SECURITIES AND EXCHANGE COMMISSION
FORM 10-K
(Mark One)
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þ |
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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, 2008
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. þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer o |
Accelerated filer o |
Non-accelerated filer o (Do not check if a smaller reporting company) |
Smaller reporting company þ |
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
Based on the average bid and ask prices for the registrants Common Stock at June 30, 2008, 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 $56,961,428.
There were 2,809,285 shares of the registrants Common Stock, without par value, outstanding at
February 23, 2009.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents have been incorporated by reference into this Annual Report on
Form 10-K:
1. 2008 Annual Report to Shareholders. (Part II)
2. Definitive Proxy Statement for the 2009 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 nine branch locations. For further information, see
Properties.
Recent Developments
The Current Economic Environment. We are operating in a challenging and uncertain economic
environment, including generally uncertain national conditions and local conditions in our markets.
The capital and credit markets have been experiencing volatility and disruption for more than 12
months. In recent months, the volatility and disruption has reached unprecedented levels. The
risks associated with our business become more acute in periods of a slowing economy or slow
growth. Financial institutions continue to be affected by sharp declines in the real estate market
and constrained financial markets. While we are taking steps to decrease and limit our exposure to
problem loans, we nonetheless retain direct exposure to the residential and commercial real estate
markets, and we are affected by these events.
2
Our loan portfolio includes residential mortgage loans, construction loans, and commercial
real estate loans. Continued declines in real estate values, home sales volumes and financial
stress on borrowers as a result of the uncertain economic environment, including job losses, could
have an adverse effect on our borrowers or their customers, which could adversely affect our
financial condition and results of operations. In addition, the national economic recession or
further deterioration in local economic conditions in our markets could drive losses beyond that
which is provided for in our allowance for loan losses and result in the following other
consequences: increases in loan delinquencies; problem assets and foreclosures may increase; demand
for our products and services may decline; deposits may decrease, which would adversely impact our
liquidity position; and collateral for our loans, especially real estate, may decline in value, in
turn reducing customers borrowing power, and reducing the value of assets and collateral
associated with our existing loans.
Impact of Recent and Future Legislation. Congress and the U.S. Department of the Treasury
(Treasury) have recently adopted legislation and taken actions to address the disruptions in the
financial system and declines in the housing market. See Regulation and Supervisions Recent
Legislative Developments. It is not clear at this time what impact the Emergency Economic
Stabilization Act of 2008 (EESA), the Troubled Asset Relief Program, the American Recovery and
Reinvestment Act of 2009, other liquidity and funding initiatives of the Treasury and other bank
regulatory agencies that have been previously announced, and any additional programs that may be
initiated in the future, will have on the financial markets and the financial services industry.
The actual impact that EESA and such related measures undertaken to alleviate the credit crisis
will have generally on the financial markets, including the extreme levels of volatility and
limited credit availability currently being experienced, is unknown. The failure of such measures
to help stabilize the financial markets and a continuation or worsening of current financial market
conditions could materially and adversely affect our business, financial condition, results of
operations, access to credit or the trading price of our common stock. Finally, there can be no
assurance regarding the specific impact that such measures may have on us, or whether (or to what
extent) we will be able to benefit from such programs. In addition to the legislation mentioned
above, federal and state governments could pass additional legislation responsive to current credit
conditions. For example, the Bancorp could experience higher credit losses because of federal or
state legislation or regulatory action that reduces the amount the Bancorps borrowers are
otherwise contractually required to pay under existing loan contracts. Also, the Bancorp could
experience higher credit losses because of federal or state legislation or regulatory action that
limits its ability to foreclose on property or other collateral or makes foreclosure less
economically feasible.
Difficult Market Conditions Have Adversely Affected Our Industry. We are particularly exposed
to downturns in the U.S. housing market. Dramatic declines in the housing market over the past
year, with falling home prices and increasing foreclosures, unemployment and under-employment, have
negatively impacted the credit performance of mortgage loans and securities and resulted in
significant write-downs of asset values by financial institutions, including government-sponsored
entities, major commercial and investment banks, and regional financial institutions. Reflecting
concern about the stability of the financial markets generally and the strength of counterparties,
many lenders and institutional investors have reduced or ceased providing funding to borrowers,
including to other financial institutions. This market turmoil and tightening of credit have led to
an increased level of commercial and
3
consumer delinquencies, lack of consumer confidence, increased market volatility and
widespread reduction of business activity generally. We do not expect that the difficult
conditions in the financial markets are likely to improve in the near future. A worsening of these
conditions would likely exacerbate the adverse effects of these difficult market conditions on us
and others in the financial institutions industry. In particular, we may face the following risks
in connection with these events:
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We expect to face increased regulation of our industry. Compliance with such regulation
may increase our costs and limit our ability to pursue business opportunities. |
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Our ability to assess the creditworthiness of our customers may be impaired if the
models and approaches we use to select, manage and underwrite our customers become less
predictive of future behaviors. |
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The process we use to estimate losses inherent in our credit exposure requires
difficult, subjective and complex judgments, including forecasts of economic conditions
and how these economic predictions might impair the ability of our borrowers to repay
their loans, which may no longer be capable of accurate estimation which may, in turn,
impact the reliability of the process. |
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Our ability to borrow from other financial institutions on favorable terms or at all
could be adversely affected by further disruptions in the capital markets or other events,
including actions by rating agencies and deteriorating investor expectations. |
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Competition in our industry could intensify as a result of the increasing consolidation
of financial services companies in connection with current market conditions. |
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We may be required to pay significantly higher deposit insurance premiums because
market developments have significantly depleted the insurance fund of the Federal Deposit
Insurance Corporation and reduced the ratio of reserves to insured deposits. |
In addition, the Federal Reserve Bank has been injecting vast amounts of liquidity into the
banking system to compensate for weaknesses in short-term borrowing markets and other capital
markets. A reduction in the Federal Reserves activities or capacity could reduce liquidity in the
markets, thereby increasing funding costs to the Bancorp or reducing the availability of funds to
the Bancorp to finance its existing operations.
Concentrations of Real Estate Loans Could Subject the Bancorp to Increased Risks in the Event
of a Protracted Real Estate Recession. A significant portion of the Bancorps loan portfolio is
secured by real estate. The real estate collateral in each case provides an alternate source of
repayment in the event of default by the borrower and may deteriorate in value during the time the
credit is extended. A further weakening of the real estate market in our primary market area could
result in an increase in the number of borrowers who default on their loans and a reduction in the
value of the collateral securing their loans, which in turn could have an adverse effect on our
profitability and asset quality. If we are required to liquidate the collateral securing a loan to
satisfy the debt during a period of reduced real estate values, our earnings and capital could be
adversely affected.
4
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 the forward-looking
statements due to a number of factors, including those set forth above in Recent Developments and
below in Regulation and Supervision Federal Home Loan Bank System and Federal Deposit
Insurance 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, 2008, under the 15% of capital and
surplus limitation was approximately $8,582,000. At December 31, 2008, the Bank had no loans that
exceeded the regulatory limitations.
At December 31, 2008, there were no concentrations of loans in any type of industry that
exceeded 10% of total loans that were not otherwise disclosed as a loan category.
5
Loan Portfolio. The following table sets forth selected data relating to the composition of
the Bancorps loan portfolio by type of loan and type of collateral at the end of each of the last
five years. The amounts are stated in thousands (000s).
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2008 |
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2007 |
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2006 |
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2005 |
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2004 |
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Type of loan: |
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Conventional real estate loans: |
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Construction and
development loans |
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$ |
54,975 |
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$ |
46,289 |
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$ |
48,688 |
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$ |
47,957 |
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$ |
38,619 |
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Loans on existing
properties (1) |
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368,476 |
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361,154 |
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361,011 |
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347,542 |
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331,378 |
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Consumer loans |
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1,966 |
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2,399 |
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3,012 |
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3,983 |
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4,685 |
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Commercial business |
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49,309 |
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46,953 |
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46,751 |
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50,069 |
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47,270 |
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Government and other (2) |
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14,783 |
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11,664 |
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12,254 |
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19,492 |
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11,838 |
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Loans receivable (3) |
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$ |
489,509 |
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$ |
468,459 |
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$ |
471,716 |
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$ |
469,043 |
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$ |
433,790 |
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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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$ |
225,936 |
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$ |
229,012 |
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$ |
232,271 |
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$ |
228,475 |
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$ |
226,695 |
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Other dwelling units,
land and commercial
real estate |
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197,514 |
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178,431 |
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177,427 |
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167,023 |
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143,302 |
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Consumer loans |
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1,879 |
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2,290 |
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2,904 |
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3,966 |
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4,559 |
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Commercial business |
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47,523 |
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45,441 |
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45,671 |
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49,044 |
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44,923 |
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Government |
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14,688 |
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11,551 |
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12,254 |
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19,492 |
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11,838 |
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Loans receivable (4) |
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$ |
487,540 |
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$ |
466,725 |
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$ |
470,527 |
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$ |
468,000 |
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$ |
431,317 |
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Average loans outstanding
during the period (3) |
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$ |
484,854 |
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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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(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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Includes overdrafts to deposit accounts. |
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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. |
6
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).
