<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
--------------------------------------
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the quarterly period ended MARCH 31, 1998, or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the transition period from ____________to___________
Commission File Number: 0-26128
NORTHWEST INDIANA BANCORP
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Indiana 35-1927981
- --------------------------------------------- -----------------------
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification Number)
9204 Columbia Avenue
Munster, Indiana 46321
- -------------------------------------- ----------
(Address of principal executive office) (ZIP code)
Registrant's telephone number, including area code: (219) 836-9690
--------------
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 [ ]
There were 1,381,529 shares of the registrant's Common Stock, without par value,
outstanding at March 31, 1998.
<PAGE> 2
NORTHWEST INDIANA BANCORP
INDEX
-----
<TABLE>
<CAPTION>
Page
Number
------
PART I. Consolidated Financial Statements
<S> <C>
Item 1. Consolidated Financial Statements of NorthWest Indiana Bancorp
Consolidated Balance Sheets, March 31, 1998 and December 31, 1997 1
Consolidated Statements of Income, Three Months Ended March 31, 1998 and 1997 2
Consolidated Statements of Comprehensive Income, Three Months Ended
March 31, 1998 and 1997 2
Consolidated Statements of Changes in Stockholders' Equity, Three Months Ended
March 31, 1998 and 1997 3
Consolidated Statements of Cash Flows, Three Months Ended
March 31, 1998 and 1997 4
Notes to Consolidated Financial Statements 5 - 6
Item 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations 7 - 13
PART II. Other Information 14
SIGNATURES 15
</TABLE>
<PAGE> 3
NorthWest Indiana Bancorp
Consolidated Balance Sheets
(unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
(Dollars in thousands) 1998 1997
--------- -------
ASSETS
<S> <C> <C>
Cash and non-interest bearing balances in financial institutions ................. $ 8,176 $7,083
Interest bearing balances in financial institutions .............................. 6,836 3,570
Federal funds sold ............................................................... 3,425 -
--------- -------
Total cash and cash equivalents .............................................. 18,437 10,653
Available-for-sale securities .................................................... 4,175 1,646
Held-to-maturity securities (fair value: March 31, 1998 - $27,365;
December 31, 1997 - $27,852) ................................................. 279,210 279,716
Loans receivable ................................................................. 272,164 272,213
Less: allowance for loan losses .................................................. (3,101) (3,074)
--------- -------
Net loans receivable ........................................................... 269,063 269,139
Accrued interest receivable ...................................................... 2,168 2,195
Premises and equipment ........................................................... 6,652 6,820
Foreclosed real estate ........................................................... 273 259
Other assets ..................................................................... 1,101 1,181
--------- -------
Total assets ................................................................. $ 329,079 $ 319,609
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Non-interest bearing ........................................................... $ 18,249 $ 16,685
Interest bearing ............................................................... 260,433 255,405
--------- -------
Total ........................................................................ 78,682 272,090
Borrowed funds ................................................................... 16,980 14,628
Accrued expenses and other liabilities ........................................... 3,555 32,409
--------- -------
Total liabilities ............................................................ 299,217 290,127
Stockholders'Equity:
Preferred stock, no par or stated value;
10,000,000 shares authorized, none outstanding...................................
