NorthWest Indiana
- -----------------
BANCORP
1996
ANNUAL REPORT
--------------------
BUILDING
VALUE
photo montage of
employees, new Merrillville Branch building
and housing rehab project
Inside Front Cover is blank
BUILDING
VALUE
Dear Shareholder:
Banking is one of America's most regulated industries and 1996 stands out as a
year when the pervasive authority of the federal government truly impacted
operating results.
During the year congress passed the Federal Deposit Insurance Funds Act
of 1996 which mandated all SAIF insured financial institutions to make a
one-time payment to recapitalize the federal deposit insurance fund. This
industry wide solution to a public policy question, while laudable, had a direct
negative effect upon the Bancorp's earnings.
The $1.6 million special assessment of the FDIC depressed income to
$2.2 million. Going forward, our deposit insurance premiums will be decidedly
less, making the Bancorp more competitive in our market place. Shareholders
should be pleased to know that without the FDIC special assessment, income would
have exceeded $3.1 million for an adjusted return on assets of 1.07%. Earnings
also were impacted by the action of the Federal Reserve to raise interest rates,
which increased our interest costs paid to depositors.
These government actions did not deter your board of directors and
management from accomplishing our mission of building investment value for our
shareholders and economic value for our customers and community.
photo montage of employees and buildings
1
- --------------------------------------------------------------------------------
OPERATING RESULTS
- - Core earning, the difference between the Bancorp's interest income and
interest expense, rose to $11.1 million in 1996 from $10.6 million in a year
earlier.
- - Our efficiency ratio, a key measure of the Bancorp's expense management, stood
at 55.2% excluding the SAIF special assessment.
- - Peoples Bank earned an "Exceptional Performance Award" from Bauer financial
reports. Only 9% of the nation's banking institutions achieved this distinction
for strength, performance, and safety over the last eight years.
- -------------------------------------------------------------------------------
GROWTH
- - Assets grew 6.6% to $299 million.
- - Loans grew 10.1% to $244.7 with construction, commercial and consumer loans
comprising 38.2% of loans outstanding.
- - NOW account balances increased 12.5% and commercial checking accounts balances
increased 12%.
- - Trust assets grew 10.6% to $66 million.
- - Peoples Bank expanded our market share through a new branch on the Broadway
corridor in Merrillville.
photo montage of employees and buildings
2
- --------------------------------------------------------------------------------
ASSET QUALITY
- - The ratio of non-performing loans to total loans was 0.48% (forty eight
hundredths of one percent).
- - Foreclosed real estate was 0.06% (six-hundredths of one percent) of total
assets.
- - At year end, the allowance for loan losses (ALL) totaled $2.9 million or 1.18%
of total loans.
- --------------------------------------------------------------------------------
SHAREHOLDERS
- - Implemented a two-for-one stock split.
- - Increased dividends per share during the fourth quarter by 16.4%.
- - Price of stock appreciated 15.3% during 1996 over 1995.
- - Total return to shareholders out performed the CRSP Index for the Nasdaq Stock
Market and the CRSP Index for the Nasdaq Bank Stocks for the five year period
ended December 31, 1996.
Your directors and management continue to be committed to building a
locally owned, independent community bank. Resources have been allocated to
develop the people, products, and technology essential to meet the challenges of
our banking and non-banking competitors. Despite this year's adversity, our
employees continued to provide quality service which in the final analysis
creates customer trust, shareholder value, and a superior banking performance.
/s/ David A. Bochnowski
Sincerely,
DAVID A. BOCHNOWSKI
Chairman and Chief Executive Officer
photo montage of employees and buildings
3
SELECTED CONSOLIDATED FINANCIAL DATA
(In Thousands of Dollars, except Per Share Data)
Fiscal Year Ended December 31, December 31, December 31, December 31, June 30, June 30,
1996 1995 1994 1993 (1) 1993 1992
------------ ------------ ------------ ------------ ----------- -----------
Statement of Income:
Total interest income....... $ 22,337 $ 21,123 $ 19,122 $ 9,360 $ 19,035 $ 19,744
Total interest expense...... 11,287 10,484 8,079 4,015 8,485 10,698
------------ ------------ ------------ ------------ ----------- -----------
Net interest income......... 11,050 10,639 11,043 5,345 10,550 9,046
Provision for loan losses... 85 80 145 319 711 665
------------ ------------ ------------ ------------ ----------- -----------
Net interest income after
provision for loan losses. 10,965 10,559 10,898 5,026 9,839 8,381
------------ ------------ ------------ ------------ ----------- -----------
Noninterest income.......... 682 685 493 253 749 726
Noninterest expense......... 8,039 6,117 6,031 3,011 5,378 4,795
------------ ------------ ------------ ------------ ----------- -----------
Net noninterest expense..... 7,357 5,432 5,538 2,758 4,629 4,069
------------ ------------ ------------ ------------ ----------- -----------
Income tax expenses......... 1,419 2,026 2,132 902 2,158 1,849
Cumulative effect of changes
in accounting............. - - - 450 - -
------------ ------------ ------------ ------------ ----------- -----------
Net income.................. $ 2,189 $ 3,101 $ 3,228 $ 1,816 $ 3,052 $ 2,463
============ ============ ============ ============ =========== ===========
Earnings per common and
common equivalent share... $1.59 $2.25 $2.35 $1.33 $2.25 $1.85
Cash dividends declared per
common share.............. $1.15 $1.10 $1.10 $0.50 $0.80 $0.68
- ----------------------------------------------------------------------------------------------------------------------------------
December 31, December 31, December 31, December 31, June 30, June 30,
1996 1995 1994 1993 1993 1992
------------ ------------ ------------ ------------ ----------- -----------
Balance Sheet:
Total assets................ $ 299,419 $ 280,911 $ 266,343 $ 251,481 $ 246,180 $ 227,183
Loans receivable............ 244,696 222,293 221,930 204,205 202,083 183,366
Investment securities....... 40,024 38,001 33,678 33,639 28,910 28,910
Deposits.................... 256,420 247,945 234,639 222,945 219,133 202,823
Borrowed funds.............. 12,261 3,139 3,151 2,087 993 609
Total stockholders' equity.. 27,815 27,204 25,606 23,874 22,691 20,667
- ----------------------------------------------------------------------------------------------------------------------------------
Fiscal Year Ended December 31, December 31, December 31, December 31, June 30, June 30,
1996 1995 1994 1993 (1) (2) 1993 1992
------------ ------------ ------------ ------------ ----------- -----------
Interest Rate Spread During Period:
Average effective yield on
loans and investment
securities.............. 7.98% 8.06% 7.66% 7.75% 8.24% 9.20%
Average effective cost of
deposits and borrowings... 4.32% 4.33% 3.48% 3.63% 4.04% 5.39%
------------ ------------- ------------- ------------- ------------ -----------
Interest rate spread........ 3.66% 3.73% 4.18% 4.12% 4.20% 3.81%
============ ============ ============ ============ =========== ===========
Net interest margin......... 3.79% 3.91% 4.25% 4.27% 4.44% 4.04%
Return on assets............ 0.75% 1.14% 1.24% 1.45% 1.28% 1.10%
Return on equity............ 7.90% 11.74% 13.04% 15.51% 14.00% 12.38%
- ----------------------------------------------------------------------------------------------------------------------------------
December 31, December 31, December 31, December 31, June 30, June 30,
1996 1995 1994 1993 1993 1992
------------ ------------ ------------ ------------ ----------- -----------
Tier 1 capital to
risk-weighted assets...... 14.7% 15.8% 15.9% 15.5% 14.9% 14.7%
Total risk-based capital to
risk-weighted assets...... 16.0% 17.1% 17.2% 16.8% 16.1% 15.9%
Tier 1 capital leverage ratio 9.3% 9.7% 9.6% 9.5% 9.2% 9.1%
Allowance for loan losses to
total loans............... 1.18% 1.27% 1.24% 1.26% 1.15% 0.88%
Allowance for loan losses to
non-performing loans...... 247.40% 268.25% 176.46% 454.75% 382.34% 231.51%
Non-performance loans to
total loans............... 0.48% 0.47% 0.70% 0.27% 0.30% 0.38%
Total loan accounts......... 4,404 4,606 4,671 4,654 4,661 4,755
Total deposit accounts...... 24,666 23,730 22,738 21,204 21,330 20,834
Total branches
(all full service)........ 7 6 6 6 6 6
(1) Six month period due to change in fiscal year end.
(2) Data for six months ended December 31, 1993 has been annualized.
4
June 30, June 30, June 30, June 30,
1991 1990 1989 1988
------------ ------------ ------------ ------------
$ 20,709 $ 20,042 $ 18,313 $ 16,985
12,896 13,145 11,872 10,604
------------ ------------ ------------ ------------
7,813 6,897 6,441 6,381
238 130 188 210
------------ ------------ ------------ ------------
7,575 6,767 6,253 6,171
------------ ------------ ------------ ------------
757 622 854 811
4,625 4,357 4,057 4,001
------------ ------------ ------------ ------------
3,868 3,735 3,203 3,190
------------ ------------ ------------ ------------
1,505 992 1,024 971
- - - -
------------ ------------ ------------ ------------
$ 2,202 $ 2,040 $ 2,026 $ 2,010
============ ============ ============ ============
$1.65 $1.54 $1.55 $1.55
$0.22 $0.15 $0.23 $0.07
- -----------------------------------------------------------
June 30, June 30, June 30, June 30,
1991 1990 1989 1988
------------ ------------ ------------ ------------
$ 220,053 $ 208,796 $ 192,269 $ 188,173
177,421 173,244 156,925 147,809
25,160 24,983 24,885 20,977
196,880 188,621 174,729 172,579
799 604 - 174
18,972 16,955 14,986 13,076
- ----------------------------------------------------------
June 30, June 30, June 30, June 30,
1991 1990 1989 1988
------------ ------------- ------------ ------------
10.08% 10.28% 9.85% 9.55%
6.75% 7.25% 6.86% 6.32%
------------ ------------ ------------ ------------
3.33% 3.03% 2.99% 3.23%
============ ============ ============ ============
3.80% 3.42% 3.36% 3.46%
1.03% 1.01% 1.06% 1.09%
12.31% 12.82% 14.51% 16.73%
- -----------------------------------------------------------
June 30, June 30, June 30, June 30,
1991 1990 1989 1988
------------ ------------- ------------ ------------
14.1% 13.1% N/A N/A
14.8% 13.7% N/A N/A
8.6% 8.1% 7.8% 7.0%
0.53% 0.42% 0.43% 0.36%
117.96% 155.93% 129.81% 38.58%
0.45% 0.27% 0.33% 0.94%
4,793 4,428 4,907 5,107
21,200 21,492 20,932 20,996
6 6 5 5
BUSINESS
NorthWest Indiana Bancorp (the Company) is the holding company for Peoples
Bank SB (the Bank), an Indiana stock savings bank. Peoples Bank SB is a wholly
owned subsidiary of the Company. The Company has no other business activity
other than being the holding company for Peoples Bank SB.
The Bank conducts business from its main office at Munster and its six
full-service offices located in East Chicago, Hammond, Merrillville, Dyer and
Schererville, Indiana. The Bank is primarily engaged in the business of
attracting deposits from the general public and the origination of loans secured
by single family residences and commercial real estate, as well as, and
construction loans and various types of consumer loans and commercial business
loans. In addition, the Bank's trust department provides estate administration,
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 Company's capital stock is traded in the over-the-counter market and
quoted in the National Quotation Bureau's "Pink Sheets". On December 2, 1996,
the Company effected a two-for-one common stock split. All references herein to
the number of shares and per share data reflect the stock split. On February 28,
1997, the Company had 1,380,846 shares of common stock outstanding, excluding
fractional shares, and 593 stockholders of record. This does not reflect the
number of persons or entities who may hold their stock in nominee or "street"
name through brokerage firms.
5
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company's earnings are dependent upon the earnings of the Bank. The
Bank's earnings are primarily dependent upon net interest margin. The net
interest margin is the difference between interest income earned on loans and
investments and interest expense paid on deposits and borrowings stated as a
percentage of average total assets. The net interest margin is perhaps the
clearest indicator of a financial institution's ability to generate core
earnings. The Bank's profitability is also affected by service charges, trust
department income, gains and losses from the sale of loans, provisions for loan
losses, income taxes and operating expenses.
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. On
September 30, 1996, the President signed the Deposit Insurance Funds Act of 1996
which required a one-time special assessment on SAIF-assessable deposits to
recapitalize SAIF. The special assessment resulted in a 1996 pre-tax expense of
$1.6 million and an after-tax effect on earnings of $941 thousand. As a result
the Company reported a net income for 1996 of $2.2 million, or $1.59 per share.
The return on average assets (ROA) was 0.75%, while the return on average
stockholders' equity (ROE) was 7.90% for 1996.
Excluding the SAIF assessment, adjusted net income for 1996 was $3.1
million, or $2.27 per share compared to $3.1 million, or $2.25 per share for
1995. The adjusted ROA was 1.07%, while the adjusted ROE was 11.27% for 1996
compared to a ROA of 1.14% and a ROE of 11.74% for 1995.
For 1997, the Bank's annual insurance premium will be reduced from $0.23
per $100 of insured deposits to $0.0648 per $100. Based on December 31, 1996
total deposits, the Bank projects a federal insurance premium expense reduction
from $580 thousand at $0.23 per $100 of insured deposits to $163 thousand at
$0.0648 per $100 for 1997.
