SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
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(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the quarterly period ended SEPTEMBER 30, 1996, or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the transition period from_______________ to _______________
Commission File Number: 0-26128
NORTHWEST INDIANA BANCORP
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(Exact name of registrant as specified in its charter)
Indiana 35-1927981
- --------------------------------------------- --------------
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification Number)
9204 Columbia Avenue
Munster, Indiana 46321
- -------------------------------------- -------------
(Address of principal executive office) (ZIP code)
Registrant's telephone number, including area code: (219) 836-9690
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
There were 689,787 shares of the registrant's Common Stock, without par value,
outstanding at September 30, 1996.
NORTHWEST INDIANA BANCORP
INDEX
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Page
Number
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PART I. Consolidated Financial Statements
Item 1. Consolidated Financial Statements of NorthWest Indiana Bancorp
Consolidated Balance Sheets, September 30, 1996 and December 31, 1995 1
Consolidated Statements of Income, Three Months and Nine Months
Ended September 30, 1996 and 1995 2
Consolidated Statements of Changes in Stockholders' Equity, Three
Months and Nine Months Ended September 30, 1996 and 1995 3
Consolidated Statements of Cash Flow, Nine Months Ended September 30,
1996 and 1995 4
Notes to Consolidated Financial Statements 5 - 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 7 - 14
PART II. Other Information 15
SIGNATURES 16
NORTHWEST INDIANA BANCORP
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
September 30, December 31,
1996 1995
------------- --------------
ASSETS
Cash and non-interest bearing balances in financial institutions .. $ 6,018,667 $ 6,952,377
Interest bearing balances in financial institutions ............... 279,965 6,151,327
Federal funds sold ................................................ 530,000 1,840,000
------------- -------------
Total cash and cash equivalents ............................... 6,828,632 14,943,704
Securities held-to-maturity (market value: September 30, 1996 -
$41,980,000; December 31, 1995 - $36,682,000) ................... 42,036,524 36,404,381
Federal Home Loan Bank common stock
(cost approximates market value) ................................ 1,596,700 1,596,700
Loans held for sale ............................................... 308,108 --
Loans receivable .................................................. 239,256,020 222,292,700
Less: allowance for loan loss ..................................... (2,868,395) (2,829,681)
------------- -------------
Net loans receivable .......................................... 236,387,625 219,463,019
Accrued interest receivable ....................................... 2,262,055 2,091,874
Premises and equipment ............................................ 6,937,703 5,256,785
Foreclosed real estate ............................................ 188,684 86,366
Other assets ...................................................... 1,648,246 1,068,110
------------- -------------
Total assets .................................................. $ 298,194,277 $ 280,910,939
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Non-interest bearing deposits ................................... $ 15,324,947 $ 11,497,478
Interest bearing deposits ....................................... 243,685,095 236,447,211
------------- -------------
Total deposits ................................................ 259,010,042 247,944,689
Borrowed funds .................................................... 7,775,502 3,138,829
Accrued expenses and other liabilities ............................ 4,020,431 2,623,293
------------- -------------
Total liabilities ............................................. 270,805,975 253,706,811
Commitments and contingencies (Note 5)
Stockholders' Equity
Preferred stock, no par or stated value;
10,000,000 shares authorized, none outstanding .................. -- --
Common stock, no par or stated value; 20,000,000 shares authorized;
issued and outstanding; September 30, 1996 - 689,787 shares;
December 31, 1995 - 689,718 shares .............................. 344,894 344,859
Additional paid-in capital ........................................ 2,929,406 2,927,595
Retained earnings - substantially restricted ...................... 24,114,002 23,931,674
------------- -------------
Total stockholders' equity .................................... 27,388,302 27,204,128
------------- -------------
Total liabilities and stockholders' equity .................... $ 298,194,277 $ 280,910,939
============= =============
See accompanying notes to consolidated financial statements.
