9 million for the six months ended December 31,
1997 from $23.2 million for the six months ended December 31, 1996. Partially
offsetting the increase in the average balance of interest-earning deposits was
a decline in the average yield to 1.91% for the six months ended December 31,
1997 from 2.30% for the same period last year.
For the six months ended December 31, 1997 interest expense increased by $5.6
million, or 14.1%, to $45.3 million compared to $39.7 million for the six months
ended December 31, 1996. This increase resulted primarily from a $219.8 million,
or 13.1%, increase in the average balance of interest-bearing liabilities to
$1.899 billion for the six months ended December 31, 1997 from $1.679 billion
for the six months ended December 31, 1996. The average cost of funds also
increased to 4.77% for the six months ended December 31, 1997 compared to 4.73%
for the six months ended December 31, 1996. The increase in average interest-
bearing liabilities resulted primarily from a $202.6 million increase in the
average balance of deposits attributed primarily to the First Western and
National City branch acquisitions. In addition, strong internal deposit growth
accounted for the remaining increase in deposit base. Also contributing to the
growth of interest-bearing liabilities was a $17.2 million, or 10.5%, increase
in average borrowed funds to $180.7 million for the six months ended December
31, 1997 from $163.5 million for the six months ended December 31, 1996. The
increase in borrowed funds consisted primarily of Federal Home Loan Bank
advances which were used to fund the increases in the Bank's portfolio of loans
and investment securities in order to enhance the Bank's net interest income.
The increase in the average cost of funds resulted primarily from increases in
the rates offered on certificates of deposit in response to continued
competitive pressure for deposit accounts.
15
<PAGE>
Provision for Loan Losses
- -------------------------
The provision for possible loan losses increased by $217,000, or 55.1%, to
$611,000 for the three months ended December 31, 1997 from $394,000 for the
three months ended December 31,1996. The Bank 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 $1.3 million for the six
months ended December 31, 1997 from $611,000 for the six months ended December
31, 1996. This increase also resulted from the significant growth in the Bank's
loan portfolio.
Noninterest Income
- ------------------
Noninterest income decreased by $614,000, or 28.0%, to $1.6 million for the
three months ended December 31, 1997 from $2.2 million for the three months
ended December 31, 1996. This decrease was primarily due to a gain in the prior
year of $901,000 from the sale of mortgage-backed securities. Excluding this
gain, noninterest income increased by $287,000, or 22.2%, to $1.6 million for
the three months ended December 31, 1997 from $1.3 million for the same period
last year. All other components of the Bank's noninterest income exhibited
normal increases from the prior year except for the gain on sale of REO which
decreased by $105,000, or 85.4%, as a result of a reduction in the sale of real
estate owned properties.
For the six months ended December 31, 1997 noninterest income decreased by
$657,000, or 17.5%, to $3.1 million compared to $3.8 million for the six months
ended December 31, 1996. Excluding the aforementioned gain in the prior year of
$901,000 from the sale of mortgage-backed securities, noninterest income
increased by $244,000, or 8.5%, for the six months ended December 31, 1997
compared to the same period last year. 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.
Noninterest Expense
- -------------------
Noninterest expense increased by $1.0 million, or 9.2%, to $11.9 million for the
three months ended December 31, 1997 from $10.9 million for the three months
ended December 31, 1996. Normal increases in compensation and benefits of
$250,000, or 3.9%, as well as expected increases in office operations of
$228,000, or 30.2%, and processing expenses of $281,000, or 44.1%, related to
branch network expansion were partially offset by decreases in marketing and REO
expense of $146,000, or 32.4%, and $103,000, or 36.3%, respectively.
Excluding the one-time assessment of $8.6 million in the prior year to
recapitalize the FDIC's SAIF, noninterest expense increased by $1.1 million, or
5.0%, to $23.3 million for the six months ended December 31, 1997 from $22.2
million for the six months ended December 31, 1996.
16
<PAGE>
Normal increases related to inflation and growth of $580,000, or 4.5%, were
experienced in compensation expense and occupancy expense increased by $108,000,
or 4.4%, office operations expense increased by $413,000, or 29.4%. Offsetting
these increases was a decrease in federal deposit insurance expense of $287,000,
or 35.7%, due to a decrease in premiums to .064% of insured deposits from .23%
of insured deposits as a result of the SAIF resolution. In addition, the
amortization of intangibles expense decreased by $149,000, or 18.8%, because of
a one-time charge of $350,000 in the prior year to write-off an intangible
related to the restructuring of the Bank's mortgage banking operations.
Management has initiated a Bank-wide program to evaluate the Company's computer
systems and applications to determine if they will continue to operate properly
in the year 2000. The Bank is utilizing both internal and external resources to
identify, implement and test for year 2000 compliance. The Bank has purchased
new core application hardware and software that is year 2000 compliant and the
conversion to this new system is scheduled for calendar year 1998. The total
cost of the project is approximately $2.0 million and will be capitalized and
amortized over its useful life. 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.