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2008 |
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2007 |
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2006 |
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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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$ |
1,960 |
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$ |
4,982 |
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$ |
11,212 |
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Loans on existing property |
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41,847 |
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43,371 |
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46,713 |
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Loans refinanced |
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9,620 |
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11,382 |
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9,853 |
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Total conventional real
estate
loans originated |
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53,427 |
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59,735 |
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67,778 |
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Commercial business loans |
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152,577 |
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155,649 |
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123,829 |
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Consumer loans |
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1,199 |
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1,821 |
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3,197 |
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Total loans originated |
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$ |
207,203 |
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$ |
217,205 |
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$ |
194,804 |
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Loan participations purchased |
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$ |
957 |
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$ |
12,465 |
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$ |
12,354 |
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Whole loans and participations sold |
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$ |
10,463 |
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$ |
12,246 |
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$ |
9,142 |
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Loan Maturity Schedule. The following table sets forth certain information at December 31,
2008 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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$ |
82,668 |
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$ |
42,926 |
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$ |
297,857 |
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$ |
423,451 |
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Consumer loans |
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537 |
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1,383 |
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46 |
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1,966 |
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Commercial business,
other loans |
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28,650 |
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26,353 |
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9,089 |
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64,092 |
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Total loans receivable |
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$ |
111,856 |
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$ |
70,662 |
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$ |
306,992 |
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$ |
489,509 |
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The table below sets forth the dollar amount of all loans due after one year from December 31,
2008 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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$ |
119,949 |
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$ |
220,832 |
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$ |
340,781 |
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Consumer loans |
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1,429 |
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1,429 |
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Commercial business,
other loans |
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30,298 |
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5,145 |
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35,443 |
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Total |
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$ |
151,676 |
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$ |
225,977 |
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$ |
377,653 |
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7
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 County, and to a lesser extent, LaPorte, Newton and Jasper counties in Indiana,
and Lake, Cook and Will counties in Illinois. 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 up 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.)
The maximum in-house legal lending limit as set by the Board of Directors is $7,000,000.00.
Requests that exceed this amount will be considered on a case-by-case basis, after taking into
consideration the legal lending limit, by specific Board action. 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%
8
or less of the appraised value of the property. Loans insured by private mortgage insurance
companies can be made for up to 95% of value. During 2008, over 90% of mortgage loans closed were
conventional loans with borrowers having 20% or more equity in the property. This type of loan
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. Generally, 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 offerings. 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 one, three, five or seven
year period. ARM originations totaled $21.9 million for 2008 and $20.5 million for 2007. During
2008, ARMs represented 63.1% 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.
9
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 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.
10
Government Loans. The Bancorp is permitted to purchase non-rated municipal securities, tax
anticipation notes and warrants within the local market area.
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.
11
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).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
Loans accounted for on a non-accrual basis: |
|
|
|
|
|
|
|
|
|
|
|
|
Real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential |
|
$ |
2,316 |
|
|
$ |
1,383 |
|
|
$ |
1,128 |
|
|
$ |
784 |
|
|
$ |
574 |
|
Commercial |
|
|
7,902 |
|
|
|
6,065 |
|
|
|
1,467 |
|
|
|
62 |
|
|
|
136 |
|
Commercial business |
|
|
712 |
|
|
|
328 |
|
|
|
301 |
|
|
|
266 |
|
|
|
266 |
|
Consumer |
|
|
7 |
|
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
10,937 |
|
|
$ |
7,776 |
|
|
$ |
2,896 |
|
|
$ |
1,113 |
|
|
$ |
983 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accruing loans which are contractually past due 90 days or more: |
|
|
|
|
|
|
|
|
Real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential |
|
$ |
1,198 |
|
|
$ |
819 |
|
|
$ |
156 |
|
|
$ |
53 |
|
|
$ |
61 |
|
Commercial |
|
|
278 |
|
|
|
|
|
|
|
|
|
|
|
815 |
|
|
|
5 |
|
Commercial business |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
130 |
|
|
|
|
|
Consumer |
|
|
|
|
|
|
23 |
|
|
|
26 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
1,476 |
|
|
$ |
842 |
|
|
$ |
182 |
|
|
$ |
998 |
|
|
$ |
66 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total of non-accrual
and 90 days past due |
|
$ |
12,413 |
|
|
$ |
8,618 |
|
|
$ |
3,078 |
|
|
$ |
2,111 |
|
|
$ |
1,049 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of non-performing
loans to total assets |
|
|
1.87 |
% |
|
|
1.37 |
% |
|
|
0.50 |
% |
|
|
0.34 |
% |
|
|
0.19 |
% |
Ratio of non-performing
loans to total loans |
|
|
2.54 |
% |
|
|
1.84 |
% |
|
|
0.65 |
% |
|
|
0.45 |
% |
|
|
0.24 |
% |
Foreclosed real estate |
|
$ |
527 |
|
|
$ |
136 |
|
|
$ |
323 |
|
|
$ |
260 |
|
|
$ |
280 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of foreclosed real
estate to total
assets |
|
|
0.08 |
% |
|
|
0.02 |
% |
|
|
0.05 |
% |
|
|
0.04 |
% |
|
|
0.05 |
% |
During 2008, gross interest income of $1,169,000 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 $83,000.
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 $11.4 million at December 31, 2008, compared to $10.9 million at December 31, 2007. Loans
internally classified as doubtful totaled $2.0 million at December 31, 2008, compared to $0.0 at
December 31, 2007. The increase in doubtful loan balances was related to two commercial real
estate participation loans. No loans were classified
12
as 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 identifying and monitoring non-performing and other
classified loans, management maintains a list of watch loans. Watch loans represent loans
management is closely monitoring due to one or more factors that may cause the loan to become
classified. Watch loans totaled $22.7 million at December 31, 2008, compared to $10.8 million at
December 31, 2007. The increase in watch loans is primarily related to a construction development
participation loan in the amount of $4.2 million and two commercial real estate participation loans
in the amount of $5.7 million.
A loan is considered impaired when, based on current information and events, it is probable
that a borrower will be unable to pay all amounts due according to the contractual terms of the
loan agreement. At December 31, 2008, impaired loans totaled $8.6 million, compared to $6.0
million at December 31, 2007. The December 31, 2008, impaired loan balances consist of eighteen
loans to ten commercial borrowers that are secured by business assets and real estate, and are
personally guaranteed by the owners of the businesses. The December 31, 2008 ALL contained $1.7
million in specific allowances for collateral deficiencies, compared to $824 thousand in specific
allowances at December 31, 2007. During the fourth quarter of 2008, four additional commercial
real estate loans and one commercial business loan totaling $2.2 million were classified as
impaired. Managements current estimate indicates that specific allowances of $295 thousand are
required for these loans. In addition, during the current quarter one commercial business loan in
the amount of $191 thousand was repaid and removed from impaired status. The December 31, 2008,
impaired loan balances were also included in the previously discussed non-performing and
substandard loan balances. There were no other loans considered to be impaired loans for the
quarter ended, December 31, 2008.
At December 31, 2008, 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, 2008, no other interest bearing assets were required to
be disclosed as non-accrual, past due or restructured. Management does not presently anticipate
that any of the non-performing loans or classified loans would materially impact future operations,
liquidity or capital resources.