Common stock, no par or stated value; 20,000,000 shares authorized;
issued and outstanding: March 31, 1998 - 1,381,529 shares;
December 31, 1997 - 1,381,472 shares ........................................... 345 345
Additional paid in capital ....................................................... 2,949 2,948
Retained earnings - substantially restricted ..................................... 26,571 26,189
Net unrealized loss on available-for-sale securities ............................. (3) -
Total stockholders' equity ................................................... 29,862 29,482
--------- -------
Total liabilities and stockholders' equity.................................... $ 329,079 $ 319,609
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
1
<PAGE> 4
NorthWest Indiana Bancorp
Consolidated Statements of Income
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
(Dollars in thousands, except per share data) March 31,
1998 1997
------ ------
<S> <C> <C>
Interest income:
Loans receivable
Real estate loans ................................. $5,024 $4,551
Commercial loans .................................. 526 376
Consumer loans .................................... 134 108
------ ------
Total loan interest ............................ 5,684 5,035
Securities ....................................... 453 602
Other interest earning assets .................... 127 32
------ ------
Total interest income .......................... 6,264 5,669
------ ------
Interest expense:
Deposits ......................................... 2,881 2,702
Borrowed funds ................................... 224 88
------ ------
Total interest expense ......................... 3,105 2,790
------ ------
Net interest income ............................... 3,159 2,879
Provision for loan losses ......................... 25 49
------ ------
Net interest income after provision for loan losses 3,134 2,830
------ ------
Noninterest income:
Gain on sale of loans, net ....................... 3 7
Gain on sale of foreclosed real estate ........... 3 17
Fees and service charges ......................... 227 164
Trust operations ................................. 87 94
Other ............................................ -- 58
------ ------
Total noninterest income ....................... 320 340
------ ------
Noninterest expense:
Compensation and benefits ........................ 962 865
Occupancy and equipment .......................... 354 315
Federal insurance premium ........................ 41 41
Advertising ...................................... 50 45
Data processing .................................. 102 83
Other ............................................ 458 423
------ ------
Total noninterest expense ..................... 1,967 1,772
------ ------
Income before income tax expenses ................. 1,487 1,398
Income tax expenses ............................... 593 559
------ ------
Net income ........................................ $ 894 $ 839
====== ======
Earnings per common share ......................... $ 0.65 $ 0.61
====== ======
Earnings per common share, assuming dilution ...... $ 0.64 $ 0.60
====== ======
Dividend declared per common share ................ $ 0.37 $ 0.32
====== ======
</TABLE>
NorthWest Indiana Bancorp
Consolidated Statements of Comprehensive Income
(unaudited)
Three Months Ended
(Dollars in thousands) March 31,
1998 1997
----- -----
<TABLE>
<CAPTION>
<S> <C> <C>
Net Income ............................. $ 894 $ 839
Other comprehensive income, net of tax:
Change in unrealized loss on securities (3) --
----- -----
Comprehensive income ................... $ 891 $ 839
===== =====
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE> 5
NorthWest Indiana Bancorp
Consolidated Statements of Changes in Stockholders'Equity
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
(Dollars in thousands, except per share data) March 31,
1998 1997
-------- --------
<S> <C> <C>
Balance at beginning of period ..................................... $ 29,482 $ 27,815
Stock option plan shares issued, 57 shares at $11.50 - $21.25 per
share and 1,820 shares at $9.31 - $11.50 per share for the three
months ended March 31, 1998 and 1997 ............................ 1 18
Cash dividends declared, $.37 per share
and $.32 per share for the three months
ended March 31, 1998 and 1997 ................................... (512) (442)
Net unrealized gain/(loss)
on available-for-sale securities ................................ (3) --
Net income ....................................................... 894 839
-------- --------
Balance at end of period ........................................... $ 29,862 $ 28,230
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 6
NorthWest Indiana Bancorp
Consolidated Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
(Dollars in thousands) March 31,
1998 1997
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ............................................ $ 894 $ 839
-------- --------
Adjustments to reconcile net income to
net cash provided by operating activities:
Origination of loans for sale ....................... (380) (563)
Sale of loans originated for sale ................... 383 567
Depreciation and amortization, net of accretion ..... 199 169
Net gains on sale of loans .......................... (3) (7)
