1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
--------------------------------------
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the quarterly period ended SEPTEMBER 30, 1999, 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
or organization) Identification Number)
9204 Columbia Avenue
Munster, Indiana 46321
- --------------------------------------- ----------
(Address of principal executive office) (ZIP code)
Registrant's telephone number, including area code: (219) 836-9690
---------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
There were 2,761,516 shares of the registrant's Common Stock, without par value,
outstanding at September 30, 1999.
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NORTHWEST INDIANA BANCORP
INDEX
Page
Number
------
PART I. Consolidated Financial Statements
Item 1. Consolidated Financial Statements of NorthWest Indiana Bancorp
Consolidated Balance Sheets, September 30, 1999 and December 31, 1998 1
Consolidated Statements of Income, Three Months and Nine Months Ended
September 30, 1999 and 1998 2
Consolidated Statements of Changes in Stockholders' Equity, Nine Months Ended
September 30, 1999 and 1998 3
Consolidated Statements of Cash Flows,
Nine Months Ended September 30, 1999 and 1998 4
Notes to Consolidated Financial Statements 5-6
Management's Discussion and Analysis of Financial Condition and
Results of Operations 7-16
PART II. Other Information 17
SIGNATURES 18
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NorthWest Indiana Bancorp
Consolidated Balance Sheets
(unaudited)
September 30, December 31,
(Dollars in thousands) 1999 1998
--------- ---------
ASSETS
Cash and non-interest bearing balances in financial institutions .............. $ 11,471 $ 12,729
Interest bearing balances in financial institutions ........................... 4,690 10,111
Federal funds sold ............................................................ 2,500 4,500
--------- ---------
Total cash and cash equivalents ........................................... 18,661 27,340
Securities available-for-sale ................................................. 24,825 20,522
Securities held-to-maturity (fair value: September 30, 1999 - $15,358;
December 31, 1998 - $14,236) ............................................. 15,543 14,133
Loans held for sale ........................................................... 606 598
Loans receivable .............................................................. 289,470 273,433
Less: allowance for loan losses ............................................... (3,295) (3,132)
--------- ---------
Net loans receivable ...................................................... 286,175 270,301
Federal Home Loan Bank stock .................................................. 1,777 1,695
Accrued interest receivable ................................................... 2,252 2,298
Premises and equipment ........................................................ 6,484 6,715
Foreclosed real estate ........................................................ 69 32
Other assets .................................................................. 1,906 1,783
--------- ---------
Total assets .............................................................. $ 358,298 $ 345,417
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Non-interest bearing ........................................................ $ 26,660 $ 22,346
Interest bearing ............................................................ 275,152 270,876
--------- ---------
Total ..................................................................... 301,812 293,222
Borrowed funds ................................................................ 20,572 17,320
Accrued expenses and other liabilities ........................................ 3,576 3,559
--------- ---------
Total liabilities ......................................................... 325,960 314,101
Commitments and contingencies ................................................. -- --
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: September 30, 1999 - 2,767,416,
December 31, 1998 - 2,763,156;
shares outstanding: September 30, 1999 - 2,761,516,
December 31, 1998 - 2,763,156 ...................... 346 345
Additional paid in capital .................................................... 2,970 2,950
Accumulated other comprehensive income ........................................ (145) 114
Retained earnings - substantially restricted .................................. 29,293 27,907
Treasury stock: September 30, 1999 - 5,900 common shares at cost .............. (126) --
--------- ---------
Total stockholders' equity ................................................ 32,338 31,316
--------- ---------
Total liabilities and stockholders' equity ................................ $ 358,298 $ 345,417
========= =========
See accompanying notes to consolidated financial statements.
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NorthWest Indiana Bancorp
Consolidated Statements of Income
(unaudited)
Three Months Ended Nine Months Ended
(Dollars in thousands, except per share data) September 30, September 30,
1999 1998 1999 1998
------- ------- ------- -------
Interest income:
Loans receivable
Real estate loans .............................................. $ 4,953 $ 4,933 $14,599 $14,941
Commercial loans ............................................... 578 529 1,628 1,567
Consumer loans ................................................. 223 199 638 507
------- ------- ------- -------
Total loan interest .......................................... 5,754 5,661 16,865 17,015
Securities ....................................................... 614 522 1,717 1,478
Other interest earning assets .................................... 102 157 459 433
------- ------- ------- -------
Total interest income ........................................ 6,470 6,340 19,041 18,926
------- ------- ------- -------
Interest expense:
Deposits ......................................................... 2,537 2,868 7,676 8,647
Borrowed funds ................................................... 237 230 674 674
------- ------- ------- -------
Total interest expense ....................................... 2,774 3,098 8,350 9,321
------- ------- ------- -------
Net interest income ................................................ 3,696 3,242 10,691 9,605
Provision for loan losses .......................................... 75 25 175 65
------- ------- ------- -------
Net interest income after provision for loan losses ................ 3,621 3,217 10,516 9,540
------- ------- ------- -------
Noninterest income:
Fees and service charges ......................................... 339 216 864 643
Trust operations ................................................. 91 72 269 235
Gain on sale of earning assets, net .............................. 0 26 48 80
Gain on sale of foreclosed real estate ........................... 15 5 15 15
Other ............................................................ 1 -- 4 3
------- ------- ------- -------
Total noninterest income ..................................... 446 319 1,200 976
------- ------- ------- -------
Noninterest expense:
Compensation and benefits ........................................ 1,190 1,049 3,396 3,079
Occupancy and equipment .......................................... 391 366 1,162 1,089
Data processing .................................................. 128 107 372 315
Advertising ...................................................... 25 22 109 112
Federal insurance premium ........................................ 42 41 126 124
Other ............................................................ 462 380 1,358 1,196
------- ------- ------- -------
Total noninterest expense .................................... 2,238 1,965 6,523 5,915
------- ------- ------- -------
Income before income tax expenses .................................. 1,829 1,571 5,193 4,601
Income tax expenses ................................................ 726 626 2,065 1,831
------- ------- ------- -------
Net income ......................................................... $ 1,103 $ 945 $ 3,128 $ 2,770
======= ======= ======= =======
Earnings per common share:
Basic .......................................................... $ 0.40 $ 0.34 $ 1.13 $ 1.01
======= ======= ======= =======
Diluted ........................................................ $ 0.40 $ 0.34 $ 1.12 $ 1.00
======= ======= ======= =======
Dividend declared per common share ................................. $ 0.21 $ 0.185 $ 0.63 $ 0.555
======= ======= ======= =======
See accompanying notes to consolidated financial statements.