(1)
NORTHWEST INDIANA BANCORP
CONSOLIDATED INCOME STATEMENT
(UNAUDITED)
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
----------- ----------- ------------ -----------
Interest income:
Real estate loans ..................................... $ 4,442,755 $ 4,256,305 $ 13,005,539 $12,749,708
Commercial loans ...................................... 359,593 340,145 1,109,817 1,050,094
Consumer loans ........................................ 95,827 81,746 261,840 218,493
----------- ----------- ------------ -----------
Total loan interest ............................... 4,898,175 4,678,196 14,377,196 14,018,295
Securities held-to-maturity ........................... 680,672 555,113 1,955,402 1,484,746
Other interest earning assets ......................... 54,379 87,697 279,220 242,244
----------- ----------- ------------ -----------
Total interest income ............................. 5,633,226 5,321,006 16,611,818 15,745,285
Interest expense:
Deposits .............................................. 2,758,762 2,703,684 8,265,591 7,620,248
Borrowed funds ........................................ 59,073 25,618 138,477 84,793
----------- ----------- ------------ -----------
Total interest expense ............................ 2,817,835 2,729,302 8,404,068 7,705,041
Net interest income ..................................... 2,815,391 2,591,704 8,207,750 8,040,244
Provision for loan losses ............................... 22,500 15,000 55,000 60,000
----------- ----------- ------------ -----------
Net interest income after provision for loan losses ..... 2,792,891 2,576,704 8,152,750 7,980,244
Noninterest income:
Gain/(loss) on sale of interest earning assets ........ 1,130 2,934 (3,765) 8,860
Gain on sale of foreclosed real estate ................ 3,668 196 3,668 196
Fees and service charges .............................. 116,872 109,631 355,840 324,539
Trust operations ...................................... 44,855 38,746 152,974 125,033
Other ................................................. -- 4,999 -- 8,520
----------- ----------- ------------ -----------
Total noninterest income .......................... 166,525 156,506 508,717 467,148
Noninterest expense:
Compensation and benefits ............................. 756,684 728,596 2,302,150 2,179,596
Occupancy and equipment ............................... 272,843 223,765 778,465 652,049
Federal insurance premium ............................. 1,702,723 136,431 1,981,153 400,450
Advertising ........................................... 26,166 25,220 111,057 104,678
Data processing ....................................... 75,924 70,210 215,733 201,630
Other ................................................. 364,514 352,859 1,070,910 1,086,281
----------- ----------- ------------ -----------
Total noninterest expense ......................... 3,198,854 1,537,081 6,459,468 4,624,684
Income before income taxes .............................. (239,438) 1,196,129 2,201,999 3,822,708
Income tax expense/(benefit)............................. (91,650) 476,600 881,550 1,523,600
----------- ----------- ------------ -----------
Net income/(loss)........................................ $ (147,788) $ 719,529 $ 1,320,449 $ 2,299,108
----------- ----------- ------------ -----------
Earnings per common and common equivalent share (Note 6):
Net Income/(loss)........................................ $ (0.22) $ 1.05 $ 1.91 $ 3.34
============ =========== ============ ===========
Dividends declared per common share ..................... $ 0.55 $ 0.55 $ 1.65 $ 1.65
See accompanying notes to consolidated financial statements
(2)
NORTHWEST INDIANA BANCORP
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED)
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
------------ ------------ ------------ ------------
Balance beginning of period ............................... $ 27,915,286 $ 26,437,457 $ 27,204,128 $ 25,606,009
Stock option plan, 69 shares of common stock
issued at $18.63 - $42.50 per share in 1996
and 666 shares of common stock issued at $18.63 -
$23.00 per share in 1995 ............................ 186 3,543 1,846 13,743
Cash dividends declared, $1.65 per share in
1996 and 1995 ....................................... (379,382) (379,338) (1,138,121) (1,137,669)
Net income/(loss)...................................... (147,788) 719,529 1,320,449 2,299,108
------------ ------------ ------------ ------------
Balance end of period ..................................... $ 27,388,302 $ 26,781,191 $ 27,388,302 $ 26,781,191
============ ============ ============ ============
See accompanying notes to consolidated financial statements.
