SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2006
OR
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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)
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Indiana
(State or other jurisdiction of
incorporation or organization)
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35-1927981
(I.R.S. Employer Identification No.) |
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9204 Columbia Avenue
Munster, Indiana
(Address of principal executive offices)
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46321
(Zip Code) |
(219) 836-4400
(Registrants telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, without par value
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule
405 of the Securities Act. Yes o No þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or
Section 15(d) of the Act. Yes o No þ
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 þ No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is
not contained herein, and will not be contained, to the best of Registrants knowledge in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes o No þ
Include by check mark whether the registrant is a large accelerated filer, an accelerated filer, or
a non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule
12b-2 of the Exchange Act (check one):
Large accelerated filer: o Accelerated filer: o Non-Accelerated filer: þ
Based on the average bid and ask prices for the registrants Common Stock at June 30, 2006, at that
date, the aggregate market value of the registrants Common Stock held by nonaffiliates of the
registrant (assuming solely for the purposes of this calculation that all directors and executive
officers of the registrant are affiliates) was $67,279,475.
There were 2,801,265 shares of the registrants Common Stock, without par value, outstanding at
February 23, 2007.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents have been incorporated by reference into this Annual Report
on Form 10-K:
1. 2006 Annual Report to Shareholders. (Part II)
2. Definitive Proxy Statement for the 2007 Annual Meeting of Shareholders. (Part III)
TABLE OF CONTENTS
PART I
Item 1. Business
General
NorthWest Indiana Bancorp, an Indiana corporation (the Bancorp), was incorporated on
January 31, 1994, and is the holding company for Peoples Bank SB, an Indiana savings bank (the
Bank). The Bank is a wholly owned subsidiary of the Bancorp. The Bancorp has no other business
activity other than being the holding company for the Bank and the Banks wholly owned
subsidiaries.
The Bank is primarily engaged in the business of attracting deposits from the general public
and the origination of loans, mostly upon the security of single family residences and commercial
real estate, as well as, construction loans and various types of consumer loans and commercial
business loans, within its primary market area of Lake County, in northwest Indiana. In addition,
the Bancorps Wealth Management Group provides estate and retirement planning, guardianships, land
trusts, profit sharing and 401(k) retirement plans, IRA and Keogh accounts, investment agency
accounts, and serves as the personal representative of estates and acts as trustee for revocable
and irrevocable trusts.
The Banks deposit accounts are insured up to applicable limits by the Deposit Insurance Fund
(DIF), which is administered by the Federal Deposit Insurance Corporation (FDIC), an agency of
the federal government. As the holding company for the Bank, the Bancorp is subject to
comprehensive examination, supervision and regulation by the Board of Governors of the Federal
Reserve System (FRB), while the Bank is subject to comprehensive examination, supervision and
regulation by both the FDIC and the Indiana Department of Financial Institutions (DFI). The Bank
is also subject to regulation by the FRB governing reserves required to be maintained against
certain deposits and other matters. The Bank is also a member of the Federal Home Loan Bank
(FHLB) of Indianapolis, which is one of the twelve regional banks comprising the system of
Federal Home Loan Banks.
The Bancorp maintains its corporate office at 9204 Columbia Avenue, Munster, Indiana, from
which it oversees the operation of its eight branch locations. For further information, see
Properties.
Forward-Looking Statements
Statements contained in this filing on Form 10-K that are not historical facts are
forward-looking statements within the meaning of the Private Securities Litigation Reform Act of
1995. 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
also intended to identify forward-looking statements within the meaning of the Private Securities
Litigation Reform Act. The Bancorp cautions readers that forward-looking statements, including
without limitation those relating to the Bancorps future business prospects, interest income and
expense, net income, liquidity, and capital needs are subject to certain risks and uncertainties
that could cause actual results to differ materially from those indicated in
2
the forward-looking statements due to a number of factors, including those identified in Item 1A of
this Form 10-K.
Lending Activities
General. The Bancorps product offerings include residential mortgage loans,
construction loans, commercial real estate loans, consumer loans and commercial business loans.
The Bancorps lending strategy stresses quality growth, product diversification and, competitive
and profitable pricing. While lending efforts include both fixed and adjustable rate products, the
focus has been on products with adjustable rates and/or shorter terms to maturity. It is
managements goal that all programs are marketed effectively to our primary market area.
The Bancorp is primarily a portfolio lender. Mortgage banking activities are limited to the
sale of fixed rate mortgage loans with contractual maturities generally exceeding fifteen years.
These loans are sold, on a case-by-case basis, in the secondary market as part of the Bancorps
efforts to manage interest rate risk. All loan sales are made to Freddie Mac. All loans held for
sale are recorded at the lower of cost or market value.
Under Indiana Law, an Indiana stock savings bank generally may not make any loan to a borrower
or its related entities if the total of all such loans by the savings bank exceeds 15% of its
unimpaired capital and unimpaired surplus (plus up to an additional 10% of unimpaired capital and
unimpaired surplus, in the case of loans fully collateralized by readily marketable collateral);
provided, however, that certain specified types of loans are exempted from these limitations or
subject to different limitations. The maximum amount that the Bank could have loaned to one
borrower and the borrowers related entities at December 31, 2006, under the 15% of capital and
surplus limitation was approximately $7,938,000. At December 31, 2006, the Bank had no loans that
exceeded the regulatory limitations.
At December 31, 2006, there were no concentrations of loans in any type of industry that
exceeded 10% of total loans that were not otherwise disclosed as a loan category.
3
Loan Portfolio. The following table sets forth selected data relating to the composition of
the Bancorps loan portfolio by type of loan and type of collateral at the end of each of the last
five years. The amounts are stated in thousands (000s).
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2006 |
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2005 |
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2004 |
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2003 |
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2002 |
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Type of loan: |
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Conventional real estate loans: |
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Construction and
development loans |
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$ |
48,688 |
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$ |
47,957 |
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$ |
38,619 |
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$ |
23,674 |
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$ |
13,449 |
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Loans on existing
properties (1) |
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361,011 |
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347,542 |
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331,378 |
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339,461 |
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320,426 |
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Consumer loans |
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3,012 |
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3,983 |
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4,685 |
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5,099 |
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6,293 |
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Commercial business |
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46,751 |
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50,069 |
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47,270 |
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35,767 |
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39,009 |
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Government and other (2) |
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12,254 |
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19,492 |
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11,838 |
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5,807 |
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1,251 |
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Loans receivable (3) |
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$ |
471,716 |
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$ |
469,043 |
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$ |
433,790 |
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$ |
409,808 |
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$ |
380,428 |
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Type of collateral: |
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Real estate: |
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1-to-4 family |
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$ |
232,271 |
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$ |
228,475 |
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$ |
226,695 |
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$ |
233,454 |
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$ |
222,620 |
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Other dwelling units,
land and commercial
real estate |
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177,427 |
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167,023 |
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143,302 |
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129,680 |
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111,255 |
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Consumer loans |
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2,904 |
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3,966 |
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4,559 |
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4,909 |
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6,102 |
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Commercial business |
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45,671 |
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49,044 |
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44,923 |
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34,554 |
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37,477 |
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Government and other (2) |
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12,254 |
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19,492 |
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11,838 |
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5,807 |
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1,251 |
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Loans receivable (4) |
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$ |
470,527 |
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$ |
468,000 |
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$ |
431,317 |
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$ |
408,404 |
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$ |
378,705 |
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Average
loans outstanding during the period (3) |
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$ |
472,212 |
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$ |
443,523 |
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$ |
415,098 |
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$ |
394,955 |
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$ |
365,632 |
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(1) |
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Includes residential and commercial construction loans converted to permanent term loans
and commercial real estate loans. |
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(2) |
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Includes overdrafts to deposit accounts. |
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(3) |
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Net of unearned income and deferred loan fees. |
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(4) |
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Net of unearned income and deferred loan fees. Does not include unsecured loans. |
Loan Originations, Purchases and Sales. Set forth on the following table loan originations,
purchases and sales activity for each of the last three years are shown. The amounts are stated in
thousands (000s).
4
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2006 |
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2005 |
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2004 |
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Loans originated: |
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Conventional real estate loans: |
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Construction and development loans |
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$ |
11,212 |
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$ |
14,471 |
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$ |
22,845 |
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Loans on existing property |
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46,713 |
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55,685 |
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48,678 |
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Loans refinanced |
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9,853 |
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7,461 |
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12,920 |
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Total conventional real estate
loans originated |
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67,778 |
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77,617 |
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84,443 |
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Commercial business loans |
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123,829 |
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148,433 |
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114,685 |
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Consumer loans |
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3,197 |
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3,516 |
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4,124 |
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Total loans originated |
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$ |
194,804 |
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$ |
229,566 |
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$ |
203,252 |
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Loan participations purchased |
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$ |
12,354 |
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$ |
23,121 |
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$ |
17,756 |
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Whole loans and participations sold |
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$ |
9,142 |
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$ |
5,538 |
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$ |
16,100 |
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Loan Maturity Schedule. The following table sets forth certain information at December
31, 2006 regarding the dollar amount of loans in the Bancorps portfolio based on their contractual
terms to maturity. Demand loans, loans having no schedule of repayments and no stated maturity,
and overdrafts are reported as due in one year or less. Contractual principal repayments of loans
do not necessarily reflect the actual term of the loan portfolio. The average life of mortgage
loans is substantially less than their contractual terms because of loan prepayments and because of
enforcement of due-on-sale clauses, which give the Bancorp the right to declare a loan immediately
due and payable in the event, among other things, that the borrower sells the property subject to
the mortgage. The amounts are stated in thousands (000s).
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Maturing |
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After one |
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Within |
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but within |
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After |
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one year |
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five years |
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five years |
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Total |
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Real estate loans |
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$ |
61,543 |
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$ |
53,344 |
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$ |
294,811 |
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$ |
409,698 |
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Consumer loans |
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664 |
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2,282 |
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74 |
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3,020 |
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Commercial
business, other loans |
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35,634 |
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15,730 |
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7,634 |
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58,998 |
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Total loans
receivable |
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$ |
97,841 |
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$ |
71,356 |
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$ |
302,519 |
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$ |
471,716 |
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The table below sets forth the dollar amount of all loans due after one year from
December 31, 2006 which have predetermined interest rates or have floating or adjustable interest
rates. The amounts are stated in thousands (000s).
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Predetermined |
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Floating or |
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rates |
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adjustable rates |
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Total |
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Real estate loans |
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$ |
156,697 |
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$ |
192,032 |
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$ |
348,729 |
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Consumer loans |
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2,899 |
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2,899 |
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Commercial business,
other loans |
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24,502 |
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5,963 |
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30,465 |
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Total |
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$ |
184,098 |
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$ |
197,995 |
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$ |
382,093 |
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5
Lending Area. The primary lending area of the Bancorp encompasses all of Lake County in
northwest Indiana, where a majority of loan activity is concentrated. The Bancorp is also an
active lender in Porter, and to a lesser extent, LaPorte, Newton and Jasper counties in Indiana.
The communities of Munster, Crown Point, Dyer, St. John, Merrillville, Schererville and Cedar Lake
have experienced rapid growth and, therefore, have provided the greatest lending opportunities.
Loan Origination Fees. All loan origination and commitment fees, as well as incremental
direct loan origination costs, are deferred and amortized into income as yield adjustments over the
contractual lives of the related loans.
Loan Origination Procedure. The primary sources for loan originations are referrals from
commercial customers, real estate brokers and builders, solicitations by the Bancorps lending and
retail staff, and advertising of loan programs and rates. The Bancorp employs no staff
appraisers. All appraisals are performed by fee appraisers that have been approved by the Board of
Directors and who meet all federal guidelines and state licensing and certification requirements.
Designated officers have authorities, established by the Board of Directors, to approve loans.
Loans from $600,000 to $2,000,000 are approved by the loan officers loan committee. Loans from
$2,000,000 to $3,000,000 are approved by the senior officers loan committee. All loans in excess
of $3,000,000, up to the legal lending limit of the Bank, must be approved by the Banks Board of
Directors or its Executive Committee. (All members of the Banks Board of Directors and Executive
Committee are also members of the Bancorps Board of Directors and Executive Committee,
respectively.) Peoples Bank will not extend credit to any of its executive officers, directors, or
principal shareholders or to any related interest of that person, except in compliance with the
insider lending restrictions of Regulation O under the Federal Reserve Act and in an amount that,
when aggregated with all other extensions of credit to that person, exceeds $500,000 unless: (1)
the extension of credit has been approved in advance by a majority of the entire Board of Directors
of the Bank, and (2) the interested party has abstained from participating directly or indirectly
in the voting.
All loans secured by personal property must be covered by insurance in an amount sufficient to
cover the full amount of the loan. All loans secured by real estate must be covered by insurance
in an amount sufficient to cover the full amount of the loan or restore the property to its
original state. First mortgage loans must be covered by a lenders title insurance policy in the
amount of the loan.
The Current Lending Programs
Residential Mortgage Loans. The primary lending activity of the Bancorp has been the
granting of conventional mortgage loans to enable borrowers to purchase existing homes, refinance
existing homes, or construct new homes. Conventional loans are made up to a maximum of 100% of the
purchase price or appraised value, whichever is less. For loans made in excess of 80% of value,
private mortgage insurance is generally required in an amount sufficient to reduce the Bancorps
exposure to 80% or less of the appraised value of the property. Loans insured by private mortgage
insurance companies can be made for up to 100% of value. During 2006 over 90% of mortgage loans
closed were conventional loans with borrowers having 20% or more equity in the property. This type
of loan
6
does not require private mortgage insurance because of the borrowers level of equity
investment.
