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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2002
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 0-23817
-------
NORTHWEST BANCORP, INC.
-----------------------------
(Exact name of registrant as specified in it charter)
United States of America 23-2900888
------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
Liberty Street at Second Avenue,
Warren, Pennsylvania 16365
- --------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(814) 726-2140
--------------
(Registrant's telephone number, including area code)
Not Applicable
---------------------
(Former name, former address and former fiscal year,
if changed since last report)
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 the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date:
Common Stock ($.10 par value) 47,651,882 shares outstanding as of January
31, 2003.
NORTHWEST BANCORP, INC.
INDEX
PART I FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Consolidated Statements of Financial Condition as of
December 31, 2002, September 30, 2002 and June 30, 2002 1
Consolidated Statements of Income for the three-months
ended December 31, 2002 and 2001 and September 30, 2002 and 2001 2
Consolidated Statements of Income for the six-months
ended December 31, 2002 and 2001 3
Consolidated Statements of Changes in Shareholders' Equity for
the three-months ended December 31, 2002 and 2001 4
Consolidated Statements of Changes in Shareholders' Equity for
the three-months ended September 30, 2002 and 2001 5
Consolidated Statements of Changes in Shareholders' Equity for
the six-months ended December 31, 2002 and 2001 6
Consolidated Statements of Cash Flows for the three-
months ended December 31, 2002 and 2001 and
September 30, 2002 and 2001 7
Consolidated Statement of Cash Flows for the six-months
ended December 31, 2002 and 2001 9
Notes to Unaudited Consolidated Financial Statements 11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 17
Item 3. Quantitative and Qualitative Disclosures about Market Risk 33
Item 4. Controls and Procedures 34
PART II OTHER INFORMATION
Item 1. Legal Proceedings 34
Item 2. Changes in Securities 34
Item 3. Defaults Upon Senior Securities 34
Item 4. Submission of Matters to a Vote of Security Holders 35
Item 5. Other Information 35
Item 6. Exhibits and Reports on Form 8-K 36
Signatures 41
Certifications 42
ITEM I. FINANCIAL STATEMENTS
NORTHWEST BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
DECEMBER 31, SEPTEMBER 30, JUNE 30,
ASSETS 2002 2002* 2002*
- ------------------------------------------------------------- ------------ ------------- -----------
CASH AND CASH EQUIVALENTS $ 49,231 57,561 64,687
INTEREST-EARNING DEPOSITS IN OTHER FINANCIAL
INSTITUTIONS 408,149 326,287 153,067
MARKETABLE SECURITIES AVAILABLE-FOR-SALE
(AMORTIZED COST OF $447,217, $444,065 AND $426,160) 457,151 456,853 435,723
MARKETABLE SECURITIES HELD-TO-MATURITY
(MARKET VALUE OF $555,722, $512,972 AND $398,891) 550,874 506,751 396,503
----------- ----------- -----------
TOTAL CASH, INTEREST-EARNING DEPOSITS AND
MARKETABLE SECURITIES 1,465,405 1,347,452 1,049,980
MORTGAGE LOANS - 1 TO 4 FAMILY 2,125,002 2,138,904 2,016,999
COMMERCIAL REAL ESTATE LOANS 348,450 331,292 304,456
CONSUMER LOANS 656,464 652,305 617,225
COMMERCIAL BUSINESS LOANS 102,696 102,411 95,968
----------- ----------- -----------
TOTAL LOANS RECEIVABLE 3,232,612 3,224,912 3,034,648
ALLOWANCE FOR LOAN LOSSES (24,969) (23,828) (22,042)
----------- ----------- -----------
LOANS RECEIVABLE, NET 3,207,643 3,201,084 3,012,606
FEDERAL HOME LOAN BANK STOCK, AT COST 31,270 26,342 23,702
ACCRUED INTEREST RECEIVABLE 18,942 19,960 19,738
REAL ESTATE OWNED, NET 4,473 5,041 5,157
PREMISES AND EQUIPMENT, NET 60,634 58,731 55,374
GOODWILL 76,206 76,206 71,236
OTHER ASSETS 86,109 80,515 67,742
----------- ----------- -----------
TOTAL ASSETS $ 4,950,682 $ 4,815,331 $ 4,305,535
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
- -------------------------------------------------------------
LIABILITIES:
NONINTEREST-BEARING DEMAND DEPOSITS 182,726 187,920 176,243
INTEREST-BEARING DEMAND DEPOSITS 556,635 482,973 429,339
SAVINGS DEPOSITS 1,301,641 1,219,284 1,106,310
TIME DEPOSITS 1,951,008 1,976,401 1,881,230
----------- ----------- -----------
TOTAL DEPOSITS 3,992,010 3,866,578 3,593,122
BORROWED FUNDS 488,435 496,026 259,260
ADVANCES BY BORROWERS FOR TAXES AND INSURANCE 17,670 9,526 21,065
ACCRUED INTEREST PAYABLE 4,429 4,741 5,169
OTHER LIABILITIES 11,990 10,126 11,279
GUARANTEED PREFERRED BENEFICIAL INTERESTS IN THE COMPANY'S
JUNIOR SUBORDINATED DEFERRABLE INTEREST DEBENTURES 99,000 99,000 99,000
----------- ----------- -----------
TOTAL LIABILITIES 4,613,534 4,485,997 3,988,895
SHAREHOLDERS' EQUITY:
COMMON STOCK, $.10 PAR VALUE: 100,000,000 SHARES
AUTHORIZED, 47,639,626, 47,571,103, AND 47,549,659 ISSUED
AND OUTSTANDING, RESPECTIVELY 4,764 4,757 4,755
PAID-IN CAPITAL 72,321 71,967 71,838
RETAINED EARNINGS 253,606 244,298 233,831
ACCUMULATED OTHER COMPREHENSIVE INCOME:
NET UNREALIZED GAIN/ (LOSS) ON SECURITIES AVAILABLE-
FOR-SALE, NET OF INCOME TAXES 6,457 8,312 6,216
----------- ----------- -----------
337,148 329,334 316,640
----------- ----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 4,950,682 4,815,331 4,305,535
=========== =========== ===========
* - Adjusted for adoption of SFAS No. 147
See accompanying notes to unaudited consolidated financial statements
1
NORTHWEST BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED THREE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
2002 2001* 2002* 2001*
------- ------- ------- -------
INTEREST INCOME:
LOANS RECEIVABLE $58,021 56,702 57,554 57,273
MORTGAGE-BACKED SECURITIES 6,512 6,543 6,355 7,367
TAXABLE INVESTMENT SECURITIES 2,398 3,383 2,359 2,983
TAX-FREE INVESTMENT SECURITIES 2,024 1,455 1,873 1,416
INTEREST-EARNING DEPOSITS 1,215 574 870 618
------- ------- ------- -------
TOTAL INTEREST INCOME 70,170 68,657 69,011 69,657
INTEREST EXPENSE:
DEPOSITS 28,397 34,249 28,603 37,539
BORROWED FUNDS 7,459 3,982 6,017 3,663
------- ------- ------- -------
TOTAL INTEREST EXPENSE 35,856 38,231 34,620 41,202
NET INTEREST INCOME 34,314 30,426 34,391 28,455
PROVISION FOR LOAN LOSSES 2,159 1,473 1,667 1,418
------- ------- ------- -------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 32,155 28,953 32,724 27,037
