<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999
or
(_) Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from __________________ to __________________
Commission File Number 0-23817
-------
Northwest Bancorp, Inc.
------------------------------------------------
(Exact name of registrant as specified in its charter)
Pennsylvania 23-2900888
------------------- -------------------
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
Liberty Street at Second Avenue, Warren Pennsylvania 16365
- ---------------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(814) 726-2140
--------------
(Registrant's telephone number, including area code)
Not applicable
----------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ______
------
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date:
Common Stock (.10 par value) 47,353,978 shares outstanding as of March 31,
1999.
<PAGE>
NORTHWEST BANCORP, INC. AND SUBSIDIARIES
INDEX
PART I FINANCIAL INFORMATION PAGE
Item 1. Financial Statements 1-7
- Consolidated Statements of Financial Condition
- Consolidated Statements of Income
- Consolidated Statements of Changes in
Shareholders' Equity
- Consolidated Statements of Cash Flows
- Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of 8-21
Financial Condition and Results of
Operations
Item 3. Market Risk 21-22
PART II OTHER INFORMATION 23-26
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
NORTHWEST BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31, JUNE 30,
ASSETS 1999 1998 1998
- -------------------------------------------------------- ------------------ -------------- ------------
<S> <C> <C> <C>
CASH AND CASH EQUIVALENTS $ 40,563 47,161 16,992
INTEREST-EARNING DEPOSITS IN OTHER FINANCIAL
INSTITUTIONS 60,337 53,083 42,403
MARKETABLE SECURITIES AVAILABLE-FOR-SALE 294,930 309,668 316,715
MARKETABLE SECURITIES HELD-TO-MATURITY (MARKET
VALUE OF $195,696, $194,861 AND $192,817) 196,877 194,846 193,262
------------------ -------------- ------------
TOTAL CASH, INTEREST-EARNING DEPOSITS AND
MARKETABLE SECURITIES 592,707 604,758 569,372
LOANS RECEIVABLE, NET OF ALLOWANCE FOR ESTIMATED
LOSSES OF $16,745, $16,515 AND $15,769 2,216,915 2,159,771 1,907,289
ACCRUED INTEREST RECEIVABLE 14,163 13,457 13,254
REAL ESTATE OWNED, NET 2,984 3,185 3,506
FEDERAL HOME LOAN BANK STOCK, AT COST 18,021 18,021 13,444
PREMISES AND EQUIPMENT, NET 32,135 31,683 26,239
GOODWILL AND OTHER INTANGIBLES 37,574 38,630 22,065
OTHER ASSETS 16,219 19,914 7,415
------------------ -------------- ------------
TOTAL ASSETS $ 2,930,718 2,889,419 2,562,584
------------------ -------------- ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
- --------------------------------------------------------
LIABILITIES:
DEPOSITS $ 2,383,480 2,340,568 2,022,503
BORROWED FUNDS 280,748 289,337 289,706
ADVANCES BY BORROWERS FOR TAXES AND INSURANCE 16,889 14,934 15,348
ACCRUED INTEREST PAYABLE 3,878 3,239 2,932
OTHER LIABILITIES 14,286 14,531 12,303
------------------ -------------- ------------
TOTAL LIABILITIES 2,699,281 2,662,609 2,342,792
MINORITY INTEREST IN SUBSIDIARY 0 0 1,913
SHAREHOLDERS' EQUITY:
COMMON STOCK, $.10 PAR VALUE: 100,000,000 SHARES
AUTHORIZED, 47,353,978, 47,348,778 AND 46,840,970
ISSUED AND OUTSTANDING, RESPECTIVELY 4,735 4,735 4,684
PAID-IN CAPITAL 70,154 68,573 67,248
RETAINED EARNINGS 153,793 150,758 145,259
ACCUMULATED OTHER COMPREHENSIVE INCOME:
NET UNREALIZED GAIN ON SECURITIES AVAILABLE-
FOR-SALE, NET OF INCOME TAXES 3,954 5,427 3,371
UNEARNED EMPLOYEE STOCK OWNERSHIP PLAN SHARES (561) (1,412) (1,412)
UNEARNED RECOGNITION AND RETENTION PLAN SHARES (638) (1,271) (1,271)
------------------ -------------- ------------
231,437 226,810 217,879
------------------ -------------- ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 2,930,718 2,889,419 2,562,584
================== ============== ============
</TABLE>
See accompanying notes to unaudited consolidated financial statements
1
<PAGE>
NORTHWEST BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED MARCH 31, ENDED MARCH 31,
1999 1998 1999 1998
---------- --------- --------- ----------
<S> <C> <C> <C> <C>
INTEREST INCOME:
LOANS RECEIVABLE $ 44,861 36,358 128,265 104,983
MORTGAGE-BACKED SECURITIES 4,212 5,066 13,165 14,596
INVESTMENT SECURITIES 2,942 2,722 9,181 7,092
INTEREST-EARNING DEPOSITS 176 222 658 536
---------- --------- --------- --------
TOTAL INTEREST INCOME 52,191 44,368 151,269 127,207
INTEREST EXPENSE:
DEPOSITS 25,132 21,968 72,918 62,467
BORROWED FUNDS 3,756 1,814 12,534 6,597
---------- --------- --------- --------
TOTAL INTEREST EXPENSE 28,888 23,782 85,452 69,064
NET INTEREST INCOME 23,303 20,586 65,817 58,143
PROVISION FOR LOAN LOSSES 812 1,111 2,468 2,382
---------- --------- --------- --------
NET INTEREST INCOME AFTER PROVISION
FOR POSSIBLE LOAN LOSSES 22,491 19,475 63,349 55,761
NONINTEREST INCOME:
LOAN SERVICE CHARGES 205 270 701 816
SERVICE FEES ON DEPOSIT ACCOUNTS 829 559 2,309 1,591
GAIN/(LOSS) ON SALE OF MARKETABLE SECURITIES, NET (354) 749 (278) 749
LOSS ON SALE OF LOANS, NET (33) (363) (451) (658)
GAIN ON SALE OF REAL ESTATE OWNED 121 135 206 87
GAIN ON SALE OF OTHER REAL ESTATE 0 339 0 339
DIVIDENDS ON FHLB STOCK 313 214 879 636
OTHER OPERATING INCOME 527 659 1,976 2,109
---------- --------- --------- --------
TOTAL NONINTEREST INCOME 1,608 2,562 5,342 5,669
NONINTEREST EXPENSE:
COMPENSATION AND EMPLOYEE BENEFITS 9,201 7,418 25,914 20,777
PREMISES AND OCCUPANCY COSTS 1,941 1,493 5,082 4,075
OFFICE OPERATIONS 1,031 910 3,082 2,726
FEDERAL INSURANCE PREMIUMS 286 262 841 779
DATA PROCESSING 489 348 1,559 1,051
CHECK PROCESSING AND ATM EXPENSE 735 566 1,733 1,418
BANK SERVICE CHARGES 351 292 991 780
ADVERTISING 498 246 1,352 890
LEGAL, AUDIT AND PROFESSIONAL SERVICES 176 173 623 661
REAL ESTATE OWNED EXPENSE 97 180 412 545
AMORTIZATION OF INTANGIBLES 1,030 577 2,397 1,222
OTHER EXPENSES 883 624 1,848 1,441
---------- --------- --------- --------
TOTAL NONINTEREST EXPENSE 16,718 13,089 45,834 36,365
INCOME BEFORE INCOME TAXES 7,381 8,948 22,857 25,065
STATE AND FEDERAL INCOME TAXES 2,452 3,231 8,664 9,570
MINORITY INTEREST IN NET LOSS OF SUBSIDIARY 0 2 3 2
---------- --------- --------- --------
NET INCOME $ 4,929 5,719 14,196 15,497
========== ========= ========= ========
BASIC AND DILUTED EARNINGS PER SHARE $ 0.10 0.12 0.30 0.33
========== ========= ========= ========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
2
<PAGE>
NORTHWEST BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Accum. Unearned Unearned
Other Employee Recognition
Compre- Stock and
Common Stock Paid-in Retained hensive Ownership Retention
---------------------
Shares Amount Capital Earnings Income Plan Shares Plan Shares
-------- -------- --------- ------------ -------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Beginning balance at 6/30/97 * 46,752,000 $* 4,676 * 65,516 131,423 1,026 (2,358) (1,789)
Comprehensive income:
Net income - - - 15,497 - - -
Change in unrealized gain on
securities, net of tax - - - - 2,145 - -
Total comprehensive income
Exercise of stock options 85,755 8 382 - - - -
ESOP shares released - - 882 - - 946 -
RRP shares released - - - - - - 518
Dividends declared - - - (5,613) - - -
------------ --------- ------- -------- ------- ------- --------
Ending balance at 3/31/98 46,837,755 $ 4,684 66,780 141,307 3,171 (1,412) (1,271)