Fixed-rate loans currently originated generally conform to Freddie Mac guidelines for loans
purchased under the one-to-four family program. Loan interest rates are determined based on
secondary market yield requirements and local market conditions. Fixed rate mortgage loans with
contractual maturities generally exceeding fifteen years may be sold and/or classified as held for
sale to control exposure to interest rate risk.
The 15-year mortgage loan program has gained wide acceptance in the Bancorps primary market
area. As a result of the shortened maturity of these loans, this product has been priced below the
comparable 20 and 30 year loan offering. Mortgage applicants for 15 year loans tend to have a
larger than normal down payment; this, coupled with the larger principal and interest payment
amount, has caused the 15 year mortgage loan
portfolio to consist, to a significant extent, of second time home buyers whose underwriting
qualifications tend to be above average.
The Bancorps Adjustable Rate Mortgage Loans (ARMs) include offerings that reprice annually
or are Mini-Fixed. The Mini-Fixed mortgage reprices annually after a three, five or seven year
period. ARM originations totaled $23.3 million for 2006, $28.9 million for 2005, and $34.2 million
for 2004. During 2006, ARMs represented 59% of total mortgage loan originations. The ability of
the Bancorp to successfully market ARMs depends upon loan demand, prevailing interest rates,
volatility of interest rates, public acceptance of such loans, and terms offered by competitors.
Construction Loans. Construction loans on residential properties are made primarily to
individuals and contractors who are under contract with individual purchasers. These loans are
personally guaranteed by the borrower. The maximum loan-to-value ratio is 80% of either the current
appraised value or the cost of construction, whichever is less. Residential construction loans are
typically made for periods of six months to one year.
Loans are also made for the construction of commercial properties. All such loans are made in
accordance with well-defined underwriting standards. Generally if the loans are not owner occupied,
these types of loans require proof of intent to lease and a confirmed end-loan takeout. In general,
loans made do not exceed 80% of the appraised value of the property. Commercial construction loans
are typically made for periods not to exceed two years or date of occupancy, whichever is less.
Commercial Real Estate Loans. Commercial real estate loans are typically made to a maximum of
80% of the appraised value. Such loans are generally made on an adjustable rate basis. These
loans are typically made for terms of 15 to 20 years. Loans with an amortizing term exceeding 15
years normally have a balloon feature calling for a full repayment within seven to ten years from
the date of the loan. The balloon feature affords the Bancorp the opportunity to restructure the
loan if economic conditions so warrant. Commercial real estate loans include loans secured by
commercial rental units, apartments, condominium developments, small shopping centers, owner
occupied commercial/industrial properties, hospitality units, and other retail and commercial
developments.
While commercial real estate lending is generally considered to involve a higher degree of
risk than single-family residential lending due to the concentration of principal in a limited
number of loans and the
7
effects of general economic conditions on real estate developers and
managers, the Bancorp has endeavored to reduce this risk in several ways. In originating commercial
real estate loans, the Bancorp considers the feasibility of the project, the financial strength of
the borrowers and lessees, the managerial ability of the borrowers, the location of the project and
the economic environment. Management evaluates the debt coverage ratio and analyzes the
reliability of cash flows, as well as the quality of earnings. All such loans are made in
accordance with well-defined underwriting standards and are generally supported by personal
guarantees, which represent a secondary source of repayment.
Loans for the construction of commercial properties are generally located within an area
permitting physical inspection and regular review of business records. Projects financed outside of
the Bancorps primary lending area generally involve borrowers and guarantors who are or were
previous customers of the Bancorp, or projects that are underwritten according to the Banks
underwriting standards.
Consumer Loans. The Bancorp offers consumer loans to individuals for most personal, household
or family purposes. Consumer loans are either secured by adequate collateral, or unsecured.
Unsecured loans are based on the strength of the applicants financial condition. All borrowers
must meet current underwriting standards. The consumer loan program includes both fixed and
variable rate products. The Bancorp purchases indirect dealer paper from various well-established
businesses in its immediate banking area.
Home Equity Line of Credit. The Bancorp offers a fixed and variable rate revolving line of
credit secured by the equity in the borrowers home. Both products offer an interest only option
where the borrower pays interest only on the outstanding balance each month. Equity lines will
typically require a second mortgage appraisal and a second mortgage lenders title insurance policy.
Loans are generally made up to a maximum of 80% of the appraised value of the property less any
outstanding liens.
Home Improvement Loans and Equity LoansFixed Term. Home improvement and equity loans are
made up to a maximum of 80% of the appraised value of the improved property, less any outstanding
liens. These loans are offered on both a fixed and variable rate basis with a maximum term of 120
months. All home equity loans are made on a direct basis to borrowers.
Commercial Business Loans. Although the Bancorps priority in extending various types of
commercial business loans changes from time to time, the basic considerations in determining the
makeup of the commercial business loan portfolio are economic factors, regulatory requirements and
money market conditions. The Bancorp seeks commercial loan relationships from the local business
community and from its present customers. Conservative lending policies based upon sound credit
analysis governs the extension of commercial credit. The following loans, although not inclusive,
are considered preferable for the Bancorps commercial loan portfolio: loans collateralized by
liquid assets; loans secured by general use machinery and equipment; secured short-term working
capital loans to established businesses; short-term loans with established sources of repayment and
secured by sufficient equity and real estate; and unsecured loans to customers whose character and
capacity to repay are firmly established.
Government Loans. The Bancorp is permitted to purchase non-rated municipal securities, tax
anticipation notes and warrants within the local market area.
8
Non-Performing Assets, Asset Classification and Provision for Loan Losses
Loans are reviewed on a regular basis and are generally placed on a non-accrual status
when, in the opinion of management, serious doubt exists as to the collectibility of a loan. Loans
are generally placed on non-accrual status when either principal or interest is 90 days or more
past due. Consumer non-residential loans are generally charged off when the loan becomes over 120
days delinquent. Interest accrued and unpaid at the time a loan is placed on non-accrual status is
charged against interest income. Subsequent payments are either applied to the outstanding
principal balance, tax and insurance reserve, or recorded as interest income, depending on the
assessment of the ultimate collectibility of the loan.
The Bancorps mortgage loan collection procedures provide that, when a mortgage loan is 15
days or more delinquent, the borrower will be contacted by mail and payment requested. If the
delinquency continues, subsequent efforts will be made to contact the delinquent borrower. In
certain instances, the Bancorp will recast the loan or grant a limited moratorium on loan payments
to enable the borrower to reorganize his, her or its financial affairs. If the loan continues in a
delinquent status for 60 days, the Bancorp will generally initiate foreclosure proceedings. Any
property acquired as the result of foreclosure or by voluntary transfer of property made to avoid
foreclosure is classified as foreclosed real estate until such time as it is sold or otherwise
disposed of by the Bancorp. Foreclosed real estate is recorded at fair value at the date of
foreclosure. At foreclosure, any write-down of the property is charged to the allowance for loan
losses. Costs relating to improvement of property are capitalized, whereas holding costs are
expensed. Valuations are periodically performed by management, and a valuation allowance is
established by a charge to operations if the carrying value of a property exceeds its estimated
fair value less selling costs. Subsequent gains or losses on disposition, including expenses
incurred in connection with the disposition, are charged to operations. Collection procedures for
consumer loans provide that when a consumer loan becomes ten days delinquent, the borrower will be
contacted by mail and payment requested. If the delinquency continues, subsequent efforts will be
made to contact the delinquent borrower. In certain instances, the Bancorp may grant a payment
deferral. If a loan continues delinquent after 90 days and all collection efforts have been
exhausted, the Bancorp will initiate legal proceedings. Collection procedures for commercial
business loans provide that when a commercial loan becomes ten days delinquent, the borrower will
be contacted by mail and payment requested. If the delinquency continues, subsequent efforts will
be made to contact the delinquent borrower pursuant to the commercial loan collection policy. In
certain instances, the Bancorp may grant a payment deferral or restructure the loan. Once it has
been determined that collection efforts are unsuccessful, the Bancorp will initiate legal
proceedings.
The table that follows sets forth information with respect to the Bancorps non-performing
assets at December 31, for the periods indicated. During the periods shown, the Bancorp had no
troubled debt restructurings, which involve forgiving a portion of interest or principal on any
loans or making loans at a rate materially less than market rates. The amounts are stated in
thousands (000s).
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
Loans accounted for on a non-accrual basis: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential |
|
$ |
1,128 |
|
|
$ |
784 |
|
|
$ |
574 |
|
|
$ |
601 |
|
|
$ |
430 |
|
Commercial |
|
|
1,467 |
|
|
|
62 |
|
|
|
136 |
|
|
|
137 |
|
|
|
1,197 |
|
Commercial business |
|
|
301 |
|
|
|
266 |
|
|
|
266 |
|
|
|
611 |
|
|
|
363 |
|
Consumer |
|
|
|
|
|
|
1 |
|
|
|
7 |
|
|
|
|
|
|
|
13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
2,896 |
|
|
$ |
1,113 |
|
|
$ |
983 |
|
|
$ |
1,349 |
|
|
$ |
2,003 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accruing loans which are contractually past due 90 days or more: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential |
|
$ |
156 |
|
|
$ |
53 |
|
|
$ |
61 |
|
|
$ |
370 |
|
|
$ |
277 |
|
Commercial |
|
|
|
|
|
|
815 |
|
|
|
5 |
|
|
|
|
|
|
|
105 |
|
Commercial business |
|
|
|
|
|
|
130 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer |
|
|
26 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
182 |
|
|
$ |
998 |
|
|
$ |
66 |
|
|
$ |
370 |
|
|
$ |
382 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total of non-accrual
and 90 days past due |
|
$ |
3,078 |
|
|
$ |
2,111 |
|
|
$ |
1,049 |
|
|
$ |
1,719 |
|
|
$ |
2,385 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of non-performing
loans to total assets |
|
|
0.50 |
% |
|
|
0.34 |
% |
|
|
0.19 |
% |
|
|
0.34 |
% |
|
|
0.49 |
% |
Ratio of non-performing
loans to total loans |
|
|
0.65 |
% |
|
|
0.45 |
% |
|
|
0.24 |
% |
|
|
0.42 |
% |
|
|
0.63 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreclosed real estate |
|
$ |
323 |
|
|
$ |
260 |
|
|
$ |
280 |
|
|
$ |
|
|
|
$ |
127 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of foreclosed real
estate to total assets |
|
|
0.05 |
% |
|
|
0.04 |
% |
|
|
0.05 |
% |
|
|
0.00 |
% |
|
|
0.03 |
% |
During 2006, gross interest income of $228,000 would have been recorded on loans
accounted for on a non-accrual basis if the loans had been current throughout the period. Interest
on such loans included in income during the period amounted to $100,000.
Federal regulations require savings banks to classify their own loans and to establish
appropriate general and specific allowances, subject to regulatory review. These regulations are
designed to encourage management to evaluate loans on a case-by-case basis and to discourage
automatic classifications. Loans classified as substandard or doubtful must be evaluated by
management to determine loan loss reserves. Loans classified as loss must either be written off or
reserved for by a specific allowance. Amounts reported in the general loan loss reserve are
included in the calculation of the Bancorps total risk-based capital requirement (to the extent
that the amount does not exceed 1.25% of total risk-based assets), but are not included in Tier 1
leverage ratio calculations and Tier 1 risk-based capital requirements. Amounts reserved for by a
specific allowance are not counted toward capital for purposes of any of the regulatory capital
requirements. Loans, internally classified as substandard totaled $6.9 million at December 31,
2006, compared to $3.2 million at December 31, 2005. The increase in substandard loans is
primarily related to an increase in loans secured by residential and commercial real estate loans.
No loans were classified as doubtful or loss. Substandard loans include non-performing loans and
potential problem loans, where information about possible credit issues or other conditions causes
management to question the ability of such borrowers to comply with loan covenants or repayment
terms. In addition to
10
identifying and monitoring non-performing and other classified loans,
management maintains a list of watch loans. Watch loans represent loans management is more closely
monitoring due to one or more factors that may cause the loan to become classified. Watch loans
totaled $7.6 million at December 31, 2006, compared to $8.9 million at December 31, 2005.
At December 31, 2006, impaired loans totaled $1.9 million, compared to $1.7 million at
December 31, 2005. The impaired loan balances were also classified as non-performing loans at the
end of both periods. The December 31, 2006 impaired loan balances consist of five impaired loans
to two commercial borrowers that are secured by business assets and real estate, and are personally
guaranteed by the owner of the business. Impaired loans are loans where full payment under the
loan terms is not expected. There were no other loans considered to be impaired loans as of, or
for the year ended, December 31, 2006.
At December 31, 2006, management is of the opinion that there are no loans, except those
discussed above, where known information about possible credit problems of borrowers causes
management to have serious
doubts as to the ability of such borrowers to comply with the present loan repayment terms and
which may result in disclosure of such loans as non-accrual, past due or restructured loans. Also,
at December 31, 2006, there were no other interest bearing assets that would be required to be
disclosed as non-accrual, past due, restructured or potential problems if such assets were loans.
Management does not presently anticipate that any of the non-performing loans or classified loans
would materially impact future operations, liquidity or capital resources.
Notwithstanding, the above, the Bancorp has a $1.1 million participation in a $6.4 million
letter of credit, which acts as payment support to bondholders. While the Bancorps management
currently believes that the principal of the borrower has the financial capacity to meet future
bond repayment obligations. Cash flows from the security collateralizing the letter of credit have
been negatively impacted due to the closing of a major tenant. Management will continue to monitor
the letter of credit and bond repayments.