The Bancorp is a party to financial instruments in the normal course of business to meet
financing needs of its customers. These financial instruments, which include commitments to make
loans and standby letters of credit, are not reflected in the accompanying consolidated financial
statements. Such financial instruments are recorded when they are funded. The Bancorp has a $1.1
million participation in a $6.4 million letter of credit, which acts as payment support to bondholders. Cash flows from the security
collateralizing the letter of credit have been negatively impacted as the property is vacant. Our
portion of the letter of credit is also secured by a cash collateral account and a collateralized
guarantee in the amount of $1.0 million. During July 2008, a new forbearance agreement was
executed, which expired on December 31, 2008. Currently, the letter of credit participants are
reviewing the credit worthiness of a prospective tenant. Management will continue to monitor the
letter of credit and bond repayments.
13
For the twelve months ended December 31, 2008, $2.4 million in additions to the ALL account
were required, compared to $552 thousand for the twelve months ended December 31, 2007. The
increase in the 2008 ALL provisions was related to the need for additional specific allowances for
the collateral deficiency associated with the previously mentioned impaired loans, and an increase
in non-performing and classified loans. Charge-offs, net of recoveries, totaled $1.1 million for
the twelve months ended December 31, 2008, compared to $238 thousand for the twelve months ended
December 31, 2007. The ALL provisions take into consideration managements current judgments about
the credit quality of the loan portfolio, loan portfolio balances, 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 balances and mix, and asset quality.
The ALL to total loans was 1.19% at December 31, 2008, compared to 0.98% at December 31, 2007.
The ALL to non-performing loans (coverage ratio) was 47.0% at December 31, 2008, compared to 53.2%
at December 31, 2007. The December 31, 2008 balance in the ALL account of $5.8 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).
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
Balance at beginning of period |
|
$ |
4,581 |
|
|
$ |
4,267 |
|
|
$ |
4,181 |
|
|
$ |
3,892 |
|
|
$ |
3,787 |
|
Loans charged-off: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate residential |
|
|
(27 |
) |
|
|
|
|
|
|
|
|
|
|
(37 |
) |
|
|
(14 |
) |
Commercial real estate |
|
|
(1,090 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial business |
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(297 |
) |
Consumer |
|
|
(109 |
) |
|
|
(268 |
) |
|
|
(7 |
) |
|
|
|
|
|
|
(30 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total charge-offs |
|
|
(1,227 |
) |
|
|
(268 |
) |
|
|
(7 |
) |
|
|
(37 |
) |
|
|
(341 |
) |
Recoveries: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential real estate |
|
|
2 |
|
|
|
3 |
|
|
|
20 |
|
|
|
18 |
|
|
|
41 |
|
Commercial real estate |
|
|
7 |
|
|
|
|
|
|
|
33 |
|
|
|
|
|
|
|
|
|
Commercial business |
|
|
|
|
|
|
24 |
|
|
|
21 |
|
|
|
60 |
|
|
|
14 |
|
Consumer |
|
|
79 |
|
|
|
3 |
|
|
|
4 |
|
|
|
3 |
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recoveries |
|
|
88 |
|
|
|
30 |
|
|
|
78 |
|
|
|
81 |
|
|
|
61 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (charge-offs) / recoveries |
|
|
(1,139 |
) |
|
|
(238 |
) |
|
|
71 |
|
|
|
44 |
|
|
|
(280 |
) |
Provision for loan losses |
|
|
2,388 |
|
|
|
552 |
|
|
|
15 |
|
|
|
245 |
|
|
|
385 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period |
|
$ |
5,830 |
|
|
$ |
4,581 |
|
|
$ |
4,267 |
|
|
$ |
4,181 |
|
|
$ |
3,892 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ALL to loans outstanding |
|
|
1.19 |
% |
|
|
0.98 |
% |
|
|
0.90 |
% |
|
|
0.89 |
% |
|
|
0.90 |
% |
ALL to nonperforming loans |
|
|
46.97 |
% |
|
|
53.16 |
% |
|
|
138.60 |
% |
|
|
198.10 |
% |
|
|
371.00 |
% |
Net charge-offs / recoveries
to average loans out
standing during the period |
|
|
-0.24 |
% |
|
|
-0.05 |
% |
|
|
0.02 |
% |
|
|
0.01 |
% |
|
|
0.07 |
% |
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
|
$ |
|
|
% |
|
|
$ |
|
|
% |
|
|
$ |
|
|
% |
|
|
$ |
|
|
% |
|
|
$ |
|
|
% |
|
Real estate loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential |
|
|
394 |
|
|
|
46.2 |
|
|
|
808 |
|
|
|
47.8 |
|
|
|
761 |
|
|
|
60.0 |
|
|
|
644 |
|
|
|
55.1 |
|
|
|
550 |
|
|
|
57.2 |
|
Commercial and
other dwelling |
|
|
3,934 |
|
|
|
40.3 |
|
|
|
2,353 |
|
|
|
39.2 |
|
|
|
1,472 |
|
|
|
26.9 |
|
|
|
1,089 |
|
|
|
24.0 |
|
|
|
950 |
|
|
|
24.0 |
|
Consumer loans |
|
|
69 |
|
|
|
0.4 |
|
|
|
53 |
|
|
|
0.5 |
|
|
|
87 |
|
|
|
0.6 |
|
|
|
99 |
|
|
|
6.1 |
|
|
|
150 |
|
|
|
5.2 |
|
Commercial business
and other |
|
|
1,433 |
|
|
|
13.1 |
|
|
|
1,367 |
|
|
|
12.5 |
|
|
|
1,947 |
|
|
|
12.5 |
|
|
|
2,349 |
|
|
|
14.8 |
|
|
|
2,242 |
|
|
|
13.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
5,830 |
|
|
|
100.0 |
|
|
|
4,581 |
|
|
|
100.0 |
|
|
|
4,267 |
|
|
|
100.0 |
|
|
|
4,181 |
|
|
|
100.0 |
|
|
|
3,892 |
|
|
|
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, 2008, AFS securities
totaled $108.2 million or 85.4% of total securities. AFS securities are those the Bancorp may
decide to sell if needed for liquidity, asset-liability management or other reasons. During 2008,
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, 2008, the Bancorps investment portfolio
totaled $126.7 million. In addition, the Bancorp had $1.3 million federal funds sold, and $3.7
million in FHLB stock.
