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
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(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the quarterly period ended JUNE 30, 1998, 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
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(Address of principal executive office) (ZIP code)
Registrant's telephone number, including area code: (219) 836-9690
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
There were 1,381,545 shares of the registrant's Common Stock, without par value,
outstanding at June 30, 1998.
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, June 30, 1998 and December 31, 1997 1
Consolidated Statements of Income, Three Months and Six Months Ended
June 30, 1998 and 1997 2
Consolidated Statements of Changes in Stockholders' Equity, Three Months and
Six Months Ended June 30, 1998 and 1997 3
Consolidated Statements of Cash Flows, Three Months and Six Months Ended
June 30, 1998 and 1997 4
Notes to Consolidated Financial Statements 5 - 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 7 - 15
PART II. Other Information 16
SIGNATURES 17
NorthWest Indiana Bancorp
Consolidated Balance Sheets
(unaudited)
June 30, December 31,
(Dollars in thousands) 1998 1997
------------------- --------------------
ASSETS
Cash and non-interest bearing balances in financial institutions ............... $ 9,722 $ 7,083
Interest bearing balances in financial institutions ............................ 1,480 3,570
------------------- --------------------
Total cash and cash equivalents ............................................ 11,202 10,653
Available-for-sale securities .................................................. 6,739 1,646
Held-to-maturity securities (fair value: June 30, 1998 - $26,717;
December 31, 1997 - $27,852) .............................................. 26,567 27,716
Loans held for sale ........................................................... 118 -
Loans receivable ............................................................... 270,890 272,213
Less: allowance for loan losses ................................................ (3,114) (3,074)
------------------- --------------------
Net loans receivable ....................................................... 267,776 269,139
Accrued interest receivable .................................................... 2,262 2,195
Premises and equipment ......................................................... 6,589 6,820
Foreclosed real estate ......................................................... 401 259
Other assets ................................................................... 1,808 1,181
------------------- --------------------
Total assets ............................................................... $323,462 $319,609
=================== ====================
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Non-interest bearing ......................................................... $ 19,128 $ 16,685
Interest bearing ............................................................. 256,737 255,405
------------------- --------------------
Total ...................................................................... 275,865 272,090
Borrowed funds ................................................................. 13,873 14,628
Accrued expenses and other liabilities ......................................... 3,437 3,409
------------------- --------------------
Total liabilities .......................................................... 293,175 290,127
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: June 30, 1998 - 1,381,545 shares;
December 31, 1997 - 1,381,472 shares ......................................... 345 345
Additional paid in capital ..................................................... 2,949 2,948
Retained earnings - substantially restricted ................................... 26,992 26,189
Net unrealized gains on available-for-sale securities .......................... 1 -
------------------- --------------------
Total stockholders' equity ................................................. 30,287 29,482
------------------- --------------------
Total liabilities and stockholders' equity ................................. $323,462 $319,609
=================== ====================
See accompanying notes to consolidated financial statements.