============ ========= ======= ======== ======= ======= ========
<CAPTION>
Total
Shareholders'
Equity
-------------
<S> <C>
Beginning balance at 6/30/97 198,494
Comprehensive income:
Net income 15,497
Change in unrealized gain on
securities, net of tax 2,145
---------
Total comprehensive income 17,642
Exercise of stock options 390
ESOP shares released 1,828
RRP shares released 518
Dividends declared (5,613)
---------
Ending balance at 3/31/98 213,259
=========
</TABLE>
<TABLE>
<CAPTION>
Accum. Unearned Unearned
Other Employee Recognition
Compre- Stock and
Common Stock Paid-in Retained hensive Ownership Retention
---------------------
Shares Amount Capital Earnings Income Plan Shares Plan Shares
-------- -------- --------- ------------ -------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Beginning balance at 6/30/98 46,840,970 $ 4,684 67,248 145,259 3,371 (1,412) (1,271)
Comprehensive income:
Net income - - - 14,196 - - -
Change in unrealized gain on
securities, net of tax - - - - 583 - -
Total comprehensive income
Stock issuance for acquisition ** 475,128 48 1,145 - - - -
Exercise of stock options 37,880 3 210 - - - -
ESOP shares released - - 1,551 - - 851 -
RRP shares released - - - - - - 633
Dividends declared - - - (5,662) - - -
Ending balance at 3/31/99 47,353,978 $ 4,735 70,154 153,793 3,954 (561) (638)
<CAPTION>
Total
Shareholders'
Equity
-------------
<S> <C>
Beginning balance at 6/30/98 217,879
Comprehensive income:
Net income 14,196
Change in unrealized gain on
securities, net of tax 583
----------
Total comprehensive income 14,779
Stock issuance for acquisition 1,193
Exercise of stock options 213
ESOP shares released 2,402
RRP shares released 633
Dividends declared (5,662)
----------
Ending balance at 3/31/99 231,437
==========
</TABLE>
* Adjusted for stock split effective November 14, 199
** Represents shares issued for the acquisition of Corry Savings Bank. See PART
II - Other Information - Business Combinations.
See accompanying notes to unaudited consolidated financial statements
3
<PAGE>
NORTHWEST BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 1999 AND 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
3/31/99 3/31/98 3/31/99 3/31/98
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net Income $ 4,929 5,719 14,196 15,497
Adjustments to reconcile net income to net cash
provided by operations:
Provision for loan losses 812 1,111 2,468 2,382
Net loss/(gain) on sales of assets 266 (860) 523 (517)
Purchase of marketable securities, trading (23,783) - (29,067) -
Proceeds from sale of marketable securities,
trading 14,941 - 20,301 -
Depreciation and amortization expense 1,626 1,614 3,978 3,349
Amortization/(accretion) of deferred loan costs/(fees) 356 (201) (531) (414)
Decrease (increase) in other assets 3,193 (691) (9,649) 872
Increase (decrease) in other liabilities 4,527 5,858 5,148 (1,488)
Amortization of premium (discounts) on marketable (110) (141)
securities (69) (244)
Noncash compensation expense related to
stock benefit plans 413 845 1,813 2,285
Other (74) (141) 152 (30)
------------ ------------ ----------- -----------
Net cash provided (used) by operating activities 7,096 13,185 9,191 21,692
INVESTING ACTIVITIES
Purchase of marketable securities held-to-maturity (15,128) - (46,648) (28,368)
Purchase of marketable securities available-for-sale (13,491) (79,816) (35,028) (125,919)
Proceeds from maturities and principal reductions
of marketable securities held-to-maturity 13,155 9,049 45,047 22,382
Proceeds from maturities and principal reductions
of marketable securities available-for-sale 30,361 8,430 62,922 22,445
Proceeds from sales of marketable securities,
available-for-sale 4,359 35,099 4,359 35,099
Loan originations (235,494) (228,626) (686,381) (540,016)
Proceeds from loan maturities and principal reductions 176,865 111,042 387,212 306,020
Proceeds from loan sales - 5,823 7,365 21,556
Purchase of Federal Home Loan Bank Stock - (1,300) (4,375) (1,300)
Proceeds from sale of real estate owned 499 899 2,770 2,545
Sale of real estate for investment 452 624 88 176
Purchase of premises and equipment (921) (936) (4,469) (2,698)
Acquisitions, net of cash received - (736) 152,994 151,935
------------ ------------ ----------- -----------
Net cash provided (used) by investing activities (39,343) (140,448) 114,144 (136,143)
</TABLE>
4
<PAGE>
NORTHWEST BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
3/31/99 3/31/98 3/31/99 3/31/98
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
FINANCING ACTIVITIES
Increase in deposits, net $ 42,912 29,929 159,935 128,512
Proceeds from long-term borrowings 5,012 21,075 93,418 73,421
Repayments of long-term borrowings (7,161) (22,563) (75,467) (56,141)
Net increase (decrease) in short-term borrowings (7,951) 70,155 (28,530) (58,314)
Increase (decrease) in advances by borrowers for
taxes and insurance 1,955 138 1,358 (1,231)
Cash dividends paid (1,894) (1,872) (5,662) (5,612)
Stock issuance for acquisition - - 1,193 -
Proceeds from options exercised 30 224 213 385
--------- --------- --------- ---------
Net cash provided (used) by financing activities 32,903 97,086 146,458 81,020
Net increase (decrease) in cash and cash equivalents $ 656 (30,177) 41,505 (33,431)
========= ========= ========= =========
Cash and cash equivalents at beginning of period $ 100,244 68,258 59,395 71,512
Net increase (decrease) in cash and cash equivalents 656 (30,177) 41,505 (33,431)
========= ========= ========= =========
Cash and cash equivalents at end of period $ 100,900 38,081 100,900 38,081
========= ========= ========= =========
Cash paid during the period for:
Interest on deposits and borrowings (including interest
credited to deposit accounts of $20,117, $16,531,
$54,551 and $47,406, respectively) $ 28,249 24,037 84,506 69,969
========= ========= ========= =========
Income taxes $ 1,115 1,250 10,273 7,588
========= ========= ========= =========
Business acquisitions:
Fair value of assets acquired $ - 55,908 46,842 69,992
Cash received (paid) - (3,920) 152,994 148,751
Minority interest - (2,060) 1,913 (2,060)
========= ========= ========= =========
Liabilities assumed $ - 49,928 201,749 216,683
========= ========= ========= =========
Non-cash activities:
Loans transferred to real estate owned $ 257 326 2,162 1,912
========= ========= ========= =========
Sale of real estate owned financed by the Company $ 135 5 357 32
========= ========= ========= =========
</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 Bancorp,
Inc.'s Annual Report and Form 10-K for the fiscal year ended June 30, 1998.
Certain items previously reported have been reclassified to conform with the
current period's reporting format. The results of operations for the three
months and the nine months ended March 31, 1999 are not necessarily indicative
of the results that may be expected for the entire year.
(2) PRINCIPLES OF CONSOLIDATION
---------------------------
The accompanying unaudited consolidated financial statements include the
accounts of Northwest Bancorp, Inc. and its wholly owned subsidiaries, Northwest
Savings Bank, Jamestown Savings Bank, Northwest Consumer Discount Company,
Northwest Finance Company, Northwest Mortgage Corporation, Northwest Financial
Services, Inc., Northwest Capital Group, Inc., Rid Fed, Inc. and Great Northwest
Corporation. All significant intercompany items have been eliminated.