Net gains on sale of fixed assets ................... -- (41)
Net gains on sale of foreclosed real estate ......... (3) (17)
Provision for loan losses ........................... 25 49
Net change in unearned interest on loans ............ -- (1)
Change in deferred loan fees ........................ (2) (11)
Change in interest receivable ....................... 27 (50)
Change in other assets .............................. 80 604
Change in accrued expenses and other liabilities .... 146 594
-------- --------
Total adjustments ................................ 472 1,293
-------- --------
Net cash from operating activities ............... 1,366 2,132
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of securities available-for-sale ............. (2,533) --
Proceeds from maturities of securities held-to-maturity 2,500 2,329
Purchase of securities held-to-maturity ............... (2,158) --
Principal collected on mortgage-backed securities ..... 151 67
Net change in loans receivable ........................ (76) (1,953)
Purchase of premises and equipment .................... (17) (107)
Proceeds from sale of foreclosed real estate .......... 118 123
-------- --------
Net cash from investing activities .................. (2,015) 459
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Change in deposits .................................... 6,592 3,612
Proceeds from FHLB advances ........................... 2,000 --
Repayment of FHLB advances ............................ -- (7,000)
Change in other borrowed funds ........................ 352 1,402
Proceeds from issuance of capital stock ............... 1 18
Dividends paid ........................................ (512) (442)
-------- --------
Net cash from financing activities .................. 8,433 (2,410)
-------- --------
Net change in cash and cash equivalents ............. 7,784 181
Cash and cash equivalents at beginning of period ...... 10,653 6,509
-------- --------
Cash and cash equivalents at end of period ............ $ 18,437 $ 6,690
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest ............................................ $ 3,126 $ 2,780
Income taxes .......................................... $ 261 $ --
Transfers from loans to foreclosed real estate ........ $ 129 $ --
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 7
NORTHWEST INDIANA BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The consolidated financial statements include the accounts of NorthWest
Indiana Bancorp (the Company), its wholly-owned subsidiary, Peoples Bank SB (the
Bank), and the Bank's wholly-owned subsidiaries. The Company has no other
business activity other than being a holding company for the Bank. The
accompanying unaudited consolidated financial statements were prepared in
accordance with instructions for Form 10-Q and, therefore, do not include all
disclosures required by generally accepted accounting principles for complete
presentation of financial statements. In the opinion of management, the
consolidated financial statements contain all adjustments (consisting only of
normal recurring accruals) necessary to present fairly the balance sheets of the
Company as of March 31, 1998 and December 31, 1997, and the statements of
income, statements of comprehensive income and changes in stockholders' equity
for the three months ended March 31, 1998 and 1997, and cash flows for the three
months ended March 31, 1998 and 1997. The income reported for the three month
period ended March 31, 1998 is not necessarily indicative of the results to be
expected for the full year.
Note 2 - CONCENTRATIONS OF CREDIT RISK
The Bank grants residential, commercial real estate, commercial
business and installment loans to customers in its primary market area of Lake
County, in northwest Indiana. Substantially all loans are secured by specific
items of collateral including residences, business assets and consumer assets.
NOTE 3 - RECLASSIFICATIONS
Certain amounts reported in the December 31, 1997 consolidated financial
statements have been reclassified to conform to the March 31, 1998 presentation.
Note 4 - COMMITMENTS AND CONTINGENCIES
The Bank is a party to financial instruments in the normal course of
business to meet financing needs of its customers and to reduce its own exposure
to fluctuating interest rates. These financial instruments include commitments
to make loans and standby letters of credit.
Exposure to credit loss in the event of nonperformance by the other
party to the financial instrument for commitments to make loans and standby
letters of credit is represented by the contractual amount of those instruments.
The Bank uses the same credit policy to make such commitments as it uses for
on-balance-sheet items.
At March 31, 1998 and December 31, 1997, commitments to make loans
totaled $42.8 million and $41.7 million, respectively and standby letters of
credit totaled $731 thousand and $501 thousand, respectively. At March 31, 1998,
$38.1 million (90%) of the commitments were at variable rates.
Since commitments to make loans may expire without being used, the
amount does not necessarily represent future cash commitments. Collateral
obtained upon exercise of the commitments is determined using management's
credit evaluation of the borrower, and may include accounts receivable,
inventory, property, land and other items.