1
NorthWest Indiana Bancorp
Consolidated Statements of Income
(unaudited)
Three Months Ended Six Months Ended
(Dollars in thousands, except per share data) June 30, June 30,
1998 1997 1998 1997
------------ ---------- ------------ --------------
Interest income:
Loans receivable
Real estate loans ...................................... $ 4,984 $ 4,705 $ 10,008 $ 9,257
Commercial loans ....................................... 512 420 1,038 797
Consumer loans ......................................... 174 116 308 222
------------ ----------- ------------- --------------
Total loan interest .................................. 5,670 5,241 11,354 10,276
Securities ............................................... 503 584 956 1,186
Other interest earning assets ............................ 149 28 276 60
------------ ----------- ------------- --------------
Total interest income ................................ 6,322 5,853 12,586 11,522
------------ ----------- ------------- --------------
Interest expense:
Deposits ................................................. 2,898 2,806 5,779 5,509
Borrowed funds ........................................... 220 91 444 178
------------ ----------- ------------- --------------
Total interest expense ............................... 3,118 2,897 6,223 5,687
------------ ----------- ------------- --------------
Net interest income ........................................ 3,204 2,956 6,363 5,835
Provision for loan losses .................................. 15 32 40 81
------------ ----------- ------------- --------------
Net interest income after provision for loan losses ........ 3,189 2,924 6,323 5,754
------------ ----------- ------------- --------------
Noninterest income:
Gain on sale of loans, net ............................... 51 7 54 13
Gain on sale of foreclosed real estate ................... 7 - 10 17
Fees and service charges ................................. 219 148 446 312
Trust operations ......................................... 76 60 163 155
Other .................................................... 3 1 3 59
------------ ----------- ------------- --------------
Total noninterest income ............................. 356 216 676 556
------------ ----------- ------------- --------------
Noninterest expense:
Compensation and benefits ................................ 1,008 897 2,030 1,815
Occupancy and equipment .................................. 369 327 723 642
Federal insurance premium ................................ 42 41 83 82
Advertising .............................................. 40 39 90 84
Data processing .......................................... 106 88 208 170
Other .................................................... 437 354 835 725
------------ ----------- ------------- --------------
Total noninterest expense ............................ 2,002 1,746 3,969 3,518
------------ ----------- ------------- --------------
Income before income tax expenses .......................... 1,543 1,394 3,030 2,792
Income tax expenses ........................................ 612 550 1,205 1,109
------------ ----------- ------------- --------------
Net income ................................................. $ 931 $ 844 $ 1,825 $ 1,683
============ =========== ============= ==============
Earnings per common share .................................. $ 0.67 $ 0.61 $ 1.32 $ 1.22
============ =========== ============= ==============
Earnings per common share, assuming dilution ............. $ 0.67 $ 0.61 $ 1.31 $ 1.21
============ =========== ============= ==============
Dividend declared per common share ......................... $ 0.37 $ 0.32 $ 0.74 $ 0.64
============ =========== ============= ==============
NorthWest Indiana Bancorp
Statement of Comprehensive Income
(unaudited)
Three Months Ended Six Months Ended
(Dollars in thousands) June 30, June 30,
1998 1997 1998 1997
------------ ----------- ------------- --------------
Net Income ................................................. $ 931 $ 844 $ 1,825 $ 1,683
Other comprehensive income, net of tax:
Unrealized gains on securities ........................... 3 - 1 -
------------ ----------- ------------- --------------
Comprehensive income ....................................... $ 934 $ 844 $ 1,826 $ 1,683
============ =========== ============= ==============
See accompanying notes to consolidated financial statements.
2
NorthWest Indiana Bancorp
Consolidated Statements of Changes in Stockholders' Equity
(unaudited)
Three Months Ended Six Months Ended
(Dollars in thousands, except per share data) June 30, June 30,
1998 1997 1998 1997
------------ ------------ ------------- -------------
Balance at beginning of period ..................................... $ 29,862 $28,230 $29,482 $27,815
Stock option plan shares issued, 73 shares at $11.50 - $21.25 per share and
1,844 shares at $9.31 - $21.25 per share for the six months
ended June 30, 1998 and 1997 ................................. - - 1 18
Cash dividends declared, $.74 per share
and $.64 per share for the six months
ended June 30, 1998 and 1997 ................................. (511) (442) (1,022) (884)
Net unrealized gains
on available-for-sale securities ............................. 5 - 1 -
Net income ..................................................... 931 844 1,825 1,683
------------ ------------ ------------- ------------
Balance at end of period ........................................... $ 30,287 $28,632 $30,287 $28,632
============ ============ ============= ============
See accompanying notes to consolidated financial statements.
