<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 JUNE 30, 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: 0-26128
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 2,766,504 shares of the registrant's Common Stock, without par value,
outstanding at June 30, 1999.
<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, June 30, 1999 and December 31, 1998 1
Consolidated Statements of Income, Three Months and Six Months Ended
June 30, 1999 and 1998 2
Consolidated Statements of Changes in Stockholders' Equity, Six Months Ended
June 30, 1999 and 1998 3
Consolidated Statements of Cash Flows, Six Months Ended June 30, 1999 and 1998 4
Notes to Consolidated Financial Statements 5- 6
Management's Discussion and Analysis of Financial Condition and
Results of Operations 7-16
PART II. Other Information 17
SIGNATURES 18
</TABLE>
<PAGE> 3
NorthWest Indiana Bancorp
Consolidated Balance Sheets
(unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
(Dollars in thousands) 1999 1998
--------- ---------
ASSETS
<S> <C> <C>
Cash and non-interest bearing balances in financial institutions .. $ 10,806 $ 12,729
Interest bearing balances in financial institutions ............... 4,314 10,111
Federal funds sold ................................................ 2,500 4,500
--------- ---------
Total cash and cash equivalents ............................... 17,620 27,340
Securities available-for-sale ..................................... 25,431 20,522
Securities held-to-maturity (fair value: June 30, 1999 - $13,480;
December 31, 1998 - $14,236) ................................. 13,610 14,133
Loans held for sale ............................................... 615 598
Loans receivable .................................................. 286,740 273,433
Less: allowance for loan losses ................................... (3,227) (3,132)
--------- ---------
Net loans receivable .......................................... 283,513 270,301
Federal Home Loan Bank stock ...................................... 1,695 1,695
Accrued interest receivable ....................................... 2,363 2,298
Premises and equipment ............................................ 6,609 6,715
Foreclosed real estate ............................................ 62 32
Other assets ...................................................... 1,894 1,783
--------- ---------
Total assets .................................................. $ 353,412 $ 345,417
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Non-interest bearing ............................................ $ 26,935 $ 22,346
Interest bearing ................................................ 273,609 270,876
--------- ---------
Total ......................................................... 300,544 293,222
Borrowed funds .................................................... 17,539 17,320
Accrued expenses and other liabilities ............................ 3,348 3,559
--------- ---------
Total liabilities ............................................. 321,431 314,101
Commitments and contingencies ..................................... -- --
Stockholders' Equity:
Preferred stock, no par or stated value;
10,000,000 shares authorized, none outstanding .................. -- --
Common stock, no par or stated value; 10,000,000 shares authorized;
issued and outstanding: June 30, 1999 - 2,766,504 shares;
December 31, 1998 - 2,763,156 shares ............................ 346 345
Additional paid in capital ........................................ 2,965 2,950
Accumulated other comprehensive income ............................ (100) 114
Retained earnings - substantially restricted ...................... 28,770 27,907
--------- ---------
Total stockholders' equity .................................... 31,981 31,316
--------- ---------
Total liabilities and stockholders' equity .................... $ 353,412 $ 345,417
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
1
<PAGE> 4
NorthWest Indiana Bancorp
Consolidated Statements of Income
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
(Dollars in thousands, except per share data) June 30, June 30,
1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
Interest income:
Loans receivable
Real estate loans ............................. $ 4,854 $ 4,984 $ 9,646 $10,008
Commercial loans .............................. 563 512 1,050 1,038
Consumer loans ................................ 211 174 415 308
------- ------- ------- -------
Total loan interest ......................... 5,628 5,670 11,111 11,354
Securities ...................................... 561 503 1,103 956
Other interest earning assets ................... 214 149 357 276
------- ------- ------- -------
Total interest income ....................... 6,403 6,322 12,571 12,586
------- ------- ------- -------
Interest expense:
Deposits ........................................ 2,570 2,898 5,139 5,779
Borrowed funds .................................. 216 220 437 444
------- ------- ------- -------
Total interest expense ...................... 2,786 3,118 5,576 6,223
------- ------- ------- -------
Net interest income ............................... 3,617 3,204 6,995 6,363
Provision for loan losses ......................... 51 15 100 40
------- ------- ------- -------
Net interest income after provision for loan losses 3,566 3,189 6,895 6,323
------- ------- ------- -------
Noninterest income:
Fees and service charges ........................ 305 210 525 427
Trust operations ................................ 90 76 178 163
Gain on sale of earning assets, net ............. 18 51 48 54
Gain on sale of foreclosed real estate .......... -- 7 -- 10
Other ........................................... 3 3 3 3
------- ------- ------- -------
