<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, 2000
or
( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ___________________ to __________________
Commission File Number 0-23817
--------
Northwest Bancorp, Inc.
------------------------------------------------
(Exact name of registrant as specified in its charter)
Pennsylvania 23-2900888
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Liberty Street at Second Avenue, Warren Pennsylvania 16365
- ---------------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(814) 726-2140
--------------
(Registrant's telephone number, including area code)
Not applicable
-----------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
------ ------
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date:
Common Stock (.10 par value) 47,360,769 shares outstanding as of March 31, 2000.
<PAGE>
NORTHWEST BANCORP, INC. AND SUBSIDIARIES
INDEX
PART I FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Consolidated Statements of Financial Condition as of
March 31, 2000, December 31, 1999 and
June 30, 1999 (Unaudited) 1
Consolidated Statements of Income for the three and nine months
ended March 31, 2000 and 1999 (Unaudited) 2
Consolidated Statements of Changes in Shareholders' Equity for
the nine months ended March 31, 2000 and 1999 (Unaudited) 3
Consolidated Statements of Cash Flows for the three and nine
months ended March 31, 2000 and 1999 (Unaudited) 4
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Item 3. Quantitative and Qualitative Disclosures about Market Risk 23
PART II OTHER INFORMATION
Item 1. Legal Proceedings 24
Item 2. Changes in Securities 24
Item 3. Defaults Upon Senior Securities 24
Item 4. Submission of Matters to a Vote of Security Holders 24
Item 5. Other Information 24
Item 6. Exhibits and Reports on Form 8-K 25
Signature 27
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
NORTHWEST BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31, JUNE 30,
ASSETS 2000 1999 1999
- ------------------------------------------------------------------------------ ---------------- -------------- ---------
<S> <C> <C> <C>
CASH AND CASH EQUIVALENTS $ 98,452 101,115 75,325
INTEREST-EARNING DEPOSITS IN OTHER FINANCIAL
INSTITUTIONS 7,693 4,635 8,928
MARKETABLE SECURITIES AVAILABLE-FOR-SALE (AMORTIZED
COST OF $418,525, $422,534 AND $350,339) 411,676 418,685 352,780
MARKETABLE SECURITIES HELD-TO-MATURITY (MARKET
VALUE OF $228,106, $233,793 AND $250,351) 240,474 243,958 253,864
---------------- -------------- ---------
TOTAL CASH, INTEREST-EARNING DEPOSITS AND
MARKETABLE SECURITIES 758,295 768,393 690,897
LOANS RECEIVABLE, NET OF ALLOWANCE FOR ESTIMATED
LOSSES OF $17,713, $17,060 AND $16,773 2,485,936 2,457,295 2,285,238
ACCRUED INTEREST RECEIVABLE 15,992 14,850 14,548
REAL ESTATE OWNED, NET 2,120 2,228 3,383
PREMISES AND EQUIPMENT, NET 39,591 39,504 35,463
GOODWILL AND OTHER INTANGIBLES 53,949 55,757 38,253
OTHER ASSETS 11,730 12,553 11,050
---------------- -------------- ---------
TOTAL ASSETS $ 3,367,613 3,350,580 3,078,832
================ ============== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------------------------------------------------
LIABILITIES:
DEPOSITS $ 2,850,135 2,743,034 2,463,711
BORROWED FUNDS 246,622 341,931 348,915
ADVANCES BY BORROWERS FOR TAXES AND INSURANCE 19,830 16,251 18,954
ACCRUED INTEREST PAYABLE 1,802 2,764 3,698
OTHER LIABILITIES 7,234 9,077 9,897
---------------- -------------- ---------
TOTAL LIABILITIES 3,125,623 3,113,057 2,845,175
SHAREHOLDERS' EQUITY:
COMMON STOCK, $.10 PAR VALUE: 100,000,000 SHARES
AUTHORIZED, 47,360,769, 47,360,769 AND 47,355,073 ISSUED
AND OUTSTANDING, RESPECTIVELY 4,736 4,736 4,736
PAID-IN CAPITAL 70,787 70,394 70,374
RETAINED EARNINGS 171,389 166,068 157,745
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS):
NET UNREALIZED GAIN (LOSS) ON SECURITIES
AVAILABLE-FOR-SALE, NET OF INCOME TAXES (4,858) (2,920) 1,978
UNEARNED EMPLOYEE STOCK OWNERSHIP PLAN SHARES 0 (561) (561)
UNEARNED RECOGNITION AND RETENTION PLAN SHARES (64) (194) (615)
---------------- -------------- ---------
241,990 237,523 233,657
---------------- -------------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 3,367,613 3,350,580 3,078,832
================ ============== =========
</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,
2000 1999 2000 1999
------------ ------------ -------------- ------------
<S> <C> <C> <C> <C>
INTEREST INCOME:
LOANS RECEIVABLE $ 49,817 44,861 145,261 128,265
MORTGAGE-BACKED SECURITIES 7,146 4,212 20,072 13,165
TAXABLE INVESTMENT SECURITIES 2,619 2,538 8,255 8,283
TAX-FREE INVESTMENT SECURITIES 1,027 717 3,100 1,777
INTEREST-EARNING DEPOSITS 209 176 703 658
------------ ------------ -------------- ------------
TOTAL INTEREST INCOME 60,818 52,504 177,391 152,148
INTEREST EXPENSE:
DEPOSITS 29,186 25,132 84,845 72,918
BORROWED FUNDS 3,851 3,756 13,179 12,534
------------ ------------ -------------- ------------
TOTAL INTEREST EXPENSE 33,037 28,888 98,024 85,452
NET INTEREST INCOME 27,781 23,616 79,367 66,696
PROVISION FOR LOAN LOSSES 1,153 812 2,588 2,468
------------ ------------ -------------- ------------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 26,628 22,804 76,779 64,228
NONINTEREST INCOME:
LOAN FEES AND SERVICE CHARGES 397 205 1,077 701
SERVICE CHARGES ON DEPOSIT ACCOUNTS 1,219 829 3,761 2,309
GAIN (LOSS) ON SALE OF MARKETABLE SECURITIES, NET 361 (354) 397 (278)
LOSS ON SALE OF LOANS, NET (10) (33) (25) (451)
GAIN (LOSS) ON SALE OF REAL ESTATE OWNED, NET (56) 121 (28) 206
OTHER OPERATING INCOME 913 527 2,399 1,976
------------ ------------ -------------- ------------
TOTAL NONINTEREST INCOME 2,824 1,295 7,581 4,463
NONINTEREST EXPENSE:
COMPENSATION AND EMPLOYEE BENEFITS 9,490 9,201 28,393 25,914
PREMISES AND OCCUPANCY COSTS 2,473 1,941 6,731 5,082
OFFICE OPERATIONS 1,130 1,031 3,903 3,082
FEDERAL INSURANCE PREMIUMS 148 286 752 841
DATA PROCESSING 615 489 1,948 1,559
CHECK PROCESSING AND ATM EXPENSE 796 735 2,521 1,733
BANK SERVICE CHARGES 518 351 1,250 991
ADVERTISING 502 498 1,607 1,352
LEGAL, AUDIT AND PROFESSIONAL SERVICES 220 176 717 623
REAL ESTATE OWNED EXPENSE 106 97 420 412
AMORTIZATION OF INTANGIBLES 1,578 1,030 4,259 2,397
OTHER EXPENSES 979 883 2,402 1,848
------------ ------------ -------------- ------------
TOTAL NONINTEREST EXPENSE 18,555 16,718 54,903 45,834
INCOME BEFORE INCOME TAXES 10,897 7,381 29,457 22,857
FEDERAL AND STATE INCOME TAXES 3,681 2,452 10,130 8,664
MINORITY INTEREST IN NET LOSS OF SUBSIDIARY 0 0 0 3
------------ ------------ -------------- ------------
NET INCOME $ 7,216 4,929 19,327 14,196
============ ============ ============== ============
BASIC EARNINGS PER SHARE $ 0.15 0.10 0.41 0.30
============ ============ ============== ============
DILUTED EARNINGS PER SHARE $ 0.15 0.10 0.41 0.30
============ ============ ============== ============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
2
<PAGE>
NORTHWEST BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Accum. Unearned
Other Employee
Common Stock Compre- Stock
------------------- Paid-in Retained hensive Ownership
Shares Amount Capital Earnings Income Plan Shares
---------- ------ ------- -------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Beginning balance at June 30, 1998 46,840,970 $ 4,684 67,248 145,259 3,371 (1,412)