(3)
NORTHWEST INDIANA BANCORP
CONSOLIDATED STATEMENTS OF CASH FLOW
(UNAUDITED)
Nine Months Ended
September 30,
1996 1995
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income .................................................................. $ 1,320,449 $ 2,299,108
------------ ------------
Adjustments to reconcile net income to net cash provided by operating
activities:
Origination of loans for sale ........................................... (699,900) (826,800)
Sale of loans originated for sale ....................................... 388,028 819,260
Depreciation and amortization, net of accretion ......................... 395,377 287,072
Net gains on sale of loans .............................................. (3,628) (8,860)
Net gains on sale of foreclosed real estate ............................. (3,668) (196)
Provision for loan losses ............................................... 55,000 60,000
Unrealized losses on mortgage loans held for sale ....................... 7,392 --
Net change in unearned interest on loans ................................ 3,776 (11,874)
Change in deferred loan fees ............................................ 1,362 (62,658)
Change in interest receivable ........................................... (170,181) (136,265)
Change in other assets .................................................. (580,136) (112,133)
Change in accrued expenses and other liabilities ........................ 1,397,138 (219,521)
------------ ------------
Total adjustments ..................................................... 790,560 (211,975)
------------ ------------
Net cash from operating activities ................................. 2,111,009 2,087,133
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Change in interest bearing time deposits in other financial institutions .... -- 493,472
Proceeds from maturities of securities held-to-maturity ..................... 9,171,429 5,000,000
Purchase of securities held-to-maturity ..................................... (15,164,019) (12,271,852)
Principal collected on mortgage-backed securities ........................... 363,070 356,567
Loan participations purchased ............................................... -- (33,440)
Loans made net of payments received ......................................... (17,115,942) 2,251,373
Purchase of property plant and equipment .................................... (2,078,918) (1,174,446)
Proceeds from sale of foreclosed real estate ................................ 32,548 87,246
------------ ------------
Net cash from investing activities ....................................... (24,791,832) (5,291,080)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Change in deposits .......................................................... 11,065,353 9,505,659
Change in borrowed funds .................................................... 4,636,673 26,605
Proceeds from issuance of capital stock ..................................... 1,846 13,743
Cash dividends paid ......................................................... (1,138,121) (1,137,669)
------------ ------------
Net cash from financing activities ....................................... 14,565,751 8,408,338
------------ ------------
Net change in cash and cash equivalents .................................. (8,115,072) 5,204,391
Cash and cash equivalents at beginning of period ............................ 14,943,704 5,743,060
------------ ------------
Cash and cash equivalents at end of period .................................. $ 6,828,632 $ 10,947,451
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest ................................................................. $ 8,427,215 $ 7,647,014
Income taxes ............................................................. $ 1,445,000 $ 1,539,000
See accompanying notes to consolidated financial statements.
(4)
NORTHWEST INDIANA BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The consolidated financial statements include the accounts of
NorthWest Indiana Bancorp (the Company), its wholly-owned subsidiary, Peoples
Bank SB (the Bank), and the Bank's wholly-owned subsidiaries. The Company has no
other business activity other than being a holding company for the Bank. The
accompanying unaudited consolidated financial statements were prepared in
accordance with instructions for Form 10-Q and, therefore, do not include all
disclosures required by generally accepted accounting principles for complete
presentation of financial statements. In the opinion of management, the
consolidated financial statements contain all adjustments (consisting only of
normal recurring accruals) necessary to present fairly the balance sheets of the
Company as of September 30, 1996 and December 31, 1995, and the statements of
income and changes in stockholders' equity for the three months and nine months
ended September 30, 1996 and 1995, and cash flows for the nine months ended
September 30, 1996 and 1995. The income reported for the three month and nine
month periods ended September 30, 1996 is not necessarily indicative of the
results to be expected for the full year.
NOTE 2 - CONCENTRATIONS OF CREDIT RISK
The Bank grants residential, commercial real estate, commercial
business and installment loans to customers in its primary market area of Lake
County, in northwest Indiana. Substantially all loans are secured by specific
items of collateral including residences, business assets and consumer assets.
NOTE 3 - RECLASSIFICATIONS
Certain amounts reported in the December 31, 1995 consolidated
financial statements have been reclassified to conform to the September 30, 1996
presentation. All reclassifications are of a normal recurring nature.
NOTE 4 - CONSOLIDATED BALANCE SHEETS
The Balance Sheet of December 31, 1995 has been taken from the
audited financial statements at that date.
NOTE 5 - COMMITMENTS AND CONTINGENCIES
The Bank is a party to financial instruments in the normal course of
business to meet financing needs of its customers and to reduce its own exposure
to fluctuating interest rates. These financial instruments include commitments
to make loans and standby letters of credit.
Exposure to credit loss in the event of nonperformance by the other
party to the financial instrument for commitments to make loans and standby
letters of credit is represented by the contractual amount of those instruments.
The Bank uses the same credit policy to make such commitments as it uses for
on-balance-sheet items.
At September 30, 1996 and December 31, 1995, commitments to make
loans totaled $26.8 million and $27.2 million, respectively and standby letters
of credit totaled $530 thousand and $489 thousand, respectively. At September
30, 1996, $20.7 million (77%) of the commitments were at variable rates.
Since commitments to make loans may expire without being used, the
amount does not necessarily represent future cash commitments. Collateral
obtained upon exercise of the commitment is
(5)
determined using management's credit evaluation of the borrower, and may include
accounts receivable, inventory, property, land and other items.
NOTE 6 - EARNINGS PER COMMON SHARE
The weighted average number of shares used in the calculation of
earnings per share during the three month periods ended September 30, 1996 and
1995 were 689,777 and 689,621, respectively. The weighted average number of
shares used in the calculation of earnings per share during the nine month
periods ended September 30, 1996 and 1995 were 689,749 and 689,301,
respectively. The effect of common stock equivalents is not material in these
periods.
