SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal ended DECEMBER 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transaction 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 (I.R.S. Employer Identification No.)
incorporation or organization)
9204 COLUMBIA AVENUE 46321
MUNSTER, INDIANA (Zip Code)
(Address of principal executive offices)
(219) 836-9690
(Registrant's 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 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 [ ]
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 Registrant's 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. [ X ]
Based on the average bid and ask prices for the registrant's Common Stock at
February 28, 1997, at that date, the aggregate market value of the voting 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 $27,456,096.
There were 1,380,846 shares of the registrant's Common Stock, without par value,
outstanding at February 28, 1997.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents have been incorporated by reference into
this Annual Report on Form 10-K:
1. 1996 Annual Report to Shareholders. (Parts II and IV)
2. Definitive Proxy Statement for the 1997 Annual Meeting of
Shareholders. (Part III)
PART I
ITEM 1. BUSINESS
GENERAL
NorthWest Indiana Bancorp, an Indiana corporation (the "Company"), was
incorporated on January 31, 1994, and is the holding company for Peoples Bank SB
(the "Bank"), the resulting Indiana savings bank in the conversion of Peoples
Bank from a federal stock savings bank to an Indiana stock savings bank.
Pursuant to the conversion, on July 31, 1994, all of the outstanding stock of
Peoples Bank was converted into shares of Common Stock, without par value, of
the Company. As a result, Peoples Bank SB is a wholly owned subsidiary of the
Company. The Company has no other business activity other than being the holding
company for Peoples Bank SB.
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 to a lesser extent commercial real estate and
construction loans, as well as various types of consumer loans and commercial
business loans, within its primary market area of Lake County, in northwest
Indiana. In addition, the Bank's trust department provides estate planning,
guardianships, land trusts, retirement planning, self-directed IRA and Keogh
accounts, investment agency accounts, and serves as personal representative of
estates and acts as trustee for revocable and irrevocable trusts.
The Bank's deposit accounts are insured up to applicable limits by the
Savings Association Insurance Fund ("SAIF") which is administered by the Federal
Deposit Insurance Corporation ("FDIC"), an agency of the federal government. As
the holding company for the Bank, the Company 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 ("FHLB System").
The Company maintains its corporate office at 9204 Columbia Avenue,
Munster, Indiana, from which it oversees the operation of its seven branch
locations. For further information, see "Properties."
1
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. The Company cautions readers that
forward-looking statements, including without limitation those relating to the
Company's 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, among other things, to factors identified in
this filing, including the following:
REGULATORY RISK. The banking industry is heavily regulated. These
regulations are intended to protect depositors, not shareholders. As discussed
above, the Bank and Company are subject to regulation and supervision by the
DFI, FDIC, and FRB. The burden imposed by federal and state regulations puts
banks at a competitive disadvantage compared to less regulated competitors such
as finance companies, mortgage banking companies and leasing companies. The
banking industry continues to lose market share to competitors. In addition,
legislative reactions to the problems of the thrift industry have increased the
regulatory and supervisory requirements for financial institutions, which have
resulted and will continue to result in increased operating expenses, and which
during 1996 resulted in a substantial deposit insurance assessment as described
below.
LEGISLATION. Because of concerns relating to the competitiveness and
the safety and soundness of the industry, Congress continues to consider a
number of wide-ranging proposals for altering the structure, regulation, and
competitive relationships of the nation's financial institutions. Among such
bills are proposals to combine banks and thrifts under a unified charter, to
combine regulatory agencies, to alter the statutory separation of commercial and
investment banking, and to further expand the powers of depository institutions,
bank holding companies, and competitors of depository institutions. Management
cannot predict whether or in what form any of these proposals will be adopted or
the extent to which the business of the Company or the Bank may be affected
thereby.
CREDIT RISK. One of the greatest risks facing lenders is credit risk,
that is, the risk of losing principal and interest due to a borrower's failure
to perform according to the terms of a loan agreement. While management attempts
to provide an allowance for loan losses at a level adequate to cover losses
based on loan portfolio growth, past loss experience, general economic
conditions, information about specific borrower situations, and other factors,
future adjustments to reserves may become necessary, and net income could be
significantly affected, if circumstances differ substantially from assumptions
used with respect to such factors.
EXPOSURE TO LOCAL ECONOMIC CONDITIONS. The Bank's primary market area
for deposits and loans encompasses Lake County, in northwest Indiana, where all
of its offices are located. Ninety-five percent of the Bank's business
activities are within this area. This concentration exposes the Bank to risks
resulting from changes in the local economy. A dramatic drop in local real
2
estate values would, for example, adversely affect the quality of the Bank's
loan portfolio.
INTEREST RATE RISK. The Bank's earnings depend to a great extent upon
the level of net interest income, which is the difference between interest
income earned on loans and investments and the interest expense paid on deposits
and other borrowings. While the Bank attempts to balance the maturities of the
Bank's assets in relation to maturities of liabilities (gap management), gap
management is not an exact science. Rather, it involves estimates as to how
changes in the general level of interest rates will impact the yields earned on
assets and the rates paid on liabilities. Moreover, rate changes can vary
depending upon the level of rates and competitive factors. From time to time,
maturities of assets and liabilities are not balanced, and a rapid increase or
decrease in interest rates could have an adverse effect on net interest margins
and results of operations of the Company. For example, as further discussed in
Management's Discussion and Analysis to the Company's Annual Report to
Shareholders, given the current gap, the Bank will be adversely affected by a
rising or high interest rate environment.
COMPETITION. The activities of the Company 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 Company. In addition, non-bank
competitors are generally not subject to the extensive regulation applicable to
the Company and the Bank.
LENDING ACTIVITIES
GENERAL. Over the years, the Bank has directed its lending efforts
toward the origination of loans with adjustable rates and/or shorter terms to
maturity. Product offerings include adjustable rate residential and commercial
mortgages, commercial business loans tied to the prime interest rate, variable
rate home equity lines of credit and consumer loans. All programs are marketed
aggressively and priced competitively. Fixed rate loans generally have a
contractual maturity of fifteen years or less. These loans are made at rates of
interest which exceed those of adjustable rate products thereby offering some
protection against the possibility of escalating interest rates.
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. All loan
sales are made to the Federal Home Loan Mortgage Corporation ("FHLMC") using the
Freddie Mac "Gold Cash Program". Sales within this program avoid issues relating
to the valuation of excess servicing rights, as well as costs associated with
asset securitization. Loans are sold in the secondary market with servicing
retained by the Bank. 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 capital and unimpaired surplus (plus up
3
to an additional 10% of 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 which the Bank could have loaned to
one borrower and the borrower's related entities at December 31, 1996, under the
15% of capital and surplus limitation was approximately $4,605,000. At December
31, 1996, the Bank had no loans which exceeded the regulatory limitations.
At December 31, 1996, there were no concentrations of loans in any type
of industry which exceeded 10% of total loans that were not otherwise disclosed
as a loan category.
LOAN PORTFOLIO. The following table sets forth selected data relating
to the composition of the Bank's loan portfolio by type of loan and type of
security at the end of each of the last five years. The amounts are in thousands
(000's).
1996 1995 1994 1993 1993(1)
-------- -------- -------- -------- --------
Type of loan:
Conventional real estate loans:
Construction and
development loans $ 13,248 $ 8,913 $ 8,451 $ 4,893 $ 5,870
Loans on existing
properties (2) 208,601 194,779 196,468 182,571 179,299
Consumer loans 4,890 3,527 3,172 3,833 3,912
Commercial business, other(3) 17,957 15,074 13,839 12,908 13,002
-------- -------- -------- -------- --------
Loans receivable(4) $244,696 $222,293 $221,930 $204,205 $202,083
======== ======== ======== ======== ========
Type of security:
Real estate:
1-to-4 family $164,590 $152,485 $152,208 $136,806 $132,106
Other dwelling units, land
and commercial real estate 57,259 51,207 52,711 50,658 53,063
Consumer loans 4,619 3,335 2,960 3,370 3,587
Commercial business, other(3) 16,306 13,893 13,288 12,520 12,083
-------- -------- -------- -------- --------
Loans receivable (4) $242,774 $220,920 $221,167 $203,354 $200,839
======== ======== ======== ======== ========
Average loans outstanding
during the period (4) $232,465 $221,352 $213,349 $202,106 $192,409
======== ======== ======== ======== ========
(1) During the fourth quarter of 1993, the Bank changed its fiscal year-end
from June 30 to December 31.