At December 31, 1996, the Company had total assets of $299.4 million and
total deposits of $256.4 million. Stockholders' equity totaled $27.8 million or
9.3% of total assets, with book value per share at $20.16.
TOTAL ASSETS
(DOLLARS IN MILLIONS)
June 30, Six Months Dec. 31, Dec. 31, Dec. 31,
1993 Dec. 31, 1993 1994 1995 1996
$246.2 $251.5 $266.3 $280.9 $299.4
Total assets have increased from $246.2 million at June 30, 1993 to $299.4
million at December 31, 1996. Growth during 1996 totaled $18.5 million or 6.6%.
===============================================================================
ASSET/LIABILITY MANAGEMENT
Asset/liability management involves the funding and investment strategies
necessary to maintain an appropriate balance between interest sensitive assets
and liabilities as well as to assure adequate liquidity. These strategies
determine the characteristics and mix of the balance sheet. They affect the
interest margins, maturity patterns, interest rate sensitivity and risk, as well
as resource allocation. For the Bank, the key components of asset/liability
management are loans, investments and deposits. Over the years, the Bank has
directed its lending efforts toward construction loans, adjustable rate
residential loans, equity lines of credit, adjustable rate commercial real
estate loans and commercial business loans tied to the prime rate of interest.
Consumer loans are generally made for terms of five years or less. Fixed rate
residential real estate loans are generally made for terms of fifteen years or
less. The actual cash flow from these loans generally results in a duration
which is less than the contractual maturity, providing protection against the
possibility of rising interest rates.
The primary objective of the Bank's investment portfolio is to provide for
the liquidity needs of the Bank and to contribute to profitability by providing
a stable flow of dependable earnings. Funds are generally invested in federal
funds, interest-bearing balances in financial institutions, U.S. government
securities and federal agency obligations. Interest-bearing balances in
financial institutions include overnight deposits at the Federal Home Loan Bank
of Indianapolis (FHLBI). Investments are generally for terms ranging from one
day to five years.
The Bank's cost of funds reacts rapidly to changes in market interest rates
due to the relatively short-term nature of its deposit liabilities.
Consequently, the Bank's results of operations have been influenced by the
levels of short-term interest rates. In order to reduce exposure to
interest-rate risk, certificate accounts with maturities in excess of one year
have been aggressively marketed. In addition, product offerings are
competitively priced and maturities are carefully monitored in order to guard
against the outflow of funds. Relatively low interest rates during 1996 and
uncertainty with the direction of future rates resulted in a strong customer
preference for liquidity. Borrowed money is used on a short term basis to
compensate for reductions in the availability of other sources of funds and is
generally accomplished through repurchase agreements, as well as, through a line
of credit and short-term advances from the FHLBI. The Bank does not obtain funds
through brokers.
A primary objective of Asset/Liability Management is controlling interest
rate risk. The Bank's exposure to interest rate risk is due to the differences
in the maturities of interest-bearing liabilities and interest-earning assets,
and to the volatility of interest rates. To moderate unfavorable operating
results in periods of rising or high interest rates, the Bank restructures its
asset-liability mix on an ongoing basis. While steps have been taken which have
significantly reduced the overall vulnerability to interest rate risk, the Bank
will still
6
be adversely affected by a rising or high interest rate environment, and is
beneficially affected by a falling or low interest rate environment because rate
sensitive liabilities exceed rate sensitive assets within a one year time
period. Increasing the amount of interest-earning assets that are rate
sensitive, extending the maturities of customer deposits and increasing the
balances of NOW/checking accounts are all part of management's commitment toward
reducing the Bank's overall vulnerability to interest rate risk.
At December 31, 1996, the Bank's one year unadjusted GAP; i.e., the
difference between interest-earning assets maturing or repricing during the next
twelve months and interest-bearing liabilities maturing in the same period as a
percentage of total assets, was -37.42%. The GAP position incorporates the
Bank's internal data as related to the maturity/repricing and
repayment/withdrawal of interest-earning assets and interest-bearing
liabilities. The Bank has not experienced the kind of earnings volatility
indicated from the unadjusted GAP, because a significant portion of the Bank's
deposits do not reprice on a contractual basis.
As is common in the banking industry, management makes adjustments to the
timing and magnitude of non-contractual deposit repricing to more accurately
reflect anticipated pricing behavior and exposure to interest rate risk. These
adjustments include assumptions on rate/volume elasticity for checking and
non-interest bearing deposits, NOW accounts, money market accounts and savings
accounts. The table which follows is first presented without adjustment for
expected repricing behavior. Then, as presented in the management adjustment
line, these balances have been distributed over a number of periods to reflect
those portions of such accounts that are expected to reprice over the respective
periods. The distribution of the balances over the repricing periods represents
an aggregation of allocations. A core amount of transaction and savings account
balances has been calculated by reviewing historical data on short-term interest
rates and account balance activity. The core balance is considered non-rate
sensitive and is classified as due/repricing between one and five years.
Management expects to continue the same methodology in response to future market
rate changes; however, management adjustments may change as customer preferences
and competitive market conditions change. All management adjustments are
reflected in the cumulative management adjusted GAP line. The cumulative GAP
reflects sensitivity to interest rate changes over time. The Bank's management
believes that the Bank's adjusted one year GAP of -6.30% has been maintained
within an acceptable range in view of the prevailing interest rate environment.
There can be no assurance that the assets and liabilities will have the
projected maturities used in developing this table. The GAP position is a static
indicator and is not a predictor of net interest income for a dynamic business
in a rapidly changing environment.
GAP POSITION AT DECEMBER 31, 1996
0-3 4-12 1-5 over 5
months months years years total
--------- --------- --------- --------- ---------
(dollars in thousands)
Real estate loans ............ $ 39,055 $ 64,813 $ 78,436 $ 39,545 $ 221,849
Consumer loans ............... 1,172 1,394 2,310 14 4,890
Commercial business
loans and other ............. 13,621 1,830 2,433 73 17,957
Securities held-to-maturity .. 2,328 4,914 26,264 6,518 40,024
Interest-bearing balances
and federal funds ........... 1,000 -- -- -- 1,000
--------- --------- --------- --------- ---------
Total ...................... 57,176 72,951 109,443 46,150 285,720
--------- --------- --------- --------- ---------
Certificates of deposit ...... 57,976 69,137 26,509 -- 153,622
Checking and non-interest
bearing deposits ............ 12,879 -- -- -- 12,879
NOW accounts ................. 23,907 -- -- -- 23,907
Money market accounts ........ 22,359 -- -- -- 22,359
Savings accounts ............. 43,653 -- -- -- 43,653
Borrowed funds ............... 9,360 2,901 -- -- 12,261
--------- --------- --------- --------- ---------
Total ...................... 170,134 72,038 26,509 -- 268,681
--------- --------- --------- --------- ---------
AT DECEMBER 31, 1996:
GAP .......................... (112,958) 913 82,934 46,150
--------- --------- --------- ---------
Cumulative GAP................ $(112,958) $(112,045) $ (29,111) $ 17,039
========= ========= ========= =========
Cumulative GAP as a
percent of total assets .... -37.73% -37.42% -9.72% 5.69%
========= ========= ========= =========
Management adjustments ....... $ 98,639 $ 93,186 $ -- $ --
Cumulative management
adjusted GAP ................ $ (14,319) $ (18,859) $ (29,111) $ 17,039
========= ========= ========= =========
Cumulative management
adjusted GAP/total
assets ...................... -4.78% -6.30% -9.72% 5.69%
========= ========= ========= =========
FINANCIAL CONDITION
During the year ended December 31, 1996, total assets increased by $18.5
million (6.6%), with interest-earning assets increasing by $17.4 million (6.5%).
At December 31, 1996, interest-earning assets totaled $285.7 million and
represented 95.4% of total assets. Loans totaled $244.7 million and represented
85.6% of interest-earning assets, 81.7% of total assets and 95.4% of total
deposits. The loan portfolio includes $13.2 million (5.4%) in construction and
land development loans, $151.3 (61.8%) in residential real estate loans, $57.3
million (23.4%) in commercial and multifamily real estate loans, $4.9 million (
2.0%) in consumer loans, and $18.0 million (7.4%) commercial business and other
loans. During 1996, loans increased by $22.4 million (10.1%). Loan demand was
strong in all areas as evidenced by the growth in the real estate loans (8.9%),
consumer loans (38.6%) and commercial business and other loans (19.1%). Loan
growth was due to a strong local economy, a formalized Bank customer calling
program and an aggressive marketing program. Adjustable rate loans comprised 63%
of total loans at year end.
7
LOAN COMPOSITION
(DOLLARS IN MILLIONS)
Commercial Real Estate
and Multifamily - $57.3 (23.4%)
Commercial Business
and Other - $18.0 (7.4%)
Consumer - $4.9 (2.0%)
Construction and
Land Development - $13.2 (5.4%)
Residential Real Estate - $151.3 (61.8%)
At December 31, 1996, the loan portfolio totaled $244.7 million and represented
85.6% of interest-earning assets.
================================================================================
TOTAL LOANS
(DOLLARS IN MILLIONS)
June 30, Six Months Dec. 31, Dec. 31, Dec. 31,
1993 Dec. 31, 1993 1994 1995 1996
$202.1 $204.2 $221.9 $222.3 $244.7
During 1996, loans increased by $22.4 million or 10.1%. Loan growth
was due to strong local economy, a formalized Bank customer calling program and
an aggressive marketing program.
================================================================================
The Bank is primarily a portfolio lender. Mortgage banking activities are
limited to the sale of fixed rate mortgage loans with contractual maturities of
thirty years. These loans are sold in the secondary market because of the
additional exposure to interest rate risk associated with this product. The Bank
retains the servicing on all loans sold in the secondary market.
During 1996, the Bank sold $699 thousand in fixed rate mortgages compared
to $1.3 million in 1995 and $937 thousand in 1994. The amounts include 10 loans
for 1996, and 15 loans for 1995 and 1994. All loans sold had contractual
maturities of thirty years. Net gains realized from the sales totaled $1
thousand, $19 thousand and $8 thousand for 1996, 1995 and 1994. Mortgage loan
servicing income totaled $21 thousand, $23 thousand and $22 thousand for 1996,
1995 and 1994. At December 31, 1996, the Bank had no loans classified as held
for sale.
At December 31, 1996, the Bank's investment portfolio totaled $40.0 million
and was invested as follows: 62.3% in U.S. government agency debt securities,
28.9% in U.S. government debt securities, 4.8% in U.S. government agency
mortgage-backed securities and 4.0% in FHLBI common stock. In addition, the Bank
had $1.0 million in interest-bearing balances at the FHLBI. During 1996,
investment securities increased by $2.0 million (5.3%), while interest-bearing
balances in financial institutions and federal funds decreased by $7.0 million
(87.5%). Overnight investments provided funding for securities and loan
portfolio growth.
Management believes that the credit risk profile of the earning asset
portfolio is relatively low. At December 31, 1996 the Bank had $1.2 million in
non-performing loans. The December 31, 1996 balance includes $788 thousand in
loans accounted for on a non-accrual basis and $379 thousand in accruing loans
which were contractually past due 90 days or more. The total of these
non-performing loans represents 0.48% of the total loan portfolio and 0.39% of
total assets. The amount for non-accruing loans includes 14 residential real
estate loans, one commercial real estate loan, two commercial business loans and
two consumer loans. The amount for accruing loans which are contractually past
due 90 days or more includes five residential real estate loans, one commercial
business loan and one consumer loan. 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. Management does not anticipate that any of the non-performing loans or
classified loans will materially impact future operations, liquidity or capital
resources. At December 31, 1996, there were no material credits which would
cause management to have serious doubts as to the ability of such borrowers to
comply with loan repayment terms.
NON-PERFORMING LOANS TO TOTAL LOANS
June 30, Dec. 31, Dec. 31, Dec. 31, Dec. 31,
1993 1993 1994 1995 1996
0.30% 0.27% 0.70% 0.47% 0.48%
Management believes that the credit risk profile of the loan portfolio is
relatively low. At December 31, 1996, the Bank's ratio of non-performing loans
to total loans was 0.48% (forty-eight hundredths of one percent) which was below
the industry norm.
================================================================================
At December 31, 1996, the Bank had $189 thousand in foreclosed real estate.
The total includes three residential properties and represents 0.06% of total
assets.
Because some loans may not be repaid in accordance with contractual
agreements, an allowance for loan losses (ALL) has been maintained. While
management may periodically allocate portions of the allowance for specific
problem
8
loans, the entire allowance is available to absorb all credit losses that arise
from the loan portfolio and is not segregated for, or allocated to, any
particular loan or group of loans. During 1996, amounts provided to the ALL
account totaled $85 thousand compared to $80 thousand for 1995 and $145 thousand
for 1994. The amount provided during 1996 was based on loan activity, current
economic conditions and management's assessment of portfolio risk. Charge-offs
net of recoveries totaled $28 thousand during 1996.
At December 31, 1996, the balance in the ALL account totaled $2.9 million
which is considered adequate by management after evaluation of the loan
portfolio, past experience and current economic and market conditions. The
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.
ALLOWANCE FOR LOAN LOSSES TO TOTAL LOANS
June 30, Dec. 31, Dec. 31, Dec. 31, Dec. 31,
1993 1993 1994 1995 1996
1.15% 1.26% 1.24% 1.27% 1.18%
At December 31, 1996, the Bank had $2.9 million in the Allowance for Loan Losses
account. The amount represents 1.18% of loans outstanding and 247.4% of
non-performing loans.
