<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 December 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)
<TABLE>
<S> <C>
Pennsylvania 23-2900888
-------------------------------- --------------
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
Liberty Street at Second Avenue, Warren Pennsylvania 16365
- ---------------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
</TABLE>
(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 December 31,
1999.
<PAGE>
NORTHWEST BANCORP, INC. AND SUBSIDIARIES
INDEX
PART I FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Consolidated Statements of Financial Condition as of
December 31, 1999, September 30, 1999 and
and June 30, 1999 (Unaudited) 1
Consolidated Statements of Income for the three and six months
ended December 31, 1999 and 1998 (Unaudited) 2
Consolidated Statements of Changes in Shareholders' Equity for
the six months ended December 31, 1999 and 1998 (Unaudited) 3
Consolidated Statements of Cash Flows for the three and six
months ended December 31, 1999 and 1998 (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 25
Item 5. Other Information 25
Item 6. Exhibits and Reports on Form 8-K 26
Signature 28
<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>
DECEMBER 31, SEPTEMBER 30, JUNE 30,
ASSETS 1999 1999 1999
- ---------------------------------------------------------------- ------------- --------------- ----------
<S> <C> <C> <C>
CASH AND CASH EQUIVALENTS $ 101,115 114,801 75,325
INTEREST-EARNING DEPOSITS IN OTHER FINANCIAL
INSTITUTIONS 4,635 6,094 8,928
MARKETABLE SECURITIES AVAILABLE-FOR-SALE (AMORTIZED
COST OF $422,534, $428,335 AND $350,339) 418,685 427,437 352,780
MARKETABLE SECURITIES HELD-TO-MATURITY (MARKET
VALUE OF $233,793, $243,581 AND $250,351) 243,958 251,244 253,864
-------------- --------------- ----------
TOTAL CASH, INTEREST-EARNING DEPOSITS AND
MARKETABLE SECURITIES 768,393 799,576 690,897
LOANS RECEIVABLE, NET OF ALLOWANCE FOR ESTIMATED
LOSSES OF $17,060, $16,756 AND $16,773 2,457,295 2,405,978 2,285,238
ACCRUED INTEREST RECEIVABLE 14,850 15,892 14,548
REAL ESTATE OWNED, NET 2,228 2,656 3,383
PREMISES AND EQUIPMENT, NET 39,504 38,706 35,463
GOODWILL AND OTHER INTANGIBLES 55,757 57,365 38,253
OTHER ASSETS 12,553 11,924 11,050
-------------- --------------- ----------
TOTAL ASSETS $ 3,350,580 3,332,097 3,078,832
============== =============== ==========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
- ----------------------------------------------------------------
<S> <C> <C> <C>
LIABILITIES:
DEPOSITS $ 2,743,034 2,782,846 2,463,711
BORROWED FUNDS 341,931 287,705 348,915
ADVANCES BY BORROWERS FOR TAXES AND INSURANCE 16,251 9,127 18,954
ACCRUED INTEREST PAYABLE 2,764 4,901 3,698
OTHER LIABILITIES 9,077 12,618 9,897
-------------- --------------- ----------
TOTAL LIABILITIES 3,113,057 3,097,197 2,845,175
SHAREHOLDERS' EQUITY:
COMMON STOCK, $.10 PAR VALUE: 100,000,000 SHARES
AUTHORIZED, 47,360,769, 47,356,993 AND 47,355,073 ISSUED
AND OUTSTANDING, RESPECTIVELY 4,736 4,736 4,736
PAID-IN CAPITAL 70,394 70,385 70,374
RETAINED EARNINGS 166,068 161,843 157,745
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS):
NET UNREALIZED GAIN (LOSS) ON SECURITIES
AVAILABLE-FOR-SALE, NET OF INCOME TAXES (2,920) (888) 1,978
UNEARNED EMPLOYEE STOCK OWNERSHIP PLAN SHARES (561) (561) (561)
UNEARNED RECOGNITION AND RETENTION PLAN SHARES (194) (615) (615)
-------------- --------------- ----------
237,523 234,900 233,657
-------------- --------------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 3,350,580 3,332,097 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 SIX MONTHS
ENDED DECEMBER 31, ENDED DECEMBER 31,
1999 1998 1999 1998
--------------- -------------- ------------ ------------
<S> <C> <C> <C> <C>
INTEREST INCOME:
LOANS RECEIVABLE $ 48,889 42,481 95,444 83,404
MORTGAGE-BACKED SECURITIES 6,864 4,280 12,926 8,953
TAXABLE INVESTMENT SECURITIES 2,707 2,834 5,636 5,745
TAX-FREE INVESTMENT SECURITIES 1,042 572 2,073 1,060
INTEREST-EARNING DEPOSITS 247 279 494 482
--------------- -------------- ------------ ------------
TOTAL INTEREST INCOME 59,749 50,446 116,573 99,644
INTEREST EXPENSE:
DEPOSITS 29,197 24,447 55,659 47,786
BORROWED FUNDS 4,140 4,382 9,328 8,778
--------------- -------------- ------------ ------------
TOTAL INTEREST EXPENSE 33,337 28,829 64,987 56,564
NET INTEREST INCOME 26,412 21,617 51,586 43,080
PROVISION FOR LOAN LOSSES 811 866 1,435 1,656
--------------- -------------- ------------ ------------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 25,601 20,751 50,151 41,424
NONINTEREST INCOME:
LOAN FEES AND SERVICE CHARGES 322 202 680 496
SERVICE CHARGES ON DEPOSIT ACCOUNTS 1,314 766 2,542 1,480
GAIN ON SALE OF MARKETABLE SECURITIES, NET 0 30 36 76
LOSS ON SALE OF LOANS, NET (8) (265) (15) (418)
GAIN (LOSS) ON SALE OF REAL ESTATE OWNED, NET 3 (7) 28 85
OTHER OPERATING INCOME 768 666 1,486 1,449
--------------- -------------- ------------ ------------
TOTAL NONINTEREST INCOME 2,399 1,392 4,757 3,168
NONINTEREST EXPENSE:
COMPENSATION AND EMPLOYEE BENEFITS 9,379 8,553 18,903 16,713
PREMISES AND OCCUPANCY COSTS 2,143 1,557 4,258 3,141
OFFICE OPERATIONS 1,594 1,066 2,773 2,051
FEDERAL INSURANCE PREMIUMS 309 278 604 555
DATA PROCESSING 659 640 1,333 1,070
CHECK PROCESSING AND ATM EXPENSE 922 463 1,725 998
BANK SERVICE CHARGES 444 330 732 640
ADVERTISING 607 541 1,105 854
LEGAL, AUDIT AND PROFESSIONAL SERVICES 205 189 497 447
REAL ESTATE OWNED EXPENSE 123 130 314 315