(2) Includes construction loans converted to permanent loans and commercial
real estate loans.
(3) Includes government loans and overdrafts to deposit accounts.
(4) Net of unearned income and deferred loan fees.
4
LOAN ORIGINATIONS, PURCHASES AND SALES. Set forth below is a table
showing loan origination and sale activity for each of the last three years.
The amounts are in thousands (000's).
1996 1995 1994
-------- ------- ------
Loans originated:
Conventional real estate loans:
Construction and development loans $ 16,244 $ 9,434 $13,685
Loans on existing property 26,811 12,914 27,791
Loans refinanced 10,253 15,961 17,470
------- ------- -------
Total conventional real estate
loans originated 53,308 38,309 58,946
Commercial business loans 53,580 41,844 34,657
Consumer loans 7,290 4,690 2,505
-------- ------- -------
Total loans originated $114,178 $84,843 $96,108
======== ======= =======
Loan participations purchased $ -- $ 33 $ 94
======== ======= =======
Whole loans and participations sold $ 2,011 $ 2,986 $ 933
======== ======= =======
LOAN MATURITY SCHEDULE. The following table sets forth certain
information at December 31, 1996, regarding the dollar amount of loans in the
Bank's 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 Bank 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 and the loan is not repaid. The amounts are stated in
thousand's (000's).
Maturing
----------------------------------------------
After one
Within but within After
one year five years five years Total
-------- ----------- ----------- --------
Real estate loans $ 36,384 $ 55,836 $ 129,629 $221,849
Consumer loans 2,263 2,607 20 4,890
Commercial business loans 11,761 5,336 860 17,957
-------- ----------- ---------- --------
Total loans receivable $ 50,408 $ 63,779 $ 130,509 $244,696
======== =========== ========== ========
The table below sets forth the dollar amount of all loans due after one
year from December 31, 1996, which have predetermined interest rates or have
floating or adjustable interest rates. The amounts are stated in thousands
(000's).
Predetermined Floating or
rates adjustable rates Total
------------- ---------------- ---------
Real estate loans $65,756 $119,709 $185,465
Consumer loans 2,330 297 2,627
Commercial business loans 2,542 3,654 6,196
------- -------- --------
Total $70,628 $123,660 $194,288
======= ======== ========
5
LENDING AREA. The primary lending area of the Bank encompasses all of
Lake County in northwest Indiana, where a majority of loan activity is
concentrated. The Bank is also an active lender in Porter, LaPorte, Newton and
Jasper counties in Indiana. During the past 15 years, the communities of
Munster, Highland, Crown Point, Dyer, St. John, Merrillville and Schererville
have experienced rapid growth and, therefore, have provided the greatest lending
opportunities. At December 31, 1996, the housing vacancy rate in Bank's primary
lending area was below 5%.
LOAN COMMITMENTS. At the present time, residential real estate loan
commitments must be accepted within 14 days by the borrower(s) signing a
commitment acceptance and paying required loan fees. Fixed rate loans must close
within 45 days of the date of the application, while adjustable loans must close
within 60 days of the date of the application. Days are measured by calendar
days from the date on the commitment letter. Approximately 90% of all
commitments issued are exercised by borrowers. Loan commitments on commercial
real estate and non-mortgage loans are given under various terms and conditions
as may be warranted by the project.
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 real estate brokers and builders, solicitations by the Bank's
lending staff, and advertising of loan programs and rates. The Bank employs no
staff appraisers. All appraisals are performed by fee appraisers that have been
approved by the Bank's Board of Directors and who meet all federal guidelines
and state licensing and certification requirements.
Designated officers of the Bank have authorities, established by the
Bank's Board of Directors, to approve loans. Loans from $350,000 to $600,000 may
be approved by a committee of senior officers of the Bank. All loans in excess
of $600,000 must be approved by the Bank's Board of Directors or its Executive
Committee. (All members of the Bank's Board of Directors and Executive Committee
are also members of the Company's Board of Directors and Executive Committee,
respectively.) Loans to executive officers of the Bank or the Company and their
affiliated parties must be approved by a disinterested majority of the Bank's
Board of Directors. Loans to directors and principal shareholders must be
approved by a disinterested majority of the Bank's Board of Directors when the
extension of credit exceeds $50,000 or, when the aggregated amount of all
extensions of credit exceeds $500,000.
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.
6
THE CURRENT LENDING PROGRAMS
RESIDENTIAL MORTGAGE LOANS. The primary lending activity of the Bank
has been the granting of conventional mortgage loans to enable borrowers to
purchase existing homes or construct new homes. The residential loan portfolio
also includes loans on two-to-four family dwellings. Conventional loans are made
up to a maximum of 95% of the appraised value of the property, or purchase price
if lower than the appraisal. For loans made in excess of 80% of value, private
mortgage insurance is required in an amount sufficient to reduce the Bank's
exposure to 80% or less of the appraised value of the property. Loans insured by
private mortgage insurance companies can be made for up to 95% of value. During
1996, 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 borrower's level of equity investment.
All fixed-rate loans currently being originated conform to FHLMC
guidelines for loans purchased under the 1-to-4 family program. Loan interest
rates are determined based on secondary market yield requirements and local
market conditions. Thirty year fixed rate mortgage loans have been sold and/or
classified as held for sale to control exposure to interest rate risk.
The Bank has offered Adjustable Rate Mortgage Loans ("ARMs") since
1984. The "Mini-Fixed ARM" has been very popular with Bank customers. The
"Mini-Fixed" mortgage reprices annually after a three or five year period. ARM
originations totaled $26.1 million for 1996, $19.5 million for 1995, and $27.8
million during 1994. During 1996, ARMs represented 49% of total mortgage loan
originations. The ability of the Bank to successfully market ARM's depends upon
loan demand, prevailing interest rates, volatility of interest rates, public
acceptance of such loans, and terms offered by competitors.
The 15 year mortgage loan program has gained wide acceptance in the
Bank's primary market area. As a result of the shortened maturity of the 15 year
loan, the product has been priced an average of 50 basis points less than the
comparable 30 year loan offering. Mortgage applicants for the 15 year loan 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.
CONSTRUCTION LOANS. Construction loans on residential properties are
made primarily to individuals. 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,
subject to prior lease of the mortgaged property, and in most cases, are
personally guaranteed by the borrower. In general, loans made do not exceed 75%
of the appraised value of the property.
7
COMMERCIAL REAL ESTATE LOANS. Commercial real estate loans are
typically made to a maximum of 75% of the appraised value. Such loans are
generally made on an adjustable rate basis. Loans are typically made for a
maximum term of 25 years with a balloon feature calling for a full repayment
within 7 to 10 years from the date of the loan, or for a term of 15 years with
no balloon. The balloon feature affords the Bank 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, commercial/industrial properties, and other retail and
commercial developments.
While commercial real estate lending is generally considered to involve
a higher degree of risk than single-family residential lending due to the
concentration of principal in a limited number of loans and the effects of
general economic conditions on real estate developers and managers, the Bank has
endeavored to reduce this risk in several ways. In originating commercial real
estate loans, the Bank 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.
Loans for the construction of commercial retail properties and
commercial real estate loans are generally located within an area permitting
physical inspection and regular review of business records. Projects financed
outside of the Bank's primary lending area generally involve borrowers and
guarantors who are or were previous customers and residents of the Bank's
immediate lending area.