5
<PAGE> 8
NOTE 5 - EARNINGS PER SHARE
The weighted average number of shares used in the calculation of
earnings per share is presented below:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1998 1997
---- ----
<S> <C> <C>
Earnings Per Common Share:
Weighted average common shares outstanding ....... 1,381,491 1,380,280
========= =========
Earnings Per Common Share, Assuming Dilution:
Weighted average diluted common shares outstanding 1,396,243 1,391,938
========= =========
</TABLE>
6
<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SUMMARY
NorthWest Indiana Bancorp, an Indiana corporation (the Bancorp), is the
holding company for Peoples Bank SB (the Bank), an Indiana savings bank. Peoples
Bank SB is a wholly owned subsidiary of the Bancorp. The Bancorp has no other
business activity other than being the holding company for Peoples Bank SB.
At March 31, 1998, the Bancorp had total assets of $329.1 million and total
deposits of $278.7 million. Stockholders' equity totaled $29.9 million or 9.1%
of total assets, with book value per share at $21.62. The annualized return on
average assets (ROA) was 1.10%, while the annualized return on average
stockholders' equity (ROE) was 12.00%, for the three months ended March 31,
1998.
FINANCIAL CONDITION
During the three months ended March 31, 1998, total assets increased by
$9.5 million (3.0%), with interest-earning assets increasing by $8.7 million
(2.8%). At March 31, 1998, interest-earning assets totaled $313.8 million and
represented 95.4% of total assets.
Loans receivable totaled $272.2 million which represented 86.7% of
interest-earning assets, 82.7% of total assets and 97.7% of total deposits. The
loan portfolio includes $18.3 million (6.7%) in construction and development
loans, $155.5 million (57.1%) in residential mortgage loans, $68.7 million
(25.3%) in commercial and multifamily real estate loans, $7.8 million (2.8%) in
consumer loans, and $21.9 million (8.1%) in commercial business and other loans.
Adjustable rate loans comprised 68% of the total investment in loans at March
31, 1998. During the current quarter loan portfolio balances remained stable
reflecting the normal residential and commercial construction cycle.
The Bank is primarily a portfolio lender. Mortgage banking activities
are limited to the sale of fixed rate mortgage loans with contractual maturities
of thirty years. These loans are sold, on a case-by-case basis, in the secondary
market as part of the Bank's efforts to manage interest rate risk. The Bank
retains the servicing on all loans sold in the secondary market. During the
three months ending March 31, 1998, the Bank sold $380 thousand in fixed rate
mortgage loans. Net gains realized from the sales totaled $3 thousand. Mortgage
loan servicing income totaled $5 thousand. At March 31, 1998, the Bank had no
loans classified as held for sale.
The primary objective of the investment portfolio is to provide for the
liquidity needs of the Bank and to contribute to profitability by providing a
stable flow of dependable earnings. Funds are generally invested in federal
funds, interest-bearing balances in financial institutions, U.S. government
securities and federal agency obligations. Interest-bearing balances in
financial institutions include overnight deposits at the Federal Home Loan Bank
of Indianapolis (FHLBI). Investments are generally for terms ranging from one
day to five years. At March
7
<PAGE> 10
31, 1998, the investment portfolio totaled $31.4 million and was invested as
follows: 64.7% in U.S. government agency debt securities, 25.6% in U.S.
government debt securities, 4.4% in U.S. government agency mortgage-backed
securities, and 5.3% in FHLB common stock. During the three months ended March
31, 1998, investment securities increased by $2.0 million (6.9%). At March 31,
1998, the Bank had $3.3 million in interest-bearing balances at the FHLBI and
$3.4 million in federal funds.
Management believes that the credit risk profile of the earning asset
portfolio is relatively low. The table which follows sets forth information with
respect to the number (#) and balances (Amount) of non-performing assets and
related ratios for the periods indicated. The amounts are stated in thousands
(000's).