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 probable
incurred losses that arise from the loan portfolio and is not segregated for, or allocated to, any
particular loan or group of loans. For the twelve months ended December 31, 2006, $15 thousand in
additions to the ALL account were required, compared to $245 thousand for the twelve months ended
December 31, 2005. The December 31, 2006 ALL contained a specific allowance for the collateral
deficiency associated with three loans totaling $1.4 million, which had been classified as impaired
at December 31, 2006 and December 31, 2005, and placed in non-accrual status during the first
quarter of 2006. Recoveries, net of charge-offs, totaled $71 thousand for the current twelve
months, compared to recoveries, net of charge-offs of $44 thousand for the twelve months ended
December 31, 2005. Changes in the provision take into consideration managements current
11
judgments
about the credit quality of the loan portfolio, loan portfolio growth, changes in the portfolio mix
and local economic conditions. In determining the provision for loan loss for the current period,
management has given consideration to increased risks associated within the local economy, changes
in loan mix and asset quality.
The ALL to total loans was 0.90% at December 31, 2006, compared to 0.89% at December 31, 2005,
while the ALL to non-performing loans (coverage ratio) was 138.6% at December 31, 2006, compared to
198.1% at December 31, 2005. A consistently strong coverage ratio is an indicator that sufficient
provisions for loan losses have been established. The December 31, 2006 balance in the ALL account
of $4.3 million is considered adequate by management after evaluation of the loan portfolio, past
experience and current economic and market conditions. While management may periodically allocate
portions of the allowance for specific problem loans, the whole allowance is available for any loan
charge-offs that occur. 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, and loans which have been pooled as of the
evaluation date, with particular attention given to non-performing loans and loans which have been
classified as substandard, doubtful or loss. Management has allocated general reserves to both
performing and non-performing loans based on current information available.
The table that follows sets forth the allowance for loan losses and related ratios for
the periods indicated. There were no charge-offs or recoveries of real estate construction loans
during the periods presented. The amounts are stated in thousands (000s).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
Balance at beginning of period |
|
$ |
4,181 |
|
|
$ |
3,892 |
|
|
$ |
3,787 |
|
|
$ |
3,635 |
|
|
$ |
3,156 |
|
Loans charged-off: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate residential |
|
|
|
|
|
|
(37 |
) |
|
|
(14 |
) |
|
|
|
|
|
|
|
|
Commercial real estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(136 |
) |
|
|
|
|
Commercial business |
|
|
|
|
|
|
|
|
|
|
(297 |
) |
|
|
(120 |
) |
|
|
(300 |
) |
Consumer |
|
|
(7 |
) |
|
|
|
|
|
|
(30 |
) |
|
|
(21 |
) |
|
|
(36 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total charge-offs |
|
|
(7 |
) |
|
|
(37 |
) |
|
|
(341 |
) |
|
|
(277 |
) |
|
|
(336 |
) |
Recoveries: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential real estate |
|
|
20 |
|
|
|
18 |
|
|
|
41 |
|
|
|
|
|
|
|
|
|
Commercial real estate |
|
|
33 |
|
|
|
|
|
|
|
|
|
|
|
3 |
|
|
|
|
|
Commercial business |
|
|
21 |
|
|
|
60 |
|
|
|
14 |
|
|
|
|
|
|
|
91 |
|
Consumer |
|
|
4 |
|
|
|
3 |
|
|
|
6 |
|
|
|
6 |
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recoveries |
|
|
78 |
|
|
|
81 |
|
|
|
61 |
|
|
|
9 |
|
|
|
95 |
|
Net (charge-offs) / recoveries |
|
|
71 |
|
|
|
44 |
|
|
|
(280 |
) |
|
|
(268 |
) |
|
|
(241 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan losses |
|
|
15 |
|
|
|
245 |
|
|
|
385 |
|
|
|
420 |
|
|
|
720 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period |
|
$ |
4,267 |
|
|
$ |
4,181 |
|
|
$ |
3,892 |
|
|
$ |
3,787 |
|
|
$ |
3,635 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ALL to loans outstanding |
|
|
0.90 |
% |
|
|
0.89 |
% |
|
|
0.90 |
% |
|
|
0.92 |
% |
|
|
0.96 |
% |
ALL to nonperforming loans |
|
|
138.60 |
% |
|
|
198.10 |
% |
|
|
371.00 |
% |
|
|
220.30 |
% |
|
|
152.40 |
% |
Net charge-offs / recoveries
to average loans out -
standing during the period |
|
|
0.02 |
% |
|
|
0.01 |
% |
|
|
0.07 |
% |
|
|
0.07 |
% |
|
|
0.07 |
% |
12
The following table shows the allocation of the allowance for loan losses at December 31, for
the dates indicated. The dollar amounts are stated in thousands (000s). The percent columns
represent the percentage of loans in each category to total loans.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
|
|
$ |
|
|
% |
|
|
$ |
|
|
% |
|
|
$ |
|
|
% |
|
|
$ |
|
|
% |
|
|
$ |
|
|
% |
|
Real estate loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential |
|
|
761 |
|
|
|
60.0 |
|
|
|
644 |
|
|
|
55.1 |
|
|
|
550 |
|
|
|
57.2 |
|
|
|
500 |
|
|
|
58.9 |
|
|
|
450 |
|
|
|
58.0 |
|
Commercial and
other dwelling |
|
|
1,472 |
|
|
|
26.9 |
|
|
|
1,089 |
|
|
|
24.0 |
|
|
|
950 |
|
|
|
24.0 |
|
|
|
637 |
|
|
|
26.1 |
|
|
|
1,750 |
|
|
|
25.8 |
|
Consumer loans |
|
|
87 |
|
|
|
0.6 |
|
|
|
99 |
|
|
|
6.1 |
|
|
|
150 |
|
|
|
5.2 |
|
|
|
150 |
|
|
|
4.8 |
|
|
|
120 |
|
|
|
5.6 |
|
Commercial business
and other |
|
|
1,947 |
|
|
|
12.5 |
|
|
|
2,349 |
|
|
|
14.8 |
|
|
|
2,242 |
|
|
|
13.6 |
|
|
|
2,500 |
|
|
|
10.2 |
|
|
|
1,315 |
|
|
|
10.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
4,267 |
|
|
|
100.0 |
|
|
|
4,181 |
|
|
|
100.0 |
|
|
|
3,892 |
|
|
|
100.0 |
|
|
|
3,787 |
|
|
|
100.0 |
|
|
|
3,635 |
|
|
|
100.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment Activities
The primary objective of the 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. Securities are classified as either held-to-maturity (HTM) or available-for-sale (AFS)
at the time of purchase. No securities are classified as trading. At December 31, 2006, AFS
securities totaled $83.8 million or 84.6% of total securities. AFS securities are those the
Bancorp may decide to sell if needed for liquidity, asset-liability management or other reasons.
During 2006, the Bancorp did not have derivative instruments and was not involved in hedging
activities as defined by SFAS No. 133. It has been the policy of the Bancorp to invest its excess
cash in U.S. government agency securities, mortgage-backed securities, collateralized mortgage
obligations and municipal securities. In addition, short-term funds are generally invested as
interest-bearing balances in financial institutions and federal funds. At December 31, 2006, the
Bancorps investment portfolio totaled $99.0 million. In addition, the Bancorp had $0 in federal
funds sold, and $3.5 million in FHLB stock.
The table below shows the carrying values of the components of the investment securities
portfolio at December 31, on the dates indicated. The amounts are stated in thousands (000s).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
U.S. government agencies: |
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale |
|
|
40,504 |
|
|
|
45,843 |
|
|
|
42,947 |
|
Mortgage-backed securities (1): |
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale |
|
|
15,955 |
|
|
|
14,702 |
|
|
|
13,045 |
|
Held-to-maturity |
|
|
538 |
|
|
|
550 |
|
|
|
564 |
|
Collateralized Mortgage Obligations(1): |
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale |
|
|
22,347 |
|
|
|
12,957 |
|
|
|
12,324 |
|
Municipal Securities: |
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale |
|
|
4,959 |
|
|
|
2,880 |
|
|
|
845 |
|
Held-to-maturity |
|
|
14,709 |
|
|
|
13,161 |
|
|
|
10,254 |
|
|
|
|
|
|
|
|
|
|
|
Totals |
|
$ |
99,012 |
|
|
$ |
90,093 |
|
|
$ |
79,979 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Mortgage-backed securities and Collateralized Mortgage Obligations are U.S. government
agency and sponsored securities. |
13
The contractual maturities and weighted average yields for the U.S. government securities,
agency securities, municipal securities, mortgage-backed securities and collateralized mortgage
obligations at December 31, 2006, are summarized as follows. The carrying values are stated in
thousands (000s).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Within 1 Year |
|
|
1 - 5 Years |
|
|
5 - 10 Years |
|
|
After 10 Years |
|
|
|
Amount |
|
|
Yield |
|
|
Amount |
|
|
Yield |
|
|
Amount |
|
|
Yield |
|
|
Amount |
|
|
Yield |
|
U.S. government
Securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AFS |
|
|
|
|
|
|
0 |
% |
|
|
|
|
|
|
0 |
% |
|
|
|
|
|
|
0 |
% |
|
|
|
|
|
|
0 |
% |
U.S. government
Agencies: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AFS |
|
|
18,329 |
|
|
|
2.92 |
% |
|
|
18,682 |
|
|
|
4.00 |
% |
|
|
3,493 |
|
|
|
5.60 |
% |
|
|
|
|
|
|
0 |
% |
HTM |
|
|
|
|
|
|
0 |
% |
|
|
|
|
|
|
0 |
% |
|
|
|
|
|
|
0 |
% |
|
|
|
|
|
|
0 |
% |
Municipal Securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AFS |
|
|
|
|
|
|
0 |
% |
|
|
310 |
|
|
|
3.17 |
% |
|
|
1,514 |
|
|
|
5.64 |
% |
|
|
3,135 |
|
|
|
5.95 |
% |
HTM |
|
|
|
|
|
|
0 |
% |
|
|
|
|
|
|
0 |
% |
|
|
3,374 |
|
|
|
5.97 |
% |
|
|
11,335 |
|
|
|
6.10 |
% |
Mortgage-backed
Securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AFS |
|
|
|
|
|
|
0 |
% |
|
|
2,150 |
|
|
|
3.99 |
% |
|
|
6,180 |
|
|
|
4.25 |
% |
|
|
7,625 |
|
|
|
5.37 |
% |
HTM |
|
|
|
|
|
|
0 |
% |
|
|
|
|
|
|
0 |
% |
|
|
|
|
|
|
0 |
% |
|
|
538 |
|
|
|
5.53 |
% |
Collateralized
Mortgage
Obligations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AFS |
|
|
|
|
|
|
0 |
% |
|
|
|
|
|
|
0 |
% |
|
|
|
|
|
|
0 |
% |
|
|
22,347 |
|
|
|
5.02 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals |
|
$ |
18,329 |
|
|
|
2.85 |
% |
|
$ |
21,142 |
|
|
|
3.53 |
% |
|
$ |
14,561 |
|
|
|
4.39 |
% |
|
$ |
44,980 |
|
|
|
2.85 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
Sources of Funds
General. Deposits are the major source of the Bancorps funds for lending and other
investment purposes. In addition to deposits, the Bancorp derives funds from maturing investment
securities and certificates of deposit, dividend receipts from the investment portfolio, loan
principal repayments, repurchase agreements, advances from the Federal Home Loan Bank of
Indianapolis (FHLB) and other borrowings. Loan repayments are a relatively stable source of funds,
while deposit inflows and outflows are significantly influenced by general interest rates and money
market conditions. Borrowings may be used on a short-term basis to compensate for reductions in
the availability of other sources of funds. They may also be used on a longer-term basis for
general business purposes. The Bancorp uses repurchase agreements, as well as, a line-of-credit
and advances from the FHLB for borrowings. At December 31, 2006, the Bancorp had $14.7 million in
repurchase agreements. Other borrowings totaled $36.8 million, of which $32.0 million represents
FHLB advances.
Deposits. Retail and commercial deposits are attracted principally from within the Bancorps
primary market area. The Bancorp offers a broad selection of deposit instruments including
checking accounts, NOW accounts, savings accounts, money market deposit accounts, certificate
accounts and retirement savings plans. Deposit accounts vary as to terms, with the principal
differences being the minimum balance required, the time period the funds must remain on deposit
and the interest rate. Certificate accounts currently range in maturity from ten days to 42
months. The deregulation of federal controls on insured deposits has allowed the Bancorp to be
more competitive in obtaining funds and to be flexible in meeting the threat of net deposit
outflows. The Bancorp does not obtain funds through brokers.
The following table presents the average daily amount of deposits bearing interest and average
rates paid on such deposits for the years indicated. The amounts are stated in thousands (000s).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
|
Amount |
|
|
Rate % |
|
|
Amount |
|
|
Rate % |
|
|
Amount |
|
|
Rate % |
|
Demand deposits |
|
$ |
45,862 |
|
|
|
|
|
|
$ |
49,506 |
|
|
|
|
|
|
$ |
47,288 |
|
|
|
|
|
NOW accounts |
|
|
56,412 |
|
|
|
1.06 |
|
|
|
56,119 |
|
|
|
0.79 |
|
|
|
52,857 |
|
|
|
0.78 |
|
MMDA accounts |
|
|
133,558 |
|
|
|
3.06 |
|
|
|
105,130 |
|
|
|
1.63 |
|
|
|
78,326 |
|
|
|
1.07 |
|
Savings accounts |
|
|
58,586 |
|
|
|
0.43 |
|
|
|
68,403 |
|
|
|
0.49 |
|
|
|
71,354 |
|
|
|
0.51 |
|
Certificates
of deposit |
|
|
213,419 |
|
|
|
3.99 |
|
|
|
203,723 |
|
|
|
2.68 |
|
|
|
191,004 |
|
|
|
1.95 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits |
|
$ |
507,837 |
|
|
|
2.65 |
|
|
$ |
482,881 |
|
|
|
1.65 |
|
|
$ |
440,829 |
|
|
|
1.21 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturities of time certificates of deposit and other time deposits of $100,000 or more at
December 31, 2006 are summarized as follows. The amounts are stated in thousands (000s).
|
|
|
|
|
3 months or less |
|
$ |
35,148 |
|
Over 3 months through 6 months |
|
|
25,723 |
|
Over 6 months through 12 months |
|
|
17,839 |
|
Over 12 months |
|
|
2,677 |
|
|
|
|
|
Total |
|
$ |
81,387 |
|
|
|
|
|
15
Borrowings. Borrowed money is used on a short-term basis to compensate for reductions in
the availability of other sources of funds and is generally accomplished through repurchase
agreements, as well as, through a line of credit and advances from the FHLB. Repurchase agreements
generally mature within one year and are generally secured by U.S. government securities or U.S.
agency securities, under the Bancorps control. FHLB advances with maturities ranging from one
year to eight years are used to fund securities and loans of comparable duration, as well as to
reduce the impact that movements in short-term interest rates have on the Bancorps overall cost of
funds. Fixed rate advances are payable at maturity, with a prepayment penalty. Putable advances
are fixed for a period of one to three years and then may adjust annually to the three-month London
Interbank Offered Rate (LIBOR) until maturity. Once the putable advance interest rate adjusts, the
Bancorp has the option to prepay the advance on specified annual interest rate reset dates without
prepayment penalty.