15
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).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
U.S. government agencies: |
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale |
|
|
5,621 |
|
|
|
26,220 |
|
|
|
40,504 |
|
Mortgage-backed securities (1): |
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale |
|
|
32,745 |
|
|
|
24,381 |
|
|
|
15,955 |
|
Held-to-maturity |
|
|
388 |
|
|
|
461 |
|
|
|
538 |
|
Collateralized Mortgage Obligations (1): |
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale |
|
|
36,476 |
|
|
|
27,532 |
|
|
|
22,347 |
|
Municipal Securities: |
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale |
|
|
26,679 |
|
|
|
14,104 |
|
|
|
4,959 |
|
Held-to-maturity |
|
|
18,127 |
|
|
|
17,897 |
|
|
|
14,709 |
|
Corporate Securities: |
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale |
|
|
4,813 |
|
|
|
|
|
|
|
|
|
Trust Preferred Securities: |
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale |
|
|
1,873 |
|
|
|
4,049 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals |
|
$ |
126,722 |
|
|
$ |
114,644 |
|
|
$ |
99,012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Mortgage-backed securities and Collateralized Mortgage Obligations are U.S. government
agency and sponsored securities. |
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, 2008, 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 |
|
|
|
|
|
|
0.00 |
% |
|
|
|
|
|
|
0.00 |
% |
|
|
|
|
|
|
0.00 |
% |
|
|
|
|
|
|
0.00 |
% |
U.S. government
Agencies: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AFS |
|
|
|
|
|
|
0.00 |
% |
|
|
2,524 |
|
|
|
4.59 |
% |
|
|
3,097 |
|
|
|
5.37 |
% |
|
|
|
|
|
|
0.00 |
% |
HTM |
|
|
|
|
|
|
0.00 |
% |
|
|
|
|
|
|
0.00 |
% |
|
|
|
|
|
|
0.00 |
% |
|
|
|
|
|
|
0.00 |
% |
Municipal
Securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AFS |
|
|
|
|
|
|
0.00 |
% |
|
|
1,091 |
|
|
|
4.43 |
% |
|
|
6,012 |
|
|
|
4.16 |
% |
|
|
19,576 |
|
|
|
4.27 |
% |
HTM |
|
|
|
|
|
|
0.00 |
% |
|
|
|
|
|
|
0.00 |
% |
|
|
8,860 |
|
|
|
4.00 |
% |
|
|
9,267 |
|
|
|
4.00 |
% |
Mortgage-backed
Securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AFS |
|
|
|
|
|
|
0.00 |
% |
|
|
2,665 |
|
|
|
4.09 |
% |
|
|
9,295 |
|
|
|
4.98 |
% |
|
|
20,785 |
|
|
|
5.48 |
% |
HTM |
|
|
|
|
|
|
0.00 |
% |
|
|
|
|
|
|
0.00 |
% |
|
|
|
|
|
|
0.00 |
% |
|
|
388 |
|
|
|
5.66 |
% |
Collateralized
Mortgage
Obligations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AFS |
|
|
|
|
|
|
0.00 |
% |
|
|
|
|
|
|
0.00 |
% |
|
|
1,746 |
|
|
|
4.32 |
% |
|
|
34,730 |
|
|
|
6.24 |
% |
Corporate
Securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AFS |
|
|
|
|
|
|
0.00 |
% |
|
|
4,813 |
|
|
|
4.95 |
% |
|
|
|
|
|
|
0.00 |
% |
|
|
|
|
|
|
0.00 |
% |
Trust Preferred
Securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AFS |
|
|
|
|
|
|
0.00 |
% |
|
|
|
|
|
|
0.00 |
% |
|
|
|
|
|
|
0.00 |
% |
|
|
1,873 |
|
|
|
3.44 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals |
|
$ |
|
|
|
|
0.00 |
% |
|
$ |
11,093 |
|
|
|
4.61 |
% |
|
$ |
29,010 |
|
|
|
4.51 |
% |
|
$ |
86,619 |
|
|
|
5.31 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16
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, 2008, the Bancorp had $25.8 million in
repurchase agreements. Other borrowings totaled $49.0 million, of which $48.0 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).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
|
Amount |
|
|
Rate % |
|
|
Amount |
|
|
Rate % |
|
|
Amount |
|
|
Rate % |
|
Demand deposits |
|
$ |
43,753 |
|
|
|
|
|
|
$ |
50,913 |
|
|
|
|
|
|
$ |
45,862 |
|
|
|
|
|
NOW accounts |
|
|
92,198 |
|
|
|
0.89 |
|
|
|
59,113 |
|
|
|
1.26 |
|
|
|
56,412 |
|
|
|
1.06 |
|
MMDA accounts |
|
|
113,266 |
|
|
|
1.94 |
|
|
|
110,943 |
|
|
|
3.54 |
|
|
|
133,558 |
|
|
|
3.06 |
|
Savings accounts |
|
|
52,830 |
|
|
|
0.40 |
|
|
|
54,210 |
|
|
|
0.40 |
|
|
|
58,586 |
|
|
|
0.43 |
|
Certificates
of deposit |
|
|
215,327 |
|
|
|
3.44 |
|
|
|
219,052 |
|
|
|
4.59 |
|
|
|
213,419 |
|
|
|
3.99 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits |
|
$ |
517,374 |
|
|
|
2.06 |
|
|
$ |
494,231 |
|
|
|
3.02 |
|
|
$ |
507,837 |
|
|
|
2.65 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturities of time certificates of deposit and other time deposits of $100,000 or more at
December 31, 2008 are summarized as follows. The amounts are stated in thousands (000s).
|
|
|
|
|
3 months or less |
|
$ |
37,817 |
|
Over 3 months through 6 months |
|
|
26,419 |
|
Over 6 months through 12 months |
|
|
29,071 |
|
Over 12 months |
|
|
6,243 |
|
|
|
|
|
Total |
|
$ |
99,550 |
|
|
|
|
|
17
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
five 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 five 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).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, |
|
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
Repurchase agreements: |
|
$ |
25,773 |
|
|
$ |
14,186 |
|
|
$ |
14,717 |
|
Fixed rate advances from the FHLB |
|
|
41,000 |
|
|
|
31,000 |
|
|
|
30,000 |
|
Putable advances from the FHLB |
|
|
5,000 |
|
|
|
2,000 |
|
|
|
2,000 |
|
Variable advances from the FHLB |
|
|
|
|
|
|
26,000 |
|
|
|
|
|
FHLB line-of-credit |
|
|
2,044 |
|
|
|
2,846 |
|
|
|
3,089 |
|
Limited partnership obligation |
|
|
|
|
|
|
|
|
|
|
60 |
|
Overdrawn due from & Treasury Tax & Loan |
|
|
978 |
|
|
|
898 |
|
|
|
1,635 |
|
|
|
|
|
|
|
|
|
|
|
Total borrowings |
|
$ |
74,795 |
|
|
$ |
76,930 |
|
|
$ |
51,501 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, |
|
|
2008 |
|
2007 |
|
2006 |
Repurchase agreements: |
|
|
|
|
|
|
|
|
|
|
|
|
Balance |
|
$ |
25,773 |
|
|
$ |
14,186 |
|
|
$ |
14,717 |
|
Securities underlying the agreements: |
|
|
|
|
|
|
|
|
|
|
|
|
Ending carrying amount |
|
|
37,414 |
|
|
|
21,421 |
|
|
|
20,329 |
|
Ending fair value |
|
|
37,414 |
|
|
|
21,421 |
|
|
|
20,329 |
|
Weighted average rate paid (1) |
|
|
1.46 |
% |
|
|
3.71 |
% |
|
|
4.20 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For year ended December 31, |
|
|
2008 |
|
2007 |
|
2006 |
Highest month-end balance |
|
$ |
25,773 |
|
|
$ |
15,746 |
|
|
$ |
21,715 |
|
Approximate average outstanding balance |
|
|
16,301 |
|
|
|
14,581 |
|
|
|
14,186 |
|
Approximate weighted average rate
paid on securities sold under
agreements to repurchase (2) |
|
|
2.65 |
% |
|
|
3.79 |
% |
|
|
3.42 |
% |
|
|
|
(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. |
18
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, 2008, the market value of the Wealth
Management Groups assets totaled $192.4 million, a decrease of $17.2 million, compared to December
31, 2007.
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 for the year ended December 31, 2008.
