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    

 

 

 

 

 

NorthWest Indiana Bancorp

Consolidated Balance Sheets

 

   

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  

 

See accompanying notes to consolidated financial statements.

 

1

 

                      

 

NorthWest Indiana Bancorp

Consolidated Statements of Income

(unaudited)

 

 

 

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  

 

See accompanying notes to consolidated financial statements.

 

2

 

 

 

NorthWest Indiana Bancorp

Consolidated Statements of Comprehensive Income (Loss)

(unaudited)

 

   

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  

 

See accompanying notes to consolidated financial statements.

 

3

 

 

 

NorthWest Indiana Bancorp

Consolidated Statements of Changes in Stockholders' Equity

(unaudited)

 

   

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  

 

4

 

 

   

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  

 

See accompanying notes to consolidated financial statements.

 

5

 

 

 

NorthWest Indiana Bancorp

Consolidated Statements of Cash Flows

(unaudited)

 

   

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  

 

See accompanying notes to consolidated financial statements.

 

6

 

 

NorthWest Indiana Bancorp

 

Notes to Consolidated Financial Statements

(unaudited)

 

 

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.

 

7

 

 

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:

 

ASSETS

       

Cash and due from banks

  $ 30,178  

Investment securities, available for sale

    2  
         

Commercial

    53,026  

Residential mortgage

    32,542  

Consumer

    9,004  

Total Loans

    94,572  
         

Premises and equipment, net

    5,799  

FHLB stock

    219  

Goodwill

    5,437  

Core deposit intangible

    3,044  

Interest receivable

    274  

Other assets

    6,405  

Total assets purchased

  $ 145,930  

Common shares issued

    6,928  

Cash paid

    8,689  

Total purchase price

  $ 15,617  
         

LIABILITIES

       

Deposits

       

Non-interest bearing

  $ 14,517  

NOW accounts

    22,177  

Savings and money market

    41,852  

Certificates of deposits

    46,355  

Total Deposits

    124,901  
         

Borrowings

    4,124  

Interest payable

    32  

Other liabilities

    1,256  
         

Total liabilities assumed

  $ 130,313  

 

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.

 

8

 

 

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:

 

ASSETS

       

Cash and due from banks

  $ 68,303  

Investment securities, available for sale

    3,432  
         

Commercial

    712  

Residential mortgage

    85,635  

Multifamily

    1,442  

Consumer

    57  

Total Loans

    87,846  
         

Premises and equipment, net

    3,542  

FHLB stock

    512  

Goodwill

    2,939  

Core deposit intangible

    2,917  

Interest receivable

    351  

Other assets

    8,939  

Total assets purchased

  $ 178,781  

Common shares issued

    17,492  

Cash paid

    15,743  

Total purchase price

  $ 33,235  
         

LIABILITIES

       

Deposits

       

Non-interest bearing

  $ 24,502  

NOW accounts

    10,712  

Savings and money market

    68,875  

Certificates of deposits

    40,137  

Total Deposits

    144,226  
         

Interest payable

    50  

Other liabilities

    1,270  
         

Total liabilities assumed

  $ 145,546  

 

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.

 

9

 

 

 

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:

 

   

(Dollars in thousands)

 
           

Gross

   

Gross

   

Estimated

 
   

Cost

   

Unrealized

   

Unrealized

   

Fair

 
   

Basis

   

Gains

   

Losses

   

Value

 

September 30, 2019

                               

Money market fund

  $ 5,771     $ -     $ -     $ 5,771  

U.S. government sponsored entities

    14,420       96       (3 )     14,513  

Collateralized mortgage obligations and residential mortgage-backed securities

    138,832       1,894       (105 )     140,621  

Municipal securities

    92,999       5,119       (39 )     98,079  

Collateralized debt obligations

    3,448       -       (1,378 )     2,070  

Total securities available-for-sale

  $ 255,470     $ 7,109     $ (1,525 )   $ 261,054  

 

   

(Dollars in thousands)

 
           

Gross

   

Gross

   

Estimated

 
   

Cost

   

Unrealized

   

Unrealized

   

Fair

 
   

Basis

   

Gains

   

Losses

   

Value

 

December 31, 2018

                               

Money market fund

  $ 2,480     $ -     $ -     $ 2,480  

U.S. government sponsored entities

    7,997       28       (131 )     7,894  

Collateralized mortgage obligations and residential mortgage-backed securities

    137,834       135       (2,688 )     135,281  

Municipal securities

    93,516       1,072       (524 )     94,064  

Collateralized debt obligations

    3,481       -       (1,432 )     2,049  

Total securities available-for-sale

  $ 245,308     $ 1,235     $ (4,775 )   $ 241,768  

 

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.