(6)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SUMMARY
NorthWest Indiana Bancorp, an Indiana corporation (NWIB or the Company),
is the holding company for Peoples Bank SB (the Bank), an Indiana stock savings
bank. Peoples Bank SB is a wholly owned subsidiary of NWIB. The Company has no
other business activity other than being the holding company for Peoples Bank
SB. The Bank's deposit accounts are insured by the Savings Association Insurance
Fund (SAIF) which is administered by the Federal Deposit Insurance Corporation
(FDIC). On September 30, 1996, the President signed the Deposit Insurance Funds
Act of 1996 which required a one-time special assessment on SAIF-assessable
deposits to capitalize SAIF. The special assessment resulted in a pre-tax
expense of $1.6 million for the current reporting period. As a result the
Company reported a net loss for the three months ended September 30, 1996, of
$148 thousand, or $0.22 per share. The annualized return on average assets (ROA)
was -0.20%, while the annualized return on average stockholders' equity (ROE)
was -2.12%, for the three month period. Net income for the nine months ended
September 30, 1996, was $1.3 million, or $1.91 per share. The ROA was 0.61%,
while the ROE was 6.35%, for the nine month period.
Excluding the SAIF assessment, net income for the three months ended
September 30, 1996, was $795 thousand, or $1.15 per share compared to $720
thousand, or $1.05 per share for the three months ended September 30, 1995. The
ROA was 1.08%, while the ROE was 11.27% for the current three month period
compared to a ROA of 1.05% and a ROE of 10.79% for the three months ended
September 30, 1995. Excluding the SAIF assessment, net income for the nine
months ended September 30, 1996 and 1995 was $2.3 million. Earnings per share
were $3.28 for the current nine months compared to $3.34 for the nine months
ended September 30, 1995. The ROA was 1.04%, while the ROE was 10.84%, for the
nine months ended September 30, 1996 compared to a ROA of 1.13% and a ROE of
11.66% for the nine months ended September 30, 1995.
At September 30, 1996, the Company had total assets of $298.2 million and
total deposits of $259.0 million. Stockholders' equity totaled $27.4 million or
9.2% of total assets, with book value per share at $39.71.
FINANCIAL CONDITION
During the nine months ended September 30, 1996, total assets increased by
$17.3 million (6.2%), with interest-earning assets increasing by $15.7 million
(5.9%). Total deposits and borrowed funds increased by $15.7 million (6.3%). At
September 30, 1996, interest-earning assets totaled $284.0 million and
represented 95.2% of total assets. Loans receivable and loans held for sale
totaled $239.6 million and represented 84.4% of interest-earning assets, 80.30%
of total assets and 92.5% of total deposits. The loan portfolio includes $13.4
million (5.6%) in construction and development loans, $151.0 million (62.9%) in
residential mortgage loans, $55.4 million (23.1%) in commercial and multifamily
real estate loans, $15.1 million (6.4%) in commercial business loans and $4.7
million (2.0%) in consumer loans. During the nine months ended September 30,
1996, loans increased by $17.3 million (7.8%), as increased loan demand within
the Bank's market area resulted in growth in the real estate, commercial
business and consumer loan portfolios. Adjustable rate loans comprised 62% of
the total investment in loans at September 30, 1996.
The Bank is primarily a portfolio lender. Mortgage banking activities are
limited to the sale of fixed rate mortgage loans with contractual maturities of
thirty years. These loans are sold in the secondary market because of the
additional exposure to interest rate risk associated with this product. The Bank
retains the servicing on all loans sold in
(7)
the secondary market. During the nine months ending September 30, 1996, the Bank
sold $384 thousand in fixed rate mortgage loans. The amount includes seven
loans. At September 30, 1996, the Bank had three loans, totaling $308 thousand,
classified as held for sale.
The primary objective of the investment portfolio is to provide for the
liquidity needs of the Bank and to contribute to profitability by providing a
stable flow of dependable earnings. Funds are generally invested in federal
funds, interest-bearing deposits in other financial institutions, U.S.
government securities and federal agency obligations. Investments are generally
for terms ranging from one day to five years. At September 30, 1996, the
investment portfolio totaled $43.6 million which included $42.0 million in
securities held-to-maturity and $1.6 million in Federal Home Loan Bank (FHLB) of
Indianapolis common stock. The investment portfolio consists of 64.0% in U.S.
government agency debt securities, 27.6% in U.S. government debt securities,
4.7% in U.S. government agency mortgage-backed securities, and 3.7% in FHLB
common stock. In addition, the Bank had $280 thousand in interest-bearing
deposits at the FHLB and $530 thousand in federal funds. During the nine months
ended September 30, 1996, the size of the investment portfolio increased by $5.6
million (14.8%), while interest-bearing deposits and federal funds decreased by
$7.2 million (89.9%). The increase in the investment portfolio was due to
deposit growth and the investment of overnight funds into securities.
