UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

 

(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, 2019 or

 

[  ]	Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

 

For the transition period from ______ to ______

 

Commission File Number: 0-26128

 

NorthWest Indiana Bancorp

(Exact name of registrant as specified in its charter)

 

Indiana	35-1927981
(State or other jurisdiction of incorporation	(I.R.S. Employer Identification Number)
or organization)

 

9204 Columbia Avenue
Munster, Indiana	46321
(Address of principal executive offices)	(ZIP code)

 

Registrant's telephone number, including area code: (219) 836-4400

 

	N/A
(Former name, former address and former fiscal year, if changed since last report)

 

 

Securities registered pursuant to Section 12(b) of the Act: None.

 

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
N/A	N/A	N/A

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [  ]

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  

Yes [X]           No [  ]

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act:

Large accelerated filer [  ] Accelerated filer [X] Non-accelerated filer [  ]

Smaller Reporting Company [X] Emerging growth company [  ]

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [  ]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [  ] No [X]

 

There were 3,451,797 shares of the registrant’s Common Stock, without par value, outstanding at October 28, 2019.

 

 

 

NorthWest Indiana Bancorp

 Index

 

		Page  Number
PART I. Financial Information
Item 1. Unaudited Financial Statements and Notes		1
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		29
Item 3. Quantitative and Qualitative Disclosures about Market Risk		43
Item 4. Controls and Procedures		43
PART II. Other Information		44
SIGNATURES		46
EXHIBITS
10.1 NorthWest Indiana Bancorp Executive Change in Control Severance Plan
31.1 Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer
31.2 Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer
32.1 Section 1350 Certifications
101 XBRL Interactive Data File

 

 

 

		September 30,
(Dollars in thousands)		2019				December 31,
		(unaudited)				2018
ASSETS
Cash and non-interest bearing deposits in other financial institutions		$	26,839			$	13,260
Interest bearing deposits in other financial institutions			42,953				3,116
Federal funds sold			2,150				763
Total cash and cash equivalents			71,942				17,139
Certificates of deposit in other financial institutions			2,170				2,024
Securities available-for-sale			261,054				241,768
Loans held-for-sale			4,641				2,863
Loans receivable			904,273				764,400
Less: allowance for loan losses			(9,174	)			(7,962	)
Net loans receivable			895,099				756,438
Federal Home Loan Bank stock			3,912				3,460
Accrued interest receivable			3,995				3,632
Premises and equipment			28,914				24,824
Foreclosed real estate			1,098				1,627
Cash value of bank owned life insurance			29,848				23,142
Goodwill			11,109				8,170
Other assets			16,687				11,071
Total assets		$	1,330,469			$	1,096,158
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Non-interest bearing		$	176,878			$	127,277
Interest bearing			975,589				802,509
Total			1,152,467				929,786
Repurchase agreements			14,931				11,628
Borrowed funds			16,000				43,000
Accrued expenses and other liabilities			14,083				10,280
Total liabilities			1,197,481				994,694
Stockholders' Equity:
Preferred stock, no par or stated value; 10,000,000 shares authorized, none outstanding			-				-
Common stock, no par or stated value; 10,000,000 shares authorized; shares issued and outstanding: September 30, 2019 - 3,451,797 December 31, 2018 - 3,029,157			-				-
Additional paid-in capital			29,589				11,927
Accumulated other comprehensive income/(loss)			4,418				(2,796	)
Retained earnings			98,981				92,333
Total stockholders' equity			132,988				101,464
Total liabilities and stockholders' equity		$	1,330,469			$	1,096,158

---

 