Comprehensive income:
Net income - - - 14,196 - -
Change in unrealized gain on securities,
net of tax and reclassification adjustment - - - - 583 -
---------- ------ ------ -------- ------------- -----------
Total comprehensive income - - - 14,196 583 -
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 - - - - - -
Dividends declared - - - (5,662) - -
---------- ------ ------ -------- ------------- -----------
Ending balance at March 31, 1999 47,353,978 $ 4,735 70,154 153,793 3,954 (561)
========== ====== ====== ======== ============= ===========
</TABLE>
<TABLE>
<CAPTION>
Unearned
Recognition
and Total
Retention Shareholders'
Plan Shares Equity
----------- -------------
<S> <C> <C>
Beginning balance at June 30, 1998 (1,271) 217,879
Comprehensive income:
Net income - 14,196
Change in unrealized gain on securities,
net of tax and reclassification adjustment - 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 633 633
Dividends declared - (5,662)
----------- -------------
Ending balance at March 31, 1999 (638) 231,437
=========== =============
</TABLE>
<TABLE>
<CAPTION>
Accum. Unearned
Other Employee
Common Stock Compre- Stock
------------------- Paid-in Retained hensive Ownership
Shares Amount Capital Earnings Income (Loss) Plan Shares
---------- ------ ------- -------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Beginning balance at June 30, 1999 47,355,073 $ 4,736 70,374 157,745 1,978 (561)
Comprehensive income:
Net income - - - 19,327 - -
Change in unrealized gain on securities,
net of tax and reclassification adjustment - - - - (6,836) -
---------- ------ ------ -------- ------------- -----------
Total comprehensive income - - - 19,327 (6,836) -
Exercise of stock options 5,696 - 20 - - -
ESOP shares released - - 393 - - 561
RRP shares released - - - - - -
Dividends declared - - - (5,683) - -
---------- ------ ------ -------- ------------- -----------
Ending balance at March 31, 2000 47,360,769 $ 4,736 70,787 171,389 (4,858) 0
========== ====== ====== ======== ============= ===========
</TABLE>
<TABLE>
<CAPTION>
Unearned
Recognition
and Total
Retention Shareholders'
Plan Shares Equity
----------- -------------
<S> <C> <C>
Beginning balance at June 30, 1999 (615) 233,657
Comprehensive income:
Net income - 19,327
Change in unrealized gain on securities,
net of tax and reclassification adjustment - (6,836)
----------- -------------
Total comprehensive income - 12,491
Exercise of stock options - 20
ESOP shares released - 954
RRP shares released 551 551
Dividends declared - (5,683)
----------- -------------
Ending balance at March 31, 2000 (64) 241,990
=========== =============
</TABLE>
* Represents shares issued for the acquisition of Corry Savings Bank
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, 2000 AND 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
3/31/00 3/31/99 3/31/00 3/31/99
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net Income $ 7,216 4,929 19,327 14,196
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Provision for loan losses 1,153 812 2,588 2,468
Net loss (gain) on sales of assets (295) 266 (344) 523
Purchase of marketable securities, trading - (23,783) - (29,067)
Proceeds from sale of marketable securities, trading - 14,941 8,822 20,301
Amortization of goodwill and other intangible assets 1,578 1,030 4,259 2,397
Net depreciation, amortization and accretion 1,026 952 3,090 1,050
Decrease (increase) in other assets 579 3,193 2,232 (9,649)
Increase (decrease) in other liabilities (1,549) 4,527 (4,728) 5,148
Net amortization of premium (discount) on marketable securities (157) (110) (389) (141)
Noncash compensation expense related to
stock benefit plans 11 413 705 1,813
Other - (74) - 152
---------- ----------- ----------- -----------
Net cash provided (used) by operating activities 9,562 7,096 35,562 9,191
INVESTING ACTIVITIES:
Purchase of marketable securities held-to-maturity - (15,128) (8,475) (46,648)
Purchase of marketable securities available-for-sale (4,909) (13,491) (111,627) (35,028)
Proceeds from maturities and principal reductions
of marketable securities held-to-maturity 3,519 13,155 21,993 45,047
Proceeds from maturities and principal reductions
of marketable securities available-for-sale 2,844 30,361 15,784 62,922
Proceeds from sales of marketable securities,
available-for-sale 6,557 4,359 21,616 4,359
Loan originations (120,720) (235,494) (463,874) (686,381)
Proceeds from loan maturities and principal reductions 90,556 176,865 305,659 387,212
Proceeds from loan sales - - - 7,365
Purchase of Federal Home Loan Bank Stock - - (3,112) (4,375)
Proceeds from sale of real estate owned 365 499 2,270 2,770
Net (purchase) sale of real estate owned for investment 218 452 148 88
Purchase of premises and equipment (1,061) (921) (5,893) (4,469)
Acquisitions, net of cash received - - 203,319 152,994
---------- ----------- ----------- -----------
Net cash provided (used) by investing activities $ (22,631) (39,343) (22,192) (114,144)
</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
3/31/00 3/31/99 3/31/00 3/31/99
------------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
FINANCING ACTIVITIES:
Increase (decrease) in deposits, net $ 107,101 42,912 115,614 159,935
Proceeds from long-term borrowings 12,871 5,012 29,800 93,418
Repayments of long-term borrowings (15,044) (7,161) (22,596) (75,467)
Net increase (decrease) in short-term borrowings (93,148) (7,951) (109,509) (28,530)
Increase (decrease) in advances by borrowers for
taxes and insurance 3,579 1,955 876 1,358
Cash dividends paid (1,895) (1,894) (5,683) (5,662)
Stock issuance for acquisition - - - 1,193
Proceeds from stock options exercised - 30 20 213
------------- ------------- ------------- ------------
Net cash provided (used) by financing activities 13,464 32,903 8,522 146,458
Net increase (decrease) in cash and cash equivalents $ 395 656 21,892 41,505
============= ============= ============= ============
Cash and cash equivalents at beginning of period $ 105,750 100,244 84,253 59,395
Net increase (decrease) in cash and cash equivalents 395 656 21,892 41,505
------------- ------------- ------------- ------------
Cash and cash equivalents at end of period $ 106,145 100,900 106,145 100,900
============= ============= ============= ============
Cash paid during the period for:
Interest on deposits and borrowings (including interest
credited to deposit accounts of $23,140, $20,117,
$67,158 and $54,551, respectively) $ 33,999 28,249 99,920 84,506
============= ============= ============= ============
Income taxes $ 680 1,115 9,095 10,273
============= ============= ============= ============
Business acquisitions:
Fair value of assets acquired $ - - 68,643 46,842
Cash received (paid) - - 203,319 152,994
Minority interest - - - 1,913
------------- ------------- ------------- ------------
Liabilities assumed $ - - 271,962 201,749
============= ============= ============= ============
Non-cash activities:
Loans transferred to real estate owned $ 313 257 1,194 2,162
============= ============= ============= ============
Sale of real estate owned financed by the Company $ 28 135 289 357
============= ============= ============= ============
</TABLE>
See accompanying notes to unuadited consolidated financial statements
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, 1999.