NONINTEREST INCOME:
SERVICE CHARGES AND FEES 3,490 3,072 3,406 2,886
TRUST AND OTHER FINANCIAL SERVICES INCOME 807 532 853 530
INSURANCE COMMISSION INCOME 370 342 385 464
GAIN ON SALE OF MARKETABLE SECURITIES, NET 257 -- 287 30
GAIN ON SALE OF LOANS, NET 709 362 509 103
GAIN ON SALE OF REAL ESTATE OWNED, NET 135 126 47 328
INCREASE IN CASH SURRENDER VALUE OF BANK
OWNED LIFE INSURANCE 872 -- 752 --
OTHER OPERATING INCOME 368 323 433 322
------- ------- ------- -------
TOTAL NONINTEREST INCOME 7,008 4,757 6,672 4,663
NONINTEREST EXPENSE:
COMPENSATION AND EMPLOYEE BENEFITS 13,570 12,016 13,050 11,330
PREMISES AND OCCUPANCY COSTS 3,322 2,890 3,176 2,788
OFFICE OPERATIONS 2,262 1,798 1,878 1,643
PROCESSING EXPENSES 2,217 1,697 1,933 1,688
OTHER EXPENSES 3,086 2,561 2,722 2,341
------- ------- ------- -------
TOTAL NONINTEREST EXPENSE 24,457 20,962 22,759 19,790
INCOME BEFORE INCOME TAXES AND
CUMULATIVE EFFECT OF ACCOUNTING CHANGE 14,706 12,748 16,637 11,910
FEDERAL AND STATE INCOME TAXES 4,418 3,940 5,194 3,708
------- ------- ------- -------
INCOME BEFORE CUMULATIVE EFFECT OF
ACCOUNTING CHANGE 10,288 8,808 11,443 8,202
CUMULATIVE EFFECT OF ACCOUNTING CHANGE -- -- -- 2,237
------- ------- ------- -------
NET INCOME $10,288 8,808 11,443 10,439
======= ======= ======= =======
BASIC PER SHARE AMOUNTS:
INCOME BEFORE CUMULATIVE EFFECT OF $0.22 $0.19 $0.24 $0.17
ACCOUNTING CHANGE
CUMULATIVE EFFECT OF ACCOUNTING CHANGE $0.00 $0.00 $0.00 $0.05
----- ----- ----- -----
NET INCOME $0.22 $0.19 $0.24 $0.22
===== ===== ===== =====
DILUTED PER SHARE AMOUNTS:
INCOME BEFORE CUMULATIVE EFFECT OF $0.21 $0.18 $0.24 $0.17
ACCOUNTING CHANGE
CUMULATIVE EFFECT OF ACCOUNTING CHANGE $0.00 $0.00 $0.00 $0.05
----- ----- ----- -----
NET INCOME $0.21 $0.18 $0.24 $0.22
===== ===== ===== =====
* - Adjusted for adoption of SFAS No. 147
See accompanying notes to unaudited consolidated financial statements
2
NORTHWEST BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
SIX MONTHS ENDED
DECEMBER 31,
2002 2001*
-------- --------
INTEREST INCOME:
LOANS RECEIVABLE $115,575 113,975
MORTGAGE-BACKED SECURITIES 12,867 13,910
TAXABLE INVESTMENT SECURITIES 4,757 6,366
TAX-FREE INVESTMENT SECURITIES 3,897 2,871
INTEREST-EARNING DEPOSITS 2,085 1,192
-------- --------
TOTAL INTEREST INCOME 139,181 138,314
INTEREST EXPENSE:
DEPOSITS 57,000 71,788
BORROWED FUNDS 13,476 7,645
-------- --------
TOTAL INTEREST EXPENSE 70,476 79,433
NET INTEREST INCOME 68,705 58,881
PROVISION FOR LOAN LOSSES 3,826 2,891
-------- --------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 64,879 55,990
NONINTEREST INCOME:
SERVICE CHARGES AND FEES 6,896 5,958
TRUST AND OTHER FINANCIAL SERVICES INCOME 1,660 1,062
INSURANCE COMMISSION INCOME 755 806
GAIN ON SALE OF MARKETABLE SECURITIES, NET 544 30
GAIN ON SALE OF LOANS, NET 1,218 465
GAIN ON SALE OF REAL ESTATE OWNED, NET 182 454
INCREASE IN CASH SURRENDER VALUE OF BANK
OWNED LIFE INSURANCE 1,624 --
OTHER OPERATING INCOME 801 645
-------- --------
TOTAL NONINTEREST INCOME 13,680 9,420
NONINTEREST EXPENSE:
COMPENSATION AND EMPLOYEE BENEFITS 26,620 23,346
PREMISES AND OCCUPANCY COSTS 6,498 5,678
OFFICE OPERATIONS 4,140 3,441
PROCESSING EXPENSES 4,150 3,385
OTHER EXPENSES 5,808 4,902
-------- --------
TOTAL NONINTEREST EXPENSE 47,216 40,752
INCOME BEFORE INCOME TAXES AND
CUMULATIVE EFFECT OF ACCOUNTING CHANGE 31,343 24,658
FEDERAL AND STATE INCOME TAXES 9,612 7,648
-------- --------
INCOME BEFORE CUMULATIVE EFFECT OF
ACCOUNTING CHANGE 21,731 17,010
CUMULATIVE EFFECT OF ACCOUNTING CHANGE -- 2,237
-------- --------
NET INCOME $ 21,731 19,247
======== ========
BASIC PER SHARE AMOUNTS:
INCOME BEFORE CUMULATIVE EFFECT OF $0.46 $0.36
ACCOUNTING CHANGE
CUMULATIVE EFFECT OF ACCOUNTING CHANGE $0.00 $0.05
----- -----
NET INCOME $0.46 $0.41
===== =====
DILUTED PER SHARE AMOUNTS:
INCOME BEFORE CUMULATIVE EFFECT OF $0.45 $0.35
ACCOUNTING CHANGE
CUMULATIVE EFFECT OF ACCOUNTING CHANGE $0.00 $0.05
----- -----
NET INCOME $0.45 $0.40
===== =====
* - Adjusted for adoption of SFAS No. 147
See accompanying notes to unaudited consolidated financial statements
3
NORTHWEST BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
Unearned
THREE-MONTHS ENDED SEPTEMBER 30, 2001 Accum. Recognition
Common Stock Other and Total
---------------------- Paid-in Retained Comprehensive Retention Shareholders'
Shares Amount Capital Earnings* Income Plan Shares Equity*
---------- ------ ------- --------- ------------- ----------- -------------
Beginning balance at June 30, 2001 47,426,755 $4,743 71,283 196,566 3,178 (57) 275,713
Comprehensive income:
Net income -- -- -- 10,439 -- -- 10,439
Change in unrealized gain on
securities, net of tax and
reclassification adjustment -- -- -- -- 2,204 -- 2,204
---------- ------ ------ -------- ------ --- --------
Total comprehensive income -- -- -- 10,439 2,204 -- 12,643
Exercise of stock options 7,647 -- 38 -- -- -- 38
RRP shares released -- -- -- -- -- -- --
Dividends declared
($.06 per share) -- -- -- (725) -- -- (725)
---------- ------ ------ -------- ------ --- --------
Ending balance at September 30, 2001 47,434,402 $4,743 71,321 206,280 5,382 (57) 287,669
========== ====== ====== ======== ====== === ========
Unearned
THREE-MONTHS ENDED SEPTEMBER 30, 2002 Accum. Recognition
Common Stock Other and Total
---------------------- Paid-in Retained Comprehensive Retention Shareholders'
Shares Amount Capital Earnings* Income Plan Shares Equity*
---------- ------ ------- --------- ------------- ----------- -------------
Beginning balance at June 30, 2002 47,549,659 $4,755 71,838 233,831 6,216 -- 316,640
Comprehensive income:
Net income -- -- -- 11,443 -- -- 11,443
Change in unrealized gain on
securities, net of tax and
reclassification adjustment -- -- -- -- 2,096 -- 2,096
---------- ------ ------ -------- ------ --- --------
Total comprehensive income -- -- -- 11,443 2,096 -- 13,539
Exercise of stock options 21,444 2 129 -- -- -- 131
Dividends declared ($.08 per share) -- -- -- (976) -- -- (976)
---------- ------ ------ -------- ------ --- --------
Ending balance at September 30, 2002 47,571,103 $4,757 71,967 244,298 8,312 -- 329,334
========== ====== ====== ======== ====== === ========
* - Adjusted for adoption of SFAS No. 147
See accompanying notes to unaudited consolidated financial statements
4
NORTHWEST BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
Unearned
THREE-MONTHS ENDED DECEMBER 31, 2001 Accum. Recognition
Common Stock Other and Total
---------------------- Paid-in Retained Comprehensive Retention Shareholders'
Shares Amount Capital Earnings* Income Plan Shares Equity*
---------- ------ ------- --------- ------------- ----------- -------------
Beginning balance at September 30, 2001 47,434,402 $4,743 71,321 206,280 5,382 (57) 287,669
Comprehensive income:
Net income -- -- -- 8,808 -- -- 8,808
Change in unrealized gain on
securities, net of tax and
reclassification adjustment -- -- -- -- (1,305) -- (1,305)
---------- ------ ------ -------- ------ --- --------
Total comprehensive income -- -- -- 8,808 (1,305) -- 7,503
Exercise of stock options 54,430 6 139 -- -- -- 145
RRP shares released -- -- -- -- -- -- --
Dividends declared ($.06 per share) -- -- -- (725) -- -- (725)
---------- ------ ------ -------- ------ --- --------
Ending balance at December 31, 2001 47,488,832 $4,749 71,460 214,363 4,077 (57) 294,592
========== ====== ====== ======== ====== === ========
Unearned
THREE-MONTHS ENDED DECEMBER 31, 2002 Accum. Recognition
Common Stock Other and Total
---------------------- Paid-in Retained Comprehensive Retention Shareholders'
Shares Amount Capital Earnings* Income Plan Shares Equity*
---------- ------ ------- --------- ------------- ----------- -------------
Beginning balance at September 30, 2002 47,571,103 $4,757 71,967 244,298 8,312 -- 329,334
Comprehensive income:
Net income -- -- -- 10,288 -- -- 10,288
Change in unrealized gain on
securities, net of tax and
reclassification adjustment -- -- -- -- (1,855) -- (1,855)
---------- ------ ------ -------- ------ --- --------
Total comprehensive income -- -- -- 10,288 (1,855) -- 8,433
Exercise of stock options 68,523 7 354 -- -- -- 361
Dividends declared ($.08 per share) -- -- -- (980) -- -- (980)
---------- ------ ------ -------- ------ --- --------
Ending balance at December 31, 2002 47,639,626 $4,764 72,321 253,606 6,457 -- 337,148
========== ====== ====== ======== ====== === ========
* - Adjusted for adoption of SFAS No. 147
See accompanying notes to unaudited consolidated financial statements
5
NORTHWEST BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
Unearned
SIX-MONTHS ENDED DECEMBER 31, 2001 Accum. Recognition
Common Stock Other and Total
---------------------- Paid-in Retained Comprehensive Retention Shareholders'
Shares Amount Capital Earnings* Income Plan Shares Equity*
---------- ------ ------- --------- ------------- ----------- -------------
Beginning balance at June 30, 2001 47,426,755 $4,743 71,283 196,566 3,178 (57) 275,713
Comprehensive income:
Net income -- -- -- 19,247 -- -- 19,247
Change in unrealized gain on
securities, net of tax and
reclassification adjustment -- -- -- -- 899 -- 899
---------- ------ ------ -------- ------ --- --------
Total comprehensive income -- -- -- 19,247 899 -- 20,146
Exercise of stock options 62,077 6 177 -- -- -- 183
RRP shares released -- -- -- -- -- -- --
Dividends declared ($.12 per share) -- -- -- (1,450) -- -- (1,450)
---------- ------ ------ -------- ------ --- --------
Ending balance at December 31, 2001 47,488,832 $4,749 71,460 214,363 4,077 (57) 294,592
========== ====== ====== ======== ====== === ========
Unearned
SIX-MONTHS ENDED DECEMBER 31, 2002 Accum. Recognition
Common Stock Other and Total
---------------------- Paid-in Retained Comprehensive Retention Shareholders'
Shares Amount Capital Earnings* Income Plan Shares Equity*
---------- ------ ------- --------- ------------- ----------- -------------
Beginning balance at June 30, 2002 47,549,659 $4,755 71,838 233,831 6,216 -- 316,640
Comprehensive income:
Net income -- -- -- 21,731 -- -- 21,731
Change in unrealized gain on
securities, net of tax and
reclassification adjustment -- -- -- -- 241 -- 241
---------- ------ ------ -------- ------ --- --------
Total comprehensive income -- -- -- 21,731 241 -- 21,972
Exercise of stock options 89,967 9 483 -- -- -- 492
Dividends declared ($.16 per share) -- -- -- (1,956) -- -- (1,956)
---------- ------ ------ -------- ------ --- --------
Ending balance at December 31, 2002 47,639,626 $4,764 72,321 253,606 6,457 -- 337,148
========== ====== ====== ======== ====== === ========
* - Adjusted for adoption of SFAS No. 147
See accompanying notes to unaudited consolidated financial statements
6
NORTHWEST BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
Three Months Three Months Three Months Three Months
Ended Ended Ended Ended
12/31/02 12/31/01* 9/30/02* 9/30/01*
------------ ------------ ------------ ------------
OPERATING ACTIVITIES:
Net Income $ 10,288 8,808 11,443 10,439
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 2,159 1,473 1,667 1,418
Net loss (gain) on sale of assets (1,101) (488) (843) (461)
Net depreciation, amortization and accretion 2,543 1,952 2,290 1,263
Decrease (increase) in other assets (3,662) (5,118) (5,085) 2,576
Increase (decrease) in other liabilities 1,552 (1,425) (2,624) 112
Net accretion of discount on marketable securities (256) (1,157) (279) (1,009)
Noncash cumulative change in accounting principle -- -- -- (2,237)
--------- ------- -------- -------
Net cash provided by operating activities 11,523 4,045 6,569 12,101
INVESTING ACTIVITIES:
Purchase of marketable securities held-to-maturity (139,740) (60,305) (125,407) (18,098)
Purchase of marketable securities available-for-sale (88,738) (54,480) (73,262) (43,236)
Proceeds from maturities and principal reductions
of marketable securities held-to-maturity 95,732 13,776 31,435 21,709
Proceeds from maturities and principal reductions
of marketable securities available-for-sale 53,013 31,152 42,658 16,625
Proceeds from sales of marketable securities,
available-for-sale 32,972 13,815 25,008 530
Loan originations (359,831) (279,579) (254,898) (211,831)
Proceeds from loan maturities and principal reductions 276,027 185,217 151,453 145,251
Proceeds from loan sales 73,720 57,830 42,178 29,794
Proceeds from sale of real estate owned 1,136 554 1,443 942
Net (purchase) sale of real estate owned for investment 90 90 (172) (171)
Purchase of premises and equipment (3,299) (4,164) (2,907) (3,223)
Purchase of FHLB stock (4,928) -- -- --
Acquisitions, net of cash received -- 54,392 2,619 --
--------- ------- -------- -------
Net cash used by investing activities $ (63,846) (41,702) (159,852) (61,708)
