SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
--------------------------------------
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the quarterly period ended SEPTEMBER 30, 1997, or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the transition period from ___________ to ___________
Commission File Number: 0-26128
NORTHWEST INDIANA BANCORP
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(Exact name of registrant as specified in its charter)
Indiana 35-1927981
- --------------------------------------------- -----------------------
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification Number)
9204 Columbia Avenue
Munster, Indiana 46321
- --------------------------------------- ----------
(Address of principal executive office) (ZIP code)
Registrant's telephone number, including area code: (219) 836-9690
--------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
There were 1,381,456 shares of the registrant's Common Stock, without par value,
outstanding at September 30, 1997.
NORTHWEST INDIANA BANCORP
INDEX
Page
Number
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PART I. Consolidated Financial Statements
Item 1. Consolidated Financial Statements of NorthWest Indiana Bancorp
Consolidated Balance Sheets, September 30, 1997 and December 31, 1996 1
Consolidated Statements of Income, Three Months and Nine Months Ended
September 30, 1997 and 1996 2
Consolidated Statements of Changes in Stockholders' Equity, Three Months and
Nine Months Ended September 30, 1997 and 1996 3
Consolidated Statements of Cash Flows, Nine Months Ended
September 30, 1997 and 1996 4
Notes to Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 6 - 13
PART II. Other Information 14
SIGNATURES 15
NorthWest Indiana Bancorp
Consolidated Balance Sheets
(unaudited)
September 30, December 31,
1997 1996
------------- -------------
ASSETS
Cash and non-interest bearing balances in financial institutions .. $ 6,919,930 $ 5,508,822
Interest bearing balances in financial institutions ............... - 1,000,000
------------- -------------
Total cash and cash equivalents ............................... 6,919,930 6,508,822
Securities held-to-maturity (market value: September 30, 1997 -
$28,904,000; December 31, 1996 - $39,909,000) ................... 28,810,681 38,427,292
Federal Home Loan Bank common stock
(cost approximates market value) ................................ 1,646,000 1,596,700
Loans held for sale ............................................... 239,000 -
Loans receivable .................................................. 262,473,228 244,695,883
Less: allowance for loan losses ................................... (2,997,597) (2,887,005)
------------- -------------
Net loans receivable .......................................... 259,475,631 241,808,878
Accrued interest receivable ....................................... 2,144,960 2,152,672
Premises and equipment ............................................ 6,888,976 7,085,982
Foreclosed real estate ............................................ 283,212 188,886
Other assets ...................................................... 1,113,893 1,649,268
------------- -------------
Total assets .................................................. $ 307,522,283 $ 299,418,500
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Non-interest bearing deposits ................................... $ 17,037,730 $ 12,878,557
Interest bearing deposits ....................................... 249,705,979 243,541,120
------------- -------------
Total deposits ................................................ 266,743,709 256,419,677
Borrowed funds .................................................... 8,687,639 12,260,507
Accrued expenses and other liabilities ............................ 3,061,009 2,923,079
------------- -------------
Total liabilities ............................................. 278,492,357 271,603,263
Stockholders' Equity
Preferred stock, no par or stated value;
10,000,000 shares authorized, none outstanding .................. - -
Common stock, no par or stated value; 20,000,000 shares authorized;
issued and outstanding; September 30, 1997 - 1,381,456 shares;
December 31, 1996 - 1,379,595 shares ............................ 345,364 344,899
Additional paid-in capital ........................................ 2,947,432 2,929,587
Retained earnings - substantially restricted ...................... 25,737,130 24,540,751
------------- -------------
Total stockholders' equity .................................... 29,029,926 27,815,237
------------- -------------
Total liabilities and stockholders' equity .................... $ 307,522,283 $ 299,418,500
============= =============
See accompanying notes to consolidated financial statements.