AMORTIZATION OF INTANGIBLES 1,577 733 2,681 1,367
OTHER EXPENSES 944 518 1,423 965
--------------- -------------- ------------ ------------
TOTAL NONINTEREST EXPENSE 18,906 14,998 36,348 29,116
INCOME BEFORE INCOME TAXES 9,094 7,145 18,560 15,476
FEDERAL AND STATE INCOME TAXES 2,976 2,888 6,449 6,212
MINORITY INTEREST IN NET LOSS OF SUBSIDIARY 0 0 0 3
--------------- -------------- ------------ ------------
NET INCOME $ 6,118 4,257 12,111 9,267
=============== ============== ============ ============
BASIC EARNINGS PER SHARE $ 0.13 0.09 0.26 0.20
=============== ============== ============ ============
DILUTED EARNINGS PER SHARE $ 0.13 0.09 0.25 0.20
=============== ============== ============ ============
</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>
Common Stock
--------------------------- Paid-in Retained
Shares Amount Capital Earnings
------------ ----------- ---------- -----------
<S> <C> <C> <C> <C>
Beginning balance at June 30, 1998 46,840,970 $ 4,684 67,248 145,259
Comprehensive income:
Net income - - - 9,267
Change in unrealized gain on securities,
net of tax and reclassification adjustment - - - -
------------ ----------- ---------- -----------
Total comprehensive income - - - 9,267
Stock issuance for acquisition * 475,128 48 1,145 -
Exercise of stock options 32,680 3 180 -
ESOP shares released - - - -
RRP shares released - - - -
Dividends declared - - - (3,768)
------------ ----------- ---------- -----------
Ending balance at December 31, 1998 47,348,778 $ 4,735 68,573 150,758
============ =========== ========== ===========
<CAPTION>
Accum. Unearned Unearned
Other Employee Recognition
Compre- Stock and Total
hensive Ownership Retention Shareholders'
Income Plan Shares Plan Shares Equity
--------------------- ------------------- ------------------- ----------------
<S> <C> <C> <C> <C>
Beginning balance at June 30, 1998 3,371 (1,412) (1,271) 217,879
Comprehensive income:
Net income - - - 9,267
Change in unrealized gain on securities,
net of tax and reclassification adjustment 2,056 - - 2,056
--------------------- ------------------- ------------------- ----------------
Total comprehensive income 2,056 - - 11,323
Stock issuance for acquisition - - - 1,193
Exercise of stock options - - - 183
ESOP shares released - - - 0
RRP shares released - - - 0
Dividends declared - - - (3,768)
--------------------- ------------------- ------------------- ----------------
Ending balance at December 31, 1998 5,427 (1,412) (1,271) 226,810
===================== =================== =================== ================
<CAPTION>
Common Stock
--------------------------- Paid-in Retained
Shares Amount Capital Earnings
------------ ----------- ---------- -----------
<S> <C> <C> <C> <C>
Beginning balance at June 30, 1999 47,355,073 $ 4,736 70,374 157,745
Comprehensive income:
Net income - - - 12,111
Change in unrealized gain on securities,
net of tax and reclassification adjustment - - - -
------------ -------- ---------- -----------
Total comprehensive income - - - 12,111
Exercise of stock options 5,696 - 20 -
ESOP shares released - - - -
RRP shares released - - - -
Dividends declared - - - (3,788)
------------ -------- ---------- -----------
Ending balance at December 31, 1999 47,360,769 $ 4,736 70,394 166,068
============ ======== ========== ===========
<CAPTION>
Accum. Unearned Unearned
Other Employee Recognition
Compre- Stock and Total
hensive Ownership Retention Shareholders'
Income (Loss) Plan Shares Plan Shares Equity
--------------------- ------------------- -----------------------------------
<S> <C> <C> <C> <C>
Beginning balance at June 30, 1999 1,978 (561) (615) 233,657
Comprehensive income:
Net income - - - 12,111
Change in unrealized gain on securities,
net of tax and reclassification adjustment (4,898) - - (4,898)
--------------------- ------------------- -----------------------------------
Total comprehensive income (4,898) - - 7,213
Exercise of stock options - - - 20
ESOP shares released - - - 0
RRP shares released - - 421 421
Dividends declared - - - (3,788)
--------------------- ------------------- -----------------------------------
Ending balance at December 31, 1999 (2,920) (561) (194) 237,523
===================== =================== ===================================
</TABLE>
* Represents shares issued for the acquisition of Corry Savings Bank
See accompanying notes to unaudited consolidated financial statements
<PAGE>
NORTHWEST BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE THREE AND SIX MONTHS ENDED DECEMBER 31, 1999 AND 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
12/31/99 12/31/98 12/31/99 12/31/98
------------ ------------ ---------- ----------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net Income $ 6,118 4,257 12,111 9,267
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Provision for loan losses 811 866 1,435 1,656
Net loss (gain) on sales of assets 5 242 (49) 257
Purchase of marketable securities, trading - - - (5,284)
Proceeds from sale of marketable securities, trading - 30 8,822 5,360
Amortization of goodwill and other intangible assets 1,577 733 2,681 1,367
Net depreciation, amortization and accretion 926 534 2,064 985
Decrease (increase) in other assets 1,725 (14,423) 1,653 (13,729)
Increase (decrease) in other liabilities (5,573) (1,202) (3,179) 621
Amortization of premium (discount) on marketable securities (121) 3 (232) (31)
Noncash compensation expense related to