3
NorthWest Indiana Bancorp
Consolidated Statements of Cash Flows
(unaudited)
Six Months Ended
(Dollars in thousands) June 30,
1998 1997
-------------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ...................................................... $ 1,825 $1,683
-------------- ------------
Adjustments to reconcile net income to net cash provided by operating
activities:
Origination of loans for sale ............................... (1,388) (917)
Sale of loans originated for sale ........................... 1,282 927
Depreciation and amortization, net of accretion ............. 416 285
Net gains on sale of loans .................................. (54) (13)
Net gains on sale of fixed assets ........................... - (41)
Net gains on sale of foreclosed real estate ................. (10) (17)
Provision for loan losses ................................... 40 81
Net change in unearned interest on loans .................... - (2)
Change in deferred loan fees ................................ (29) (23)
Change in interest receivable ............................... (67) (11)
Change in other assets ...................................... (627) 574
Change in accrued expenses and other liabilities ............ 28 (135)
-------------- ------------
Total adjustments ...................................... (409) 708
-------------- ------------
Net cash from operating activities ..................... 1,416 2,391
-------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of securities available-for-sale ....................... (5,097) (49)
Proceeds from maturities of securities held-to-maturity ......... 4,500 5,329
Purchase of securities held-to-maturity ......................... (3,670) -
Principal collected on mortgage-backed securities ............... 294 185
Net change in loans receivable .................................. 1,013 (9,176)
Purchase of premises and equipment .............................. (155) (110)
Proceeds from sale of foreclosed real estate..................... 249 123
-------------- ------------
Net cash from investing activities ........................... (2,866) (3,698)
-------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Change in deposits .............................................. 3,775 4,173
Proceeds from FHLB advances ..................................... 2,000 7,000
Repayment of FHLB advances ...................................... - (7,000)
Change in other borrowed funds .................................. (2,755) (407)
Proceeds from issuance of capital stock ......................... 1 18
Dividends paid .................................................. (1,022) (884)
-------------- ------------
Net cash from financing activities ........................... 1,999 2,900
-------------- ------------
Net change in cash and cash equivalents ...................... 549 1,593
Cash and cash equivalents at beginning of period ................ 10,653 6,509
-------------- ------------
Cash and cash equivalents at end of period ...................... $11,202 $8,102
============== ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest ..................................................... $ 6,303 $5,665
Income taxes ................................................. $ 1,470 $ 970
Transfers from loans to foreclosed real estate .................. $ 381 $ 238
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 June 30, 1998 and December 31, 1997, and the statements of income
and changes in stockholders' equity for the three and six months ended June 30,
1998 and 1997, and cash flows for the six months ended June 30, 1998 and 1997.
The income reported for the six month period ended June 30, 1998 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, 1997 consolidated
financial statements have been reclassified to conform to the June 30, 1998
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 June 30, 1998 and December 31, 1997, commitments to make loans
totaled $46.2 million and $41.7 million, respectively and standby letters of
credit totaled $911 thousand and $501 thousand, respectively. At June 30, 1998,
$42.4 million (92%) 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.
5
NOTE 5 - EARNINGS PER SHARE
The weighted average number of shares used in the calculation of
earnings per share is presented below:
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
---- ---- ---- ----
Earnings Per Common Share:
Weighted average common shares outstanding ............ 1,381,531 1,381,421 1,825,484 1,380,851
========= ========= ========= =========
Earnings Per Common Share, Assuming Dilution:
Weighted average diluted common shares outstanding ... 1,396,199 1,391,938 1,396,116 1,391,451
========= ========= ========= =========
6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SUMMARY
NorthWest Indiana Bancorp, an Indiana corporation (the Bancorp), is the
holding company for Peoples Bank SB (the Bank), an Indiana savings bank. Peoples
Bank SB is a wholly owned subsidiary of the Bancorp. The Bancorp has no other
business activity other than being the holding company for Peoples Bank SB.
At June 30, 1998, the Bancorp had total assets of $323.5 million and total
deposits of $275.9 million. Stockholders' equity totaled $30.3 million or 9.4%
of total assets, with book value per share at $21.92. The annualized return on
average assets (ROA) was 1.12%, while the annualized return on average
stockholders' equity (ROE) was 12.16%, for the six months ended June 30, 1998.
FINANCIAL CONDITION
During the six months ended June 30, 1998, total assets increased by
$3.9 million (1.2%), with interest-earning assets increasing by $649 thousand
(0.2%). At June 30, 1998, interest-earning assets totaled $305.8 million and
represented 94.5% of total assets.