1
NorthWest Indiana Bancorp
Consolidated Statements of Income
(unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
---------- ----------- ----------- ------------
Interest income:
Real estate loans $4,845,618 $ 4,442,755 $14,102,222 $ 13,005,539
Commercial loans 487,474 359,593 1,284,186 1,109,817
Consumer loans 118,147 95,827 340,583 261,840
---------- ----------- ----------- ------------
Total loan interest 5,451,239 4,898,175 15,726,991 14,377,196
Securities held-to-maturity 498,791 680,672 1,685,250 1,955,402
Other interest earning assets 28,207 54,379 88,322 279,220
---------- ----------- ----------- ------------
Total interest income 5,978,237 5,633,226 17,500,563 16,611,818
Interest expense:
Deposits 2,854,694 2,758,762 8,363,587 8,265,591
Borrowed funds 108,216 59,073 287,092 138,477
---------- ----------- ----------- ------------
Total interest expense 2,962,910 2,817,835 8,650,679 8,404,068
Net interest income 3,015,327 2,815,391 8,849,884 8,207,750
Provision for loan losses 55,000 22,500 136,000 55,000
---------- ----------- ----------- ------------
Net interest income after provision for loan losses 2,960,327 2,792,891 8,713,884 8,152,750
Noninterest income:
Gain/(loss) on sale of interest earning assets 1,311 1,130 14,843 (3,765)
Gain on sale of foreclosed real estate 11,012 3,668 27,849 3,668
Fees and service charges 170,253 116,872 482,005 355,840
Trust operations 62,111 44,855 216,772 152,974
Other 1,800 - 60,960 -
---------- ----------- ----------- ------------
Total noninterest income 246,487 166,525 802,429 508,717
Noninterest expense:
Compensation and benefits 856,820 756,684 2,563,168 2,302,150
Occupancy and equipment 354,903 272,843 996,455 778,465
Federal insurance premium 40,215 1,702,723 122,393 1,981,153
Advertising 29,573 26,166 114,043 111,057
Data processing 89,650 75,924 259,799 215,733
Other 436,340 364,514 1,268,891 1,070,910
---------- ----------- ----------- ------------
Total noninterest expense 1,807,501 3,198,854 5,324,749 6,459,468
Income before income taxes 1,399,313 (239,438) 4,191,564 2,201,999
Income tax expense/(benefit) 559,600 (91,650) 1,669,000 881,550
---------- ----------- ----------- ------------
Net income/(loss) $ 839,713 $ (147,788) $ 2,522,564 $ 1,320,449
========== =========== =========== ============
Earnings per common and common equivalent share:
Net Income/(loss) $ 0.61 $ (0.11) $ 1.83 $ 0.96
========== =========== =========== ============
Dividends declared per common share $ 0.32 $ 0.275 $ 0.96 $ 0.825
========== =========== =========== ============
See accompanying notes to consolidated financial statements.
2
NorthWest Indiana Bancorp
Consolidated Statements of Changes in Stockholders' Equity
(unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
------------ ------------ ------------ ------------
Balance at beginning of period ............................... $ 28,632,083 $ 27,915,286 $ 27,815,237 $ 27,204,128
Stock option plan shares issued, 1,861 shares
at $9.31 - $21.25 per share and
138 shares at $9.31 - $11.50 per share for the nine months
ended September 30, 1997 and 1996 ...................... 196 186 18,310 1,846
Cash dividends declared, $.96 per share
and $.825 per share for the nine months
ended September 30, 1997 and 1996 ...................... (442,066) (379,382) (1,326,185) (1,138,121)
Net income ............................................... 839,713 (147,788) 2,522,564 1,320,449
------------ ------------ ------------ ------------
Balance at end of period ..................................... $ 29,029,926 $ 27,388,302 $ 29,029,926 $ 27,388,302
============ ============ ============ ============
See accompanying notes to consolidated financial statements.
3
NorthWest Indiana Bancorp
Consolidated Statements of Cash Flows
(unaudited)
Nine Months Ended
September 30,
1997 1996
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income .......................................................... $ 2,522,564 $ 1,320,449
------------ ------------
Adjustments to reconcile net income to net cash provided by operating
activities:
Origination of loans for sale ................................... (1,264,000) (699,900)
Sale of loans originated for sale ............................... 1,036,862 388,028
Depreciation and amortization, net of accretion ................. 459,006 395,377
Net gains on sale of loans ...................................... (14,843) (3,628)
Net gain on sale of fixed assets ................................ (41,051) -
Net gains on sale of foreclosed real estate ..................... (27,849) (3,668)
Provision for loan losses ....................................... 136,000 55,000
Unrealized losses on mortgage loans held for sale ............... - 7,392
Net change in unearned interest on loans ........................ (3,937) 3,776
Change in deferred loan fees .................................... (15,283) 1,362
Change in interest receivable ................................... 7,712 (170,181)
Change in other assets .......................................... 535,375 (580,136)
Change in accrued expenses and other liabilities ................ 137,930 1,397,138
------------ ------------
Total adjustments ............................................. 945,922 790,560
------------ ------------
Net cash from operating activities ......................... 3,468,486 2,111,009
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of securities held-to-maturity ............. 9,248,571 9,171,429
Purchase of securities held-to-maturity ............................. - (15,164,019)
Purchase of Federal Home Loan Bank common stock ..................... (49,300) -
Principal collected on mortgage-backed securities ................... 331,034 363,070