stock benefit plans 316 684 694 1,400
Other - - - 226
------------ ------------ ---------- ----------
Net cash provided (used) by operating activities 5,784 (8,276) 26,000 2,095
INVESTING ACTIVITIES:
Purchase of marketable securities held-to-maturity - (30,520) (8,475) (31,520)
Purchase of marketable securities available-for-sale (1,000) (19,776) (106,718) (21,537)
Proceeds from maturities and principal reductions
of marketable securities held-to-maturity 7,320 24,883 18,474 31,892
Proceeds from maturities and principal reductions
of marketable securities available-for-sale 6,888 19,333 12,940 32,561
Proceeds from sales of marketable securities,
available-for-sale - - 15,059 -
Loan originations (154,807) (227,989) (343,154) (450,887)
Proceeds from loan maturities and principal reductions 101,891 94,115 215,103 210,347
Proceeds from loan sales - 3,389 - 7,365
Purchase of Federal Home Loan Bank Stock - (3,311) (3,112) (4,375)
Proceeds from sale of real estate owned 893 1,718 1,905 2,271
Net (purchase) sale of real estate owned for investment (70) (21) (70) (364)
Purchase of premises and equipment (1,698) (2,586) (4,832) (3,548)
Acquisitions, net of cash received - 157,964 203,319 152,994
------------ ------------ ---------- ----------
Net cash provided (used) by investing activities $ (40,583) 17,199 439 (74,801)
</TABLE>
4
<PAGE>
NORTHWEST BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
12/31/99 12/31/98 12/31/99 12/31/98
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
FINANCING ACTIVITIES:
Increase (decrease) in deposits, net $ (39,812) 57,641 8,513 117,023
Proceeds from long-term borrowings 7,351 2,782 16,929 88,406
Repayments of long-term borrowings (1,931) (18,994) (7,552) (68,306)
Net increase (decrease) in short-term borrowings 48,806 (32,001) (16,361) (20,579)
Increase (decrease) in advances by borrowers for
taxes and insurance 7,124 6,446 (2,703) (597)
Cash dividends paid (1,893) (1,893) (3,788) (3,768)
Stock issuance for acquisition - 1,193 - 1,193
Proceeds from stock options exercised 9 53 20 183
------------ ------------ ------------ ------------
Net cash provided (used) by financing activities 19,654 15,227 (4,942) 113,555
Net increase (decrease) in cash and cash equivalents $ (15,145) 24,150 21,497 40,849
============ ============ ============ ============
Cash and cash equivalents at beginning of period $ 120,895 76,094 84,253 59,395
Net increase (decrease) in cash and cash equivalents (15,145) 24,150 21,497 40,849
------------ ------------ ------------ ------------
Cash and cash equivalents at end of period $ 105,750 100,244 105,750 100,244
============ ============ ============ ============
Cash paid during the period for:
Interest on deposits and borrowings (including interest
credited to deposit accounts of $23,463, $18,087,
$44,018 and $34,434, respectively) $ 35,474 29,753 65,921 56,257
============ ============ ============ ============
Income taxes $ 7,881 7,260 8,415 9,158
============ ============ ============ ============
Business acquisitions:
Fair value of assets acquired $ - 43,785 68,643 46,842
Cash received (paid) - 157,964 203,319 152,994
Minority interest - - - 1,913
------------ ------------ ------------ ------------
Liabilities assumed $ - 201,749 271,962 201,749
============ ============ ============ ============
Non-cash activities:
Loans transferred to real estate owned $ 462 1,479 881 1,905
============ ============ =========== ===========
Sale of real estate owned financed by the Company $ 117 133 261 222
============ ============ =========== ===========
</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
six months ended December 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 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. The accounting for changes in the fair value of a derivative
(that is, gains and losses)
6
<PAGE>
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.
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 December 31,
- ----------------------------------------------------------------------------
1999
- ----
Assets
- ------
At December 31, 1999, the Company had total assets of $3.351 billion, an
increase of approximately $271.7 million, or 8.8%, from $3.079 billion at June
30, 1999. This increase was funded primarily by a $279.3 million increase in
deposits and net income of $12.1 million.
Cash and cash equivalents, interest-earning deposits and marketable securities
totaled $768.4 million at December 31, 1999, an increase of $77.5 million, or
11.2%, from $690.9 million at June 30, 1999. The Company utilized the deposits
received from office acquisitions to acquire additional marketable securities as
well as increase its Y2K cash reserve levels. Net loans receivable increased by
$172.1 million, or 7.5%, to $2.457 billion at December 31, 1999 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 $17.5
million, or 45.7%, to $55.8 million at December 31, 1999 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 $279.3 million, or 11.3%, to $2.743 billion at December
31, 1999 from $2.464 billion at June 30, 1999. This increase resulted primarily
from the purchase of eight full-service offices with deposits of $270.8 million
and normal internal deposit growth. Borrowed funds decreased by $7.0 million, or
2.0%, to $341.9 million at December 31, 1999 from $348.9 million at June 30,
1999 as the Company's asset growth was funded primarily by the aforementioned
deposit acquisitions.