================================================================================
Statement of Financial Accounting Standards No. 114 "Accounting by
Creditors for Impairment of a Loan" (SFAS No. 114), as amended by SFAS No. 118,
was adopted on January 1, 1995. Under these standards, loans considered to be
impaired are reduced to the present value of expected future cash flows or to
the fair value of collateral, by allocating a portion of the allowance for loan
losses to such loans. If these allocations cause the allowance for loan losses
to require an increase, the increase is reported in the provision for loan
losses. A loan is impaired when it is probable that all principal and interest
amounts will not be collected according to the loan contract. The effect of
adopting these standards did not result in the recording of additional
provisions for loan losses. At December 31, 1996, no portion of the allowance
for loan losses was allocated to impaired loan balances as the Bank had no loans
considered to be impaired loans as of, or for the year ended December 31, 1996.
Deposits are the major source of funds for lending and other investment
purposes. At December 31, 1996, deposits totaled $256.4 million. During 1996,
deposit growth totaled $8.5 million (3.4%). Savings accounts increased $1.8
million (4.2%), NOW accounts increased $2.6 million (12.5%), checking accounts
increased $1.4 million (12.0%), money market deposit accounts increased $1.1
million (5.0%) and certificates of deposit increased by $1.6 million (1.1%). At
December 31, 1996, the deposit base was comprised of 17.0% savings accounts,
8.7% MMDA's, 9.3% NOW accounts, 5.0% checking accounts and 60.0% certificates of
deposit. At December 31, 1996, repurchase agreements totaled $4.0 million. Other
short-term borrowings totaled $8.3 million, of which $7.0 million represents a
variable rate advance from the FHLBI. The Company had no long-term borrowings.
TOTAL DEPOSITS
(DOLLARS IN MILLIONS)
June 30, Dec. 31, Dec. 31, Dec. 31, Dec. 31,
1993 1993 1994 1995 1996
$219.1 $222.9 $234.6 $247.9 $256.4
Deposits are the major source of funds for lending and other investment
purposes. During 1996 deposits increased by $8.5 million or 3.4%.
================================================================================
LIQUIDITY AND CAPITAL RESOURCES
Liquidity refers to the ability to generate sufficient cash to fund current
loan demand, meet deposit withdrawals and pay operating expenses. Changes in the
liquidity position result from operating, investing and financing activities.
Cash flows from operating activities are generally the cash effects of
transactions and other events that enter into the determination of net income.
The primary investing activities include loan originations, loan repayments,
investments in interest bearing balances in financial institutions, and the
purchase and maturity of investment securities. Financing activities focus
almost entirely on the generation of customer deposits. In addition, the Bank
utilizes short-term borrowings, i.e., repurchase agreements and advances from
the FHLBI as a source of funds.
During 1996, cash and cash equivalents decreased by $8.4 million compared
to a $9.2 million increase for 1995 and a $1.9 million decrease for 1994. The
decrease for 1996 was due to the reduction in interest-bearing balances in
financial institutions and federal funds, as cash flows were used for loan
originations. During 1996, cash provided by operating activities totaled $2.5
million, compared to $3.1 million for 1995 and $4.1 million for 1994. The
decrease during 1996 was due to the required payment of $1.6 million to
capitalize SAIF. Cash flows from investing activities reflect strong loan demand
throughout 1996, causing a reduction in cash and cash equivalents which had
accumulated during 1995 when loan growth was slow relative to deposit growth.
Loans made net of payments received totaled $22.6 million during 1996, compared
to $712 thousand for
9
1995 and $18.2 million for 1994. During 1996, cash flows were also used to
purchase securities and open a new full-service branch facility located in
Merrillville, Indiana. The facility represents the Company's commitment to
quality service and community development, and provides opportunities to expand
market share by attracting additional deposits and loans from the surrounding
areas. The new facility is not expected to have a material impact on noninterest
expense. Cash flows from financing activities totaled $16.0 million during 1996,
compared to $11.8 million for 1995 and $11.3 million for 1994. During 1996, the
Company paid common stock dividends of $1.6 million. In addition, the Bank used
both deposits and borrowed money to fund loan growth. Deposit growth during 1996
totaled $8.5 million, compared to $13.3 million for 1995 and $11.7 million for
1994. The increase in borrowed funds totaled $9.1 million during 1996, compared
to a decrease of $12 thousand for 1995 and an increase of $1.1 million for 1994.
The increase in borrowed funds represents short-term borrowings which, on
average, provided a cost effective alternative to certificates of deposit as
price competition within the local market area became very competitive during
1996.
At December 31, 1996, outstanding commitments to fund loans totaled $34.1
million. Approximately 81% of the commitments were at variable rates. The Bank
has sufficient cash flow and borrowing capacity to fund all outstanding
commitments and to maintain proper levels of liquidity.
Management strongly believes that safety and soundness is enhanced by
maintaining a high level of capital. During 1996, stockholders' equity increased
by $611 thousand (2.2%). The increase resulted primarily from earnings of $2.2
million for 1996. In addition, two thousand dollars represents proceeds from the
exercise of 159 stock options. The reduction of $1.6 million represents cash
dividends for 1996. At December 31, 1996, book value per share was $20.16
compared to $19.72 reported at December 31, 1995.
CAPITAL TO TOTAL ASSETS
June 30, Dec. 31, Dec. 31, Dec. 31, Dec. 31,
1993 1993 1994 1995 1996
9.2% 9.5% 9.6% 9.7% 9.3%
Management firmly believes that the safety and soundness of the Company is
enhanced by maintaining a high level of capital. At December 31, 1996, the
Company's capital exceeded all regulatory capital requirements. The Company is
categorized as "well capitalized". The ratio of Tier I capital to total assets
reflects the increase in capital over the periods presented as a result of
profitability and success in managing growth. In addition, Tier I capital to
risk-weighted assets was 14.7% and total risk-based capital to risk-weighted
assets was 16.0%.
================================================================================
The Company is subject to risk-based capital guidelines adopted by the
Board of Governors of the Federal Reserve System (the FRB), and the Bank is
subject to risk-based capital guidelines adopted by the FDIC. As applied to the
Company and the Bank, the FRB and FDIC capital requirements are substantially
identical. These regulations divide capital into two tiers. The first tier (Tier
I) includes common equity, certain non-cumulative perpetual preferred stock and
minority interests in equity accounts of consolidated subsidiaries, less
goodwill and certain other intangible assets. Supplementary (Tier II) capital
includes, among other things, cumulative perpetual and long-term limited-life
preferred stock, mandatory convertible securities, certain hybrid capital
instruments, term subordinated debt and the allowance for loan losses, subject
to certain limitations, less required deductions. The Company and the Bank are
required to maintain a total risk-based capital ratio of 8%, of which 4% must be
Tier I capital. In addition, the FRB and FDIC regulations provide for a minimum
Tier I leverage ratio (Tier I capital to adjusted total assets) of 3% for
financial institutions that meet certain specified criteria, including that they
have the highest regulatory rating and are not experiencing or anticipating
significant growth. All other financial institutions are required to maintain a
Tier I leverage ratio of 3% plus an additional cushion of at least one to two
percent.
The following table shows that, at 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. 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 to
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 1 capital to total assets $27.8 9.3% $ 9.0 3.0% $15.0 5.0%
On December 2, 1996, the Company effected a two-for-one split of its common
stock. All earnings per share and book value per share data herein have been
restated for all periods presented to reflect the split.
CHANGING REGULATORY STRUCTURE OF THE BANKING INDUSTRY
The laws and regulations affecting banks and bank holding companies are in
a state of flux. The laws, rules and the regulatory agencies in this area have
changed significantly over recent years, and there is reason to expect that
similar changes will continue in the future. It is difficult to predict the
outcome of these changes. Recent legislation has, for example, reduced the
regulatory burden on bank holding companies and may lead to consolidated
regulation of the banking industry. Other recent initiatives have removed
barriers to interstate mergers and acquisitions; encouraged lending for the
development of poor, rural, inner city and other communities; and provided
additional proposals to restructure regulation of the banking industry and its
participants' powers, particularly with respect to insurance and securities
10
activities. Based on what is presently known about these initiatives, management
does not believe that the Company's operations will be materially adversely
affected by those initiatives that have been enacted or those pending
initiatives that may be enacted in the future.
IMPACT OF INFLATION AND CHANGING PRICES
The financial statements and related data presented herein have been
prepared in accordance with Generally Accepted Accounting Principles which
require the measurement of financial position and operating results in terms of
historical dollars, without considering changes in the relative purchasing power
of money over time due to inflation. The primary assets and liabilities of the
Bank are monetary in nature. As a result, interest rates have a more significant
impact on the Company's performance than the effects of general levels of
inflation. Interest rates do not necessarily move in the same direction or
magnitude as the prices of goods and services.
CURRENT ACCOUNTING ISSUES
Financial Accounting Standard No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities", was issued by
the Financial Accounting Standards Board in 1996. It revises the accounting for
transfers of financial assets, such as loans and securities, and for
distinguishing between sales and secured borrowings. It is effective for some
transactions in 1997 and others in 1998. The effect on the financial statements
has not yet been determined.
RESULTS OF OPERATIONS - COMPARISON OF 1996 TO 1995.
Net income for 1996 was $2.2 million compared to $3.1 million for 1995, a
decrease of $913 thousand (29.4%). The earnings represent a return on average
assets of 0.75% for 1996 compared to 1.14% for 1995. The return on average
equity was 7.90% for 1996 compared to 11.74% for 1995. The decrease in the
current year operating results was due to the one-time special assessment
required by the Deposit Insurance Funds Act of 1996 on SAIF-assessable deposits
to capitalize SAIF. The SAIF assessment resulted in a pre-tax expense of $1.6
million for 1996. Excluding the SAIF assessment, adjusted net income for 1996
was $3.1 million, representing an adjusted ROA of 1.07% and an adjusted ROE of
11.27%.
Net interest income for 1996 was $11.1 million, up $412 thousand (3.9%)
from $10.6 million for 1995. The growth in net interest income was due to the
growth in average interest-earning assets and a stable cost of funds.
Interest-earning assets averaged $279.9 million for 1996, up $17.8 million
(6.8%) from $262.1 million for 1995. The net interest margin was 3.79% for 1996
compared to 3.91% for 1995. The decrease was due to lower yields on
interest-earning assets as the Bank's cost of funds remained stable. During
1996, total interest income increased by $1.2 million (5.7%) while total
interest expense increased by $802 thousand (7.7%).
RETURN ON ASSETS
June 30, Dec. 31, Dec. 31, Dec. 31, Dec. 31,
1993 1993 1994 1995 1996
1.28% 1.45% 1.24% 1.14% 0.75%
Return on assets (ROA) indicates the overall operating efficiency of a company.
The ratio is determined by stating net income as a percentage of average total
assets. The decrease in the ROA for 1996 reflects the one-time special
assessment on SAIF-assessable deposits to recapitalize SAIF.
================================================================================
During 1996, interest income from loans increased by $685 thousand (3.7%)
compared to 1995. The weighted average yield on loans outstanding was 8.35% for
1996 compared to 8.46% for 1995. Higher average loan balances have contributed
to the increase in interest income as loans averaged $232.5 million for 1996, up
$11.1 million (5.0%) from $221.4 for 1995. During 1996, interest income on
investments and other deposits increased by $530 thousand (22.1%) compared to
1995. The increase was due to higher yields and portfolio growth during 1996.
The weighted average yield on investments and other deposits was 6.17% for 1996
compared to 5.88% for 1995. The increase in yield was due to a reduction in the
average balances for federal funds sold and interest bearing balances in
financial institutions, and the investment of funds in securities with
contractual maturities ranging from three to seven years. In addition,
securities averaged $40.9 million for 1996, up $5.8 million (16.4%) from $35.1
million for 1995. The combined weighted average yield on total interest-earning
assets was 7.98% for 1996 compared to 8.06% for 1995.
Interest expense for deposits increased by $699 thousand (6.7%) during
1996. The increase was due to higher average balances as deposits averaged
$255.6 million for 1996, up $15.8 million (6.6%) from $239.8 million for 1995.
The weighted average rate paid on deposits for 1996 was 4.33% compared to 4.32%
for 1995. Interest expense on short-term borrowings increased by $104 thousand
during 1996 due to higher average balances as borrowed funds averaged $4.8
million, up $2.3 million (92.8%) from $2.5 million for 1995. The weighted
average cost of short-term borrowings was 4.62% for 1996 compared to 4.72% for
1995. The combined weighted average rate paid on deposits and borrowings for
1996 and 1995 was 4.33%. The impact of the 7.98% return on interest-earning
assets and the 4.33% cost of funds resulted in an interest rate spread of 3.65%
for 1996 compared to 3.73% for 1995.
Noninterest income for 1996 was $682 thousand, down four thousand dollars
(0.5%) from $685 thousand for 1995. The decrease was due to reduced gains from
the sale of fixed rate loans and foreclosed real estate. During 1996, income
from fees and service charges increased $59 thousand
11
(13.9%), while income from Trust operations increased by $11 thousand (6.2%).