<TABLE>
<CAPTION>
March 31, 1998 December 31, 1997
# Amount # Amount
------ ------ ------ ------
<S> <C> <C> <C> <C>
Loans accounted for on a non-accrual basis:
Real estate loans:
Residential 22 $1,006 15 $ 715
Commercial 1 44 1 44
Commercial business loans -- -- 1 56
Consumer loans 2 81 3 151
------ ------ ------ ------
Total 25 $1,131 20 $ 966
====== ====== ====== ======
Accruing loans which are contractually past due 90 days or more:
Real estate loans:
Residential 7 $ 320 3 $ 220
Commercial -- -- -- --
Commercial business loans -- -- -- --
Consumer loans 2 3 2 6
------ ------ ------ ------
Total 9 $ 323 5 $ 226
====== ====== ====== ======
Total of non-accrual and accruing loans 90 days or more
past due loans 34 $1,454 25 $1,192
====== ====== ====== ======
Foreclosed real estate 5 $ 273 5 $ 259
====== ====== ====== ======
Ratio of non-performing loans to total assets 0.44% 0.37%
Ratio of non-performing loans to total loans 0.53% 0.44%
Ratio of foreclosed real estate to total assets 0.08% 0.08%
Ratio of non-performing assets to total assets 0.52% 0.45%
</TABLE>
8
<PAGE> 11
At March 31, 1998, $1.4 million of the Bank's loans were classified as
substandard. The total represents 30 loans. There were no loans classified as
doubtful or loss. Management does not anticipate that any of the non-performing
loans or classified loans will materially impact future operations, liquidity or
capital resources.
Because some loans may not be repaid in accordance with contractual
agreements an allowance for loan losses (ALL) has been maintained. While
management may periodically allocate portions of the allowance for specific
problem loans, the entire allowance is available to absorb all credit losses
that arise from the loan portfolio and is not segregated for, or allocated to,
any particular loan or group of loans. During the three months ended March 31,
1998, additions to the ALL account totaled $25 thousand compared to $49 thousand
for the three months ended March 31, 1997. Recoveries net of charge-offs totaled
$2 thousand during the three months ended March 31, 1998. The amount provided
during the current three months was based on loan activity, changes within the
loan portfolio mix, current economic conditions and resulting changes in
management's assessment of portfolio risk. At March 31, 1998, the balance in the
ALL account totaled $3.1 million, which is considered adequate by management
after evaluation of the loan portfolio, past experience and current economic and
market conditions.
The table below sets forth the allocation of the ALL and related ratios
on the dates indicated. The amounts are in thousands (000's). The percent
columns represent the percentage of loans in each category to total loans.
<TABLE>
<CAPTION>
March 31, 1998 December 31, 1997
------------------ --------------------
<S> <C> <C> <C> <C>
Real estate loans:
Residential $ 322 57.1% $ 322 57.5%
Commercial and other dwelling 953 25.3 932 23.8
Construction and development 268 6.7 268 7.9
Consumer loans 153 2.8 153 2.1
Commercial business loans and other loans 630 8.1 630 8.7
Unallocated 775 769
------ ------ ------ ------
Total $3,101 100.0% $3,074 100.0%
====== ====== ===== ======
Ratio of ALL to loans outstanding 1.14% 1.13%
Ratio of ALL to non-performing loans 213.3% 257.8%
</TABLE>
At March 31, 1998, no portion of the ALL was allocated to impaired loan
balances as the Bank had no loans considered to be impaired loans as of, or for
the three months ended March 31, 1998. The allocation of the ALL reflects
consideration of the facts and circumstances that affect the repayment of
individual loans, as well as, loans which have been evaluated on a pooled basis.
Deposits are the major source of funds for lending and other investment
purposes. At March 31, 1998, deposits totaled $278.7 million . During the three
months ending March 31, 1998, deposit growth totaled $6.6 million (2.4%).