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NorthWest Indiana Bancorp
Consolidated Statements of Changes in Stockholders' Equity
(unaudited)
Nine Months Ended
(Dollars in thousands, except per share data) September 30,
1999 1998
-------- --------
Balance at beginning of period .............................................. $ 31,316 $ 29,482
Accumulated other comprehensive income:
Net income ............................................................... 3,128 2,770
Net unrealized gain/(loss) on securities
available-for-sale, net of tax effects ................................ (259) 73
-------- --------
Comprehensive income ............................................... 2,869 2,843
Issuance of shares of common stock:
4,260 shares at $4.66 - $10.63 per share and
180 shares at $5.75 - $10.63 per share for the
nine months ended September 30, 1999 and 1998 ............................ 21 2
Cash dividends:
$0.63 per share and $0.555 per share for the
nine months ended September 30, 1999 and 1998 ............................ (1,742) (1,534)
Purchase of 5,900 shares of treasury stock .................................. (126) --
-------- --------
Balance at end of period .................................................... $ 32,338 $ 30,793
======== ========
See accompanying notes to consolidated financial statements.
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NorthWest Indiana Bancorp
Consolidated Statements of Cash Flows
(unaudited)
Nine Months Ended
(Dollars in thousands) September 30,
1999 1998
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ....................................................................... $ 3,128 $ 2,770
-------- --------
Adjustments to reconcile net income to net cash provided by operating
activities:
Origination of loans for sale ................................................ (2,466) (2,004)
Sale of loans originated for sale ............................................ 2,449 1,856
Depreciation and amortization, net of accretion .............................. 690 644
Amortization of mortgage servicing rights .................................... 8 4
Net gains on available-for-sale securities ................................... (1) --
Net gains on held-to-maturity securities ..................................... (11) --
Net gains on sale of loans ................................................... (34) (79)
Net gains on sale of foreclosed real estate .................................. (15) (15)
Provision for loan losses .................................................... 175 65
Net change in:
Interest receivable ....................................................... 46 (57)
Other assets .............................................................. 85 (483)
Accrued expenses and other liabilities .................................... 17 240
-------- --------
Total adjustments ....................................................... 943 171
-------- --------
Net cash from operating activities ...................................... 4,071 2,941
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net change in loans receivable ................................................... (15,902) 180
Purchase of:
Securities available-for-sale ................................................. (10,969) (5,048)
Securities held-to-maturity ................................................... (7,229) (6,667)
Federal Home Loan Bank stock .................................................. (82) (49)
Loan participations purchased ................................................. (300) (500)
Premises and equipment, net ................................................... (390) (472)
Proceeds from:
Maturities of securities available-for-sale ................................... 6,160 --
Maturities of securities held-to-maturity ..................................... 5,595 8,000
Principal collected on mortgage-backed securities ............................. 241 375
Sale of foreclosed real estate ................................................ 131 482
-------- --------
Net cash from investing activities ...................................... (22,745) (3,699)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Change in deposits ............................................................... 8,590 7,961
Proceeds from FHLB advances ...................................................... 6,000 4,000
Repayment of FHLB advances ....................................................... (2,000) --
Change in other borrowed funds ................................................... (748) (1,788)
Proceeds from issuance of common stock ........................................... 21 2
Dividends paid ................................................................... (1,742) (1,534)
Purchase of treasury stock ....................................................... (126) --
-------- --------
Net cash from financing activities ............................................ 9,995 8,641
-------- --------
Net change in cash and cash equivalents ....................................... (8,679) 7,883
Cash and cash equivalents at beginning of period ................................. 27,340 10,653
-------- --------
Cash and cash equivalents at end of period ....................................... $ 18,661 $ 18,536
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest ...................................................................... $ 8,394 $ 9,360
Income taxes .................................................................. $ 2,309 $ 2,053
Transfers from loans to foreclosed real estate ................................... $ 121 $ 391
See accompanying notes to consolidated financial statements.
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NORTHWEST INDIANA BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The consolidated financial statements include the accounts of NorthWest
Indiana Bancorp (the Bancorp), its wholly-owned subsidiary, Peoples Bank SB (the
Bank), and the Bank's wholly-owned subsidiary, Peoples Service Corporation. The
Bancorp has no other business activity other than being a holding company for
the Bank. The Bancorp's earnings are dependent upon the earnings of the Bank.