Noninterest expense for 1996 was $8.0 million, up $1.9 million (31.4%) from
$6.1 million for 1995. The increase was due primarily to the SAIF assessment of
$1.6 million. Excluding the SAIF assessment results in an increase of
noninterest expense of $364 thousand (6.0%) for 1996 compared to 1995. In
general, increases in noninterest expense have resulted from the expansion of
the Bank's operations and the investment in new technologies. The increase in
compensation and benefits was due to additional staffing and annual salary
increases. The increase in occupancy and equipment expense was due to the
operation of the new East Chicago, Indiana, branch facility which opened during
September 1995, the operation of the new Merrillville, Indiana, branch facility
which opened during September 1996, and depreciation related to investments in
technology. Other expense changes were due to standard increases in bank
operations. The Company's efficiency ratio, excluding the SAIF assessment, for
1996, was 55.2% compared to 54.0% for 1995. The ratio is determined by dividing
total noninterest expense minus the SAIF assessment by the sum of net interest
income and total noninterest income for the period.
Income tax expenses for 1996 totaled $1.4 million compared to $2.0 million
for 1995, a decrease of $607 thousand (30.0%). The decrease was due to a
decrease in pretax earnings during 1996.
RETURN ON EQUITY
Six Months
June 30, Dec. 31, Dec. 31, Dec. 31, Dec. 31,
1993 1993 1994 1995 1996
14.00% 15.51% 13.04% 11.74% 7.90%
Return on equity (ROE) is determined by stating net income as a percentage of
average stockholders' equity. The ratio is important to the Company's
stockholders because it measures the return on their invested capital. The
decrease in ROE for 1996 reflects the one-time special assessment on
SAIF-assessable deposits to recapitalize SAIF.
================================================================================
RESULTS OF OPERATIONS - COMPARISON OF 1995 TO 1994.
Net income for 1995 was $3.1 million compared to $3.2 million for 1994, a
decrease of $127 thousand (3.9%). The earnings represent a return on average
assets of 1.14% for 1995 compared to 1.24% for 1994. The return on average
equity was 11.74% for 1995 compared to 13.04% for 1994. The decrease in the
operating results for 1995 was due to a decrease in net interest margin caused
by a rising cost of funds.
Net interest income for 1995 decreased by $404 thousand (3.7%) compared to
1994. The net interest margin for 1995 was 3.91% compared to 4.25% during 1994.
While total interest income increased by 10.5% during 1995, total interest
expense increased by 29.8%, causing the increase in the cost of funds for
interest-bearing liabilities to exceed the increase in the yield on
interest-earning assets.
During 1995, interest income from loans increased by $1.6 million (9.3%)
compared to 1994. The weighted average yield on loans outstanding was 8.46% for
1995 compared to 8.03% for 1994. Higher yields and higher average loan balances
contributed to the increase in interest income. During 1995, interest income on
investments and other deposits increased by $412 thousand (20.7%) compared to
1994. The increase was due to higher yields and portfolio growth during 1995.
The weighted average yield on investments and other deposits was 5.88% for 1995
compared to 5.47% for 1994. The increase was caused by the upswing in interest
rates which began during 1994. Yields on investments react rapidly to changes in
market interest rates due to the highly liquid nature of the portfolio. The
combined weighted average yield on total interest-earning assets was 8.06% for
1995 compared to 7.66% for 1994.
Interest expense for deposits increased by $2.4 million (29.4%) during
1995. The increase was due to the repricing of existing deposits at higher
interest rates and certificate of deposit growth. The weighted average rate paid
on deposits for 1995 was 4.32% compared to 3.49% for 1994. Interest expense on
short-term borrowings increased by $49 thousand during 1995 due to higher
average balances and interest rates for repurchase agreements. The weighted
average cost of short-term borrowings was 4.72% for 1995 compared to 4.07% for
1994. Interest expense on short-term borrowings totaled only $117 thousand
during 1995, due to the low level of borrowing during the period. The combined
weighted average rate paid on deposits and borrowings for 1995 was 4.33%
compared to 3.49% for 1994. The impact of the 8.06% return on interest-earning
assets and the 4.33% cost of funds resulted in an interest rate spread of 3.73%
for 1995 compared to 4.17% for 1994.
Noninterest income for 1995 was $193 thousand (39.1%) greater than that
reported during 1994. The improvement was due to increased income from Trust
operations of $34 thousand (23.2%) and increased fees and service charges of $91
thousand (27.1%). Also contributing to noninterest income during 1995 were gains
on the sale of foreclosed real estate of $51 thousand, and gains on the sale of
fixed rate loans of $19 thousand.
Noninterest expense for 1995 was $86 thousand (1.4%) greater than that
reported during 1994. The increase in compensation and benefits was due to the
additional staffing and annual salary increases. With the exception of the
federal insurance premium, other expenses remained relatively stable compared to
1994. During 1994 the Company incurred costs related to the conversion to a new
service bureau for the purpose of providing data processing services.
Income tax expenses for 1995 totaled $2.0 million compared to $2.1 million
for 1994, a decrease of $106 thousand (5.0%). The decrease was due to a decrease
in pretax earnings during 1995.
12
[LOGO CROWE CHIZEK]
Independent Auditor's Report
Board of Directors
NorthWest Indiana Bancorp
Munster, Indiana
We have audited the accompanying consolidated balance sheets of NorthWest
Indiana Bancorp (the Company) as of December 31, 1996 and 1995 and the related
consolidated statements of income, changes in stockholders' equity and cash
flows for the years ended December 31, 1996, 1995 and 1994. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of NorthWest Indiana
Bancorp as of December 31, 1996 and 1995 and the results of its operations and
its cash flows for the years ended December 31, 1996, 1995 and 1994, in
conformity with generally accepted accounting principles.
/s/ Crowe, Chizek and Company LLP
Crowe, Chizek and Company LLP
South Bend, Indiana
January 9, 1997
13
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
---------------------------------
1996 1995
------------- -------------
ASSETS
Cash and non-interest bearing balances in financial institutions............... $ 5,508,822 $ 6,952,377
Interest bearing balances in financial institutions............................ 1,000,000 6,151,327
Federal funds sold............................................................. - 1,840,000
------------- -------------
Total cash and cash equivalents.............................................. 6,508,822 14,943,704
Securities held-to-maturity (market value: December 31, 1996 - $39,909,000;
December 31, 1995 - $38,279,000)............................................. 40,023,992 38,001,081
Loans receivable............................................................... 244,695,883 222,292,700
Less: allowance for loan losses................................................ (2,887,005) (2,829,681)
------------- -------------
Net loans receivable......................................................... 241,808,878 219,463,019
Accrued interest receivable.................................................... 2,152,672 2,091,874
Premises and equipment......................................................... 7,085,982 5,256,785
Foreclosed real estate......................................................... 188,886 86,366
Deferred income taxes.......................................................... 706,008 644,915
Other assets................................................................... 943,260 423,195
------------- -------------
Total assets................................................................. $299,418,500 $280,910,939
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Non-interest bearing deposits................................................ $ 12,878,557 $ 11,497,478
Interest bearing deposits.................................................... 243,541,120 236,447,211
------------- -------------
Total deposits............................................................. 256,419,677 247,944,689
Borrowed funds................................................................. 12,260,507 3,138,829
Accrued expenses and other liabilities......................................... 2,923,079 2,623,293
------------- -------------
Total liabilities............................................................ 271,603,263 253,706,811
Commitments and contingencies
Stockholders' Equity
Preferred stock, no par or stated value;
10,000,000 shares authorized, none outstanding ............................ - -
Common stock, no par or stated value; 20,000,000 shares authorized;
issued and outstanding: December 31, 1996 - 1,379,595 shares;
December 31, 1995 - 1,379,436 shares......................................... 344,899 344,859
Additional paid in capital..................................................... 2,929,587 2,927,595
Retained earnings - substantially restricted................................... 24,540,751 23,931,674
------------- -------------
Total stockholders' equity................................................... 27,815,237 27,204,128
------------- -------------
Total liabilities and stockholders' equity................................... $299,418,500 $280,910,939
============ ============
See accompanying notes to consolidated financial statements.
14
i
CONSOLIDATED STATEMENTS OF INCOME
Year Ended December 31,
----------------------------------------------------
1996 1995 1994
----------- ----------- -----------
Interest income:
Loans receivable
Real estate loans.................................. $17,522,544 $17,015,267 $14,986,332
Commercial loans................................... 1,522,360 1,411,744 1,847,743
Consumer loans..................................... 363,505 296,752 300,938
------------ ----------- -----------
Total loan interest.............................. 19,408,409 18,723,763 17,135,013
Securities held-to-maturity.......................... 2,604,759 2,054,976 1,806,621
Other interest earning assets........................ 323,741 343,919 180,340
------------ ----------- -----------
Total interest income.............................. 22,336,909 21,122,658 19,121,974
------------ ----------- -----------
Interest expense:
Deposits............................................. 11,065,874 10,367,179 8,011,495
Borrowed funds....................................... 220,773 117,030 68,311
------------ ----------- -----------
Total interest expense............................. 11,286,647 10,484,209 8,079,806
------------ ----------- -----------
Net interest income....................................... 11,050,262 10,638,449 11,042,168
Provision for loan losses................................. 85,000 80,000 144,500
------------ ----------- -----------
Net interest income after provision for loan losses....... 10,965,262 10,558,449 10,897,668
------------ ----------- -----------
Noninterest income:
Gain on sale of loans, net........................... 639 18,916 7,711
Gain on sale of foreclosed real estate............... 3,668 51,061 3,070
Fees and service charges............................. 487,351 427,855 336,748
Trust operations..................................... 190,183 179,087 145,349
Other................................................ - 8,520 -
------------ ----------- -----------
Total noninterest income........................... 681,841 685,439 492,878
------------ ----------- -----------
Noninterest expense:
Compensation and benefits............................ 3,213,151 3,049,295 2,937,347
Occupancy and equipment.............................. 1,049,626 842,108 848,951
Federal insurance premium............................ 1,979,211 536,224 513,390
Advertising.......................................... 158,579 156,511 131,036
Data processing...................................... 299,037 272,078 334,273
Other................................................ 1,339,837 1,260,069 1,265,629
------------ ----------- -----------
Total noninterest expense.......................... 8,039,441 6,116,285 6,030,626
------------ ----------- -----------
Income before income taxes................................ 3,607,662 5,127,603 5,359,920
Income tax expenses....................................... 1,419,000 2,026,400 2,132,000
------------ ----------- -----------
Net income................................................ $ 2,188,662 $ 3,101,203 $ 3,227,920
============ =========== ===========
Earnings per common and common equivalent share:
Net income............................................... $ 1.59 $ 2.25 $ 2.35
=========== =========== ===========
Dividend declared per common share........................ $ 1.15 $ 1.10 $ 1.10
See accompanying notes to consolidated financial statements.
15
CONSOLIDATED STATEMENTS OF
CHANGES IN STOCKHOLDERS' EQUITY
Additional
Common Paid-in Retained Total
Stock Capital Earnings Equity
------------ ------------ ------------ -------------
Balance at January 1, 1994.................................... $ 343,573 $ 2,896,210 $ 20,634,648 $ 23,874,431
Issuance of 3,792 shares of common stock at
$2.50 - $11.50 per share, under stock option plan...... 948 17,794 - 18,742
Cash dividends, $1.10 per share.......................... - - (1,515,084) (1,515,084)
Net income for the year ended December 31, 1994.......... - - 3,227,920 3,227,920
------------ ------------ ------------ -------------
Balance at December 31, 1994.................................. 344,521 2,914,004 22,347,484 25,606,009
Issuance of 1,352 shares of common stock at
$8.57 - $21.25 per share, under stock option plan...... 338 13,591 - 13,929
Cash dividends, $1.10 per share.......................... - - (1,517,013) (1,517,013)
Net income for the year ended December 31, 1995.......... - - 3,101,203 3,101,203
------------ ------------ ------------ -------------
Balance at December 31, 1995.................................. 344,859 2,927,595 23,931,674 27,204,128
Issuance of 159 shares of common stock at
$8.57 - $21.25 per share, under stock option plan...... 40 1,992 - 2,032
Cash dividends, $1.15 per share.......................... - - (1,579,585) (1,579,585)
Net income for the year ended December 31, 1996.......... - - 2,188,662 2,188,662
------------ ------------ ------------ -------------
Balance at December 31, 1996.................................. $ 344,899 $ 2,929,587 $ 24,540,751 $ 27,815,237
=========== ============ ============ ============
See accompanying notes to consolidated financial statements.