Savings accounts increased $2.0 million (4.5%), checking accounts increased $6.1
million (15.2%),
9
<PAGE> 12
money market deposit accounts (MMDA's) increased $1.1 million (4.9%) while
certificates of deposit decreased by $2.5 million (1.6%). At March 31, 1998, the
deposit base was comprised of 16.4% savings accounts, 8.4% MMDA's, 16.6%
checking accounts and 58.6% certificates of deposit. At March 31, 1998,
repurchase agreements totaled $6.1 million. Other short-term borrowings totaled
$910 thousand. The Bancorp had $10 million in FHLBI advances with a weighted
average maturity of 3.5 years.
LIQUIDITY AND CAPITAL RESOURCES
For the Bancorp, liquidity management refers to the ability to generate
sufficient cash to fund current loan demand, meet savings deposit withdrawals,
and pay dividends and operating expenses. The Bank's primary goal for liquidity
management is to ensure that at all times it can meet the cash demands of its
depositors and its loan customers. A secondary purpose of liquidity management
is profit management. Because profit and liquidity are often conflicting
objectives, management attempts to maximize the Bank's net interest margin by
making adequate, but not excessive, liquidity provisions. Finally, because the
Bank is subject to legal reserve requirements under Federal Reserve Regulation
D, liquidity is managed to ensure that the Bank maintains an adequate level of
legal reserves.
Changes in the liquidity position result from operating, investing and
financing activities. Cash flows from operating activities are generally the
cash effects of transactions and other events that enter into the determination
of net income. The primary investing activities include loan originations, loan
repayments, investments in interest bearing balances in financial institutions,
and the purchase and maturity of investment securities. Financing activities
focus almost entirely on the generation of customer deposits. In addition, the
Bank utilizes borrowings, i.e., repurchase agreements and advances from the
FHLBI as a source of funds.
During the three months ended March 31, 1998, cash and cash equivalents
increased by $7.8 million compared to $181 thousand for the three months ended
March 31, 1997. The primary sources of cash were deposit growth, proceeds from
FHLBI advances and cash provided by operating activities. The primary uses of
cash were the purchase of securities and the payment of common stock dividends.
During the current three months cash provided by operating activities totaled
$1.4 million compared to $2.1 million for the three months ended March 31, 1997.
Cash outflows from investing activities totaled $2.0 million representing the
purchase of securities, as loan portfolio balances remained stable. Cash flows
from financing activities totaled $8.4 million which includes deposit growth of
$6.6 million and increases in FHLBI advances of $2.0 million.
At March 31, 1998, outstanding commitments to fund loans totaled $42.8
million. Approximately 90% of the commitments were at variable rates. The Bank
has sufficient cash flow and borrowing capacity to fund outstanding commitments
and to maintain proper levels of liquidity.
Management strongly believes that safety and soundness is enhanced by
maintaining a high level of capital. During the three months ended March 31,
1998, stockholders' equity increased by $380 thousand (1.3%). The increase
resulted primarily from earnings of $894 thousand during the period. In
addition, $1 thousand represents proceeds from the exercise of 57 stock options.
The Bancorp paid $512 thousand in cash dividends
10
<PAGE> 13
during the three month period. The change in net unrealized losses on
available-for-sale securities totaled $3 thousand for the period.
The Bancorp is subject to risk-based capital guidelines adopted by the
Board of Governors of the Federal Reserve System (the FRB), and the Bank is
subject to risk-based capital guidelines adopted by the FDIC. As applied to the
Bancorp and the Bank, the FRB and FDIC capital requirements are substantially
identical. The Bancorp and the Bank are required to maintain a total risk-based
capital ratio of 8%, of which 4% must be Tier I capital. In addition, the FRB
and FDIC regulations provide for a minimum Tier I leverage ratio (Tier I capital
to adjusted total assets) of 3% for financial institutions that meet certain
specified criteria, including that they have the highest regulatory rating and
are not experiencing or anticipating significant growth. All other financial
institutions are required to maintain a Tier I leverage ratio of 3% plus an
additional cushion of at least one to two percent.