Loans receivable and loans held for sale totaled $271.0 million which
represented 88.6% of interest-earning assets, 83.8% of total assets and 98.2% of
total deposits. The loan portfolio includes $17.7 million (6.5%) in construction
and development loans, $155.0 million (57.2%) in residential mortgage loans,
$67.8 million (25.0%) in commercial and multifamily real estate loans, $8.7
million (3.2%) in consumer loans, and $21.8 million (8.1%) in commercial
business and other loans. Adjustable rate loans comprised 66% of the total
investment in loans at June 30, 1998.
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, on a case-by-case basis, in the secondary
market as part of the Bank's efforts to manage interest rate risk. The Bank
retains the servicing on all loans sold in the secondary market. During the six
months ending June 30, 1998, the Bank sold $1.3 million in fixed rate mortgage
loans. Net gains realized from the sales totaled $54 thousand. Mortgage loan
servicing income totaled $8 thousand. At June 30, 1998, the Bank had one loan
for $118 thousand classified as held for sale.
The primary objective of the investment portfolio is to provide for the
liquidity needs of the Bank and to contribute to profitability by providing a
stable flow of dependable earnings. Funds are generally invested in federal
funds, interest-bearing 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
(FHLB). Investments are generally for terms ranging from one day to five years.
At June 30, 1998, the investment portfolio totaled $33.3 million and was
invested as follows: 67.0% in U.S. government agency debt
7
securities, 24.2% in U.S. government debt securities, 3.7% in U.S. government
agency mortgage-backed securities, and 5.1% in FHLB common stock. During the six
months ended June 30, 1998, investment securities increased by $3.9 million
(13.4%). At June 30, 1998, the Bank had $1.5 million in interest-bearing
balances at the FHLB.
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).
June 30, 1998 December 31, 1997
# Amount # Amount
--- ------ --- ------
Loans accounted for on a non-accrual basis:
Real estate loans:
Residential 21 $ 732 15 $ 715
Commercial 1 43 1 44
Commercial business loans -- -- 1 56
Consumer loans -- -- 3 151
------ ------ ------ ------
Total 22 $ 775 20 $ 966
====== ====== ====== ======
Accruing loans which are contractually past due 90 days or more:
Real estate loans:
Residential 1 $ 21 3 $ 220
Commercial -- -- -- --
Commercial business loans 1 140 -- --
Consumer loans 3 29 2 6
------ ------ ------ ------
Total 5 $ 190 5 $ 226
====== ====== ====== ======
Total of non-accrual and accruing loans 90 days or more
past due loans 27 $ 965 25 $1,192
====== ====== ====== ======
Foreclosed real estate 6 $ 401 5 $ 259
====== ====== ====== ======
Ratio of non-performing loans to total assets 0.30% 0.37%
Ratio of non-performing loans to total loans 0.36% 0.44%
Ratio of foreclosed real estate to total assets 0.12% 0.08%
Ratio of non-performing assets to total assets 0.42% 0.45%
At June 30, 1998, $1.2 million of the Bank's loans were classified as
substandard. The total represents 23 loans. One loan totaling $3 thousand was
classified as doubtful. No loans were classified as loss. Management does not
anticipate that any of the non-performing loans or classified loans will
materially impact future operations, liquidity or capital resources.
8
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 six months ended June 30,
1998, additions to the ALL account totaled $40 thousand compared to $81 thousand
for the six months ended June 30, 1997. Recoveries and charge-offs each totaled
$6 thousand during the six months ended June 30, 1998. The amount provided
during the current six months was based on loan activity, changes within the
loan portfolio mix, current economic conditions and resulting changes in
management's assessment of portfolio risk. At June 30, 1998, the balance in the
ALL account totaled $3.1 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.