8
<PAGE>
Capital Resources and Liquidity
- -------------------------------
Total capital at December 31, 1999 was $237.5 million, an increase of $3.8
million, or 1.6%, from $233.7 million at June 30, 1999. This increase was
primarily attributable to net income for the six month period of $12.1 million
which was partially offset by the declaration of common stock dividends of $3.8
million. Also affecting capital was a $4.9 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 December 31, 1999, all regulatory capital requirements were exceeded. The
actual, required, and well capitalized levels as of December 31, 1999 and June
30, 1999 are as follows: (dollars in thousands)
<TABLE>
<CAPTION>
December 31, 1999 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. $199,535 11.15% $143,168 8.00% $178,960 10.00%
- -------------------------------------------------------------------------------------------------
Northwest Savings Bank $187,520 10.77% $139,286 8.00% $174,108 10.00%
- -------------------------------------------------------------------------------------------------
Jamestown Savings Bank $ 7,743 16.21% $3,821 8.00% $4,777 10.00%
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
Tier 1 Capital (to risk weighted
assets):
- -------------------------------------------------------------------------------------------------
Northwest Bancorp, Inc. $182,475 10.20% $71,584 4.00% $107,376 6.00%
- -------------------------------------------------------------------------------------------------
Northwest Savings Bank $169,898 9.76% $69,643 4.00% $104,465 6.00%
- -------------------------------------------------------------------------------------------------
Jamestown Savings Bank $7,340 15.37% $1,911 4.00% $2,866 6.00%
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
Tier 1 Capital (core) (to average
assets):
- -------------------------------------------------------------------------------------------------
Northwest Bancorp, Inc. $182,475 5.53% $98,910 3.00%* $164,851 5.00%
- -------------------------------------------------------------------------------------------------
Northwest Savings Bank $169,898 5.30% $96,094 3.00%* $160,156 5.00%
- -------------------------------------------------------------------------------------------------
Jamestown Savings Bank $7,340 8.27% $2,662 3.00%* $4,437 5.00%
- -------------------------------------------------------------------------------------------------
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
June 30, 1999 Minimum Capital Well Capitalized
Actual Requirements Requirements
- -------------------------------------------------------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
- -------------------------------------------------------------------------------------------------
Total Capital (to risk weighted assets):
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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 December 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
December 31, 1999 was 24.3%. 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 $3.3 million, or 16.9%, to $16.2 million at December 31,
1999 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: December 31, 1999 June 30, 1999
- ------------------------------------------------------------------------------
One-to-four family residential loans $ 8,322 $ 8,623
- ------------------------------------------------------------------------------
Multifamily and commercial real estate loans 1,999 2,141
- ------------------------------------------------------------------------------
Consumer loans 3,467 2,202
- ------------------------------------------------------------------------------
Commercial business loans 209 3,150
- ------------------------------------------------------------------------------
Total $13,997 $16,116
- ------------------------------------------------------------------------------
Total nonperforming loans as a percentage
of net loans receivable .57% .71%
- ------------------------------------------------------------------------------
Total real estate acquired through
foreclosure and other real estate owned $ 2,228 $ 3,383
- ------------------------------------------------------------------------------
Total nonperforming assets $16,225 $19,499
- ------------------------------------------------------------------------------
Total nonperforming assets as a percentage
of total assets .48% .63%
- ------------------------------------------------------------------------------
12
<PAGE>
Comparison of Operating Results for the Three Months and Six Months Ended
- -------------------------------------------------------------------------
December 31, 1999 and 1998
- --------------------------
General
- -------
Net income for the three months ended December 31, 1999 was $6.1 million, or
$.13 per share, an increase of $1.8 million, or 41.9%, from $4.3 million, or
$.09 per share, for the same quarter last year. This increase in net income
resulted primarily from a $4.8 million increase in net interest income and a
$1.0 million increase in noninterest income which were partially offset by a
$3.9 million increase in noninterest expense.
For the six months ended December 31, 1999 net income was $12.1 million, or $.25
per diluted share, an increase of $2.8 million, or 30.1%, from $9.3 million, or
$.20 per diluted share, for the same period last year. This increase in net
income resulted primarily from an $8.5 million increase in net interest income
and a $1.6 million increase in noninterest income which was partially offset by
a $7.2 million increase in noninterest expense.