CONSUMER LOANS. The Bank 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 applicant's financial condition. All borrowers must meet current
underwriting standards. The consumer loan program includes both fixed and
variable rate products. The Bank purchases indirect dealer paper from various
well established businesses in its immediate banking area.
HOME EQUITY LINE OF CREDIT. The Bank offers "Prime Line", a revolving
line of credit secured by the equity in the borrower's home. The offering which
is tied to the prime rate of interest requires borrowers to repay 1.5% of their
outstanding balance each month. In most cases, Prime Line loans will require a
second mortgage appraisal and a second mortgage lenders title insurance policy.
Loans are made up to a maximum of 80% of the appraised value of the property
less any outstanding liens.
HOME IMPROVEMENT LOANS AND EQUITY LOANS--FIXED 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.
8
COMMERCIAL BUSINESS LOANS. Although the Bank's 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 Bank seeks commercial loan relationships from the local business
community and from its present customers. Conservative lending policies based
upon sound credit analysis govern the extension of commercial credit. The
following loans, although not inclusive, are considered preferable for the
Bank's 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. Although conservative lending policies have been applied to
commercial business loans, the Bank regards the exercise of its commercial
lending authority as vital to its asset restructuring program.
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, the collection of
additional interest is doubtful. Residential mortgage loans are generally placed
on non-accrual status when either principal or interest is 120 days or more past
due. Consumer loans are generally placed on non-accrual status when the loan is
90 days or more past due. Consumer loans are generally charged off when the loan
becomes over 120 days delinquent. Commercial business and commercial real estate
loans are generally placed on non-accrual status when the loan is 90 days or
more past due. 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
collectability of the loan.
The Bank's 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 Bank
will recast the loan or grant a limited moratorium on loan payments to enable
the borrower to reorganize financial affairs. If the loan continues in a
delinquent status for 60 days, the Bank 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 Bank.
Foreclosed real estate is recorded at the lower of cost (the unpaid balance at
date of acquisition plus foreclosure costs, costs related to the sale of the
foreclosed real estate and other related costs) or fair value at the date of
acquisition and carried at the lower of acquisition value or net realizable
value subsequent to the date of acquisition. Any write-down of the property is
charged to the allowance for loan losses. 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 10 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
9
certain instances, the Bank may grant a payment deferral. If a loan continues
delinquent after 90 days and all collection efforts have been exhausted, the
Bank will initiate legal proceedings. Collection procedures for commercial
business loans provide that when a commercial loan becomes 10 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
Bank may grant a payment deferral or restructure the loan. Once it has been
determined that collection efforts are unsuccessful, the Bank will initiate
legal proceedings.
The table which follows sets forth information with respect to the
Bank's non-performing assets for the periods indicated. During the periods
shown, the Bank 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 (000's).
At December 31, At June 30,
------------------------------ ------------
1996 1995 1994 1993 1993
------ ------ ------ ------ ------
Loans accounted for on a non-accrual basis:
Real estate:
Residential $ 583 $ 361 $ 786 $ 146 $ 179
Commercial 45 --- 82 88 86
Commercial business 111 --- --- --- 228
Consumer 49 11 6 --- 29
------ ------ ----- ----- -----
Total $ 788 $ 372 $ 874 $ 234 $ 522
====== ====== ===== ===== =====
Accruing loans which are contractually past due 90 days or more:
Real estate:
Residential $ 373 $ 637 $ 575 $ 334 $ 83
Commercial --- --- --- --- ---
Commercial business 5 --- 104 --- ---
Consumer 1 46 6 --- 1
------ ------ ----- ----- -----
Total $ 379 $ 683 $ 685 $ 334 $ 84
====== ====== ===== ===== =====
Total of non-accrual
and 90 days past due $1,167 $1,055 $1,559 $ 568 $ 606
====== ====== ====== ===== =====
Ratio of non-performing
loans to total assets 0.39% 0.38% 0.59% 0.23% 0.25%
Ratio of non-performing
loans to total loans 0.48% 0.47% 0.70% 0.27% 0.30%
Foreclosed real estate $ 189 $ 86 $ 160 $ 183 $ 97
====== ====== ====== ===== =====
Ratio of foreclosed real
estate to total assets 0.06% 0.03% 0.06% 0.07% 0.04%
During 1996, gross interest income of $90,672 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 $56,426.
10
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 Bank's
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-one
leverage ratio calculations, tier-one risk-based capital requirements, or in
capital under Generally Accepted Accounting Principles ("GAAP"). Amounts
reserved for by a specific allowance are not counted toward capital for purposes
of any of the regulatory capital requirements. At December 31, 1996, $877
thousand of the Bank's loans were classified as substandard. The total
represents 14 residential real estate loans, one commercial real estate loan,
five commercial business loans and four consumer loans. There were no loans
classified as doubtful or loss.
Because some loans may not be repaid in accordance with contractual
agreements, an allowance for loan losses ("ALL") is maintained. Because
estimating the risk of loss and the amount of loss on any loan is necessarily
subjective, the ALL is maintained by management at a level considered adequate
to cover losses based on loan portfolio growth, past loss experience, general
economic conditions, information about specific borrower situations including
their financial position and collateral values, and other factors and estimates
which are subject to change over time. Although management believes that it uses
the best information available to make such estimations, future adjustments to
reserves may be necessary, and net income could be significantly affected, if
circumstances differ substantially from the assumptions used in making the
initial estimations. 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. A loan is charged-off against the allowance by
management as a loss when deemed uncollectible, although collection efforts
continue and future recoveries may occur. 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, with particular attention given to loans which have been classified as
substandard, doubtful or loss. The allocation of the ALL during periods prior to
December 31, 1993, was based on the relative size of the loan categories within
the total loan portfolio.
11
The table which 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 or commercial real estate loans
during the periods presented. The amounts are in thousands (000's).
At December 31, At June 30,
-------------------------------- -----------
1996 1995 1994 1993 1993
-------- ------- ------- ------- ------
Balance at beginning of period $2,830 $2,751 $2,583 $2,317 $1,609
Loans charged-off:
Real estate - residential (28) - - - (8)
Commercial business - - (7) (30) -
Consumer - (2) (3) (28) (2)
------- ------ ------ ------ -------
Total charge-offs (28) (2) (10) (58) (10)
Recoveries:
Real estate - residential - - - - -
Commercial business - - 1 - -
Consumer - 1 33 5 7
------- ------ ------ ------ -------
Total recoveries - 1 34 5 7
Net (charge-offs)/recoveries (28) (1) 24 (53) (3)
------- ------ ------ ------ -------
Provision for loan losses 85 80 144 319 711
------- ------ ------ ------ -------
Balance at end of period $2,887 $2,830 $2,751 $2,583 $2,317
======= ====== ====== ====== =======
ALL to loans outstanding 1.18% 1.27% 1.24% 1.26% 1.15%
ALL to nonperforming loans 247.4% 268.3% 160.0% 454.8% 382.3%
Net charge-offs/recoveries
to average loans out-
standing during the period 0.01% 0.00% 0.01% 0.03% 0.00%
The table below shows the allocation of the allowance for loan losses
on the dates indicated. The dollar amounts are in thousands (000's). The percent
columns represent the percentage of loans in each category to total loans.