Certain items previously reported have been reclassified to conform with the
current period's reporting format. The results of operations for the three and
nine months ended March 31, 2000 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 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 March 1998, the American Institute of Certified Public Accountants (AICPA)
released Statement of Position No. 98-1 ("SOP 98-1") "Accounting for the Costs
of Computer Software Developed or Obtained for Internal Use." SOP 98-1 requires
the capitalization of certain costs incurred in connection with developing or
obtaining software for internal use, that otherwise may have been expensed. This
statement is effective for fiscal years beginning after December 15, 1998 and
restatement of prior year financial information is not permitted. Adoption of
this statement in the current fiscal year did not have a material effect on the
Company's financial position or results of operations.
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.
6
<PAGE>
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 was to be effective for all fiscal quarters of
fiscal years beginning after June 15, 1999. This effective date was changed,
however, in June 1999, when the FASB issued SFAS 137 "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of FASB
Statement 133 - an Amendment of FASB Statement 133", which delays the adoption
of FASB Statement 133 until the first quarter of the Company's fiscal year 2001.
The Company does not expect this statement to have a material effect on the
financial statements.
In March 2000, the Financial Accounting Standards Board issued FASB
Interpretation No.44, "Accounting for Certain Transactions involving Stock
Compensation - an interpretation of APB Opinion No. 25". This Interpretation
clarifies the application of APB Opinion No. 25, "Accounting for Stock Issued to
Employees" (APB 25) for only certain issues. The issues addressed by this
interpretation were resolved within the framework of the intrinsic value method
prescribed by APB 25, and do not amend APB 25. Among the issues this
interpretation clarifies are (a) the definition of employee for purposes of
applying APB 25, (b) the criteria for determining whether a plan qualifies as a
noncompensatory plan, (c) the accounting consequence of various modifications to
the terms of a previously fixed stock option or award, and (d) the accounting
for an exchange of stock compensations awards in a business combination.
This Interpretation is effective July 1, 2000, but certain conclusions in this
Interpretation cover specific events that occur after either December 15, 1998,
or January 12, 2000. To the extent that this Interpretation covers events
occurring during the period after December 15, 1998, or January 12, 2000, but
before the effective date of July 1, 2000, the effects of applying this
Interpretation are recognized on a prospective basis from July 1, 2000. The
Company has not determined the impact of the adoption of the Interpretation at
this time.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Forward-Looking Statements
- --------------------------
In addition to historical information, this document may contain certain
forward-looking statements, as defined in the Securities and Exchange Act of
1934, as amended, and the regulations thereunder. These forward-looking
statements contained herein are subject to certain risks and uncertainties that
could cause actual results to differ materially from those expressed or implied
in the forward-looking statements. Important factors that might cause such a
difference include, but are not limited to, economic, regulatory and other
factors as discussed herein. Readers are cautioned not to place undue reliance
on these forward-looking statements, as they reflect management's analysis only
as of the date of this report. The Company has no obligation to revise or update
these forward-looking statements to reflect events or circumstances that arise
after the date of this report.
Discussion of Financial Condition Changes from June 30, 1999 to March 31, 2000
- ------------------------------------------------------------------------------
Assets
- ------
At March 31, 2000, the Company had total assets of $3.368 billion, an increase
of approximately $288.8 million, or 9.4%, from $3.079 billion at June 30, 1999.
This increase was funded primarily by a $386.4 million increase in deposits and
net income of $19.3 million.
Cash and cash equivalents, interest-earning deposits and marketable securities
totaled $758.3 million at March 31, 2000, an increase of $67.4 million, or 9.8%,
from $690.9 million at June 30, 1999. The Company utilized the deposits received
from office acquisitions to acquire additional marketable securities. Net loans
receivable increased by $200.7 million, or 8.8%, to $2.486 billion at March 31,
2000 from $2.285 billion at June 30, 1999 as the Company continued to experience
strong loan demand in its markets. Goodwill and other intangibles increased by
$15.6 million, or 40.7%, to $53.9 million at March 31, 2000 from $38.3 million
at June 30, 1999 as the Company recorded goodwill in acquiring eight
full-service offices with deposits of $270.8 million in September 1999.
Liabilities
- -----------
Deposits increased by $386.4 million, or 15.7%, to $2.850 billion at March 31,
2000 from $2.464 billion at June 30, 1999. This increase resulted primarily from
the purchase of eight full-service retail offices with deposits of $270.8
million and normal internal deposit growth. Borrowed funds decreased by $102.3
million, or 29.3%, to $246.6 million at March 31, 2000 from $348.9 million
8
<PAGE>
at June 30, 1999 as the Company utilized the aforementioned increase in deposits
to fund asset growth and pay-down borrowings.
Capital Resources and Liquidity
- -------------------------------
Total capital at March 31, 2000 was $242.0 million, an increase of $8.3 million,
or 3.6%, from $233.7 million at June 30, 1999. This increase was primarily
attributable to net income for the nine month period of $19.3 million which was
partially offset by the declaration of common stock dividends of $5.7 million.
Also affecting capital was a $6.8 million decrease in the net unrealized gain on
securities available-for-sale as a result of the decrease in the market value of
fixed-rate securities during a period of rising interest rates.