16
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
-----------------------------------------------------
1996 1995 1994
----------- ----------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income........................................... $ 2,188,662 $ 3,101,203 $ 3,227,920
------------ ------------ -----------
Adjustments to reconcile net income to
net cash provided by operating activities:
Origination of loans for sale...................... (699,900) (1,247,100) (881,700)
Sale of loans originated for sale.................. 699,264 1,312,416 937,253
Depreciation and amortization, net of accretion.... 553,416 393,493 352,807
Net gains on sale of loans......................... (639) (18,916) (7,711)
Net gains on sale of foreclosed real estate........ (3,668) (51,061) (3,070)
Provision for loan losses.......................... 85,000 80,000 144,500
Change in unrealized premiums on loans............. - - 32,757
Net change in unearned discount on loans........... (795) (11,889) (25,791)
Change in deferred taxes........................... (61,093) 244,072 34,362
Change in deferred loan fees....................... (1,335) (74,806) 69,916
Change in interest receivable...................... (60,798) (271,987) (262,875)
Change in other assets............................. (520,065) (44,510) 142,986
Change in accrued expenses and other liabilities... 237,667 (323,830) 372,968
------------ ----------- -----------
Total adjustments.................................. 227,054 (14,118) 906,402
------------ ----------- -----------
Net cash from operating activities................. 2,415,716 3,087,085 4,134,322
------------ ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Change in interest bearing time deposits in
other financial institutions....................... - 493,472 1,000,000
Proceeds from maturities of securities
held-to-maturity................................... 12,671,429 8,000,000 8,500,000
Purchase of securities held-to-maturity.............. (15,164,019) (12,771,852) (9,431,047)
Principal collected on mortgage-backed securities.... 459,954 445,819 839,944
Proceeds from education loans sold................... - - 485,944
Loan participations purchased........................ - (33,440) (94,017)
Loans made net of payments received.................. (22,587,037) (711,802) (18,189,438)
Purchase of property plant and equipment............. (2,372,888) (1,646,683) (500,733)
Proceeds from sale of foreclosed real estate......... 60,731 547,231 49,456
------------ ----------- -----------
Net cash from investing activities................. (26,931,830) (5,677,255) (17,339,891)
------------ ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Change in deposits................................... 8,474,988 13,305,721 11,693,550
Proceeds from FHLB advances.......................... 7,000,000 - -
Change in other borrowed funds....................... 2,121,678 (11,823) 1,063,751
Proceeds from issuance of capital stock.............. 2,032 13,929 18,742
Cash dividends paid.................................. (1,517,466) (1,517,013) (1,515,084)
------------ ----------- -----------
Net cash from financing activities................. 16,081,232 11,790,814 11,260,959
------------ ----------- -----------
Net change in cash and cash equivalents............ (8,434,882) 9,200,644 (1,944,610)
Cash and cash equivalents at beginning of period..... 14,943,704 5,743,060 7,687,670
------------ ----------- -----------
Cash and cash equivalents at end of period........... $ 6,508,822 $ 14,943,704 $ 5,743,060
============ ============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest........................................... $ 11,343,472 $ 10,456,707 $ 8,148,286
Income taxes....................................... $ 2,045,000 $ 1,815,000 $ 2,060,000
See accompanying notes to consolidated financial statements.
17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Year ended December 31, 1996, 1995 and 1994.
NOTE 1 - Summary of Significant Accounting Policies
Principles of Consolidation - The consolidated financial statements include
the accounts of NorthWest Indiana Bancorp (the Company), its wholly-owned
subsidiary, Peoples Bank SB (the Bank), and the Bank's wholly-owned
subsidiaries, Peoples Service Corporation and PSA Insurance Corporation.
Effective July 31, 1994, the Company became a one-bank holding company for
Peoples Bank SB, an Indiana savings bank resulting from the conversion of
Peoples Bank from a federal stock savings bank to an Indiana stock savings bank.
References herein to the Company prior to July 31, 1994, are references to the
Bank and its subsidiaries. The formation of the Company and the acquisition of
Peoples Bank SB by the Company was an internal reorganization accounted for at
historical cost. The Company has no other business activity other than being a
holding company for the Bank. The Company's earnings are dependent upon the
earnings of the Bank. Both Peoples Service Corporation and PSA Insurance
Corporation are inactive. At December 31, 1996, the Company had investment
balances of $10,000 and $44,950 in Peoples Service Corporation and PSA Insurance
Corporation, respectively. All significant inter-company accounts and
transactions have been eliminated in consolidation. The parent only financial
statements for NorthWest Indiana Bancorp are presented in Note 17.
Use of Estimates - Preparing financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets, liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period, as well as the disclosures provided. Areas involving the use of
estimates and assumptions include the allowance for loan losses, fair values of
securities and other financial instruments, determination and carrying value of
impaired loans, the carrying value of loans held for sale, the accrued liability
for deferred compensation, the realization of deferred tax assets, and the
determination of depreciation of premises and equipment. Actual results could
differ from those estimates. Estimates associated with the allowance for loan
losses and the fair values of securities and other financial instruments are
particularly susceptible to material change in the near term.
Concentrations of Credit Risk - The Company grants residential, commercial
real estate, commercial business and installment loans to customers primarily of
Lake County, in northwest Indiana. Substantially all loans are secured by
specific items of collateral including residences, business assets and consumer
assets.
Statements of Cash Flow - For purposes of the statement of cash flows, the
Company considers cash on hand, all interest-bearing deposits in other financial
institutions with original maturities of ninety days or less and federal funds
sold to be cash and cash equivalents. The Company reports net cash flows for
customer loan and deposit transactions and deposits made with other financial
institutions.
Securities - The Company classifies securities into held-to-maturity,
available-for-sale, or trading categories. Held-to-maturity securities are those
which the Company has the positive intent and ability to hold to maturity, and
are reported at amortized cost. Available-for-sale securities are those the
Company may decide to sell if needed for liquidity, asset-liability management
or other reasons. Available-for-sale securities are reported at fair value, with
unrealized gains and losses included as a separate component of equity, net of
tax. Trading securities are bought principally for sale in the near term and are
reported at fair value with unrealized gains and losses included in earnings.
Realized gains and losses resulting from the sale of securities are computed by
the specific identification method. Interest and dividend income, adjusted by
amortization of premium or discount, is included in earnings.
Loans Held for Sale - Mortgage loans originated and intended for sale in
the secondary market are carried at the lower of cost or estimated market value
in the aggregate. Net unrealized losses are recognized in a valuation allowance
by charges to income.
Loans and Loan Income - Loans are stated net of loans in process, deferred
loan fees, and unearned income. Discounts on consumer loans are recognized over
the lives of the loans using the interest method. Interest income on other loans
is accrued over the term of the loans based upon the principal outstanding
except where serious doubt exists as to the collectibility of a loan, in which
case the accrual of interest is discontinued. Income is subsequently recognized
only to the extent that cash payments are received until, in management's
judgment, the borrower has the ability to make contractual interest and
principal payments, in which case the loan is returned to accrual status..
Foreclosed Real Estate - Real estate properties acquired through, or in
lieu of, loan foreclosure are recorded at fair value at the date of foreclosure.
Costs relating to improvement of property are capitalized, whereas holding costs
are expensed. Valuations are periodically performed by management, and an
allowance for losses is established by a charge to operations if the carrying
value of a property exceeds its estimated fair value less selling costs.
Allowance for Loan Losses - Because some loans may not be repaid in full,
an allowance for loan losses is maintained. Increases to the allowance are
recorded by a provision for loan losses charged to expense. Estimating the risk
of loss and the amount of loss on any loan is necessarily subjective.
Accordingly, the allowance is maintained by management at a level considered
adequate based on 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. 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.
18
SFAS No. 114, "Accounting by Creditors for Impairment of a Loan", as amended by
SFAS No. 118, was adopted on January 1, 1995. Under these standards, loans
considered to be impaired are reduced to the present value of expected future
cash flows or to the fair value of collateral, by allocating a portion of the
allowance for loan losses to such loans. If these allocations cause the
allowance for loan losses to require increase, such increase is reported in the
provision for loan losses. The effect of adopting this standard did not result
in the recording of additional provision for loan losses. Smaller-balance
homogeneous loans are evaluated for impairment in total. Such loans include
residential first mortgage loans secured by one-to-four family residences,
residential construction loans, and automobile, home equity and second mortgage
loans. Commercial loans and mortgage loans secured by other properties are
evaluated individually for impairment. When analysis of borrower operating
results and financial condition indicates that underlying cash flows of the
borrower's business are not adequate to meet its debt service requirements, the
loan is evaluated for impairment. Impaired loans, or portions thereof, are
charged off when deemed uncollectible. The nature of disclosures for impaired
loans is considered generally comparable to prior nonaccrual and non-performing
asset disclosures.
Premises and Equipment - Premises and equipment are stated at cost less
accumulated depreciation. Premises and related components are depreciated using
the straight-line method with useful lives ranging from 26 to 40 years.
Furniture and equipment are depreciated using the straight-line method with
useful lives ranging from 3 to 10 years. Maintenance and repairs are charged to
expense and improvements are capitalized. The cost and accumulated depreciation
applicable to assets retired or otherwise disposed of are eliminated from the
accounts and the gain or loss on disposition is credited or charged to
operations.
Recognition of Gains or Losses on the Sale of Loans - Loans are sold on a
net yield basis, with servicing rights and obligations retained by the Company,
resulting in the recognition of gains or losses at the time of sale. The Company
uses the purchaser's normal servicing fee in computing these gains and losses.
The resulting premiums or discounts, if any, are amortized or accreted in income
over the estimated lives of these loans sold using the level yield method.
Loan Origination Fees - Loan fees are netted with certain direct loan
origination costs, and are deferred and amortized into interest income as yield
adjustments using the interest method over the term of the related loans. When a
loan is paid off or sold, any unamortized origination fee is credited to
interest income.
Income Taxes - The Company 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.
Earnings per Share - On February 28, 1995 and December 2, 1996, the
Company effected a two-for-one common stock split. All references in the
accompanying financial statements to the number of shares and per share data
have been restated to reflect the two stock splits. The weighted average number
of shares used in the calculation of earnings per share are summarized below as
of the dates indicated:
1996 1995 1994
---------- --------- ----------
Weighted average
shares outstanding.. 1,379,519 1,378,808 1,376,456
========= ========= =========
The effect of common stock equivalents is not material in the periods reported.
Postretirement Benefits Other Than Pensions - The Company sponsors a
defined benefit postretirement plan that provides comprehensive major medical
benefits to all eligible retirees. Postretirement benefits are accrued based on
the expected cost of providing postretirement benefits to employees during the
years that the employees have rendered service to the Company.
Reclassification - Certain amounts appearing in the consolidated financial
statements and notes thereto for the year ended December 31, 1995 and 1994, have
been reclassified to conform to the December 31, 1996 presentation.
NOTE 2 - Securities
The amortized cost and fair value of securities held-to-maturity are
summarized as follows:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------- ----------- ----------- -----------
AT DECEMBER 31, 1996:
Debt securities:
U.S. government and
federal agencies ..... $36,482,782 $ 91,980 $ (216,762) $36,358,000
Mortgage-backed
securities ........... 1,944,510 16,135 (6,645) 1,954,000
----------- ----------- ----------- -----------
Total debt securities . 38,427,292 108,115 (223,407) 38,312,000
Other securities ...... 1,596,700 300 -- 1,597,000
----------- ----------- ----------- -----------
Total ............... $40,023,992 $ 108,415 $ (223,407) $39,909,000
=========== =========== =========== ===========
AT DECEMBER 31, 1995:
Debt securities:
U.S. government and
federal agencies ..... $33,999,917 $ 306,015 $ (99,932) $34,206,000
Mortgage-backed
securities ........... 2,404,464 71,618 (82) 2,476,000
----------- ----------- ----------- -----------
Total debt securities . 36,404,381 377,633 (100,014) 36,682,000
Other securities ...... 1,596,700 300 -- 1,597,000
----------- ----------- ----------- -----------
Total ............... $38,001,081 $ 377,933 $ (100,014) $38,279,000
=========== =========== =========== ===========
The amortized cost and fair value of debt securities held-to-maturity at
December 31, 1996, by contractual maturity, are shown on the following schedule.
Expected maturities will differ from contractual maturities because borrowers
may have the right to call or prepay obligations with or without call or
prepayment penalties.
19
Amortized Fair
Cost Value
----------- -----------
Due in one year or less ........................ $ 7,242,235 $ 7,253,000
Due after one year through five years .......... 26,240,547 26,112,000
Due after five years through ten years ......... 3,000,000 2,993,000
Mortgage-backed securities ..................... 1,944,510 1,954,000
----------- -----------
Total ......................................... $38,427,292 $38,312,000
=========== ===========
There were no sales of securities during the year ended December 31, 1996,
1995 and 1994.
NOTE 3 - Loans Receivable
Loans are summarized below as of the dates indicated:
1996 1995
------------ ------------
Loans secured by real estate:
Construction and land development ............ $ 13,247,600 $ 8,913,022
Residential .................................. 151,342,808 143,571,514
Commercial real estate and other dwelling .... 57,258,765 51,207,564
------------ ------------
Total loans secured by real estate ........ 221,849,173 203,692,100
Commercial business loans ..................... 17,820,797 14,948,660
Consumer loans ................................ 4,889,512 3,526,619
Government and other .......................... 136,401 125,321
------------ ------------
Loans receivable .......................... $244,695,883 $222,292,700
============ ============
Activity in the allowance for loan losses is summarized below for the
periods indicated:
1996 1995 1994
----------- ----------- -----------
Balance at beginning of period .... $ 2,829,681 $ 2,751,146 $ 2,582,536
Provision charged to income ....... 85,000 80,000 144,500
Loans charged off ................. (28,203) (2,330) (9,858)
Recoveries ........................ 527 865 33,968
----------- ----------- -----------
Balance at end of period .......... $ 2,887,005 $ 2,829,681 $ 2,751,146
=========== =========== ===========
At December 31, 1996 and 1995, no portion of the allowance for loan losses
was allocated to impaired loan balances as the Company had no loans it
considered to be impaired loans as of or for the year ended December 31, 1996
and 1995.
NOTE 4 - Loan Servicing
Mortgage loans serviced for others are not included in the accompanying
consolidated balance sheets. The unpaid principal balances of these loans are
summarized below as of the dates indicated:
1996 1995
---------- ---------
Mortgage loan portfolios serviced for:
FHLMC ............................ $7,152,436 $7,591,703
========== ==========
Custodial escrow balances maintained in connection with the foregoing loan
servicing were approximately $128,000 and $160,000 at December 31, 1996 and
1995, respectively.