At December 31, At June 30,
----------------------------------------------- ------------
1996 1995 1994 1993 1993
---------- ----------- ----------- ----------- ---------
$ % $ % $ % $ % $ %
---- ---- ---- ---- ---- ---- ---- ---- ----- ----
Real estate loans:
Residential 372 61.8 372 64.6 387 64.8 280 64.6 1,224 62.5
Commercial and
other dwelling 880 23.4 860 23.0 834 23.8 1,225 24.8 522 26.3
Construction and
development 153 5.4 130 4.0 105 3.8 --- 2.4 --- 2.9
Consumer loans 110 2.0 110 1.6 111 1.4 132 1.9 105 1.9
Commercial business
and other 650 7.4 650 6.8 626 6.2 946 6.3 466 6.4
Unallocated 722 708 688 --- ---
----- ----- ----- ----- ----- ----- ----- ----- ------ -----
Total 2,887 100.0 2,830 100.0 2,751 100.0 2,583 100.0 2,317 100.0
===== ===== ===== ===== ===== ===== ===== ===== ====== =====
12
INVESTMENT ACTIVITIES
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. Securities will generally be classified as
held to maturity at the time of purchase, as management has both the positive
intent and the ability to hold securities to maturity. While securities may be
classified as available for sale at the time of purchase, no securities will be
classified as trading investments. At December 31, 1996, all investment
securities were classified as held to maturity. It has been the policy of the
Bank to invest its excess cash in U.S. government securities and federal agency
obligations. In addition, short-term funds are generally invested as
interest-bearing balances in financial institutions and federal funds. At
December 31, 1996, the Bank's investment portfolio totaled $40.0 million. In
addition, the Bank had $1.0 million in interest-bearing balances at the FHLB of
Indianapolis.
The table below shows the carrying values of the components of the
investment securities portfolio at the dates indicated. The amounts are in
thousands (000's).
At December 31,
1996 1995 1994
------- ------- -------
U.S. government securities $11,549 $ 9,985 $ 9,486
U.S. government agencies 24,934 24,015 19,917
Mortgage-backed securities 1,944 2,404 2,850
FHLB stock 1,597 1,597 1,425
------- ------- -------
Totals $40,024 $38,001 $33,678
======= ======= =======
The contractual maturities and weighted average yields for the U.S.
government securities, agency securities and mortgaged-backed securities at
December 31, 1996, are summarized as follows. The amounts are in thousands
(000's).
Within 1 Year 1-5 Years 5-10 Years After 10 Years
------------- ------------- ------------- --------------
Amount Yield Amount Yield Amount Yield Amount Yield
------ ----- ------ ----- ------ ----- ------ -----
U.S. government
securities $4,995 5.95% $ 6,554 5.81% $ -- --% $ -- --%
U.S. government
agencies 2,247 5.90 19,687 6.08 3,000 6.27 -- --
Mortgaged-backed
securities -- -- 24 8.41 305 8.50 1,615 8.34
------ ---- ------- ---- ------ ---- ------ ----
Totals $7,242 5.93% $26,265 6.01% $3,305 6.48% $1,615 8.34%
====== ==== ======= ==== ====== ==== ====== ====
SOURCES OF FUNDS
GENERAL. Deposits are the major source of the Bank's funds for lending
and other investment purposes. In addition to deposits, the Bank 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 Bank of Indianapolis 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
13
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 Bank uses repurchase agreements and advances from the federal Home
Loan Bank of Indianapolis for short-term borrowings. At December 31, 1996, the
Bank had $4.0 million in repurchase agreements. Other short-term borrowings
totaled $8.3 million, of which $7.0 million represents a variable rate advance.
The Bank had no long-term borrowings.
DEPOSITS. Retail and commercial deposits are attracted principally from
within the Bank's primary market area through the offering of a broad selection
of deposit instruments including savings accounts, NOW and Super NOW accounts,
checking accounts, money market type accounts, certificate accounts currently
ranging in maturity from ten days to 42 months, 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. The deregulation of federal controls on insured deposits has
allowed the Bank to be more competitive in obtaining funds and to be flexible in
meeting the threat of net deposit outflows. The Bank does not obtain funds
through brokers.
The following table presents the average daily amount of deposits and
rates paid on such for the years indicated. The amounts are in thousands
(000's).
1996 1995 1994
---------------- ---------------- ---------------
Average Average Average
Amount rate % Amount rate % Amount rate %
------- ------- ------- ------- ------- -------
Demand deposits $ 13,122 0.00% $ 10,859 0.00% $ 8,787 0.00%
NOW accounts 23,034 2.29 20,425 2.28 18,199 2.60
MMDA accounts 22,495 3.27 23,294 3.26 32,914 2.78
Savings accounts 43,521 3.02 42,189 3.01 44,480 3.02
Certificates of deposit 153,433 5.53 143,005 5.51 125,429 4.21
-------- ------- ------- ------- --------- ------
Total deposits $255,605 4.33% $239,772 4.32% $229,809 3.49%
======== ======= ======== ======= ========= =======
Maturities of time certificates of deposit and other time deposits of
$100,000 or more at December 31, 1996 are summarized as follows. The amounts are
in thousands (000's).
3 months or less $14,305
Over 3 months through 6 months 6,039
Over 6 months through 12 months 3,807
Over 12 months 1,949
-------
Total $26,100
=======
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 and a line of credit with the FHLBI.
Securities sold under agreements to repurchase mature within one year.
Repurchase agreements are generally secured by FHLMC mortgage-backed securities
or U.S. government securities under the Bank's control.
14
The following table sets forth the balances in short-term borrowings on
the dates indicated. The amounts are stated in thousands (000's).
At December 31,
--------------------------
1996 1995 1994
------- ------- --------
Repurchase agreements $ 3,993 $ 2,403 $ 697
Federal Home Loan Bank advance 7,000 -- --
Other borrowings 1,268 735 2,454
------- ------- -------
Total borrowings $12,261 $ 3,138 $ 3,151
======= ======= =======
The following table sets forth certain information regarding repurchase
agreements by the Bank at the end of and during the periods indicated. The
amounts are stated in thousands (000's).
At December 31,
-------------------------
1996 1995 1994
------- ------- -------
Balance $ 3,993 $ 2,403 $ 697
Securities underlying the agreements:
Ending book value 5,572 3,364 1,051
Ending market value 5,559 3,538 1,008
Weighted average rate paid (1) 5.19% 5.60% 5.08%
For year ended December 31,
---------------------------
1996 1995 1994
------- ------- --------
Highest month-end balance $ 5,419 $ 2,403 $ 2,217
Approximate average outstanding balance 3,599 1,593 1,189
Approximate weighted average rate
paid on securities sold under
agreements to repurchase (2) 5.27% 5.65% 4.62%
- ------------------------
(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 monthly balances of securities sold under
agreements to repurchase outstanding for the period.
TRUST POWERS
The activities of the trust department include the management of
self-directed investments, IRA and Keogh plans, investment agency accounts, land
trusts, serving as court-appointed executor of estates and as guardian or
conservator of estates, and trustee with discretionary investment authority for
revocable and irrevocable trusts. At December 31, 1996, the book value of the
trust department's assets totaled $65.9 million.
15
ANALYSIS OF PROFITABILITY AND KEY OPERATING RATIOS
DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY;
INTEREST RATES AND INTEREST DIFFERENTIAL.
The net earnings of the Bank 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 short-term borrowings, and the interest rate spread at December 31, 1996.
Weighted average yield:
Interest-bearing balances in financial institutions 6.95%
Securities held-to-maturity 6.24
Net loans receivable 8.24
Total interest-earning assets 7.96
Weighted average cost:
Interest bearing deposits 4.28
Short-term borrowings 5.90
Total interest-bearing liabilities 4.36
Interest rate spread:
Weighted average yield on interest-earning
assets minus the weighted average cost of
interest-bearing deposits 3.60
FINANCIAL RATIOS AND THE ANALYSIS OF CHANGES IN NET INTEREST INCOME
The tables below set forth certain financial ratios of the Company for
the periods indicated:
Year ended December 31,
---------------------------
1996 1995 1994
------ ------- ------
Return on average assets 0.75% 1.14% 1.24%
Return on average equity 7.90 11.74 13.04
Average equity-to-average
assets ratio 9.51 9.72 9.54
Dividend payout ratio 72.17 48.92 46.94
At December 31,
---------------------------
1996 1995 1994
------ ------- -----
Total stockholders' equity to
total assets 9.29% 9.68% 9.61%
The table on the following page presents average balance sheet amounts,
the related interest income or expense, and average rates earned or paid for the
periods indicated.