Loan participation's purchased ...................................... (88,000) -
Loans made net of payments received ................................. (18,036,816) (17,115,942)
Purchase of premises and equipment .................................. (283,610) (2,078,918)
Sale of premises and equipment ...................................... 99,667 -
Proceeds from sale of foreclosed real estate ........................ 277,787 32,548
------------ ------------
Net cash from investing activities ............................... (8,500,667) (24,791,832)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Change in deposits .................................................. 10,324,032 11,065,353
Proceeds from FHLB advances ......................................... 3,279,207 -
Repayment of FHLB advances .......................................... (7,000,000) -
Change in other borrowed funds ...................................... 147,925 4,636,673
Proceeds from issuance of capital stock ............................. 18,310 1,846
Cash dividends paid ................................................. (1,326,185) (1,138,121)
------------ ------------
Net cash from financing activities ............................... 5,443,289 14,565,751
------------ ------------
Net change in cash and cash equivalents .......................... 411,108 (8,115,072)
Cash and cash equivalents at beginning of period .................... 6,508,822 14,943,704
------------ ------------
Cash and cash equivalents at end of period .......................... $ 6,919,930 $ 6,828,632
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest ......................................................... $ 8,603,781 $ 8,427,215
Income taxes ..................................................... $ 1,470,000 $ 1,445,000
4
See accompanying notes to consolidated financial statements.
4
NORTHWEST INDIANA BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The consolidated financial statements include the accounts of NorthWest
Indiana Bancorp (the Company), its wholly-owned subsidiary, Peoples Bank SB (the
Bank), and the Bank's wholly-owned subsidiaries. The Company has no other
business activity other than being a holding company for the Bank. The
accompanying unaudited consolidated financial statements were prepared in
accordance with instructions for Form 10-Q and, therefore, do not include all
disclosures required by generally accepted accounting principles for complete
presentation of financial statements. In the opinion of management, the
consolidated financial statements contain all adjustments (consisting only of
normal recurring accruals) necessary to present fairly the balance sheets of the
Company as of September 30, 1997 and December 31, 1996, and the statements of
income and changes in stockholders' equity for the three and nine months ended
September 30, 1997 and 1996, and cash flows for the nine months ended September
30, 1997 and 1996. The income reported for the nine month period ended September
30, 1997 is not necessarily indicative of the results to be expected for the
full year.
NOTE 2 - CONCENTRATIONS OF CREDIT RISK
The Bank grants residential, commercial real estate, commercial
business and installment loans to customers in its primary market area of Lake
County, in northwest Indiana. Substantially all loans are secured by specific
items of collateral including residences, business assets and consumer assets.
NOTE 3 - RECLASSIFICATIONS
Certain amounts reported in the December 31, 1996 consolidated
financial statements have been reclassified to conform to the September 30, 1997
presentation.
NOTE 4 - COMMITMENTS AND CONTINGENCIES
The Bank is a party to financial instruments in the normal course of
business to meet financing needs of its customers and to reduce its own exposure
to fluctuating interest rates. These financial instruments include commitments
to make loans and standby letters of credit.
Exposure to credit loss in the event of nonperformance by the other
party to the financial instrument for commitments to make loans and standby
letters of credit is represented by the contractual amount of those instruments.
The Bank uses the same credit policy to make such commitments as it uses for
on-balance-sheet items.
At September 30, 1997 and December 31, 1996, commitments to make loans
totaled $41.9 million and $34.1 million, respectively and standby letters of
credit totaled $433 thousand and $519 thousand, respectively. At September 30,
1997, $33.8 million (81%) of the commitments were at variable rates.
Since commitments to make loans may expire without being used, the
amount does not necessarily represent future cash commitments. Collateral
obtained upon exercise of the commitment is determined using management's credit
evaluation of the borrower, and may include accounts receivable, inventory,
property, land and other items.
NOTE 5 - EARNINGS PER COMMON SHARE
The weighted average number of shares used in the calculation of
earnings per share during the three months ended September 30, 1997 and 1996
were 1,381,439 and 1,379,554, respectively. The weighted average number of
shares used in the calculation of earnings per share during the nine months
ended September 30, 1997 and 1996 were 1,381,049 and 1,379,498, respectively.
The effect of common stock equivalents is not material in these periods.
5
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SUMMARY
NorthWest Indiana Bancorp, an Indiana corporation (NWIB or the Company), is
the holding company for Peoples Bank SB (the Bank), an Indiana stock savings
bank. Peoples Bank SB is a wholly owned subsidiary of NWIB. The Company has no
other business activity other than being the holding company for Peoples Bank
SB.