The Company and its subsidiaries are subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory - and possibly
additional discretionary - actions by the regulators that, if undertaken, could
have a direct material effect on the Company's financial statements. Under
capital adequacy guidelines and the regulatory framework for prompt corrective
action, the Company must meet specific capital guidelines that involve
quantitative measures of the Company's assets, liabilities and certain off-
balance sheet items as calculated under regulatory accounting practices. The
Company's capital amounts and classification are also subject to qualitative
judgements by the regulators about components, risk weightings and other
factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Company to maintain minimum amounts and ratios (set forth in the
table below) of Total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier I capital to average assets (as
defined).
9
<PAGE>
As of March 31, 2000, all regulatory capital requirements were exceeded. The
actual, required, and well capitalized levels as of March 31, 2000 and June 30,
1999 are as follows: (dollars in thousands)
<TABLE>
<CAPTION>
March 31, 2000
Minimum Capital Well Capitalized
Actual Requirements Requirements
- ---------------------------------------------------------------------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total Capital (to risk weighted assets):
- ---------------------------------------------------------------------------------------------------------------
Northwest Bancorp, Inc. $209,117 11.49% $145,546 8.00% $181,932 10.00%
- ---------------------------------------------------------------------------------------------------------------
Northwest Savings Bank $195,668 11.10% $141,185 8.00% $176,481 10.00%
- ---------------------------------------------------------------------------------------------------------------
Jamestown Savings Bank $ 7,787 14.69% $ 4,239 8.00% $ 5,299 10.00%
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
Tier 1 Capital (to risk weighted
assets):
- ---------------------------------------------------------------------------------------------------------------
Northwest Bancorp, Inc. $190,545 10.47% $ 72,773 4.00% $109,159 6.00%
- ---------------------------------------------------------------------------------------------------------------
Northwest Savings Bank $177,541 10.06% $ 70,593 4.00% $105,889 6.00%
- ---------------------------------------------------------------------------------------------------------------
Jamestown Savings Bank $ 7,354 13.88% $ 2,120 4.00% $ 3,180 6.00%
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
Tier 1 Capital (core) (to average
assets):
- ---------------------------------------------------------------------------------------------------------------
Northwest Bancorp, Inc. $190,545 5.75% $ 99,460 3.00%* $165,766 5.00%
- ---------------------------------------------------------------------------------------------------------------
Northwest Savings Bank $177,541 5.52% $ 96,526 3.00%* $160,876 5.00%
- ---------------------------------------------------------------------------------------------------------------
Jamestown Savings Bank $ 7,354 7.91% $ 2,790 3.00%* $ 4,650 5.00%
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
10
<PAGE>
June 30, 1999
<TABLE>
<CAPTION>
Minimum Capital Well Capitalized
Actual Requirements Requirements
- -------------------------------------------------------------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total Capital (to risk weighted assets):
- -------------------------------------------------------------------------------------------------------
Northwest Bancorp, Inc. $208,047 12.67% $131,384 8.00% $164,230 10.00%
- -------------------------------------------------------------------------------------------------------
Northwest Savings Bank $195,730 12.24% $127,951 8.00% $159,939 10.00%
- -------------------------------------------------------------------------------------------------------
Jamestown Savings Bank $ 7,450 18.51% $ 3,219 8.00% $ 4,024 10.00%
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
Tier 1 Capital (to risk weighted
assets):
- -------------------------------------------------------------------------------------------------------
Northwest Bancorp, Inc. $190,036 11.57% $ 65,692 4.00% $ 98,538 6.00%
- -------------------------------------------------------------------------------------------------------
Northwest Savings Bank $178,068 11.13% $ 63,976 4.00% $ 95,963 6.00%
- -------------------------------------------------------------------------------------------------------
Jamestown Savings Bank $ 7,101 17.65% $ 1,610 4.00% $ 2,414 6.00%
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
Tier 1 Capital (core) (to average
assets):
- -------------------------------------------------------------------------------------------------------
Northwest Bancorp, Inc. $190,036 6.30% $ 90,475 3.00%* $150,791 5.00%
- -------------------------------------------------------------------------------------------------------
Northwest Savings Bank $178,068 6.16% $ 86,704 3.00%* $144,507 5.00%
- -------------------------------------------------------------------------------------------------------
Jamestown Savings Bank $ 7,101 8.91% $ 2,390 3.00%* $ 3,984 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, 2000, 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, 2000 was 24.0%. 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.
11
<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 automatically placed on nonaccrual status when
they are more than 90 days contractually delinquent but may be placed on
nonaccrual even if they are not 90 days or more delinquent if other conditions
exist. 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 decreased by $4.3 million, or 21.9%, to $15.2 million at March 31, 2000
from $19.5 million at June 30, 1999. Management believes that these low levels
of nonperforming assets are attributable to stringent credit policies, sustained
collection procedures and overall strong economic conditions.
(Dollars in Thousands)
- -------------------------------------------------------------------------------
Loans accounted for on a nonaccrual basis: March 31, 2000 June 30, 1999
- -------------------------------------------------------------------------------
One-to-four family residential loans $ 7,840 $ 8,623
- -------------------------------------------------------------------------------
Multifamily and commercial real estate loans 2,140 2,141
- -------------------------------------------------------------------------------
Consumer loans 3,097 2,202
- -------------------------------------------------------------------------------
Commercial business loans 29 3,150
- -------------------------------------------------------------------------------
Total $13,106 $16,116
- -------------------------------------------------------------------------------
Total nonperforming loans as a percentage of
net loans receivable .53% .71%
- -------------------------------------------------------------------------------
Total real estate acquired through
foreclosure and other real estate owned $ 2,120 $ 3,383
- --------------------------------------------------------------------------------
Total nonperforming assets $15,226 $19,499
- --------------------------------------------------------------------------------
Total nonperforming assets as a percentage
of total assets .45% .63%
- --------------------------------------------------------------------------------
12
<PAGE>
Comparison of Operating Results for the Three Months and Nine Months Ended
- --------------------------------------------------------------------------
March 31, 2000 and 1999
- -----------------------
General
- -------
Net income for the three months ended March 31, 2000 was $7.2 million, or $.15
per share, an increase of $2.3 million, or 46.9%, from $4.9 million, or $.10 per
share, for the same quarter last year. This increase in net income resulted
primarily from a $4.2 million increase in net interest income and a $1.5 million
increase in noninterest income which were partially offset by a $1.9 million
increase in noninterest expense.
For the nine months ended March 31, 2000 net income was $19.3 million, or $.41
per share, an increase of $5.1 million, or 35.9%, from $14.2 million, or $.30
per share, for the same period last year. This increase in net income resulted
primarily from an $12.7 million increase in net interest income and a $3.1
million increase in noninterest income which was partially offset by a $9.1
million increase in noninterest expense.
Net Interest Income
- -------------------
For the three months ended March 31, 2000, total interest income increased by
$8.3 million, or 15.8%, to $60.8 million compared to $52.5 million for the three
months ended March 31, 1999. This increase resulted primarily from a $409.9
million, or 14.9%, increase in average interest earning assets to $3.156 billion
for the three months ended March 31, 2000 from $2.746 billion for the three
months ended March 31, 1999. Also contributing to this increase in total
interest income was an increase in the yield on average interest earning assets
to 7.78% for the three months ended March 31, 2000 from 7.70% 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 over the last twelve months with average deposits of approximately
$350.0 million combined with continued strong internal growth in the Company's
existing franchise. The increase in the overall yield on interest earning assets
from quarter to quarter resulted primarily from an increase in the yield on
variable rate mortgage-backed securities, which comprise approximately 55% of
the investment portfolio, due to an increase in market interest rates.