Net Interest Income
- -------------------
For the three months ended December 31, 1999, total interest income increased by
$9.3 million, or 18.5%, to $59.7 million compared to $50.4 million for the three
months ended December 31, 1998. This increase resulted primarily from a $475.7
million, or 18.2%, increase in average interest earning assets to $3.096 billion
for the three months ended December 31, 1999 from $2.620 billion for the three
months ended December 31, 1998. Also contributing to this increase in total
interest income was an increase in the yield on average interest earning assets
to 7.79% for the three months ended December 31, 1999 from 7.75% 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
$450.0 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 $6.4 million, or 15.1%, to
$48.9 million for the quarter ended December 31, 1999 compared to $42.5 million
during the same quarter last year. This increase resulted primarily from a
$337.2 million, or 16.2%, increase in average loans outstanding to $2.419
billion for the quarter ended December 31, 1999 from $2.081 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 8.09% for the quarter ended December
31, 1999 from 8.16% for the comparable period last year. This decrease in
average
13
<PAGE>
yield resulted primarily from 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 $2.6 million, or
60.5%, to $6.9 million for the three months ended December 31,1999 from $4.3
million for the same period last year. This increase resulted primarily from a
$118.9 million, or 39.1%, increase in the average balance of mortgage-backed
securities to $422.7 million for the three months ended December 31, 1999 from
$303.8 million for the three months ended December 31, 1998 combined with an
increase in the average yield to 6.49% from 5.64% 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 $549,000, or 16.3%, on a
taxable equivalent basis, to $3.9 million for the three months ended December
31, 1999 from $3.4 million for the three months ended December 31, 1998. An
increase in the average balance of investment securities of $32.5 million, or
17.2%, to $221.4 million for the three months ended December 31, 1999 from
$188.9 million for the three months ended December 31, 1998 was partially offset
by a decrease in the average yield to 7.09% for the quarter ended December 31,
1999 from 7.15% 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 decrease in average yield resulted primarily from the purchase of
securities over the last twelve months that have a lower yield than other
securities in the Company's investment portfolio.
Interest income on interest-earning deposits decreased by $32,000, or 11.5%, to
$247,000 for the three months ended December 31, 1999 from $279,000 for the
three months ended December 31, 1998. A decrease in the average balance of
interest-earning deposits of $17.1 million, or 57.6%, to $12.6 million for the
three months ended December 31, 1999 from $29.7 million for the three months
ended December 31, 1998 was partially offset by an increase in the average yield
to 7.86% from 3.75% 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 $4.5 million, or 15.6%, to $33.3 million for the
three months ended December 31, 1999 from $28.8 million for the three months
ended December 31, 1998. This increase resulted from an increase of $457.1
million, or 18.6%, in the average balance of interest-bearing liabilities to
$2.920 billion for the quarter ended December 31, 1999 from $2.463 billion for
the quarter ended December 31, 1998. Partially offsetting this increase in
balance was a decrease in the average cost of interest-bearing liabilities to
4.57% for the quarter ended December 31, 1999 from 4.68% for the comparable
period last year. The increase in average interest-bearing liabilities resulted
primarily from an increase of $476.5 million, or 22.4%, in the average balance
of deposits, attributed primarily to the office acquisitions over the last
twelve months which contributed average deposits of approximately $450.0
million. Partially offsetting this
14
<PAGE>
increase in deposits was a decrease of $19.3 million, or 5.8%, in average
borrowed funds to $315.2 million for the quarter ended December 31, 1999 from
$334.5 million for the quarter ended December 31, 1998. 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 the average cost of
certificates of deposit to 5.50% for the quarter ended December 31, 1999 from
5.66% for the quarter ended December 31, 1998 as high-rate certificates of
deposit rolled over at generally lower rates. In addition, the Company lowered
its checking account rates during the quarter ended December 31, 1999 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 $4.8 million, or 22.2%, to $26.4 million for
the three months ended December 31, 1999 compared to $21.6 million for the three
months ended December 31, 1998.
For the six months ended December 31, 1999 total interest income increased by
$17.0 million, or 17.1%, to $116.6 million compared to $99.6 million for the six
months ended December 31, 1998. This increase resulted primarily from a $500.7
million, or 19.6%, increase in average interest earning assets to $3.062 billion
for the six months ended December 31, 1999 from $2.561 billion for the six
months ended December 31, 1998. Partially offsetting this increase in average
balance was a decrease in the average yield to 7.68% for the six months ended
December 31, 1999 from 7.82% 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 $12.0 million, or 14.4%, to
$95.4 million for the six months ended December 31, 1999 from $83.4 million for
the six months ended December 31, 1998. This increase resulted primarily from a
$363.9 million, or 18.0%, increase in average loans outstanding to $2.388
billion for the six months ended December 31, 1999 from $2.024 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 7.99% for the six
months ended December 31, 1999 from 8.24% for the six months ended December 31,
1998. Interest income on mortgage-backed securities increased by $3.9 million,
or 43.3%, to $12.9 million for the six months ended December 31, 1999 from $9.0
million for the six months ended December 31, 1998. This increase resulted from
a $109.7 million, or 36.2%, increase in the average balance of mortgage-backed
securities to $412.6 million for the six months ended December 31, 1999 from
$302.9 million for the six months ended December 31, 1998 combined with an
increase in the average yield to 6.27% from 5.91%. Interest income on investment
securities increased by $1.3 million, or 19.1%, on a taxable equivalent basis,
to $8.1 million for the six months ended December 31, 1999 from $6.8 million for
the six months ended December 31, 1998. This increase resulted from a $33.3
million, or 17.4%, increase in the average balance of investment securities to
$225.1 million for the six months ended December 31, 1999 from $191.8 million
for the six months ended December 31, 1998 combined with an increase in the
average yield to 7.18% from 7.07%.
15
<PAGE>
Interest income on interest-earning deposits increased by $12,000, or 2.5%, to
$494,000 for the six months ended December 31, 1999 from $482,000 for the six
months ended December 31, 1998. A decrease in the average balance of interest-
earning deposits by $11.2 million, or 41.3%, to $15.9 million for the six months
ended December 31, 1999 from $27.1 million for the six months ended December 31,
1998 was more than offset by an increase in the average yield to 6.20% from
3.55%. 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 December 31, 1999 and 1998.