At September 30, 1997, the Company had total assets of $307.5 million and
total deposits of $266.7 million. Stockholders' equity totaled $29.0 million or
9.4% of total assets, with book value per share at $21.01. The annualized return
on average assets (ROA) was 1.11%, while the annualized return on average
stockholders' equity (ROE) was 11.61%, for the nine month period.
FINANCIAL CONDITION
During the nine months ended September 30, 1997, total assets increased
by $8.1 million (2.7%), with interest-earning assets increasing by $7.5 million
(2.6%). Total loans increased by $18.0 million (7.4%). The increase in loans was
funded with deposit growth of $10.3 million (4.0%) and maturing securities as
the securities held-to-maturity portfolio decreased $9.6 million (23.9%). At
September 30, 1997, interest-earning assets totaled $293.2 million and
represented 95.3% of total assets. Loans receivable and loans held for sale
totaled $262.7 million and represented 89.6% of interest-earning assets, 85.4%
of total assets and 98.5% of total deposits. The loan portfolio includes $21.5
million (8.2%) in construction and development loans, $154.8 million (59.7%) in
residential mortgage loans, $61.2 million (23.3%) in commercial and multifamily
real estate loans, $5.6 million (2.1%) in consumer loans, and $19.6 million
(6.7%) in commercial business and other loans. Adjustable rate loans comprised
65% of the total investment in loans at September 30, 1997.
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 the nine
months ending September 30, 1997, the Bank sold $1.0 million in fixed rate
mortgage loans. Net gains realized from the sales totaled $15 thousand. Mortgage
loan servicing income totaled $15 thousand. At September 30, 1997, the Bank had
$239 thousand in loans classified as held for sale.
The primary objective of the investment portfolio is to provide for the
liquidity needs of the Bank and to contribute to profitability by providing a
stable flow of dependable earnings. Funds are generally invested in federal
funds, interest-bearing 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. At September 30, 1997, the investment portfolio totaled $30.5
million and was invested as follows: 62.9% in U.S. government agency debt
securities, 26.4% in U.S. government debt securities, 5.3% in U.S. government
agency
6
mortgage-backed securities, and 5.4% in FHLB common stock. During the nine
months ended September 30, 1997, investment securities decreased by $9.6 million
(23.9%) as funds were used to provide funding for loan portfolio growth.
Management believes that the credit risk profile of the earning asset
portfolio is relatively low. The table which follows sets forth information with
respect to the number (#) and balances (Amount) of non-performing assets and
related ratios for the periods indicated. The amounts are stated in thousands
(000's).
September 30, 1997 December 31, 1996
# Amount # Amount
- ------ - ------
Loans accounted for on a non-accrual basis:
Real estate loans:
Residential 14 $545 14 $ 583
Commercial 2 181 1 45
Commercial business loans - --- 2 111
Consumer loans 5 90 2 49
-- ---- -- ------
Total 21 $816 19 $ 788
== ==== == ======
Accruing loans which are contractually past due 90 days or more:
Real estate loans:
Residential 4 $ 74 5 $ 373
Commercial - --- - ---
Commercial business loans - --- 1 5
Consumer loans - --- 1 1
-- ---- -- ------
Total 4 $ 74 7 $ 379
== ==== == ======
Total of non-accrual and accruing loans 90 days or more
past due loans 25 $890 26 $1,167
== ==== == ======
Foreclosed real estate 6 $283 3 $ 189
== ==== == ======
Ratio of non-performing loans to total assets 0.29% 0.39%
Ratio of non-performing loans to total loans 0.34% 0.48%
Ratio of foreclosed real estate to total assets 0.09% 0.06%
Ratio of non-performing assets to total assets 0.38% 0.45%
At September 30, 1997, $1.0 million of the Bank's loans were classified
as substandard. The total represents 23 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.
7
Because some loans may not be repaid in accordance with contractual
agreements an allowance for loan losses (ALL) has been maintained. While
management may periodically allocate portions of the allowance for specific
problem loans, the entire allowance is available to absorb all credit losses
that arise from the loan portfolio and is not segregated for, or allocated to,
any particular loan or group of loans. During the nine months ended September
30, 1997, additions to the ALL account totaled $136 thousand compared to $55
thousand for the nine months ended September 30, 1996. Charge-offs net of
recoveries totaled $25 thousand during the nine months ended September 30, 1997.