Interest income on loans receivable increased by $4.9 million, or 10.9%, to
$49.8 million for the quarter ended March 31, 2000 compared to $44.9 million
during the same quarter last year. This increase resulted primarily from a
$274.1 million, or 12.4%, increase in average loans outstanding to $2.483
billion for the quarter ended March 31, 2000 from $2.209 billion for the same
quarter last year. Loan balances increased because of strong loan demand
throughout the Company's market area as well as the purchase of approximately
$47.0 million of loans in September, 1999 as part of the acquisition of eight
retail offices. Partially offsetting this increase in loans receivable was a
decrease in the yield on average loans to 8.03% for the quarter ended March 31,
2000 from 8.12% for the comparable period last year. This decrease in average
yield resulted primarily from
13
<PAGE>
the substantial growth in the Company's loan portfolio at rate levels lower than
the existing average portfolio rate.
Interest income on mortgage-backed securities increased by $2.9 million, or
69.0%, to $7.1 million for the three months ended March 31, 2000 from $4.2
million for the same period last year. This increase resulted primarily from a
$129.3 million, or 43.0%, increase in the average balance of mortgage-backed
securities to $429.8 million for the three months ended March 31, 2000 from
$300.5 million for the three months ended March 31, 1999 combined with an
increase in the average yield to 6.65% from 5.61% for the same quarter last
year. The average balance increased primarily because of the investment of
deposits from branch acquisitions. The average yield on mortgage-backed
securities, most of which are variable rate, increased in response to an
increase in market interest rates for short-term securities.
Interest income on investment securities increased by $507,000, or 15.3%, on a
taxable equivalent basis, to $3.8 million for the three months ended March 31,
2000 from $3.3 million for the three months ended March 31, 1999. This increase
resulted primarily from a $23.2 million, or 12.3%, increase in the average
balance of investment securities to $211.6 million for the three months ended
March 31, 2000 from $188.4 million for the three months ended March 31, 1999
combined with an increase in the average taxable equivalent yield to 7.22% for
the quarter ended March 31, 2000 from 7.03% for the same quarter last year. The
increase in average balance was primarily due to the investment of a portion of
the Company's deposit growth. The increase in average yield resulted primarily
from the maturity or sale of approximately $45.0 million of U.S. Treasury
securities with an average yield of only 6.31%, the proceeds of which were
invested in higher yielding securities.
Interest income on interest-earning deposits increased by $33,000, or 18.8%, to
$209,000 for the three months ended March 31, 2000 from $176,000 for the three
months ended March 31, 1999. A decrease in the average balance of interest-
earning deposits of $20.0 million, or 66.7%, to $10.0 million for the three
months ended March 31, 2000 from $30.0 million for the three months ended March
31, 1999 was more than offset by an increase in the average yield to 8.32% from
2.35% for the same quarter in the prior year. The significant volatility in the
average yield is largely influenced by the timing as to when the Company begins
to earn interest on its daily deposits and the float experienced on checks
issued.
Interest expense increased by $4.1 million, or 14.2%, to $33.0 million for the
three months ended March 31, 2000 from $28.9 million for the three months ended
March 31, 1999. This increase resulted from an increase of $381.1 million, or
14.8%, in the average balance of interest-bearing liabilities to $2.949 billion
for the quarter ended March 31, 2000 from $2.568 billion for the quarter ended
March 31, 1999. Partially offsetting this increase in balance was a decrease in
the average cost of interest-bearing liabilities to 4.48% for the quarter ended
March 31, 2000 from 4.50% for the comparable period last year. The increase in
average interest-bearing liabilities resulted primarily from an increase of
$393.4 million, or 17.3%, in the average balance of
14
<PAGE>
deposits, attributed primarily to the office acquisitions over the last twelve
months which contributed average deposits of approximately $350.0 million.
Partially offsetting this increase in deposits was a decrease of $12.3 million,
or 4.2%, in average borrowed funds to $280.0 million for the quarter ended March
31, 2000 from $292.3 million for the quarter ended March 31, 1999. This change
in mix between deposits and borrowed funds resulted from the Company utilizing a
portion of its deposit growth to repay borrowed funds. The decrease in the
average cost of funds resulted primarily from a decrease in checking account
rates to 1.30% for the quarter ended March 31, 2000 from 1.80% for the quarter
ended March 31, 1999. The Company lowered its checking account rates during its
second fiscal quarter in response to competitive forces in its market.
As a result of the foregoing changes in interest income and interest expense,
net interest income increased by $4.2 million, or 17.8%, to $27.8 million for
the three months ended March 31, 2000 compared to $23.6 million for the three
months ended March 31, 1999.
For the nine months ended March 31, 2000 total interest income increased by
$25.3 million, or 16.6%, to $177.4 million compared to $152.1 million for the
nine months ended March 31, 1999. This increase resulted primarily from a $458.5
million, or 17.5%, increase in average interest earning assets to $3.076 billion
for the nine months ended March 31, 2000 from $2.618 billion for the nine months
ended March 31, 1999. Partially offsetting this increase in average balance was
a decrease in the average yield to 7.76% for the nine months ended March 31,
2000 from 7.80% for the same period last year. The substantial increase in
average interest earning assets was primarily due to the investment of funds
received from the acquisition of offices combined with continued strong internal
growth. The yield on average interest earning assets declined as a result of the
significant increase in interest earning assets over the past year at yields
that were generally lower than the existing average portfolio yield.
Interest income on loans receivable increased by $17.0 million, or 13.3%, to
$145.3 million for the nine months ended March 31, 2000 from $128.3 million for
the nine months ended March 31, 1999. This increase resulted primarily from a
$326.2 million, or 15.7%, increase in average loans outstanding to $2.409
billion for the nine months ended March 31, 2000 from $2.082 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 8.04% for the nine
months ended March 31, 2000 from 8.21% for the nine months ended March 31, 1999.