For the six months ended December 31, 1999 interest expense increased by $8.4
million, or 14.8%, to $65.0 million compared to $56.6 million for the six months
ended December 31, 1998. This increase resulted primarily from a $490.8 million,
or 20.4%, increase in the average balance of interest-bearing liabilities to
$2.893 billion for the six months ended December 31, 1999 from $2.402 billion
for the six months ended December 31, 1998. Partially offsetting this increase
in average balance was a decrease in the average cost of funds to 4.49% for the
six months ended December 31, 1999 compared to 4.71% for the six months ended
December 31, 1998. The increase in average interest-bearing liabilities resulted
primarily from a $473.6 million, or 22.8%, 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 $17.2 million, or 5.4%, increase in average borrowed funds to $338.1
million for the six months ended December 31, 1999 from $320.9 million for the
six months ended December 31, 1998. The decrease in the average cost of funds
during the current six 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 decreased by $55,000, or 6.4%, to $811,000 for the
quarter ended December 31, 1999 from $866,000 for the quarter ended December
31,1998. For the six months ended December 31, 1999 the provision for loan
losses decreased by $221,000, or 13.3%, to $1.4 million from $1.6 million for
the six months ended December 31, 1998. 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 $1.0 million, or 90.9%, to $2.4 million for the
three months ended December 31, 1999 from $1.4 million for the three months
ended December 31, 1998. Of this increase, approximately $350,000 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 $275,000 and the increased usage of
debit cards by customers contributed increased transaction fee income of
approximately $150,000. Also
16
<PAGE>
contributing to the quarter over quarter increase in noninterest income were
losses in the prior year on the sale of loans of $265,000 associated with the
discontinuation of the Company's mortgage banking subsidiary in December 1998.
For the six months ended December 31, 1999 noninterest income increased by $1.6
million, or 50.0%, to $4.8 million compared to $3.2 million for the six months
ended December 31, 1998. This increase was attributable to additional loan and
deposit fee income of approximately $700,000, foreign ATM surcharges of
approximately $400,000 and additional debit card transaction fee income of
approximately $250,000. In addition, the prior year contained losses on the sale
of loans of approximately $400,000 that were not experienced in the current
fiscal year.
Noninterest Expense
- -------------------
Noninterest expense increased by $3.9 million, or 26.0%, to $18.9 million for
the three months ended December 31, 1999 from $15.0 million for the three months
ended December 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 December 31, 1998, the Company opened or
acquired 24 full service banking facilities which represents an increase of
approximately 30% 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, except real estate owned expense,
increased for the three months ended December 31, 1999 when compared to the
previous year. Compensation and employee benefit expense increased by $826,000,
or 9.7%, to $9.4 million; premises and occupancy costs increased by $586,000, or
37.6%, to $2.1 million; and other expenses increased by $1.6 million, or 38.1%,
to $5.8 million. In addition, as a result of recording goodwill of approximately
$41.0 million relating to the acquisition of nineteen offices with deposits over
the last twelve months, the expense for amortization of intangibles increased by
$844,000, or 115.1%, to $1.6 million for the quarter ended December 31, 1999
from $733,000 in the previous year.
For the six months ended December 31, 1999, noninterest expense increased by
$7.2 million, or 24.7%, to $36.3 million compared to $29.1 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
- ------------
The provision for income taxes for the three months ended December 31, 1999
increased by $88,000, or 3.0%, to $3.0 million compared to $2.9 million for the
same period last year. This increase was primarily due to an increase in income
before tax of $2.0 million, or 28.2%, offset by a lower effective tax rate of
32.7% for the three months ended December 31, 1999 compared to 40.4% for the
same period in the prior year. This decrease in the effective tax rate was
primarily due to an increased emphasis on investing in tax exempt assets as well
as the recognition of approximately $250,000 in federal tax credits related to
the Company's participation in low-income housing projects.
17
<PAGE>
For the six months ended December 31, 1999, the provision for income taxes
increased by $237,000, or 3.8%, to $6.4 million compared to $6.2 million for the
same period last year. This increase resulted primarily from a $3.1 million
increase in income before tax which was partially offset by a lower effective
tax rate due to an increase in tax exempt assets and the previously mentioned
federal tax credits.
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 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 December 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) $2,418,664 $48,889 8.09% $2,081,462 $42,481 8.16%
Mortgage-backed securities (c) $ 422,734 $ 6,864 6.49% $ 303,750 $ 4,280 5.64%
Investment securities (c) (d) (e) $ 221,388 $ 3,924 7.09% $ 188,916 $ 3,375 7.15%
FHLB stock $ 20,778 $ 362 6.97% $ 16,573 $ 326 7.87%
Other interest earning deposits $ 12,565 $ 247 7.86% $ 29,735 $ 279 3.75%
---------- ------- ---- ---------- ------- ----
Total interest earning assets $3,096,129 $60,286 7.79% $2,620,436 $50,741 7.75%
Noninterest earning asset (f) $ 188,822 $ 149,542
---------- ----------
TOTAL ASSETS $3,284,951 $2,769,978
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY:
- ------------------------------------
Interest bearing liabilities:
Savings accounts $ 417,207 $ 3,421 3.28% $ 340,359 $ 2,791 3.28%
Now accounts $ 335,740 $ 1,101 1.31% $ 289,248 $ 1,191 1.65%
Money market demand accounts $ 192,188 $ 1,862 3.88% $ 125,564 $ 1,030 3.28%
Certificate accounts $1,659,754 $22,813 5.50% $1,373,257 $19,435 5.66%
Borrowed funds (g) $ 315,184 $ 4,140 5.25% $ 334,498 $ 4,382 5.24%
---------- ------- ---- ---------- ------- ----
Total interest bearing liabilities $2,920,073 $33,337 4.57% $2,462,926 $28,829 4.68%
Noninterest bearing liabilities $ 128,914 $ 83,153
---------- ----------
Total liabilities $3,048,987 $2,546,079
Minority interest in subsidiary $ 0 $ 0
Shareholders' equity $ 235,964 $ 223,899
---------- ----------
TOTAL LIABILITIES AND EQUITY $3,284,951 $2,769,978
========== ==========
Net interest income/Interest rate spread $26,949 3.22% $21,912 3.07%
Net interest earning assets/Net interest margin $ 176,056 3.48% $ 157,510 3.34%
Ratio of interest earning assets to 1.06 X 1.06 X
interest bearing liabilities
- ------------------------------------------------------------------------------------------------------------------
</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) Interest income on marketable securities does not include market value
adjustments for securities 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.