Total noninterest income .................... 416 347 754 657
------- ------- ------- -------
Noninterest expense:
Compensation and benefits ....................... 1,120 1,008 2,206 2,030
Occupancy and equipment ......................... 379 369 771 723
Data processing ................................. 124 106 244 208
Advertising ..................................... 35 40 84 90
Federal insurance premium ....................... 42 42 84 83
Other ........................................... 508 428 896 816
------- ------- ------- -------
Total noninterest expense ................... 2,208 1,993 4,285 3,950
------- ------- ------- -------
Income before income tax expenses ................. 1,774 1,543 3,364 3,030
Income tax expenses ............................... 706 612 1,339 1,205
------- ------- ------- -------
Net income ........................................ $ 1,068 $ 931 $ 2,025 $ 1,825
======= ======= ======= =======
Earnings per common share:
Basic ......................................... $ 0.38 $ 0.34 $ 0.73 $ 0.66
======= ======= ======= =======
Diluted ....................................... $ 0.38 $ 0.34 $ 0.72 $ 0.66
======= ======= ======= =======
Dividend declared per common share ................ $ 0.21 $ 0.185 $ 0.42 $ 0.37
======= ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE> 5
NorthWest Indiana Bancorp
Consolidated Statements of Changes in Stockholders' Equity
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended
(Dollars in thousands, except per share data) June 30,
1999 1998
-------- --------
<S> <C> <C>
Balance at beginning of period .................. $ 31,316 $ 29,482
Accumulated other comprehensive income:
Net income ................................... 2,025 1,825
Net unrealized gain/(loss) on securities
available-for-sale, net of tax effects .... (214) 1
-------- --------
Comprehensive income ................... 1,811 1,826
Issuance of shares of common stock:
3,348 shares at $4.66 - $10.63 per share and
146 shares at $5.75 - $10.63 per share for the
six months ended June 30, 1999 and 1998 ...... 16 1
Cash dividends:
$0.42 per share and $0.37 per share for the
six months ended June 30, 1999 and 1998 ...... (1,162) (1,022)
-------- --------
Balance at end of period ........................ $ 31,981 $ 30,287
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 6
NorthWest Indiana Bancorp
Consolidated Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended
(Dollars in thousands) June 30,
1999 1998
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income .............................................. $ 2,025 $ 1,825
-------- --------
Adjustments to reconcile net income to
net cash provided by operating activities:
Origination of loans for sale ....................... (2,274) (1,388)
Sale of loans originated for sale ................... 2,255 1,282
Depreciation and amortization, net of accretion ..... 466 416
Amortization of mortgage servicing rights ........... 5 --
Net gains on available-for-sale securities .......... (1) --
Net gains on held-to-maturity securities ............ (9) --
Net gains on sale of loans .......................... (38) (54)
Net gains on sale of foreclosed real estate ......... -- (10)
Provision for loan losses ........................... 100 40
Net change in:
Interest receivable .............................. (65) (67)
Other assets ..................................... 67 (627)
Accrued expenses and other liabilities ........... (211) 28
-------- --------
Total adjustments .............................. 295 (380)
-------- --------
Net cash from operating activities ............. 2,320 1,445
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of securities available-for-sale 3,660 --
Purchase of securities available-for-sale ............... (8,980) (5,097)
Proceeds from maturities of securities held-to-maturity . 5,095 4,500
Purchase of securities held-to-maturity ................. (4,731) (3,670)
Principal collected on mortgage-backed securities ....... 171 294
Loan participations purchased ........................... (300) --
Net change in loans receivable .......................... (13,042) 984
Purchase of premises and equipment, net ................. (308) (155)
Proceeds from sale of foreclosed real estate ............ -- 249
-------- --------
Net cash from investing activities ................... (18,435) (2,895)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Change in deposits ...................................... 7,322 3,775
Proceeds from FHLB advances ............................. -- 2,000
Change in other borrowed funds .......................... 219 (2,755)
Proceeds from issuance of capital stock ................. 16 1
Dividends paid .......................................... (1,162) (1,022)
-------- --------
Net cash from financing activities ................... 6,395 1,999
-------- --------
Net change in cash and cash equivalents .............. (9,720) 549
Cash and cash equivalents at beginning of period ........ 27,340 10,653
-------- --------
Cash and cash equivalents at end of period .............. $ 17,620 $ 11,202
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest ............................................. $ 5,636 $ 6,303
Income taxes ......................................... $ 1,595 $ 1,470
Transfers from loans to foreclosed real estate .......... $ 62 $ 381
</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 Bancorp), its wholly-owned subsidiary, Peoples Bank SB (the
Bank), and the Bank's wholly-owned subsidiary, Peoples Service Corporation. The
Bancorp has no other business activity other than being a holding company for
the Bank. The Bancorp's earnings are dependent upon the earnings of the Bank.