The following table shows that, at March 31, 1998, the Bancorp's
capital exceeded all regulatory capital requirements. At March 31, 1998, the
Bancorp's and the Bank's regulatory capital ratios were substantially the same.
The dollar amounts are in millions.
<TABLE>
<CAPTION>
Required for To be well
Actual adequate capital capitalized
------ ---------------- -----------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------- ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Total capital to risk-weighted assets $ 32.6 15.0% $ 17.3 8.0% $ 21.6 10.0%
Tier I capital to risk-weighted assets $ 29.9 13.8% $ 8.7 4.0% $ 13.0 6.0%
Tier I capital to total assets $ 29.9 9.1% $ 9.9 3.0% $ 16.5 5.0%
</TABLE>
RESULTS OF OPERATIONS - COMPARISON OF THE QUARTER ENDED MARCH 31, 1998 TO THE
QUARTER ENDED MARCH 31, 1997
Net income for the three months ended March 31, 1998 was $894 thousand
compared to $839 thousand for the quarter ended March 31, 1997, an increase of
$55 thousand (6.6%). The earnings represent a ROA of 1.10% for the current
quarter compared to 1.14% for the quarter ended March 31, 1997. The ROE was
12.00% for the current quarter compared to 11.87% for the quarter ended March
31, 1997.
Net interest income for the three months ended March 31, 1998 was $3.2
million, up $280 thousand (6.6%) from $2.7 million for the three months ended
March 31, 1997. The increase in net interest income was due to the growth in
average interest-earning assets and increasing yields on interest-earning
assets. Interest-earning assets averaged $309.6 million for the current quarter,
up $27.0 million (9.6%) from $282.6 million for the three months ended March 31,
1997. The weighted average yield on interest-earning assets was 8.09% for the
three months
11
<PAGE> 14
ended March 31, 1998 compared to 8.02% for the three months ended
March 31, 1997. The weighted average cost of funds for the quarter ended March
31, 1998, was 4.28% compared to 4.22% for the quarter ended March 31, 1997. The
impact of the 8.09% return on interest-earning assets and the 4.28% cost of
funds resulted in an interest rate spread of 3.81% for the current quarter
compared to 3.80% for the quarter ended March 31, 1997. During the current
quarter total interest income increased by $595 thousand (10.5%) while total
interest expense increased by $315 thousand (11.3%). The net interest margin was
3.90% for the three months ended March 31, 1998 and 1997.
During the three months ended March 31, 1998, interest income from
loans increased by $649 thousand (12.9%) compared to the three months ended
March 31, 1997. The increase was due to an increase in yield and an increase in
average daily balances for the loan portfolio. The weighted average yield on
loans outstanding was 8.37% for the current quarter compared to 8.31% for the
three months ended March 31, 1997. Higher average loan balances have contributed
to the increase in interest income as loans averaged $271.7 million for the
current quarter, up $29.4 million (12.1%) from $242.3 for the three months ended
March 31, 1997. During the three months ended March 31, 1998, interest income on
investments and other deposits decreased by $54 thousand (8.5%) compared to the
quarter ended March 31, 1997. The decrease was due to lower yields and lower
average daily balances. The weighted average yield on securities and other
deposits was 6.13% for the current quarter compared to 6.30% for the three
months ended March 31, 1997. Securities and other deposits averaged $37.8
million for the current quarter, down $2.5 million (6.2%) from $40.3 million for
the three months ended March 31, 1997, as maturing securities were used to
provide funding for loan growth. During 1998, the average daily balance for
securities should increase as the Bank expects to fund loan growth with a mix of
deposits and borrowed funds.