Income Taxes
- ------------
The provision for income taxes for the three months ended December 31, 1997
decreased by $510,000, or 15.0%, to $2.9 million compared to $3.4 million for
the same period last year. In addition to a decrease in taxable income, the
lower tax expense was due to the Bank's increased emphasis on investing in tax
exempt assets.
The provision for income taxes increased by $3.3 million to $6.3 million for the
six months ended December 31, 1997 from $3.0 million for the same period last
year. This increase primarily resulted from an increase in income before income
taxes of $9.0 million, to $16.1 million in the current year from $7.1 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.
17
<PAGE>
Average Balance Sheet
(Dollars in Thousands)
The following table sets forth certain information relating to the Bank'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 December 31,
1997 1996
------------------------------ ------------------------------
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) $1,606,125 34,720 8.65% 1,428,349 30,846 8.64%
Mortgage-backed securities (c) (e) 292,189 4,742 6.49 278,956 4,772 6.84
Investment securities (b) (c) (d) (e) 144,584 2,234 6.18 101,009 1,627 6.44
Other interest-earning deposits 30,279 207 2.73 18,141 155 3.42
---------- ------- ---------- ----------
Total interest earning assets 2,073,177 41,903 8.08 1,826,455 37,400 8.19
Noninterest earning assets 89,692 80,297
---------- ----------
Total assets $2,162,869 1,906,752
========== ==========
Liabilities and Shareholders' Equity:
- -------------------------------------
Interest bearing liabilities:
Passbook and Statement Savings $ 291,118 2,434 3.34 262,663 2,295 3.49
Now accounts 245,458 1,170 1.91 200,207 980 1.96
Money market demand accounts 87,213 745 3.42 79,666 674 3.38
Certificate accounts 1,135,100 16,346 5.76 994,938 14,093 5.67
Borrowed funds (f) 170,765 2,423 5.68 150,874 2,045 5.42
---------- ------- ---------- ----------
Total interest bearing liabilities 1,929,654 23,118 4.79 1,688,348 20,087 4.76
Noninterest bearing liabilities 29,014 29,943
---------- ----------
Total liabilities 1,958,668 1,718,291
Retained earnings 204,201 188,461
---------- ----------
Total liabilities and equity $2,162,869 1,906,752
========== ==========
Net interest income/Interest rate spread $18,785 3.29% $ 17,313 3.43%
======= ==========
Net interest earning assets $ 143,523 $ 138,107
========== ==========
Net interest margin 3.62% 3.79%
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 Bank'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>
Six Months Ended December 31,
1997 1996
------------------------------- -------------------------------
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) $1,581,589 68,625 8.68% 1,410,223 61,350 8.70%
Mortgage-backed securities (c) (e) 291,333 9,530 6.54 283,734 9,557 6.74
Investment securities (b) (c) (d) (e) 137,816 4,370 6.34 102,683 3,266 6.36
Other interest-earning deposits 32,853 314 1.91 23,176 267 2.30
---------- ------- ---------- ----------
Total interest earning assets 2,043,591 82,839 8.11 1,819,816 74,440 8.18
Noninterest earning assets 87,471 77,836
---------- ----------
Total assets $2,131,062 1,897,652
========== ==========
Liabilities and Shareholders' Equity:
- ------------------------------------------
Interest bearing liabilities:
Passbook and Statement Savings $ 288,835 4,917 3.40 270,998 4,684 3.46
Now accounts 238,387 2,284 1.92 199,514 1,948 1.95
Money market demand accounts 85,608 1,448 3.38 80,596 1,356 3.36
Certificate accounts 1,105,224 31,850 5.76 964,368 27,421 5.69
Borrowed funds (f) 180,726 4,783 5.29 163,529 4,319 5.28
---------- ------- ---------- ----------
Total interest bearing liabilities 1,898,780 45,282 4.77 1,679,005 39,728 4.73
Noninterest bearing liabilities 30,349 29,156
---------- ----------
Total liabilities 1,929,129 1,708,161
Retained earnings 201,933 189,491
---------- ----------
Total liabilities and equity $2,131,062 1,897,652
========== ==========
Net interest income/Interest rate spread $37,557 3.34% $ 34,712 3.45%
======= ==========
Net interest earning assets $ 144,811 $ 140,811
========== ==========
Net interest margin 3.68% 3.81%
Ratio of interest earning assets to
interest bearing liabilities 1.08 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.