The following table sets forth certain information regarding repurchase agreements by the
Bancorp at the end of and during the periods indicated. The amounts are stated in thousands
(000s).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
Repurchase agreements |
|
$ |
14,717 |
|
|
$ |
12,075 |
|
|
$ |
11,458 |
|
Fixed rate advances from the FHLB |
|
|
30,000 |
|
|
|
33,000 |
|
|
|
29,000 |
|
Putable advances from the FHLB |
|
|
2,000 |
|
|
|
4,500 |
|
|
|
7,500 |
|
Variable advances from the FHLB |
|
|
|
|
|
|
|
|
|
|
3,000 |
|
FHLB line-of-credit |
|
|
3,089 |
|
|
|
|
|
|
|
5,242 |
|
Limited partnership obligation |
|
|
60 |
|
|
|
124 |
|
|
|
186 |
|
Overdrawn due from & Treasury Tax & Loan |
|
|
1,635 |
|
|
|
1,454 |
|
|
|
815 |
|
|
|
|
|
|
|
|
|
|
|
Total borrowings |
|
$ |
51,501 |
|
|
$ |
51,153 |
|
|
$ |
57,201 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, |
|
|
2006 |
|
2005 |
|
2004 |
Balance |
|
$ |
14,717 |
|
|
$ |
12,075 |
|
|
$ |
11,458 |
|
Securities underlying the agreements: |
|
|
|
|
|
|
|
|
|
|
|
|
Ending carrying amount |
|
|
20,329 |
|
|
|
21,122 |
|
|
|
20,108 |
|
Ending fair value |
|
|
20,329 |
|
|
|
21,122 |
|
|
|
20,108 |
|
Weighted average rate paid (1) |
|
|
4.20 |
% |
|
|
3.40 |
% |
|
|
2.13 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For year ended December 31, |
|
|
2006 |
|
2005 |
|
2004 |
Highest month-end balance |
|
$ |
21,715 |
|
|
$ |
14,490 |
|
|
$ |
15,233 |
|
Approximate average outstanding balance |
|
|
14,186 |
|
|
|
13,938 |
|
|
|
13,439 |
|
Approximate weighted average rate
paid on securities sold under
agreements to repurchase (2) |
|
|
3.42 |
% |
|
|
2.54 |
% |
|
|
1.80 |
% |
|
|
|
(1) |
|
The weighted average rate for each period is calculated by weighting the principal
balances outstanding for the various interest rates. |
|
(2) |
|
The weighted average rate is calculated by dividing the interest expense for the period by the
average daily balances of securities sold under agreements to repurchase for the period.
|
16
The limited partnership obligation represents an investment interest in a partnership formed
for the construction, ownership and management of affordable housing projects. The original amount
of the note was $500,000. Funding began during 2000 and will continue over a nine-year period.
Payments are required within ten days of written demand. The obligation to make payment is absolute
and unconditional. The note requires no payment of interest.
Trust Powers
The activities of the Bancorps Wealth Management Group provides estate and retirement
planning, guardianships, land trusts, profit sharing and 401(k) retirement plans, IRA and Keogh
accounts, investment agency accounts, and serves as personal representative of estates and acts as
trustee for revocable and irrevocable trusts. At December 31, 2006, the market value of the Wealth
Management Groups assets totaled $142.0 million.
Analysis of Profitability and Key Operating Ratios
Distribution of Assets, Liabilities and Shareholders Equity;
Interest Rates and Interest Differential.
The net earnings of the Bancorp depend primarily upon the spread (difference) between (a)
the income it receives from its loan portfolio and other investments, and (b) its cost of money,
consisting principally of the interest paid on savings accounts and on other borrowings.
The following table presents the weighted average yields on loans and investment securities,
the weighted average cost of interest-bearing deposits and other borrowings, and the interest rate spread at December 31, 2006.
|
|
|
|
|
Weighted average yield: |
|
|
|
|
Securities |
|
|
4.26 |
% |
Loans receivable |
|
|
6.20 |
|
Federal Home Loan Bank stock |
|
|
4.75 |
|
Total interest-earning assets |
|
|
6.10 |
|
|
|
|
|
|
Weighted average cost: |
|
|
|
|
Deposit accounts |
|
|
3.06 |
|
Borrowed funds |
|
|
3.76 |
|
Total interest-bearing liabilities |
|
|
3.12 |
|
|
|
|
|
|
Interest rate spread: |
|
|
|
|
Weighted average yield on interest-earning
assets minus the weighted average cost of
interest-bearing funds |
|
|
2.98 |
|
17
Financial Ratios and the Analysis of Changes in Net Interest Income
The tables below set forth certain financial ratios of the Bancorp for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
|
2006 |
|
2005 |
|
2004 |
Return on average assets |
|
|
1.04 |
% |
|
|
1.14 |
% |
|
|
1.17 |
% |
Return on average equity |
|
|
13.42 |
|
|
|
14.67 |
|
|
|
14.64 |
|
Average equity-to-average assets ratio |
|
|
7.76 |
|
|
|
7.75 |
|
|
|
8.01 |
|
Dividend payout ratio |
|
|
60.41 |
|
|
|
55.09 |
|
|
|
54.57 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, |
|
|
2006 |
|
2005 |
|
2004 |
Total stockholders equity to
total assets |
|
|
8.08 |
% |
|
|
7.40 |
% |
|
|
7.91 |
% |
for the periods indicated: |
|
|
|
|
|
|
|
|
|
|
|
|
18
The
average balance sheet amounts, the related interest income or expense, and average rates earned or paid are presented in the following table. The amounts are stated in thousands (000s)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2006 |
|
|
Year ended December 31, 2005 |
|
|
Year ended December 31, 2004 |
|
|
|
|
|
|
|
Interest |
|
|
|
|
|
|
|
|
|
|
Interest |
|
|
|
|
|
|
|
|
|
|
Interest |
|
|
|
|
|
|
Average |
|
|
Income/ |
|
|
Average |
|
|
Average |
|
|
Income/ |
|
|
Average |
|
|
Average |
|
|
Income/ |
|
|
Average |
|
|
|
Balance |
|
|
Expense |
|
|
Rate |
|
|
Balance |
|
|
Expense |
|
|
Rate |
|
|
Balance |
|
|
Expense |
|
|
Rate |
|
|
|
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing balances
in financial institutions |
|
$ |
8,080 |
|
|
$ |
401 |
|
|
|
4.97 |
% |
|
$ |
13,096 |
|
|
$ |
418 |
|
|
|
3.19 |
% |
|
$ |
5,571 |
|
|
$ |
74 |
|
|
|
1.33 |
% |
Federal funds sold |
|
|
1,965 |
|
|
|
95 |
|
|
|
4.85 |
|
|
|
718 |
|
|
|
53 |
|
|
|
7.38 |
|
|
|
597 |
|
|
|
13 |
|
|
|
2.17 |
|
Securities |
|
|
98,759 |
|
|
|
4,057 |
|
|
|
4.11 |
|
|
|
88,634 |
|
|
|
3,289 |
|
|
|
3.71 |
|
|
|
79,965 |
|
|
|
2,818 |
|
|
|
3.52 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments |
|
|
108,804 |
|
|
|
4,553 |
|
|
|
4.19 |
|
|
|
102,448 |
|
|
|
3,760 |
|
|
|
3.67 |
|
|
|
86,133 |
|
|
|
2,905 |
|
|
|
3.37 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate mortgage loans |
|
|
405,062 |
|
|
|
25,819 |
|
|
|
6.37 |
|
|
|
376,290 |
|
|
|
22,363 |
|
|
|
5.94 |
|
|
|
362,200 |
|
|
|
21,007 |
|
|
|
5.80 |
|
Commercial business loans |
|
|
63,457 |
|
|
|
4,356 |
|
|
|
6.86 |
|
|
|
63,047 |
|
|
|
3,633 |
|
|
|
5.76 |
|
|
|
47,551 |
|
|
|
2,371 |
|
|
|
4.99 |
|
Consumer loans |
|
|
3,692 |
|
|
|
250 |
|
|
|
6.78 |
|
|
|
4,186 |
|
|
|
267 |
|
|
|
6.38 |
|
|
|
5,347 |
|
|
|
331 |
|
|
|
6.19 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans |
|
|
472,211 |
|
|
|
30,425 |
|
|
|
6.44 |
|
|
|
443,523 |
|
|
|
26,264 |
|
|
|
5.92 |
|
|
|
415,098 |
|
|
|
23,709 |
|
|
|
5.71 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets |
|
|
581,015 |
|
|
|
34,978 |
|
|
|
6.02 |
|
|
|
545,971 |
|
|
|
30,024 |
|
|
|
5.50 |
|
|
|
501,232 |
|
|
|
26,614 |
|
|
|
5.31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses |
|
|
(4,227 |
) |
|
|
|
|
|
|
|
|
|
|
(4,013 |
) |
|
|
|
|
|
|
|
|
|
|
(3,813 |
) |
|
|
|
|
|
|
|
|
Cash and due from banks |
|
|
13,491 |
|
|
|
|
|
|
|
|
|
|
|
16,027 |
|
|
|
|
|
|
|
|
|
|
|
15,963 |
|
|
|
|
|
|
|
|
|
Premises and equipment |
|
|
14,490 |
|
|
|
|
|
|
|
|
|
|
|
14,424 |
|
|
|
|
|
|
|
|
|
|
|
14,211 |
|
|
|
|
|
|
|
|
|
Other assets |
|
|
16,927 |
|
|
|
|
|
|
|
|
|
|
|
14,436 |
|
|
|
|
|
|
|
|
|
|
|
8,894 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
621,696 |
|
|
|
|
|
|
|
|
|
|
$ |
586,844 |
|
|
|
|
|
|
|
|
|
|
$ |
536,486 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposit |
|
$ |
45,862 |
|
|
|
|
|
|
|
0.00 |
% |
|
$ |
49,506 |
|
|
|
|
|
|
|
0.00 |
% |
|
$ |
47,288 |
|
|
|
|
|
|
|
0.00 |
% |
NOW accounts |
|
|
56,412 |
|
|
|
599 |
|
|
|
1.06 |
|
|
|
56,119 |
|
|
|
443 |
|
|
|
0.79 |
|
|
|
52,857 |
|
|
|
410 |
|
|
|
0.78 |
|
Money market demand accounts |
|
|
133,558 |
|
|
|
4,091 |
|
|
|
3.06 |
|
|
|
105,130 |
|
|
|
1,710 |
|
|
|
1.63 |
|
|
|
78,326 |
|
|
|
837 |
|
|
|
1.07 |
|
Savings accounts |
|
|
58,586 |
|
|
|
249 |
|
|
|
0.43 |
|
|
|
68,403 |
|
|
|
335 |
|
|
|
0.49 |
|
|
|
71,354 |
|
|
|
365 |
|
|
|
0.51 |
|
Certificates of deposit |
|
|
213,419 |
|
|
|
8,520 |
|
|
|
3.99 |
|
|
|
203,723 |
|
|
|
5,458 |
|
|
|
2.68 |
|
|
|
191,005 |
|
|
|
3,727 |
|
|
|
1.95 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing deposits |
|
|
507,837 |
|
|
|
13,459 |
|
|
|
2.65 |
|
|
|
482,880 |
|
|
|
7,946 |
|
|
|
1.65 |
|
|
|
440,830 |
|
|
|
5,339 |
|
|
|
1.21 |
|
Borrowed funds |
|
|
60,224 |
|
|
|
2,278 |
|
|
|
3.78 |
|
|
|
54,260 |
|
|
|
1,812 |
|
|
|
3.34 |
|
|
|
48,975 |
|
|
|
1,519 |
|
|
|
3.10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities |
|
|
568,061 |
|
|
|
15,737 |
|
|
|
2.77 |
|
|
|
537,140 |
|
|
|
9,758 |
|
|
|
1.82 |
|
|
|
489,805 |
|
|
|
6,858 |
|
|
|
1.40 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other liabilities |
|
|
5,381 |
|
|
|
|
|
|
|
|
|
|
|
4,212 |
|
|
|
|
|
|
|
|
|
|
|
3,723 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
573,442 |
|
|
|
|
|
|
|
|
|
|
|
541,352 |
|
|
|
|
|
|
|
|
|
|
|
493,528 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity |
|
|
48,254 |
|
|
|
|
|
|
|
|
|
|
|
45,492 |
|
|
|
|
|
|
|
|
|
|
|
42,958 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
stockholders equity |
|
$ |
621,696 |
|
|
|
|
|
|
|
|
|
|
$ |
586,844 |
|
|
|
|
|
|
|
|
|
|
$ |
536,486 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
|
|
|
$ |
19,241 |
|
|
|
|
|
|
|
|
|
|
$ |
20,266 |
|
|
|
|
|
|
|
|
|
|
$ |
19,756 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest spread |
|
|
|
|
|
|
|
|
|
|
3.25 |
% |
|
|
|
|
|
|
|
|
|
|
3.68 |
% |
|
|
|
|
|
|
|
|
|
|
3.91 |
% |
Net interest margin** |
|
|
|
|
|
|
|
|
|
|
3.31 |
% |
|
|
|
|
|
|
|
|
|
|
3.71 |
% |
|
|
|
|
|
|
|
|
|
|
3.94 |
% |
* Non-accruing loans have been included in the average balances.