Peoples Service Corporation is inactive. 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 Bancorp as of June 30, 1999 and December 31,
1998, and the statements of income for the three and six months ended June 30,
1999 and 1998, and changes in stockholders' equity and cash flows for the six
months ended June 30, 1999 and 1998. The income reported for the six month
period ended June 30, 1999 is not necessarily indicative of the results to be
expected for the full year.
NOTE 2 - CONCENTRATIONS OF CREDIT RISK
The Bancorp 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, 1998 consolidated
financial statements have been reclassified to conform to the June 30, 1999
presentation.
NOTE 4 - COMMITMENTS AND CONTINGENCIES
The Bancorp 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 Bancorp uses the same credit policy to make such commitments as it uses for
on-balance-sheet items.
At June 30, 1999 and December 31, 1998, commitments to make loans
totaled $53.8 million and $40.0 million, respectively and standby letters of
credit totaled $1.6 million and $1.9 million, respectively. At June 30, 1999,
$48.4 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 commitment 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
On February 28, 1999, the Bancorp effected a two-for-one common stock
split as a share dividend. Earnings and dividends per share and other share
related information is restated for the stock split.
A reconciliation of the numerators and denominators of the basic
earnings per common share and diluted earnings per common share computations is
presented:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Basic Earnings Per Common Share:
Net income available to common stockholders .. $1,068,000 $ 931,000 $2,025,000 $1,825,000
========== ========== ========== ==========
Weighted-average common shares outstanding ... 2,766,471 2,763,062 2,765,011 2,763,022
========== ========== ========== ==========
Basic earnings per common share .............. $ 0.38 $ 0.34 $ 0.73 $ 0.66
========== ========== ========== ==========
Diluted Earnings Per Common Share:
Net income available to common stockholders .. $1,068,000 $ 931,000 $2,025,000 $1,825,000
========== ========== ========== ==========
Weighted-average common shares outstanding ... 2,766,471 2,763,062 2,765,011 2,763,022
Add: dilutive effect of assumed stock
option exercises ........................... 27,938 29,336 30,060 29,210
---------- ---------- ---------- ----------
Weighted-average common and dilutive potential
common shares outstanding .................. 2,794,409 2,792,398 2,795,071 2,792,232
========== ========== ========== ==========
Diluted earnings per common share ............ $ 0.38 $ 0.34 $ 0.72 $ 0.66
========== ========== ========== ==========
</TABLE>
6
<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SUMMARY
NorthWest Indiana Bancorp (the Bancorp) is a bank holding company
registered with the Board of Governors of the Federal Reserve System. Peoples
Bank SB (the Bank), an Indiana savings bank, 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 June 30, 1999, the Bancorp had total assets of $353.4 million and total
deposits of $300.5 million. Stockholders' equity totaled $32.0 million or 9.1%
of total assets, with book value per share at $11.56. The annualized return on
average assets (ROA) was 1.16%, while the annualized return on average
stockholders' equity (ROE) was 12.72%, for the six months ended June 30, 1999.
FINANCIAL CONDITION
During the six months ended June 30, 1999, total assets increased by $8.0
million (2.3%), with interest-earning assets increasing by $9.9 million (3.1%).
At June 30, 1999, interest-earning assets totaled $334.9 million and represented
94.8% of total assets.
Loans receivable totaled $286.7 million which represented 85.6% of
interest-earning assets, 81.1% of total assets and 95.4% of total deposits. The
loan portfolio includes $15.0 million (5.2%) in construction and development
loans, $157.5 million (54.9%) in residential mortgage loans, $77.6 million
(27.1%) in commercial and multifamily real estate loans, $10.6 million (3.7%) in
consumer loans, and $26.0 million (9.1%) in commercial business and other loans.
Adjustable rate loans comprised 54% of total loans at June 30, 1999. During the
six months ended June 30, 1999, loans increased by $13.3 million (4.9%). The
growth is a result of a strong local economy, favorable interest rates and
aggressive marketing and call programs.
The Bancorp 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 Bancorp's efforts to manage interest rate risk. The
Bancorp retains the servicing on all loans sold in the secondary market. During
the six months ended June 30, 1999, the Bancorp sold $2.3 million in fixed rate
mortgage loans. Net gains realized from the sales totaled $38 thousand. Mortgage
loan servicing income totaled $9 thousand. At June 30, 1999, the Bancorp had
$615 thousand classified as loans held for sale.
The primary objective of the Bancorp's investment portfolio is to provide
for the liquidity needs of the Bancorp 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 (FHLB). Investments are generally for terms ranging from
one day to five years. At June 30, 1999, the investment portfolio totaled $39.0
million and was invested as follows: 79.6% in U.S. government agency debt
securities, 18.1% in U.S. government debt securities, and 2.3% in U.S.
government agency mortgage-backed securities. At June 30, 1999, securities
available-for-sale
7
<PAGE> 10
totaled $25.4 million or 65.1% of total securities. The available-for-sale
portfolio permits the active management of the Bancorp's liquidity position.