		Three Months Ended								Nine Months Ended
(Dollars in thousands)		September 30,								September 30,
		2019				2018				2019				2018
Interest income:
Loans receivable
Real estate loans		$	9,452			$	7,189			$	27,853			$	19,240
Commercial loans			1,654				1,266				4,989				3,457
Consumer loans			229				97				521				106
Total loan interest			11,335				8,552				33,363				22,803
Securities			1,659				1,709				5,237				5,127
Other interest earning assets			326				74				611				134
Total interest income			13,320				10,335				39,211				28,064
Interest expense:
Deposits			2,353				1,018				6,036				2,531
Repurchase agreements			64				47				179				124
Borrowed funds			108				254				402				682
Total interest expense			2,525				1,319				6,617				3,337
Net interest income			10,795				9,016				32,594				24,727
Provision for loan losses			494				312				1,322				950
Net interest income after provision for loan losses			10,301				8,704				31,272				23,777
Noninterest income:
Fees and service charges		$	1,203			$	991			$	3,608			$	2,830
Wealth management operations			447				414				1,426				1,253
Gain on sale of loans held-for-sale, net			681				451				1,323				1,021
Gain on sale of securities, net			102				151				754				1,155
Increase in cash value of bank owned life insurance			177				130				519				358
Benefit from bank owned life insurance			205				-				205				-
Gain on sale of foreclosed real estate, net			43				54				83				154
Other			39				32				217				104
Total noninterest income		$	2,897			$	2,223			$	8,135			$	6,875
Noninterest expense:
Compensation and benefits		$	4,932			$	4,669			$	14,333			$	12,045
Occupancy and equipment			1,231				829				3,522				2,524
Data processing			806				1,012				2,753				2,076
Marketing			170				223				783				523
Federal deposit insurance premiums			18				91				286				250
Other			2,112				2,233				6,305				5,512
Total noninterest expense		$	9,269			$	9,057			$	27,982			$	22,930
Income before income tax expenses			3,929				1,870				11,425				7,722
Income tax expenses			351				245				1,602				1,025
Net income		$	3,578			$	1,625			$	9,823			$	6,697
Earnings per common share:
Basic		$	1.04			$	0.54			$	2.88			$	2.29
Diluted		$	1.04			$	0.54			$	2.88			$	2.29
Dividends declared per common share		$	0.31			$	0.30			$	0.92			$	0.89

---

 

		Three Months Ended								Nine Months Ended
(Dollars in thousands)		September 30,								September 30,
		2019				2018				2019				2018
Net income		$	3,578			$	1,625			$	9,823			$	6,697
Net change in net unrealized gains and losses on securities available-for-sale:
Unrealized gains/(losses) arising during the period			2,112				(2,071	)			9,878				(7,301	)
Less: reclassification adjustment for gains included in net income			(102	)			(151	)			(754	)			(1,155	)
Net securities gain/(loss) during the period			2,010				(2,222	)			9,124				(8,456	)
Tax effect			(422	)			467				(1,910	)			1,780
Net of tax amount			1,588				(1,755	)			7,214				(6,676	)
Comprehensive income/(loss), net of tax		$	5,166			$	(130	)		$	17,037			$	21

---

 

		Three Months Ended
										Accumulated
						Additional				Other
		Common				Paid-in				Comprehensive				Retained				Total
(Dollars in thousands, except per share data)		Stock				Capital				(Loss)/Income				Earnings				Equity
Balance at June 30, 2018		$	-			$	4,925			$	(4,237	)		$	89,889			$	90,577
Comprehensive income:
Net income			-				-				-				1,625				1,625
Net unrealized loss on securities available-for- sale, net of reclassification and tax effects			-				-				(1,755	)			-				(1,755	)
Comprehensive income																			(130	)
Net surrender value of 629 restricted stock awards							(27	)											(27	)
Stock-based compensation expense			-				50				-				-				50
Issuance of 161,875 shares at $42.80 per share, for acquisition of First Personal Financial Corporation			-				6,928				-				-				6,928
Cash dividends, $0.30 per share			-				-				-				(911	)			(911	)
Balance at September 30, 2018		$	-			$	11,876			$	(5,992	)		$	90,603			$	96,487
Balance at June 30, 2019		$	-			$	29,510			$	2,830			$	96,472			$	128,812
Comprehensive income:
Net income			-				-				-				3,578				3,578
Net unrealized gain on securities available-for- sale, net of reclassification and tax effects			-				-				1,588				-				1,588
Comprehensive income																			5,166
Stock-based compensation expense			-				79				-				-				79
Cash dividends, $0.31 per share			-				-				-				(1,069	)			(1,069	)
Balance at September 30, 2019		$	-			$	29,589			$	4,418			$	98,981			$	132,988