June 30, 1998 December 31, 1997
------------- -------------------
Real estate loans:
Residential $ 322 57.2% $ 322 57.5%
Commercial and other dwelling 953 25.0 932 23.8
Construction and development 268 6.5 268 7.9
Consumer loans 162 3.2 153 2.1
Commercial business loans and other loans 630 8.1 630 8.7
Unallocated 779 769
------ ------ ------ ------
Total $3,114 100.0% $3,074 100.0%
====== ====== ====== ======
Ratio of ALL to loans outstanding 1.15% 1.13%
Ratio of ALL to non-performing loans 228.0% 257.8%
At June 30, 1998, 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 six months ended June 30, 1998. 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 June 30, 1998, deposits totaled $275.9 million . During the six
months ending June 30, 1998, deposit growth totaled $3.8 million (1.4%). Savings
accounts increased $2.6 million (6.0%), checking accounts increased $3.1 million
(7.7%), money market deposit accounts (MMDA's) increased $6.9 million (30.9%)
while certificates of deposit decreased by $8.8 million (5.3%). The decrease in
certificates of deposit was due to maturing public funds which were replaced by
FHLB advances with longer maturities and lower rates. At June 30, 1998, the
deposit base was comprised of 16.8% savings accounts, 10.6% MMDA's, 15.7%
checking accounts and 56.9% certificates of deposit. At June 30, 1998,
repurchase agreements totaled $2.6 million. Other short-term borrowings totaled
$1.3 million. The Bancorp had $10 million in FHLB advances with a weighted
average maturity of 3.2 years.
9
LIQUIDITY AND CAPITAL RESOURCES
For the Bancorp, liquidity management refers to the ability to generate
sufficient cash to fund current loan demand, meet savings deposit withdrawals,
and pay dividends and operating expenses. The Bank's primary goal for liquidity
management is to ensure that at all times it can meet the cash demands of its
depositors and its loan customers. A secondary purpose of liquidity management
is profit management. Because profit and liquidity are often conflicting
objectives, management attempts to maximize the Bank's net interest margin by
making adequate, but not excessive, liquidity provisions. Finally, because the
Bank is subject to legal reserve requirements under Federal Reserve Regulation
D, liquidity is managed to ensure that the Bank maintains an adequate level of
legal reserves.
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 borrowings, i.e., repurchase agreements and advances from the FHLB
as a source of funds.
During the six months ended June 30, 1998, cash and cash equivalents
increased by $549 thousand compared to $1.6 million for the six months ended
June 30, 1997. The primary sources of cash were deposit growth, proceeds from
FHLB advances, proceeds from maturities of securities and cash provided by
operating activities. The primary uses of cash were the purchase of securities,
reductions in other borrowed funds and the payment of common stock dividends.
During the current six months cash provided by operating activities totaled $1.4
million. Cash outflows from investing activities totaled $2.9 million
representing the purchase of securities, as loan portfolio balances decreased
during the period. Cash flows from financing activities totaled $2.0 million
which includes deposit growth of $3.8 million and increases in FHLB advances of
$2.0 million.
At June 30, 1998, outstanding commitments to fund loans totaled $46.2
million. Approximately 92% 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 six months ended June 30, 1998,
stockholders' equity increased by $805 thousand (2.7%). The increase resulted
primarily from earnings of $1.8 million during the period. In addition, $1
thousand represents proceeds from the exercise of 73 stock options. The Bancorp
paid $1.0 million in cash dividends during the six month period. The change in
net unrealized gains on available-for-sale securities totaled $1 thousand for
the period.
The Bancorp 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
Bancorp and the Bank, the FRB and FDIC capital requirements are substantially
identical. The
10
Bancorp 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 June 30, 1998, the Bancorp's capital
exceeded all regulatory capital requirements. At June 30, 1998, the Bancorp's
and the Bank's regulatory capital ratios were substantially the same. The dollar
amounts are in millions.
Required for To be well
Actual adequate capital capitalized
------ ---------------- -----------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------------
Total capital to risk-weighted assets $33.0 15.3% $17.2 8.0% $21.5 10.0%
Tier I capital to risk-weighted assets $30.3 14.1% $ 8.6 4.0% $12.9 6.0%
Tier I capital to total assets $30.3 9.4% $ 9.7 3.0% $16.2 5.0%
RESULTS OF OPERATIONS - COMPARISON OF THE QUARTER ENDED JUNE 30, 1998 TO THE
QUARTER ENDED JUNE 30, 1997
Net income for the three months ended June 30, 1998 was $931 thousand
compared to $844 thousand for the quarter ended June 30, 1997, an increase of
$87 thousand (10.3%). The earnings represent a ROA of 1.14% for the current
quarter compared to 1.12% for the quarter ended June 30, 1997. The ROE was
12.34% for the current quarter compared to 11.94% for the quarter ended June 30,
1997.