19
<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>
Six Months Ended December 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) $2,387,760 $ 95,444 7.99% $2,023,816 $ 83,404 8.24%
Mortgage-backed securities (c) $ 412,598 $ 12,926 6.27% $ 302,945 $ 8,953 5.91%
Investment securities (c) (d) (e) $ 225,143 $ 8,084 7.18% $ 191,849 $ 6,785 7.07%
FHLB stock $ 20,291 $ 693 6.83% $ 15,232 $ 566 7.43%
Other interest earning deposits $ 15,935 $ 494 6.20% $ 27,149 $ 482 3.55%
---------- -------- ---- ---------- -------- ----
Total interest earning assets $3,061,727 $117,641 7.68% $2,560,991 $100,190 7.82%
Noninterest earning asset (f) $ 185,944 $ 139,948
---------- ----------
TOTAL ASSETS $3,247,671 $2,700,939
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY:
- ------------------------------------
Interest bearing liabilities:
Savings accounts $ 416,648 $ 6,832 3.28% $ 335,029 $ 5,622 3.36%
Now accounts $ 340,709 $ 2,437 1.43% $ 292,159 $ 2,343 1.60%
Money market demand accounts $ 184,323 $ 3,415 3.71% $ 120,916 $ 2,089 3.46%
Certificate accounts $1,613,494 $ 42,975 5.33% $1,333,459 $ 37,732 5.66%
Borrowed funds (g) $ 338,115 $ 9,328 5.52% $ 320,927 $ 8,778 5.47%
---------- -------- ---- ---------- -------- ----
Total interest bearing liabilities $2,893,289 $ 64,987 4.49% $2,402,490 $ 56,564 4.71%
Noninterest bearing liabilities $ 118,909 $ 76,104
---------- ----------
Total liabilities $3,012,198 $2,478,594
Minority interest in subsidiary $ 0 $ 547
Shareholders' equity $ 235,473 $ 221,798
---------- ----------
TOTAL LIABILITIES AND EQUITY $3,247,671 $2,700,939
========== ==========
Net interest income/Interest rate spread $ 52,654 3.19% $ 43,626 3.11%
Net interest earning assets/Net interest margin $ 168,438 3.44% $ 158,501 3.41%
Ratio of interest earning assets to 1.06 X 1.07 X
interest bearing liabilities
- ------------------------------------------------------------------------------------------------------------------
</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) Interest income on marketable securities does not include market value
adjustments for securities 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.
20
<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 December 31, 1999 and 1998
- ---------------------------------------------------------------------------
Rate Volume Rate/ Net
Volume Change
- ---------------------------------------------------------------------------
Interest earning assets:
Loans receivable ($408) $6,882 ($66) $6,408
Mortgage-backed securities $652 $1,677 $255 $2,584
Investment securities ($27) $580 ($4) $549
FHLB stock ($37) $83 ($10) $36
Other interest earning deposits $306 ($161) ($177) ($32)
------ ------ ------ ------
Total interest earning assets $486 $9,061 ($2) $9,545
Interest bearing liabilities:
Savings accounts $0 $630 $0 $630
Now accounts ($242) $191 ($39) ($90)
Money market demand accounts $186 $547 $99 $832
Certificate accounts ($560) $4,055 ($117) $3,378
Borrowed funds $12 ($253) ($1) ($242)
------ ------ ------ ------
Total interest bearing liabilities ($604) $5,170 ($58) $4,508
Net change in interest income $1,090 $3,891 $56 $5,037
====== ====== ====== ======
- ---------------------------------------------------------------------------
21
<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.
Six months ended December 31, 1999 and 1998
- ------------------------------------------------------------------------------
Rate Volume Rate/ Net
Volume Change
Interest earning assets:
Loans receivable ($2,508) $14,999 ($451) $12,040
Mortgage-backed securities $538 $3,241 $194 $3,973
Investment securities $104 $1,177 $18 $1,299
FHLB stock ($46) $188 ($15) $127
Other interest earning deposits $360 ($199) ($149) $12
-------- ------- ------ -------
Total interest earning assets ($1,552) $19,406 ($403) $17,451
Interest bearing liabilities:
Savings accounts ($128) $1,370 ($32) $1,210
Now accounts ($253) $389 ($42) $94
Money market demand accounts $151 $1,096 $79 $1,326
Certificate accounts ($2,216) $7,924 ($465) $5,243
Borrowed funds $76 $470 $4 $550
-------- ------- ------ -------
Total interest bearing liabilities ($2,370) $11,249 ($456) $8,423
Net change in interest income $818 $8,157 $53 $9,028
======== ======= ====== =======
- ------------------------------------------------------------------------------
22
<PAGE>
ITEM 3. MARKET RISK
As a bank holding company, the Company's primary market risk is interest rate
risk. Interest rate risk is the sensitivity of net interest income to variations
in interest rates over a specified time period. This sensitivity results from
differences in the time periods in which interest rate sensitive assets and
liabilities mature or reprice. The Company attempts to control interest rate
risk by 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:
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 December 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 December 31, 1999 levels.