---

		Nine Months Ended
										Accumulated
						Additional				Other
		Common				Paid-in				Comprehensive				Retained				Total
(Dollars in thousands, except per share data)		Stock				Capital				(Loss)/Income				Earnings				Equity
Balance at January 1, 2018		$	-			$	4,867			$	684			$	86,509			$	92,060
Comprehensive income:
Net income			-				-				-				6,697				6,697
Net unrealized gain on securities available-for- sale, net of reclassification and tax effects			-				-				(6,676	)			-				(6,676	)
Comprehensive income																			21
Net surrender value of 1,658 restricted stock awards			-				(72	)			-				-				(72	)
Stock-based compensation expense			-				153				-				-				153
Issuance of 161,875 shares at $42.80 per share, for acquisition of First Personal Financial Corporation							6,928												6,928
Cash dividends, $0.89 per share			-				-				-				(2,603	)			(2,603	)
Balance at September 30, 2019		$	-			$	11,876			$	(5,992	)		$	90,603			$	96,487
Balance at January 1, 2019		$	-			$	11,927			$	(2,796	)		$	92,333			$	101,464
Comprehensive income:
Net income			-				-				-				9,823				9,823
Net unrealized gain on securities available-for- sale, net of reclassification and tax effects			-				-				7,214				-				7,214
Comprehensive income																			17,037
Net surrender value of 1,245 restricted stock awards			-				(63	)			-				-				(63	)
Stock-based compensation expense			-				233				-				-				233
Issuance of 416,478 shares at $42.00 per share, for acquisition of AJS Bancorp, Inc			-				17,492				-				-				17,492
Cash dividends, $0.92 per share			-				-				-				(3,175	)			(3,175	)
Balance at September 30, 2019		$	-			$	29,589			$	4,418			$	98,981			$	132,988

---

 

		Nine Months Ended
(Dollars in thousands)		September 30,
		2019				2018
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income		$	9,823			$	6,697
Adjustments to reconcile net income to net cash provided by/(used in) operating activities:
Origination of loans for sale			(54,555	)			(41,823	)
Sale of loans originated for sale			54,123				39,953
Depreciation and amortization, net of accretion			2,382				1,902
Amortization of mortgage servicing rights			48				48
Stock based compensation expense			233				154
Net surrender value of restricted stock awards			(63	)			(72	)
Gain on sale of securities, net			(754	)			(1,155	)
Gain on sale of loans held-for-sale, net			(1,323	)			(1,021	)
Gain on sale of premises and equipment, net			(126	)			-
Gain on sale of foreclosed real estate, net			(83	)			(154	)
Benefit from bank owned life insurance			(205	)			-
Provision for loan losses			1,322				950
Net change in:
Interest receivable			(363	)			(298	)
Other assets			(1,546	)			(345	)
Accrued expenses and other liabilities			2,322				(2,544	)
Total adjustments			1,412				(4,405	)
Net cash - operating activities			11,235				2,292
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of certificates of deposits in other financial institutions			(146	)			1,150
Proceeds from maturities and pay downs of securities available-for-sale			20,627				17,747
Proceeds from sales of securities available-for-sale			35,859				29,049
Purchase of securities available-for-sale			(63,377	)			(48,464	)
Net change in loans receivable			(52,399	)			(28,385	)
Purchase of Federal Home Loan Bank Stock			59				(17	)
Purchase of premises and equipment, net			(2,116	)			(624	)
Proceeds on sale of premises and equipment, net			228				-
Proceeds from sale of foreclosed real estate, net			960				1,273
Cash and cash equivalents from acquisition activity, net			52,195				18,261
Change in cash value of bank owned life insurance			(66	)			(358	)
Net cash - investing activities			(8,176	)			(10,368	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in deposits			78,455				(15,180	)
Proceeds from FHLB advances			-				62,000
Repayment of FHLB advances			(27,000	)			(44,000	)
Change in other borrowed funds			3,303				10,718
Dividends paid			(3,014	)			(2,523	)
Net cash - financing activities			51,744				11,015
Net change in cash and cash equivalents			54,803				2,939
Cash and cash equivalents at beginning of period			17,139				11,025
Cash and cash equivalents at end of period		$	71,942			$	13,964
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest		$	6,608			$	3,258
Income taxes			1,485				1,080
Acquisition activity:
Fair value of assets acquired, including cash and cash equivalents		$	172,560			$	137,449
Value of goodwill and other intangible assets			5,856				8,481
Fair value of liabilities assumed			145,546				130,313
Cash paid for acquisition			15,743				8,689
Issuance of common stock for acquisition			17,492				6,928
Noncash activities:
Transfers from loans to foreclosed real estate		$	262			$	253

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Note 1 - Basis of Presentation