During the six months ended June 30, 1999, investment securities increased by
$4.4 million (12.7%). At June 30, 1999, the Bancorp had $4.3 million in
interest-bearing balances at the FHLB and $2.5 million in federal funds sold.
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>
June 30, 1999 December 31, 1998
# Amount # Amount
------ ------ ------ ------
<S> <C> <C> <C> <C>
Loans accounted for on a non-accrual basis:
Real estate loans:
Residential 12 $ 584 15 $ 636
Commercial 1 39 2 131
Commercial business loans 3 69 1 69
Consumer loans 1 8 1 18
------ ------ ------ ------
Total 17 $ 700 19 $ 854
====== ====== ====== ======
Accruing loans which are contractually past due 90 days or more:
Real estate loans:
Residential 7 $ 164 11 $ 429
Commercial -- -- -- --
Commercial business loans -- -- 1 188
Consumer loans -- -- -- --
------ ------ ------ ------
Total 7 $ 164 5 $ 617
====== ====== ====== ======
Total of non-accrual and accruing loans 90 days or more
past due loans 24 $ 864 31 $1,471
====== ====== ====== ======
Foreclosed real estate 3 $ 62 1 $ 32
====== ====== ====== ======
Ratio of non-performing loans to total assets 0.24% 0.43%
Ratio of non-performing loans to total loans 0.30% 0.54%
Ratio of foreclosed real estate to total assets 0.02% 0.01%
Ratio of non-performing assets to total assets 0.26% 0.44%
</TABLE>
At June 30, 1999, $1.1 million of the Bancorp's loans were classified as
substandard. The total represents 20 loans. No loans were classified as doubtful
or loss. Classified loans include nonperforming loans disclosed in the previous
table. Management does not anticipate that any of the non-performing loans or
classified loans will materially impact future operations, liquidity or capital
resources. At June 30, 1999, there were no material credits that would cause
management to have serious doubts as to the ability of such borrowers to comply
with loan repayment terms.
8
<PAGE> 11
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 six months ended June 30,
1999, additions to the ALL account totaled $100 thousand compared to $40
thousand for the six months ended June 30, 1998. Charge-offs net of recoveries
totaled $5 thousand during the six months ended June 30, 1999. The amount
provided during the current six months was based on loan activity, changes
within the loan portfolio mix, and resulting changes in management's assessment
of portfolio risk. At June 30, 1999, the balance in the ALL account totaled $3.2
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>
June 30, 1999 December 31, 1998
------------- -----------------
<S> <C> <C> <C> <C>
Real estate loans:
Residential $ 302 54.9% $ 302 56.3%
Commercial and other dwelling 1,106 27.1 953 24.5
Construction and development 275 5.2 268 7.0
Consumer loans 200 3.7 196 3.7
Commercial business loans and other loans 860 9.1 630 8.5
Unallocated 484 783
------ ----- ------ -----
Total $3,227 100.0% $3,132 100.0%
====== ===== ====== =====
Ratio of ALL to loans outstanding 1.13% 1.14%
Ratio of ALL to non-performing loans 373.5% 212.9%
</TABLE>
At June 30, 1999, no portion of the ALL was allocated to impaired loan
balances as the Bancorp had no individual loans considered to be impaired loans
as of, or for the six months ended June 30, 1999. The allocation of the ALL
reflects performance and growth trends within the various loan categories, as
well as, 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. During the six months ended June 30, 1999, additions to the ALL were
allocated to the commercial real estate loans and commercial business loans due
to the growth in these portfolios and the additional risk related to these
products.
Deposits are the major source of funds for lending and other investment
purposes. At June 30, 1999, deposits totaled $300.5 million. During the six
months ended June 30, 1999, deposit growth totaled $7.3 million (2.5%). Savings
accounts decreased $366 thousand (0.7%), checking accounts increased $5.2
million (10.3%), money market deposit accounts (MMDA's) increased $10.8 million
(32.5%) while certificates of deposit decreased by $8.3 million (5.2%). The
growth in core deposits (checking accounts and MMDA's ) was a result of
competitive product offerings and an aggressive marketing program. The decrease
in certificates of deposit was caused by management's decision to let high
dollar, high cost funds mature. At June 30, 1999, the deposit base was comprised
of 16.2% savings accounts, 14.6% MMDA's, 18.6% checking
9
<PAGE> 12
accounts and 50.6% certificates of deposit. At June 30, 1999, repurchase
agreements totaled $3.1 million. Other short-term borrowings totaled $2.4
million. The Bancorp had $12.0 million in FHLB advances with a weighted-average
maturity of 3.4 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 Bancorp'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 Bancorp'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
Bancorp utilizes borrowings (i.e., repurchase agreements and advances from the
FHLB) as a source of funds.