** Net
interest income divided by average interest-earning assets.
19
Rate/Volume Analysis
The table below sets forth certain information regarding changes in interest income and
interest expense of the Bancorp for the periods indicated. For each category of interest-earning asset and
interest-bearing liability, information is provided on changes attributable to: (1) changes in volume
(change in volume multiplied by old rate) and (2) changes in rate (change in rate multiplied by old
volume). Changes attributable to both rate and volume which cannot be segregated have been allocated proportionately to the change due to volume and the change due to rate. The amounts are stated in thousands (000s).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
|
Year ended December 31, |
|
|
Year ended December 31, |
|
|
|
2006 |
|
|
vs. |
|
|
2005 |
|
|
2005 |
|
|
vs. |
|
|
2004 |
|
|
2004 |
|
|
vs. |
|
|
2003 |
|
|
|
Increase / (Decrease) |
|
|
Increase / (Decrease) |
|
|
Increase / (Decrease) |
|
|
|
Due To |
|
|
Due To |
|
|
Due To |
|
|
|
Volume |
|
|
Rate |
|
|
Total |
|
|
Volume |
|
|
Rate |
|
|
Total |
|
|
Volume |
|
|
Rate |
|
|
Total |
|
Interest income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans receivable |
|
$ |
1,762 |
|
|
$ |
2,399 |
|
|
$ |
4,161 |
|
|
$ |
1,662 |
|
|
$ |
893 |
|
|
$ |
2,555 |
|
|
$ |
1,196 |
|
|
$ |
(1,620 |
) |
|
$ |
(424 |
) |
Securities |
|
|
396 |
|
|
|
372 |
|
|
|
768 |
|
|
|
316 |
|
|
|
155 |
|
|
|
471 |
|
|
|
701 |
|
|
|
8 |
|
|
|
709 |
|
Other interest-earning assets |
|
|
(150 |
) |
|
|
175 |
|
|
|
25 |
|
|
|
179 |
|
|
|
205 |
|
|
|
384 |
|
|
|
(61 |
) |
|
|
31 |
|
|
|
(30 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets |
|
|
2,008 |
|
|
|
2,946 |
|
|
|
4,954 |
|
|
|
2,157 |
|
|
|
1,253 |
|
|
|
3,410 |
|
|
|
1,836 |
|
|
|
(1,581 |
) |
|
|
255 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
|
430 |
|
|
|
5,083 |
|
|
|
5,513 |
|
|
|
548 |
|
|
|
2,059 |
|
|
|
2,607 |
|
|
|
409 |
|
|
|
(1,280 |
) |
|
|
(871 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowed Funds |
|
|
211 |
|
|
|
255 |
|
|
|
466 |
|
|
|
171 |
|
|
|
122 |
|
|
|
293 |
|
|
|
359 |
|
|
|
(151 |
) |
|
|
208 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities |
|
|
641 |
|
|
|
5,338 |
|
|
|
5,979 |
|
|
|
719 |
|
|
|
2,181 |
|
|
|
2,900 |
|
|
|
768 |
|
|
|
(1,431 |
) |
|
|
(663 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in net interest
income/(expense) |
|
$ |
1,367 |
|
|
$ |
(2,392 |
) |
|
$ |
(1,025 |
) |
|
$ |
1,438 |
|
|
$ |
(928 |
) |
|
$ |
510 |
|
|
$ |
1,068 |
|
|
$ |
(150 |
) |
|
$ |
918 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20
Bank Subsidiary Activities
Peoples Service Corporation, a wholly owned subsidiary of the Bank was incorporated under
the laws of the State of Indiana. The subsidiary currently provides insurance and annuity
investments to the Banks wealth management customers. At December 31, 2006, the Bank had an
investment balance of $78 thousand in Peoples Service Corporation.
NWIN, LLC is a wholly owned subsidiary of the Bank. NWIN, LLC was incorporated under the laws
of the State of Nevada as an investment subsidiary. The investment subsidiary currently holds Bank
security investments, which are managed by a professional portfolio manager. In addition, the
investment subsidiary is the parent of a real estate investment trust, NWIN Funding, Inc., that
invests in real estate loans originated by the Bank. At December 31, 2006, the Bank had an
investment balance of $209.1 million in NWIN, LLC.
NWIN Funding, Inc., was formed on September 1, 2006, as an Indiana Real Estate Investment
Trust. The formation of NWIN Funding, Inc. provides the Bancorp with a vehicle that may be used to
raise capital utilizing portfolio mortgages as collateral, without diluting stock ownership. In
addition, NWIN Funding, Inc. will receive favorable state tax treatment for income generated by its
operations. As a result, $127.4 million in real estate loans were paid as a dividend for an
initial capital contribution from the Bank to NWIN Funding, Inc. on September 1, 2006.
The Consolidated Financial Statements of the Bancorp include the assets, liabilities, net
worth and results of operations of the Bank and its subsidiaries. Significant inter-company
transactions have been eliminated in the consolidation.
Competition
The Bancorps primary market area for deposits, loans and financial services encompasses
Lake County, in northwest Indiana, where all of its offices are located. Ninety-five percent of
the Bancorps business activities are within this area.
The Bancorp faces strong competition in its primary market area for the attraction and
retention of deposits and in the origination of loans. The Bancorps most direct competition for
deposits has historically come from commercial banks, savings associations and credit unions
located in its primary market area. Particularly in times of high interest rates, the Bancorp has
had significant competition from mutual funds and other firms offering financial services. The
Bancorps competition for loans comes principally from savings associations, commercial banks,
mortgage banking companies, credit unions, insurance companies and other institutional lenders.
The Bancorp competes for loans principally through the interest rates and loan fees it charges
and the efficiency and quality of the services it provides borrowers, real estate brokers and
homebuilders and land developers. It competes for deposits by offering depositors a wide variety
of savings accounts, checking accounts, competitive interest rates, convenient banking center
locations, drive-up facilities, automatic teller machines, tax-deferred retirement programs,
electronic banking and other miscellaneous services.
21
The activities of the Bancorp and the Bank in the geographic market served involve competition
with other banks as well as with other financial institutions and enterprises, many of which have
substantially greater resources than those available to the Bancorp. In addition, non-bank
competitors are generally not subject to the extensive regulation applicable to the Bancorp and the
Bank.
Personnel
As of December 31, 2006, the Bank had 135 full-time and 26 part-time employees. The employees
are not represented by a collective bargaining agreement. Management believes its employee
relations are good. The Bancorp has four officers (listed below under Item 4.5 Executive Officers
of the Bancorp), but has no other employees. The Bancorps officers also are full-time employees
of the Bank, and are compensated by the Bank.
Regulation and Supervision
Bank Holding Company Regulation. As a registered bank holding company for the Bank, the
Bancorp is subject to the regulation and supervision of the FRB under the Bank Holding Company Act
of 1956, as amended (the BHCA). Bank holding companies are required to file periodic reports
with and are subject to periodic examination by the FRB.
Under the BHCA, without the prior approval of the FRB, the Bancorp may not acquire direct or
indirect control of more than 5% of the voting stock or substantially all of the assets of any
company, including a bank, and may not merge or consolidate with another bank holding company. In
addition, the Bancorp is generally prohibited by the BHCA from engaging in any nonbanking business
unless such business is determined by the FRB to be so closely related to banking as to be a proper
incident thereto. Under the BHCA, the FRB has the authority to require a bank holding company to
terminate any activity or relinquish control of a nonbank subsidiary (other than a nonbank
subsidiary of a bank) upon the FRBs determination that such activity or control constitutes a
serious risk to the financial soundness and stability of any bank subsidiary of the bank holding
company.
Under FRB policy, a bank holding company is expected to serve as a source of financial and
managerial strength to its subsidiary banks. It is the policy of the FRB that, pursuant to this
requirement, a bank holding company should stand ready to use its resources to provide adequate
capital funds to its subsidiary banks during periods of financial stress or adversity. This support
may be required by the FRB at times when the Bancorp may not have the resources to provide it or,
for other reasons, would not be inclined to provide it. Additionally, under the Federal Deposit
Insurance Corporation Improvements Act of 1991 (FDICIA), a bank holding company is required to
provide limited guarantee of the compliance by any insured depository institution subsidiary that
may become undercapitalized (as defined in the statute) with the terms of any capital restoration
plan filed by such subsidiary with its appropriate federal banking agency.
Savings Bank Regulation. As an Indiana stock savings bank, the Bank is subject to federal
regulation and supervision by the FDIC and to state regulation and supervision by the DFI. The
Banks deposit accounts are insured by DIF, which is administered by the FDIC. The Bank is not a
member of the Federal Reserve System.
22
Both federal and Indiana law extensively regulate various aspects of the banking business such
as reserve requirements, truth-in-lending and truth-in-savings disclosures, equal credit
opportunity, fair credit reporting, trading in securities and other aspects of banking operations.
Current federal law also requires savings banks, among other things, to make deposited funds
available within specified time periods.
Under FDICIA, insured state chartered banks are prohibited from engaging as principal in
activities that are not permitted for national banks, unless: (i) the FDIC determines that the
activity would pose no significant risk to the appropriate deposit insurance fund, and (ii) the
bank is, and continues to be, in compliance with all applicable capital standards.
Branches and Affiliates. The establishment of branches by the Bancorp is subject to approval
of the DFI and FDIC and geographic limits established by state laws. The Riegle-Neal Interstate
Banking and Branching Efficiency Act of 1994 (the Riegle-Neal Act) facilitates the interstate
expansion and consolidation of banking organizations by permitting, among other things,(i) bank
holding companies that are adequately capitalized and managed to acquire banks located in states
outside their home state regardless of whether such acquisitions are authorized under the law of
the host state, (ii) the interstate merger of banks, subject to the right of individual states to
opt out of this authority, and (iii) banks to establish new branches on an interstate basis
provided that such action is specifically authorized by the law of the host state.
Transactions with Affiliates. Under Indiana law, the Bank is subject to Sections 22(h), 23A
and 23B of the Federal Reserve Act, which restrict financial transactions between banks and
affiliated companies, such as the Bancorp. The statute limits credit transactions between a bank
and its executive officers and its affiliates, prescribes terms and conditions for bank affiliate
transactions deemed to be consistent with safe and sound banking practices, and restricts the types
of collateral security permitted in connection with a banks extension of credit to an affiliate.
Capital Requirements. The FRB and the FDIC have issued substantially similar risk-based and
leverage capital guidelines that are
applicable to the Bancorp and the Bank. These guidelines require a minimum ratio of total capital
to risk-weighted assets (including certain off-balance sheet activities such as standby letters of
credit) of 8%. At least half of the total required capital must be Tier 1 capital, consisting
principally of common stockholders equity, noncumulative perpetual preferred stock, a limited
amount of cumulative perpetual preferred stock and minority interests in the equity accounts of
consolidated subsidiaries, less certain goodwill items. The remainder (Tier 2 capital) may
consist of a limited amount of subordinated debt and intermediate-term preferred stock, certain
hybrid capital instruments and other debt securities, cumulative perpetual preferred stock, and a
limited amount of the allowance for loan losses.
In addition to the risk-based capital guidelines, the Bancorp and the Bank are subject to a
Tier 1 (leverage) capital ratio which requires a minimum level of Tier 1 capital to adjusted
average assets of 3% in the case of financial institutions that have the highest regulatory
examination ratings and are not contemplating significant growth or expansion. All other
institutions are expected to maintain a ratio of at least 1% to 2% above the stated minimum.
23
FDICIA requires, among other things, federal bank regulatory authorities to take prompt
corrective action with respect to banks that do not meet minimum capital requirements. The FDIC
has adopted regulations to implement the prompt corrective action provisions of FDICIA, which,
among other things, define the relevant capital measures for five capital categories. An
institution is deemed to be well capitalized if it has a total risk-based capital ratio of 10% or
greater, a Tier 1 risk-based capital ratio of 6% or greater, and a leverage ratio of 5% or greater,
and is not subject to a regulatory order, agreement or directive to meet and maintain a specific
capital level for any capital measure.
The following table shows that, at December 31, 2006, the Bancorps capital exceeded all
regulatory capital requirements. At December 31, 2006, the Bancorps and the Banks regulatory
capital ratios were substantially the same. At December 31, 2006, the Bancorp and the Bank were
categorized as well capitalized. The dollar amounts are stated in millions.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Required for |
|
To be well |
|
|
Actual |
|
adequate capital |
|
capitalized |
|
|
Amount |
|
Ratio |
|
Amount |
|
Ratio |
|
Amount |
|
Ratio |
Total capital to
risk weighted assets |
|
$ |
54,665 |
|
|
|
12.0 |
% |
|
$ |
36.4 |
|
|
|
8.0 |
% |
|
$ |
45.5 |
|
|
|
10.0 |
% |
Tier 1 capital to
risk weighted assets |
|
$ |
50,398 |
|
|
|
11.1 |
% |
|
$ |
18.2 |
|
|
|
4.0 |
% |
|
$ |
27.3 |
|
|
|
6.0 |
% |
Tier 1 capital to
adjusted average
assets |
|
$ |
50,398 |
|
|
|
8.0 |
% |
|
$ |
19.0 |
|
|
|
3.0 |
% |
|
$ |
31.7 |
|
|
|
5.0 |
% |
Banking regulators may change these requirements from time to time, depending on the economic
outlook generally and the outlook for the banking industry. The Bancorp is unable to predict
whether and when higher capital requirements would be imposed and, if so, to what levels and on
what schedule.