 

   

(Dollars in thousands)

 
   

Available-for-sale

 
   

Estimated

         
   

Fair

   

Tax-Equivalent

 

September 30, 2019

 

Value

   

Yield (%)

 

Due in one year or less

  $ 8,840       2.71  

Due from one to five years

    3,397       4.95  

Due from five to ten years

    20,270       3.71  

Due over ten years

    87,926       4.02  

Collateralized mortgage obligations and residential mortgage-backed securities

    140,621       2.70  

Total

  $ 261,054       3.25  

 

10

 

 

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

 

   

(Dollars in thousands)

 
   

September 30,

   

September 30,

 
   

2019

   

2018

 
                 

Proceeds

  $ 35,859     $ 29,049  

Gross gains

    838       1,159  

Gross losses

    (84 )     (4 )

 

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

 

   

(Dollars in thousands)

 
   

Unrealized
gain/(loss)

 

Ending balance, December 31, 2018

  $ (2,796 )

Current period change

    7,214  

Ending balance, September 30, 2019

  $ 4,418  

 

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:

 

   

(Dollars in thousands)

 
   

Less than 12 months

   

12 months or longer

   

Total

 
   

Estimated

           

Estimated

           

Estimated

         
   

Fair

   

Unrealized

   

Fair

   

Unrealized

   

Fair

   

Unrealized

 
   

Value

   

Losses

   

Value

   

Losses

   

Value

   

Losses

 

September 30, 2019

                                               

U.S. government sponsored entities

  $ 1,427     $ (3 )   $ -     $ -     $ 1,427     $ (3 )

Collateralized mortgage obligations and residential mortgage-backed securities

    5,727       (34 )     17,351       (71 )     23,078       (105 )

Municipal securities

    2,579       (39 )     -       -       2,579       (39 )

Collateralized debt obligations

    -       -       2,070       (1,378 )     2,070       (1,378 )

Total temporarily impaired

  $ 9,733     $ (76 )   $ 19,421     $ (1,449 )   $ 29,154     $ (1,525 )

Number of securities

            8               19               27  

 

   

(Dollars in thousands)

 
   

Less than 12 months

   

12 months or longer

   

Total

 
   

Estimated

           

Estimated

           

Estimated

         
   

Fair

   

Unrealized

   

Fair

   

Unrealized

   

Fair

   

Unrealized

 
   

Value

   

Losses

   

Value

   

Losses

   

Value

   

Losses

 

December 31, 2018

                                               

U.S. government sponsored entities

  $ -     $ -     $ 3,866     $ (131 )   $ 3,866     $ (131 )

Collateralized mortgage obligations and residential mortgage-backed securities

    28,388       (304 )     89,234       (2,384 )     117,622       (2,688 )

Municipal securities

    22,678       (367 )     3,495       (157 )     26,173       (524 )

Collateralized debt obligations

    -       -       2,049       (1,432 )     2,049       (1,432 )

Total temporarily impaired

  $ 51,066     $ (671 )   $ 98,644     $ (4,104 )   $ 149,710     $ (4,775 )

Number of securities

            52               75               127  

 

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.

 

11

 

 

 

Note 5 - Loans Receivable

 

Loans receivable are summarized below:

 

(Dollars in thousands)

               
   

September 30, 2019

   

December 31, 2018

 

Loans secured by real estate:

               

Residential real estate

  $ 298,138     $ 224,082  

Home equity

    49,719       45,423  

Commercial real estate

    282,536       253,104  

Construction and land development

    79,351       64,433  

Multifamily

    50,878       47,234  

Farmland

    230       240  

Total loans secured by real estate

    760,852       634,516  

Commercial business

    109,485       103,628  

Consumer

    763       495  

Manufactured homes

    12,882       4,798  

Government

    17,609       21,101  

Subtotal

    901,591       764,538  

Less:

               

Net deferred loan origination fees

    2,813       530  

Undisbursed loan funds

    (131 )     (668 )

Loans receivable

  $ 904,273     $ 764,400  

 

 

(Dollars in thousands)

 

Beginning Balance

   

Charge-offs

   

Recoveries

   

Provisions

   

Ending Balance

 
                                         

The Bancorp's activity in the allowance for loan losses, by loan segment, is summarized below for the three months ended September 30, 2019:

 
                                         

Allowance for loan losses:

                                       

Residential real estate

  $ 1,660     $ (62 )   $ 5     $ 149     $ 1,752  

Home equity

    202       -       2       23       227  

Commercial real estate

    3,529       -       -       178       3,707  

Construction and land development

    806       -       -       188       994  

Multifamily

    453       -       -       51       504  

Farmland

    -       -       -       -       -  

Commercial business

    1,517       (9 )     8       405       1,921  

Consumer

    51       (13 )     5       7       50  

Manufactured homes

    505       -       -       (505 )     -  

Government

    21       -       -       (2 )     19  

Total

  $ 8,744     $ (84 )   $ 20     $ 494     $ 9,174  
                                         

The Bancorp's activity in the allowance for loan losses, by loan segment, is summarized below for the three months ended September 30, 2018:

 
                                         

Allowance for loan losses:

                                       

Residential real estate

  $ 1,523     $ (30 )   $ -     $ 82     $ 1,575  

Home equity

    183       -       -       10       193  

Commercial real estate

    3,170       -       22       48       3,240  

Construction and land development

    611       -       -       (32 )     579  

Multifamily

    607       -       -       (150 )     457  

Farmland

    4       -       -       (1 )     3  

Commercial business

    1,264       -       8       61       1,333  

Consumer

    36       (19 )     8       298       323  

Manufactured homes

    -       -       -       -       -  

Government

    50       -       -       (4 )     46  

Total

  $ 7,448     $ (49 )   $ 38     $ 312     $ 7,749  

 

12

 

 

(Dollars in thousands)

 

Beginning Balance

   

Charge-offs

   

Recoveries

   

Provisions

   

Ending Balance

 
                                         

The Bancorp's activity in the allowance for loan losses, by loan segment, is summarized below for the nine months ended September 30, 2019:

 
                                         

Allowance for loan losses:

                                       

Residential real estate

  $ 1,715     $ (128 )   $ 23     $ 142     $ 1,752  

Home equity

    202       -       4       21     $ 227  

Commercial real estate

    3,335       -       -       372     $ 3,707  

Construction and land development

    756       -       -       238     $ 994  

Multifamily

    472       -       -       32     $ 504  

Farmland

    -       -       -       -     $ -  

Commercial business

    1,362       (9 )     24       544     $ 1,921  

Consumer

    41       (38 )     14       33     $ 50  

Manufactured homes

    41       -       -       (41 )   $ -  

Government

    38       -       -       (19 )   $ 19  

Total

  $ 7,962     $ (175 )   $ 65     $ 1,322     $ 9,174  
                                         

The Bancorp's activity in the allowance for loan losses, by loan segment, is summarized below for the nine months ended September 30, 2018:

 
                                         

Allowance for loan losses:

                                       

Residential real estate

  $ 1,568     $ (136 )   $ -     $ 143     $ 1,575  

Home equity

    166       (24 )     -       51       193  

Commercial real estate

    3,125       (119 )     24       210       3,240  

Construction and land development

    618       -       -       (39 )     579  

Multifamily

    622       -       -       (165 )     457  

Farmland

    -       -       -       3       3  

Commercial business

    1,298       (529 )     125       439       1,333  

Consumer

    31       (41 )     17       316       323  

Manufactured homes

    -       -       -       -       -  

Government

    54       -       -       (8 )     46  

Total

  $ 7,482     $ (849 )   $ 166     $ 950     $ 7,749  

 

13

 

 

The Bancorp's impairment analysis is summarized below:

 

   

Ending Balances

 
                                                 

(Dollars in thousands)

 

Individually

evaluated for

impairment

reserves

   

Collectively

evaluated for

impairment

reserves

   

Loan

receivables

   

Individually

evaluated for

impairment

   

Purchased credit

impaired

individually

evaluated for

impairment

   

Collectively

evaluated for

impairment

 
                                                 

The Bancorp's allowance for loan losses impairment evaluation and loan receivables are summarized below at September 30, 2019:

         
                                                 

Residential real estate

  $ 17     $ 1,735     $ 297,830     $ 628     $ 1,747     $ 295,455  

Home equity

    9       218       49,781       282       220       49,279  

Commercial real estate

    218       3,489       282,536       1,352       486       280,698  

Construction and land development

    -       994       79,351       -       -       79,351  

Multifamily

    -       504       50,878       -       684       50,194  

Farmland

    -       -       230       -       -       230  

Commercial business

    967       954       109,359       2,436       1,147       105,776  

Consumer

    -       50       1,334       -       -       1,334  

Manufactured homes

    -       -       15,365       -       -       15,365  

Government

    -       19       17,609       -       -       17,609  

Total

  $ 1,211     $ 7,963     $ 904,273     $ 4,698     $ 4,284     $ 895,291  
                                                 
                                                 

The Bancorp's allowance for loan losses impairment evaluation and loan receivables are summarized below at December 31, 2018:

         
                                                 

Residential real estate

  $ 22       1,693       223,323     $ 570     $ 980     $ 221,773  

Home equity

    9       193       45,483       141       123       45,219  

Commercial real estate

    210       3,125       253,104       1,703       402       250,999  

Construction and land development

    -       756       64,433       -       -       64,433  

Multifamily

    -       472       47,234       -       -       47,234  

Farmland

    -       -       240       -       -       240  

Commercial business

    5       1,357       103,439       423       1,440       101,576  

Consumer

    -       82       643       -       -       643  

Manufactured homes