|
|
|
|
|
Weighted average yield: |
|
|
|
|
Securities |
|
|
4.68 |
|
Loans receivable |
|
|
5.66 |
|
Federal Home Loan Bank stock |
|
|
4.75 |
|
Total interest-earning assets |
|
|
5.46 |
|
|
|
|
|
|
Weighted average cost: |
|
|
|
|
Deposit accounts |
|
|
1.71 |
|
Borrowed funds |
|
|
3.19 |
|
Total interest-bearing liabilities |
|
|
1.83 |
|
|
|
|
|
|
Interest rate spread: |
|
|
|
|
Weighted average yield on interest-earning
assets minus the weighted average cost of
interest-bearing funds |
|
|
3.63 |
|
19
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, |
|
|
2008 |
|
2007 |
|
2006 |
Return on average assets |
|
|
0.91 |
% |
|
|
0.91 |
% |
|
|
1.04 |
% |
Return on average equity |
|
|
10.96 |
|
|
|
10.78 |
|
|
|
13.42 |
|
Average equity-to-average assets ratio |
|
|
8.32 |
|
|
|
8.41 |
|
|
|
7.76 |
|
Dividend payout ratio |
|
|
68.2 |
|
|
|
71.85 |
|
|
|
60.41 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, |
|
|
2008 |
|
2007 |
|
2006 |
Total stockholders equity to
total assets |
|
|
7.94 |
% |
|
|
8.39 |
% |
|
|
8.08 |
% |
20
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, 2008 |
|
|
Year ended December 31, 2007 |
|
|
Year ended December 31, 2006 |
|
|
|
|
|
|
|
Interest |
|
|
|
|
|
|
|
|
|
|
Interest |
|
|
|
|
|
|
|
|
|
|
Interest |
|
|
|
|
|
|
Average |
|
|
Income/ |
|
|
Average |
|
|
Average |
|
|
Income/ |
|
|
Average |
|
|
Average |
|
|
Income/ |
|
|
Average |
|
|
|
Balance |
|
|
Expense |
|
|
Rate |
|
|
Balance |
|
|
Expense |
|
|
Rate |
|
|
Balance |
|
|
Expense |
|
|
Rate |
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
370 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing balances
in financial institutions |
|
$ |
802 |
|
|
$ |
10 |
|
|
|
1.25 |
% |
|
$ |
229 |
|
|
$ |
14 |
|
|
|
6.11 |
% |
|
$ |
8,080 |
|
|
$ |
401 |
|
|
|
4.97 |
% |
Federal funds sold |
|
|
2,448 |
|
|
|
55 |
|
|
|
2.25 |
|
|
|
1,891 |
|
|
|
97 |
|
|
|
5.12 |
|
|
|
1,965 |
|
|
|
95 |
|
|
|
4.85 |
|
Securities |
|
|
120,782 |
|
|
|
5,833 |
|
|
|
4.83 |
|
|
|
107,845 |
|
|
|
4,862 |
|
|
|
4.51 |
|
|
|
98,759 |
|
|
|
4,057 |
|
|
|
4.11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments |
|
|
124,032 |
|
|
|
5,898 |
|
|
|
4.76 |
|
|
|
109,966 |
|
|
|
4,973 |
|
|
|
4.52 |
|
|
|
108,804 |
|
|
|
4,553 |
|
|
|
4.19 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans:* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate mortgage loans |
|
|
417,819 |
|
|
|
25,274 |
|
|
|
6.05 |
|
|
|
410,795 |
|
|
|
26,637 |
|
|
|
6.48 |
|
|
|
405,062 |
|
|
|
25,819 |
|
|
|
6.37 |
|
Commercial business loans |
|
|
64,912 |
|
|
|
3,843 |
|
|
|
5.92 |
|
|
|
52,840 |
|
|
|
3,963 |
|
|
|
7.50 |
|
|
|
63,457 |
|
|
|
4,356 |
|
|
|
6.86 |
|
Consumer loans |
|
|
2,123 |
|
|
|
152 |
|
|
|
7.16 |
|
|
|
2,718 |
|
|
|
195 |
|
|
|
7.17 |
|
|
|
3,692 |
|
|
|
250 |
|
|
|
6.78 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans |
|
|
484,854 |
|
|
|
29,269 |
|
|
|
6.04 |
|
|
|
466,353 |
|
|
|
30,795 |
|
|
|
6.60 |
|
|
|
472,211 |
|
|
|
30,425 |
|
|
|
6.44 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets |
|
|
608,886 |
|
|
|
35,167 |
|
|
|
5.78 |
|
|
|
576,319 |
|
|
|
35,767 |
|
|
|
6.21 |
|
|
|
581,015 |
|
|
|
34,978 |
|
|
|
6.02 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses |
|
|
(5,160 |
) |
|
|
|
|
|
|
|
|
|
|
(4,203 |
) |
|
|
|
|
|
|
|
|
|
|
(4,227 |
) |
|
|
|
|
|
|
|
|
Cash and due from banks |
|
|
9,393 |
|
|
|
|
|
|
|
|
|
|
|
11,600 |
|
|
|
|
|
|
|
|
|
|
|
13,491 |
|
|
|
|
|
|
|
|
|
Premises and equipment |
|
|
17,542 |
|
|
|
|
|
|
|
|
|
|
|
14,757 |
|
|
|
|
|
|
|
|
|
|
|
14,490 |
|
|
|
|
|
|
|
|
|
Other assets |
|
|
19,735 |
|
|
|
|
|
|
|
|
|
|
|
17,999 |
|
|
|
|
|
|
|
|
|
|
|
16,927 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
650,396 |
|
|
|
|
|
|
|
|
|
|
$ |
616,473 |
|
|
|
|
|
|
|
|
|
|
$ |
621,696 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposit |
|
$ |
43,754 |
|
|
|
|
|
|
|
0.00 |
% |
|
$ |
50,913 |
|
|
|
|
|
|
|
0.00 |
% |
|
$ |
45,862 |
|
|
|
|
|
|
|
0.00 |
% |
NOW accounts |
|
|
92,198 |
|
|
|
824 |
|
|
|
0.89 |
|
|
|
59,113 |
|
|
|
742 |
|
|
|
1.26 |
|
|
|
56,412 |
|
|
|
599 |
|
|
|
1.06 |
|
Money market demand accounts |
|
|
113,266 |
|
|
|
2,200 |
|
|
|
1.94 |
|
|
|
110,943 |
|
|
|
3,924 |
|
|
|
3.54 |
|
|
|
133,558 |
|
|
|
4,091 |
|
|
|
3.06 |
|
Savings accounts |
|
|
52,829 |
|
|
|
209 |
|
|
|
0.40 |
|
|
|
54,210 |
|
|
|
217 |
|
|
|
0.40 |
|
|
|
58,586 |
|
|
|
249 |
|
|
|
0.43 |
|
Certificates of deposit |
|
|
215,327 |
|
|
|
7,414 |
|
|
|
3.44 |
|
|
|
219,052 |
|
|
|
10,059 |
|
|
|
4.59 |
|
|
|
213,419 |
|
|
|
8,520 |
|
|
|
3.99 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing deposits |
|
|
517,374 |
|
|
|
10,647 |
|
|
|
2.06 |
|
|
|
494,231 |
|
|
|
14,943 |
|
|
|
3.02 |
|
|
|
507,837 |
|
|
|
13,459 |
|
|
|
2.65 |
|
Borrowed funds |
|
|
74,266 |
|
|
|
2,286 |
|
|
|
3.08 |
|
|
|
68,002 |
|
|
|
2,938 |
|
|
|
4.32 |
|
|
|
60,224 |
|
|
|
2,278 |
|
|
|
3.78 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing
liabilities |
|
|
591,640 |
|
|
|
12,933 |
|
|
|
2.19 |
|
|
|
562,233 |
|
|
|
17,882 |
|
|
|
3.18 |
|
|
|
568,061 |
|
|
|
15,737 |
|
|
|
2.77 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other liabilities |
|
|
4,663 |
|
|
|
|
|
|
|
|
|
|
|
2,374 |
|
|
|
|
|
|
|
|
|
|
|
5,381 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
596,303 |
|
|
|
|
|
|
|
|
|
|
|
564,607 |
|
|
|
|
|
|
|
|
|
|
|
573,442 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity |
|
|
54,093 |
|
|
|
|
|
|
|
|
|
|
|
51,865 |
|
|
|
|
|
|
|
|
|
|
|
48,254 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
stockholders equity |
|
$ |
650,396 |
|
|
|
|
|
|
|
|
|
|
$ |
616,473 |
|
|
|
|
|
|
|
|
|
|
$ |
621,696 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
|
|
|
$ |
22,234 |
|
|
|
|
|
|
|
|
|
|
$ |
17,886 |
|
|
|
|
|
|
|
|
|
|
$ |
19,241 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest spread |
|
|
|
|
|
|
|
|
|
|
3.59 |
% |
|
|
|
|
|
|
|
|
|
|
3.03 |
% |
|
|
|
|
|
|
|
|
|
|
3.25 |
% |
Net interest margin** |
|
|
|
|
|
|
|
|
|
|
3.65 |
% |
|
|
|
|
|
|
|
|
|
|
3.10 |
% |
|
|
|
|
|
|
|
|
|
|
3.31 |
% |
|
|
|
* |
|
Non-accruing loans have been included in the average balances. |
|
** |
|
Net interest income divided by average interest-earning assets. |
21
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, |
|
|
|
2008 |
|
|
vs. |
|
|
2007 |
|
|
2007 |
|
|
vs. |
|
|
2006 |
|
|
|
Increase / (Decrease) |
|
|
Increase / (Decrease) |
|
|
|
Due To |
|
|
Due To |
|
|
|
Volume |
|
|
Rate |
|
|
Total |
|
|
Volume |
|
|
Rate |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans receivable |
|
$ |
1,189 |
|
|
$ |
(2,715 |
) |
|
$ |
(1,526 |
) |
|
$ |
(380 |
) |
|
$ |
750 |
|
|
$ |
370 |
|
Securities |
|
|
609 |
|
|
|
362 |
|
|
|
971 |
|
|
|
391 |
|
|
|
414 |
|
|
|
805 |
|
Other interest-earning assets |
|
|
42 |
|
|
|
(87 |
) |
|
|
(45 |
) |
|
|
(413 |
) |
|
|
28 |
|
|
|
(385 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets |
|
|
1,840 |
|
|
|
(2,440 |
) |
|
|
(600 |
) |
|
|
(402 |
) |
|
|
1,192 |
|
|
|
790 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
|
672 |
|
|
|
(4,968 |
) |
|
|
(4,296 |
) |
|
|
(369 |
) |
|
|
1,854 |
|
|
|
1,485 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowed Funds |
|
|
252 |
|
|
|
(904 |
) |
|
|
(652 |
) |
|
|
314 |
|
|
|
346 |
|
|
|
660 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing
liabilities |
|
|
924 |
|
|
|
(5,872 |
) |
|
|
(4,948 |
) |
|
|
(55 |
) |
|
|
2,200 |
|
|
|
2,145 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in net interest
income/(expense) |
|
$ |
916 |
|
|
$ |
3,432 |
|
|
$ |
4,348 |
|
|
$ |
(347 |
) |
|
$ |
(1,008 |
) |
|
$ |
(1,355 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22
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, 2008, the Bank had an investment
balance of $93 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, 2008, the Bank had an
investment balance of $216.1 million in NWIN, LLC. The investment balance represents a decrease of
$18.2 million, as a result of return of capital to the Bank during 2008.