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 Bank'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 December 31, 1997 and 1996
<TABLE>
<CAPTION>
Rate/ Net
Rate Volume Volume Change
------ ------ ------- -------
<S> <C> <C> <C> <C>
Interest earning assets:
Loans receivable $ 31 3,839 4 3,874
Mortgage-backed securities (245) 226 (12) (30)
Investment securities (66) 702 (29) 607
Other interest-earning deposits (31) 104 (21) 52
---- ----- --- -----
Total interest earning assets (311) 4,871 (57) 4,503
Interest bearing liabilities:
Passbook and statement savings (99) 249 (11) 139
Now accounts (26) 222 (6) 190
Money market demand accounts 7 64 1 71
Certificate accounts 235 1,985 33 2,253
Borrowed funds 96 270 13 378
---- ----- --- -----
Total interest bearing liabilities 212 2,789 30 3,031
Net change in interest income $ (523) 2,082 (87) 1,472
==== ===== === =====
</TABLE>
Six months ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
Rate/ Net
Rate Volume Volume Change
------ ------ ------- -------
<S> <C> <C> <C> <C>
Interest earning assets:
Loans receivable $ (161) 7,455 (20) 7,275
Mortgage-backed securities (276) 256 (7) (27)
Investment securities (10) 1,117 (3) 1,104
Other interest-earning deposits (45) 111 (19) 47
---- ----- --- -----
Total interest earning assets (492) 8,940 (49) 8,399
Interest bearing liabilities:
Passbook and statement savings (71) 308 (5) 233
Now accounts (36) 380 (7) 336
Money market demand accounts 7 84 - 92
Certificate accounts 370 4,005 54 4,429
Borrowed funds 9 454 1 464
---- ----- --- -----
Total interest bearing liabilities 279 5,231 44 5,554
Net change in interest income $ (771) 3,708 (93) 2,845
==== ===== === =====
</TABLE>
20
<PAGE>
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 Northwest's initial public offering in November 1994. It
alleges that Northwest 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 Bank previously obtained the dismissal of
a lawsuit brought by the same counsel in federal court making similar
allegations under federal law. Management intends to defend this lawsuit
vigorously.
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
- -----------------------------------------------------------
(a) The Company held its Annual Meeting of Shareholders on December 10, 1997
(b) The name of each director elected at the Annual Meeting is as follows:
John O. Hanna
Richard L. Carr
The name of each director whose term of office continued after the Annual
Shareholders' Meeting is as follows:
William J. Wagner
Robert G. Ferrier
Richard E. McDowell
Joseph T. Stadler
Walter J. Yahn
Thomas K. Creal, III
John J. Doyle
John S. Young
21
<PAGE>
(c) The following matters were voted upon at the Annual Meeting:
(i) The election of two directors of the Company:
For Withheld
---------- --------
John O. Hanna 44,359,370 184,780
Richard L. Carr 44,346,132 198,018
(ii) Plan of Reorganization into a "two-tier" holding company structure:
For Against Withheld
---------- ------- --------
42,443,830 43,614 60,112
(iii) Ratification of the appointment of KPMG Peat Marwick, LLP as the
Company's independent auditors for the fiscal year ending June 30,
1998:
For Against Withheld
---------- ------- --------
44,453,188 41,362 49,600
Item 5. Other Information
- -------------------------
Holding Company Reorganization
- ------------------------------
The Board of Directors of Northwest Savings Bank has approved a plan to
reorganize the Bank into a two-tier holding company structure. The plan calls
for the formation of a new, state chartered stock holding company, Northwest
Bancorp, Inc., which will be 69.2% owned by Northwest Bancorp, MHC. Northwest
Bancorp, Inc. will become the parent of Northwest Savings Bank and own 100% of
the Bank's common stock. The current shareholders of Northwest Savings Bank
will in turn exchange their existing Bank shares for an equivalent number of
shares of Northwest Bancorp, Inc. This two-tier holding company structure will
give Northwest greater flexibility by maintaining the benefits of the mutual
holding company while capitalizing on the additional opportunities available to
stock holding companies. All regulatory approvals for this transaction have
been received.
Stock Split
- -----------
On October 15, 1997 the Bank 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 Northwest stock
for each share held on that date. Such shares were distributed on November 14,
1997.
22
<PAGE>
Business Combinations
- ---------------------
On October 14, 1997 the Bank 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 Bank 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 Bank 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.
Item 6. Exhibits and Reports on Form 8-K
- ----------------------------------------
(a) Exhibit No. 11 Statement re: computation of per share earnings
<TABLE>
<CAPTION>
Three Months Six Months
Ended Ended
Dec.31, 1997 Dec.31, 1997
------------ ------------
<S> <C> <C>
Net income $ 4,940,732 $ 9,777,920
Weighted average common shares outstanding 46,280,314 46,275,715
------------ ------------
Basic earnings per share $ 0.11 $ .21
============ ============
Weighted average common shares outstanding 46,280,314 46,275,715
Common stock equivalents due to effect of
stock options 782,046 670,868
------------ ------------
Total weighted average common shares and
equivalents for diluted computation 47,062,360 46,946,583
Diluted earnings per share $ 0.11 $ 0.21
============ ============
</TABLE>
(b) No Form 8-K reports were filed during the quarter
23
<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 SAVINGS BANK
Date: Feb. 12, 1998 By: /s/ John O. Hanna
-----------------
John O. Hanna
President and Chief Executive Officer
Date: Feb. 12, 1998 By: /s/ William J. Wagner
---------------------
William J. Wagner
Chief Operating Officer
Chief Financial Officer
24