Net interest income for the three months ended June 30, 1998 was $3.2
million, up $248 thousand (8.4%) from $3.0 million for the three months ended
June 30, 1997. The increase in net interest income was due to the growth in
average interest-earning assets and a lower cost of funds. Interest-earning
assets averaged $313.3 million for the current quarter, up $26.1 million (9.1%)
from $287.2 million for the three months ended June 30, 1997. The weighted
average yield on interest-earning assets was 8.07% for the three months ended
June 30, 1998 compared to 8.15% for the three months ended June 30, 1997. The
weighted average cost of funds for the quarter ended June 30, 1998, was 4.24%
compared to 4.31% for the quarter ended June 30, 1997. The impact of the 8.15%
return on interest-earning assets and the 4.24% cost of funds resulted in an
interest rate spread of 3.83% for the current quarter compared to 3.84% for the
quarter ended June 30, 1997. During the current quarter total interest income
increased by $469 thousand (8.0%) while total interest expense increased by $221
thousand (7.6%). The net interest margin was 3.91% for the three months ended
June 30, 1998 compared to 3.94% for the quarter ended June 30, 1997.
11
During the three months ended June 30, 1998, interest income from loans
increased by $429 thousand (8.2%) compared to the three months ended June 30,
1997. The increase was due to an increase in average daily balances for the loan
portfolio. The weighted average yield on loans outstanding was 8.36% for the
current quarter compared to 8.40% for the three months ended June 30, 1997.
Higher average loan balances have contributed to the increase in interest income
as loans averaged $271.3 million for the current quarter, up $21.6 million
(8.7%) from $249.7 for the three months ended June 30, 1997. During the three
months ended June 30, 1998, interest income on investments and other deposits
increased by $40 thousand (6.5%) compared to the quarter ended June 30, 1997.
The increase was due to higher average daily balances. The weighted average
yield on securities and other deposits was 6.22% for the current quarter
compared to 6.54% for the three months ended June 30, 1997. Securities and other
deposits averaged $42.0 million for the current quarter, up $4.6 million (12.3%)
from $37.4 million for the three months ended June 30, 1997. During 1998, the
average daily balance for securities should continue to increase as the Bank
expects to fund loan growth with a mix of deposits and borrowed funds.
Interest expense for deposits increased by $92 thousand (3.3%) during
the current quarter compared to the three months ended June 30, 1997. The
increase was due to an increase in average daily balances. The weighted average
rate paid on deposits for the three months ended June 30, 1998 was 4.18%
compared to 4.30% for the quarter ended June 30, 1997. Deposit balances averaged
$277.5 million for the current quarter, up $16.2 million (6.2%) from $261.3 for
the quarter ended June 30, 1997. Interest expense on borrowed funds increased by
$129 thousand (141.8%) during the current quarter due to the increased cost of
borrowed funds and higher average balances. The weighted average cost of
borrowed funds was 5.32% for the current quarter compared to 5.11% for the three
months ended June 30, 1997. The increase was due to lengthening the maturities
of borrowed funds. Borrowed funds averaged $16.6 million during the quarter
ended June 30, 1998, up $9.5 million (133.8%) from $7.1 million for the quarter
ended June 30, 1997. Borrowed funds have provided a cost effective supplement to
certificates of deposit, as deposit pricing within the Bank's local market area
has been very competitive.