NWIN Funding, Inc. is a subsidiary of NWIN, LLC, and was formed as an Indiana Real Estate
Investment Trust (REIT). 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. At December 31, 2008, the REIT held assets of $84.6 million in
real estate loans.
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.
23
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, 2008, the Bank had 163 full-time and 36 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.
24
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.
25
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, 2008, the Bancorps capital exceeded all
regulatory capital requirements. At December 31, 2008, the Bancorps and the Banks regulatory
capital ratios were substantially the same. At December 31, 2008, 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 |
|
$ |
59.9 |
|
|
|
12.0 |
% |
|
$ |
39.9 |
|
|
|
8.0 |
% |
|
$ |
50.0 |
|
|
|
10.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 capital to
risk weighted assets |
|
$ |
54.1 |
|
|
|
10.8 |
% |
|
$ |
20.0 |
|
|
|
4.0 |
% |
|
$ |
29.9 |
|
|
|
6.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 capital to
adjusted average
assets |
|
$ |
54.1 |
|
|
|
8.2 |
% |
|
$ |
19.9 |
|
|
|
3.0 |
% |
|
$ |
33.1 |
|
|
|
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 2009, without prior
regulatory approval, approximates $3,650,000 plus current 2008 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
organizations capital needs, assets, quality, and overall financial condition.
26
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. Due to the recent
difficult economic conditions, deposit insurance per depositor has been raised to $250,000 for all
types of accounts until January 1, 2010. 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), 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.
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. A significant increase in insurance premiums would likely have
an adverse effect on the operating expenses and results of operations of the Bank, and management
cannot predict what insurance assessment rates will be in the future.
Pursuant to the final regulations adopted under the Reform Act, the FDICs deposit insurance
premiums are now assessed through a 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. An institutions assessment rate depends upon the
category to which it is assigned. The Bank paid deposit insurance assessments of $175 thousand
during the year ended December 31, 2008. For 2008, the deposit insurance assessment rate before
applying one time credits was approximately 0.062% of insured deposits. Due to losses incurred by
the DIF in 2008 from failed institutions and anticipated future losses, the FDIC has adopted an
across the board seven basis point increase in the assessment range for the first quarter of 2009.
The FDIC has proposed further refinements to its risk-based assessment that would be effective
April 1, 2009 and would effectively make the range between eight to 77.5 basis points. The FDIC
may adjust the scale uniformly from one quarter to the next, except that no adjustment can exceed
three basis points from the base scale without notice and comment rulemaking. No institution may
pay a dividend if in default of the federal deposit insurance assessment. Future increases in
deposit insurance premiums or changes in risk classification would increase the Banks deposit
related costs.
The FDIC is authorized to set the reserve ratio for the DIF at between 1.15% and 1.5% of estimated
insured deposits. The designated reserve ratio is currently 1.25% and as a result of the
deterioration in banking and economic conditions and recent failures of banks, the reserve ratio
was 1.01% as of June 30, 2008, which was 18 basis points below the reserve ratio as of March 31,
2008. The FDIC expects a higher ratio of insured institution failures in the next few years, which
may result in a continued decline in the reserve ratio. On February 27, 2009, the FDIC announced
the imposition of a special assessment and changes to assessment rates and to the risk-based assessment system that will take effect beginning April 1, 2009. The FDIC adopted
an interim rule that imposes a special assessment of 20 basis points as of June 30, 2009, which is
to be collected on September 30, 2009. The FDICs interim rule also provides for the imposition of
additional special assessments of up to 10 basis points if necessary. Under the new assessment
system, banks in the best risk
27
category will pay from 12 cents to 16 cents per $100 of insured
deposits on an annual basis. On March 5, 2009, FDIC Chairman Sheila Bair announced that if
Congress adopts legislation expanding the FDICs line of credit with the Treasury from $30 billion
to $100 billion, the FDIC might have the flexibility to reduce the special emergency assessment,
possibly from 20 to 10 basis points. Assuming the legislation passes and the FDIC reduces the
special assessment to 10 basis points, we anticipate that the special assessment for the Bank would
total approximately $538 thousand based on current deposit levels.
Federal law also provides for the possibility that the FDIC may pay dividends to insured
institutions once the DIF reserve ratio equals or exceeds 1.35% of estimated insured deposits.
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 Bank paid
interest payment assessments of $58 thousand during the year ended December 31, 2008. The interest
payment assessment rate for 2008 was approximately 0.011% of insured deposits. These assessments
will continue until the Financing Corporation bonds mature in 2017.
Due to the anticipated continued failures of unaffiliated FDIC-insured depository institutions
and the increased premiums noted above, we anticipate that our FDIC deposit insurance premiums will
be higher in 2009 than in 2008 and could increase significantly in the future, which would
adversely impact our future earnings.
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 advances from the Federal Home Loan Bank. At December 31, 2008, the
Bank was in compliance with this requirement.
At December 31, 2008, the Bancorp owned $3.65 million of stock of the Federal Home Loan Bank
of Indianapolis (FHLBI) and had outstanding borrowings of approximately $56 million from the
FHLBI. The FHLBI stock entitles us to dividends from the FHLBI. The Bancorp recognized dividend
income of approximately $182 thousand in 2008. Due to various financial difficulties in the
financial institution industry in 2008, including the write-down of various mortgage-backed
securities held by the FHLBI (which lowered its regulatory capital levels), the FHLBI temporarily
suspended dividends during the 1st quarter of 2009. When the dividends were finally paid, they
were reduced by 75 basis points from the dividend rate paid for the previous quarter. Continued and additional financial difficulties at the FHLBI could
further reduce or eliminate the dividends we receive from the FHLBI.
28
At December 31, 2008, the Bancorps excess borrowing capacity from the FHLBI was $82 million.
Generally, the loan terms from the FHLBI are better than the terms the Bancorp can receive from
other sources making it cheaper to borrow money from the FHLBI. Continued and additional financial
difficulties at the FHLBI could reduce or eliminate our additional borrowing capacity with the
FHLBI which could force us to borrow money from other sources. Such other monies may not be
available when we need them or, more likely, will be available at higher interest rates and on less
advantageous terms, which will impact our net income and could impact our ability to grow.
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 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.
29
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 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, 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, 2009, 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. Significant efforts were required to comply with Section 404 in 2008 and the Bancorp anticipates additional
efforts will be required 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
30
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.
In response to the financial crises affecting the banking system and financial markets, on
October 3, 2008, the Emergency Economic Stabilization Act of 2008 (the EESA) was signed into law
creating the Troubled Asset Relief Program (TARP). Pursuant to the EESA, the U.S. Department of
the Treasury (the Treasury) has the authority to, among other things, purchase up to $700 billion
of mortgages, mortgage-backed securities, and certain other financial instruments from financial
institutions for the purpose of stabilizing and providing liquidity to the U.S. financial markets.
On October 14, 2008, the Treasury also announced it would offer to qualifying U.S. banking
organizations the opportunity to sell preferred stock, along with warrants to purchase common
stock, to the Treasury on what may be considered attractive terms under the TARP Capital Purchase
Program (the CPP). The CPP allows financial institutions to issue non-voting preferred stock to
the Treasury in an amount ranging between 1% and 3% of its total risk-weighted assets. After a
careful review of the terms of participation in the CPP, along with consideration of the capital
requirements applicable to the Bancorp and the Bank, both of which have remained above the
well-capitalized regulatory guidelines, the Bancorps board of directors decided it was not in
the best interests of the Bancorp and its shareholders to participate in the CPP.