Management believes that the credit risk profile of the earning asset
portfolio is relatively low. At September 30, 1996, the Bank had $1.3 million in
non-performing loans. The September 30, 1996, balance includes $318 thousand in
loans accounted for on a non-accrual basis and $1.0 million in accruing loans
which were contractually past due 90 days or more. The total of these
non-performing loans represents 0.56% of the total loan portfolio and 0.45% of
total assets. At September 30, 1996, the Bank had $188 thousand in foreclosed
real estate. The total represents 0.06% of total assets.
(8)
The table which follows sets forth information with respect to the number
(#) and balances (Amount) of non-performing assets and related ratios for the
periods indicated. The amounts are stated in thousands (000's).
September 30, December 31,
1996 1995
# Amount # Amount
--- ------ --- ------
Loans accounted for on a non-accrual basis:
Real estate loans:
Residential 7 $ 146 11 $ 361
Commercial -- -- -- --
Commercial business loans 2 111 -- --
Consumer loans 2 61 1 11
--- ------ --- ------
Total 11 $ 318 12 $ 372
--- ------ --- ------
Accruing loans which are contractually past due 90 days or more:
Real estate loans:
Residential 14 $ 519 19 $ 637
Commercial -- -- -- --
Commercial business loans 1 500 -- --
Consumer loans -- -- 1 46
--- ------ --- ------
Total 15 $1,019 20 $ 683
--- ------ --- ------
Total of non-accrual and 90 days or more past due loans 26 $1,337 32 $1,055
--- ------ --- ------
Foreclosed real estate 3 $ 188 2 $ 86
--- ------ --- ------
Ratio of non-performing loans to total assets 0.45% 0.38%
Ratio of non-performing loans to total loans 0.56% 0.47%
Ratio of foreclosed real estate to total assets 0.06% 0.03%
Ratio of non-performing assets to total assets 0.51% 0.41%
At September 30, 1996, $540 thousand of the Bank's loans were classified
as substandard. The total represents 20 loans. There were no loans classified as
doubtful or loss. Management does not anticipate that any of the non-performing
loans or classified loans will materially impact future operations, liquidity or
capital resources. At September 30, 1996, there were no material credits which
would cause management to have serious doubts as to the ability of such
borrowers to comply with loan repayment terms.
Because some loans may not be repaid in accordance with contractual
agreements an allowance for loan losses (ALL) has been maintained. While
management may periodically allocate portions of the allowance for specific
problem loans, the entire allowance is available to absorb all credit losses
that arise from the loan portfolio and is not segregated for, or allocated to,
any particular loan or group of loans. During the nine months ended September
30, 1996, additions to the ALL account totaled $55 thousand compared to $60
thousand for the nine months ended September 30, 1995. Charge-offs net of
recoveries totaled $17 thousand during the current period. The amount
(9)
provided during the current nine months was based on loan activity, current
economic conditions and management's assessment of portfolio risk. At September
30, 1996, the balance in the ALL account totaled $2.9 million, which is
considered adequate by management after evaluation of the loan portfolio, past
experience and current economic and market conditions.
The table below sets forth the allocation of the ALL and related ratios on
the dates indicated. The amounts are stated in thousands (000's).
September 30, 1996 December 31, 1995
------------------ -----------------
Real estate loans:
Residential $ 372 13% $ 372 13%
Commercial 865 30 860 30
Construction & Development 154 5 130 5
Commercial business loans 650 23 650 23
Consumer loans 110 4 110 4
Unallocated 717 25 708 25
------ --- ------ ---
Total $2,868 100% $2,830 100%
====== === ====== ===
Ratio of ALL to loans outstanding 1.20% 1.27%
Ratio of ALL to non-performing loans 214.5% 268.3%
At September 30, 1996, no portion of the ALL was allocated to impaired
loan balances as the Bank had no loans considered to be impaired loans as of, or
for the nine months ended September 30, 1996. The allocation of the ALL reflects
consideration of the facts and circumstances that affect the repayment of
individual loans, as well as, loans which have been pooled as of the evaluation
date.