Noninterest income for the quarter ended June 30, 1998 was $356
thousand, up $140 thousand (64.8%) from $216 thousand for the three months ended
June 30, 1997. During the current quarter, income from fees and service charges
increased $71 thousand (48.0%) while income from Trust operations increased $16
thousand (26.7%). The increases in fees and service charges and Trust income
were due to an increase in the number of account relationships and the
implementation of additional fee and service charge pricing schedules and
procedures. During the current quarter, net gains on the sale of loans totaled
$51 thousand compared to $7 thousand during the three months ended June 30,
1997.
Noninterest expense for the quarter ended June 30, 1998 was $2.0
million, up $256 thousand (14.7%) from $1.7 million for the three months ended
June 30, 1997. The increase in compensation and benefits was due to additional
staffing, annual salary increases and the increased cost of employee benefits.
The increases in occupancy and equipment, and data processing reflect
investments in technology and new products and services. Other expense changes
were due to standard increases in bank operations. The Bancorp's efficiency
ratio, for the current quarter was 56.2% compared to 55.0% for the quarter ended
June 30, 1997. The ratio is determined by dividing total noninterest expense by
the sum of net interest income and total noninterest income for the period.
12
Income tax expenses for the three months ended June 30, 1998 totaled
$612 thousand compared to $550 thousand for the three months ended June 30,
1997, an increase of $62 thousand (11.3%). The increase was due to an increase
in pretax earnings during the current quarter. The combined effective federal
and state tax rates for the Bancorp were 40% for the three months ended June 30,
1998 and 1997.
RESULTS OF OPERATIONS - COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 1998 TO THE
SIX MONTHS ENDED JUNE 30, 1997
Net income for the six months ended June 30, 1998 was $1.8 million
compared to $1.7 million for the six months ended June 30, 1997, an increase of
$142 thousand (8.4%). The earnings represent a ROA of 1.12% for the current six
months compared to 1.13% for the six months ended June 30, 1997. The ROE was
12.16% for the current six months compared to 11.83% for the six months ended
June 30, 1997.
Net interest income for the six months ended June 30, 1998 was $6.4
million, up $528 thousand (9.0%) from $5.8 million for the six months ended June
30, 1997. The increase in net interest income was due to the growth in average
interest-earning assets. Interest-earning assets averaged $311.4 million for the
current six months, up $26.5 million (9.3%) from $284.9 million for the six
months ended June 30, 1997. The weighted average yield on interest-earning
assets was 8.08% for the six months ended June 30, 1998 compared to 8.09% for
the six months ended June 30, 1997. The weighted average cost of funds for the
six months ended June 30, 1998, was 4.26% compared to 4.27% for the six months
ended June 30, 1997. The impact of the 8.08% return on interest-earning assets
and the 4.26% cost of funds resulted in an interest rate spread of 3.82% for
both the current six months and the six months ended June 30, 1997. During the
current six months total interest income increased by $1.1 million (9.2%) while
total interest expense increased by $536 thousand (9.4%). The net interest
margin was 3.90% for the six months ended June 30, 1998 compared to 3.92% for
the six months ended June 30, 1997.
During the six months ended June 30, 1998, interest income from loans
increased by $1.1 million (10.5%) compared to the six months ended June 30,
1997. The increase was due to an increase in average daily balances for the loan
portfolio. The weighted average yield on loans outstanding was 8.36% for the
current six months compared to 8.35% for the six months ended June 30, 1997.
Higher average loan balances have contributed to the increase in interest income
as loans averaged $271.5 million for the current six months, up $25.5 million
(10.4%) from $246.0 for the six months ended June 30, 1997. During the six
months ended June 30, 1998, interest income on investments and other deposits
decreased by $14 thousand (1.1%) compared to the six months ended June 30, 1997.
The decrease was due to lower yields. The weighted average yield on securities
and other deposits was 6.17% for the current six months compared to 6.42% for
the six months ended June 30, 1997. Securities and other deposits averaged $39.9
million for the current six months, up $1.1 million (2.8%) from $38.8 million
for the six months ended June 30, 1997.