The amount provided during the current nine months was based on loan activity,
current economic conditions and management's assessment of portfolio risk. At
September 30, 1997, the balance in the ALL account totaled $3.0 million, which
is considered adequate by management after evaluation of the loan portfolio,
past experience and current economic and market conditions.
The table below sets forth the allocation of the ALL and related ratios
on the dates indicated. The amounts are in thousands (000's). The percent
columns represent the percentage of loans in each category to total loans.
September 30, 1997 December 31, 1996
------------------ -----------------
Real estate loans:
Residential $ 372 59.7% $ 372 61.8%
Commercial & Multifamily 913 23.3 880 23.4
Construction & Development 149 8.2 153 5.4
Consumer loans 154 2.1 110 2.0
Commercial business loans and other loans 661 6.7 650 7.4
Unallocated 749 722
------ ----- ------ -----
Total $2,998 100.0% $2,887 100.0%
====== ===== ====== =====
Ratio of ALL to loans outstanding 1.14% 1.18%
Ratio of ALL to non-performing loans 336.9% 247.4%
At September 30, 1997, no portion of the ALL was allocated to impaired
loan balances as the Bank had no loans considered to be impaired loans as of, or
for the nine months ended September 30, 1997. 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 evaluated on a pooled basis.
Deposits are the major source of funds for lending and other investment
purposes. At September 30, 1997, deposits totaled $266.7 million . During the
nine months ending September 30, 1997, deposit growth totaled $10.3 million
(4.0%). Savings accounts increased $63 thousand (0.1%), checking accounts
increased $3.2 million (8.6%), money market deposit accounts (MMDA's) increased
$124 thousand (0.6%) and certificates of deposit increased by $7.0 million
(4.5%). At September 30, 1997, the deposit base was comprised of 16.4% savings
accounts, 8.4% MMDA's, 15.0% checking accounts and 60.2% certificates of
deposit. At September 30, 1997, repurchase agreements totaled $4.6 million.
Other short-term borrowings totaled $4.0 million, of which $3.3 million
represents a variable rate advance from the FHLBI. The Company had no long-term
borrowings.
8
LIQUIDITY AND CAPITAL RESOURCES
Liquidity refers to the ability to generate sufficient cash to fund
current loan demand, meet savings deposit withdrawals and pay operating
expenses. Changes in the liquidity position result from operating, investing and
financing activities. Cash flows from operating activities are generally the
cash effects of transactions and other events that enter into the determination
of net income. The primary investing activities include loan originations, loan
repayments, investment in interest-bearing deposits in other financial
institutions, and the purchase and maturity of investment securities. Financing
activities focus almost entirely on the generation of customer deposits. In
addition, the Bank utilizes short-term borrowings, i.e., repurchase agreements
and advances from the FHLBI as a source of funds.
During the nine months ended September 30, 1997, cash and cash
equivalents increased by $411 thousand compared to a decrease in cash and cash
equivalents of $8.1 million for the nine months ended September 30, 1996. The
primary sources of cash were proceeds from maturities of securities
held-to-maturity, deposit growth and cash provided by operating activities. The
primary uses of cash were the funding of loan growth, the payment of common
stock dividends and the reduction of short-term borrowings. During the current
nine months cash provided by operating activities totaled $3.5 million compared
to $2.1 million for the nine months ended September 30, 1996. Cash outflows from
investing activities totaled $8.5 million reflecting the increase in loan
originations during the period. Cash flows from financing activities totaled
$5.4 million as deposit growth was used to fund loan growth and reduce borrowed
funds.
At September 30, 1997, outstanding commitments to fund loans totaled
$41.9 million. Approximately 81% of the commitments were at variable rates. The
Bank has sufficient cash flow and borrowing capacity to fund outstanding
commitments and to maintain proper levels of liquidity.
Management strongly believes that safety and soundness is enhanced by
maintaining a high level of capital. During the nine months ended September 30,
1997, stockholders' equity increased by $1.2 million (4.4%). The increase
resulted primarily from earnings of $2.5 million during the period. In addition,
$18 thousand represents proceeds from the exercise of 1,861 stock options. The
reduction of $1.3 million represents cash dividends for the nine month period.
The Company is subject to risk-based capital guidelines adopted by the
Board of Governors of the Federal Reserve System (the FRB), and the Bank is
subject to risk-based capital guidelines adopted by the FDIC. As applied to the
Company and the Bank, the FRB and FDIC capital requirements are substantially
identical. The Company and the Bank are required to maintain a total risk-based
capital ratio of 8%, of which 4% must be Tier I capital. In addition, the FRB
and FDIC regulations provide for a minimum Tier I leverage ratio (Tier I capital
to adjusted total assets) of 3% for financial institutions that meet certain
specified criteria, including that they have the highest regulatory rating and
are not experiencing or anticipating significant growth. All other financial
institutions are required to maintain a Tier I leverage ratio of 3% plus an
additional cushion of at least one to two percent.