(3) ACCOUNTING DEVELOPMENTS
-----------------------
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
for fiscal years beginning after December 15, 1997. As such, the Company adopted
this statement in the current fiscal year by adding the required disclosure in
both the Consolidated Statement of Financial Condition and the Consolidated
Statement of Changes in Shareholders' Equity. The adoption of SFAS 130 had no
effect on the reported earnings or operations of the Company.
In June 1997, the FASB released SFAS 131 "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS 131"). SFAS 131 establishes standards
for reporting financial information from operating segments in annual and
interim financial statements. It also establishes standards for related
disclosures about products and services, geographic areas, and major customers.
SFAS 131 uses a "management approach" concept as the basis for identifying
6
<PAGE>
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 such disclosure, which is not expected to
be material to the reader of the financial statements, will be made in the
Company's current year annual report.
In February 1998, the FASB released SFAS 132 "Employers' Disclosures about
Pensions and Other Postretirement Benefits" an amendment of FASB Statements No.
87, 88, and 106 ("SFAS 132"). SFAS 132 standardizes disclosure requirements for
pensions and postretirement benefits where applicable and suggests a combined
format for presentation purposes, requires additional information on changes in
the benefit obligations and fair values of plan assets, and eliminates certain
disclosures that are no longer useful. This statement, however, does not change
the measurement or recognition requirements of pension or postretirement benefit
plans. SFAS 132 is effective for fiscal years beginning after December 15, 1997
and requires restatement of earlier periods if the information is readily
available. Accordingly, this disclosure will be presented in the Company's
current year annual report but the impact of this statement is not expected to
have a material effect on the Company's financial statements.
In June 1998, the FASB released SFAS 133 "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"). SFAS 133 establishes accounting and
reporting standards for derivative instruments and hedging activities. It
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. The accounting for changes in the fair value of a derivative
(that is, gains and losses) depends on the intended use of the derivative and
the resulting designation. This statement is effective for all fiscal quarters
of fiscal years beginning after June 15, 1999. Earlier application is
encouraged, however, this statement should not be applied retroactively to
financial statements of prior periods. The Company does not currently
participate in derivative instruments or hedging activities and, therefore, does
not expect this statement to have a material effect on the financial statements.
In October 1998, the FASB released SFAS 134 "Accounting for Mortgage-Backed
Securities Retained after the Securitization of Mortgage Loans Held for Sale by
a Mortgage Banking Entity -an amendment of FASB Statement No.65" ("SFAS 134").
SFAS 134 amends Statement 65 to require that after the securitization of
mortgage loans, a mortgage banking entity classify the resulting mortgage-backed
securities or other retained interests as either held-to-maturity, available for
sale or trading based on its ability and intent to hold those securities. SFAS
134 is effective for the first fiscal quarter beginning after December 15, 1998
and had no impact on the Company's financial statements.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
DISCUSSION OF FINANCIAL CONDITION CHANGES FROM JUNE 30, 1998 TO MARCH 31, 1999
- ------------------------------------------------------------------------------
ASSETS
- ------
At March 31, 1999, the Company had total assets of $2.931 billion, an increase
of approximately $368.1 million, or 14.4%, from $2.563 billion at June 30, 1998.
This increase was funded primarily by a $361.0 million increase in deposits and
net income of $14.2 million.
Cash and cash equivalents, interest-earning deposits and marketable securities
totaled $592.7 million at March 31, 1999, an increase of $23.3 million, or 4.1%,
from $569.4 million at June 30, 1998. Net loans receivable increased by $309.6
million, or 16.2%, to $2.217 billion at March 31, 1999 from $1.907 billion at
June 30, 1998 as loan demand remained strong in all of the Company's market
areas. Goodwill and other intangibles increased by $15.5 million, or 70.1%, to
$37.6 million at March 31, 1999 from $22.1 million at June 30, 1998 as the
Company recorded intangible assets in acquiring eight full-service offices with
deposits of $177.0 million and when it used purchase accounting in the
acquisition of Corry Savings Bank and the remaining outstanding shares of
Jamestown Savings Bank.
LIABILITIES
- -----------
Deposits increased by $361.0 million, or 17.8%, to $2.383 billion at March 31,
1999 from $2.023 billion at June 30, 1998. This increase resulted primarily from
normal internal deposit growth, the purchase of eight offices with deposits of
$177.0 million and the acquisition of Corry Savings Bank with deposits of $24.4
million. Borrowed funds decreased by $9.0 million, or 3.1%, to $280.7 million at
March 31, 1999 from $289.7 million at June 30, 1998 as the Company's growth was
funded primarily by the aforementioned increase in deposits.
CAPITAL RESOURCES AND LIQUIDITY
- -------------------------------
Total capital at March 31, 1999 was $231.4 million, an increase of $13.5
million, or 6.2%, from $217.9 million at June 30, 1998. This increase was
primarily attributable to net income for the nine month period of $14.2 million
which was partially offset by the declaration of common stock dividends of $5.7
million. Also contributing to this increase in capital was the release of common
stock relating to the Company's employee stock benefit plans in the amount of
$3.0 million and the sale of stock relating to the Corry acquisition in the
amount of $1.2 million.
The Company and its subsidiaries are subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory - and possibly
additional discretionary - actions by the regulators that, if undertaken, could
have a direct material effect on the Company's financial statements. Under
8
<PAGE>
capital adequacy guidelines and the regulatory framework for prompt corrective
action, the Company must meet specific capital guidelines that involve
quantitative measures of the Company's assets, liabilities and certain off-
balance sheet items as calculated under regulatory accounting practices. The
Company's capital amounts and classification are also subject to qualitative
judgements by the regulators about components, risk weightings and other
factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Company to maintain minimum amounts and ratios (set forth in the
table below) of Total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier I capital to average assets (as
defined).
As of March 31, 1999, all regulatory capital requirements were exceeded. The
actual, required, and well capitalized levels as of March 31, 1999 and June 30,
1998 are as follows: (dollars in thousands)
March 31, 1999
<TABLE>
<CAPTION>
To be well
Actual Required Capitalized
- ----------------------------------------------------------------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total Capital (to risk weighted assets):
- -----------------------------------------------------------------------------------------------------------
Northwest Bancorp, Inc. $205,346 12.89% $127,414 8.00% $159,268 10.00%
- -----------------------------------------------------------------------------------------------------------
Northwest Savings Bank $192,624 12.39% $124,346 8.00% $155,432 10.00%
- -----------------------------------------------------------------------------------------------------------
Jamestown Savings Bank $5,402 14.89% $2,903 8.00% $3,629 10.00%
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
Tier 1 Capital (to risk weighted
assets):
- -----------------------------------------------------------------------------------------------------------
Northwest Bancorp, Inc. $187,527 11.77% $63,707 4.00% $95,561 6.00%
- -----------------------------------------------------------------------------------------------------------
Northwest Savings Bank $175,458 11.29% $62,173 4.00% $93,259 6.00%
- -----------------------------------------------------------------------------------------------------------
Jamestown Savings Bank $ 5,080 14.00% $1,452 4.00% $2,177 6.00%
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
Tier 1 Capital (core) (to average
assets):
- -----------------------------------------------------------------------------------------------------------
Northwest Bancorp, Inc. $187,527 6.42% $87,694 3.00%* $146,156 5.00%
- -----------------------------------------------------------------------------------------------------------
Northwest Savings Bank $175,458 6.25% $84,155 3.00%* $140,258 5.00%
- -----------------------------------------------------------------------------------------------------------
Jamestown Savings Bank $ 5,080 7.03% $2,167 3.00%* $3,612 5.00%
- -----------------------------------------------------------------------------------------------------------
</TABLE>
9
<PAGE>
June 30, 1998
<TABLE>
<CAPTION>
To be well
Actual Required Capitalized
- ------------------------------------------------------------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total Capital (to risk weighted assets):
- ------------------------------------------------------------------------------------------------------
Northwest Bancorp, Inc. $210,483 15.52% $108,469 8.00% $135,587 10.00%
- ------------------------------------------------------------------------------------------------------
Northwest Savings Bank $200,669 15.12% $106,182 8.00% $132,728 10.00%
- ------------------------------------------------------------------------------------------------------
Jamestown Savings Bank $5,520 20.70% $2,133 8.00% $2,667 10.00%
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
Tier 1 Capital (to risk weighted
assets):
- ------------------------------------------------------------------------------------------------------
Northwest Bancorp, Inc. $194,714 14.36% $54,235 4.00% $81,352 6.00%
- ------------------------------------------------------------------------------------------------------
Northwest Savings Bank $185,131 13.95% $53,091 4.00% $79,637 6.00%
- ------------------------------------------------------------------------------------------------------
Jamestown Savings Bank $5,273 19.77% $1,067 4.00% $1,600 6.00%
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
Tier 1 Capital (core) (to average
assets):
- ------------------------------------------------------------------------------------------------------
Northwest Bancorp, Inc. $194,714 7.82% $74,657 3.00%* $124,428 5.00%
- ------------------------------------------------------------------------------------------------------
Northwest Savings Bank $185,131 7.63% $72,763 3.00%* $121,271 5.00%
- ------------------------------------------------------------------------------------------------------
Jamestown Savings Bank $5,273 9.12% $1,734 3.00%* $2,890 5.00%
- ------------------------------------------------------------------------------------------------------
</TABLE>
* The FDIC has indicated that the most highly rated institutions which meet
certain criteria will be required to maintain a ratio of 3%, and all other
institutions will be required to maintain an additional capital cushion of 100
to 200 basis points. As of March 31, 1999, the Company had not been advised
of any additional requirements in this regard.