During the six months ended June 30, 1999, cash and cash equivalents
decreased by $9.7 million compared to a $549 thousand increase for the six
months ended June 30, 1998. The decrease reflects the reduction of interest
bearing balances in financial institutions and federal funds sold, as funds were
used for loan originations. The primary sources of cash were deposit growth,
proceeds from maturities of securities and cash provided by operating
activities. The primary uses of cash were the loan originations, purchase of
securities and the payment of common stock dividends. During the current six
months cash provided by operating activities totaled $2.3 million compared to
$1.4 million for the six months ended June 30, 1998. The increase was due to
increased earnings and cash flows from loan sales. Cash outflows from investing
activities reflect strong loan demand during the six months ended June 30, 1999.
The increase in loans receivable and loan participations purchased totaled $13.3
million compared to a $984 thousand decrease for the six months ended June 30,
1998. Cash flows from financing activities totaled $6.4 million during the
current period compared to $2.0 million for the six months ended June 30, 1998.
During the current period the Bancorp paid dividends on common stock of $1.2
million. Deposit growth totaled $7.3 million compared to $3.8 million for the
six months ended June 30, 1998, while borrowed funds and proceeds from FHLB
advances increased by $219 thousand compared to a $2.8 million decrease for the
six months ended June 30, 1998.
Management strongly believes that maintaining a high level of capital
enhances safety and soundness. During the six months ended June 30, 1999,
stockholders' equity increased by $665 thousand (2.1%). The increase resulted
primarily from earnings of $2.0 million during the period. In addition, $16
thousand represents proceeds from the exercise of 3,348 stock options. The
Bancorp paid $1.2 million in cash dividends during the six month period. The net
unrealized loss on available-for-sale securities was $214 thousand for the
period.
10
<PAGE> 13
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 average 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 June 30, 1999, the Bancorp's capital
exceeded all regulatory capital requirements. At June 30, 1999, 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 $35.0 14.9% $18.8 8.0% $23.5 10.0%
Tier I capital to risk-weighted assets $32.1 13.7% $ 9.4 4.0% $14.1 6.0%
Tier I capital to adjusted average assets $32.1 9.0% $10.7 3.0% $17.8 5.0%
</TABLE>
RESULTS OF OPERATIONS - COMPARISON OF THE QUARTER ENDED JUNE 30, 1999 TO THE
QUARTER ENDED JUNE 30, 1998
Net income for the three months ended June 30, 1999 was $1.1 million
compared to $931 thousand for the quarter ended June 30, 1998, an increase of
$137 thousand (14.7%). The earnings represent a ROA of 1.20% for the current
quarter compared to 1.14% for the quarter ended June 30, 1998. The ROE was
13.35% for the current quarter compared to 12.34% for the quarter ended June 30,
1998.
Net interest income for the three months ended June 30, 1999 was $3.6
million, up $413 thousand (12.9%) from $3.2 million for the three months ended
June 30, 1998. The increase in net interest income was due to a lower cost of
funds. The weighted-average yield on interest-earning assets was 7.55% for the
three months ended June 30, 1999 compared to 8.07% for the three months ended
June 30, 1998. The weighted-average cost of funds for the quarter ended June 30,
1999, was 3.46% compared to 4.24% for the quarter ended June 30, 1998. The
impact of the 7.55% return on interest-earning assets and the 3.46% cost of
funds resulted in an interest rate spread of 4.09% for the current quarter
compared to 3.83% for the quarter ended June 30, 1998. During the current
quarter total interest income increased by $81 thousand (1.3%) while total
interest expense decreased by $332 thousand (10.6%). The net interest margin was
4.06% for the three months ended June 30, 1999 compared to 3.91% for the quarter
ended June 30, 1998.
11
<PAGE> 14
During the three months ended June 30, 1999, interest income from loans
decreased by $42 thousand (0.7%) compared to the three months ended June 30,
1998. The decrease was due to a decrease in the loan portfolio yield. The
weighted-average yield on loans outstanding was 7.90% for the current quarter
compared to 8.36% for the three months ended June 30, 1998. Loan balances
averaged $285.0 million for the current quarter, up $13.7 million (5.0%) from
$271.3 million for the three months ended June 30, 1998. During the three months
ended June 30, 1999, interest income on investments and other deposits increased
by $123 thousand (18.9%) compared to the quarter ended June 30, 1998. The
increase was due to higher average daily balances. The weighted-average yield on
securities and other deposits was 5.70% for the current quarter compared to
6.22% for the three months ended June 30, 1998. Securities and other deposits
averaged $54.3 million for the current quarter, up $12.3 million (29.3%) from
$42.0 million for the three months ended June 30, 1998.