On February 17, 2009, President Obama signed into law the American Recovery and Reinvestment
Act of 2009 (the ARRA), which contains a comprehensive set of government spending initiatives and
tax incentives aimed at stimulating the U.S. economy. The ARRA also amends, among other things,
the TARP program legislation by directing the Treasury to issue regulations implementing strict
limitations on compensation paid or accrued by financial institutions participating in the TARP,
which regulations do not apply to the Bancorp.
The EESA and ARRA followed, and have been followed by, numerous actions by the Federal
Reserve, Congress, Treasury, the SEC and others to address the current liquidity and credit crisis
that has followed the sub-prime meltdown that commenced in 2007. These measures include homeowner
relief that encourage loan restructuring and modification; the establishment of significant
liquidity and credit facilities for financial institutions and investment banks; the lowering of
the federal funds rate, including two 50 basis point decreases in October of 2008; emergency action
against short selling practices; a temporary guaranty program for money market funds; the
establishment of a commercial paper funding facility to provide back-stop liquidity to commercial
paper issuers; and coordinated international efforts to address illiquidity and other weaknesses in
the banking sector. It is not clear at this time what impact the EESA, ARRA, CPP, TARP, other
liquidity and funding initiatives of the Federal Reserve and other agencies that have been
previously announced, and any additional programs that may be initiated in the future will have on
the financial markets, including the extreme levels of volatility and limited credit availability currently
being experienced, or on the U.S. banking and financial industries and the broader U.S. and global
economies. Further adverse effects could have an adverse effect on the Bancorp and its business.
31
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, 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. During 2008, the Banks 2006 federal income tax return was
subject to an examination by the Internal Revenue Service. No improper tax positions were
identified during the examination. In the last five years, the Banks federal income returns have not been subject to any other examination by a taxing
authority.
32
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.
During 2007, 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, 2008, the Bancorps consolidated total deferred tax assets were $4.3 million
and the consolidated total deferred tax liabilities were $1.4 million, resulting in a consolidated
net deferred tax asset of $2.7 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
Not applicable.
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 ten banking locations. The Bancorp owns all of its
office properties.
The following table sets forth additional information with respect to the Banks offices as of
December 31, 2008. Net book value and total investment figures are for land, buildings, furniture
and fixtures.
33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year |
|
|
|
|
|
|
Approximate |
|
|
|
|
|
|
Facility |
|
|
Net book |
|
|
Square |
|
|
Total |
|
Office location |
|
opened |
|
|
value |
|
|
footage |
|
|
cost |
|
9204 Columbia Avenue
Munster, IN 46321-3517 |
|
|
1985 |
|
|
$ |
1,087,016 |
|
|
|
11,640 |
|
|
$ |
3,107,222 |
|
141 W. Lincoln Highway
Schererville, IN
46375-1851 |
|
|
1990 |
|
|
|
902,805 |
|
|
|
9,444 |
|
|
|
2,659,394 |
|
7120 Indianapolis Blvd.
Hammond, IN 46324-2221 |
|
|
1978 |
|
|
|
194,956 |
|
|
|
2,600 |
|
|
|
920,660 |
|
1300 Sheffield
Dyer, IN 46311-1548 |
|
|
1976 |
|
|
|
187,941 |
|
|
|
2,100 |
|
|
|
874,653 |
|
7915 Taft
Merrillville, IN
46410-5242 |
|
|
1968 |
|
|
|
95,992 |
|
|
|
2,750 |
|
|
|
638,526 |
|
8600 Broadway
Merrillville, IN
46410-7034 |
|
|
1996 |
|
|
|
1,322,068 |
|
|
|
4,400 |
|
|
|
2,556,839 |
|
4901 Indianapolis Blvd.
East Chicago, IN
46312-3604 |
|
|
1995 |
|
|
|
866,809 |
|
|
|
4,300 |
|
|
|
1,540,913 |
|
1501 Lake Park Avenue
Hobart, IN 46342-6637 |
|
|
2000 |
|
|
|
1,778,370 |
|
|
|
6,992 |
|
|
|
2,627,469 |
|
9204 Columbia Avenue
Corporate Center Building
Munster, IN 46321-3517 |
|
|
2003 |
|
|
|
6,173,322 |
|
|
|
36,685 |
|
|
|
9,630,109 |
|
855 Stillwater Parkway
Crown Point, IN 46307-5361 |
|
|
2007 |
|
|
|
2,227,489 |
|
|
|
3,945 |
|
|
|
2,428,803 |
|
1801 W. 25th Avenue
Gary, IN 46404 |
|
|
2008 |
|
|
|
1,858,969 |
|
|
|
2,790 |
|
|
|
1,897,801 |
|
At December 31, 2008, the Bank had investments totaling $2.4 million 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 Accutech in Muncie, Indiana for its Wealth Management operations.
The net book value of the Banks property, premises and equipment totaled $19.1 million at
December 31, 2008.
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 2008.
34
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
2009 Annual Meeting of Shareholders:
The executive officers of the Bancorp are as follows:
|
|
|
|
|
|
|
|
|
Age at |
|
|
|
|
December 31, |
|
|
|
|
2008 |
|
Position |
|
|
|
|
|
|
|
David A. Bochnowski
|
|
|
63 |
|
|
Chairman and Chief Executive
Officer |
Joel Gorelick
|
|
|
61 |
|
|
President and Chief Administrative
Officer |
Jon E. DeGuilio
|
|
|
53 |
|
|
Executive Vice President and
Secretary |
Robert T. Lowry
|
|
|
47 |
|
|
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, and
is accountable to the Board of Directors, customers, shareholders, employees and stakeholders for
the operation of the company. 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), now known as the new
American Bankers Association (ABA) a national bank trade association where he serves on the
Government Affairs Committee, Corporate Governance Committee, and Task Force on Financial Services
Regulatory Reform. He is a trustee and treasurer of the Munster Community Hospital, a director of
the Community Healthcare System, a former chairman and current board member of the Legacy
Foundation of Lake County, a Director of the Quality of Life Council, a trustee of the Purdue
Technology Center Northwest Indiana, and Vice-Chairman of the Peace and Justice Foundation of Lake
County, Indiana. 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. He served as an officer in
the United States Army and is a Vietnam veteran.
Joel Gorelick is President and Chief Administrative Officer of the Bancorp and the Bank. Mr.
Gorelick has responsibility for coordinating the daily activities of retail banking, consumer and
commercial lending, private banking, and wealth management 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, president of the Merrillville, IN, Rotary Club, chairman of the board of the Northwest
Indiana Regional Development Corporation, president of the
35
Lake Central High School Athletics Booster Club. Mr. Gorelick is an instructor for the Indiana Bankers Commercial Lending School.
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 board member of the Lake County Economic Development Corporation, N.W. Indiana Regional
Development Corporation and N.W. Indiana Boys & Girls Club. 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.
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, serving on the boards of the Friends of the Lake County CASA, the Lake County
Drug Free Alliance, Our Lady of Grace School Board, the Carnegie Performing Arts Association Board
and the Juvenile Diabetes Research Foundation Advisory Board.
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 an instructor for
the American Bankers Association online banking courses. Mr. Lowry is a member of the Indiana
CPA Society and Financial Managers Society. Mr. Lowry is actively involved in the Crown Point, IN.
youth sports programs, and is involved in the Crown Point Chamber of Commerce.
36
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 2008 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
2008 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 2008 Annual Report to Shareholders is
incorporated herein by reference.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
Item 8. Financial Statements
The financial statements contained in the 2008 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(T). Controls and Procedures
|
(a) |
|
Evaluation of Disclosure Controls and Procedures. |
NorthWest Indiana Bancorp (the Bancorp) conducted an evaluation under the supervision and
with the participation of management, including the Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the design and operation of the disclosure controls and procedures
(as defined in Rule 13a-15(e) under the Exchange Act) as of December 31, 2008. Based upon that
evaluation, the Chief Executive Officer and Chief Financial Officer determined that the disclosure
controls and procedures were effective to ensure that material information required to be disclosed
by the Bancorp in the reports that are filed or submitted under the Exchange Act is recorded,
processed, summarized and reported as and when required. The consolidated financial statements were
prepared in conformity with accounting principles generally accepted in the United
37
States of America and include amounts based on managements best estimates and judgments.