Interest income on mortgage-backed securities increased by $6.9 million, or
52.3%, to $20.1 million for the nine months ended March 31, 2000 from $13.2
million for the nine months ended March 31, 1999. This increase resulted from a
$109.9 million, or 36.5%, increase in the average balance of mortgage-backed
securities to $411.1 million for the nine months ended March 31, 2000 from
$301.2 million for the nine months ended March 31, 1999 combined with an
increase
15
<PAGE>
in the average yield to 6.51% from 5.83%. Interest income on investment
securities increased by $1.8 million, or 17.8%, on a taxable equivalent basis,
to $11.9 million for the nine months ended March 31, 2000 from $10.1 million for
the nine months ended March 31, 1999. This increase resulted from a $30.9
million, or 16.2%, increase in the average balance of investment securities to
$222.0 million for the nine months ended March 31, 2000 from $191.1 million for
the nine months ended March 31, 1999 combined with an increase in the average
yield to 7.15% from 7.04%. Interest income on interest- earning deposits
increased by $45,000, or 6.8%, to $703,000 for the nine months ended March 31,
2000 from $658,000 for the nine months ended March 31, 1999. A decrease in the
average balance of interest-earning deposits by $12.8 million, or 47.6%, to
$14.1 million for the nine months ended March 31, 2000 from $26.9 million for
the nine months ended March 31, 1999 was more than offset by an increase in the
average yield to 6.66% from 3.26%. These changes in average balances and average
yields on interest earning assets were primarily caused by the same factors as
discussed in the aforementioned analysis for the three months ended March 31,
2000 and 1999.
For the nine months ended March 31, 2000 interest expense increased by $12.5
million, or 14.6%, to $98.0 million compared to $85.5 million for the nine
months ended March 31, 1999. This increase resulted primarily from a $438.8
million, or 17.9%, increase in the average balance of interest-bearing
liabilities to $2.893 billion for the nine months ended March 31, 2000 from
$2.454 billion for the nine months ended March 31, 1999. Partially offsetting
this increase in average balance was a decrease in the average cost of funds to
4.52% for the nine months ended March 31, 2000 compared to 4.64% for the nine
months ended March 31, 1999. The increase in average interest-bearing
liabilities resulted primarily from a $432.3 million, or 20.2%, increase in the
average balance of deposits attributed primarily to the aforementioned office
acquisitions as well as strong internal deposit growth. Interest-bearing
liabilities also increased due to a $6.5 million, or 2.1%, increase in average
borrowed funds to $319.1 million for the nine months ended March 31, 2000 from
$312.6 million for the nine months ended March 31, 1999. The decrease in the
average cost of funds during the current nine month period compared to the prior
year resulted primarily from the rollover of certificates of deposit at lower
interest rates due to the general downward trend in the level of interest rates
over the past several years.
Provision for Loan Losses
- -------------------------
The provision for loan losses increased by $341,000, or 42.0%, to $1.2 million
for the quarter ended March 31, 2000 from $812,000 for the quarter ended March
31,1999. For the nine months ended March 31, 2000 the provision for loan losses
increased by $120,000, or 4.9%, to $2.6 million from $2.5 million for the nine
months ended March 31, 1999. Provisions for estimated losses on the loan
portfolios are charged to earnings in an amount sufficient, in management's
judgement, to cover anticipated losses based upon the inherent risk in the
Company's loan portfolio, current economic conditions and historical trends.
Management believes that credit quality remains consistently strong.
Noninterest Income
- ------------------
Noninterest income increased by $1.5 million, or 115.4%, to $2.8 million for the
three months ended March 31, 2000 from $1.3 million for the three months ended
March 31, 1999. Of this increase, approximately $625,000 was attributable to fee
income relating to the Company's growth in loans and deposits. In addition, a
new source of income, surcharges for foreign ATM transactions, contributed
approximately $122,000 and the increased usage of debit cards by
16
<PAGE>
customers contributed increased transaction fee income of approximately
$125,000. Also contributing to the quarter over quarter increase in noninterest
income was a gain of $361,000 for the three months ended March 31, 2000
primarily from the sale of marketable equity securities compared to a loss in
the prior year of $354,000 from the sale of trading portfolio securities.
For the nine months ended March 31, 2000 noninterest income increased by $3.1
million, or 68.9%, to $7.6 million compared to $4.5 million for the nine months
ended March 31, 1999. This increase was attributable to additional loan and
deposit fee income of approximately $575,000, foreign ATM surcharges of
approximately $400,000 and additional debit card transaction fee income of
approximately $375,000. As mentioned previously, the current year contains a
gain on the sale of investment securities of $397,000 compared to a loss in the
prior year of $278,000 from the sale of investment securities from the Company's
trading portfolio. In addition, the prior year contained losses on the sale of
loans of approximately $451,000 that were not experienced in the current fiscal
year.
Noninterest Expense
- -------------------
Noninterest expense increased by $1.9 million, or 11.4%, to $18.6 million for
the three months ended March 31, 2000 from $16.7 million for the three months
ended March 31, 1999. 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, 1999, the Company increased its office
network by 30% by opening or acquiring 25 full service banking facilities and
four consumer finance offices. Partially mitigating these growth related
increases was a one-time occurrence of expenses in the prior year, primarily
consisting of overtime, associated with the Company's conversion to a new core
application data processing system.
As a result of the Company's substantial growth along with normal inflationary
increases in costs, all expense categories, except FDIC premium expense,
increased for the three months ended March 31, 2000 when compared to the
previous year. Compensation and employee benefit expense increased by $289,000,
or 3.1%, to $9.5 million; premises and occupancy costs increased by $532,000, or
27.4%, to $2.5 million; and other expenses increased by $626,000, or 14.7%, to
$4.9 million. In addition, as a result of recording goodwill of approximately
$23.3 million relating to the acquisition of eleven offices with deposits over
the last twelve months, the expense for amortization of intangibles increased by
$548,000, or 53.2%, to $1.6 million for the quarter ended March 31, 2000 from
$1.0 million in the previous year. FDIC premium expense decreased by $138,000,
or 48.3%, to $148,000 for the current quarter as a result of the last of a
series of incremental decreases to the FDIC insurance rate. The premium was cut
in half on January 1, 2000 to .21 cents for every $1,000 in deposits from .58
cents a year ago.
For the nine months ended March 31, 2000, noninterest expense increased by $9.1
million, or 19.9%, to $54.9 million compared to $45.8 million for the same time
period last year. This increase also related primarily to the aforementioned
growth in the Company's retail network.
Income Taxes
- ------------
17
<PAGE>
The provision for income taxes for the three months ended March 31, 2000
increased by $1.2 million, or 48.0%, to $3.7 million compared to $2.5 million
for the same period last year. This increase was primarily due to an increase in
income before tax of $3.5 million, or 47.6%, to $10.9 million for the quarter
ended March 31, 2000 from $7.4 million for the quarter ended March 31, 1999.
For the nine months ended March 31, 2000, the provision for income taxes
increased by $1.4 million, or 16.1%, to $10.1 million compared to $8.7 million
for the same period last year. This increase resulted primarily from a $6.6
million increase in income before tax which was partially offset by a lower
effective tax rate due to an increase in tax exempt assets.
Year 2000
- ---------
To date the Company has experienced no Y2K related problems. Software
applications and data processing systems continue to be monitored for any
problems that may arise.
The total cost to the Company for Y2K readiness was approximately $3,000,000.
Approximately $1.5 million of these costs were expenses recorded in the prior
fiscal year during the quarters ended December 31, 1998 and March 31, 1999
primarily related to payroll and other employee related expenses. The remaining
costs, most of which relate to the core application processing system installed
in November 1998, have been capitalized and are being expensed in accordance
with the Company's depreciation policy.