Dividend Limitations. The Bancorp is a legal entity separate and distinct from the Bank. The
primary source of the Bancorps cash flow, including cash flow to pay dividends on the Bancorps
Common Stock, is the payment of dividends to the Bancorp by the Bank. Under Indiana law, the Bank
may pay dividends of so much of its undivided profits (generally, earnings less losses, bad debts,
taxes and other operating expenses) as is considered expedient by the Banks Board of Directors.
However, the Bank must obtain the approval of the DFI for the payment of a dividend if the total of
all dividends declared by the Bank during the current year, including the proposed dividend, would
exceed the sum of retained net income for the year to date plus its retained net income for the
previous two years. For this purpose, retained net income means net income as calculated for
call report purposes, less all dividends declared for the applicable period. Also, the FDIC has
the authority to prohibit the Bank
from paying dividends if, in its opinion, the payment of dividends would constitute an unsafe or
unsound practice in light of the financial condition of the Bank. The aggregate amount of
dividends that may be declared by the Bank in 2007, without prior regulatory approval, approximates
$4,907,000 plus current 2007 net profits. In addition, under FRB supervisory policy, a bank
holding company generally should not maintain its existing rate of cash dividends on common shares
unless (i) the organizations net income available to common shareholders over the past year has
been sufficient to fully fund the dividends and (ii) the prospective rate of earnings retention
appears consistent with the
24
organizations capital needs, assets, quality, and overall financial
condition.
Federal Deposit Insurance. The FDIC is an independent federal agency that insures the
deposits, up to prescribed statutory limits, of federally insured banks and savings associations
and safeguards the safety and soundness of the banking and savings industries. The FDIC
administers the DIF, which generally insures commercial bank, savings association and state savings
bank deposits. The DIF was created as a result of the merger of the Bank Insurance Fund
(BIF) and the Savings Association Insurance Fund (SAIF) as of March 31, 2006, pursuant to the
Federal Deposit Insurance Reform Act of 2005 (the Reform
Act). The Bank is a member of the DIF and its deposit accounts
are insured by the FDIC up to prescribed limits. See Recent Legislative
Developments.
The FDIC is authorized to establish annual deposit insurance assessment rates for members of
the DIF, and to increase assessment rates if it determines such increases are appropriate to
maintain the reserves of the insurance fund. In addition, the FDIC is authorized to levy emergency
special assessments on DIF members. Pursuant to the final regulations adopted under the Reform
Act on November 2, 2006, the FDICs deposit insurance premiums are now assessed through a new
risk-based system under which all insured depository institutions are placed into one of four
categories and assessed insurance premiums based upon their level of capital and risk profile. See
Recent Legislative Developments. The Bank paid deposit insurance assessments of $0
during the year ended December 31, 2006. Future increase in deposit insurance premiums or changes
in risk classification would increase the Banks deposit related costs.
In addition, all institutions with deposits insured by the FDIC are required to pay
assessments to fund interest payments on bonds issued by the Financing Corporation, an agency of
the Federal government established to recapitalize the predecessor to the SAIF. The assessment
rate for 2006 was approximately 0.012% of insured deposits. These assessments will continue until
the Financing Corporation bonds mature in 2017.
Federal Home Loan Bank System. The Bank is a member of the Federal Home Loan Bank of
Indianapolis, which is one of 12 regional Federal Home Loan Banks. Each Federal Home Loan Bank
serves as a reserve or central bank for its members within its assigned region. It is funded
primarily from funds deposited by member institutions and proceeds from the sale of consolidated
obligations of the Federal Home Loan Bank system. It makes loans to members (i.e., advances) in
accordance with policies and procedures established by the board of trustees of the Federal Home
Loan Bank. As a member, the Bank is required to purchase and maintain stock in the Federal Home
Loan Bank of Indianapolis in an amount equal to the greater of 1% of its aggregate unpaid
residential mortgage loans, home purchase contracts or similar obligations at the beginning of each
year or 5% of our outstanding advance from the Federal Home Loan Bank. At December 31, 2006, the Bank
was in compliance with this requirement.
Community Reinvestment Act. Under the Community Reinvestment Act (CRA), the Bank has a
continuing and affirmative obligation consistent with its safe and sound operation to help meet the
credit needs of its entire community, including low and moderate income neighborhoods. The CRA
does not establish specific lending requirements or programs for financial institutions nor does it
limit an institutions discretion to develop the types of products and services that it believes
are best suited to its particular community, consistent with the CRA. The CRA
25
requires the FDIC in
connection with its examination of the Bank, to assess its record of meeting the credit needs of
its community and to take that record into account in its evaluation of certain applications by the
Bank. For example, the regulations specify that a banks CRA performance will be considered in its
expansion (e.g., branching) proposals and may be the basis for approving, denying or conditioning
the approval of an application. As of the date of its most recent regulatory examination, the Bank
was rated satisfactory with respect to its CRA compliance.
Gramm-Leach-Bliley Act. Under the Gramm-Leach-Bliley Act (Gramm-Leach), bank holding
companies are permitted to offer their customers virtually any type of financial service, including
banking, securities underwriting, insurance (both agency and underwriting) and merchant banking.
In order to engage in these new financial activities, a bank holding company must qualify and
register with the FRB as a financial holding company by demonstrating that each of its bank
subsidiaries is well capitalized, well managed, and has at least a satisfactory rating under the
CRA. The Bancorp has no current intention to elect to become a financial holding company under
Gramm-Leach.
Gramm-Leach established a system of functional regulation, under which the federal banking
agencies regulate the banking activities of financial holding companies, the U.S. Securities and
Exchange Commission regulates their securities activities and state insurance regulators regulate
their insurance activities.
Under Gramm-Leach, federal banking regulators adopted rules limiting the ability of banks and
other financial institutions to disclose nonpublic information about consumers to nonaffiliated
third parties. The rules require disclosure of privacy policies to consumers and, in some
circumstances, allow consumers to prevent disclosure of certain personal information to
nonaffiliated third parties. The privacy provisions of Gramm-Leach affect how consumer information
is transmitted through diversified financial services companies and conveyed to outside vendors.
The Bancorp does not disclose any nonpublic information about any current or former customers
to anyone except as permitted by law and subject to contractual confidentially provisions which
restrict the release and use of such information.
Recent Legislative Developments. The USA PATRIOT Act of 2001 (the PATRIOT Act) is intended
to strengthen the ability of U.S. Law Enforcement to combat terrorism on a variety of fronts. The
PATRIOT Act contains sweeping anti-money laundering and financial transparency laws and requires
financial institutions to implement additional policies and procedures with respect to, or
additional measures designed to address, any or all the following matters, among others: money
laundering,
suspicious activities and currency transaction reporting, and currency crimes. In addition,
financial institutions are required under this statute to adopt reasonable procedures to verify the
identity of any person seeking to open an account and maintain records to verify such persons
identity. Many of the provisions in the PATRIOT Act were to have expired December 31, 2005, but
the U.S. Congress authorized renewals that extended the provisions until March 10, 2006. In early
March 2006, the U.S. Congress approved the USA PATRIOT Improvement and Reauthorization Act of 2005
(the Reauthorization Act) and the USA PATRIOT Act Additional Reauthorizing Amendments Act of 2006
(the PATRIOT Act Amendments), and they were signed into law by President Bush on March 9, 2006.
The Reauthorization Act makes permanent all but two of the provisions that had
26
been set to expire
and provides that the remaining two provisions, which relate to surveillance and the production of
business records under the Foreign Intelligence Surveillance Act, will expire in four years. The
PATRIOT Act Amendments include provisions allowing recipients of certain subpoenas to obtain
judicial review of nondisclosure orders and clarifying the use of certain subpoenas to obtain
information from libraries. The Company does not anticipate that these requirements will
materially affect its operations.
On July 30, 2002, President Bush signed into law the Sarbanes-Oxley Act of 2002 (the
Sarbanes-Oxley Act). The Sarbanes-Oxley Act represents a comprehensive revision of laws
affecting corporate governance, accounting obligations and corporate reportings. The
Sarbanes-Oxley Act is applicable to all companies with equity or debt securities registered under
the Securities Exchange Act of 1934. In particular, the Sarbanes-Oxley Act establishes: (i) new
requirements for audit committees, including independence, expertise, and responsibilities; (ii)
additional responsibilities regarding financial statements for the Chief Executive Officer and
Chief Financial Officer of the reporting company; (iii) new standards for auditors and regulation
of audits; (iv) increased disclosure and reporting obligations for the reporting company and their
directors and executive officers; and (v) new and increased civil and criminal penalties for
violation of the securities laws.
The Securities and Exchange Commission has adopted final rules implementing Section 404 of
the Sarbanes-Oxley Act. In each Form 10-K it files, beginning with its 10-K for the fiscal year
ended December 31, 2007, the Bancorp will be required to include a report of management on the
Bancorps internal control over financial reporting. The internal control report must include a
statement of managements responsibility for establishing and maintaining adequate control over
financial reporting of the Bancorp, identify the framework used by management to evaluate the
effectiveness of the Bancorps internal control over financial reporting and provide managements
assessment of the effectiveness of the Bancorps internal control over financial reporting. In
addition, beginning with the Bancorps 10-K for the fiscal year ended December 31, 2008, the
internal control report must state that the Bancorps independent accounting firm has issued an
attestation report on managements assessment of the Bancorps internal control over financial
reporting. The Bancorp anticipates that significant efforts will be required to comply with
Section 404 in 2007 and in future years. In addition, the Securities and Exchange Commission in
2006 adopted significant changes to its proxy statement disclosure rules relating to executive
compensation. Among other things, several tables, more detailed narrative disclosures and a new
compensation discussion and analysis section are required in proxy statements. These changes have
required and will require a significant commitment of managerial resources and will result in
increased costs to the Bancorp, which would adversely affect results of operations, or cause
fluctuations in results of operations, in the future.
On February 8, 2006, President Bush signed into law the Federal Deposit Insurance Reform Act
of 2005. This statute reforms the deposit insurance system by:
|
|
|
merging the Bank Insurance Fund and the Savings Association Insurance Fund into a
new Deposit Insurance Fund no later than July 1, 2006 (the merger of the BIF and
SAIF into DIF became effective as of March 31, 2006); |
|
|
|
|
keeping the insurance coverage limit for individual accounts and municipal accounts
at $100,000 but providing an inflation |
27
|
|
|
adjustment process which permits an adjustment
effective January 1, 2011 and every five years thereafter based on the Personal
Consumption Expenditures Index (with 2005 as the base year of comparison), unless the
FDIC concludes such adjustment would be inappropriate for reasons relating to risks to
the DIF; |
|
|
|
|
increasing insurance coverage limits for retirement accounts to $250,000, subject
to the same inflation adjustment process described above; |
|
|
|
|
prohibiting undercapitalized members from accepting employee benefit plan deposits; |
|
|
|
|
providing for the payment of credits based on a members share of the assessment
base as of December 31, 1996 and equal to an aggregate of $4.7 billion for all
members, which credits can offset FDIC assessments subject to certain limits; |
|
|
|
|
providing for the declaration of dividends to members (based on a members share of
the assessment base on December 31, 1996, and premiums paid after that date) equal to
50% of the amount in the DIF in excess of a reserve ratio of 1.35% and 100% of such
amount in excess of a reserve ratio of 1.50%, subject to the FDICs right to suspend
or limit dividends based on risks to the DIF; and |
|
|
|
|
eliminating the mandatory assessment (up to 23 basis points) if the DIF falls below
1.25% of insured deposits and retaining assessments based on risk, needs of the DIF,
and the effect on the members capital and earnings. The FDIC is authorized to set a
reserve ratio of between 1.15% and 1.5% and will have five years to restore the DIF if
the ratio falls below 1.15%. On November 2, 2006, the FDIC adopted final
regulations that set the designated reserve ratio for the DIF at 1.25% beginning
January 1, 2007. |
Insured depository institutions that were in existence on December 31, 1996, and paid
assessments prior to that date (or their successors) are entitled to a one-time credit against
future assessments based on their past contributions to the BIF or SAIF. In 2006, the Bank
received a one-time credit of $357 thousand against future assessments.
Also on November 2, 2006, the FDIC adopted final regulations that establish a new
risk-based premium system. Under the new system, the FDIC will evaluate each institutions risk
based on three primary sources of information: supervisory ratings for all insured institutions,
financial ratios for most institutions and long-term debt issuer ratings for large institutions
that have such ratings. An institutions assessments will be based on the insured institutions
ranking in one of four risk categories. Effective January 1, 2007, well-capitalized institutions
with the CAMELS ratings of 1 or 2 are grouped in Risk Category I and will be assessed for deposit
insurance at an annual rate of between five and seven cents for every $100 of domestic deposits.
Institutions in Risk Categories II, III
and IV will be assessed at annual rates of 10, 28 and 43 cents, respectively. An increase in
assessments could have a material adverse affect on the Bancorps earnings.