The Company is required to maintain a sufficient level of liquid assets, as
determined by management and defined and reviewed for adequacy by the FDIC
during their regular examinations. The Company's internal liquidity requirement
is based upon liquid assets as a percentage of deposits and borrowings
("liquidity ratio"). The Company has always maintained a level of liquid assets
in excess of regulatory and internal requirements, and the liquidity ratio at
March 31, 1999 was 22.0%. The Company adjusts its liquidity levels in order to
meet funding needs for deposit outflows, payment of real estate taxes and
insurance on mortgage loan escrow accounts, repayment of borrowings, when
applicable, and loan commitments.
10
<PAGE>
NONPERFORMING ASSETS
- --------------------
The following table sets forth information with respect to the Company's
nonperforming assets. Nonaccrual loans are those loans on which the accrual of
interest has ceased. Loans are placed on nonaccrual status when they are more
than 90 days contractually delinquent. Other nonperforming assets represent
property acquired by the Company through foreclosure or repossession. Foreclosed
property is carried at the lower of its fair value or the principal balance of
the related loan. Nonperforming assets increased $6.6 million, or 54.5%, to
$18.7 million at March 31, 1999 from $12.1 million at June 30, 1998. This
increase resulted primarily from a change in the Company's policy regarding
delinquency status. In past years, a borrower was not considered delinquent if
they had paid any portion of a payment. Under current Company policy, a loan is
considered delinquent if less than 90% of a contractually-due payment has been
paid. This change became effective on November 13, 1998 when the Company
converted to a new core application software system and as a result of this
change, the Company recorded a significant increase in the amount of loans which
are ninety days or more past due. Management has noted, however, that the
Company's loan collectors are aware of this change in payment status and have
taken appropriate action over the past fiscal quarter to reduce the number of
delinquent loans. Management further believes that the Company's asset quality
remains strong.
<TABLE>
<CAPTION>
(Dollars in Thousands)
March 31, 1999 December 31,1998 June 30, 1998
-------------- ---------------- -------------
<S> <C> <C> <C>
Loans accounted for on a nonaccrual basis:
One-to-four family residential loans $ 9,572 12,710 6,013
Multifamily and commercial loans 2,237 2,424 929
Consumer loans 3,580 3,969 1,631
Commercial business loans 355 267 39
------- ------ ------
Total $15,744 19,370 8,612
======= ====== ======
Total nonperforming loans as a
percentage of net loans receivable .71% .90% .45%
======= ====== ======
Total real estate acquired through
foreclosure and other real estate owned $ 2,984 3,185 3,506
------- ------ ------
Total nonperforming assets $18,728 22,555 12,118
======= ====== ======
Total nonperforming assets as a
percentage of total assets .64% .78% .47%
======= ====== ======
</TABLE>
11
<PAGE>
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS AND NINE MONTHS ENDED MARCH
- --------------------------------------------------------------------------------
31, 1999 AND 1998
- -----------------
GENERAL
- -------
Net income for the three months ended March 31, 1999 was $4.9 million, or $.10
per share, a decrease of $790,000, or 13.8%, from $5.7 million, or $.12 per
share, during the same period last year. The decline in earnings is attributed
primarily to a net loss on the sale of assets of $266,000 in the current period
compared to a net gain on such sales of $860,000 in the prior year. These gains
and losses resulted from trading securities, and the sale of investment
securities available for sale, loans available for sale and real estate.
Excluding these asset sales, net income for the three months ended March 31,
1999 was $5.1 million, or $.11 per share, compared to $5.2 million, or $.11 per
share, for the three months ended March 31, 1998.
For the nine months ended March 31, 1999, the Company's earnings were $14.2
million, or $.30 per share, a decrease of $1.3 million, or 8.4%, from $15.5
million, or $.33 per share, for the same period last year. In addition to the
aforementioned gains and losses on the sale of assets, this reduction in
earnings is attributed to an increase in operating expense relating to the
Company's growth and conversion to a new core application data processing system
which more than offset an increase in the Company's net interest income.
NET INTEREST INCOME
- -------------------
For the three months ended March 31, 1999, total interest income increased by
$7.8 million, or 17.6%, to $52.2 million compared to $44.4 million for the three
months ended March 31, 1998. This increase resulted primarily from a $547.9
million, or 24.9%, increase in average interest earning assets to $2.749 billion
for the three months ended March 31, 1999 from $2.201 billion for the three
months ended March 31, 1998. Partially offsetting this increase in average
balance was a decrease in the yield on average interest earning assets to 7.59%
for the three months ended March 31, 1999 from 8.06% for the same period last
year. The substantial growth in average interest earning assets was primarily
due to the investment of funds received from the acquisition of offices with
deposits of approximately $200.0 million combined with continued strong internal
growth in the Company's existing franchise. The decrease in the overall yield on
interest earning assets resulted primarily from a substantial percentage of the
Company's loan portfolio being refinanced or restructured in an effort by
borrowers to reduce their interest rates. Also contributing to this decrease was
a substantial decrease in the yield on the Company's portfolio of mortgage-
backed securities as a large percentage of these securities are variable rate
and the rates adjusted downward during a period of generally decreasing interest
rates.
Interest income on loans receivable increased by $8.5 million, or 23.4%, to
$44.9 million for the quarter ended March 31, 1999 compared to $36.4 million
during the same quarter last year. This increase resulted primarily from a
$508.7 million, or 30.2%, increase in average loans outstanding to $2.191
billion for the quarter ended March 31, 1999 from $1.682 billion for the same
quarter
12
<PAGE>
last year. Loan balances increased because of strong loan demand throughout the
Company's market area. Partially offsetting this increase in loans receivable
was a decrease in the yield on average loans to 8.19% for the quarter ended
March 31, 1999 from 8.65% for the comparable period last year. This decrease in
average yield resulted primarily from a substantial percentage of the Company's
loans refinancing or restructuring in an effort by borrowers to lower their
interest rates. Also contributing to this decline was the substantial growth of
the portfolio during a period of relatively low interest rates.
Interest income on mortgage-backed securities declined by $854,000, or 16.9%, to
$4.2 million for the three months ended March 31,1999 from $5.1 million for the
same period last year. This decrease resulted from a $14.8 million, or 4.7%,
decrease in the average balance of mortgage-backed securities to $301.8 million
for the three months ended March 31, 1999 from $316.6 million for the three
months ended March 31, 1998 combined with a decrease in the average yield to
5.58% from 6.40% for the same quarter last year. The average balance decreased
primarily because of increased prepayments in the mortgage loans which support
these assets. 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 $220,000, or 8.1%, to $2.9
million for the three months ended March 31, 1999 from $2.7 million for the
three months ended March 31, 1998. An increase in the average balance of
investment securities of $22.4 million, or 13.0%, to $194.8 million for the
three months ended March 31, 1999 from $172.4 million for the three months ended
March 31, 1998 was partially offset by a decrease in the average yield to 6.04%
for the quarter ended March 31, 1999 from 6.31% for the same quarter last year.