16
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 (000's).
---------------------------------------------------------------------------------
Year ended December 31, 1996 Year ended December 31, 1995
------------------------------------ -----------------------------------
Interest Interest
Average Income/ Average Average Income/ Average
Balance Expense Rate Balance Expense Rate
------------------------------------ -----------------------------------
Assets:
Interest bearing balances
in financial institutions $ 3,846 $ 266 6.92 % $ 4,520 $ 278 6.15 %
Federal funds sold 1,068 58 5.43 1,131 66 5.84
Securities 42,513 2,605 6.13 35,139 2,055 5.85
--------- -------- --------- --------
Total investments 47,427 2,929 6.18 40,790 2,399 5.88
--------- -------- --------- --------
Loans:*
Real estate mortgage loans 212,161 17,523 8.26 203,709 17,015 8.35
Commercial business loans 16,014 1,522 9.50 14,174 1,412 9.96
Consumer loans 4,290 363 8.46 3,469 297 8.56
--------- -------- --------- --------
Total loans 232,465 19,408 8.35 221,352 18,724 8.46
--------- -------- --------- --------
Total interest-earning asset 279,892 22,337 7.98 262,142 21,123 8.06
-------- --------
Allowance for loan losses (2,854) (2,792)
Cash and due from banks 4,994 4,576
Premises and equipment 6,153 4,662
Other assets 3,098 3,272
--------- ---------
Total assets $ 291,283 $ 271,860
========= =========
Liabilities:
Demand deposit $ 13,122 0.00 0.00 % $ 10,859 0.00 0.00 %
NOW accounts 23,034 528 2.29 20,425 465 2.28
Money market demand accounts 22,495 736 3.27 23,294 759 3.26
Savings accounts 43,521 1,315 3.02 42,189 1,269 3.01
Certificates of deposit 153,433 8,487 5.53 143,005 7,874 5.51
--------- -------- --------- --------
Total interest-bearing deposits 255,605 11,066 4.33 239,772 10,367 4.32
Short-term borrowings 4,780 221 4.62 2,479 117 4.72
--------- -------- --------- --------
Total interest-bearing liabilities 260,385 11,287 4.33 242,251 10,484 4.33
Other liabilities 3,191 3,192
--------- ---------
Total liabilities 263,576 245,443
Stockholders' equity 27,707 26,417
Total liabilities and
stockholders' equity $ 291,283 11,287 4.03 ** $ 271,860 10,484 4.00 **
========= ======== ========= --------
Net interest income $ 11,050 3.65 % $ 10,639 3.73 %
======== ========
-----------------------------------
Year ended December 31, 1994
-----------------------------------
Interest
Average Income/ Average
Balance Expense Rate
-----------------------------------
Assets:
Interest bearing balances
in financial institutions $ 3,425 $ 159 4.64 %
Federal funds sold 482 21 4.36
Securities 32,449 1,807 5.57
--------- --------
Total investments 36,356 1,987 5.47
--------- --------
Loans:*
Real estate mortgage loans 194,415 15,686 8.07
Commercial business loans 15,114 1,148 7.60
Consumer loans 3,820 301 7.88
--------- --------
Total loans 213,349 17,135 8.03
--------- --------
Total interest-earning asset 249,705 19,122 7.66
--------
Allowance for loan losses (2,669)
Cash and due from banks 5,437
Premises and equipment 3,855
Other assets 3,806
---------
Total assets $ 260,134
=========
Liabilities:
Demand deposit $ 8,787 0.00 0.00 %
NOW accounts 18,199 473 2.60
Money market demand accounts 32,914 914 2.78
Savings accounts 44,480 1,342 3.02
Certificates of deposit 125,429 5,282 4.21
--------- --------
Total interest-bearing deposits 229,809 8,011 3.49
Short-term borrowings 1,694 68 4.01
--------- --------
Total interest-bearing liabilities 231,503 8,079 3.49
Other liabilities 3,817
---------
Total liabilities 235,320
Stockholders' equity 24,814
---------
Total liabilities and
stockholders' equity $ 260,134 8,079 3.24 **
========= --------
Net interest income $ 11,043 4.17 %
========
- ---------------------------------------------------------------------------
* Non-accruing loans have been included in the average balances.
** Total interest expense divided by total interest-earning assets.
17
RATE/VOLUME ANALYSIS
The table below sets forth certain information regarding changes in interest income and interest expense of the Company 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 (000's).
Year Ended December 31, Year Ended December 31,
---------------------------------- ------------------------------------
1996 vs. 1995 1995 vs. 1994
---------------------------------- ------------------------------------
Increase/(Decrease) Increase/(Decrease)
Due To Due To
---------------------------------- ------------------------------------
Volume Rate Total Volume Rate Total
--------- ------- ------- --------- -------- --------
Interest income:
Loans receivable $ 930 $ (245) $ 685 $ 657 $ 931 $ 1,588
Securities 448 102 550 154 94 248
Other interest-earning assets (48) 27 (21) 95 69 164
--------- ------- ------- -------- -------- --------
Total interest-earning assets 1,330 (116) 1,214 906 1,094 2,000
--------- ------- ------- -------- -------- --------
Interest Expense:
Deposits 651 47 698 500 1,856 2,356
Borrowings and Federal Home
Loan Bank Advances 106 (2) 104 36 12 48
--------- ------- ------- -------- -------- --------
Total interest-bearing
liabilities 757 45 802 536 1,868 2,404
--------- ------- ------- -------- -------- --------
Net change in net interest
income/(expense) $ 573 $ (161) $ 412 $ 370 $ (774) $ (404)
========= ======= ======= ======== ======== ========
Year Ended December 31,
---------------------------------
1994 vs. 1993
---------------------------------
Increase/(Decrease)
Due To
---------------------------------
Volume Rate Total
---------------------------------
Interest income:
Loans receivable $ 1,138 $ (675) $ 463
Securities 128 (106) 22
Other interest-earning assets (181) 18 (163)
--------- ------- -------
Total interest-earning assets 1,085 (763) 322
--------- ------- -------
Interest Expense:
Deposits 359 (368) (9)
Borrowings and Federal Home
Loan Bank Advances 30 (7) 23
--------- ------- -------
Total interest-bearing
liabilities 389 (375) 14
--------- ------- -------
Net change in net interest
income/(expense) $ 696 $ (388) $ 308
========= ======= =======
18
BANK SUBSIDIARY ACTIVITIES
The Bank has two wholly-owned subsidiaries, which are incorporated
under the laws of the State of Indiana. Peoples Service Corporation offered a
securities brokerage/annuity program to customers from October 1987 to September
1990. It has been inactive since the discontinuance of the brokerage program.
During the fiscal year ended June 30, 1993, Peoples Service Corporation received
authority from the FDIC to sell insurance annuities. No activity has been
reported in this area. The assets of Peoples Service Corporation consist of an
intercompany savings account.
PSA Insurance Corporation, another wholly-owned subsidiary, was
incorporated in 1976 to act as an agent or broker for insurance companies, and
to invest in other ventures and properties as it deemed to be in its best
interests. During fiscal 1987, Peoples sold the insurance accounts of PSA
Insurance Corporation. Since the sale, the assets of PSA Insurance Corporation
consist of three real estate lots.
At December 31, 1996, the Bank had investment balances of $10,000 and
$44,950 in Peoples Service Corporation and PSA Insurance Corporation,
respectively.
The Consolidated Financial Statements of the Company include the
assets, liabilities, net worth and results of operations of the Bank and its
subsidiaries. Significant intercompany transactions have been eliminated in the
consolidation. For further information on the Bank's subsidiaries, see Note 1 of
Notes to Consolidated Financial Statements.