9
The following table shows that, at September 30, 1997, the Company's
capital exceeded all regulatory capital requirements. At September 30, 1997, 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 $ 31.6 15.4% $ 16.4 8.0% $ 20.5 10.0%
Tier 1 capital
to risk-weighted assets $ 29.0 14.2% $ 8.2 4.0% $ 12.3 6.0%
Tier I capital to
total assets $ 29.0 9.4% $ 9.2 3.0% $ 15.4 5.0%
RESULTS OF OPERATIONS - COMPARISON OF THE QUARTER ENDED SEPTEMBER 30, 1997 TO
THE QUARTER ENDED SEPTEMBER 30, 1996
Net income for the three months ended September 30, 1997 was $840
thousand compared to a net loss of $148 thousand for the quarter ended September
30, 1996, an increase of $988 thousand. The earnings represent a ROA of 1.11%
for the current quarter compared to -0.20% for the quarter ended September 30,
1996. The ROE was 11.61% for the current quarter compared to -2.12% for the
quarter ended September 30, 1996.
The net loss for 1996 was the result of the one-time special assessment
required by the Deposit Insurance Funds Act of 1996 on deposits of all financial
institutions insured under the Savings Association Insurance Fund (SAIF) of the
Federal Deposit Insurance Corporation (FDIC) to capitalize SAIF. The SAIF
assessment resulted in a pre-tax expense of $1.6 million. Excluding the SAIF
assessment, net income for the three months ended September 30, 1996, was $795
thousand, representing a ROA of 1.08% and a ROE of 11.27%.
Net interest income for the three months ended September 30, 1997 was
$3.0 million, up $200 thousand (7.1%) from $2.8 million for the three months
ended September 30, 1996. The increase in net interest income was due to the
growth in average interest-earning assets, increasing yields on interest-earning
assets and a stable cost of funds. Interest-earning assets averaged $290.5
million for the current quarter, up $7.6 million (2.7%) from $282.9 million for
the three months ended September 30, 1996. The net interest margin for the
current quarter was 3.97% compared to 3.82% for the three months ended September
30, 1996. During the current quarter total interest income increased by $345
thousand (6.1%) while total interest expense increased by $145 thousand (5.2%).
During the three months ended September 30, 1997, interest income from
loans increased by $553 thousand (11.3%) compared to the three months ended
September 30, 1996. The increase was due to an increase in yield and an increase
in average daily balances for the loan portfolio. The weighted average yield on
loans outstanding was 8.47% for the current quarter compared to 8.32% for the
three months ended September 30, 1996.
10
Higher average loan balances have contributed to the increase in interest income
as loans averaged $257.3 million for the current quarter, up $21.7 million
(9.2%) from $235.6 for the three months ended September 30, 1996. During the
three months ended September 30, 1997, interest income on investments and other
deposits decreased by $208.1 thousand (28.3%) compared to the quarter ended
September 30, 1996. The decrease was due to lower average balances as maturing
securities and short-term investments were used to fund loan growth and reduce
borrowed funds. Securities and other deposits averaged $33.2 million for the
current quarter, down $14.1 million (29.8%) from $47.3 million for the three
months ended September 30, 1996. The weighted average yield on investments and
other deposits was 6.35% for the quarter ended September 30, 1997 compared to
6.22% for the quarter ended September 30, 1996. The combined weighted average
yield on total interest-earning assets was 8.23% for the quarter ended September
30, 1997 compared to 7.97% for the quarter ended September 30, 1996.
Interest expense for deposits increased by $96 thousand (3.5%) during
the current quarter compared to the three months ended September 30, 1996. The
increase was due to a higher cost of funds and an increase in average daily
balances. The weighted average rate paid on deposits for the three months ended
September 30, 1997 was 4.34% compared to 4.28% for the quarter ended September
30, 1996. Deposit balances averaged $263.1 million for the current quarter, up
$5.2 million (2.0%) from $257.9 for the quarter ended September 30, 1996.
Interest expense on short-term borrowings increased by $49 thousand (83.2%)
during the current quarter due to increased cost and higher average daily
balances. The weighted average cost of short-term borrowings was 5.19% for the
current quarter compared to 4.37% for the three months ended September 30, 1996.