The implementation of the new data processing system not only accomplished the
Company's Y2K objectives but also positioned the Company for future
technological changes and an advanced product line. The Company completed its
Y2K objectives almost entirely with existing in-house personnel who have either
resumed their original duties or have been assigned to additional initiatives.
The Company also continues to monitor its relationships with material third
parties, including large deposit and loan customers, to assess their operations
relative to Y2K issues. While the Company has experienced no third party
problems to date, and does not foresee any problems which may be material in
nature, there can be no assurance as to completely eliminate the potential for
future losses.
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 calculated using
monthly averages.
<TABLE>
<CAPTION>
Three Months Ended March 31,
2000 1999
- --------------------------------------------------------------------------------------------------------------------------
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) $2,482,829 $49,817 8.03% $2,208,728 $44,861 8.12%
Mortgage-backed securities (c) $ 429,768 $ 7,146 6.65% $ 300,485 $ 4,212 5.61%
Investment securities (c) (d) (e) $ 211,608 $ 3,818 7.22% $ 188,446 $ 3,311 7.03%
FHLB stock $ 21,269 $ 357 6.71% $ 18,021 $ 313 6.95%
Other interest earning deposits $ 10,047 $ 209 8.32% $ 29,990 $ 176 2.35%
---------- ------- ---- ---------- ------- ----
Total interest earning assets $3,155,521 $61,347 7.78% $2,745,670 $52,873 7.70%
Noninterest earning assets (f) $ 167,483 $ 166,878
---------- ----------
TOTAL ASSETS $3,323,004 $2,912,548
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY:
- -------------------------------------
Interest bearing liabilities:
Savings accounts $ 416,831 $ 3,380 3.24% $ 373,521 $ 2,998 3.21%
Now accounts $ 328,574 $ 1,067 1.30% $ 296,839 $ 1,335 1.80%
Money market demand accounts $ 194,126 $ 1,753 3.61% $ 150,637 $ 1,373 3.65%
Certificate accounts $1,729,640 $22,986 5.32% $1,454,807 $19,426 5.34%
Borrowed funds (g) $ 280,009 $ 3,851 5.50% $ 292,253 $ 3,756 5.14%
---------- ------- ---- ---------- ------- ----
Total interest bearing liabilities $2,949,180 $33,037 4.48% $2,568,057 $28,888 4.50%
Noninterest bearing liabilities $ 133,867 $ 114,905
---------- ----------
Total liabilities $3,083,047 $2,682,962
Shareholders' equity $ 239,957 $ 229,586
---------- ----------
TOTAL LIABILITIES AND EQUITY $3,323,004 $2,912,548
========== ==========
Net interest income/Interest rate spread $28,310 3.30% $23,985 3.20%
Net interest earning assets/Net interest margin $ 206,341 3.59% $ 177,613 3.49%
Ratio of interest earning assets to
interest bearing liabilities 1.07 X 1.07 X
</TABLE>
(a) Average gross loans receivable includes loans held as available-for-sale
and loans placed on nonaccrual status.
(b) Interest income includes accretion/amortization of deferred loan
fees/expenses.
(c) Average balances do not include the effect of unrealized gains or losses on
securities held as available-for-sale.
19
<PAGE>
(d) Interest income on tax-free investment securities is presented on a taxable
equivalent basis.
(e) Average balances include FNMA and FHLMC stock.
(f) Average balances include the effect of unrealized gains or losses on
securities held as available-for-sale.
(g) Average balances include FHLB borrowings, securities sold under agreements
to repurchase and other borrowings.
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 calculated using
monthly averages.
<TABLE>
<CAPTION>
Nine Months Ended March 31,
2000 1999
- --------------------------------------------------------------------------------------------------------------------------
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) $2,408,663 $145,261 8.04% $2,082,442 $128,265 8.21%
Mortgage-backed securities (c) $ 411,075 $ 20,072 6.51% $ 301,178 $ 13,165 5.83%
Investment securities (c) (d) (e) $ 222,020 $ 11,902 7.15% $ 191,120 $ 10,096 7.04%
FHLB stock $ 20,371 $ 1,050 6.87% $ 16,069 $ 879 7.29%
Other interest earning deposits $ 14,073 $ 703 6.66% $ 26,892 $ 658 3.26%
---------- -------- ---- ---------- -------- ----
Total interest earning assets $3,076,202 $178,988 7.76% $2,617,701 $153,063 7.80%
Noninterest earning assets (f) $ 175,838 $ 149,034
---------- ----------
TOTAL ASSETS $3,252,040 $2,766,735
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY:
- -------------------------------------
Interest bearing liabilities:
Savings accounts $ 416,211 $ 10,212 3.27% $ 347,326 $ 8,620 3.31%
Now accounts $ 333,408 $ 3,504 1.40% $ 293,223 $ 3,678 1.67%
Money market demand accounts $ 184,843 $ 5,168 3.73% $ 129,967 $ 3,462 3.55%
Certificate accounts $1,639,003 $ 65,961 5.37% $1,370,619 $ 57,158 5.56%
Borrowed funds (g) $ 319,134 $ 13,179 5.51% $ 312,616 $ 12,534 5.35%
---------- -------- ---- ---------- -------- ----
Total interest bearing liabilities $2,892,599 $ 98,024 4.52% $2,453,751 $ 85,452 4.64%
Noninterest bearing liabilities $ 122,561 $ 88,189
---------- ----------
Total liabilities $3,015,160 $2,541,940
Minority interest in subsidiary $ 0 $ 383
Shareholders' equity $ 236,880 $ 224,412
---------- ----------
TOTAL LIABILITIES AND EQUITY $3,252,040 $2,766,735
========== ==========
Net interest income/Interest rate spread $ 80,964 3.24% $ 67,611 3.16%
Net interest earning assets/Net interest margin $ 183,603 3.51% $ 163,950 3.44%
Ratio of interest earning assets to
interest bearing liabilities 1.06 X 1.07 X
</TABLE>
(a) Average gross loans receivable includes loans held as available-for-sale
and loans placed on nonaccrual status.
20
<PAGE>
(b) Interest income includes accretion/amortization of deferred loan
fees/expenses.
(c) Average balances do not include the effect of unrealized gains or losses on
securities held as available-for-sale.
(d) Interest income on tax-free investment securities is presented on a taxable
equivalent basis.
(e) Average balances include FNMA and FHLMC stock.
(f) Average balances include the effect of unrealized gains or losses on
securities held as available-for-sale.
(g) Average balances include FHLB borrowings, securities sold under agreements
to repurchase and other borrowings.