* - Adjusted for adoption of SFAS No. 147
7
NORTHWEST BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(DOLLARS IN THOUSANDS)
Three Months Three Months Three Months Three Months
Ended Ended Ended Ended
12/31/02 12/31/01* 9/30/02* 9/30/01*
------------ ------------ ------------ ------------
FINANCING ACTIVITIES:
Increase (decrease) in deposits, net $ 125,432 (34,337) 151,198 129,352
Proceeds from long-term borrowings -- -- 180,000 541
Repayments of long-term borrowings (11,467) (8,630) (3) (8,607)
Net increase (decrease) in short-term borrowings 4,365 (3,644) 840 (1,731)
Increase (decrease) in advances by borrowers for
taxes and insurance 8,144 7,881 (11,813) (12,029)
Proceeds from issuance of guaranteed preferred beneficial
interests in the Company's junior subordinated
deferrable interest debentures -- 99,000 -- --
Cash dividends paid (980) (725) (976) (725)
Proceeds from stock options exercised 361 145 131 38
--------- -------- -------- --------
Net cash provided by financing activities 125,855 59,690 319,377 106,839
Net increase (decrease) in cash and cash equivalents $ 73,532 22,033 166,094 57,232
========= ======== ======== ========
Cash and cash equivalents at beginning of period $ 383,848 153,198 217,754 95,966
Net increase (decrease) in cash and cash equivalents 73,532 22,033 166,094 57,232
--------- -------- -------- --------
Cash and cash equivalents at end of period $ 457,380 175,231 383,848 153,198
========= ======== ======== ========
Cash paid during the period for:
Interest on deposits and borrowings (including interest
credited to deposit accounts of $23,778, $29,230,
$23,739 and $28,303, respectively) $ 36,168 38,626 35,373 41,132
========= ======== ======== ========
Income taxes $ 8,327 6,835 552 400
========= ======== ======== ========
Business acquisitions:
Fair value of assets acquired $ -- 30,779 176,885 --
Cash received (paid) -- 54,392 2,619 --
--------- -------- -------- --------
Liabilities assumed $ -- 85,171 179,504 --
========= ======== ======== ========
Non-cash activities:
Loans transferred to real estate owned $ 433 514 1,014 467
========= ======== ======== ========
Sale of real estate owned financed by the Company $ 98 177 206 334
========= ======== ======== ========
* - Adjusted for adoption of SFAS No. 147
See accompanying notes to unaudited consolidated financial statements
8
NORTHWEST BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
Six Months Six Months
Ended Ended
12/31/02 12/31/2001*
---------- -----------
OPERATING ACTIVITIES:
Net Income $ 21,731 19,247
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 3,826 2,891
Net loss (gain) on sale of assets (1,944) (949)
Net depreciation, amortization and accretion 4,833 3,215
Decrease (increase) in other assets (8,747) (2,542)
Increase (decrease) in other liabilities (1,072) (1,313)
Net accretion of discount on marketable securities (535) (2,166)
Noncash cumulative change in accounting principle -- (2,237)
--------- --------
Net cash provided by operating activities 18,092 16,146
INVESTING ACTIVITIES:
Purchase of marketable securities held-to-maturity (265,147) (78,403)
Purchase of marketable securities available-for-sale (162,000) (97,716)
Proceeds from maturities and principal reductions
of marketable securities held-to-maturity 127,167 35,485
Proceeds from maturities and principal reductions
of marketable securities available-for-sale 95,671 47,777
Proceeds from sales of marketable securities,
available-for-sale 57,980 14,345
Loan originations (614,729) (491,410)
Proceeds from loan maturities and principal reductions 427,480 330,468
Proceeds from loan sales 115,898 87,624
Proceeds from sale of real estate owned 2,579 1,496
Net (purchase) sale of real estate owned for investment (82) (81)
Purchase of premises and equipment (6,206) (7,387)
Purchase of FHLB stock (4,928) --
Acquisitions, net of cash received 2,619 54,392
--------- --------
Net cash used by investing activities $(223,698) (103,410)
* - Adjusted for adoption of SFAS No. 147
9
NORTHWEST BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(DOLLARS IN THOUSANDS)
Six Months Six Months
Ended Ended
12/31/02 12/31/01*
---------- ----------
FINANCING ACTIVITIES:
Increase (decrease) in deposits, net $ 276,630 95,015
Proceeds from long-term borrowings 180,000 541
Repayments of long-term borrowings (11,470) (17,237)
Net increase (decrease) in short-term borrowings 5,205 (5,375)
Increase (decrease) in advances by borrowers for
taxes and insurance (3,669) (4,148)
Proceeds from issuance of guaranteed preferred beneficial
interests in the Company's junior subordinated
deferrable interest debentures -- 99,000
Cash dividends paid (1,956) (1,450)
Proceeds from stock options exercised 492 183
--------- --------
Net cash provided by financing activities 445,232 166,529
Net increase (decrease) in cash and cash equivalents $ 239,626 79,265
========= ========
Cash and cash equivalents at beginning of period $ 217,754 95,966
Net increase (decrease) in cash and cash equivalents 239,626 79,265
--------- --------
Cash and cash equivalents at end of period $ 457,380 175,231
========= ========
Cash paid during the period for:
Interest on deposits and borrowings (including interest
credited to deposit accounts of $47,517 and
$57,533, respectively) $ 71,541 79,758
========= ========
Income taxes $ 8,879 7,235
========= ========
Business acquisitions:
Fair value of assets acquired $ 176,885 30,779
Cash received (paid) 2,619 54,392
--------- --------
Liabilities assumed $ 179,504 85,171
========= ========
Non-cash activities:
Loans transferred to real estate owned $ 1,447 981
========= ========
Sale of real estate owned financed by the Company $ 304 511
========= ========
* - Adjusted for adoption of SFAS No. 147
See accompanying notes to unaudited consolidated financial statements
10
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION
The Northwest group of companies is organized in a two-tier holding company
structure. Northwest Bancorp, MHC is a federal mutual holding company which owns
approximately 74% of the outstanding shares of common stock of Northwest
Bancorp, Inc. (the "Company"). For the second consecutive fiscal year the mutual
holding company has applied for, and received approval from the Office of Thrift
Supervision ("OTS"), its primary regulator, to waive its right to receive cash
dividends from the Company.