The consolidated financial statements include the accounts of NorthWest Indiana Bancorp (the “Bancorp” or “NWIN”), its wholly-owned subsidiaries NWIN Risk Management, Inc. (a captive insurance subsidiary) and Peoples Bank SB (the “Bank”), and the Bank’s wholly-owned subsidiaries, Peoples Service Corporation, NWIN, LLC, NWIN Funding, Incorporated, Columbia Development Company, LLC, and Alliance NMTC Investment Fund, LLC. The Bancorp’s business activities include being a holding company for the Bank as well as a holding company for NWIN Risk Management, Inc. The Bancorp’s earnings are primarily dependent upon the earnings of 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 U.S. generally accepted accounting principles for complete presentation of consolidated financial statements. In the opinion of management, the consolidated financial statements contain all adjustments necessary to present fairly the consolidated balance sheets of the Bancorp as of September 30, 2019 and December 31, 2018, and the consolidated statements of income and comprehensive income for the three and nine months ended September 30, 2019 and 2018, and consolidated statements of cash flows and changes in stockholders’ equity for the nine months ended September 30, 2019 and 2018. The income reported for the nine month period ended September 30, 2019 is not necessarily indicative of the results to be expected for the full year.

 

 

Note 2 - Use of Estimates

Preparing financial statements in conformity with U.S. 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 consolidated financial statements and the reported amounts of revenue and expenses during the reporting period, as well as the disclosures provided. Actual results could differ from those estimates. Estimates associated with the allowance for loan losses, fair values of foreclosed real estate, loan servicing rights, investment securities, deferred tax assets, goodwill, and the status of contingencies are particularly susceptible to material change in the near term.

 

 

Note 3 - Acquisition Activity

On July 26, 2018, the Bancorp completed its acquisition of First Personal Financial Corp., a Delaware corporation (“First Personal”), pursuant to an Agreement and Plan of Merger dated February 20, 2018 between the Bancorp and First Personal (the “First Personal Merger Agreement”). Pursuant to the terms of the First Personal Merger Agreement, First Personal merged with and into the Bancorp, with the Bancorp as the surviving corporation. Simultaneous with the First Personal Merger, First Personal Bank, an Illinois state chartered commercial bank and wholly-owned subsidiary of First Personal, merged with and into the Bank, with the Bank as the surviving institution.

 

In connection with the First Personal Merger, each First Personal stockholder holding 100 or more shares of First Personal common stock received fixed consideration of (i) 0.1246 shares of Bancorp common stock, and (ii) $6.67 per share in cash for each outstanding share of First Personal common stock. Stockholders holding less than 100 shares of First Personal common stock received $12.12 in cash and no stock consideration for each outstanding share of First Personal common stock. Any fractional shares of Bancorp common stock that a First Personal stockholder would have otherwise received in the First Personal Merger were cashed out in the amount of such fraction multiplied by $42.95.

 

The Bancorp issued a total of approximately 161,875 shares of Bancorp common stock to the former First Personal stockholders, and paid cash consideration of approximately $8.7 million. Based upon the closing price of Bancorp’s common stock on July 25, 2018, the transaction had an implied valuation of approximately $15.6 million. The acquisition costs related to the First Personal Merger equaled approximately $1.8 million. The acquisition represented the Bank’s first expansion into the South Suburban Chicagoland market, and expanded the Bank’s full-service retail banking network to 19 banking centers. Additionally, upon the closing of the merger the three former First Personal Bank branches in Cook County, Illinois became branches of Peoples Bank, thereby expanding the Peoples Bank branch network into Illinois.

 

 

Under the acquisition method of accounting, the total purchase price is allocated to net tangible and intangible assets based on their current estimated fair values on the date of the acquisition. Based on the valuations of the fair value of tangible and intangible assets acquired and liabilities assumed, which are based on estimates and assumptions that are subject to change, the final purchase price for the First Personal acquisition is allocated as follows:

 

 

As part of the First Personal merger, the Bancorp acquired First Personal Statutory Trust I. NWIN guaranteed the payment of distributions on the trust preferred securities issued by First Personal Statutory Trust I. First Personal Statutory Trust I issued $4.124 million in trust preferred securities in May 2004. The trust preferred securities carried a variable rate of interest priced at the three-month LIBOR plus 275 basis points, payable quarterly and due to mature on June 17, 2034. Management of the Bancorp determined that the continued maintenance of the trust preferred securities issued by First Personal Statutory Trust I and the corresponding junior subordinated debentures was unnecessary to the Bancorp’s ongoing operations. As a result, the Bancorp’s board of directors approved the redemption of the junior subordinated debentures, which resulted in the trustee of the First Personal Statutory Trust I redeeming all $4.124 million of the trust preferred securities as of December 17, 2018.