23
<PAGE>
Increase Decrease
---------------- ---------------
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 2.7% 4.6% (1.9%) (7.5%)
Projected increase/(decrease) in return
on average equity 0.3% 0.5% (0.2%) (0.8%)
Projected increase/(decrease) in earnings
per share $.01 $.02 ($.01) ($.04)
Projected percentage increase/(decrease)
in market value of equity (21.1%) (41.8%) 22.2% 31.7%
The figures included in the table above represent projections which were
computed based upon certain assumptions including prepayment rates and decay
rates which cannot be accurately predicted. There are no assurances that these
assumptions and the resultant impact on the Company's financial ratios will
approximate the figures presented above.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
- -------------------------
Northwest Savings Bank and Northwest Bancorp MHC, along with unrelated parties,
have been named as defendants in a class action lawsuit filed in the Allegheny
County Court of Common Pleas. This lawsuit is brought on behalf of purchasers of
common stock in the Bank's initial public offering which was completed in
November 1994. The complaint 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. On
February 7, 2000, the Common Pleas Judge dismissed the plaintiff's 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.
24
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders
- -----------------------------------------------------------
(a) The Company held its Annual Meeting of Shareholders on November 17, 1999
(b) The name of each director elected at the Annual Meeting is as follows:
John G. Bauer
Thomas K. Creal, III
John J. Doyle
William J. Wagner
The name of each director whose term of office continued after the Annual
Meeting is as follows:
Richard L. Carr
Robert G. Ferrier
John O. Hanna
Richard E. McDowell
Joseph T. Stadler
Walter J. Yahn
(a) The following matters were voted upon at the Annual Meeting:
(i) The election of four directors of the Company:
For Withheld
---------- --------
John G. Bauer 43,719,974 430,336
Thomas K. Creal, III 43,703,791 446,519
John J. Doyle 43,715,662 434,648
William J. Wagner 43,719,346 430,964
(ii) Ratification of the appointment of KPMG LLP as the Company's
independent auditors for the fiscal year ending June 30, 2000:
For Against Withheld
--- ------- --------
44,045,453 68,479 36,378
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. Northwest
Bancorp MHC currently owns 34.7 million shares
25
<PAGE>
or 73.4% of the 47.4 million outstanding common shares of Northwest Bancorp,
Inc. and this proposed purchase would increase its ownership to approximately
74.4%. Shares purchased by Northwest Bancorp MHC will remain outstanding and
will not become treasury shares.
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
December 31, 1999 December 31, 1998
----------------- -----------------
<S> <C> <C>
Net income applicable to common stock $ 6,118,422 $ 4,257,236
Weighted-average common shares outstanding 47,250,257 46,943,070
----------- -----------
Basic earnings per share $ 0.13 $ 0.09
=========== ===========
Weighted-average common shares outstanding 47,250,257 46,943,070
Common stock equivalents due to effect of
stock options 277,253 496,404
----------- -----------
Total weighted-average common shares and
equivalents 47,527,510 47,439,474
Diluted earnings per share $ 0.13 $ 0.09
=========== ===========
<CAPTION>
Six Months Six Months
Ended Ended
December 31, 1999 December 31, 1998
----------------- -----------------
<S> <C> <C>
Net income applicable to common stock $12,111,017 $ 9,266,768
Weighted-average common shares outstanding 47,249,442 46,751,394
----------- -----------
Basic earnings per share $ 0.26 $ 0.20
=========== ===========
Weighted-average common shares outstanding 47,249,442 46,751,394
Common stock equivalents due to effect of
stock options 327,252 554,695
----------- -----------
Total weighted-average common shares and
equivalents 47,576,694 47,306,089
Diluted earnings per share $ 0.25 $ 0.20
=========== ===========
</TABLE>
26
<PAGE>
Exhibit No. 27 Financial Data Schedule attached
(b) No Form 8-K reports were filed during the quarter
27
<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: February 11, 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)
28
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-END> DEC-31-1999
<CASH> 101,115
<INT-BEARING-DEPOSITS> 4,635
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 418,685
<INVESTMENTS-CARRYING> 243,958
<INVESTMENTS-MARKET> 233,793
<LOANS> 2,457,295
<ALLOWANCE> 17,060
<TOTAL-ASSETS> 3,350,580
<DEPOSITS> 2,743,034
<SHORT-TERM> 190,530
<LIABILITIES-OTHER> 28,092
<LONG-TERM> 151,401
0
0
<COMMON> 4,736
<OTHER-SE> 232,787
<TOTAL-LIABILITIES-AND-EQUITY> 3,350,580
<INTEREST-LOAN> 95,444
<INTEREST-INVEST> 20,635
<INTEREST-OTHER> 494
<INTEREST-TOTAL> 116,573
<INTEREST-DEPOSIT> 55,659
<INTEREST-EXPENSE> 64,987
<INTEREST-INCOME-NET> 51,586
<LOAN-LOSSES> 1,435
<SECURITIES-GAINS> 36
<EXPENSE-OTHER> 36,348
<INCOME-PRETAX> 18,560
<INCOME-PRE-EXTRAORDINARY> 18,560
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,111
<EPS-BASIC> .26
<EPS-DILUTED> .25
<YIELD-ACTUAL> 7.68
<LOANS-NON> 13,997
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 16,773
<CHARGE-OFFS> 1,474
<RECOVERIES> 326
<ALLOWANCE-CLOSE> 17,060
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 17,060
</TABLE>