Deposits are the major source of funds for lending and other investment
purposes. At September 30, 1996, deposits totaled $259.0 million. During the
nine months ending September 30, 1996, deposit growth totaled $11.1 million
(4.5%). Savings accounts increased $2.7 million (6.4%), NOW accounts increased
$2.6 million (12.3%), checking accounts increased $3.8 million (33.3%), money
market deposit accounts (MMDA's) increased $1.5 million (7.1%) and certificates
of deposit increased by $446 thousand (0.3%). At September 30, 1996, the deposit
base was comprised of 17.2% savings accounts, 8.8% MMDA's, 9.2% NOW accounts,
5.9% checking accounts and 58.9% certificates of deposit. At September 30, 1996,
repurchase agreements totaled $5.4 million. Other short-term borrowings totaled
$2.4 million. The Company had no long-term borrowings.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity refers to the ability to generate sufficient cash to fund
current loan demand, meet savings deposit withdrawals and pay operating
expenses. Changes in the liquidity position result from operating, investing and
financing activities. Cash flows from operating activities are generally the
cash effects of transactions and other events that enter into the determination
of net income. The primary investing activities include loan originations, loan
repayments, investment in interest-bearing deposits in other financial
institutions, and the purchase and maturity of investment securities. Financing
activities focus almost entirely on the generation of customer deposits. In
addition,
(10)
the Bank offers repurchase agreements which generally mature within one year and
has established a line of credit with the FHLB.
During the nine months ended September 30, 1996, there was a net decrease
in cash and cash equivalents of $8.1 million. The reduction was primarily due to
the $7.2 million decrease in interest-bearing deposits in other financial
institutions and federal funds, as funds were used for loan originations and the
purchase of securities. The primary sources of cash were deposit growth which
totaled $11.1 million and cash provided by operating activities of $2.1 million.
The nine months ended September 30, 1996, reflects a significant increase in
loan originations compared to the nine months ended September 30, 1995. Cash was
also used for the payment of common stock dividends of $1.1 million and the
construction of a new, full-service, branch facility located in Merrillville,
Indiana. The new facility represents the Company's commitment to quality service
and community development, and provides opportunities to expand market share by
attracting additional deposits and loans from the surrounding areas. The new
facility opened on September 27, 1996. The new facility is not expected to have
a material impact on noninterest expense.
At September 30, 1996, outstanding commitments to fund loans totaled $26.8
million. Approximately 77% of the commitments were at variable rates. The Bank
has sufficient cash flow and borrowing capacity to fund outstanding commitments
and to maintain proper levels of liquidity.
Management strongly believes that safety and soundness is enhanced by
maintaining a high level of capital. During the nine months ended September 30,
1996, stockholders' equity increased by $184 thousand (0.7%). The increase
resulted primarily from earnings of $1.3 million during the period. In addition,
$2 thousand represents proceeds from the exercised rights of 69 stock options.
The reduction of $1.1 million represents cash dividends for the nine month
period.
The Company is subject to risk-based capital guidelines adopted by the
Board of Governors of the Federal Reserve System (the FRB), and the Bank is
subject to risk-based capital guidelines adopted by the FDIC. As applied to the
Company and the Bank, the FRB and FDIC capital requirements are substantially
identical. The Company and the Bank are required to maintain a total risk-based
capital ratio of 8%, of which 4% must be Tier I capital. In addition, the FRB
and FDIC regulations provide for a minimum Tier I leverage ratio (Tier I capital
to adjusted total assets) of 3% for financial institutions that meet certain
specified criteria, including that they have the highest regulatory rating and
are not experiencing or anticipating significant growth. All other financial
institutions are required to maintain a Tier I leverage ratio of 3% plus an
additional cushion of at least one to two percent.
The following table shows that, at September 30, 1996, the Company's
capital exceeded all regulatory capital requirements. At September 30, 1996, the
Company's and the Bank's regulatory capital ratios were identical.
Actual Required
------ --------
Tier I capital to risk-weighted assets 14.8% 4.0%
Total risk-based capital to risk-weighted assets 16.1% 8.0%
Tier I capital leverage ratio 9.2% 3.0%
(11)
RESULTS OF OPERATIONS - COMPARISON OF THE QUARTER ENDED SEPTEMBER 30, 1996 TO
THE QUARTER ENDED SEPTEMBER 30, 1995
The Company reported a net loss of $148 thousand for the quarter ended
September 30, 1996, compared to a net income of $720 thousand for the quarter
ended September 30, 1995, a decrease of $867 thousand (120.5%). The net loss was
the result of the one-time special assessment required by the Deposit Insurance
Funds Act of 1996 on SAIF-assessable deposits to capitalize SAIF. The SAIF
assessment resulted in a pre-tax expense of $1.6 million during the current
quarter. The loss represents a ROA of -0.20% for the three months ended
September 30, 1996 compared to 1.05% for the quarter ended September 30, 1995.