Peoples Service Corporation is inactive. The accompanying unaudited consolidated
financial statements were prepared in accordance with instructions for Form 10-Q
and, therefore, do not include all disclosures required by generally accepted
accounting principles for complete presentation of financial statements. In the
opinion of management, the consolidated financial statements contain all
adjustments (consisting only of normal recurring accruals) necessary to present
fairly the balance sheets of the Bancorp as of September 30, 1999 and December
31, 1998, and the statements of income for the three and nine months ended
September 30, 1999 and 1998, and changes in stockholders' equity and cash flows
for the nine months ended September 30, 1999 and 1998. The income reported for
the nine month period ended September 30, 1999 is not necessarily indicative of
the results to be expected for the full year.
NOTE 2 - CONCENTRATIONS OF CREDIT RISK
The Bancorp grants residential, commercial real estate, commercial
business and installment loans to customers in its primary market area of Lake
County, in northwest Indiana. Substantially all loans are secured by specific
items of collateral including residences, business assets and consumer assets.
NOTE 3 - RECLASSIFICATIONS
Certain amounts reported in the December 31, 1998 consolidated
financial statements have been reclassified to conform to the September 30, 1999
presentation.
NOTE 4 - COMMITMENTS AND CONTINGENCIES
The Bancorp is a party to financial instruments in the normal course of
business to meet financing needs of its customers and to reduce its own exposure
to fluctuating interest rates. These financial instruments include commitments
to make loans and standby letters of credit.
Exposure to credit loss in the event of nonperformance by the other
party to the financial instrument for commitments to make loans and standby
letters of credit is represented by the contractual amount of those instruments.
The Bancorp uses the same credit policy to make such commitments as it uses for
on-balance-sheet items.
At September 30, 1999 and December 31, 1998, commitments to make loans
totaled $61.4 million and $40.0 million, respectively and standby letters of
credit totaled $1.3 million and $1.9 million, respectively. At September 30,
1999, $50.7 million (83%) of the commitments were at variable rates.
Since commitments to make loans may expire without being used, the
amount does not necessarily represent future cash commitments. Collateral
obtained upon exercise of the commitment is determined using management's credit
evaluation of the borrower, and may include accounts receivable, inventory,
property, land and other items.
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NOTE 5 - STOCK REPURCHASE PROGRAM
On August 18, 1999, the Board of Directors authorized a stock
repurchase program for 50,000 shares of the Bancorp's Common Stock, representing
approximately 1.8% of the total shares outstanding. As of September 30, 1999,
the Bancorp repurchased 5,900 shares of common stock at an average price of
$21.33 per share.
NOTE 6 - EARNINGS PER SHARE
On February 28, 1999, the Bancorp effected a two-for-one common stock
split as a share dividend. Earnings and dividends per share and other share
related information is restated for the stock split.
A reconciliation of the numerators and denominators of the basic
earnings per common share and diluted earnings per common share computations is
presented below:
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
---- ---- ---- ----
Basic Earnings Per Common Share:
Net income available to common stockholders ............... $1,103,000 $ 945,000 $3,128,000 $2,770,000
========== ========== ========== ==========
Weighted-average common shares outstanding ................ 2,766,562 2,763,090 2,765,527 2,763,044
========== ========== ========== ==========
Basic earnings per common share ........................... $ 0.40 $ 0.34 $ 1.13 $ 1.01
========== ========== ========== ==========
Diluted Earnings Per Common Share:
Net income available to common stockholders ............... $1,103,000 $ 945,000 $3,128,000 $2,770,000
========== ========== ========== ==========
Weighted-average common shares outstanding ................ 2,766,562 2,763,090 2,765,527 2,763,044
Add: dilutive effect of assumed stock
option exercises ...................................... 26,808 29,470 29,746 29,262
---------- ---------- ---------- ----------
Weighted-average common and dilutive potential
common shares outstanding ............................. 2,793,370 2,792,560 2,795,273 2,792,306
========== ========== ========== ==========
Diluted earnings per common share ......................... $ 0.40 $ 0.34 $ 1.12 $ 1.00
========== ========== ========== ==========
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SUMMARY
NorthWest Indiana Bancorp (the Bancorp) is a bank holding company
registered with the Board of Governors of the Federal Reserve System. Peoples
Bank SB (the Bank), an Indiana savings bank, is a wholly owned subsidiary of the
Bancorp. The Bancorp has no other business activity other than being the holding
company for Peoples Bank SB.
At September 30, 1999, the Bancorp had total assets of $358.3 million
and total deposits of $301.8 million. Stockholders' equity totaled $32.3 million
or 9.0% of total assets, with book value per share at $11.71. The annualized
return on average assets (ROA) was 1.19%, while the annualized return on average
stockholders' equity (ROE) was 13.03%, for the nine months ended September 30,
1999.
FINANCIAL CONDITION
During the nine months ended September 30, 1999, total assets increased
by $12.9 million (3.7%), with interest-earning assets increasing by $14.4
million (4.4%). At September 30, 1999, interest-earning assets totaled $339.4
million and represented 94.7% of total assets.
Loans receivable totaled $289.5 million which represented 85.3% of
interest-earning assets, 80.8% of total assets and 95.9% of total deposits. The
loan portfolio includes $14.7 million (5.1%) in construction and development
loans, $160.2 million (55.3%) in residential mortgage loans, $78.8 million
(27.2%) in commercial and multifamily real estate loans, $10.7 million (3.7%) in
consumer loans, and $25.1 million (8.7%) in commercial business and other loans.
Adjustable rate loans comprised 52% of total loans at September 30, 1999. During
the nine months ended September 30, 1999, loans increased by $16.0 million
(5.9%). The growth is a result of a strong local economy, favorable interest
rates and aggressive marketing and call programs.