NOTE 5 - Premises and Equipment, Net
Premises and equipment are summarized below as of the dates indicated:
1996 1995
--------- ---------
Cost:
Land............................ $ 1,721,313 $ 1,271,652
Buildings and improvements...... 5,228,753 4,112,790
Furniture and equipment......... 3,104,300 2,412,838
------------ -----------
Total cost...................... 10,054,366 7,797,280
Less accumulated depreciation
and amortization ............... (2,968,384) (2,540,495)
------------ -----------
Premises and equipment, net.... $ 7,085,982 $ 5,256,785
=========== ===========
NOTE 6 - Income Taxes
Components of the provision for income taxes consists of the following for
the years indicated:
1996 1995 1994
----------- ----------- -----------
Federal:
Current .................. $ 1,071,291 $ 1,376,742 $ 1,604,830
Deferred ................. 56,709 221,058 59,170
State:
Current .................. 286,616 405,586 492,808
Deferred ................. 4,384 23,014 (24,808)
----------- ----------- -----------
Income tax expense ......... $ 1,419,000 $ 2,026,400 $ 2,132,000
=========== =========== ===========
The differences between the provision for income taxes shown on the
statement of income and amounts computed by applying the statutory federal
income tax rate to income before tax expense consists of the following for the
years indicated:
1996 1995 1994
----------- ----------- -----------
Federal statutory rate ........... 34% 34% 34%
Tax expense at statutory rate .... $ 1,226,605 $ 1,743,385 $ 1,822,373
State tax, net of federal effect . 195,360 282,876 308,880
Other ............................ (2,965) 139 747
----------- ----------- -----------
Total income tax expense ......... $ 1,419,000 $ 2,026,400 $ 2,132,000
=========== =========== ===========
The components of the net deferred tax asset recorded in the consolidated
balance sheet are as follows:
1996 1995
---------- ---------
Deferred tax assets:
Bad debt........................ $ 298,239 $ 266,123
Deferred loan fees.............. 174,419 174,903
Deferred compensation........... 430,168 392,851
Other........................... 75,448 72,186
---------- ---------
Total deferred tax assets...... 978,274 906,063
Deferred tax liabilities:
Depreciation ................... (215,862) (221,716)
Other........................... (56,404) (39,432)
---------- ---------
Total deferred tax liabilities. 272,266 (261,148)
Valuation allowance.............. - -
---------- ---------
Net deferred tax assets........ $ 706,008 $ 644,915
========== ==========
The Company has qualified under provisions of the Internal Revenue Code
which permit it to deduct from taxable income a provision for bad debts in
excess of the provision for such losses charged to income in the financial
statements, if any. Accordingly, retained earnings at December 31, 1996 and 1995
includes approximately $6,000,000 for which no provision for federal income
taxes has been made. If, in the future, this portion of retained earnings is
used for any purpose other than to absorb bad
20
debt losses, federal income taxes would be imposed at the then applicable rates.
The unrecorded deferred income tax liability on the above amounts was
approximately $2,040,000 at December 31, 1996. Tax legislation passed in August
1996 now requires the Company to deduct a provision for bad debts for tax
purposes based on actual loss experience and recapture the excess bad debt
reserve accumulated in tax years after 1986. The related amount of deferred tax
liability which must be recaptured is $855,000 and is payable over a six year
period beginning no later than 1998.
NOTE 7 - Deposits
The aggregate amount of certificates of deposit with a balance of $100,000
or more was $26,099,900 at December 31, 1996 and $23,107,687 at December 31,
1995.
At December 31, 1996, scheduled maturities of certificates of deposit were
as follows for the years ended December 31:
1997 $127,112,424
1998 21,515,026
1999 3,795,951
2000 1,198,423
2001 and thereafter -
------------
$153,621,824
============
NOTE 8 - Borrowed Funds
Borrowed funds is summarized below as of the dates indicated:
1996 1995
----------- ----------
Repurchase agreements ........................ $ 3,993,467 $ 2,403,347
5.75% FHLB advance, due June 30, 1997 ........ 7,000,000 --
Other ........................................ 1,267,040 735,482
----------- -----------
Total ...................................... $12,260,507 $ 3,138,829
=========== ===========
Repurchase agreements generally mature within one year and are secured by
FHLMC participation certificates or U.S. government securities, under the
Company's control. Information concerning these retail repurchase agreements are
summarized as of the dates indicated:
1996 1995
---------- ----------
Ending balance ..................................... $3,993,467 $2,403,347
Average balance during the year .................... 3,599,183 1,592,978
Average interest rate during the year .............. 5.27% 5.65%
Maximum month-end balance during the year .......... 5,419,296 2,403,347
Securities underlying the agreements at year end:
Carrying value .................................... $5,572,107 $3,363,545
Fair value ........................................ 5,558,621 3,538,432
NOTE 9 - Employees' Benefit Plans
The Company maintains a Profit Sharing Plan and Trust for all employees who
meet the plan qualifications. Employees are eligible to participate in the
Employees' Profit Sharing Plan and Trust if they are 21 years of age or older
and have completed one year of employment with more than 1,000 hours of service
to the Company. The plan is noncontributory on the part of the employee.
Contributions to the Employees' Profit Sharing Plan and Trust are made at the
discretion of the Company's Board of Directors. Contributions during the year
ended December 31, 1996 were based on 9.0% of the participants' total
compensation excluding incentives. Participants in the plan become 100% vested
upon completion of five years of service. The benefit plan expense amounted to
$185,417 for the year ended December 31, 1996, $203,246 for the year ended
December 31, 1995 and $172,140 for the year ended December 31, 1994. In
addition, the Company maintains an Unqualified Deferred Compensation Plan. The
purpose of the Plan is to provide a means for the payment of deferred
compensation to a select group of key senior management employees of the
Company. The Plan expense amounted to $2,868 for the year ended December 31,
1996 and $3,838 for the year ended December 31, 1995. No expense was incurred
for the year ended December 31, 1994.
The Company also maintains an Employee Stock Ownership Plan (ESOP).
Eligibility and vesting requirements for the ESOP are the same as those for the
Profit Sharing Plan and Trust. Contributions to the ESOP are made at the
discretion of the Company's Board of Directors. No contributions to the ESOP
were made during the year ended December 31, 1996 and 1995. Contributions during
the year ended December 31, 1994 were based on 1.0% of the participants total
compensation excluding incentives. The ESOP held 572 shares of the Company's
common stock as of December 31, 1996, all of which have been allocated to
participants. The ESOP expense amounted to $0, $0 and $19,377 for the year ended
December 31, 1996, 1995 and 1994, respectively.
NOTE 10 - Defined Benefit Postretirement Plan
The Company sponsors a defined benefit postretirement plan that provides
comprehensive major medical benefits to all eligible retirees. Eligible retirees
are those who have attained age 65, have completed at least 18 years of service
and are eligible for coverage under the employee group medical plan as of the
date of their retirement. Spouses of eligible retirees are covered if they were
covered as of the employee's date of retirement. Surviving spouses are covered
if they were covered at the time of the retiree's death. Dependent children of
eligible retirees are generally covered to the later of age 19 or until the
child ceases being a full-time student. Surviving dependent children are subject
to the same eligibility restrictions if they were covered at the time of the
retiree's death. The Company pays 50% of any future premium increases for
retiree medical coverage. Retirees pay 100% of the premiums for all dependent
medical coverage.
The following table sets forth a reconciliation of the funded status of the
plan with the amount reported in the Company's consolidated balance sheet as of
the dates indicated:
1996 1995
-------- --------
Accumulated postretirement benefit obligation:
Retirees ............................................ $ 63,845 $ 71,841
Fully eligible active plan participants ............. -- --
Other active plan participants ...................... 67,970 46,583
-------- --------
Accumulated postretirement benefit
obligation in excess of plan assets and
accrued postretirement benefit expense .............. $131,815 $118,424
======== ========
21
Net periodic postretirement benefit expense for the periods indicated
included the following components:
1996 1995 1994
-------- -------- --------
Service cost-benefits attributed
to service during the period ......... $ 3,917 $ 3,518 $ 6,205
Interest cost on accumulated
postretirement benefit obligation .... 9,474 5,839 12,105
Amortization of unrecognized
net gain ............................. (5,202) -- --
------- -------- -------
Net periodic postretirement
benefit expense....................... $ 8,189 $ 9,357 $18,310
======== ======== =======
For measurement purposes, an 11.5% annual rate of increase in the per
capita cost of covered health care benefits was assumed for the fiscal year
ended December 31, 1996, dropping to an annual rate of 5.5% after 6 years. The
health care cost trend rate assumption has a significant effect on the amounts
reported. The weighted-average discount rate used in determining the accumulated
postretirement benefit obligation was 8%.
NOTE 11 - Regulatory Capital
The Company and Bank are subject to regulatory capital requirements
administered by federal banking agencies. Capital adequacy guidelines and prompt
corrective action regulations involve quantitative measures of assets,
liabilities, and certain off-balance-sheet items calculated under regulatory
accounting practices. Capital amounts and classifications are also subject to
qualitative judgments by regulators about components, risk weightings, and other
factors, and the regulators can lower classifications in certain cases. Failure
to meet various capital requirements can initiate regulatory action that could
have a direct material effect on the financial statements. The prompt corrective
action regulations provide five classifications, including well capitalized,
adequately capitalized, undercapitalized, significantly undercapitalized, and
critically undercapitalized, although these terms are not used to represent
overall financial condition.
At year end, capital levels (in millions) for the Company and the Bank were
substantially the same. Actual capital levels, minimum required levels and
levels needed to be classified as well capitalized for the Company are
summarized below:
Minimum
Required To Be
Well Capitalized
Minimum Required Under Prompt
for Capital Corrective
Actual Adequacy Purposes Action Regulations
--------------- ----------------- ------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
1996
Total capital
(to 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 1 capital to total assets. $27.8 9.3% $ 9.0 3.0% $15.0 5.0%
1995
Total capital
(to risk-weighted assets)...... $29.4 17.1% $13.8 8.0% $17.2 10.0%
Tier 1 capital
(to risk-weighted assets)..... $27.2 15.8% $ 6.9 4.0% $10.3 6.0%
Tier 1 capital to total assets. $27.2 9.7% $ 8.4 3.0% $14.0 5.0%
The Company and the Bank were categorized as well capitalized at December 31,
1996.
The Company's ability to pay dividends is entirely dependent upon the
Bank's ability to pay dividends to the Company. 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, the Indiana Department
of Financial Institutions 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.
Moreover, the FDIC and the Federal Reserve Board may prohibit the payment of
dividends if it determines that the payment of dividends would constitute an
unsafe or unsound practice in the light of the financial condition of the Bank.
NOTE 12 - Stock Option Plan
The Board of Directors has adopted the 1994 Stock Option and Incentive Plan
(the "Incentive Plan"), which was approved by shareholders at the 1994 annual
meeting. Pursuant to the Incentive Plan, an aggregate of 60,000 shares of the
Company's common stock were reserved for issuance in respect of incentive awards
granted to officers and other employees of the Company and the Bank. Awards
granted under the Incentive Plan may be in the form of incentive stock options
within the meaning of Section 422 of the Internal Revenue Code, or non-incentive
stock options or restricted stock. The purposes of the Plan are to attract and
retain the best available personnel, to provide additional incentives for all
employees and to encourage their continued employment by facilitating employees'
purchases of an equity interest in the Company. Effective upon the July 31, 1994
holding company formation, all options then outstanding under the Bank's prior
stock option plan became options to purchase an equal number of shares of the
Company's common stock under the Incentive Plan, on the same terms.
Financial Accounting Standard No. 123, which became effective for 1996,
requires pro forma disclosures for companies that do not adopt its fair value
accounting method for stock-based employee compensation. Accordingly, the
following pro forma information presents net income and earnings per share had
the Standard's fair value method been used to measure compensation cost for
stock option plans. No compensation cost was recognized for stock options during
1996 and 1995.
1996 1995
------------- --------------
Net income as reported $2,188,662 $3,101,203
Pro forma net income 2,182,421 3,095,782
Earnings per share as reported $1.59 $2.25
Pro forma earnings per share $1.58 $2.25
In future years, the pro forma effect of not applying this standard is
expected to increase as additional options are granted. Information about option
grants is provided on the following schedule.
22
Weighted-average
Number Weighted-average fair value
of options exercise price of grants
---------- ---------------- ----------------
Outstanding, January 1, 1994 ....... 13,116 $ 8.66 $
Granted ............................ -- -- --
Exercised .......................... 3,792 4.94
Forfeited .......................... -- --
Expired ............................ 100 2.50
------
Outstanding, December 31, 1994 ..... 9,224 10.29
Granted ............................ 14,500 21.25 2.53
Exercised .......................... 1,352 10.30
Forfeited .......................... -- --
Expired ............................ -- --
-----
Outstanding, December 31, 1995 ..... 22,372 17.39
Granted ............................ 3,400 27.00 2.06
Exercised .......................... 158 12.88
Forfeited .......................... -- --
Expired ............................ -- --
------
Outstanding, December 31, 1996 ..... 25,614 18.70
======
Options exerciseable at year-end are as follows.
Number Weighted-average
of options exercise price
------------- -----------------
1994 9,224 $10.29
1995 7,912 $10.35
1996 7,794 $10.35
At December 31, 1996, options outstanding were as follows:
Number of options 25,614
Range of exercise price $9.31 - $27.00
Weighted-average exercise price $18.70
Weighted-average remaining option life 5.8 years
For options now exerciseable: Number 7,794
Weighted-average exercise price $10.35
The fair value of options granted during 1996 and 1995 is estimated using
the following weighted-average information: risk-free interest rate of 5.42% and
7.75%, expected life of 7 years, expected volatility of stock price of 5.45%,
and expected dividends of 4.26% and 5.18% per year.