Various other legislation, including proposals to substantially change the financial
institution regulatory system and to expand or contract the powers of banking institutions and bank
holding companies, is from time to time introduced. This legislation may change banking statutes
and the operating environment of the Bancorp and the Bank in substantial and unpredictable ways. If
enacted, such legislation could increase or decrease the cost of doing business, limit or expand
permissible activities or affect the competitive balance among banks,
28
savings associations, credit
unions and other financial institutions. The Bancorp cannot accurately predict whether any of this
potential legislation will ultimately be enacted, and, if enacted, the ultimate effect that it, or
implementing regulations, would have upon the financial condition or results of operations of the
Bancorp or the Bank.
Federal Taxation
Historically, savings institutions, such as the Bank, had been permitted to compute bad
debt deductions using either the bank experience method or the percentage of taxable income method.
However, In August, 1996, legislation was enacted that repealed the reserve method of accounting
for federal income tax purposes. As a result, the Bank must recapture that portion of the reserve
that exceeds the amount that could have been taken under the experience method for post-1987 tax
years. The recapture occurred over a six-year period, the commencement of which began with the
Banks taxable year ending December 31, 1998, since the Bank met certain residential lending
requirements. In addition, the pre-1988 reserve, for which no deferred taxes have been recorded,
will not have to be recaptured into income unless (i)the Bank no longer qualifies as a bank under
the Code, or (ii) excess dividends or distributions are paid out by the Bank.
Depending on the composition of its items of income and expense, a savings bank may be subject
to the alternative minimum tax. A savings bank must pay an alternative minimum tax equal to the
amount (if any) by which 20% of alternative minimum taxable income (AMTI), as reduced by an
exemption varying with AMTI, exceeds the regular tax due. AMTI equals regular taxable income
increased or decreased by certain tax preferences and adjustments, including depreciation
deductions in excess of that allowable for alternative minimum tax purposes, tax-exempt interest on
most private activity bonds issued after August 7, 1986 (reduced by any related interest expense
disallowed for regular tax purposes), the amount of the bad debt reserve deduction claimed in
excess of the deduction based on the experience method and 75% of the excess of adjusted current
earnings over AMTI (before any alternative tax net operating loss). AMTI may be reduced only up to
90% by net operating loss carryovers, but alternative minimum tax paid can be credited against
regular tax due in later years.
For federal income tax purposes, the Bank reports its income and expenses on the accrual
method of accounting. The Bancorp and the Bank file a consolidated federal income tax return for
each fiscal year ending December 31. The federal income tax returns filed by the Bank have not
been subject to an IRS examination in the last five years.
State Taxation
The Bank is subject to Indianas Financial Institutions Tax (FIT), which is imposed at
a flat rate of 8.5% on adjusted gross income. Adjusted gross income, for purposes of FIT,
begins with taxable income as defined by Section 63 of the Code and, thus, incorporates federal tax
law to the extent that it affects the computation of taxable income. Federal taxable income is
then adjusted by several Indiana modifications. Other applicable state taxes include generally
applicable sales and use taxes plus real and personal property taxes.
29
During 2006, the Banks state income tax returns were subject to an examination by the Indiana
Department of Revenue. No improper tax positions were identified during the examination. In
the last five years, the Banks state income returns have not been subject to any other examination
by a taxing authority.
Accounting for Income Taxes
At December 31, 2006, the Bancorps consolidated total deferred tax assets were $2.7
million and the consolidated total deferred tax liabilities were $1.2 million, resulting in a
consolidated net deferred tax asset of $1.5 million. Management believes it is probable that the
benefit of the deferred tax asset will be realized after considering the historical and anticipated
future levels of pretax earnings.
Item 1A. Risk Factors
In analyzing whether to make or continue an investment in the Bancorp, investors should
consider, among other factors, the following:
Federal and State Government Regulations. The banking industry is heavily regulated. As
discussed above, the Bank and Bancorp are subject to regulation and supervision by the DFI, FDIC,
FRB, and SEC (Securities and Exchange Commission). These regulations are intended to protect
depositors, not shareholders. The burden imposed by federal and state regulations put banks at a
competitive disadvantage compared to less regulated competitors such as finance companies, mortgage
banking companies and leasing companies. In particular, the monetary policies of the Federal
Reserve Board have had a significant effect on the operating results of banks in the past and are
expected to continue to do so in the future. Among the instruments of monetary policy used by the
Federal Reserve Board to implement its objectives are changes in the discount rate charged on bank
borrowings and changes in the reserve requirements for bank deposits. It is not possible to
predict what changes, if any, will be made to the monetary policies of the Federal Reserve Board or
to existing federal and state legislation or the effect that such changes may have on the future
business and earning prospects of the Bancorp.
Legislation. Because of concerns relating to the competitiveness and the safety and soundness
of the industry, Congress continues to consider a number of wide-ranging proposals for altering the
structure, regulation, and competitive relationships of the nations financial institutions. Among
such bills are proposals to combine banks and thrifts under a unified charter and to combine
regulatory agencies. Management cannot predict whether or in what form any of these proposals will
be adopted or the extent to which the business of the Bancorp or the Bank may be affected thereby.
Credit Risk. One of the greatest risks facing lenders is credit risk, the risk of losing
principal and interest due to a borrowers failure to perform according to the terms of a loan
agreement. While management attempts to provide an allowance for loan losses at a level adequate
to cover probable incurred losses based on loan portfolio growth, past loss experience, general
economic conditions, information about specific borrower situations, and other factors, future
adjustments to reserves may become necessary, and net income could be significantly affected, if
circumstances differ substantially from assumptions used with respect to such factors.
30
Exposure to Local Economic Conditions. The Banks primary market area for deposits and loans
encompasses Lake County, in northwest Indiana, where all of its offices are located. Ninety-five
percent of the Banks business activities are within this area. This concentration exposes the
Bank to risks resulting from changes in the local economy. An economic slowdown in these areas
could have the following consequences, any of which could hurt our business:
|
|
|
Loan delinquencies may increase; |
|
|
|
|
Problem assets and foreclosures may increase; |
|
|
|
|
Demand for the products and services of the Bank may decline; and |
|
|
|
|
Collateral for loans made by the Bank, especially real estate, may decline in
value, in turn reducing customers borrowing power, and reducing the value of assets
and collateral associated with existing loans of the Bank. |
Interest Rate Risk. The Bancorps earnings depend to a great extent upon the level of net
interest income, which is the difference between interest income earned on loans and investments
and the interest expense paid on deposits and other borrowings. Interest rate risk is the risk
that the earnings and capital will be adversely affected by changes in interest rates. Further
discussion of interest rate risk can be found under the caption Asset/Liability Management and
Market Risk in the Managements Discussion and Analysis of Financial Condition and Results of
Operations section of this document.
Competition. The activities of the Bancorp and the Bank in the geographic market served
involve competition with other banks as well as with other financial institutions and enterprises,
many of which have substantially greater resources than those available to the Bancorp.
Particularly intense competition exists for sources of funds, including savings and retail time
deposits, and for loans, deposits and other services that the Bank offers. As a result of the
repeal of the Glass Steagall Act, which separated the commercial and investment banking industries,
all banking organizations face increasing competition.
Item 1B. Unresolved Staff Comments
Not applicable.
Item 2. Properties
The Bancorp maintains its corporate office at 9204 Columbia Avenue, Munster, Indiana,
from which it oversees the operation of the Banks eight banking locations. The Bancorp owns all
of its office properties.
The table on the following page sets forth additional information with respect to the Banks
offices as of December 31, 2006. Net book value and total investment figures are for land,
buildings, furniture and fixtures.
31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year |
|
|
|
|
|
Approximate |
|
|
|
|
facility |
|
Net book |
|
square |
|
Total |
Office location |
|
opened |
|
value |
|
footage |
|
cost |
9204 Columbia Avenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Munster, IN 46321 |
|
|
1985 |
|
|
$ |
1,272,770 |
|
|
|
11,640 |
|
|
$ |
3,115,751 |
|
141 W. Lincoln Highway |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Schererville, IN 46375 |
|
|
1990 |
|
|
|
958,562 |
|
|
|
9,444 |
|
|
|
2,668,322 |
|
7120 Indianapolis Blvd. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hammond, IN 46324 |
|
|
1978 |
|
|
|
248,833 |
|
|
|
2,600 |
|
|
|
886,103 |
|
1300 Sheffield |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dyer, IN 46311 |
|
|
1976 |
|
|
|
181,351 |
|
|
|
2,100 |
|
|
|
812,498 |
|
7915 Taft |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Merrillville, IN 46410 |
|
|
1968 |
|
|
|
77,385 |
|
|
|
2,750 |
|
|
|
587,340 |
|
8600 Broadway |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Merrillville, IN 46410 |
|
|
1996 |
|
|
|
1,458,868 |
|
|
|
4,400 |
|
|
|
2,576,323 |
|
4901 Indianapolis Blvd. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
East Chicago, IN 46312 |
|
|
1995 |
|
|
|
854,535 |
|
|
|
4,300 |
|
|
|
1,490,454 |
|
1501 Lake Park Avenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hobart, IN 46342 |
|
|
2000 |
|
|
|
1,843,069 |
|
|
|
6,992 |
|
|
|
2,591,978 |
|
9204 Columbia Avenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Building B |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Munster, IN 46321 |
|
|
2003 |
|
|
|
6,552,489 |
|
|
|
36,685 |
|
|
|
8,818,864 |
|
At December 31, 2006, the Bank had investments totaling $1,159,267 in three locations, which
have been acquired for future development. The Bank outsources its core processing activities to
Metavante Corporation located in Brown Deer, Wisconsin. Metavante provides real time services for
loans, deposits, retail delivery systems, card solutions, and electronic banking. Additionally,
the Bank utilizes Northern Trust in Chicago, Illinois for its wealth management operations.
The net book value of the Banks property, premises and equipment totaled $14.6 million at
December 31, 2006.
Item 3. Legal Proceedings
The Bancorp is not engaged in any legal proceedings of a material nature at the present
time. From time to time, the Bank is a party to legal proceedings incident to its business,
including foreclosures.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the fourth quarter of
2006.
Item 4.5 Executive Officers of the Bancorp
Pursuant to General Instruction G(3) of Form 10-K, the following information is included
as an unnumbered item in this Part I in lieu of being included in the Bancorps Proxy Statement for
the 2006 Annual Meeting of Shareholders:
32
The executive officers of the Bancorp are as follows:
|
|
|
|
|
|
|
Age at |
|
|
|
|
December 31, |
|
|
|
|
2006 |
|
Position |
David A. Bochnowski
|
|
61
|
|
Chairman and Chief Executive
Officer |
Joel Gorelick
|
|
59
|
|
President and Chief Administrative
Officer |
Jon E. DeGuilio
|
|
51
|
|
Executive Vice President and
Secretary |
Robert T. Lowry
|
|
45
|
|
Senior Vice President, Chief Financial
Officer and Treasurer |
The following is a description of the principal occupation and employment of the executive
officers of the Bancorp during at least the past five years:
David A. Bochnowski is Chairman and Chief Executive Officer of the Bancorp and the Bank. Mr.
Bochnowski is responsible for the Banks strategic direction including a focus on enhancing brand
awareness and market share, as well as risk management. He has been the Chief Executive Officer
since 1981 and became the Chairman in 1995. He has been a director since 1977 and was the Banks
legal counsel from 1977 to 1981. Mr. Bochnowski is a past Chairman of Americas Community Bankers
(ACB), a national trade association for community banks. He is a trustee of the Munster Community
Hospital, chairman of the Gary Citywide Community Development Corporation, and chairman of the
Legacy Foundation of Lake County. He is a former Chairman of the Indiana Department of Financial
Institutions; former chairman of the Indiana League of Savings Institutions, now known as the
Indiana Bankers Association; former director of the Federal Home Loan Bank of Indianapolis; and, a
former member of the Federal Reserve Thrift Institutions Advisory Committee. Before joining the
Bank, Mr. Bochnowski was an attorney, self-employed in private practice. He holds a Juris
Doctorate degree from Georgetown University and a Masters Degree from Howard University.
Joel Gorelick is President and Chief Administrative Officer of the Bancorp and the Bank. Mr.
Gorelick has responsibility for daily activities including asset formation, funds acquisition,
operations and information technology, financial reporting and controls, and trust activities. Mr.
Gorelick has been with the Bank since 1983. He became a director in 2000. Mr. Gorelick is
involved in many community service
organizations and has served in positions such as president of the Northwest Indiana Boys & Girls
Club, chairman of the board of the Northwest Indiana Regional Development Corporation and President
of the Lake Central High School Athletics Booster Club. Mr. Gorelick received recognition as the
Small Business Advocate for 1999 at the Northwest Indiana Entrepreneurial Excellence awards program
and was named the 2000 board member of the year by the National Association For Development
Companies. The Indiana District Office of the U. S. Small Business Administration named Mr.
Gorelick the year 2000 Financial Services Advocate. Mr. Gorelick has been appointed as a board
member for the United States Selective Service System and currently serves as President of the Lake
County Economic Development Corporation. He holds a Masters of Science in Business Administration
from Indiana University and is a graduate of the Graduate School of Banking at the University of
Wisconsin at Madison.
33
Jon E. DeGuilio is Executive Vice President and Secretary for the Bancorp and Executive Vice
President, Stakeholders Services Group and General Counsel, Corporate Secretary, for the Bank. Mr.
DeGuilio assumed his current responsibilities with the Bank and Bancorp during 2001. He joined the
Bank in December of 1999 as Senior Vice President and Trust Officer. He holds a Juris Doctorate
degree from the Valparaiso University School of Law and a Bachelor of Arts degree from the
University of Notre Dame. Prior to his employment with the Bancorp, Mr. DeGuilio was a partner
with the law firm of Barnes and Thornburg and served as the United States Attorney for the Northern
District of Indiana from November of 1993 until June of 1999. Mr. DeGuilio is actively involved in
community service as a Court Appointed Special Advocate (CASA) for the Lake County Juvenile Court,
as well as serving on the board of directors of the Friends Of The Lake County CASA and also
serves on the board of directors of the Lake County Drug Free Alliance.