Borrowed funds averaged $8.3 million during the quarter ended September 30,
1997, up $2.9 million (53.7%) from $5.4 million for the quarter ended September
30, 1996. The combined weighted average rate paid on deposits and borrowings for
the quarter ended September 30, 1997 was 4.37% compared to 4.28% for the quarter
ended September 30, 1996. The impact of the 8.23% return on interest-earning
assets and the 4.37% cost of funds resulted in an interest rate spread of 3.86%
for the current quarter compared to 3.69% for the quarter ended September 30,
1996.
Noninterest income for the quarter ended September 30, 1997 was $247
thousand, up $80 thousand (48.0%) from $167 thousand for the three months ended
September 30, 1996. The improvement was due to increased income from fees and
service charges of $53 thousand (45.7%) and increased Trust operations income of
$17 thousand (38.5%). In addition, gains from the sale of foreclosed real estate
were $11 thousand during the current quarter compared to $4 thousand for the
three months ended September 30, 1996.
Noninterest expense for the quarter ended September 30, 1997 was $1.8
million, down $1.4 million (43.5%) from $3.2 million for the three months ended
September 30, 1996. The decrease was due to the special SAIF assessment of $1.6
million during the three months ended September 30, 1996. Excluding the SAIF
assessment, results in an increase of noninterest expense during the current
quarter of $168 thousand (10.2%). In general, increases in noninterest expense
have resulted from the operation of the new Merrillville, Indiana, branch
facility which opened during September 1996, and depreciation related to
investments in new technologies. The increase in compensation and benefits was
due to the additional staffing for the new location and annual salary increases.
Other expense changes were due to standard increases in bank operations. The
decrease in the federal insurance premium reflects lower premiums for SAIF
deposits due to the recapitalization of SAIF during 1996. The Company's
efficiency ratio, for the current quarter was 55.4% compared to 107.3% for the
quarter ended September
11
30, 1996. The 1996 efficiency ratio reflects the special SAIF assessment. The
ratio is determined by dividing total noninterest expense by the sum of net
interest income and total noninterest income for the period.
Income tax expenses for the three months ended September 30, 1997
totaled $560 thousand compared to -$92 thousand for the three months ended
September 30, 1996, an increase of $651 thousand (710.6%). The increase was
primarily due to the impact of the SAIF assessment not recurring in 1997.
RESULTS OF OPERATIONS - COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 1997
TO THE NINE MONTHS ENDED SEPTEMBER 30, 1996
Net income for the nine months ended September 30, 1997 was $2.5
million compared to $1.3 million for the nine months ended September 30, 1996,
an increase of $1.2 million (91.0%). The earnings represent a ROA of 1.12% for
the current period compared to 0.61% for the nine months ended September 30,
1996. The ROE was 11.77% for the current period compared to 6.35% for the nine
months ended September 30, 1996.
The net income for 1996 reflects the one-time special assessment
required by the Deposit Insurance Funds Act of 1996 on deposits of all financial
institutions insured under the Savings Association Insurance Fund (SAIF) of the
Federal Deposit Insurance Corporation (FDIC) to capitalize SAIF. The SAIF
assessment resulted in a pre-tax expense of $1.6 million. Excluding the SAIF
assessment, net income for the nine months ended September 30, 1996, was $2.3
million, representing a ROA of 1.04% and a ROE of 10.84%.
Net interest income for the nine months ended September 30, 1997 was
$8.8 million, up $642 thousand (7.8%) from $8.2 million for the nine months
ended September 30, 1996. The increase in net interest income was due to the
growth in average interest-earning assets, increasing yields on interest-earning
assets and a lower cost of funds. Interest-earning assets averaged $286.8
million for the current period, up $8.7 million (3.1%) from $278.1 million for
the nine months ended September 30, 1996. The net interest margin for the
current period was 3.94% compared to 3.79% for the nine months ended September
30, 1996. During the current nine months total interest income increased by $889
thousand (5.4%) while total interest expense increased by $247 thousand (2.9%).