Interest expense for deposits increased by $270 thousand (4.9%) during
the current six months compared to the six months ended June 30, 1997. The
increase was due to an increase in average daily balances. The weighted average
rate paid on deposits for the six months ended June 30, 1998 was 4.19% compared
to 4.27% for the six
13
months ended June 30, 1997. Deposit balances averaged $275.5 million for the
current six months, up $16.2 million (6.2%) from $259.3 for the six months ended
June 30, 1997. Interest expense on borrowed funds increased by $266 thousand
(149.4%) during the current six months due to the increased cost of borrowed
funds and higher average balances. The weighted average cost of borrowed funds
was 5.33% for the current six months compared to 5.01% for the six months ended
June 30, 1997. The increase was due to lengthening the maturities of borrowed
funds. Borrowed funds averaged $16.7 million during the six months ended June
30, 1998, up $9.6 million (135.2%) from $7.1 million for the six months ended
June 30, 1997. Borrowed funds have provided a cost effective supplement to
certificates of deposit, as deposit pricing within the Bank's local market area
has been very competitive.
Noninterest income for the six months ended June 30, 1998 was $676
thousand, up $120 thousand (21.6%) from $556 thousand for the six months ended
June 30, 1997. During the current six months, income from fees and service
charges increased $134 thousand (42.9%) while income from Trust operations
increased $8 thousand (5.2%). The increases in fees and service charges and
Trust income were due to an increase in the number of account relationships and
the implementation of additional fee and service charge pricing schedules and
procedures. During the current six months, net gains on the sale of loans
totaled $54 thousand compared to $13 thousand during the six months ended June
30, 1997.
Noninterest expense for the six months ended June 30, 1998 was $4.0
million, up $451 thousand (12.8%) from $3.5 million for the six months ended
June 30, 1997. The increase in compensation and benefits was due to additional
staffing, annual salary increases and the increased cost of employee benefits.
The increases in occupancy and equipment, and data processing reflect
investments in technology and new products and services. Other expense changes
were due to standard increases in bank operations. The Bancorp's efficiency
ratio, for the current six months was 56.4% compared to 55.0% for the six months
ended June 30, 1997.
Income tax expenses for the six months ended June 30, 1998 totaled $1.2
million compared to $1.1 million for the six months ended June 30, 1997, an
increase of $96 thousand (8.7%). The increase was due to an increase in pretax
earnings during the current six months. The combined effective federal and state
tax rates for the Bancorp were 40% for the six months ended June 30, 1998 and
1997.
YEAR 2000
The year 2000 problem stems from computer programs that identify the
year with two digits instead of four. The problem with this code is that in the
year 2000, `00' may be interpreted as 1900 or not processed at all. The year
2000 problem is not limited to one type of software or hardware. Machines and
programs affected include mainframes, personal computers, networks, ATMs, and
other items such as elevators, infrastructures, and telephone systems.
The Bancorp has implemented an action plan to address the century date
change issue so that service and business operations will not be interrupted in
the year 2000. A project leader, a team of employees and a consulting group have
analyzed daily operations, business forms, software, hardware and equipment for
year 2000 compliance. Due to the
14
Bancorp's reliance upon external parties for business operations, ongoing
communication with third party vendors has been established to monitor their
year 2000 efforts. All systems and interfaces will be tested internally to
confirm reported compliance. The Bancorp does not expect the cost of year 2000
compliance to have a material effect on its business, financial position or
results of operations.
15
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
---------------------------------------------------
NorthWest Indiana Bancorp held its annual meeting of
shareholders on April 22, 1998. At this meeting the security
holders:
1. Elected the following directors for the registrant, whose
term of office continued after the meeting:
Number of Votes
For Withheld
--------- --------
Leroy F. Cataldi 1,045,652 8,075
Stanley E. Mize 1,044,872 8,855
John J. Wadas, Jr. 1,045,652 8,075
Other directors whose term of office as a director continued
after the meeting include:
David A. Bochnowski James J. Crandall Jerome F. Vrabel
Lourdes M. Dennison Gloria C. Gray
2. Ratified the appointment of Crowe, Chizek and Company LLP as the
auditors for the registrant for the year ending December 31, 1998.
Number of Votes: For Against Abstain
--------- ------- -------
1,047,889 0 5,838
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.
-------------------
16