SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------------- FORM 10-Q Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 -------------------------------------- (Mark One) [X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. For the quarterly period ended 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 ------------------------- (Exact name of registrant as specified in its charter) Indiana 35-1927981 - --------------------------------------------- -------------- (State or other jurisdiction of incorporation (I.R.S. Employer or organization) Identification Number) 9204 Columbia Avenue Munster, Indiana 46321 - -------------------------------------- ------------- (Address of principal executive office) (ZIP code) Registrant's telephone number, including area code: (219) 836-9690 ----------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] There were 689,787 shares of the registrant's Common Stock, without par value, outstanding at September 30, 1996. NORTHWEST INDIANA BANCORP INDEX -----
Page Number ------ 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)