During the nine months ended September 30, 1997, interest income from
loans increased by $1.3 million (9.4%) compared to the nine months ended
September 30, 1996. The increase was due to an increase in yield and an increase
in average daily balances for the loan portfolio. The weighted average yield on
loans outstanding was 8.39% for the current period compared to 8.36% for the
nine months ended September 30, 1996. Higher average loan balances have
contributed to the increase in interest income as loans averaged $249.8 million
for the current period, up $20.5 million (8.9%) from $229.3 for the nine months
ended September 30, 1996. During the nine months ended September 30, 1997,
interest income on investments and other deposits decreased by $461 thousand
(20.6%) compared to the nine months ended September 30, 1996. The decrease was
due to lower average balances as maturing securities and short-term investments
were used to fund loan growth and reduce borrowed funds. Securities and other
deposits averaged $37.0 million for the current period, down $11.7 million
(24.0%) from $48.7 million for the nine months ended September 30, 1996. The
weighted average yield on investments and other
12
deposits was 6.40% for the nine months ended September 30, 1997 compared to
6.11% for the nine months ended September 30, 1996. The combined weighted
average yield on total interest-earning assets was 8.14% for the nine months
ended September 30, 1997 compared to 7.97% for the nine months ended September
30, 1996.
Interest expense for deposits increased by $98 thousand (1.2%) during
the current period compared to the nine months ended September 30, 1996. The
weighted average rate paid on deposits for the nine months ended September 30,
1997 was 4.28% compared to 4.34% for the nine months ended September 30, 1996.
Deposit balances averaged $260.5 million for the current period, up $6.3 million
(2.5%) from $254.2 for the nine months ended September 30, 1996. Interest
expense on short-term borrowings increased $149 thousand (107.3%) during the
current period due to increased cost and higher average daily balances. The
weighted average cost of short-term borrowings was 5.07% for the current nine
months compared to 4.51% for the nine months ended September 30, 1996. Borrowed
funds averaged $7.5 million during the nine months ended September 30, 1997, up
$3.4 million (82.9%) from $4.1 million for the nine months ended September 30,
1996. The combined weighted average rate paid on deposits and borrowings for the
nine months ended September 30, 1997 was 4.30% compared to 4.34% for the nine
months ended September 30, 1996. The impact of the 8.14% return on
interest-earning assets and the 4.30% cost of funds resulted in an interest rate
spread of 3.84% for the current nine months compared to 3.63% for the nine
months ended September 30, 1996.
Noninterest income for the nine months ended September 30, 1997 was
$802 thousand, up $293 thousand (57.7%) from $509 thousand for the nine months
ended September 30, 1996. During the current period income from fees and service
charges increased $126 thousand (35.5%), while income from Trust operations
increased by $64 thousand (41.7%). In addition, gains from the sale of fixed
rate loans, foreclosed real estate and other real estate properties held by the
Bank contributed to the increase in noninterest income.
Noninterest expense for the nine months ended September 30, 1997 was
$5.3 million, down $1.1 million (17.6%) from $6.4 million for the nine months
ended September 30, 1996. The decrease was due to the special SAIF assessment of
$1.6 million during 1996. Excluding the SAIF assessment, results in an increase
of noninterest expense during the current nine months of $425 thousand (8.7%).
In general, increases in noninterest expense have resulted from the operation of
the new Merrillville, Indiana, branch facility which opened during September
1996, and depreciation related to investments in new technologies. The increase
in compensation and benefits was due to the additional staffing for the new
location and annual salary increases. Other expense changes were due to standard
increases in bank operations. The decrease in the federal insurance premium
reflects lower premiums for SAIF deposits due to the recapitalization of SAIF
during 1996. The Company's efficiency ratio, for the current nine months was
55.2% compared to 74.1% for the nine months ended September 30, 1996. The 1996
efficiency ratio reflects the special SAIF assessment.
Income tax expenses for the nine months ended September 30, 1997
totaled $1.7 million compared to $882 thousand for the nine months ended
September 30, 1996, an increase of $787 thousand (89.3%). The increase was due
to the impact of the SAIF assessment not recurring in 1997 and an increase in
pretax earnings compared to the nine months ended September 30, 1996.
13
PART II - Other Information
---------------------------
Item 1. Legal Proceedings
-----------------
The registrant is not party to any legal proceedings. No
significant changes in legal proceedings of the Bank occurred during
the quarter.
Item 2. Changes in Securities
---------------------
Not Applicable.
Item 3. Defaults Upon Senior Securities
-------------------------------
Not Applicable.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
Not Applicable.
Item 5. Other Information
-----------------
Not Applicable.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits.
---------
(27) Financial Data Schedule
(b) Reports on Form 8-K. None.
-------------------
14
SIGNATURES
----------
Pursuant to the requirement of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NORTHWEST INDIANA BANCORP
Date: November 10, 1997 /s/ David A. Bochnowski
-------------------------------
David A. Bochnowski
Chairman of the Board and Chief Executive Officer
Date: November 10, 1997 /s/ Edward J. Furticella
-------------------------------
Edward J. Furticella
Vice President, Chief Financial Officer and
Treasurer
15