NOTE 13 - Related Party Transactions
The Bank had aggregate loans outstanding to directors and executive
officers (with individual balances exceeding $60,000) of $1,763,338 at December
31, 1996 and $1,530,198 at December 31, 1995. For the year ended December 31,
1996, the following activity occurred on these loans:
Aggregate balance - December 31, 1995.. $ 1,530,198
New loans ............................. 734,244
Repayments ............................ (501,104)
----------
Aggregate balance - December 31, 1996.. $ 1,763,338
===========
NOTE 14 - Commitments and Contingencies
The Company is a party to financial instruments in the normal course of
business to meet financing needs of its customers. These financial instruments
which include commitments to make loans and standby letters of credit are not
reflected in the accompanying consolidated financial statements.
The Company's exposure to credit loss in the event of non-performance by
the other party to the financial instrument for commitments to originate loans
and standby letters of credit is represented by the contractual amount of those
instruments. Commitments generally have fixed expiration dates or other
termination clauses and may require the payment of a fee. The Company uses the
same credit policy to make such commitments as it uses for on-balance-sheet
items. Since commitments to make loans may expire without being used, the
amounts does not necessarily represent future cash commitments.
The Company had outstanding commitments to originate loans as follows:
Fixed Variable
Rate Rate Total
----------- ----------- -----------
December 31, 1996:
Real estate ................. $ 6,346,296 $12,606,397 $18,952,693
Consumer loans .............. -- 280,578 280,578
Commercial business ......... -- 14,878,263 14,878,263
----------- ----------- -----------
Total ...................... $ 6,346,296 $27,765,238 $34,111,534
=========== =========== ===========
Fixed Variable
Rate Rate Total
----------- ----------- -----------
December 31, 1995:
Real estate ................. $ 4,588,504 $12,107,386 $16,695,890
Consumer loans .............. -- 6,324 6,324
Commercial business ......... -- 10,455,970 10,455,970
----------- ----------- -----------
Total ...................... $ 4,588,504 $22,569,680 $27,158,184
=========== =========== ===========
The $6,346,296 in fixed rate commitments outstanding at December 31, 1996
had interest rates ranging from 7.00% to 9.50%, for a period not to exceed
forty-five days.
Standby letters of credit are conditional commitments issued by the Company
to guarantee the performance of a customer to a third party. At December 31,
1996, the Company had standby letters of credit totaling $519,350. The Company
evaluates each customer's creditworthiness on a case by case basis. The amount
of collateral obtained, if deemed necessary by the Company upon extension of
credit, is based on management's credit evaluation of the borrower. Collateral
obtained may include accounts receivable, inventory, property, land or other
assets.
The Company is a defendant in certain claims and legal actions arising in
the ordinary course of business. In the opinion of management, after
consultation with legal counsel, the ultimate disposition of these matters is
not expected to have a material adverse effect on the consolidated financial
position or results of operations of the Company.
NOTE 15 - Fair Values of Financial Instruments
SFAS No. 107 "Disclosure about Fair Value of Financial Instruments"
prescribes that the Company disclose the estimated fair value of its financial
instruments. The following table shows those values and the related carrying
values as of the dates indicated. Items which are not financial instruments are
not included.
23
December 31, 1996
----------------------------------
Carrying Estimated
Value Fair Value
------------- --------------
Cash and cash equivalents ............ $ 6,508,822 $ 6,509,000
Securities held-to-maturity .......... 40,023,992 39,909,000
Loans receivable, net ................ 241,808,878 241,702,000
Demand and savings deposits .......... (102,797,853) (102,798,000)
Certificates of deposit .............. (153,621,824) (153,787,000)
Borrowed funds ....................... (12,260,507) (12,261,000)
December 31, 1995
----------------------------------
Carrying Estimated
Value Fair Value
------------- --------------
Cash and cash equivalents ............ $ 14,943,704 $ 14,944,000
Securities held-to-maturity .......... 38,001,081 38,279,000
Loans receivable, net ................ 219,463,019 220,071,000
Demand and savings deposits .......... (95,937,691) (95,938,000)
Certificates of deposit .............. (152,006,998) (152,283,000)
Borrowed funds ....................... (3,138,829) (3,139,000)
For purposes of the above disclosures of estimated fair value, the
following assumptions were used as of December 31, 1996 and 1995. The estimated
fair value for cash and cash equivalents is considered to approximate cost. The
estimated fair value for securities is based on quoted market values for the
individual securities or equivalent securities. The estimated fair value for
commercial loans is based on estimates of the difference in interest rates the
Company would charge the borrowers for similar such loans with similar
maturities made at December 31, 1996 and 1995, applied for an estimated time
period until the loan is assumed to reprice or be paid. The estimated fair value
for other loans is based on estimates of the rate the Company would charge for
similar such loans at December 31, 1996 and 1995, applied for the time period
until estimated repayment. The estimated fair value for demand and savings
deposits is based on their carrying value. The estimated fair value for
certificates of deposits is based on estimates of the rate the Company would pay
on such deposits at December 31, 1996 and 1995, applied for the time period
until maturity. The estimated fair value for borrowed funds is considered to
approximate cost. The estimated fair value of other financial instruments,
including accrued interest receivable and payable, and off-balance sheet loan
commitments approximate cost and are not considered significant to this
presentation.
While these estimates of fair value are based on management's judgment of
the most appropriate factors, there is no assurance that were the Company to
have disposed of such items at December 31, 1996 and 1995, the estimated fair
values would necessarily have been achieved at that date, since market values
may differ depending on various circumstances. The estimated fair values at
December 31, 1996 and 1995 should not necessarily be considered to apply at
subsequent dates.
In addition, other assets and liabilities of the Company that are not
defined as financial instruments are not included in the above disclosures, such
as premises and equipment. Also, non-financial instruments typically not
recognized in financial statements nevertheless may have value but are not
included in the above disclosures. These included, among other items, the
estimated earnings power of core deposit accounts, the earnings potential of
loan servicing rights, the earnings potential of the Bank's trust department,
the trained work force, customer goodwill and similar items.
NOTE 16 - Selected Quarterly Financial Data (Unaudited)
Selected quarterly financial data are summarized below as follows:
Year ended December 31, 1996:
March 31, June 30, September 30, December 31,
1996 1996 1996 1996
----------- ----------- ------------ ------------
Total interest income ..... $ 5,446,966 $ 5,531,626 $ 5,633,226 $ 5,725,091
Total interest expense .... 2,808,979 2,777,254 2,817,835 2,882,579
----------- ----------- ----------- -----------
Net interest income ....... 2,637,987 2,754,372 2,815,391 2,842,512
Provision for loan losses . 15,000 17,500 22,500 30,000
----------- ----------- ----------- -----------
Net interest income after
provision for loan losses. 2,622,987 2,736,872 2,792,891 2,812,512
Total noninterest income .. 177,502 164,690 166,525 173,124
Total noninterest expense . 1,628,882 1,631,732 3,198,854 1,579,973
----------- ----------- ----------- -----------
Income before
income taxes ............ 1,171,607 1,269,830 (239,438) 1,405,663
Income tax expenses ...... 466,600 506,600 (91,650) 537,450
----------- ----------- ----------- -----------
Net income ............... $ 705,007 $ 763,230 $ (147,788) $ 868,213
=========== =========== =========== ===========
Earnings per share ....... $ 0.51 $ 0.56 $ (0.11) $ 0.63
=========== =========== =========== ===========
Year ended December 31, 1995:
March 31, June 30, September 30, December 31,
1995 1995 1995 1995
---------- ---------- ----------- ----------
Total interest income ...... $5,153,802 $5,270,477 $5,321,006 $5,377,373
Total interest expense ..... 2,368,124 2,607,615 2,729,302 2,779,168
---------- ---------- ---------- ----------
Net interest income ........ 2,785,678 2,662,362 2,591,704 2,598,205
Provision for loan losses .. 27,500 17,500 15,000 20,000
---------- ---------- ---------- ----------
Net interest income after
provision for loan losses . 2,758,178 2,645,362 2,576,704 2,578,205
Total noninterest income ... 165,800 144,842 156,506 218,291
Total noninterest expense .. 1,536,817 1,550,786 1,537,081 1,491,601
---------- ---------- ---------- ----------
Income before
income taxes .............. 1,387,161 1,239,418 1,196,129 1,304,895
Income tax expenses ........ 553,575 493,425 476,600 502,800
---------- ---------- ---------- ----------
Net income ................. $ 833,586 $ 745,993 $ 719,529 $ 802,095
========== ========== ========== ==========
Earnings per share ......... $ 0.61 $ 0.54 $ 0.53 $ 0.58
========== ========== ========== ==========
24
NOTE 17 - Parent Company Only Statements
NorthWest Indiana Bancorp
Condensed Balance Sheet
December 31,
--------------------------
1996 1995
----------- ----------
Assets
Cash on deposit with Peoples Bank .............. $ 52,877 $ 40,530
Investment in Peoples Bank ..................... 27,782,574 27,183,243
Dividends receivable from Peoples Bank ......... 445,000 380,000
Other assets ................................... 4,750 14,700
----------- -----------
Total assets .................................. $28,285,201 $27,618,473
=========== ===========
Liabilities and stockholders' equity
Dividends payable .............................. $ 441,464 $ 379,345
Other liabilities .............................. 28,500 35,000
----------- -----------
Total liabilities ............................. 469,964 414,345
Common stock ................................... 344,899 344,859
Additional paid in capital ..................... 2,929,587 2,927,595
Retained earnings .............................. 24,540,751 23,931,674
----------- -----------
Total stockholders' equity .................... 27,815,237 27,204,128
----------- -----------
Total liabilities and stockholders' equity .... $28,285,201 $27,618,473
=========== ===========
NorthWest Indiana Bancorp
Condensed Statements of Income
Five Months
Year Ended Year Ended Ended
December 31, December 31, December 31,
1996 1995 1994
----------- ----------- -----------
Operating income
Dividends from
Peoples Bank ................... $ 1,625,000 $ 1,552,000 $ 787,785
Operating expenses .............. 58,669 108,823 --
----------- ----------- -----------
Income before income taxes
and equity in undistributed
income of Peoples Bank ......... 1,566,331 1,443,177 787,785
Provision for income taxes ...... (23,000) (43,600) --
----------- ----------- -----------
Income before equity
in undistributed
income of Peoples Bank ......... 1,589,331 1,486,777 787,785
Equity in undistributed
income of Peoples Bank ......... 599,331 1,614,426 552,037
----------- ----------- -----------
Net Income ...................... $ 2,188,662 $ 3,101,203 $ 1,339,822
=========== =========== ===========
NorthWest Indiana Bancorp
Condensed Statements of Cash Flows
Five Months
Year Ended Year Ended Ended
December 31, December 31, December 31,
1996 1995 1994
----------- ----------- -----------
CASH FLOWS FROM OPERATING
ACTIVITIES
Net income .................. $ 2,188,662 $ 3,101,203 $ 1,339,822
Adjustments to reconcile net
income to net cash from
operating activities
Equity in undistributed
net income of
Peoples Bank ............ (599,331) (1,614,426) (552,037)
Change in other assets .... (55,050) 4,300 (399,000)
Change in other liabilities (6,500) 35,373 --
----------- ----------- -----------
Total adjustments ........ (660,881) (1,574,753) (951,037)
----------- ----------- -----------
Net cash from
operating activities . 1,527,781 1,526,450 388,785
CASH FLOWS FROM
INVESTING ACTIVITIES ....... -- -- --
CASH FLOWS FROM
FINANCING ACTIVITIES
Dividends paid ............. (1,517,466) (1,517,013) (378,785)
Proceeds from issuance
of capital stock ......... 2,032 13,929 7,164
----------- ----------- -----------
Net cash from
financing activities .... (1,515,434) (1,503,084) (371,621)
----------- ----------- -----------
Net change in cash .......... 12,347 23,366 17,164
Cash at beginning of year ... 40,530 17,164 --
----------- ----------- -----------
CASH AT END OF YEAR ......... $ 52,877 $ 40,530 $ 17,164
=========== =========== ===========
NOTE 18 - Current Accounting Issues
Financial Accounting Standard No. 125, Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities, was issued by
the Financial Accounting Standards Board in 1996. It revises the accounting for
transfers of financial assets, such as loans and securities, and for
distinguishing between sales and secured borrowings. It is effective for some
transactions in 1997 and others in 1998. The effect on the financial statements
has not yet been determined.
25
MARKET INFORMATION
The Company's Common Stock is traded in the over-the-counter market and is
quoted in the National Quotation Bureau's "Pink Sheets". The Company's stock is
not actively traded. As of February 28, 1997, the Company had 1,380,846 shares
of common stock outstanding, excluding fractional shares, and 593 stockholders
of record. This does not reflect the number of persons or entities who may hold
their stock in nominee or "street" name through brokerage firms. Set forth below
are the high and low bid prices during each quarter for the fiscal year ended
December 31, 1996 and December 31, 1995. The bid prices reflect inter-dealer
prices without retail mark-up, mark-down or commission and may not necessarily
represent actual transactions. Also set forth is information concerning the
dividends declared by the Company during the periods reported. Note 11 to the
Financial Statements describes regulatory limits on the Company's ability to pay
dividends. All references to the number of shares and per share data have been
restated to reflect the stock splits (see Note 1).