 

On January 24, 2019, the Bancorp completed its previously announced acquisition of AJS Bancorp, Inc., a Maryland corporation (“AJSB”), pursuant to an Agreement and Plan of Merger dated July 30, 2018 between the Bancorp and AJSB (the “AJSB Merger Agreement”). Pursuant to the terms of the AJSB Merger Agreement, AJSB merged with and into NWIN, with NWIN as the surviving corporation. Simultaneously with the AJSB Merger, A.J. Smith Federal Savings Bank, a federally chartered savings bank and wholly-owned subsidiary of AJSB, merged with and into Peoples Bank SB, with Peoples Bank as the surviving bank.

 

In connection with the AJSB Merger, each AJSB stockholder holding 100 or more shares of AJSB common stock received fixed consideration of (i) 0.2030 shares of NWIN common stock, and (ii) $7.20 per share in cash for each outstanding share of AJSB’s common stock. Stockholders holding less than 100 shares of AJSB common stock received $16.00 in cash and no stock consideration for each outstanding share of AJSB common stock. Any fractional shares of NWIN common stock that an AJSB stockholder would have otherwise received in the AJSB Merger were cashed out in the amount of such fraction multiplied by $43.01.

 

The Bancorp issued 416,478 shares of Bancorp common stock to the former AJSB stockholders, and paid cash consideration of approximately $15.7 million. Based upon the closing price of NWIN’s common stock on January 23, 2019, the transaction had an implied valuation of approximately $33.2 million, which includes unallocated shares held by the AJSB Employee Stock Ownership Plan (“ESOP”), some of which were cancelled in connection with the closing to satisfy the ESOP’s outstanding loan balance. As of September 30, 2019, acquisition costs related to the AJSB Merger were approximately $2.1 million. The acquisition further expanded the Bank’s banking center network in Cook County, Illinois, expanding the Bank’s full-service retail banking network to 22 banking centers.

 

 

Under the acquisition method of accounting, the total purchase price is allocated to net tangible and intangible assets based on their current estimated fair values on the date of the acquisition. Based on preliminary valuations of the fair value of tangible and intangible assets acquired and liabilities assumed, which are based on estimates and assumptions that are subject to change, the final purchase price for the AJSB acquisition is allocated as follows:

 

 

Final estimates of fair value on the date of acquisition have not been finalized yet. Prior to the end of the one year measurement period for finalizing the purchase price allocation, if information becomes available which would indicate adjustments are required to the purchase price allocation, such adjustments will be included in the purchase price allocation prospectively. If any adjustments are made to the preliminary assumptions (provisional amounts), disclosures will be made in the notes to the financial statements of the amounts recorded in the current period earnings by line item that have been recorded in previous reporting periods if the adjustments to the provisional amounts had been recognized as of the acquisition date.

 

 

 

Note 4 - Securities

The estimated fair value of available-for-sale securities and the related gross unrealized gains and losses recognized in accumulated other comprehensive income were as follows:

 

 

 

The estimated fair value of available-for-sale debt securities at September 30, 2019, by contractual maturity, were as follows. Securities not due at a single maturity date, primarily collateralized mortgage obligations and residential mortgage-backed securities, are shown separately.

 

 

 

Sales of available-for-sale securities were as follows for the nine months ended:

 

 

Accumulated other comprehensive income/(loss) balances, net of tax, related to available-for-sale securities, were as follows:

 

 

Securities with carrying values of approximately $69.2 million and $16.3 million were pledged as of September 30, 2019 and December 31, 2018, respectively, as collateral for repurchase agreements, public funds, and for other purposes as permitted or required by law. The increase in pledged securities for September 30, 2019, was the result of new pledging requirements for Indiana public funds deposits.

 

Securities with gross unrealized losses at September 30, 2019 and December 31, 2018 not recognized in income are as follows:

 

 

 

Unrealized losses on securities have not been recognized into income because the securities are of high credit quality or have undisrupted cash flows. Management has the intent and ability to hold those securities for the foreseeable future, and the decline in fair value is largely due to changes in interest rates and volatility in securities markets. The fair values are expected to recover as the securities approach maturity.

 

 

 

Note 5 - Loans Receivable

 

Loans receivable are summarized below:

 

 

 

 

 

 

 

The Bancorp's impairment analysis is summarized below: