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. |
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. |
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. |
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 |
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. |
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. |
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.
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.
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.
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 |
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 |
||||
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.
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 |
(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 |
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 |