Per Share Prices Dividends
Declared Per
High Low Common Share
------ ------ ------------
Fiscal Year Ended
December 31, 1996 1st Quarter $30.00 $25.50 $.275
- --------------------------------------------------------------------
2nd Quarter 31.13 30.00 .275
- --------------------------------------------------------------------
3rd Quarter 31.13 30.00 .275
- --------------------------------------------------------------------
4th Quarter 31.13 31.13 .320
- --------------------------------------------------------------------
Fiscal Year Ended
December 31, 1995 1st Quarter $22.50 $20.75 $.275
- --------------------------------------------------------------------
2nd Quarter 25.00 22.50 .275
- --------------------------------------------------------------------
3rd Quarter 25.50 25.00 .275
- --------------------------------------------------------------------
4th Quarter 27.00 25.50 .275
- --------------------------------------------------------------------------------
MARKET PRICE PER SHARE
June 30, Dec. 31, Dec. 31, Dec. 31, Dec. 31,
1993 1993 1994 1995 1996
$15.63 $15.88 $21.25 $27.00 $31.13
The market price per share represents the last sales price prior to the close of
the periods indicated. The Company's stock is not actively traded. At the
present time the Company's stock is traded in the over-the-counter market and is
quoted in the National Quotation Bureau's "Pink Sheets".
================================================================================
BOOK VALUE PER SHARE
June 30, Dec. 31, Dec. 31, Dec. 31, Dec. 31,
1993 1993 1994 1995 1996
$16.59 $17.37 $18.58 $19.72 $20.16
The Bank's earnings have increased the book value of the Company's stock from
$16.59 at June 30, 1993 to $20.16 per share at December 31, 1996. On December 2,
1996, the Company effected a two-for-one split of its common stock. Book value
per share has been restated for all periods presented to reflect the split.
================================================================================
EARNINGS PER COMMON SHARE
June 30, Dec. 31, Dec. 31, Dec. 31, Dec. 31,
1993 1993 1994 1995 1996
$2.25 $1.33 $2.35 $2.25 $1.59
Earnings for 1996 totaled $2.2 million resulting in an earnings per share (EPS)
of $1.59. On December 2, 1996, the Company effected a two-for-one split of its
common stock. The decrease in the EPS for 1996 reflects the one-time special
assessment on SAIF-assessable deposits to recapitalize SAIF.
================================================================================
5 YEAR TOTAL RETURN
CRSP Market Index CRSP Bank Index Bancorp
$ 227 $325 $340
The management of Northwest Indiana Bancorp is committed to maximizing
shareholder value. The Company's stock performance on a total return basis
compares favorably with the total returns of the CRSP (Center for Research in
Securities Prices at the University of Chicago) Index for the Nasdaq Stock
Market (CRSP Market Index) and for Nasdaq Bank Stocks (CRSP Bank Index). The
total return is measured using both stock price appreciation and the effect of
the continuous reinvestment of dividend payments. The graph shows that an
initial $100 investment in the Bancorp stock on December 31, 1991, would be
worth $340 on December 31, 1996.
================================================================================
PEOPLES MANAGEMENT TEAM
[photo of Management Team]
MANAGEMENT TEAM (l to r): Vice President, Chief Financial Officer Edward J.
Furticella, Vice President, Chief Lending Officer Joel Gorelick, Senior Vice
President, General Counsel, Trust Officer and Corporate Secretary Frank J.
Bochnowski, Vice President for Housing Finance Daniel W. Moser, Chairman and
Chief Executive Officer David A. Bochnowski and Vice President, Retail Banking
Rodney L. Grove.
27
PEOPLES BOARD OF DIRECTORS
[Photo of David A. Bochnowski]
David A. Bochnowski
Chairman and Chief Executive Officer of the Company
Munster, Indiana
[Photo of Gloria C. Gray]
Gloria C. Gray
Vice President and Treasurer of
Career Development Consultants, Munster, Indiana
[Photo of Jerome F. Vrabel]
Jerome F. Vrabel
Vice President, ED&F Man International Inc.
Chicago, Illinois
[Photo of James J. Crandall]
James J. Crandall (right)
Retired Attorney
[Photo of John J. Wadas, Jr.]
John J. Wadas, Jr.
Dentist practicing in Munster and East Chicago, Indiana
28
[Photo of Frank J. Bochnowski and Stanley E. Mize]
Stanley E. Mize (right)
President of Towne & Countree Auto Sales and
Co-owner of Lake Shore Ford
Frank J. Bochnowski (left)
Senior Vice President and Corporate Secretary
[Photo of Leroy F. Cataldi]
Leroy F. Cataldi
President of Cataldi Prescription Shop,
Dyer, Indiana
[Photo of Lourdes M. Dennison]
Lourdes M. Dennison
Administrative Director, Dennison Surgical Corporation
Merrillville, Indiana
[Photo of Benjamin A. Bochnowski]
[Photo of Harold G. Reuth]
Benjamin A. Bochnowski (left)
Advisory Director
Harold G. Reuth (right)
Director Emeritus
29
BRANCH OFFICES
[photo of East Chicago Branch]
East Chicago Branch
(l to r):
Veronica Perez, Malinda Caraballo, Meredith Rolewski, Manager Christopher
Grencik, Raquel Avila, Delia Mata, Tia Airington and La Coiya Henderson.
[photo of Dyer Branch]
Dyer Branch
(seated l to r):
Marijo Rosellini, Brandy Bakker, (back l to r): Tracy Proffitt and Shirley
Esboldt. Not pictured: Manager Jacqueline Mireles and Eileen Tobias.
[photo of Woodmar Branch]
Woodmar Branch
(seated l to r):
Denise Keilman, Elaine Chase, (back l to r): Donna Kominiak, Amber Jaeger, Nakia
Dumas, Cynthia Panicucci and Assistant Vice President Barbara Zura. Not
pictured: Diana Dowling.
[photo of Munster Branch]
Munster Branch
(l to r):
Carla Dohl, Joshlyne Freeman, Karen Laude and Assistant Vice President Jill
Knight. Not pictured: Nicole Lammertin, Scott Matucha and Maria Rubio.
[photo of Merrillville/Taft Branch]
Merrillville/Taft Branch
(front):
Mary Lynne Urbanski, (back l to r): Heather Sharkey, Tinisha Greenwell, Kimberly
Hartlerode and Assistant Vice President Marilyn Repp. Not pictured: Betty
Rachowicz and Sandra Sigler.
[photo of Schererville Branch]
Schererville Branch
(seated l to r):
Cindy Miles, Nicole Lopez, (back l to r): Mettie Clark, Manager Shannon Franko,
Marilyn Germek and Julie Baker. Not pictured: Robyn Towasnicki and Kelly
Triezenberg.
[photo of Merrillville/Broadway Branch]
Merrillville/ Broadway Branch
(l to r):
Wendy Glover, Manager Heather Mayden, Ave Colby, Kathy Wenzel and Colleen
Wigmore. Not pictured: Sarah Furman.
30
CORPORATE DEPARTMENTS
[photo of Administration Department]
Administration
(l to r):
Irene Calvin, Assistant Vice President Linda Kollada, Keith Koziatek, Stacy
Januszewski and Genetra Bailey.
[photo of Operations Department]
Operations
(front l to r):
Suzanne Allred, Susan Meyer,
Mary Lorance, Susan Wojno, Rhoda Bolden, Michaelene Smith, (back l to r):
Kevin Crump, Julie Riese, Deborah Moricz, Tanya Mathews, Assistant
Vice President Robert Lowry, Assistant Vice President
Arlene Wohadlo and Charlotte Conn. Not pictured: Theresa Johnson.
[photo of Trust Department]
Trust Department
(l to r):
Audrey Tredway, Lisa Ortiz, Michelle Manchak, Assistant Vice President Stephan
Ziemba, Marie Muniz, Joyce Barr and Earlene Malachinski.
[photo of Mortgage Loan Department]
Mortgage Loans
(seated l to r):
Linda Banis, Sylvia Magallanez, Joy Pejkovich, Elizabeth Ehlin, (middle l to r):
Karen Sulek, Barbara Grothaus, Melanie Wilkinson, Lucy Cantu, Laura Amptmeyer,
(back l to r): Assistant Vice President Robert Soohey, Tricia Kluga, Margaret
Travis, Assistant Vice President Mary Mulroe, Patricia Mrvan and Marvin Tucker.
[photo of Commercial Loan Department]
Commercial Loan Department
(front l to r):
Janet Knoerzer, Ruth Oros, (center l to r): Jennifer Brown, Bonnie Kistler,
(back l to r): Assistant Vice President Terry Gadberry and Todd Scheub.
[photo of Consumer Loan Department]
Consumer Loan Department
(seated):
Dawn Shearer, (l to r): Sharon Vacendak, Manager James Lehr and Clovese McGhee.
31
CORPORATE INFORMATION
Corporate Headquarters
9204 Columbia Avenue
Munster, Indiana 46321
Telephone
219/836-9690
Peoples Bank SB
Officers
David A. Bochnowski.. ...Chairman and Chief Executive Officer*
Joel Gorelick..... .......Vice President, Chief Lending Officer*
Edward J. Furticella ....Vice President, Chief Financial Officer*
Frank J. Bochnowski .....Senior Vice President, General Counsel,
Trust Officer and Corporate Secretary*
Daniel W. Moser.............Vice President for Housing Finance
Rodney L. Grove.............Vice President, Retail Banking
* Holds similar office with NorthWest Indiana Bancorp
Directors of NorthWest Indiana Bancorp and Peoples Bank SB
David A. Bochnowski
Chairman and Chief Executive
Officer of the Company
Munster, Indiana
Leroy F. Cataldi
President of Cataldi Prescription Shop,
Dyer, Indiana
Gloria C. Gray
Vice President and Treasurer of
Career Development Consultants,
Munster, Indiana
Lourdes M. Dennison
Administrative Director,
Dennison Surgical Corporation,
Merrillville, Indiana
John J. Wadas, Jr.
Dentist practicing in Munster and
East Chicago, Indiana
Jerome F. Vrabel
Vice President, ED&F Man International Inc.,
Chicago, Illinois, a commodities brokerage firm on the
Chicago Board of Trade
James J. Crandall
Retired Attorney
Stanley E. Mize
President of Towne & Countree Auto Sales and
Co-owner of Lake Shore Ford
Advisory Director
Benjamin A. Bochnowski
Directors Emeriti
Harold G. Rueth
Albert J. Lesniak
Peoples Bank SB
Management Personnel
Accounting
Robert T. Lowry, Assistant Vice President, Controller
Arlene M. Wohadlo, Assistant Vice President
Branches
Shannon E. Franko, Schererville
Christopher A. Grencik, East Chicago
Jill M. Knight, Assistant Vice President, Munster
Heather M. Mayden, Merrillville (Broadway)
Jacqueline Mireles, Dyer
Marilyn K. Repp, Assistant Vice President,
Merrillville (Taft Street)
Barbara J. Zura, Assistant Vice President, Woodmar
Business Development
Averill C. Colby, III
Commercial Lending
Terry R. Gadberry, Assistant Vice President
Todd M. Scheub
Consumer Lending
James P. Lehr
Sharon V. Vacendak
Housing Finance
Robert J. Soohey, Assistant Vice President
Sylvia Magallanez
Marvin O. Tucker
Human Resources
Linda L. Kollada, Assistant Vice President
Information Services
Tanya A. Mathews
Loan Administration
Mary D. Mulroe, Assistant Vice President
Staff Internal Auditor
Stacy A. Januszewski
Trust
Stephan A. Ziemba, Assistant Vice President
Stock Transfer Agent
The Bank acts as the transfer agent for the Company's common stock.
Independent Auditors
Crowe, Chizek and Company LLP
330 East Jefferson Boulevard
P. O. Box 7
South Bend, Indiana 46624
Special Legal Counsel
Baker & Daniels
300 North Meridian Street
Suite 2700
Indianapolis, Indiana 46204
Annual Shareholders Meeting
The Annual Meeting of Shareholders of NorthWest Indiana Bancorp will be
held at the Wicker Park Social Center, Rts. 41 & 6, Highland, Indiana, on
Thursday, April 17, 1997 at 8:30 a.m.
A COPY OF THE COMPANY'S FORM 10-K, INCLUDING FINANCIAL STATEMENT SCHEDULES AS
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, WILL BE FURNISHED WITHOUT
CHARGE TO SHAREHOLDERS AS OF THE RECORD DATE UPON WRITTEN REQUEST TO THE
CORPORATE SECRETARY, NORTHWEST INDIANA BANCORP, 9204 COLUMBIA AVENUE,
MUNSTER, INDIANA 46321.
32
Inside Back Cover is blank
NORTHWEST INDIANA
- ------------------------
BANCORP
CORPORATE HEADQUARTERS,
9204 Columbia Avenue
Munster, Indiana 46321
219/836-9690
[PEOPLES BANK LOGO]
EAST CHICAGO, 4901 Indianapolis Blvd., 397-5010
HAMMOND, 7120 Indianapolis Blvd., 844-7210
DYER, 1300 Sheffield Avenue, 322-2530
MUNSTER, 9204 Columbia Avenue, 836-9690
SCHERERVILLE, 141 W. Lincoln Highway, 865-4300
MERRILLVILLE, 7915 Taft Street, 769-8452
8600 Broadway, 685-8600
FDIC Insured