The Bancorp is primarily a portfolio lender. Mortgage banking
activities are limited to the sale of fixed rate mortgage loans with contractual
maturities of thirty years. These loans are sold, on a case-by-case basis, in
the secondary market as part of the Bancorp's efforts to manage interest rate
risk. The Bancorp retains the servicing on all loans sold in the secondary
market. During the nine months ended September 30, 1999, the Bancorp sold $2.4
million in fixed rate mortgage loans. Net gains realized from the sales totaled
$34 thousand. Mortgage loan servicing income totaled $13 thousand. At September
30, 1999, the Bancorp had $606 thousand classified as loans held for sale.
The primary objective of the Bancorp's investment portfolio is to
provide for the liquidity needs of the Bancorp and to contribute to
profitability by providing a stable flow of dependable earnings. Funds are
generally invested in federal funds, interest bearing balances in financial
institutions, U.S. government securities and federal agency obligations.
Interest-bearing balances in financial institutions include overnight deposits
at the Federal Home Loan Bank of Indianapolis (FHLB). Investments are generally
for terms ranging from one day to five years. At September 30, 1999, the
investment portfolio totaled $40.4 million and was invested as follows: 83.0% in
U.S. government agency debt securities, 14.9% in U.S. government debt
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securities, and 2.0% in U.S. government agency mortgage-backed securities. At
September 30, 1999, securities available-for-sale totaled $24.8 million or 61.4%
of total securities. The available-for-sale portfolio permits the active
management of the Bancorp's liquidity position. During the nine months ended
September 30, 1999, investment securities increased by $5.7 million (16.5%). At
September 30, 1999, the Bancorp had $4.7 million in interest-bearing balances at
the FHLB and $2.5 million in federal funds sold.
Management believes that the credit risk profile of the earning asset
portfolio is relatively low. The table which follows sets forth information with
respect to the number (#) and balances (Amount) of non-performing assets and
related ratios for the periods indicated. The amounts are stated in thousands
(000's).
September 30, 1999 December 31, 1998
# Amount # Amount
------ ------ ------ ------
Loans accounted for on a non-accrual basis:
Real estate loans:
Residential 10 $ 563 15 $ 636
Commercial -- -- 2 131
Commercial business loans -- -- 1 69
Consumer loans 3 54 1 18
------ ------ ------ ------
Total 14 $ 617 19 $ 854
====== ====== ====== ======
Accruing loans which are contractually past due 90 days or
more: Real estate loans:
Residential 10 $ 292 11 $ 429
Commercial 1 41 -- --
Commercial business loans -- -- 1 188
Consumer loans 1 4 -- --
------ ------ ------ ------
Total 12 $ 337 5 $ 617
====== ====== ====== ======
Total of non-accrual and accruing loans 90 days or more
past due loans 26 $ 954 31 $1,471
====== ====== ====== ======
Foreclosed real estate 1 $ 69 1 $ 32
====== ====== ====== ======
Ratio of non-performing loans to total assets 0.27% 0.43%
Ratio of non-performing loans to total loans 0.33% 0.54%
Ratio of foreclosed real estate to total assets 0.02% 0.01%
Ratio of non-performing assets to total assets 0.29% 0.44%
At September 30, 1999, $707 thousand of the Bancorp's loans were
internally classified as substandard. The total represents 19 loans. Two
consumer loans totaling $13 thousand were classified as doubtful. No loans were
classified as loss. Classified loans include nonperforming loans disclosed in
the previous table. Management does not anticipate that any of the
non-performing loans or classified loans will materially impact future
operations, liquidity or capital resources. At September 30, 1999, other than
the credits identified above
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there was no material credit that would cause management to have serious doubts
as to the ability of such borrowers to comply with loan repayment terms.
Because some loans may not be repaid in accordance with contractual
agreements an allowance for loan losses (ALL) has been maintained. While
management may periodically allocate portions of the allowance for specific
problem loans, the entire allowance is available to absorb all credit losses
that arise from the loan portfolio and is not segregated for, or allocated to,
any particular loan or group of loans. During the nine months ended September
30, 1999, additions to the ALL account totaled $175 thousand compared to $65
thousand for the nine months ended September 30, 1998. Charge-offs net of
recoveries totaled $12 thousand during the nine months ended September 30, 1999.
The amount provided during the current nine months was based on loan activity,
changes within the loan portfolio mix, and resulting changes in management's
assessment of portfolio risk. At September 30, 1999, the balance in the ALL
account totaled $3.3 million, which is considered adequate by management after
evaluation of the loan portfolio, past experience and current economic and
market conditions.
The table below sets forth the allocation of the ALL and related ratios
on the dates indicated. The amounts are in thousands (000's). The percent
columns represent the percentage of loans in each category to total loans.
September 30, 1999 December 31, 1998
------------------ -------------------
Real estate loans:
Residential $ 302 55.3% $ 302 56.3%
Commercial and other dwelling 1,106 27.2 953 24.5
Construction and development 275 5.1 268 7.0
Consumer loans 200 3.7 196 3.7
Commercial business loans and other loans 918 8.7 630 8.5
Unallocated 494 783
------ -------- ------ --------
Total $3,295 100.0% $3,132 100.0%
====== ======== ====== ========
Ratio of ALL to loans outstanding 1.14% 1.14%
Ratio of ALL to non-performing loans 345.4% 212.9%
At September 30, 1999, no portion of the ALL was allocated to impaired
loan balances as the Bancorp had no individual loans considered to be impaired
loans as of, or for the nine months ended September 30, 1999. The allocation of
the ALL reflects performance and growth trends within the various loan
categories, as well as, consideration of the facts and circumstances that affect
the repayment of individual loans, as well as, loans which have been evaluated
on a pooled basis. During the nine months ended September 30, 1999, additions to
the ALL were allocated to the commercial real estate loans and commercial
business loans due to the growth in these portfolios and the additional risk
related to these products.
Deposits are the major source of funds for lending and other investment
purposes. At September 30, 1999, deposits totaled $301.8 million. During the
nine months ended September 30, 1999, deposit growth totaled $8.6 million
(2.9%). Savings accounts remained stable, increasing by $24 thousand (0.0%),
checking accounts increased $5.8 million (11.5%), money market deposit accounts
(MMDA's) increased $10.8 million (32.5%) while certificates of deposit decreased
by $8.0 million (5.0%). The growth in core deposits (checking
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accounts and MMDA's ) was a result of competitive product offerings and an
aggressive marketing program. The decrease in certificates of deposit was caused
by management's decision to let high dollar, high cost funds mature. At
September 30, 1999, the deposit base was comprised of 16.3% savings accounts,
14.6% MMDA's, 18.7% checking accounts and 50.4% certificates of deposit. At
September 30, 1999, repurchase agreements totaled $3.1 million. Other short-term
borrowings totaled $1.5 million. The Bancorp had $16.0 million in FHLB advances
with a weighted-average maturity of 3.0 years.
LIQUIDITY AND CAPITAL RESOURCES
For the Bancorp, liquidity management refers to the ability to generate
sufficient cash to fund current loan demand, meet savings deposit withdrawals,
and pay dividends and operating expenses. The Bancorp's primary goal for
liquidity management is to ensure that at all times it can meet the cash demands
of its depositors and its loan customers. A secondary purpose of liquidity
management is profit management. Because profit and liquidity are often
conflicting objectives, management attempts to maximize the Bancorp's net
interest margin by making adequate, but not excessive, liquidity provisions.
Finally, because the Bank is subject to legal reserve requirements under Federal
Reserve Regulation D, liquidity is managed to ensure that the Bank maintains an
adequate level of legal reserves.
Changes in the liquidity position result from operating, investing and
financing activities. Cash flows from operating activities are generally the
cash effects of transactions and other events that enter into the determination
of net income. The primary investing activities include loan originations, loan
repayments, investments in interest bearing balances in financial institutions,
and the purchase and maturity of investment securities. Financing activities
focus almost entirely on the generation of customer deposits. In addition, the
Bancorp utilizes borrowings (i.e., repurchase agreements and advances from the
FHLB) as a source of funds.
During the nine months ended September 30, 1999, cash and cash
equivalents decreased by $8.7 million compared to a $7.9 million increase for
the nine months ended September 30, 1998. The decrease reflects the reduction of
interest bearing balances in financial institutions and federal funds sold, as
funds were used for loan originations. The primary sources of cash were deposit
growth, proceeds from maturities of securities and cash provided by operating
activities. The primary uses of cash were the loan originations, purchase of
securities and the payment of common stock dividends. During the current nine
months cash provided by operating activities totaled $4.1 million compared to
$2.9 million for the nine months ended September 30, 1998. The increase was due
primarily to increased earnings. Cash outflows from investing activities reflect
strong loan demand during the nine months ended September 30, 1999. The increase
in loans receivable and loan participations purchased totaled $16.2 million
compared to a $320 thousand decrease for the nine months ended September 30,
1998. Cash flows from financing activities totaled $10.0 million during the
current period compared to $8.6 million for the nine months ended September 30,
1998. During the current period the Bancorp paid dividends on common stock of
$1.7 million. Deposit growth totaled $8.6 million compared to $8.0 million for
the nine months ended September 30, 1998, while borrowed funds and proceeds from
FHLB advances increased by $3.3 million compared to a $2.2 million for the nine
months ended September 30, 1998.
On August 18, 1999, the Board of Directors authorized a stock
repurchase program for 50,000 shares of the Bancorp's Common Stock, representing
approximately 1.8% of the total shares outstanding. As of September 30, 1999,
the Bancorp repurchased 5,900 shares of common stock at an average price of
$21.33 per share.
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Management strongly believes that maintaining a high level of capital
enhances safety and soundness. During the nine months ended September 30, 1999,
stockholders' equity increased by $1.0 million (3.3%). The increase resulted
primarily from earnings of $3.1 million during the period. In addition, $21
thousand represents proceeds from the exercise of 4,260 stock options. The
Bancorp paid $1.7 million in cash dividends and $126 thousand for the repurchase
of common stock during the nine month period. The net unrealized loss on
available-for-sale securities was $259 thousand for the period.
The Bancorp is subject to risk-based capital guidelines adopted by the
Board of Governors of the Federal Reserve System (the FRB), and the Bank is
subject to risk-based capital guidelines adopted by the FDIC. As applied to the
Bancorp and the Bank, the FRB and FDIC capital requirements are substantially
identical. The Bancorp and the Bank are required to maintain a total risk-based
capital ratio of 8%, of which 4% must be Tier I capital. In addition, the FRB
and FDIC regulations provide for a minimum Tier I leverage ratio (Tier I capital
to adjusted average assets) of 3% for financial institutions that meet certain
specified criteria, including that they have the highest regulatory rating and
are not experiencing or anticipating significant growth. All other financial
institutions are required to maintain a Tier I leverage ratio of 3% plus an
additional cushion of at least one to two percent.
The following table shows that, at September 30, 1999, the Bancorp's
capital exceeded all regulatory capital requirements. At September 30, 1999, the
Bancorp's and the Bank's regulatory capital ratios were substantially the same.