Interest expense for deposits decreased by $328 thousand (11.3%) during the
current quarter compared to the three months ended June 30, 1998. The decrease
was due to a lower cost of funds. The weighted-average rate paid on deposits for
the three months ended June 30, 1999 was 3.38% compared to 4.18% for the quarter
ended June 30, 1998. The lower cost of funds was due to growth in core deposits
(checking accounts, savings accounts and money market accounts). Core deposits
averaged $142.0 million for the current quarter, up $26.1 million (22.5%) from
$115.9 million for the quarter ended June 30, 1998. Total deposit balances
averaged $304.3 million for the current quarter, up $26.8 million (9.7%) from
$277.5 for the quarter ended June 30, 1998. Interest expense on borrowed funds
decreased by $4 thousand (1.8%) during the current quarter due to a decrease in
the cost of borrowed funds. The weighted-average cost of borrowed funds was
4.99% for the current quarter compared to 5.32% for the three months ended June
30, 1998. Borrowed funds averaged $17.2 million during the quarter ended June
30, 1999, up $600 thousand (3.6%) from $16.6 million for the quarter ended June
30, 1998.
Noninterest income for the quarter ended June 30, 1999 was $416 thousand,
up $69 thousand (19.9%) from $347 thousand for the three months ended June 30,
1998. During the current quarter, fees and service charges increased $95
thousand (45.2%) and income from Trust operations increased $14 thousand (18.4%)
compared to the three months ended June 30, 1998.
Noninterest expense for the quarter ended June 30, 1999 was $2.2 million,
up $215 thousand (10.8%) from $2.0 million for the three months ended June 30,
1998. The increase in compensation and benefits was due to additional staffing
and the increased cost of employee benefits. The increases in occupancy and
equipment, and data processing reflect investments in technology and new
products and services. The Bancorp's efficiency ratio was 54.8% for the quarter
ended June 30, 1999 compared to 56.1% for the three months ended June 30, 1998.
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 June 30, 1999 totaled $706
thousand compared to $612 thousand for the three months ended June 30, 1998, an
increase of $94 thousand (15.4%). 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 June 30, 1999 and
1998.
12
<PAGE> 15
RESULTS OF OPERATIONS - COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 1999 TO THE
SIX MONTHS ENDED JUNE 30, 1998
Net income for the six months ended June 30, 1999 was $2.0 million compared
to $1.8 million for the six months ended June 30, 1998, an increase of $200
thousand (11.0%). The earnings represent a ROA of 1.16% for the current six
months compared to 1.12% for the six months ended June 30, 1998. The ROE was
12.72% for the current six months compared to 12.16% for the six months ended
June 30, 1998.
Net interest income for the six months ended June 30, 1999 was $7.0
million, up $632 thousand (9.9%) from $6.4 million for the six months ended June
30, 1998. The increase in net interest income was due to a lower cost of funds.
The weighted-average yield on interest-earning assets was 7.56% for the six
months ended June 30, 1999 compared to 8.08% for the six months ended June 30,
1998. The weighted-average cost of funds for the six months ended June 30, 1999,
was 3.55% compared to 4.26% for the six months ended June 30, 1998. The impact
of the 7.56% return on interest-earning assets and the 3.55% cost of funds
resulted in an interest rate spread of 4.01% for the current six months compared
to 3.82% for the six months ended June 30, 1998. During the current six months
total interest income decreased by $15 thousand (0.1%) while total interest
expense decreased by $647 thousand (10.4%). The net interest margin was 4.00%
for the six months ended June 30, 1999 compared to 3.90% for the six months
ended June 30, 1998.
During the six months ended June 30, 1999, interest income from loans
decreased by $243 thousand (2.1%) compared to the six months ended June 30,
1998. The decrease was due to a decrease in the loan portfolio yield. The
weighted-average yield on loans outstanding was 7.89% for the current six months
compared to 8.36% for the six months ended June 30, 1998. Loan balances averaged
$281.8 million for the current six months, up $10.3 million (3.8%) from $271.5
million for the six months ended June 30, 1998. During the six months ended June
30, 1999, interest income on investments and other deposits increased by $228
thousand (18.5%) compared to the six months ended June 30, 1998. The increase
was due to higher average daily balances. The weighted-average yield on
securities and other deposits was 5.76% for the current six months compared to
6.17% for the six months ended June 30, 1998. Securities and other deposits
averaged $50.7 million for the current six months, up $10.8 million (27.1%) from
$39.9 million for the six months ended June 30, 1998.