The accompanying unaudited consolidated financial statements of the Company have
been prepared in accordance with instructions for Form 10-Q and, accordingly, do
not include the necessary footnote information for a complete presentation of
financial position, results of operations and cash flows in conformity with
accounting principles generally accepted in the United States of America. In the
opinion of management, all adjustments have been included which are necessary
for a fair presentation of financial position and results of operations. The
consolidated statements have been prepared using the accountings policies
described in the financial statements included in the Company's Annual Report of
Form 10-K for the fiscal year ended June 30, 2002 except for the adoption of
Statement of Financial Accounting Standards ("SFAS") No. 147, as discussed in
footnote 5. Certain items previously reported have been reclassified to conform
with the current period's reporting format. The results of operations for the
three and six months ended December 31, 2002 are not necessarily indicative of
the results that may be expected for the entire fiscal year.
(2) PRINCIPLES OF CONSOLIDATION
The accompanying unaudited consolidated financial statements include the
accounts of the Company and its wholly owned subsidiaries, Northwest Savings
Bank ("Northwest"), Jamestown Savings Bank ("Jamestown"), Northwest Capital
Trust I, Northwest Bancorp Statutory Trust I, Northwest Consumer Discount
Company, Northwest Finance Company, Northwest Financial Services, Inc.,
Northwest Capital Group, Inc., Boetger and Associates, Inc., Rid Fed, Inc.
Allegheny Services, Inc., and Great Northwest Corporation. All significant
intercompany items have been eliminated.
(3) BUSINESS SEGMENTS
The Company has identified two reportable business segments based upon the
operating approach currently used by management. The Community Banks segment
includes the two savings bank subsidiaries of the Company, Northwest and
Jamestown, as well as the subsidiaries of the savings banks that provide similar
products and services. The savings banks are community-oriented institutions
that offer a full array of traditional deposit and loan products, including
mortgage, consumer and commercial loans, as well as trust, investment management
and brokerage services typically offered by a full-service financial
institution. The Consumer Finance segment is comprised of Northwest Consumer
Discount Company, a subsidiary of Northwest, that operates forty-six offices in
Pennsylvania and two offices in southwestern New York. The subsidiary
compliments the services of the banks by offering personal installment loans for
a variety of consumer and real estate products. This activity is funded
primarily through its intercompany borrowing relationship with Northwest. Net
income is primarily used by management to measure
11
segment performance. The following tables provide financial information for
these segments. The "All Other" column represents the parent company, other
nonbank subsidiaries and elimination entries necessary to reconcile to the
consolidated amounts presented in the financial statements.
AS OF OR FOR THE THREE MONTHS ENDED:
- -----------------------------------------------------------------------------------------------------
Community Consumer
DECEMBER 31, 2002 ($ IN 000'S) Banks Finance All Other* Consolidated
- -----------------------------------------------------------------------------------------------------
External interest income $ 65,680 4,439 51 70,170
- -----------------------------------------------------------------------------------------------------
Intersegment interest income 1,360 -- (1,360) --
- -----------------------------------------------------------------------------------------------------
Interest expense 34,234 1,466 156 35,856
- -----------------------------------------------------------------------------------------------------
Provision for loan losses 1,502 657 -- 2,159
- -----------------------------------------------------------------------------------------------------
Noninterest income 6,768 240 -- 7,008
- -----------------------------------------------------------------------------------------------------
Noninterest expense 22,465 1,887 105 24,457
- -----------------------------------------------------------------------------------------------------
Income tax expense (benefit) 4,707 278 (567) 4,418
- -----------------------------------------------------------------------------------------------------
Net income 10,900 391 (1,003) 10,288
- -----------------------------------------------------------------------------------------------------
Total assets $4,814,139 126,413 10,130 4,950,682
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
Community Consumer
DECEMBER 31, 2001 ($ IN 000'S) Banks Finance All Other* Consolidated
- -----------------------------------------------------------------------------------------------------
External interest income $ 63,835 4,772 50 68,657
- -----------------------------------------------------------------------------------------------------
Intersegment interest income 1,683 -- (1,683) --
- -----------------------------------------------------------------------------------------------------
Interest expense 37,623 1,785 (1,177) 38,231
- -----------------------------------------------------------------------------------------------------
Provision for loan losses 770 703 -- 1,473
- -----------------------------------------------------------------------------------------------------
Noninterest income 4,445 312 -- 4,757
- -----------------------------------------------------------------------------------------------------
Noninterest expense 19,143 1,744 75 20,962
- -----------------------------------------------------------------------------------------------------
Income tax expense (benefit) 3,787 356 (203) 3,940
- -----------------------------------------------------------------------------------------------------
Cumulative effect of accounting
change -- -- -- --
- -----------------------------------------------------------------------------------------------------
Net income 8,640 496 (328) 8,808
- -----------------------------------------------------------------------------------------------------
Total assets $3,978,805 134,588 9,971 4,123,364
- -----------------------------------------------------------------------------------------------------
* Eliminations consist of intercompany interest income and interest expense
12
AS OF OR FOR THE SIX MONTHS ENDED:
- -------------------------------------------------------------------------------------------
Community Consumer
DECEMBER 31, 2002 ($ IN 000'S) Banks Finance All Other* Consolidated
- -------------------------------------------------------------------------------------------
External interest income $ 130,031 9,045 105 139,181
- -------------------------------------------------------------------------------------------
Intersegment interest income 2,846 -- (2,846) --
- -------------------------------------------------------------------------------------------
Interest expense 67,276 3,061 139 70,476
- -------------------------------------------------------------------------------------------
Provision for loan losses 2,395 1,431 -- 3,826
- -------------------------------------------------------------------------------------------
Noninterest income 13,177 503 -- 13,680
- -------------------------------------------------------------------------------------------
Noninterest expense 43,329 3,690 197 47,216
- -------------------------------------------------------------------------------------------
Income tax expense (benefit) 10,158 567 (1,113) 9,612
- -------------------------------------------------------------------------------------------
Net income 22,896 799 (1,964) 21,731
- -------------------------------------------------------------------------------------------
Total assets $4,813,947 126,413 10,322 4,950,682
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
Community Consumer
DECEMBER 31, 2001 ($ IN 000'S) Banks Finance All Other* Consolidated
- -------------------------------------------------------------------------------------------
External interest income $ 128,495 9,715 104 138,314
- -------------------------------------------------------------------------------------------
Intersegment interest income 3,770 -- (3,770) --
- -------------------------------------------------------------------------------------------
Interest expense 78,696 4,003 (3,266) 79,433
- -------------------------------------------------------------------------------------------
Provision for loan losses 1,430 1,461 -- 2,891
- -------------------------------------------------------------------------------------------
Noninterest income 8,721 699 -- 9,420
- -------------------------------------------------------------------------------------------
Noninterest expense 37,082 3,448 222 40,752
- -------------------------------------------------------------------------------------------
Income tax expense (benefit) 7,276 626 (254) 7,648
- -------------------------------------------------------------------------------------------
Cumulative effect of accounting
change 2,237 -- -- 2,237
- -------------------------------------------------------------------------------------------
Net income 18,739 876 (368) 19,247
- -------------------------------------------------------------------------------------------
Total assets $3,978,805 134,588 9,971 4,123,364
- -------------------------------------------------------------------------------------------
* Eliminations consist of intercompany interest income and interest expense
(4) BUSINESS COMBINATION
On September 13, 2002, the Company completed the previously announced
acquisition of Prestige Bancorp, Inc., and its subsidiary Prestige Bank, both
headquartered in Pleasant Hills, Pennsylvania. The acquisition included the four
offices of Prestige Bank, assets of approximately $180 million, deposits of
approximately $122 million and shareholders' equity of approximately $10
million. Under terms of the agreement, shareholders received $13.75 in cash for
each share of Prestige Bancorp, Inc., or approximately $14.6 million, resulting
in goodwill of approximately $5.0 million and other intangible assets of
approximately $700,000.