COMPETITION
The Bank's primary market area for deposits and mortgage and other
loans encompasses Lake County, in northwest Indiana, where all of its offices
are located. Ninety-five percent of the Bank's business activities are within
this area.
The Bank faces strong competition in its primary market area for the
attraction and retention of deposits and in the origination of loans. The Bank's
most direct competition for deposits has historically come from commercial banks
and from savings and loan associations located in its primary market area.
Particularly in times of high interest rates, the Bank has had significant
competition from money market mutual funds and other firms offering financial
services. The Bank's competition for loans comes principally from savings and
loan associations, commercial banks, mortgage banking companies, credit unions,
insurance companies and other institutional lenders.
The Bank 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 home builders. It competes for deposits by
offering depositors a wide variety of savings accounts, checking accounts,
competitive interest rates, convenient branch locations, drive-up facilities,
automatic teller machines, tax-deferred retirement programs and other
miscellaneous services.
19
The Bank believes that it has a minority share of the deposits and
residential mortgage loan market within its primary market area.
PERSONNEL
As of December 31, 1996, the Bank had 89 full-time and 21 part-time
employees. The employees are not represented by a collective bargaining
agreement. Management believes its employee relations are good. The Company has
four officers (listed below under "Executive Officers of the Company"), but has
no other employees. The Company's 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 Company 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 Company 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 Company
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 FRB's 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 Company 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 guarantee the
compliance of 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 up to the lesser of (i) an amount equal to 5% of the institution's total
assets at the time the institution became undercapitalized, or (ii) the amount
that is necessary (or would have been necessary) to bring the institution into
compliance with all applicable capital standards as of the time the institution
fails to comply with such capital restoration plan.
20
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 Indiana Department of Financial Institutions
(the "DFI"). The Bank's deposit accounts are insured by the SAIF, which is
administered by the FDIC. The Bank is not a member of the Federal Reserve
System.
Both federal and Indiana law extensively regulate various aspects of
the banking business such as reserve requirements, truth-in-lending and
truth-in-savings disclosure, 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. The Board of
Directors does not believe that these restrictions will have a material adverse
effect on the Bank.
DEPOSIT INSURANCE AND THE BANKING INDUSTRY. The Bank's deposits are
insured up to $100,000 per insured account by the SAIF. The Deposit Insurance
Funds Act of 1996 (the "Funds Act") required the FDIC to take steps to
recapitalize the SAIF and to change the basis on which funds are raised to make
the scheduled payments on the FICO bonds issued in 1987 to replenish the Federal
Savings and Loan Insurance Corporation. As part of the SAIF recapitalization,
during 1996 the Bank paid a special assessment of $1.6 million. The Funds Act
generally limited future SAIF assessments to the level required to maintain its
capitalization. Accordingly, periodic SAIF insurance assessments have fallen
toward the level paid by BIF members, thereby reducing a competitive advantage
for BIF members. While SAIF members continue to face higher FICO bond
assessments than BIF members, the disparity is small relative to the former
disparity in insurance assessments.
The Funds Act and recent legislative and regulatory initiatives propose
changes to the regulatory structure of the banking industry, including proposals
to reduce regulatory burdens and expand bank powers. It is not possible to
predict whether, or in what form, the proposed changes will take effect or how
they will affect the Company.
BRANCHES AND AFFILIATES. The establishment of branches by the Bank is
subject to approval of the DFI and FDIC and geographic limits established by
state laws. In 1994, Congress enacted the Riegle-Neal Interstate Banking and
Branching Efficiency Act of 1994 (the "Riegle-Neal Act"). This 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 after June 1, 1997, subject
to the right of individual states to "opt in" or to "opt out" of this authority
before that date, and (iii) banks to establish new branches on an interstate
basis provided that such action is
21
specifically authorized by the law of the host state. During 1996, Indiana
"opted in" to the provisions described in clauses (ii) and (iii) above. The
effect of this new law may be to increase competition in the Bank's market area,
although the extent and timing of this increase cannot be predicted.
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 Company. 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 bank's 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
Company 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 I 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 II
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 general loan loss allowance.
In addition to the risk-based capital guidelines, the Company and the
Bank are subject to a Tier I (leverage) capital ratio which requires a minimum
level of Tier I capital to average total consolidated 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.
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 I risk-based capital ratio of 6% or greater, and a
leverage ratio of 5% of greater, and is not subject to a regulatory order,
agreement or directive to meet and maintain a specific capital level for any
capital measure.
22
The following table shows that, at December 31, 1996, the Company's
capital exceeded all regulatory capital requirements. At December 31, 1996, the
Company's and the Bank's regulatory capital ratios were identical. At December
31, 1996, the Company and the Bank were categorized as well capitalized. The
dollar amounts are in millions.
Required for To be well
Actual adequate capital capitalized
------------- ---------------- -------------
Amount Ratio Amount Ratio Amount Ratio
------ ------ ------ ------ ------- -----
Total risk-based capital
risk-weighted assets $30.2 16.0% $15.1 8.0% $18.9 10.0%
Tier 1 capital
to risk-weighted assets $27.8 14.7% $ 7.6 4.0% $11.3 6.0%
Tier I capital to
total assets $27.8 9.3% $ 9.0 3.0% $15.0 5.0%
Banking regulators continue to indicate their desire to raise capital
requirements applicable to banking organizations beyond their current levels.
The Company 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 Company is a legal entity separate and
distinct from the Bank. The source of the Company's cash flow, including cash
flow to pay dividends on the Company's Common Stock, is the payment of dividends
to the Company by the Bank. Under Indiana law, the Bank may pay dividends, no
more often than quarterly, to the extent of its undivided profits (less losses,
bad debts and expenses). However, DFI approval is required to pay dividends in
any year in excess of the Bank's net profits for the current year and the prior
two years. 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. 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
organization's 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 organization's capital needs,
assets, quality, and overall financial condition.
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 institution's 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. As of the date of its most recent regulatory
examination, the Bank was rated "outstanding" with respect to its CRA
compliance.
23
In May 1995, the FDIC and other Federal banking agencies amended their
regulations concerning the CRA. Among other things, the revised regulations
implement a new evaluation system that will rate banks based on their
performance in meeting community financial needs. In particular, the revised
system will evaluate the degree to which a bank is performing under tests and
standards judged in the context of information about the institution, its
community, its competitors and its peers with respect to (i) lending, (ii)
service delivery systems and (iii) investments. The revised regulations also
specify that a bank's 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.
FEDERAL TAXATION
Generally, financial institutions are taxed for federal income tax
purposes like other corporations. There are special rules governing foreclosure
on property securing loans, the dividends received deduction, and the bad debt
deduction.
No gain or loss is recognized, and no debt is considered worthless, or
partially worthless, as the result of a financial institution having bid in at
foreclosure or otherwise reduced to ownership or possession any property which
was security for any loan. The basis of property so acquired is the basis of the
loan for which the property was secured increased by costs of acquisition.
The amount of the intercorporate dividends received deduction is
reduced by the percentage of taxable income allowed as a bad debt deduction. The
dividends received deduction is allocated between the portion of income subject
to tax and the portion that is allocated as a bad debt reserve deduction.
The Company files federal income tax returns on a calendar year basis.
State chartered savings banks such as the Bank that meet certain definitional
tests and other conditions prescribed by the Internal Revenue Code of 1986 (the
"Code"), are allowed to make annual additions to a bad debt reserve that may,
within specified limits, be taken as deductions in computing net taxable income
for federal income tax purposes. The methods available for computing the amount
of the bad debt reserve deduction for "qualifying real property loans" are based
upon actual loss experience or a percentage of taxable income. The Bank has
historically elected to use the percentage of taxable income method to compute
its bad debt deduction for federal income tax purposes.
With the passage of the Small Business Job Protection Act of 1996 on
August 20, 1996, the availability of the percentage bad debt deduction was
repealed for tax years beginning after December 1, 1995. For the first tax year
beginning after December 31, 1995 and thereafter, thrift institutions, such as
the Bank will be required to utilize the experience method referred to above in
computing the tax bad debt deduction for qualifying and nonqualifying loans.