Robert T. Lowry is Senior Vice President, Chief Financial Officer and Treasurer of the Bancorp
and the Bank. He is responsible for finance, accounting, and financial reporting activities. Mr.
Lowry has been with the Bank since 1985 and has previously served as the Banks assistant
controller, internal auditor and controller. Mr. Lowry is a Certified Public Accountant (CPA).
Mr. Lowry holds a Masters of Business Administration Degree from Indiana University and is a
graduate of Americas Community Bankers National School of Banking. Mr. Lowry is a member of the
American Institute of Certified Public Accountants, the Indiana CPA Society, the Financial Managers
Society and Americas Community Bankers Accounting Issues Committee.
34
PART II
|
|
|
Item 5. |
|
Market for the Registrants Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities |
The information contained under the caption Market Information in the 2006 Annual
Report to Shareholders is incorporated herein by reference. Also see Item 12 of this Annual Report
on Form 10-K.
|
|
|
Item 6. |
|
Selected Financial Data |
The information contained in the table captioned Selected Consolidated Financial Data
in the 2006 Annual Report to Shareholders is incorporated herein by reference.
|
|
|
Item 7. |
|
Managements Discussion and Analysis of Financial Condition and Results of Operations |
The information contained in the section captioned Managements Discussion and Analysis
of Financial Condition and Results of Operations in the 2006 Annual Report to Shareholders is
incorporated herein by reference.
|
|
|
Item 7A. |
|
Quantitative and Qualitative Disclosures About Market Risk |
The information contained in the section captioned Asset/Liability Management and Market
Risk in the Managements Discussion and Analysis of Financial Condition and Results of Operations
section of the 2006 Annual Report to Shareholders is incorporated herein by reference.
|
|
|
Item 8. |
|
Financial Statements and Supplementary Data |
The financial statements contained in the 2006 Annual Report to Shareholders, which are
listed under Item 15 herein, are incorporated herein by reference.
|
|
|
Item 9. |
|
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |
There are no items reportable under this item.
|
|
|
Item 9A. |
|
Controls and Procedures |
|
(a) |
|
Disclosure Controls and Procedures. |
The Bancorp maintains disclosure controls and procedures that are designed to ensure that
information required to be disclosed by the Bancorp in the reports that it files or submits under
the Securities Exchange Act of 1934, as amended (the Exchange Act) is recorded, processed,
summarized and reported within the time periods specified in the SECs rules and forms. These
disclosure controls and procedures include controls and procedures designed to ensure that
information required to be disclosed by the Bancorp in the reports that it files or submits under
the Exchange Act is accumulated and communicated to the Bancorps management, including its
principal executive officer and
35
principal financial officer, as appropriate to allow timely decisions regarding required
disclosure. The Bancorps management, with the participation of its principal executive officer
and principal financial officer, evaluates the effectiveness of the Bancorps disclosure controls
and procedures as of the end of each quarter. Based on that evaluation as of December 31, 2006,
the Bancorps principal executive officer and principal financial officer have concluded that such
disclosure controls and procedures were effective as of that date.
|
(b) |
|
Changes in Internal Control Over Financial Reporting. |
There was no change in the Bancorps internal control over financial reporting that occurred
during the quarter ended December 31, 2006, that has materially affected, or is reasonably likely
to materially affect, the Bancorps internal control over financial reporting.
|
|
|
Item 9B. |
|
Other Information |
There are no items reportable under this item.
36
PART III
|
|
|
Item 10. |
|
Directors and Executive Officers of the Registrant |
The information contained under the sections captioned Election of DirectorsNominees
and Meetings and Committees of the Board of Directors, Security Ownership by Certain
Beneficial Owners and Management - Section 16(a) Beneficial Ownership Reporting Compliance and
Code of Ethics in the Bancorps definitive Proxy Statement for the 2006 Annual Meeting of
Shareholders is incorporated herein by reference. Information regarding the Bancorps executive
officers is included under Item 4.5 captioned Executive Officers of the Bancorp at the end of
Part I hereof and is incorporated herein by reference, in accordance with General Instruction G(3)
to Form 10-K and Instruction 3 to Item 401(b) of Regulation S-K.
|
|
|
Item 11. |
|
Executive Compensation |
The information contained under the section captioned Compensation of and Transactions
with Officers and Directors in the Bancorps definitive Proxy Statement for its 2007 Annual
Meeting of Shareholders is incorporated herein by reference.
|
|
|
Item 12. |
|
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters |
The information contained within the Bancorps definitive Proxy Statement for the 2007
Annual Meeting of Shareholders, under the sections captioned Security Ownership by Certain
Beneficial Owners and Management, on page 3, Outstanding Equity Awards at December 31, 2006,
under the section captioned Executive Compensation, on page 16 and on pages 4-5 of the section
captioned Election of Directors is incorporated herein by reference.
|
|
|
Item 13. |
|
Certain Relationships and Related Transactions |
The information contained on page 13 of the Summary Compensation Table for 2006,
contained under the section titled Executive Compensation in the Bancorps definitive Proxy
Statement for its 2007 Annual Meeting of Shareholders, is incorporated herein by reference.
|
|
|
Item 14. |
|
Principal Accountant Fees and Services |
The information contained under the section captioned Independent Registered Public
Accounting Firms Services and Fees in the Bancorps definitive Proxy Statement for its 2007
Annual Meeting of Shareholders, is incorporated herein by reference.
37
PART IV
|
|
|
Item 15. |
|
Exhibits and Financial Statement Schedules |
(a)(1) Financial Statements:
The following financial statements of the Bancorp are incorporated herein by reference to the
2006 Annual Report to Shareholders, filed as Exhibit 13 to this report:
|
(a) |
|
Report of Independent Registered Public Accounting Firm |
|
|
(b) |
|
Consolidated Balance Sheets, December 31, 2006 and 2005 |
|
|
(c) |
|
Consolidated Statements of Income for the years ended
December 31, 2006, 2005 and 2004 |
|
|
(d) |
|
Consolidated Statements of Changes in Stockholders Equity
for the years ended December 31, 2006, 2005 and 2004 |
|
|
(e) |
|
Consolidated Statements of Cash Flows for the years ended
December 31, 2006, 2005 and 2004 |
|
|
(f) |
|
Notes to Consolidated Financial Statements |
All other financial statements, schedules and historical financial information have been
omitted as the subject matter is not required, not present or not present in amounts sufficient to
require submission.
(3) Exhibits:
|
|
|
Exhibit |
|
|
Number |
|
Description |
2.
|
|
Plan of Conversion of Peoples Bank, A Federal Savings Bank, dated December 18, 1993
(incorporated herein by reference to Exhibit A to the Bancorps Definitive Proxy
Statement/Prospectus dated March 23, 1994, as filed pursuant to Rule 424(b) under the 1933
Act on March 28, 1994). |
|
|
|
3.i.
|
|
Articles of Incorporation (incorporated herein by reference to Exhibit 3(i) to the
Bancorps Registration Statement on Form S-4 filed March 3, 1994 (File No. 33-76038)). |
|
|
|
3.ii.
|
|
By-Laws (incorporated herein by reference to Exhibit 3(i) to the Bancorps Registration
Statement on Form S-4 filed March 3, 1994 (File No. 33-76038)). |
|
|
|
3.iii.
|
|
Amendment of By-Laws adopted July 27, 1994(incorporated herein by reference to Exhibit 3.iii to the Bancorps Annual Report on Form 10-K for the year ended December 31, 1994). |
|
|
|
3.iv.
|
|
Amendment of By-Laws adopted January 21, 1999(incorporated herein by reference to Exhibit
3.iv. to the Bancorps Annual Report on Form 10-K for the year ended December 31, 1998). |
|
|
|
3.v.
|
|
Amendment of By-Laws adopted September 21, 2000. |
38
|
|
|
Exhibit |
|
|
Number |
|
Description |
3.vi.
|
|
Amendment of By-Laws adopted February 23, 2006 (incorporated herein by reference to
Exhibit 3.1 of Bancorps Form 8-K dated February 27, 2006). |
|
|
|
10.1. *
|
|
1994 Stock Option and Incentive Plan (incorporated herein by reference to Exhibit A to the
Bancorps Definitive Proxy Statement/Prospectus dated March 23, 1994, as filed pursuant to
Rule 424(b) under the 1933 Act on March 28, 1994). |
|
|
|
10.2. *
|
|
Employment Agreement, dated April 19, 2006, among NorthWest Indiana Bancorp, Peoples
Bank SB and David A. Bochnowski (incorporated herein by reference to Exhibit 10.1 of the
Bancorps Form 8-K dated April 19, 2006). |
|
|
|
10.3. *
|
|
Employment Agreement dated July 20, 2006, between Peoples Bank SB and Joel Gorelick
(incorporated herein by reference to Exhibit 10.1 of the Bancorps Form 8-K dated July 20,
2006). |
|
|
|
10.4. *
|
|
Employee Stock Ownership Plan of Peoples Bank(incorporated herein by reference to Exhibit
10.4 to the Bancorps Annual Report on Form 10-K for the year ended December 31, 1994). |
|
|
|
10.5. *
|
|
Unqualified Deferred Compensation Plan for the Directors of Peoples Bank effective January
1, 2005. |
|
|
|
10.6. *
|
|
Amended and Restated 2004 Stock Option and Incentive Plan (incorporated herein by
reference to Exhibit 99.1 of the Bancorps Form 8-K dated April 20, 2005). |
|
|
|
10.7. *
|
|
Amended and Restated 2004 Stock Option and Incentive Plan
(incorporated herein by reference to Appendix A to the
Bancorps Definitive Proxy Statement for its 2005 Annual
Meeting of Shareholders, filed on March 25, 2005). |
|
|
|
10.8. *
|
|
Post 2004 Unfunded Deferred Compensation Plan for the
Directors of Peoples Bank SB effective January 1, 2005. |
|
|
|
10.9. *
|
|
Form of Incentive Stock Option Agreement is incorporated by
reference to Exhibit 99.2 of the Bancorps Form 8-K dated
April 20, 2005. |
|
|
|
10.10. *
|
|
Form of Non-Qualified Stock Option Agreement is incorporated
by reference to Exhibit 99.3 of the Bancorps Form 8-K dated
April 20, 2005. |
|
|
|
10.11. *
|
|
Form of Agreement for Restricted Stock is incorporated by
referenced to Exhibit 99.4 of the Bancorps form 8-K dated
April 20,2005. |
|
|
|
10.12. *
|
|
Summary Sheet of Director and Officer Compensation. |
|
|
|
13.
|
|
2006 Annual Report to Shareholders |
|
|
|
21.
|
|
Subsidiaries of the Bancorp |
|
|
|
23.
|
|
Consent of Independent Registered Public Accounting Firm |
|
|
|
31.1
|
|
Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer |
39
|
|
|
Exhibit |
|
|
Number |
|
Description |
31.2
|
|
Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer |
|
|
|
32
|
|
Section 1350 Certifications |
|
|
|
* |
|
- The indicated exhibit is a management contract, compensatory plan or arrangement required to be
filed by Item 601 of Regulation S-K. |
40
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
|
|
|
By |
/s/ |
David A. Bochnowski |
|
|
|
David A. Bochnowski |
|
Date: March 23, 2007 |
|
Chairman of the Board and |
|
|
|
Chief Executive Officer |
|
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the capacities and on
March 23, 2007:
|
|
|
Signature |
|
Title |
|
Principal Executive Officer: |
|
|
|
|
|
Chairman of the Board and
Chief Executive Officer |
David A. Bochnowski |
|
|
|
|
|
Principal Financial Officer and
Principal Accounting Officer: |
|
|
|
|
|
/s/ Robert T. Lowry
Robert T. Lowry
|
|
Senior Vice President,
Chief Financial Officer and Treasurer |
|
|
|
The Board of Directors: |
|
|
|
|
|
/s/ Frank J. Bochnowski
Frank J. Bochnowski
|
|
Director |
|
|
|
/s/ Leroy F. Cataldi
Leroy F. Cataldi
|
|
Director |
|
|
|
/s/ Lourdes M. Dennison
Lourdes M. Dennison
|
|
Director |
|
|
|
/s/ Edward J. Furticella
Edward J. Furticella
|
|
Director |
|
|
|
/s/ Joel Gorelick
Joel Gorelick
|
|
Director |
41
|
|
|
Signature |
|
Title |
|
|
|
/s/ Kenneth V. Krupinski
Kenneth V. Krupinski
|
|
Director |
|
|
|
/s/ Stanley E. Mize
Stanley E. Mize
|
|
Director |
|
|
|
/s/ Anthony M. Puntillo
Anthony M. Puntillo
|
|
Director |
|
|
|
/s/ James L. Wieser
James L. Wieser
|
|
Director |
|
|
|
/s/ Donald P. Fesko
Donald P. Fesko
|
|
Director |
42
EXHIBIT INDEX
|
|
|
Exhibit |
|
Description |
10.5
|
|
Unqualified Deferred Compensation Plan for the Directors of Peoples Bank effective January 1,
2005. |
|
|
|
10.8
|
|
Post 2004 Unfunded Deferred Compensation Plan for the Directors of Peoples Bank SB |
|
|
|
10.12
|
|
Summary Sheet of Director and Officer Compensation |
|
|
|
13.
|
|
2006 Annual Report to Shareholders |
|
|
|
21.
|
|
Subsidiaries of the Bancorp |
|
|
|
23.
|
|
Consent of Independent Registered Public Accounting Firm |
|
|
|
31.1
|
|
Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer |
|
|
|
31.2
|
|
Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer |
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32
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Section 1350 Certifications |
43