The increase in average balance was primarily due to the investment of a
percentage of the Company's deposit growth. The decrease in average yield
resulted primarily from the purchase of approximately $35 million of tax exempt
municipal securities over the last twelve months that have a lower nominal
interest rate than other securities in the Company's investment portfolio.
Interest income on interest-earning deposits decreased by $46,000, or 20.7%, to
$176,000 for the three months ended March 31, 1999 from $222,000 for the three
months ended March 31, 1998. An increase in the average balance of interest-
earning deposits of $31.7 million, or 107.1%, to $61.3 million for the three
months ended March 31, 1999 from $29.6 million for the three months ended March
31, 1998 was more than offset by a decrease in the average yield to 1.15% from
3.00% for the same quarter in the prior year. The increase in the average
balance was primarily due to a substantial increase in deposits-in-transit
relating to the substantial growth in the number of offices. The decrease in
average yield reflects the decrease in market interest rates in general as well
as the timing as to when the Company begins to earn interest on these deposits.
Interest expense increased by $5.1 million, or 21.4%, to $28.9 million for the
three months ended March 31, 1999 from $23.8 million for the three months ended
March 31, 1998. This increase resulted primarily from an increase of $579.6
million, or 28.1%, in the average balance of interest-bearing liabilities to
$2.644 billion for the quarter ended March 31, 1999 from $2.065
13
<PAGE>
billion for the quarter ended March 31, 1998. Partially offsetting this increase
in balance was a decrease in the average cost of interest-bearing liabilities to
4.37% for the quarter ended March 31, 1999 from 4.61% for the comparable period
last year. The increase in average interest-bearing liabilities resulted
primarily from an increase of $423.1 million, or 21.9%, in the average balance
of deposits, attributed primarily to the office acquisitions throughout the year
which contributed deposits of approximately $177.0 million. In addition, strong
internal growth and the acquisition of Corry Savings Bank with deposits of $24.4
million accounted for the remaining increase in deposits. Also contributing to
the growth of interest-bearing liabilities was an increase of $156.6 million, or
115.4%, in average borrowed funds to $292.3 million for the quarter ended March
31, 1999 from $135.7 million for the quarter ended March 31, 1998. The increase
in borrowed funds consisted primarily of borrowings from the Federal Home Loan
Bank which were used to fund increases in the loan and investment portfolios in
an effort to enhance net interest income. The decrease in the average cost of
funds resulted primarily from a decrease in market rates in general which
effectively lowered the interest rates paid for certificates of deposits,
checking accounts and borrowed funds.
As a result of the foregoing changes in interest income and interest expense,
net interest income increased by $2.7 million, or 13.1%, to $23.3 million for
the three months ended March 31, 1999 compared to $20.6 million for the three
months ended March 31, 1998.
For the nine months ended March 31,1999, total interest income increased by
$24.1 million, or 18.9%, to $151.3 million compared to $127.2 million for the
nine months ended March 31, 1998. This increase primarily resulted from a $536.1
million, or 25.6%, increase in average interest earning assets to $2.632 billion
for the nine months ended March 31, 1999 from $2.096 billion for the nine months
ended March 31, 1998. The yield on average interest earning assets decreased to
7.66% for the nine months ended March 31, 1999 from 8.09% for the same period
last year. The increase in average interest earning assets was primarily a
result of the deployment of deposits received from the acquisition of offices
combined with continued strong internal growth. The yield on average interest
earning assets declined as the result of significant loan refinancings and
substantial growth in assets during a period of generally lower interest rates.
Interest income on loans receivable increased by $23.3 million, or 22.2%, to
$128.3 million for the nine months ended March 31, 1999 from $105.0 million for
the nine months ended March 31, 1998. This increase resulted primarily from a
$461.0 million, or 28.5%, increase in average loans outstanding to $2.078
billion for the nine months ended March 31, 1999 from $1.617 billion for the
same period last year. Partially offsetting the increase in average loans
outstanding was a decrease in the average yield on loans to 8.23% for the nine
months ended March 31, 1999 from 8.66% for the nine months ended March 31, 1998.
Interest income on mortgage-backed securities decreased by $1.4 million, or
9.6%, to $13.2 million for the nine months ended March 31, 1999 from $14.6
million during the same period last year. The average balance of mortgage-backed
securities increased by $2.1 million, or 0.7%, to $301.5 million for the nine
months ended March 31, 1999 from $299.4 million for the nine months ended March
31, 1998. Partially offsetting this increase was a decrease in the average yield
to 5.82% for the nine months ended March 31, 1999
14
<PAGE>
from 6.50% for the same period last year. Interest income on investment
securities increased by $2.1 million, or 29.6%, to $9.2 million for the nine
months ended March 31, 1999 from $7.1 million for the nine months ended March
31, 1998. This increase resulted primarily from a $47.8 million, or 31.9%,
increase in the average balance of investment securities to $197.8 million for
the nine months ended March 31, 1999 from $150.0 million for the nine months
ended March 31, 1998. Partially offsetting the increase in the average balance
of investment securities was a decline in the average yield to 6.19% for the
nine months ended March 31, 1999 from 6.30% for the same period last year.
Interest income on interest-earning deposits increased by $122,000, or 22.8%, to
$658,000 for the nine months ended March 31, 1999 from $536,000 for the nine
months ended March 31, 1998. This increase resulted primarily from a $25.3
million, or 83.8%, increase in the average balance of interest-earning deposits
to $55.5 million for the nine months ended March 31, 1999 from $30.2 million for
the nine months ended March 31,1998. Partially offsetting the increase in the
average balance of interest-earning deposits was a decline in the average yield
to 1.58% for the nine months ended March 31, 1999 from 2.37% for the same period
last year.
For the nine months ended March 31, 1999 interest expense increased by $16.4
million, or 23.7%, to $85.5 million compared to $69.1 million for the nine
months ended March 31, 1998. This increase resulted primarily from a $554.1
million, or 28.4%, increase in the average balance of interest-bearing
liabilities to $2.507 billion for the nine months ended March 31, 1999 from
$1.953 billion for the nine months ended March 31, 1998. Partially offsetting
this increase in balance was a decrease in the average cost of funds to 4.54%
for the nine months ended March 31, 1999 compared to 4.71% for the nine months
ended March 31, 1998. The increase in average interest-bearing liabilities
resulted primarily from a $410.9 million, or 23.0%, increase in the average
balance of deposits attributed primarily to the aforementioned branch
acquisitions. Also contributing to the increase in deposits was continued strong
internal deposit growth. Interest-bearing liabilities also increased due to a
$143.2 million, or 84.5%, increase in average borrowed funds to $312.6 million
for the nine months ended March 31, 1999 from $169.4 million for the nine months
ended March 31, 1998. The increase in borrowed funds consisted primarily of
funds borrowed from the Federal Home Loan Bank which were used to fund increases
in the Company's portfolio of loans and investment securities in an effort to
enhance net interest income. The decrease in the average cost of funds resulted
primarily from decreases in market interest rates in general which resulted in a
corresponding decrease in the cost of checking accounts and certificates of
deposit.
PROVISION FOR LOAN LOSSES
- -------------------------
The provision for loan losses decreased by $299,000, or 26.9%, to $812,000 for
the quarter ended March 31, 1999 from $1.1 million for the quarter ended March
31,1998. For the nine months ended March 31, 1999 the provision for loan losses
increased by $86,000, or 3.6%, to $2.5 million from $2.4 million for the nine
months ended March 31, 1998. Provisions for estimated losses on the loan
portfolios are charged to earnings in an amount sufficient, in management's
15
<PAGE>
judgement, to cover anticipated losses based upon the inherent risk in the
Company's loan portfolio, current economic conditions and historical trends.
NONINTEREST INCOME
- ------------------
Noninterest income decreased by $954,000, or 37.2%, to $1.6 million for the
three months ended March 31, 1999 from $2.6 million for the three months ended
March 31, 1998. This decrease was primarily the result of a $354,000 loss on the
sale of marketable securities in the current quarter compared to a $749,000 gain
from such sales in the prior year. Excluding this activity, noninterest income
increased by $149,000, or 8.2%, to $2.0 million for the three months ended March
31, 1999 from $1.8 million for the three months ended March 31, 1998. This
increase in noninterest income was due primarily to an increase in service
charges on deposits as a result of increased usage of debit cards which provide
transaction fee income.