In addition, thrift institutions such as the Bank are required to
recapture the excess of the tax bad debt reserves for qualifying and
nonqualifying loans as of the end of the last tax year beginning before
24
January 1, 1996 over the balance of those reserves as of the end of the "base
year" into taxable income evenly over a six year period beginning with the first
tax year that begins after December 31, 1995. The base tax year is the last tax
year beginning before January 1, 1988. The balance of the tax bad debt reserves
to be recaptured under the new law totaled approximately $2,500,000.
If the institution meets the "Residential Loan Requirement" explained
below, the reserve recapture can be deferred for the first or second tax year
beginning after December 31, 1995, or both. However, in any case, the six year
reserve recapture period must begin no later than the third tax year beginning
after December 31, 1995.
The Residential Loan Requirement is met for a particular year if the
principal amount of home purchase and improvement loans originated in that year
exceed the "base amount." The base amount is the average of such lending
activity for the six most recent tax years beginning before January 1, 1996. For
purposes of determining this average, the institution can elect to eliminate the
years with the highest and lowest lending activity from the calculation.
The rules described above requiring the recapture of a portion of the
tax bad debt reserves in the event the institution fails to meet the 60% asset
test have been repealed for tax years beginning after December 31, 1995.
However, the above rules that require the recapture of the excess upon certain
distributions to shareholders continue to apply to the portion of the excess
contained in the base year reserves preserved by the new law. In addition, this
portion of the excess must be recaptured into taxable income evenly over a
period of six years if the Bank ceases the business of banking. The portion of
the excess contained in the base year reserves of the bank that are preserved by
the new law total approximately $6,000,000.
In addition to the regular income tax, corporations are subject to the
corporate minimum tax. Alternative minimum tax is imposed at a minimum tax rate
of 20% on the sum of a corporation's regular taxable income (with certain
adjustments) and tax preference items, less any available exemption. Such tax
preference items includes interest on certain tax-exempt bonds issued after
August 7, 1986. For fiscal 1991, the computation was changed to use
three-quarters of adjusted current earnings in place of one-half of book income.
The alternative minimum taxable income that may be offset by net operating
losses is limited to 90% thereof and, additionally, net operating losses
available to offset minimum taxable income are themselves subject to certain
modifications and adjustments before application of the 90% test. The
alternative minimum tax is imposed to the extent it exceeds the corporation's
regular income tax. Payments of alternative minimum tax may, under certain
circumstances, be used as credits against regular tax liabilities in future
years.
In addition to the foregoing, the Code contains other changes from
prior federal income tax law that affect the taxation of financial institutions.
For example, effective for taxable years beginning after 1986, most
corporations, including savings banks, are required to use the accrual method of
accounting for tax purposes. Savings banks are entitled to deduct 80% of their
interest expense allocable to the purchase or carrying of tax-exempt
25
obligations acquired after 1982 and 100% of interest attributable to obligations
acquired before 1983. Interest expense allocated to the purchase of carrying
certain tax-exempt obligations acquired after August 7, 1986, is not deductible.
The Company's federal income tax returns have not been examined by federal
authorities since the fiscal year ending June 30, 1985.
For information regarding federal taxes, see Note 6 of Notes to
Consolidated Financial Statements.
STATE TAXATION
The Company is subject to Indiana's 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, the most notable of which is the
required addback of interest that is tax-free for federal income tax purposes.
ACCOUNTING FOR INCOME TAXES
In February 1992, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" ("SFAS No. 109"), which changed how GAAP applies to the treatment of
income taxes for financial statement purposes. Beginning on July 1, 1993, The
Bank adopted the provisions of SFAS No. 109. Under SFAS No. 109, the Bank
records income tax expense based on the amount of taxes due on its tax return,
plus deferred taxes computed based on the expected future tax consequences of
temporary differences between the carrying amounts and tax bases of assets and
liabilities, using enacted tax rates. Previously the Bank computed deferred
taxes for the tax effects of timing differences between financial reporting and
tax return income. At December 31, 1996, the Bank's consolidated total deferred
tax assets were $978 thousand and the consolidated total deferred tax
liabilities were $272 thousand, resulting in a consolidated net deferred tax
asset of $706 thousand. 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 2. PROPERTIES
The Company maintains its corporate office at 9204 Columbia Avenue,
Munster, Indiana, from which it oversees the operation of the Bank's seven
banking locations. The Bank owns all of its office properties.
26
The table below sets forth additional information with respect to the
Bank's offices as of December 31, 1996. Net book value and total investment
figures are for land, buildings, furniture and fixtures.
Year Approximate
facility Net book square Total
Office location opened value footage investment
- --------------- ------ --------- ----------- ----------
9204 Columbia Avenue
Munster, In 46307 1985 $1,431,774 11,640 $2,476,832
141 W. Lincoln Highway
Schererville, In 46375 1990 1,308,954 9,444 1,903,619
7120 Indianapolis Blvd.
Hammond, In 46324 1978 335,586 2,600 678,570
1300 Sheffield
Dyer, In 46311 1976 231,316 2,100 570,869
7915 Taft
Merrillville, In 46410 1968 154,506 2,750 436,216
8600 Broadway
Merrillville, In 46410 1996 1,841,082 4,400 1,893,550
4901 Indianapolis Blvd.
East Chicago, In 46312 1995 1,274,487 4,300 1,434,145
During 1995, the Company replaced its existing East Chicago, Indiana,
office location with a new facility. During 1996, the Company opened a new
full-service branch facility located in Merrillville, Indiana. The facilities
represent the Company's commitment to quality service and community development,
and provide opportunities to expand market share by attracting additional
deposits and loans from surrounding areas. At December 31, 1996, the Bank had
investments totaling $450 thousand in land which has been acquired for future
branch development. The Bank's primary recordkeeping is accomplished through the
use of microcomputer networks linked via data line to M&I Data Services, Inc.,
located in Brown Deer, Wisconsin. M&I provides real time services for mortgage
and installment loans, savings, certificates, NOW accounts and general ledger
transactions. In addition to the M&I System, the Bank utilizes a microcomputer
network for the trust department operations.
The net book value of the Bank's investment in property, premises and
equipment totaled $7.1 million at December 31, 1996. For further information,
see Note 5 of Notes to Consolidated Financial Statements in the Company's
December 31, 1996, Annual Report to Shareholders.
ITEM 3. LEGAL PROCEEDINGS
The Company 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 1996.
27
EXECUTIVE OFFICERS OF THE COMPANY
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 Company's Proxy Statement for the 1997 Annual Meeting of
Shareholders:
The executive officers of the Company are as follows:
AGE AT
DECEMBER 31,
1996 POSITION
------------- --------
David A. Bochnowski 51 Chairman and Chief Executive
Officer
Joel Gorelick 49 Vice President and Chief Lending Officer
Edward J. Furticella 49 Vice President, Chief Financial Officer
and Treasurer
Frank J. Bochnowski 58 Senior Vice President and Secretary
The following is a description of the principal occupation and
employment of the executive officers of the Company during at least the past
five years:
David A. Bochnowski is chairman and chief executive officer of the
Company and the Bank, and has held these positions with the Bank since 1981. He
has been a director since 1977 and was the Bank's legal counsel from 1977 to
1981. Mr. Bochnowski is a director of America's Community Bankers and a member
of the America's Community Bankers' Government Affairs Policy Committee. He is a
director of the Northwest Indiana Forum and a Trustee of the Munster Community
Hospital. He is a former chairman of the Indiana League of Savings Institutions
and a former director of the Federal Home Loan Bank of Indianapolis. Before
joining the Bank, Mr. Bochnowski was an attorney, self-employed in private
practice. He holds a Juris Doctor degree from Georgetown University and a
Masters Degree from Howard University.