Interest expense for deposits decreased by $640 thousand (11.1%) during the
current six months compared to the six months ended June 30, 1998. The decrease
was due to a lower cost of funds. The weighted-average rate paid on deposits for
the six months ended June 30, 1999 was 3.46% compared to 4.19% for the six
months ended June 30, 1998. The lower cost of funds was due to growth in core
deposits (checking accounts, savings accounts and money market accounts). Core
deposits averaged $136.0 million for the current six months, up $23.4 million
(20.8%) from $112.6 million for the six months ended June 30, 1998. Total
deposit balances averaged $296.9 million for the current six months, up $21.4
million (7.8%) from $275.5 for the six months ended June 30, 1998. Interest
expense on borrowed funds decreased by $7 thousand (1.6%) during the current six
months due to a decrease in the cost of borrowed funds. The weighted-average
cost of borrowed funds was 5.03% for the current six months compared to 5.33%
for the six months ended June 30, 1998. Borrowed funds averaged $17.4 million
during the six months ended June 30, 1999, up $700 thousand (4.2%) from $16.7
million for the six months ended June 30, 1998.
13
<PAGE> 16
Noninterest income for the six months ended June 30, 1999 was $754
thousand, up $97 thousand (14.8%) from $657 thousand for the six months ended
June 30, 1998. During the current six months, fees and service charges increased
$98 thousand (23.0%) and income from Trust operations increased $15 thousand
(9.2%) compared to the six months ended June 30, 1998.
Noninterest expense for the six months ended June 30, 1999 was $4.3
million, up $335 thousand (8.5%) from $4.0 million for the six months ended June
30, 1998. The increase in compensation and benefits was due to additional
staffing, annual salary increases and the increased cost of employee benefits.
The increases in occupancy and equipment, and data processing reflect
investments in technology and new products and services. The Bancorp's
efficiency ratio was 55.3% for the six months ended June 30, 1999 compared to
56.3% for the six months ended June 30, 1998.
Income tax expenses for the six months ended June 30, 1999 totaled $1.3
million compared to $1.2 million for the six months ended June 30, 1998, an
increase of $134 thousand (11.1%). The increase was due to an increase in pretax
earnings during the current six months. The combined effective federal and state
tax rates for the Bancorp were 40% for the six months ended June 30, 1999 and
1998.
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 Federal Financial Institutions Examination Council (FFIEC) has
outlined five phases for institutions to effectively manage the Year 2000
challenge.
Awareness - Gain executive support and commit resources to the Year
2000 challenge.
Assessment - Identify all critical business processes and elements of
information technology (IT) and non-IT systems that must be modified.
Renovation - Convert, replace or eliminate software and databases as
necessary, according to the risk-based priorities established during
assessment.
Validation - Test and verify systems, databases and utilities by
simulating data conditions for the Year 2000.
Implementation - Put renovated systems, databases and utilities into
production.
In April 1997, the Bancorp 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. This plan meets all FFIEC guidelines and the
Bancorp is on schedule to meet all plan deadlines. A project leader and a team
of
14
<PAGE> 17
employees have analyzed daily operations, business forms, software, hardware and
equipment for year 2000 compliance.
At June 30, 1999 the awareness, assessment, renovation, validation and
implementation phases have been completed. Management has assessed its credit
and liquidity risk by evaluating the Year 2000 preparedness of significant
customers. At this time, management believes that the overall risk rating for
deposit and loan customers is low. Management has identified customers of
moderate or high risk and is monitoring their efforts to be Year 2000 ready.
The current estimate of total Year 2000 program costs is approximately
$300 thousand. Management expects to invest approximately $225 thousand in new
computers and software that will provide significantly enhanced functionality
over the systems that are currently being used. The remaining $75 thousand
represents the modification and upgrades to existing systems and equipment.
Purchased hardware and software will be capitalized in accordance with Bancorp
policy while other remediation costs will be expensed as incurred. Expenditures
reported during 1998 totaled $163 thousand. During the six months ended June 30,
1999, expenditures for new computers, system modifications and upgrades totaled
$49 thousand. 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.
The Bancorp relies heavily on computer technology and third party
vendors for computer processing and its business activities. The Year 2000 issue
has created risk for the Bancorp from unforeseen problems that could arise
internally, as well as, from third parties whom the Bancorp uses to process
information. If not adequately addressed, the failure of the Bancorp's computer
systems and/or third party's computer systems could have a material impact of
the Bancorp's ability to conduct its business. To mitigate this risk, the Board
of Directors and management have made a total commitment to resolving all Year
2000 issues. Ongoing communication with third party vendors has been established
to monitor their year 2000 efforts. The Bancorp's primary third party processors
have stated that they have completed the renovation and testing of their systems
for Year 2000 readiness. All systems and interfaces are being tested internally
to confirm reported compliance.