13
(5) GOODWILL AND OTHER INTANGIBLE ASSETS
On October 1, 2002, the Financial Accounting Standards Board (FASB) issued, and
the Company adopted, Statement of Financial Accounting Standards No. 147,
"Acquisitions of Certain Financial Institutions - an amendment of FASB
Statements No. 72 and 144 and FASB Interpretation No. 9" ("SFAS 147"). This
statement addresses the financial accounting and reporting for the acquisition
of all or part of a financial institution, except for transactions between two
or more mutual enterprises. This statement removes the acquisitions of financial
institutions from the scope of FASB Statement No. 72, "Accounting for Certain
Acquisitions of Banking or Thrift Institutions" and FASB Interpretation No. 9,
"Applying APB Opinions No. 16 and 17 When a Savings and Loan Association or a
Similar Institution is Acquired in a Business Combination Accounted for by the
Purchase Method." The acquisition of all or part of a financial institution that
meets the definition of a business combination shall now be accounted for by the
purchase method in accordance with FASB Statement No. 141, "Business
Combinations."
As a result of adopting SFAS 147, the Company reclassified approximately $60
million of previously unidentifiable intangible assets to goodwill and ceased
the regularly scheduled amortization expense of those intangible assets.
The transition provisions of this pronouncement require the Company to adjust
all interim and annual financial statements issued after July 1, 2001, the date
of initial adoption of SFAS No. 142, "Goodwill and Other Intangible Assets." As
such, all financial statements presented herein have been adjusted as required.
14
The following table illustrates the effect of the adoption of SFAS 147 on net
income for each period presented in the preceding interim financial statements:
Three months Three months Six months Six months
ended Ended ended ended
12/31/02 12/31/01 12/31/02 12/31/01
------------ ------------ ---------- -----------
Reported net income $ 10,288 7,761 21,731 17,176
Add back goodwill amortization
(net of tax) -- 1,047 -- 2,071
--------- --------- --------- ---------
Adjusted net income $ 10,288 8,808 21,731 19,247
========= ========= ========= =========
Earnings per share (diluted):
Reported earnings per share $0.21 $0.16 $0.45 $0.36
Add back goodwill amortization
(net of tax) 0.00 0.02 0.00 0.04
----- ----- ----- -----
Adjusted earnings per share $0.21 $0.18 $0.45 $0.40
===== ===== ===== =====
Three months Three months
Ended Ended
9/30/02 9/30/01
------------ ------------
Reported net income $ 10,334 9,415
Add back goodwill amortization
(net of tax) 1,047 1,024
---------- ----------
Adjusted net income $ 11,443 10,439
========== ==========
Earnings per share (diluted):
Reported earnings per share $0.22 $0.20
Add back goodwill amortization
(net of tax) 0.02 0.02
----- -----
Adjusted earnings per share $0.24 $0.22
===== =====
15
(6) BORROWED FUNDS
Borrowed funds as of December 31, 2002 and June 30, 2002, are presented in the
following table:
December 31, June 30,
2002 2002
------------ --------
Term notes payable to the FHLB of Pittsburgh:
Due within one year $ 45,210 34,200
Due between one and two years 2,914 150
Due between two and three years 32,462 25,000
Due between three and four years -- --
Due between four and five years 35,000 --
Due between five and ten years 342,705 175,000
Due between ten and twenty years 1,123 1,150
-------- -------
459,414 235,500
Revolving line of credit, Federal Home
Loan Bank of Pittsburgh -- --
Other borrowings due between
one and two years 180 180
Investor notes payable, due
various dates through 2006 6,470 6,414
Securities sold under agreement to
repurchase, due various dates 22,371 17,166
-------- -------
Total borrowed funds $488,435 259,260
======== =======
(7) GUARANTEES
The Company issues standby letters of credit in the normal course of business.
Standby letters of credit are conditional commitments issued to guarantee the
performance of a customer to a third party. Standby letters of credit generally
are contingent upon the failure of the customer to perform according to the
terms of the underlying contract with the third party. The Company is required
to perform under a standby letter of credit when drawn upon by the guaranteed
third party in the case of nonperformance by the Company's customer. The credit
risk associated with standby letters of credit is essentially the same as that
involved in extending loans to customers and is subject to normal credit
policies. Collateral maybe obtained based on management's credit assessment of
the customer. The maximum potential amount of future payments the Company could
be required to make under these standby letters of credit is $7.3 million, of
which $6.0 million is fully collateralized. Currently no liability has been
recognized by the Company for obligations. There are no recourse provisions that
would enable the Company to recover any amounts from third parties.
16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD-LOOKING STATEMENTS
In addition to historical information, this document may contain certain
forward-looking statements, as defined in the Securities Exchange Act of 1934,
as amended, and the regulations thereunder. These forward-looking statements
contained herein are subject to certain risks and uncertainties that could cause
actual results to differ materially from those expressed or implied in the
forward-looking statements. Important factors that might cause such a difference
include, but are not limited to, economic, regulatory and other factors as
discussed herein. Readers are cautioned not to place undue reliance on these
forward-looking statements, as they reflect management's analysis only as of the
date of this report. The Company has no obligation to revise or update these
forward-looking statements to reflect events or circumstances that arise after
the date of this report.