The ROE was -2.12% for the current quarter compared to 10.79% for the quarter
ended September 30, 1995. Excluding the SAIF assessment, net income for the
three months ended September 30, 1996, was $795 thousand, representing a ROA of
1.08% and a ROE of 11.27%.
Net interest income for the quarter ended September 30, 1996, increased by
$224 thousand (8.6%) compared to the three months ended September 30, 1995. The
improvement in net interest income was due to total interest income increasing
by $312 thousand (5.9%) during the current period, while total interest expense
increased by $89 thousand (3.2%). The net interest margin for the current
quarter was 3.82%, compared to 3.79% for the three months ended September 30,
1995.
During the three months ended September 30, 1996, interest income from
loans increased by $220 thousand (4.7%) compared to the three months ended
September 30, 1995. The weighted average yield on loans outstanding was 8.32%
for the current quarter compared to 8.48% for the quarter ended September 30,
1995. Loan growth has contributed to the increase in interest income. During the
three months ended September 30, 1996, interest income on investments and other
deposits increased by $92 thousand (14.3%) compared to the quarter ended
September 30, 1995. The increase was due to higher yields and portfolio growth
during the current quarter. The weighted average yield on the investment
portfolio for the quarter ended September 30, 1996, was 6.22% compared to 5.95%
for the quarter ended September 30, 1995. The combined weighted average yield on
total interest-earning assets was 7.97% for the quarter ended September 30,
1996, compared to 8.07% for the quarter ended September 30, 1995.
Interest expense for deposits increased by $55 thousand (2.0%), during the
current quarter compared to the three months ended September 30, 1995. The
increase was due to deposit growth. The weighted average rate paid on deposits
for the three months ended September 30, 1996, was 4.28% compared to 4.44% for
the quarter ended September 30, 1995. Interest expense on short-term borrowings
increased by $33 thousand during the current quarter due to higher average
balances for repurchase agreements during the period. The combined weighted
average rate paid on deposits and borrowings for the quarter ended September 30,
1996, was 4.28% compared to 4.44% for the quarter ended September 30, 1995. The
impact of the 7.97% return on interest-earning assets and the 4.28% cost of
funds resulted in an interest rate spread of 3.69% for the current quarter,
compared to 3.63% for the quarter ended September 30, 1995.
Noninterest income for the quarter ended September 30, 1996, was $10
thousand (6.4%) greater than that reported during the three months ended
September 30, 1995. The improvement was due to increased Trust operations income
of $6 thousand (15.8%) and increased income from fees and service charges of $7
thousand (6.6%). Noninterest expenses for the quarter ended September 30, 1996,
increased by $1.7 million (108.1%) compared to the three months ended September
30, 1995. The increase was due primarily to the special SAIF assessment of $1.6
million. Excluding the SAIF assessment, results in an increase of noninterest
expense of $103 thousand (6.7%) for the current quarter compared to the quarter
ended September 30, 1995. The increase in occupancy and equipment expense was
due to the operation of the new East Chicago, Indiana, branch facility which
opened during September 1995 and
(12)
depreciation related to investments in technology. Other expense changes were
due to standard increases in bank operations. Despite the increase in operating
expenses, the Company's efficiency ratio, excluding the SAIF assessment, for the
quarter ended September 30, 1996, was 54.7% compared to 55.5% for the three
months ended September 30, 1995. The ratio is determined by dividing total
noninterest expense minus the SAIF assessment by the sum of net interest income
and total noninterest income for the period.
The Company reported an income tax benefit of $92 thousand for the three
months ended September 30, 1996, compared to an income tax expense of $477
thousand for the three months ended September 30, 1995, a decrease of $568
thousand (120.5%). The decrease was due to a decrease in pretax earnings during
the current quarter.
RESULTS OF OPERATIONS - COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 1996
TO THE NINE MONTHS ENDED SEPTEMBER 30, 1995
Net income for the nine months ended September 30, 1996, was $1.3 million
compared to $2.3 million for the nine months ended September 30, 1995, a
decrease of $979 thousand (42.6%). The earnings represent a ROA of 0.61% for the
current nine months compared to 1.13% for the nine months ended September 30,
1995. The ROE was 6.35% for the current period compared to 11.66% for the nine
months ended September 30, 1995. The decrease in earnings was due to the
one-time special assessment required by the Deposit Insurance Funds Act of 1996
on SAIF-assessable deposits to capitalize SAIF. The SAIF assessment resulted in
a pre-tax expense of $1.6 million during the current period. Excluding the SAIF
assessment, net income for the nine months ended September 30, 1996, was $2.3
million, representing a ROA of 1.04% and a ROE of 10.84%.