The Bancorp has designed its Business Contingency Plan to minimize the
risk of financial loss for the Bancorp due to disruptions, and ensure timely and
orderly resumption of the Bancorp's operations in the event of a disruption. The
plan identifies and prioritizes systems, equipment and forms needed for Bancorp
operations and customer service; lists individuals responsible for monitoring
Year 2000 efforts for each operational area of the Bancorp; lists alternative
actions available for systems failing to achieve Year 2000 readiness; provides
for target dates for implementation of contingency strategies; assesses the risk
of various components of the plan; and provides for independent review of the
plan. The Board of Directors and management understand in a recovery situation,
the Bancorp may not be able to continue operations at the same level that it
currently maintains. However, because the Board of Directors and management have
been proactive in their involvement with the Year 2000 project, the Bancorp
believes it is well positioned to make timely decisions related to the need to
invoke the contingency plan and avoid disruptions to customer service and
business operations.
15
<PAGE> 18
FORWARD-LOOKING STATEMENTS
When used in this report and in future filings by the Bancorp with
the Securities and Exchange Commission, in the Bancorp's press releases or other
public or shareholder communications, or in oral statements made with the
approval of an authorized executive officer, the words or phrases "would be,"
"will allow," "intends to," "will likely result," "are expected to," "will
continue," "is anticipated," "estimate," "project," or similar expressions are
intended to identify "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. Such statements are subject to
risks and uncertainties, including but not limited to changes in economic
conditions in the Bancorp's market area, changes in policies by regulatory
agencies, fluctuations in interest rates, demand for loans in the Bancorp's
market area and competition, all or some of which could cause actual results to
differ materially from historical earnings and those presently anticipated or
projected.
The Bancorp wishes to caution readers not to place undue reliance on
any such forward-looking statements, which speak only as of the date made, and
advise readers that various factors, including regional and national economic
conditions, substantial changes in levels of market interest rates, credit and
other risks of lending and investment activities and competitive and regulatory
factors, could affect the Bancorp's financial performance and could cause the
Bancorp's actual results for future periods to differ materially from those
anticipated or projected.
The Bancorp does not undertake, and specifically disclaims any
obligation, to update any forward-looking statements to reflect occurrences or
unanticipated events or circumstances after the date of such statements.
16
<PAGE> 19
PART II - Other Information
---------------------------
Item 1. LEGAL PROCEEDINGS
The registrant is not party to any material legal proceedings.
No significant changes in legal proceedings of the Bancorp
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
NorthWest Indiana Bancorp held its annual meeting of
shareholders on April 21, 1999. At this meeting the security
holders:
1. Elected the following directors for the registrant, whose
term of office continued after the meeting:
Number of Votes
For Withheld
--------- --------
Frank J. Bochnowski 2,008,900 3,000
Lourdes M. Dennison 2,011,900 0
Gloria C. Gray 2,008,900 3,000
Other directors whose term of office as a director
continued after the meeting include:
David A. Bochnowski Jerome F. Vrabel James L. Wieser
Leroy F. Cataldi Stanley E. Mize
2. Ratified the appointment of Crowe, Chizek and Company LLP
as the auditors for the registrant for the year ending
December 31, 1999.
For Against Abstain
--------- ------- -------
Numbr of Votes: 2,024,696 0 3,066
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.
17
<PAGE> 20
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: August 11, 1999 /s/ David A. Bochnowski
-----------------------------------------------------
David A. Bochnowski
Chairman of the Board and Chief Executive Officer
Date: August 11, 1999 /s/ Edward J. Furticella
-----------------------------------------------------
Edward J. Furticella
Vice President, Chief Financial Officer and Treasurer
18
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 10,806
<INT-BEARING-DEPOSITS> 4,314
<FED-FUNDS-SOLD> 2,500
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 25,431
<INVESTMENTS-CARRYING> 13,610
<INVESTMENTS-MARKET> 13,480
<LOANS> 286,740
<ALLOWANCE> 3,227
<TOTAL-ASSETS> 353,412
<DEPOSITS> 300,544
<SHORT-TERM> 17,539
<LIABILITIES-OTHER> 3,348
<LONG-TERM> 0
0
0
<COMMON> 346
<OTHER-SE> 31,635
<TOTAL-LIABILITIES-AND-EQUITY> 353,412
<INTEREST-LOAN> 11,111
<INTEREST-INVEST> 1,103
<INTEREST-OTHER> 357
<INTEREST-TOTAL> 12,571
<INTEREST-DEPOSIT> 5,139
<INTEREST-EXPENSE> 5,576
<INTEREST-INCOME-NET> 6,995
<LOAN-LOSSES> 100
<SECURITIES-GAINS> 10
<EXPENSE-OTHER> 4,285
<INCOME-PRETAX> 3,364
<INCOME-PRE-EXTRAORDINARY> 2,025
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,025
<EPS-BASIC> .73
<EPS-DILUTED> .72
<YIELD-ACTUAL> 4.21
<LOANS-NON> 700
<LOANS-PAST> 164
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3,132
<CHARGE-OFFS> 5
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 3,227
<ALLOWANCE-DOMESTIC> 2,743
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 484
</TABLE>