The Risk Management Committee of the Board of Directors
meets regularly with the independent registered public accounting firm,
Crowe Horwath LLP, and representatives of management to review accounting, financial reporting,
internal control and audit matters, as well as the nature and extent of the audit effort. The Risk
Management Committee is responsible for the engagement of the independent auditors. The independent
auditors have free access to the Risk Management Committee.
|
(b) |
|
Report on Managements Assessment of Internal Control Over Financial
Reporting. |
|
(i) |
|
Managements Responsibility for Financial Statements |
The Bancorps management is responsible for the integrity and objectivity of all information
presented in this report including the financial statements contained in the Annual Report to
shareholders which are incorporated by reference into Item 8 of this Form 10-K. Management believes
the consolidated financial statements fairly reflect the form and substance of transactions and
that the financial statements fairly represent the Bancorps financial position and results of
operations for the periods and as of the dates stated therein.
|
(ii) |
|
Managements Assessment of Internal Control Over Financial Reporting |
The management of the Bancorp is responsible for establishing and maintaining adequate
internal control over financial reporting for the Bancorp as defined in Rules 13a-15(f) and
15d-15(f) of the Exchange Act. This system is designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with accounting principles generally accepted in the United States of
America.
The Bancorps internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the Bancorp; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements
in accordance with generally accepted accounting principles, and that receipts and expenditures of
the Bancorp are being made only in accordance with authorizations of management and the directors
of the Bancorp; and (3) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the Bancorps assets that could have a material
effect on the financial statements.
Because of its inherent limitations, a system of internal control over financial reporting can
provide only reasonable assurance and may not prevent or detect misstatements. Further, because of
changes in conditions, effectiveness of internal controls over financial reporting may vary over
time.
With the participation of the Bancorps Chief Executive Officer and Chief Financial Officer,
management conducted an evaluation of the effectiveness of the system of internal control over
financial reporting based on the framework in Internal Control-Integrated Framework, published by
the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this
evaluation, management determined that the Bancorps
38
system of internal control over financial reporting was effective as of December 31, 2008.
This annual report does not include an attestation report of the Bancorps registered public
accounting firm regarding internal control over financial reporting. Managements report was not
subject to attestation by the Bancorps registered public accounting firm pursuant to temporary
rules of the Securities and Exchange Commission that permit the Bancorp to provide only
managements report in this annual report.
|
c. |
|
Evaluation of Changes in Internal Control Over Financial Reporting. |
There were no changes in the Bancorps internal control over financial reporting in the fourth
quarter of 2008 that have materially affected, or are reasonably likely to materially affect, the
Bancorps internal control over financial reporting.
Item 9B. Other Information
There are no items reportable under this item.
39
PART III
Item 10. Directors and Executive Officers of the Registrant
The information contained under the sections captioned Election of Directors and Meetings
of the Board of Directors, Board Committees, 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 2009 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 Executive Compensation in the
Bancorps definitive Proxy Statement for its 2009 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 2009 Annual
Meeting of Shareholders, under the sections captioned Security Ownership by Certain Beneficial
Owners and Management, on page 2, Outstanding Equity Awards at December 31, 2008, under the
section captioned Executive Compensation, on page 11 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 7 in the Summary Compensation Table for 2008, contained
under the section titled Executive Compensation, on pages 14-15 under the section titled
Transactions with Related Persons, and on page 5 under the section titled Corporate
Governance-Director Independence in the Bancorps definitive Proxy Statement for its 2009 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 2009
Annual Meeting of Shareholders, is incorporated herein by reference.
40
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
2008 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, 2008 and 2007 |
|
|
(c) |
|
Consolidated Statements of Income for the years ended December
31, 2008 and 2007 |
|
|
(d) |
|
Consolidated Statements of Changes in Stockholders Equity for
the years ended December 31, 2008 and 2007 |
|
|
(e) |
|
Consolidated Statements of Cash Flows for the years ended
December 31, 2008 and 2007 |
|
|
(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.
|
|
|
|
|
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.
|
|
|
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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)). |
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3.ii.
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By-Laws (incorporated herein by reference to Exhibit 4.2 to the Bancorps Registration
Statement on Form S-3 filed July 19, 2007 (File No. 333-144699)). |
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10.1. *
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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). |
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10.2. *
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Amended and Restated Employment Agreement, dated December 29, 2008, between Peoples Bank
SB, NorthWest Indiana Bancorp and David A. Bochnowski (incorporated herein by reference to
Exhibit 10.1 of the Bancorps Form 8-K dated December 30, 2008). |
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10.3. *
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Amended and Restated Employment Agreement, dated December 29, 2008, between Peoples Bank
SB, NorthWest Indiana Bancorp and |
41
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Exhibit |
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Number |
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Description |
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Joel Gorelick (incorporated herein by reference to Exhibit 10.2 of the Bancorps
Form 8-K dated December 30, 2008). |
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10.4. *
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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). |
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10.5. *
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Unqualified Deferred Compensation Plan for the Directors of Peoples Bank effective January
1, 2005(incorporated herein by reference to Exhibit 10.5 to the Bancorps Annual Report on
Form 10-K for the year ended December 31, 2006). |
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10.6. *
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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). |
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10.7 *
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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). |
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10.8 *
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Post 2004 Unfunded Deferred Compensation Plan for the
Directors of Peoples Bank SB effective January 1, 2005
(incorporated herein by reference to Exhibit 10.8 to the
Bancorps Annual Report on Form 10-K for the year ended
December 31, 2006). |
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10.9 *
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Form of Incentive Stock Option Agreement (incorporated by
reference to Exhibit 99.2 of the Bancorps Form 8-K dated
April 20, 2005). |
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10.10 *
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Form of Non-Qualified Stock Option Agreement (incorporated
by reference to Exhibit 99.3 of the Bancorps Form 8-K
dated April 20, 2005). |
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10.11 *
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Form of Agreement for Restricted Stock (incorporated by
referenced to Exhibit 99.4 of the Bancorps form 8-K dated
April 20, 2005). |
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13.
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2008 Annual Report to Shareholders |
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21.
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Subsidiaries of the Bancorp (incorporated herein by reference to Exhibit 21. to the Bancorps
Annual Report on Form 10-K for the year ended December 31, 2006). |
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23.
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Consent of Independent Registered Public Accounting Firm |
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31.1
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Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer |
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31.2
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Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer |
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32
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Section 1350 Certifications |
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* |
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The indicated exhibit is a management contract, compensatory plan or arrangement required to be
filed by Item 601 of Regulation S-K. |
42
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.
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NORTHWEST INDIANA BANCORP
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By /s/ David A. Bochnowski
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David A. Bochnowski |
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Chairman of the Board and
Chief Executive Officer |
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Date: March 11, 2009
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 11,
2009:
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Signature |
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Title |
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Principal Executive Officer:
|
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/s/ David A. Bochnowski
David A. Bochnowski
|
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Chairman of the Board and
Chief Executive Officer |
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Principal Financial Officer and
Principal Accounting Officer:
|
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/s/ Robert T. Lowry
Robert T. Lowry
|
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Senior Vice President,
Chief Financial Officer and Treasurer |
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The Board of Directors: |
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|
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/s/ Frank J. Bochnowski
Frank J. Bochnowski
|
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Director |
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/s/ Lourdes M. Dennison
Lourdes M. Dennison
|
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Director |
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/s/ Edward J. Furticella
Edward J. Furticella
|
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Director |
|
|
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/s/ Joel Gorelick
Joel Gorelick
|
|
Director |
|
|
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/s/ Kenneth V. Krupinski
Kenneth V. Krupinski
|
|
Director |
43
|
|
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Signature |
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Title |
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|
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/s/ Stanley E. Mize
Stanley E. Mize
|
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Director |
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/s/ Anthony M. Puntillo
Anthony M. Puntillo
|
|
Director |
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|
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/s/ James L. Wieser
James L. Wieser
|
|
Director |
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|
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/s/ Donald P. Fesko
Donald P. Fesko
|
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Director |
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|
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/s/ Amy W. Han
Amy W. Han
|
|
Director |
44
EXHIBIT INDEX
|
|
|
Exhibit |
|
Description |
|
|
|
13.
|
|
2008 Annual Report to Shareholders |
|
|
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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 |
|
|
|
32
|
|
Section 1350 Certifications |
45