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, 2000 and 1999
- ------------------------------------------------------------------------
Rate Volume Rate/ Net
Volume Change
- ------------------------------------------------------------------------
Interest earning assets:
Loans receivable ($544) $5,567 ($67) $4,956
Mortgage-backed securities $785 $1,812 $337 $2,934
Investment securities $89 $407 $11 $507
FHLB stock ($11) $57 ($2) $44
Other interest earning deposits $448 ($117) ($298) $33
---- ------ ------ ---
Total interest earning assets $767 $7,726 ($19) $8,474
Interest bearing liabilities:
Savings accounts $31 $347 $4 $382
Now accounts ($371) $143 ($40) ($268)
Money market demand accounts ($13) $396 ($3) $380
Certificate accounts ($92) $3,670 ($18) $3,560
Borrowed funds $ 263 ($157) ($11) $ 95
------ ------ ------ ------
21
<PAGE>
- ------------------------------------------------------------------------
Rate Volume Rate/ Net
Volume Change
- ------------------------------------------------------------------------
Total interest bearing liabilities ($182) $4,399 ($68) $4,149
Net change in interest income $949 $3,327 $49 $4,325
==== ====== === ======
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.
Nine months ended March 31, 2000 and 1999
- ----------------------------------------------------------------------------
Rate Volume Rate/ Net
Volume Change
- ----------------------------------------------------------------------------
Interest earning assets:
Loans receivable ($2,678) $20,093 ($419) $16,996
Mortgage-backed securities $1,541 $4,804 $562 $6,907
Investment securities $150 $1,632 $24 $1,806
FHLB stock ($51) $236 ($14) $171
Other interest earning deposits $685 ($314) ($326) $45
---- ------ ------ ---
Total interest earning assets ($353) $26,451 ($173) $25,925
Interest bearing liabilities:
Savings accounts ($99) $1,710 ($19) $1,592
22
<PAGE>
- ----------------------------------------------------------------------------
Rate Volume Rate/ Net
Volume Change
- ----------------------------------------------------------------------------
Now accounts ($596) $504 ($82) ($174)
Money market demand accounts $172 $1,462 $72 $1,706
Certificate accounts ($1,998) $11,192 ($391) $8,803
Borrowed funds $376 $261 $8 $645
---- ---- -- ----
Total interest bearing liabilities ($2,145) $15,129 ($412) $12,572
Net change in interest income $1,792 $11,322 $239 $13,353
====== ======= ==== =======
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 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 risk inherent in 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:
23
<PAGE>
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, 2000 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, 2000 levels.
<TABLE>
<CAPTION>
Increase Decrease
--------------- ---------------
Parallel shift in interest rates over the next 12 months 1.0% 2.0% 1.0% 2.0%
------ ------ ------ ------
<S> <C> <C> <C> <C>
Projected percentage increase/(decrease) in net income (0.6%) (2.9%) (2.2%) (6.3%)
Projected increase/(decrease) in return on average equity (0.1%) (0.4%) (0.3%) (0.8%)
Projected increase/(decrease) in earnings per share $.00 ($.02) ($.01) ($.04)
Projected percentage increase/(decrease) in market value of equity (26.7%) (52.4%) 10.7% 13.6%
</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.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
- -------------------------
The Company and its subsidiaries are subject to a number of 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
- ---------------------------------------
24
<PAGE>
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
- -----------------------------------------------------------
Not applicable
Item 5. Other Information
- -------------------------
Stock Purchase
- --------------
In December, 1999, the Board of Trustees of Northwest Bancorp MHC authorized the
purchase of an additional 500,000 shares of the 12.7 million publicly traded
shares of Northwest Bancorp, Inc. via open market transactions. Following this
announcement, Northwest Bancorp MHC purchased 381,950 shares via open market
transactions and as a result currently owns 35.1 million shares or 74.1% of the
47.4 million outstanding common shares of Northwest Bancorp, Inc. Shares
purchased by Northwest Bancorp MHC will remain outstanding and will not become
treasury shares.
Business Combinations
- ---------------------
On April 18, 2000 the Company announced its plan to purchase nine retail office
facilities in Potter and Tioga Counties in Northern Pennsylvania from Sovereign
Bank. The agreement includes approximately $127 million in deposits and $53
million in consumer and business loans, along with the related fixed assets.
Subject to regulatory approval, the transaction is expected to be completed by
September 30, 2000 and will be accounted for using the purchase method of
accounting.
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
March 31,2000 March 31,1999
----------------- -----------------
Net income applicable to common stock $ 7,216,272 $ 4,928,863
Weighted-average common shares outstanding 47,360,769 47,247,592
----------- -----------
Basic earnings per share $ 0.15 $ 0.10
=========== ===========
Weighted-average common shares outstanding 47,360,769 47,247,592
Common stock equivalents due to effect of
stock options 218,176 431,308
----------- -----------
25
<PAGE>
Total weighted-average common shares and
equivalents 47,578,945 47,678,900
Diluted earnings per share $ 0.15 $ 0.10
=========== ===========
Nine Months Nine Months
Ended Ended
March 31,2000 March 31,1999
----------------- -----------------
Net income applicable to common stock $19,327,288 $14,195,631
Weighted-average common shares outstanding 47,286,281 46,914,379
----------- -----------
Basic earnings per share $ 0.41 $ 0.30
=========== ===========
Weighted-average common shares outstanding 47,286,281 46,914,379
Common stock equivalents due to effect of
stock options 291,158 514,166
----------- -----------
Total weighted-average common shares and
equivalents 47,577,439 47,428,545
Diluted earnings per share $ 0.41 $ 0.30
=========== ===========
Exhibit No. 27 Financial Data Schedule attached
(b) No Form 8-K reports were filed during the quarter
26
<PAGE>
SIGNATURE
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 12, 2000 By: /s/ William J. Wagner
------------------ ----------------------------------------------
William J. Wagner
Chief Financial Officer and Chief Operating
Officer
(Chief Financial and Accounting Officer and
Duly Authorized Representative)
27
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-END> MAR-31-2000
<CASH> 98,452
<INT-BEARING-DEPOSITS> 7,693
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 411,676
<INVESTMENTS-CARRYING> 240,474
<INVESTMENTS-MARKET> 228,106
<LOANS> 2,485,936
<ALLOWANCE> 17,713
<TOTAL-ASSETS> 3,367,613
<DEPOSITS> 2,850,135
<SHORT-TERM> 95,227
<LIABILITIES-OTHER> 28,866
<LONG-TERM> 151,395
0
0
<COMMON> 4,736
<OTHER-SE> 237,254
<TOTAL-LIABILITIES-AND-EQUITY> 3,367,613
<INTEREST-LOAN> 145,261
<INTEREST-INVEST> 31,427
<INTEREST-OTHER> 703
<INTEREST-TOTAL> 177,391
<INTEREST-DEPOSIT> 84,845
<INTEREST-EXPENSE> 98,024
<INTEREST-INCOME-NET> 79,367
<LOAN-LOSSES> 2,588
<SECURITIES-GAINS> 397
<EXPENSE-OTHER> 54,903
<INCOME-PRETAX> 29,457
<INCOME-PRE-EXTRAORDINARY> 29,457
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19,327
<EPS-BASIC> .41
<EPS-DILUTED> .41
<YIELD-ACTUAL> 7.76
<LOANS-NON> 13,106
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 16,773
<CHARGE-OFFS> 2,118
<RECOVERIES> 470
<ALLOWANCE-CLOSE> 17,713
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 17,713
</TABLE>