Joel Gorelick is vice president of the Company and vice president and
chief lending officer for the Bank. He is responsible for overseeing new
business development and all loan functions of the Bank. Mr. Gorelick joined the
Bank in November, 1983 as vice president of commercial lending. Mr. Gorelick is
involved in many community service organizations and presently serves as
president-elect of the Northwest Indiana Boys & Girls Club and chairman of the
board of the Northwest Indiana Regional Development Corporation. He holds a
Masters of Business Administration Degree from Indiana University and is a
graduate of the Graduate School of Banking at the University of Wisconsin at
Madison.
Edward J. Furticella is vice president, chief financial officer and
treasurer of the Company and the Bank. He is responsible for managing the Bank's
investment portfolio and daily liquidity, as well as, overseeing the activities
of accounting, systems processing and branch operations. Mr. Furticella has been
with the Bank since 1981. Mr. Furticella holds a Masters of Education, Masters
of Business Administration and a Masters of Science in Accountancy from DePaul
University. Mr. Furticella is a Certified Public
28
Accountant (CPA) and a Certified Cash Manager (CCM). He is also a part-time
finance instructor at Purdue University Calumet and a member of the Customer
Advisory Group for the Federal Reserve Bank of Chicago.
Frank J. Bochnowski is senior vice president and secretary for the
Company and senior vice president, general counsel, trust officer and corporate
secretary for the Bank. Mr. Bochnowski assumed his current responsibilities with
the Bank as of November, 1984. He has been the Bank's attorney since 1981. Mr.
Bochnowski is a director and president of the Munster, Indiana Rotary Club and a
director and officer of the Lake County, Indiana Chapter of the American Red
Cross. He holds a Juris Doctor degree from St. John's University and a Masters
of Business Administration from Fairleigh Dickinson University. He is a graduate
of the United States Military Academy and served for twenty-one years as an army
officer, retiring in 1981 with the rank of lieutenant colonel. He is the first
cousin of the Company's President.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The information contained under the caption "Business" and "Market
Information" in the 1996 Annual Report to Shareholders is incorporated herein by
reference.
ITEM 6. SELECTED FINANCIAL DATA
The information contained in the table captioned "Selected Consolidated
Financial Data" in the 1996 Annual Report to Shareholders is incorporated herein
by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information contained in the section captioned "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in the
1996 Annual Report to Shareholders is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements contained in the 1996 Annual Report to
Shareholders, which are listed under Item 14 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 caption.
29
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information contained under the section captioned "Election of
Directors" and in the final paragraph under the section captioned "Security
Ownership by Certain Beneficial Owners and Management" in the Company's
definitive Proxy Statement for the 1997 Annual Meeting of Shareholders is
incorporated herein by reference. Information regarding the Company's executive
officers is included under the unnumbered item captioned "Executive Officers of
the Company" 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 a Regulation S-K.
ITEM 11. EXECUTIVE COMPENSATION
The information contained under the section captioned "Compensation of
and Transactions with Officers and Directors" in the Company's definitive Proxy
Statement for its 1997 Annual Meeting of Shareholders is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information under the section captioned "Security Ownership by
Certain Beneficial Owners and Management" in the Company's definitive Proxy
Statement for the 1997 Annual Meeting of Shareholders is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information contained under the section captioned "Compensation of
and Transactions with Officers and Directors" in the Company's definitive Proxy
Statement for its 1997 Annual Meeting of Shareholders, and in the footnote
captioned "Related Party Transactions" in the 1996 Annual Report to
Shareholders, is incorporated herein by reference. Additional information as
required per Schedule I, "Indebtedness of and to related parties - not current",
is not applicable.
30
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) FINANCIAL STATEMENTS:
The following financial statements of the Company are incorporated
herein by reference to the 1996 Annual Report to Shareholders, filed as Exhibit
13 to this report:
(a) Independent Auditor's Report
(b) Consolidated Balance Sheets, December 31,
1996 and 1995
(c) Consolidated Statements of Income for the years ended
December 31, 1996, 1995 and 1994
(d) Consolidated Statements of Changes in Stockholders'
Equity for the years ended December 31, 1996, 1995
and 1994
(e) Consolidated Statements of Cash Flows for the years
ended December 31, 1996, 1995 and 1994
(f) Notes to Consolidated Financial Statements
All other financial statements, schedules and historical financial
information have been omitted as the subject matter is not required, not present
or not present in amounts sufficient to require submission.
(3) EXHIBITS:
EXHIBIT
NUMBER DESCRIPTION
2. Plan of Conversion of Peoples Bank, A Federal Savings Bank, dated
December 18, 1993 (incorporated herein by reference to Exhibit A to the
Company's Definitive Proxy Statement/Prospectus dated March 23, 1994,
as filed pursuant to Rule 424(b) under the 1933 Act on March 28, 1994).
3.i. Articles of Incorporation (incorporated herein by reference to Exhibit
3(i) to the Company's Registration Statement on Form S-4 filed March 3,
1994 (File No. 33-76038)).
3.ii. By-Laws (incorporated herein by reference to Exhibit 3(i) to the
Company's Registration Statement on Form S-4 filed March 3, 1994 (File
No. 33-76038)).
3.iii. Amendment of By-Laws adopted July 27, 1994(incorporated herein by
reference to Exhibit 3.iii to the Company's Annual Report on Form 10-K
for the year ended December 31, 1994).
10.1. 1994 Stock Option and Incentive Plan (incorporated herein by reference
to Exhibit A to the Company's Definitive Proxy
31
Statement/Prospectus dated March 23, 1994, as filed pursuant to Rule
424(b) under the 1933 Act on March 28, 1994).
10.2. Employment Agreement, dated March 1, 1988, between Peoples Bank and
David A. Bochnowski (incorporated herein by reference to Exhibit 10.2
to the Company's Annual Report on Form 10-K for the year ended December
31, 1994).
10.3. Amendment, dated January 18, 1993, to the Employment Agreement referred
to in Exhibit 10.2 above (incorporated herein by reference to Exhibit
10.3 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1994).
10.4. Employee Stock Ownership Plan of Peoples Bank (incorporated herein by
reference to Exhibit 10.4 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1994).
10.5. Unqualified Deferred Compensation Plan of Peoples Bank (incorporated
herein by reference to Exhibit 10.5 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1995).
13. 1996 Annual Report to Shareholders.
21. Subsidiaries of the Company.
27. Financial Data Schedule.
(4) REPORTS ON FORM 8-K:
No reports on Form 8-K were filed during the fourth quarter of 1996.
32
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
NORTHWEST INDIANA BANCORP
By /s/David A. Bochnowski
------------------------------
David A. Bochnowski
Chairman of the Board and
Chief Executive Officer
Date: March 19, 1997
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 21, 1996:
SIGNATURE TITLE
Principal Executive Officer:
/s/David A. Bochnowski Chairman of the Board and
- ------------------------------ Chief Executive Officer
David A. Bochnowski
Principal Financial Officer and
Principal Accounting Officer:
/s/Edward J. Furticella Vice President, Chief Financial
- ------------------------------ Officer and Treasurer
Edward J. Furticella
The Board of Directors:
/s/Leroy F. Cataldi Director
- ------------------------------
Leroy F. Cataldi
/s/James J. Crandall Director
- ------------------------------
James J. Crandall
/s/Lourdes M. Dennison Director
- ------------------------------
Lourdes M. Dennison
33
/s/Gloria C. Gray Director
- ------------------------------
Gloria C. Gray
/s/Stanley E. Mize Director
- ------------------------------
Stanley E. Mize
/s/Jerome F. Vrabel Director
- ------------------------------
Jerome F. Vrabel
/s/John J. Wadas, Jr. Director
- ------------------------------
John J. Wadas, Jr.
34
EXHIBIT INDEX
Exhibit Description Page
13. 1996 Annual Report to Shareholders
21. Subsidiaries of the Company
27. Financial Data Schedule
35