For the nine months ended March 31, 1999 noninterest income decreased by
$327,000, or 5.8%, to $5.3 million compared to $5.7 million for the nine months
ended March 31, 1998. Excluding the aforementioned gains and losses on the sale
of marketable securities, noninterest income increased by $700,000, or 14.2%, to
$5.6 million for the nine months ended March 31, 1999 from $4.9 million for the
nine months ended March 31, 1998. This increase was also attributable to the
additional service charge income related to increased debit card usage with
related transaction fee income.
NONINTEREST EXPENSE
- -------------------
Noninterest expense increased by $3.6 million, or 27.5%, to $16.7 million for
the three months ended March 31, 1999 from $13.1 million for the three months
ended March 31, 1998. This increase resulted primarily from expected increases
associated with the substantial growth in the Company's retail network over the
past twelve months. Since March 31, 1998, the Company opened or acquired sixteen
full service banking facilities which represents approximately a 20% increase in
the Company's branch office network.
As a result of the Company's substantial growth along with normal inflationary
increases in costs, all expense categories increased significantly for the three
months ended March 31, 1999 when compared to the previous year. Compensation and
employee benefit expense increased by $1.8 million, or 24.3%, to $9.2 million;
premises and occupancy costs increased by $448,000, or 30.0%, to $1.9 million;
and other expenses increased by $945,000, or 26.2%, to $4.5 million. In
addition, as a result of recording intangibles of approximately $18.0 million
relating to the acquisitions of Jamestown Savings Bank, Corry Savings Bank and
eight branch offices with deposits, the expense for amortization of intangibles
increased by $453,000, or 78.5%, to $1.0 million for the quarter ended March 31,
1999 from $577,000 in the previous year.
For the nine months ended March 31, 1999, noninterest expenses increased by $9.4
million, or 25.8%, to $45.8 million from $36.4 million during the same period
last year. This increase also related primarily to the aforementioned growth in
the Company's retail network as well as
16
<PAGE>
approximately $900,000 relating to the Company's conversion to a new mainframe
core application data processing system in November, 1998. This conversion was
completed to enable the Company to become more competitive into the next century
and to accomplish most of the Company's Year 2000 initiatives.
INCOME TAXES
- ------------
The provision for income taxes for the three months ended March 31, 1999
decreased by $779,000, or 24.1%, to $2.5 million compared to $3.2 million for
the same period last year. This decrease was primarily due to a decrease in
income before tax of $1.5 million, or 16.9%, as well as a lower effective tax
rate due to the increased emphasis on investing in tax exempt assets.
For the nine months ended March 31, 1999 the provision for income taxes
decreased by $906,000, or 9.5%, to $8.7 million when compared to $9.6 million
for the same period last year. This decrease resulted primarily from a $2.2
million, or 8.7%, decrease in taxable income to $22.9 million for the nine
months ended March 31, 1999 from $25.1 million for the nine months ended March
31, 1998.
YEAR 2000
- ---------
The Company has devoted substantial resources to address the possible impact of
issues relating to the year 2000 ("Y2K") on the Company and its operations.
After several years of assessing the potential problems, the Company adopted a
formal plan addressing the Y2K issue in 1997.
The Company's most critical operating system is its core application processing
and the Company addressed this mission critical area by converting to a new core
application processing system in the fourth quarter of 1998. The Company
recently completed its testing of this core application system and has deemed it
to be fully compliant for year 2000 processing. The approximate cost of this
conversion was $3,000,000. Approximately $900,000 of these costs were expenses
recorded in the quarter ended December 31, 1998. The remaining costs have been
capitalized and will be expensed over various periods ranging from five to ten
years.
Other than the core application conversion, costs relating to Y2K issues are not
expected to be material and are not expected to have a material effect on the
results of operations of the Company.
The Company is continuously monitoring relationships with material third
parties, including large deposit and loan customers, to assess the progress of
their Y2K efforts. It is possible that the Company could be negatively impacted
in the year 2000 because external parties have not successfully addressed their
Y2K issues. Although the effects of such third party problems are not known, the
Company does not foresee any problems which will be material in nature. To
mitigate its exposure to the failure of third parties, the Company is actively
designing a contingency plan which will allow it to continue services in the
event unforeseeable external factors disrupt normal operations in the year 2000.
However, there can be no assurance that any contingency plans will completely
mitigate the effects of any such failure.
17
<PAGE>
AVERAGE BALANCE SHEET
(Dollars in Thousands)
The following table sets forth certain information relating to the Company's
average balance sheet and reflects the average yield on assets and average cost
of liabilities for the periods indicated. Such yields and costs are derived by
dividing income or expense by the average balance of assets or liabilities,
respectively, for the periods presented. Average balances are derived from
month-end balances.
<TABLE>
<CAPTION>
Three Months Ended March 31,
1999 1998
- ---------------------------------------------------------------------------------------------------------------
AVERAGE. INTEREST AVG AVERAGE INTEREST AVG.
BALANCE YIELD/ BALANCE YIELD
COST /COST
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
- ------
Interest Earning Assets:
Loans Receivable (a) (b) $2,190,915 $44,861 8.19% $1,682,239 $36,358 8.65%
Mortgage-Backed Securities (c) (d) $ 301,766 $ 4,212 5.58% $ 316,565 $ 5,066 6.40%
Investment Securities (b) (c) (d) (e) $ 194,786 $ 2,942 6.04% $ 172,446 $ 2,722 6.31%
Other Interest Earning Deposits $ 61,340 $ 176 1.15% $ 29,637 $ 222 3.00%
---------- ------- ---- ---------- ------- ----
Total Interest Earning Assets $2,748,807 $52,191 7.59% $2,200,887 $44,368 8.06%
Noninterest Earning Assets $ 163,742 $ 102,530
---------- ----------
TOTAL ASSETS $2,912,549 $2,303,417
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY:
- ------------------------------------
Interest Bearing Liabilities:
Passbook and Statement Savings $ 373,521 $ 2,998 3.21% $ 307,908 $ 2,541 3.30%
Now Accounts $ 372,927 $ 1,335 1.43% $ 275,676 $ 1,080 1.57%
Money Market Demand Accounts $ 150,637 $ 1,409 3.74% $ 103,273 $ 922 3.57%
Certificate Accounts $1,454,807 $19,390 5.33% $1,241,942 $17,425 5.61%
Borrowed Funds (f) $ 292,253 $ 3,756 5.14% $ 135,737 $ 1,814 5.35%
---------- ------- ---- ---------- ------- ----
Total Interest Bearing Liabilities $2,644,145 $28,888 4.37% $2,064,536 $23,782 4.61%
Noninterest Bearing Liabilities $ 38,818 $ 27,822
---------- ----------
Total Liabilities $2,682,963 $2,092,358
Minority Interest $ 0 $ 515
Shareholders' Equity $ 229,586 $ 210,544
---------- ----------
TOTAL LIABILITIES AND EQUITY $2,912,549 $2,303,417
========== ==========
Net Interest Income/Interest Rate Spread $23,303 3.22% $20,586 3.45%
Net Interest Earning Assets/Net Interest Margin $ 104,662 3.39% $ 136,351 3.74%
Ratio of Interest Earning Assets to
Interest Bearing Liabilities 1.04 X 1.07 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) Interest income on marketable securities does not include market value
adjustments for securities available-for-sale.
(e) Average balances include FNMA and FHLMC stock but do not include FHLB stock.
(f) Average balances include FHLB borrowings, securities sold under agreements
to repurchase and other borrowings.
18
<PAGE>
AVERAGE BALANCE SHEET
(Dollars in Thousands)
The following table sets forth certain information relating to the Company's
average balance sheet and reflects the average yield on assets and average cost
of liabilities for the periods indicated. Such yields and costs are derived by
dividing income or expense by the average balance of assets or liabilities,
respectively, for the periods presented. Average balances are derived from
month-end balances.
<TABLE>
<CAPTION>
Nine Months Ended March 31,
1999 1998
---------------------------------------------------------------------------------------------------------------
AVERAGE. INTEREST AVG AVERAGE INTEREST AVG.