DISCUSSION OF FINANCIAL CONDITION CHANGES FROM JUNE 30, 2002 TO DECEMBER 31,
2002
ASSETS
At December 31, 2002 the Company had total assets of $4.951 billion, an increase
of $645.1 million, or 15.0%, from $4.306 billion at June 30, 2002. This increase
was funded primarily by an increase in deposits of $398.9 million, an increase
in borrowed funds of $229.2 million, and net income of $21.7 million.
Cash and cash equivalents, interest-earning deposits and marketable securities
totaled $1.465 billion at December 31, 2002, an increase of $415.4 million, or
39.6%, from $1.050 billion at June 30, 2002. This increase resulted from the
investment of funds received from the growth in deposits and borrowed funds as
well as approximately $30 million of marketable securities received as part of
the acquisition of Prestige Bancorp, Inc. and its subsidiary Prestige Bank,
which occurred during the Company's first fiscal quarter. Net loans receivable
increased by $195.0 million, or 6.5%, to $3.208 billion at December 31, 2002
from $3.013 billion at June 30, 2002. This increase resulted primarily from the
purchase of approximately $132 million of loans as part of the Prestige Bank
acquisition mentioned above, as well as loan growth across the Company's market
area.
During the current period the Company reclassified to goodwill approximately
$60.0 million of amortizable unidentifiable intangible assets, recorded in prior
years when the Company purchased branch offices, in accordance with the adoption
provisions of SFAS 147. The reclassified goodwill is no longer amortized, but
tested for impairment annually.
LIABILITIES
Deposits increased by $398.9 million, or 11.1%, to $3.992 billion at December
31, 2002 from $3.593 billion at June 30, 2002. This increase resulted primarily
from strong internal deposit growth, along with the purchase of four retail
offices with deposits of approximately $122 million as part of the Prestige bank
acquisition. Borrowed funds increased by $229.1 million, or 88.4%, to $488.4
million at December 31, 2002 from $259.3 million at June 30, 2002. This increase
is primarily the result of the Company borrowing long-term funds from the
Federal Home Loan Bank of Pittsburgh ("FHLB") at low interest rates to purchase
floating rate investment securities. In
17
addition, approximately $55.9 million of FHLB borrowings were assumed as part of
the Prestige acquisition.
CAPITAL RESOURCES AND LIQUIDITY
Total shareholders' equity at December 31, 2002 was $337.1 million, an increase
of $20.5 million, or 6.5%, from $316.6 million at June 30, 2002. This increase
was primarily attributable to net income for the six-month period of $21.7
million partially offset by the payment of common stock dividends of $2.0
million.
The Company's banking subsidiaries, Northwest and Jamestown, are subject to
various regulatory capital requirements administered by the state and federal
banking agencies. Failure to meet minimum capital requirements can initiate
certain mandatory - and possibly additional discretionary - actions by the
regulators that, if undertaken, could have a direct material effect on the
Company's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the banking subsidiaries must
meet specific capital guidelines that involve quantitative measures of their
assets, liabilities and certain off-balance sheet items as calculated under
regulatory accounting practices. Capital amounts and classification are also
subject to qualitative judgements by the regulators about components,
risk-weighting and other factors.
Quantitative measures, established by regulation to ensure capital adequacy
require the banking subsidiaries to maintain minimum amounts and ratios (set
forth in the table below) of Total and Tier I capital (as defined in the
regulations) to risk-weighted assets (as defined), and of Tier I capital to
average assets (as defined).
December 31, 2002
Minimum Capital Well Capitalized
Actual Requirements Requirements
- -----------------------------------------------------------------------------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
- -----------------------------------------------------------------------------------------------------------------------
Total Capital (to risk weighted assets):
- -----------------------------------------------------------------------------------------------------------------------
Northwest Savings Bank $292,763 11.97% $195,615 8.00% $244,519 10.00%
- -----------------------------------------------------------------------------------------------------------------------
Jamestown Savings Bank $ 16,989 10.38% $ 13,096 8.00% $ 16,370 10.00%
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
Tier I Capital (to risk weighted assets):
- -----------------------------------------------------------------------------------------------------------------------
Northwest Savings Bank $267,451 10.94% $ 97,807 4.00% $146,711 6.00%
- -----------------------------------------------------------------------------------------------------------------------
Jamestown Savings Bank $ 15,812 9.66% $ 6,548 4.00% $ 9,822 6.00%
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
Tier I Capital (leverage) (to average assets):
- -----------------------------------------------------------------------------------------------------------------------
Northwest Savings Bank $267,451 5.91% $135,669 3.00%* $226,115 5.00%
- -----------------------------------------------------------------------------------------------------------------------
Jamestown Savings Bank $ 15,812 5.38% $ 8,812 3.00%* $ 14,686 5.00%
- -----------------------------------------------------------------------------------------------------------------------
18
June 30, 2002
Minimum Capital Well Capitalized
Actual Requirements Requirements
- ----------------------------------------------------------------------------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
- ----------------------------------------------------------------------------------------------------------------------
Total Capital (to risk weighted assets):
- ----------------------------------------------------------------------------------------------------------------------
Northwest Savings Bank $276,565 12.49% $177,174 8.00% $221,467 10.00%
- ----------------------------------------------------------------------------------------------------------------------
Jamestown Savings Bank $14,727 11.04% $10,673 8.00% $13,341 10.00%
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
Tier I Capital (to risk weighted assets):
- ----------------------------------------------------------------------------------------------------------------------
Northwest Savings Bank $253,937 11.47% $88,587 4.00% $132,880 6.00%
- ----------------------------------------------------------------------------------------------------------------------
Jamestown Savings Bank $13,765 10.32% $5,336 4.00% $8,004 6.00%
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
Tier I Capital (leverage) (to average assets):
- ----------------------------------------------------------------------------------------------------------------------
Northwest Savings Bank $253,937 6.47% $117,767 3.00%* $196,279 5.00%
- ----------------------------------------------------------------------------------------------------------------------
Jamestown Savings Bank $13,765 5.87% $7,035 3.00%* $11,725 5.00%
- ----------------------------------------------------------------------------------------------------------------------
* The FDIC has indicated that the most highly rated institutions which meet
certain criteria will be required to maintain a ratio of 3%, and all other
institutions will be required to maintain an additional capital cushion of 100
to 200 basis points. As of December 31, 2002, the Company had not been advised
of any additional requirements in this regard.
The Company's banking subsidiaries, Northwest and Jamestown, are required to
maintain a sufficient level of liquid assets, as determined by management and
defined and reviewed for adequacy by the FDIC and the applicable state
department of banking during their regular examinations. The Banks internal
liquidity requirements are based upon liquid assets as a percentage of deposits
and borrowings ("liquidity ratio"). The Banks have always maintained a level of
liquid assets in excess of regulatory and internal requirements, and the
liquidity ratio at December 31, 2002 was 26.0% and 52.9% for Northwest and
Jamestown, respectively. The Company and its subsidiaries adjust liquidity
levels in order to meet funding needs for deposit outflows, payment of real
estate taxes and insurance on mortgage loan escrow accounts, repayment of
borrowings, when applicable, and loan commitments.