The dollar amounts are in millions.
Required for To be well
Actual adequate capital capitalized
------ ---------------- -----------
Amount Ratio Amount Ratio Amount Ratio
------------ ------ ----- ------------
Total capital to risk-weighted assets $ 35.4 15.0% $ 18.9 8.0% $ 23.6 10.0%
Tier I capital to risk-weighted assets $ 32.5 13.7% $ 9.4 4.0% $ 14.1 6.0%
Tier I capital to adjusted average assets $ 32.5 9.2% $ 10.6 3.0% $ 17.7 5.0%
RESULTS OF OPERATIONS - COMPARISON OF THE QUARTER ENDED SEPTEMBER 30, 1999 TO
THE QUARTER ENDED SEPTEMBER 30, 1998
Net income for the three months ended September 30, 1999 was $1.1
million compared to $945 thousand for the quarter ended September 30, 1998, an
increase of $158 thousand (16.7%). The earnings represent a ROA of 1.24% for the
current quarter compared to 1.15% for the quarter ended September 30, 1998. The
ROE was 13.54% for the current quarter compared to 12.33% for the quarter ended
September 30, 1998.
Net interest income for the three months ended September 30, 1999 was
$3.7 million, up $454 thousand (14.0%) from $3.2 million for the three months
ended September 30, 1998. The increase in net interest income was due to a lower
cost of funds. The weighted-average yield on interest-earning assets was 7.68%
for the three months ended September 30, 1999 compared to 8.08% for the three
months ended September 30, 1998. The weighted-average cost of funds for the
quarter ended September 30, 1999, was 3.49% compared to
11
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4.21% for the quarter ended September 30, 1998. The impact of the 7.68% return
on interest-earning assets and the 3.49% cost of funds resulted in an interest
rate spread of 4.19% for the current quarter compared to 3.87% for the quarter
ended September 30, 1998. During the current quarter total interest income
increased by $130 thousand (2.1%) while total interest expense decreased by $324
thousand (10.5%). The net interest margin was 4.18% for the three months ended
September 30, 1999 compared to 3.95% for the quarter ended September 30, 1998.
During the three months ended September 30, 1999, interest income from
loans increased by $93 thousand (1.6%) compared to the three months ended
September 30, 1998. The increase was due to higher average daily balances. The
weighted-average yield on loans outstanding was 7.95% for the current quarter
compared to 8.38% for the three months ended September 30, 1998. Loan balances
averaged $289.7 million for the current quarter, up $19.4 million (7.2%) from
$270.3 million for the three months ended September 30, 1998. During the three
months ended September 30, 1999, interest income on investments and other
deposits increased by $37 thousand (5.4%) compared to the quarter ended
September 30, 1998. The increase was due to higher average daily balances. The
weighted-average yield on securities and other deposits was 6.05% for the
current quarter compared to 6.22% for the three months ended September 30, 1998.
Securities and other deposits averaged $47.4 million for the current quarter, up
$3.7 million (8.5%) from $43.7 million for the three months ended September 30,
1998.
Interest expense for deposits decreased by $331 thousand (11.5%) during
the current quarter compared to the three months ended September 30, 1998. The
decrease was due to a lower cost of funds. The weighted-average rate paid on
deposits for the three months ended September 30, 1999 was 3.39% compared to
4.13% for the quarter ended September 30, 1998. The lower cost of funds was due
to growth in core deposits (checking accounts, savings accounts and money market
accounts). Core deposits averaged $147.6 million for the current quarter, up
$25.3 million (20.7%) from $122.3 million for the quarter ended September 30,
1998. Total deposit balances averaged $299.7 million for the current quarter, up
$22.0 million (7.9%) from $277.7 for the quarter ended September 30, 1998.
Interest expense on borrowed funds increased by $7 thousand (3.0%) during the
current quarter due to increases in average daily balances. The weighted-average
cost of borrowed funds was 5.23% for the current quarter compared to 5.55% for
the three months ended September 30, 1998. Borrowed funds averaged $18.2 million
during the quarter ended September 30, 1999, up $1.7 million (10.3%) from $16.5
million for the quarter ended September 30, 1998.
Noninterest income for the quarter ended September 30, 1999 was $446
thousand, up $127 thousand (39.8%) from $319 thousand for the three months ended
September 30, 1998. During the period the Bancorp continued to implement
initiatives focused on improving income from Bank operations. As a result, fees
and service charges increased $123 thousand (56.9%) and income from Trust
operations increased $19 thousand (26.4%) compared to the three months ended
September 30, 1998.
Noninterest expense for the quarter ended September 30, 1999 was $2.2
million, up $273 thousand (13.9%) from $2.0 million for the three months ended
September 30, 1998. The increase in compensation and benefits was due to
additional staffing and the increased cost of employee benefits. The increases
in occupancy and equipment, and data processing reflect investments in
technology and new products and services. The Bancorp's efficiency ratio was
54.2% for the quarter ended September 30, 1999 compared to 55.0% for the three
months ended September 30, 1998. The ratio is determined by dividing total
noninterest expense by the sum of net interest income and total noninterest
income for the period.
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Income tax expenses for the three months ended September 30, 1999
totaled $726 thousand compared to $626 thousand for the three months ended
September 30, 1998, an increase of $100 thousand (16.0%). The increase was due
to an increase in pretax earnings during the current quarter. The combined
effective federal and state tax rates for the Bancorp were 40% for the three
months ended September 30, 1999 and 1998.