BALANCE YIELD/ BALANCE YIELD
COST /COST
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
- ------
Interest Earning Assets:
Loans Receivable (a) (b) $2,077,532 $128,265 8.23% $1,616,549 $104,983 8.66%
Mortgage-Backed Securities (c) (d) $ 301,457 $ 13,165 5.82% $ 299,440 $ 14,596 6.50%
Investment Securities (b) (c) (d) (e) $ 197,785 $ 9,181 6.19% $ 150,003 $ 7,092 6.30%
Other Interest Earning Deposits $ 55,492 $ 658 1.58% $ 30,173 $ 536 2.37%
---------- -------- ---- ---------- -------- ----
Total Interest Earning Assets $2,632,266 $151,269 7.66% $2,096,165 $127,207 8.09%
Noninterest Earning Assets $ 134,469 $ 92,064
---------- ----------
TOTAL ASSETS $2,766,735 $2,188,229
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY:
- ------------------------------------
Interest Bearing Liabilities:
Passbook and Statement Savings $ 347,326 $ 8,620 3.31% $ 294,860 $ 7,458 3.37%
Now Accounts $ 346,621 $ 3,678 1.41% $ 249,336 $ 3,365 1.80%
Money Market Demand Accounts $ 129,967 $ 3,462 3.55% $ 91,014 $ 2,370 3.47%
Certificate Accounts $1,370,619 $ 57,158 5.56% $1,148,416 $ 49,274 5.72%
Borrowed Funds (f) $ 312,616 $ 12,534 5.35% $ 169,428 $ 6,597 5.19%
---------- -------- ---- ---------- -------- ----
Total Interest Bearing Liabilities $2,507,149 $ 85,452 4.54% $1,953,054 $ 69,064 4.71%
Noninterest Bearing Liabilities $ 34,791 $ 30,194
---------- ----------
Total Liabilities $2,541,940 $1,983,248
Minority Interest in Subsidiary $ 383 $ 206
Shareholders' Equity $ 224,412 $ 204,775
---------- ----------
TOTAL LIABILITIES AND EQUITY $2,766,735 $2,188,229
========== ==========
Net Interest Income/Interest Rate Spread $ 65,817 3.12% $ 58,143 3.38%
Net Interest Earning Assets/Net Interest Margin $ 125,117 3.33% $ 143,111 3.70%
Ratio of Interest Earning Assets to
Interest Bearing Liabilities 1.05 X 1.07 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) Interest income on marketable securities does not include market value
adjustments for securities available-for-sale.
(e) Average balances include FNMA and FHLMC stock but do not include FHLB stock.
(f) Average balances include FHLB borrowings, securities sold under agreements
to repurchase and other borrowings.
19
<PAGE>
RATE/VOLUME ANALYSIS
(Dollars in Thousands)
The following tables represent the extent to which changes in interest rates and
changes in the volume of interest-earning assets and interest-bearing
liabilities have affected the Company's interest income and interest expense
during the periods indicated. Information is provided in each category with
respect to (i) changes attributable to changes in volume (changes in volume
multiplied by prior rate), (ii) changes attributable to changes in rate (changes
in rate multiplied by prior volume), (iii) changes in rate-volume (changes in
rate multiplied by changes in volume), and (iv) the net change.
Three months ended March 31, 1999 and 1998
- -----------------------------------------------------------------------------
RATE VOLUME RATE/ NET
VOLUME CHANGE
- -----------------------------------------------------------------------------
Interest earning assets:
Loans receivable ($1,913) $10,994 ($ 578) $8,503
Mortgage-backed securities ($ 647) ($ 237) $ 30 ($ 854)
Investment securities ($ 117) $ 353 ($ 16) $ 220
Other interest earning deposits ($ 137) $ 237 ($ 146) ($ 46)
-------- ------- ------ ------
Total interest earning assets ($2,814) $11,347 ($ 710) $7,823
Interest bearing liabilities:
Passbook and statement savings ($ 70) $ 541 ($ 14) $ 457
Now accounts ($ 93) $ 381 ($ 33) $ 255
Money market demand accounts $ 44 $ 423 $ 20 $ 487
Certificate accounts ($ 872) $ 2,897 ($ 150) $1,965
Borrowed funds ($ 70) $ 2,092 ($ 80) $1,942
-------- ------- ------ ------
Total interest bearing liabilities ($1,061) $ 6,424 ($ 257) $5,106
Net change in interest income ($1,753) $ 4,923 ($453) $2,717
======== ======= ====== ======
- -----------------------------------------------------------------------------
20
<PAGE>
Nine months ended March 31, 1999 and 1998
- -----------------------------------------------------------------------------
RATE VOLUME RATE/ NET
VOLUME CHANGE
- -----------------------------------------------------------------------------
Interest earning assets:
Loans receivable ($5,179) $29,937 ($1,476) $ 23,282
Mortgage-backed securities ($1,519) $ 98 ($ 10) ($ 1,431)
Investment securities ($ 129) $ 2,259 ($ 41) $ 2,089
Other interest earning deposits ($ 178) $ 450 ($ 150) $ 122
-------- ------- -------- --------
Total interest earning assets ($7,005) $32,744 ($1,677) $ 24,062
Interest bearing liabilities:
Passbook and statement savings ($ 140) $ 1,327 ($ 25) $ 1,162
Now accounts ($ 719) $ 1,313 ($ 281) $ 313
Money market demand accounts $ 54 $ 1,014 $ 24 $ 1,092
Certificate accounts ($1,382) $ 9,534 $ 268 $ 7,884
Borrowed funds $ 196 $ 5,575 $ 166 $ 5,937
-------- ------- -------- --------
Total interest bearing liabilities ($1,991) $18,763 ($ 384) $ 16,388
Net change in interest income ($5,014) $13,981 ($1,293) $ 7,674
======== ======= ======== ========
- ------------------------------------------------------------------------------
ITEM 3. MARKET RISK
As a bank holding company, the Company's primary market risk is interest rate
risk. Interest rate risk is the sensitivity of net interest income to variations
in interest rates over a specified time period. This sensitivity results from
differences in the time periods in which interest rate sensitive assets and
liabilities mature or reprice. The Company attempts to control interest rate
risk by matching, within acceptable limits, the repricing periods of its assets
and liabilities. Because the Company's interest sensitive liabilities typically
have repricing periods or maturities of short duration, the Company has
attempted to shorten the maturities of its assets by emphasizing the
21
<PAGE>
origination of short-term, fixed-rate consumer loans, one-to-four family
residential mortgage loans with terms of fifteen years or less and adjustable
rate mortgage loans, consumer loans and commercial loans. In addition, the
Company has purchased shorter term or adjustable-rate investment securities and
adjustable-rate mortgage-backed securities.
The Company has a Risk Management Committee comprised of certain members of the
Board of Directors which meets quarterly and reviews interest rate risks and
trends, the Company's interest sensitivity position, the Company's liquidity
position and the market value of the Company's investment portfolio.
In an effort to assess market risk, the Company utilizes a simulation model to
determine the effect of immediate incremental increases and decreases in
interest rates on net interest income and the market value of the Company's
equity. Certain assumptions are made regarding loan prepayments and decay rates
of passbook and NOW accounts. Because it is difficult to accurately project the
market reaction of depositors and borrowers, the effects of actual changes in
interest on these assumptions may differ from simulated results. The Company
has established the following guidelines for assessing interest rate risk:
Net interest margin simulation. Given a parallel shift of 2% in interest rates,
the estimated net interest margin may not change by more than 30% within a one-
year period.
Market value of equity simulation. The market value of the Company's equity is
the present value of the Company's assets and liabilities. Given a parallel
shift of 2% in interest rates, the market value of equity may not decrease by
more than 50% of total shareholders' equity.
The following table illustrates the simulated impact of a 1% or 2% upward or
downward movement in interest rates on net income, return on average equity,
earnings per share and market value of equity. This analysis was prepared
assuming that interest-earning asset levels at March 31, 1999 remain constant.
The impact of the rate movements was computed by simulating the effect of an
immediate and sustained shift in interest rates over a twelve month period from
the March 31, 1999 levels.