Net interest income for the nine months ended September 30, 1996,
increased by $168 thousand (2.1%) compared to the nine months ended September
30, 1995. The improvement in net interest income was due to total interest
income increasing by $867 thousand (5.5%) during the current period, while total
interest expense increased by $699 thousand (9.1%). The net interest margin for
the current period was 3.79%, compared to 3.97% for the nine months ended
September 30, 1995.
During the nine months ended September 30, 1996, interest income from
loans increased by $359 thousand (2.6%) compared to the nine months ended
September 30, 1995. The weighted average yield on loans outstanding was 8.36%
for the current period compared to 8.44% for the nine months ended September 30,
1995. Larger portfolio balances have contributed to the increase in interest
income. During the nine months ended September 30, 1996, interest income on
investments and other deposits increased by $508 thousand (29.4%) compared to
the nine months ended September 30, 1995. The increase was due to higher yields
and portfolio growth during the current period. The weighted average yield on
the investment portfolio for the nine months ended September 30, 1996, was 6.11%
compared to 5.86% for the nine months ended September 30, 1995. The combined
weighted average yield on total interest-earning assets was 7.97% for the nine
months ended September 30, 1996, compared to 8.05% for the nine months ended
September 30, 1995.
Interest expense for deposits increased by $645 thousand (8.5%), during
the current nine months compared to the nine months ended September 30, 1995.
The increase was due to the repricing of existing deposits at higher interest
rates and deposit growth. The weighted average rate paid on deposits for the
nine months ended September 30, 1996, was 4.34% compared to 4.27% for the nine
months ended September 30, 1995. Interest expense on short-term borrowings
increased by $54 thousand during the current nine months due to higher average
balances for repurchase agreements during the period. The combined weighted
average rate paid on deposits and borrowings for the nine
(13)
months ended September 30, 1996, was 4.34% compared to 4.28% for the nine months
ended September 30, 1995. The impact of the 7.97% return on interest-earning
assets and the 4.34% cost of funds resulted in an interest rate spread of 3.63%
for the current nine months, compared to 3.77% for the nine months ended
September 30, 1995.
Noninterest income for the nine months ended September 30, 1996, was $42
thousand (8.9%) greater than that reported during the nine months ended
September 30, 1995. The improvement was due to increased Trust operations income
of $28 thousand (22.4%) and increased income from fees and service charges of
$31 thousand (9.6%). Noninterest expenses for the nine months ended September
30, 1996, increased by $1.8 million (39.7%) compared to the nine months ended
September 30, 1995. The increase was due primarily to the SAIF assessment of
$1.6 million. Excluding the SAIF assessment, results in an increase of
noninterest expense of $276 thousand (6.0%) for the current period compared to
the nine months ended September 30, 1995. The increase in compensation and
benefits was due to additional staffing and annual salary increases. The
increase in occupancy and equipment expense was due to the operation of the new
East Chicago, Indiana, branch facility which opened during September 1995 and
depreciation related to investments in technology. Other expense changes were
due to standard increases in bank operations. The Company's efficiency ratio,
excluding the SAIF assessment, for the nine months ended September 30, 1996, was
55.8% compared to 53.7% for the nine months ended September 30, 1995. The ratio
is determined by dividing total noninterest expense minus the SAIF assessment by
the sum of net interest income and total noninterest income for the period.
Income tax expenses for the nine months ended September 30, 1996, totaled
$882 thousand compared to $1.5 million for the nine months ended September 30,
1995, a decrease of $642 thousand (42.1%). The decrease was due to a decrease in
pretax earnings during the current period.
(14)
PART II - Other Information
---------------------------
Item 1. Legal Proceedings
-----------------
The registrant is not party to any legal proceedings.
No significant changes in legal proceedings of the
Bank occurred during the quarter.
Item 2. Changes in Securities
---------------------
Not Applicable.
Item 3. Defaults Upon Senior Securities
-------------------------------
Not Applicable.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
Not Applicable.
Item 5. Other Information
-----------------
Not Applicable.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits.
---------
(27) Financial Data Schedule
(b) Reports on Form 8-K. None.
-------------------
(15)
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NORTHWEST INDIANA BANCORP
Date: November 8, 1996 /s/ David A. Bochnowski
-------------------------------------------
David A. Bochnowski
Chairman of the Board and Chief Executive
Officer
Date: November 8, 1996 /s/ Edward J. Furticella
-------------------------------------------
Edward J. Furticella
Vice President, Chief Financial Officer and
Treasurer
(16)