RESULTS OF OPERATIONS - COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 1999
TO THE NINE MONTHS ENDED SEPTEMBER 30, 1998
Net income for the nine months ended September 30, 1999 was $3.1
million compared to $2.8 million for the nine months ended September 30, 1998,
an increase of $358 thousand (12.9%). The earnings represent a ROA of 1.19% for
the current nine months compared to 1.13% for the nine months ended September
30, 1998. The ROE was 13.03% for the current nine months compared to 12.21% for
the nine months ended September 30, 1998.
Net interest income for the nine months ended September 30, 1999 was
$10.7 million, up $1.1 million (11.3%) from $9.6 million for the nine months
ended September 30, 1998. The increase in net interest income was due to a lower
cost of funds. The weighted-average yield on interest-earning assets was 7.60%
for the nine months ended September 30, 1999 compared to 8.08% for the nine
months ended September 30, 1998. The weighted-average cost of funds for the nine
months ended September 30, 1999, was 3.53% compared to 4.24% for the nine months
ended September 30, 1998. The impact of the 7.60% return on interest-earning
assets and the 3.53% cost of funds resulted in an interest rate spread of 4.07%
for the current nine months compared to 3.84% for the nine months ended
September 30, 1998. During the current nine months total interest income
increased by $115 thousand (0.6%) while total interest expense decreased by $971
thousand (10.4%). The net interest margin was 4.06% for the nine months ended
September 30, 1999 compared to 3.92% for the nine months ended September 30,
1998.
During the nine months ended September 30, 1999, interest income from
loans decreased by $150 thousand (0.9%) compared to the nine months ended
September 30, 1998. The decrease was due to a decrease in the loan portfolio
yield. The weighted-average yield on loans outstanding was 7.91% for the current
nine months compared to 8.37% for the nine months ended September 30, 1998. Loan
balances averaged $284.4 million for the current nine months, up $13.3 million
(4.9%) from $271.1 million for the nine months ended September 30, 1998. During
the nine months ended September 30, 1999, interest income on investments and
other deposits increased by $265 thousand (12.2%) compared to the nine months
ended September 30, 1998. The increase was due to higher average daily balances.
The weighted-average yield on securities and other deposits was 5.86% for the
current nine months compared to 6.19% for the nine months ended September 30,
1998. Securities and other deposits averaged $49.6 million for the current nine
months, up $8.4 million (20.4%) from $41.2 million for the nine months ended
September 30, 1998.
Interest expense for deposits decreased by $971 thousand (11.2%) during
the current nine months compared to the nine months ended September 30, 1998.
The decrease was due to a lower cost of funds. The weighted-average rate paid on
deposits for the nine months ended September 30, 1999 was 3.44% compared to
4.17% for the nine months ended September 30, 1998. The lower cost of funds was
due to growth in core
16
deposits (checking accounts, savings accounts and money market accounts). Core
deposits averaged $139.8 million for the current nine months, up $23.9 million
(20.6%) from $115.9 million for the nine months ended September 30, 1998. Total
deposit balances averaged $297.8 million for the current nine months, up $21.5
million (7.8%) from $276.3 for the nine months ended September 30, 1998.
Interest expense on borrowed funds was $674 thousand for both nine month
periods. The weighted-average cost of borrowed funds was 5.10% for the current
nine months compared to 5.40% for the nine months ended September 30, 1998.
Borrowed funds averaged $17.6 million during the nine months ended September 30,
1999, up $1 million (6.0%) from $16.6 million for the nine months ended
September 30, 1998.
Noninterest income for the nine months ended September 30, 1999 was
$1.2 million, up $224 thousand (23.0%) from $976 thousand for the nine months
ended September 30, 1998. During the period the Bancorp continued to implement
initiatives focused on improving income from Bank operations. As a result, fees
and service charges increased $221 thousand (34.4%) and income from Trust
operations increased $34 thousand (14.5%) compared to the nine months ended
September 30, 1998.
Noninterest expense for the nine months ended September 30, 1999 was
$6.5 million, up $608 thousand (10.3%) from $5.9 million for the nine months
ended September 30, 1998. The increase in compensation and benefits was due to
additional staffing, annual salary increases and the increased cost of employee
benefits. The increases in occupancy and equipment, and data processing reflect
investments in technology and new products and services. The Bancorp's
efficiency ratio was 54.9% for the nine months ended September 30, 1999 compared
to 55.9% for the nine months ended September 30, 1998.
Income tax expenses for the nine months ended September 30, 1999
totaled $2.1 million compared to $1.8 million for the nine months ended
September 30, 1998, an increase of $234 thousand (12.8%). The increase was due
to an increase in pretax earnings during the current nine months. The combined
effective federal and state tax rates for the Bancorp were 40% for the nine
months ended September 30, 1999 and 1998.
YEAR 2000
The Year 2000 problem stems from computer programs that identify the
year with two digits instead of four. The problem with this code is that in the
Year 2000, `00' may be interpreted as 1900 or not processed at all. The year
2000 problem is not limited to one type of software or hardware. Machines and
programs affected include mainframes, personal computers, networks, ATMs, and
other items such as elevators, infrastructures, and telephone systems.
The Federal Financial Institutions Examination Council (FFIEC) has
outlined five phases for institutions to effectively manage the Year 2000
challenge.
Awareness - Gain executive support and commit resources to the Year
2000 challenge.
Assessment - Identify all critical business processes and elements of
information technology (IT) and non-IT systems that must be modified.
Renovation - Convert, replace or eliminate software and databases as
necessary, according to the risk-based priorities established during
assessment.
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Validation - Test and verify systems, databases and utilities by
simulating data conditions for the Year 2000.