Interest expense for deposits increased by $179 thousand (6.6%) during
the current quarter compared to the three months ended March 31, 1997. The
increase was due to an increase in average daily balances. Deposit balances
averaged $273.6 million for the current quarter, up $16.4 million (6.4%) from
$257.2 for the quarter ended March 31, 1997. The weighted average rate paid on
deposits for the three months ended March 31, 1998 was 4.21% compared to 4.20%
for the quarter ended March 31, 1997. Interest expense on borrowed funds
increased by $136 thousand (154.5%) during the current quarter due to the
increased cost of borrowed funds and higher average balances. The weighted
average cost of borrowed funds was 5.33% for the current quarter compared to
4.91% for the three months ended March 31, 1997. The increase was due to
lengthening the maturities of borrowed funds. Borrowed funds averaged $16.8
million during the quarter ended March 31, 1998, up $9.7 million (136.6%) from
$7.1 million for the quarter ended March 31, 1997. Borrowed funds have provided
a cost effective supplement to certificates of deposit, as deposit pricing
within the Bank's local market area has been very competitive.
Noninterest income for the quarter ended March 31, 1998 was $320
thousand, down $20 thousand (5.9%) from $340 thousand for the three months ended
March 31, 1997. The decrease was due to a $76 thousand reduction in gains from
the sale of fixed rate loans, foreclosed real estate and other real estate
properties during the three months ended March 31, 1998. During the current
quarter, income from fees and service charges increased $63 thousand (38.4%) due
to an increase in the number of account relationships and the implementation of
additional fee and service charge pricing schedules and procedures.
12
<PAGE> 15
Noninterest expense for the quarter ended March 31, 1998 was $2.0
million, up $195 thousand (11.0%) from $1.8 million for the three months ended
March 31, 1997. The increase in compensation and benefits was due to the
additional staffing and annual salary increases. The increases in occupancy and
equipment, and data processing reflect investments in technology and new
products and services. Other expense changes were due to standard increases in
bank operations. The Bancorp's efficiency ratio, for the current quarter was
56.6% compared to 55.0% for the quarter ended March 31, 1997. The ratio is
determined by dividing total noninterest expense by the sum of net interest
income and total noninterest income for the period.
Income tax expenses for the three months ended March 31, 1998 totaled
$593 thousand compared to $559 thousand for the three months ended March 31,
1997, an increase of $34 thousand (6.1%). The increase was due to an increase in
pretax earnings during the current quarter. The combined effective federal and
state tax rates for the Bancorp were 40% for the three months ended March 31,
1998 and 1997.
YEAR 2000
The year 2000 problem stems from computer programs that identify the
year with two digits instead of four. The problem with this code is that in the
year 2000, `00' may be interpreted as 1900 or not processed at all. The year
2000 problem is not limited to one type of software or hardware. Machines and
programs affected include mainframes, personal computers, networks, ATMs, and
other items such as elevators, infrastructures, and telephone systems.
The Bancorp has implemented an action plan to address the century date
change issue so that service and business operations will not be interrupted in
the year 2000. A project leader, a team of employees and a consulting group have
analyzed daily operations, business forms, software, hardware and equipment for
year 2000 compliance. Due to the Bancorp's reliance upon external parties for
business operations, ongoing communication with third party vendors has been
established to monitor their year 2000 efforts. All systems and interfaces will
be tested internally to confirm reported compliance. The Bancorp does not expect
the cost of year 2000 compliance to have a material effect on its business,
financial position or results of operations.
13
<PAGE> 16
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
The registrant is not party to any legal proceedings. No
significant changes in legal proceedings of the Bank occurred
during the quarter.
Item 2. CHANGES IN SECURITIES
Not Applicable.
Item 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
Item 5. OTHER INFORMATION
Not Applicable.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS.
(27) Financial Data Schedule
(b) REPORTS ON FORM 8-K. None.
14
<PAGE> 17
SIGNATURES
----------
Pursuant to the requirement of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NORTHWEST INDIANA BANCORP
-------------------------
Date: May 13, 1998 /s/ David A. Bochnowski
------------------------------------
David A. Bochnowski
Chairman of the Board and Chief Executive Officer
Date: May 13, 1998 /s/ Edward J. Furticella
-------------------------------------
Edward J. Furticella
Vice President, Chief Financial Officer and Treasurer
15
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<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
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