<TABLE>
<CAPTION>
Increase Decrease
---------------- -------------
<S> <C> <C>
Parallel shift in interest rates over the next 12 months 1.0% 2.0% 1.0% 2.0%
------- ----- ----- -----
Projected percentage increase/(decrease) in net income (6.8%) (14.3%) 8.2% 15.6%
Projected increase/(decrease) in return on average equity (0.6%) (1.4%) 0.8% 1.5%
Projected increase/(decrease) in earnings per share ($.03) ($.07) $ .04 $ .08
Projected percentage increase/(decrease) in market value of equity (15.6%) (34.0%) 16.5% 20.6%
</TABLE>
The figures included in the table above represent projections which were
computed based upon certain assumptions including prepayment rates and decay
rates which cannot be accurately predicted. There are no assurances that these
assumptions and the resultant impact on the Company's financial ratios will
approximate the figures presented above.
22
<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 the Bank's initial public offering in November 1994. It alleges
that the defendants breached their contractual obligations and fiduciary duties
by carrying out the offering at a price that allegedly was not justified by
market and financial conditions. The defendants previously obtained the
dismissal of a lawsuit brought by the same counsel in federal court making
similar allegations under federal law. Management intends to vigorously defend
this lawsuit.
The Company and its subsidiaries are subject to a number of other asserted and
unasserted claims encountered in the normal course of business. Management
believes that the aggregate liability, if any, that may result from such
potential litigation will not have a material adverse effect on the Company's
financial statements.
ITEM 2. CHANGES IN SECURITIES
- -----------------------------
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
- ---------------------------------------
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- -----------------------------------------------------------
Not applicable.
ITEM 5. OTHER INFORMATION
- -------------------------
HOLDING COMPANY REORGANIZATION
- ------------------------------
On February 17, 1998 Northwest Savings Bank reorganized into a two-tier holding
company structure. The Bank formed a new, state chartered stock holding company,
Northwest Bancorp, Inc., which was 69.2% owned by Northwest Bancorp MHC. As a
result of this reorganization, Northwest Bancorp, Inc. became the parent company
of Northwest Savings Bank and owns 100% of the Bank's common stock. The previous
shareholders of Northwest Savings Bank stock received an equivalent number of
shares of the new publicly traded entity, Northwest Bancorp, Inc. Aside from
this two-tier holding company structure giving the Company greater flexibility
23
<PAGE>
by maintaining the benefits of the mutual holding company while capitalizing on
the additional opportunities available to stock holding companies, the
operations remain unchanged.
The reorganization was accounted for in a manner similar to a pooling of
interests. Accordingly, the prior years' consolidated financial statements of
Northwest Bancorp, Inc. are identical to that of Northwest Savings Bank.
During the past fiscal quarter, the Board of Trustees of Northwest Bancorp MHC
announced that it would purchase up to 5%, or 750,000, of the outstanding
publicly traded shares of Northwest Bancorp, Inc. Following this announcement
Northwest Bancorp MHC purchased 713,800 shares via open market transactions. As
a result, at March 31, 1999, Northwest Bancorp MHC owned 70.6% of the
outstanding shares of Northwest Bancorp, Inc.
BUSINESS COMBINATIONS
- ---------------------
On October 21, 1998, the Company acquired Corry Savings Bank, a Pennsylvania
chartered mutual savings bank with assets of approximately $25.0 million and
capital of approximately $2.5 million. In conjunction with this acquisition,
146,815 shares of the common stock of Northwest Bancorp, Inc. were sold in a
stock offering at an average price of $8.13 per share, net of expenses, with
priority given to the depositors of Corry Savings Bank. In addition, Northwest
Bancorp MHC, the mutual holding company for Northwest Bancorp, Inc., received
328,313 shares of the common stock of Northwest Bancorp, Inc. in exchange for
the assets and liabilities of Corry Savings Bank. As a result of this
transaction, Northwest Bancorp MHC continued to own approximately 69.2% of the
outstanding shares of Northwest Bancorp, Inc. The acquisition was accounted for
using the purchase method of accounting.
In December 1998, the Company acquired eight retail office facilities and the
related deposit accounts totaling approximately $177 million from National City
Bank of Pennsylvania. All of the office facilities are located in Northwest
Pennsylvania.
On April 15, 1999 the Company entered into a definitive agreement to purchase
three retail office facilities and approximately $58 million in deposits from
Mellon Bank Corporation. The transaction, subject to regulatory approval, is
expected to be completed during the second quarter of this year and will be
recorded using the purchase method of accounting.
On May 5, 1999 the Company announced its intent to purchase eight retail office
facilities in Western Pennsylvania from PNC Bank Corp. The agreement includes
approximately $273 million in deposits, $56 million in consumer and business
loans and the related office facilities and equipment. Subject to regulatory
approval, the transaction is expected to be completed in the third quarter and
will be accounted for using the purchase method of accounting.
24
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- ----------------------------------------
(a) Exhibit No. 11 Statement re: computation of per share earnings
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
March 31, 1999 March 31, 1998
-------------- --------------
<S> <C> <C>
Net income applicable to common stock $ 4,928,863 $ 5,718,864
Weighted-average common shares outstanding 47,063,410 46,525,291
----------- -----------
Basic earnings per share $ 0.10 $ 0.12
=========== ===========
Weighted-average common shares outstanding 47,063,410 46,525,291
Common stock equivalents due to effect of stock options 431,308 707,369
----------- -----------
Total weighted-average common shares and equivalents 47,494,718 47,232,660
Diluted earnings per share $ 0.10 $ 0.12
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
Nine Months Nine Months
Ended Ended
March 31, 1999 March 31, 1998
-------------- --------------
<S> <C> <C>
Net income applicable to common stock $14,195,631 $15,496,784
Weighted-average common shares outstanding 46,853,881 46,357,693
----------- -----------
Basic earnings per share $ 0.30 $ 0.33
=========== ===========
Weighted-average common shares outstanding 46,853,881 46,357,693
Common stock equivalents due to effect of stock options 514,166 682,857
----------- -----------
Total weighted-average common shares and equivalents 47,368,047 47,040,550
Diluted earnings per share $ 0.30 $ 0.33
=========== ===========
</TABLE>
Exhibit No. 27 Financial Data Schedule attached
(b) No Form 8-K reports were filed during the quarter
25
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed by the undersigned thereunto
duly authorized.
NORTHWEST BANCORP, INC.
Date: May 14, 1999 By: /s/ William J. Wagner
------------ -------------------------------------------
William J. Wagner
Chief Financial Officer and Chief Operating
Officer
(Chief Financial and Accounting Officer and
Duly Authorized Representative)
26
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> MAR-31-1999
<CASH> 40,563
<INT-BEARING-DEPOSITS> 60,337
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 8,398
<INVESTMENTS-HELD-FOR-SALE> 286,532
<INVESTMENTS-CARRYING> 196,877
<INVESTMENTS-MARKET> 195,696
<LOANS> 2,216,915
<ALLOWANCE> 16,745
<TOTAL-ASSETS> 2,930,718
<DEPOSITS> 2,383,480
<SHORT-TERM> 120,649
<LIABILITIES-OTHER> 35,053
<LONG-TERM> 160,099
0
0
<COMMON> 4,735
<OTHER-SE> 226,702
<TOTAL-LIABILITIES-AND-EQUITY> 2,930,718
<INTEREST-LOAN> 128,265
<INTEREST-INVEST> 22,346
<INTEREST-OTHER> 658
<INTEREST-TOTAL> 151,269
<INTEREST-DEPOSIT> 72,918
<INTEREST-EXPENSE> 85,452
<INTEREST-INCOME-NET> 65,817
<LOAN-LOSSES> 2,478
<SECURITIES-GAINS> (278)
<EXPENSE-OTHER> 45,834
<INCOME-PRETAX> 22,857
<INCOME-PRE-EXTRAORDINARY> 22,857
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,196
<EPS-PRIMARY> .30
<EPS-DILUTED> .30
<YIELD-ACTUAL> 7.66
<LOANS-NON> 15,744
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 15,769
<CHARGE-OFFS> 2,118
<RECOVERIES> 485
<ALLOWANCE-CLOSE> 16,745
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 16,745
</TABLE>