Implementation - Put renovated systems, databases and utilities into
production.
In April 1997, the Bancorp implemented an action plan to address the
century date change issue so that service and business operations will not be
interrupted in the year 2000. This plan meets all FFIEC guidelines and the
Bancorp has met all plan deadlines. A project leader and a team of employees
have analyzed daily operations, business forms, software, hardware and equipment
for year 2000 compliance.
At September 30, 1999 the awareness, assessment, renovation, validation
and implementation phases have been completed. Management has assessed its
credit and liquidity risk by evaluating the Year 2000 preparedness of
significant customers. At this time, management believes that the overall risk
rating for deposit and loan customers is low.
The current estimate of total Year 2000 program costs is approximately
$300 thousand. Management expects to invest approximately $225 thousand in new
computers and software that will provide significantly enhanced functionality
over the systems that are currently being used. The remaining $75 thousand
represents the modification and upgrades to existing systems and equipment.
Purchased hardware and software will be capitalized in accordance with Bancorp
policy while other remediation costs will be expensed as incurred. Expenditures
reported during 1998 totaled $163 thousand. During the nine months ended
September 30, 1999, expenditures for new computers, system modifications and
upgrades totaled $116 thousand. The Bancorp does not expect the cost of Year
2000 compliance to have a material effect on its business, financial position or
results of operations.
The Bancorp relies heavily on computer technology and third party
vendors for computer processing and its business activities. The Year 2000 issue
has created risk for the Bancorp from unforeseen problems that could arise
internally, as well as, from third parties whom the Bancorp uses to process
information. If not adequately addressed, the failure of the Bancorp's computer
systems and/or third party's computer systems could have a material impact of
the Bancorp's ability to conduct its business. To mitigate this risk, the Board
of Directors and management have made a total commitment to resolving all Year
2000 issues. Ongoing communication with third party vendors has been established
to monitor their year 2000 efforts. The Bancorp's primary third party processors
have stated that they have completed the renovation and testing of their systems
for Year 2000 readiness. All systems and interfaces have been tested internally
to confirm reported compliance.
The Bancorp has designed its Business Contingency Plan to minimize the
risk of financial loss for the Bancorp due to disruptions, and ensure timely and
orderly resumption of the Bancorp's operations in the event of a disruption. The
plan identifies and prioritizes systems, equipment and forms needed for Bancorp
operations and customer service; lists individuals responsible for monitoring
Year 2000 efforts for each operational area of the Bancorp; lists alternative
actions available for systems failing to achieve Year 2000 readiness; provides
for target dates for implementation of contingency strategies; and assesses the
risk of various components of the plan. As of September 30,1999, an independent
review of the plan had been completed by the Bancorp's Internal Auditor. The
Board of Directors and management understand in a recovery situation, the
Bancorp may not be able to continue operations at the same level that it
currently
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maintains. However, because the Board of Directors and management have been
proactive in their involvement with the Year 2000 project, the Bancorp believes
it is well positioned to make timely decisions related to the need to invoke the
contingency plan and avoid disruptions to customer service and business
operations.
FORWARD-LOOKING STATEMENTS
When used in this report and in future filings by the Bancorp with the
Securities and Exchange Commission, in the Bancorp's press releases or other
public or shareholder communications, or in oral statements made with the
approval of an authorized executive officer, the words or phrases "would be,"
"will allow," "intends to," "will likely result," "are expected to," "will
continue," "is anticipated," "estimate," "project," or similar expressions are
intended to identify "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. Such statements are subject to
risks and uncertainties, including but not limited to changes in economic
conditions in the Bancorp's market area, changes in policies by regulatory
agencies, fluctuations in interest rates, demand for loans in the Bancorp's
market area and competition, all or some of which could cause actual results to
differ materially from historical earnings and those presently anticipated or
projected.
The Bancorp wishes to caution readers not to place undue reliance on
any such forward-looking statements, which speak only as of the date made, and
advise readers that various factors, including regional and national economic
conditions, substantial changes in levels of market interest rates, credit and
other risks of lending and investment activities and competitive and regulatory
factors, could affect the Bancorp's financial performance and could cause the
Bancorp's actual results for future periods to differ materially from those
anticipated or projected.
The Bancorp does not undertake, and specifically disclaims any
obligation, to update any forward-looking statements to reflect occurrences or
unanticipated events or circumstances after the date of such statements.
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PART II - Other Information
---------------------------
Item 1. Legal Proceedings
-----------------
The registrant is not party to any material legal proceedings.
No significant changes in legal proceedings of the Bancorp
occurred during the quarter.
Item 2. Changes in Securities
---------------------
Not applicable.
Item 3. Defaults Upon Senior Securities
-------------------------------
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
Not applicable.
Item 5. Other Information
-----------------
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
---------------------
(a) Exhibits.
--------
(27) Financial Data Schedule
(b) Reports On Form 8-K.
--------------------
NorthWest Indiana Bancorp filed one Form 8-K during the
quarter ended September 30, 1999.
Date of report: August 19, 1999
Items reported: On August 18, 1999, the Registrant's
Board of Directors authorized a stock repurchase
program for 50,000 shares relating to the
Registrant's Common Stock. The amount represents
approximately 1.8% of the total shares outstanding.
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SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NORTHWEST INDIANA BANCORP
Date: November 9, 1999 /s/ David A. Bochnowski
----------------------------------------
David A. Bochnowski
Chairman of the Board and Chief Executive
Officer
Date: November 9, 1999 /s/ Edward J. Furticella
------------------------------------------
Edward J. Furticella
Vice President, Chief Financial Officer
and Treasurer
18