The Company paid $2.0 million in common stock dividends in the first six months
of the current fiscal year, compared with $1.5 million in the prior year period.
The common stock dividend payout ratio was 38.1% in the second quarter on a
dividend of $.08 compared with 33.3% in the same period last year on a dividend
of $.06 per share.
19
NONPERFORMING ASSETS
The following table sets forth information with respect to the Company's
nonperforming assets. Nonaccrual loans are those loans on which the accrual of
interest has ceased. Loans are automatically placed on nonaccrual status when
they are more than 90 days contractually delinquent and may also be placed on
nonaccrual status even if not more than 90 days delinquent but other conditions
exist. Other nonperforming assets represent property acquired by the Company
through foreclosure or repossession. Foreclosed property is carried at the lower
of its fair value less estimated costs to sell or the principal balance of the
related loan. Nonperforming assets increased by $11.4 million, or 54.5%, to
$32.4 million at December 31, 2002 from $21.0 million at June 30, 2002. In
addition to several delinquent loans included as part of the Prestige
acquisition, this increase is primarily related to a single lending relationship
with a destination resort in St. George, Utah. The customer has experienced a
slowdown in business as a result of the economic recession and the lingering
effects of September 11, 2001. Management believes that the Company is
adequately reserved and collateralized. Management believes that the generally
low level of nonperforming assets is attributable to stringent credit policies
and sustained collection procedures.
(Dollars in Thousands)
- ------------------------------------------------------------------------------------
Loans accounted for on a nonaccrual basis: December 31, 2002 June 30, 2002
- ------------------------------------------------------------------------------------
One-to-four family residential loans $8,461 $7,278
- ------------------------------------------------------------------------------------
Multifamily and commercial real estate loans 10,328 2,407
- ------------------------------------------------------------------------------------
Consumer loans 5,341 3,991
- ------------------------------------------------------------------------------------
Commercial business loans 3,769 2,124
- ------------------------------------------------------------------------------------
Total $27,899 $15,800
- ------------------------------------------------------------------------------------
Total nonperforming loans as a percentage of
loans receivable .86% .52%
- ------------------------------------------------------------------------------------
Total real estate acquired through foreclosure
and other real estate owned $4,473 $5,157
- ------------------------------------------------------------------------------------
Total nonperforming assets $32,372 $20,957
- ------------------------------------------------------------------------------------
Total nonperforming assets as a percentage of
total assets .65% .49%
- ------------------------------------------------------------------------------------
ALLOWANCE FOR LOAN LOSSES
The Company's Board of Directors has adopted an "Allowance for Loan Losses"
(ALL) policy designed to provide management with a systematic methodology for
determining and documenting the ALL each reporting period. This methodology was
developed to provide a consistent process and review procedure to ensure that
the ALL is in conformity with the Company's policies and procedures and other
supervisory and regulatory guidelines.
On a monthly basis the Credit Review and Administration department (CRA) as well
as loan officers, branch managers and department heads, review and monitor the
loan portfolio for problem loans. This review includes the monthly delinquency
reports as well as historical comparisons and trend analysis. On a regular basis
the CRA department grades or classifies problem loans or potential problem loans
based upon their knowledge of the lending relationship and other
20
information previously accumulated. The Company's loan grading system for
problem loans is consistent with industry regulatory guidelines which classify
loans as "special mention", "substandard", "doubtful" or "loss." Loans that do
not expose the Company to risk sufficient to warrant classification in one of
the subsequent categories, but which possess some weaknesses, are designated as
"special mention". A "substandard" loan is any loan that is more than 90 days
contractually delinquent or is inadequately protected by the current net worth
and paying capacity of the obligor or of the collateral pledged, if any. Loans
classified as "doubtful" have all the weaknesses inherent in those classified as
"substandard" with the added characteristic that the weaknesses present make a
collection or liquidation in full, on the basis of currently existing facts,
conditions or values, highly questionable and improbable. Loans classified as
"loss" are considered uncollectible so that their continuance as assets without
the establishment of a specific loss reserve in not warranted.
The loans that have been classified as substandard or doubtful are reviewed by
the CRA department for possible impairment under the provisions of Statement of
Financial Accounting Standards No. 114, "Accounting by Creditors for Impairment
of a Loan" ("SFAS 114"). A loan is considered impaired when, based on current
information and events, it is probable that the Company will be unable to
collect all amounts due according to the contractual terms of the loan agreement
including both contractual principal and interest payments.
If an individual loan is deemed to be impaired, the CRA department determines
the proper measurement of impairment for each loan based on one of three methods
as prescribed by SFAS 114: (1) the present value of expected future cash flows
discounted at the loan's effective interest rate; (2) the loan's observable
market price; or (3) the fair value of the collateral if the loan is collateral
dependent. If the measure of the impaired loan is more or less than the recorded
investment in the loan, the CRA department adjusts the specific allowance
associated with that individual loan accordingly.
If a substandard or doubtful loan is not considered individually for impairment,
it is grouped with other loans that possess common characteristics for
impairment evaluation and analysis under the provisions of Statement of
Financial Accounting Standards No. 5, "Accounting for Contingencies." This
segmentation is accomplished by grouping loans of similar product types, risk
characteristics and industry concentration into homogeneous pools. A range of
losses for each pool is then established based upon historical loss ratios. This
historical net charge-off amount is then analyzed and adjusted based on
historical delinquency trends as well as the current economic, political,
regulatory and interest rate environment and used to estimate the current
measure of impairment.
The individual impairment measures along with the estimated range of losses for
each homogeneous pool are consolidated into one summary document. This summary
schedule along with the support documentation used to establish this schedule is
presented to the Credit Committee by the Vice President of CRA on a quarterly
basis. The Credit Committee reviews the processes and documentation presented,
reviews the concentration of credit by industry and customer, discusses lending
products, activity, competition and collateral values, as well as economic
conditions in general and in each market area of the Company. Based on this
review and discussion the appropriate amount of ALL is estimated and any
adjustments to reconcile the actual ALL with this estimate is determined. In
addition, the Credit Committee considers if any changes to the methodology are
needed. The Credit Committee also reviews and discusses the Company's
delinquency trends, nonperforming asset amounts and ALL levels and ratios with
its peer group as
21
well as state and national statistics. Following the Credit Committee's review
and approval, a similar review is performed by the Board of Director's Risk
Management Committee.
In addition to the reviews by the Credit Committee and the Risk Management
Committee, regulators from either the FDIC or state department of banking
perform an extensive review on an annual basis for the adequacy of the ALL and
its conformity with regulatory guidelines and pronouncements. The internal audit
department also performs a regular review of the detailed supporting schedules
for accuracy and reports their findings to the Audit Committee of the Board of
Directors. Any recommendations or enhancements from these independent parties
are considered by management and the Credit Committee and implemented
accordingly.
Management acknowledges that this is a dynamic process and consists of factors,
many of which are external and out of management's control, that can change
often, rapidly and substantially. The adequacy of the ALL is based upon
estimates using all the information previously discussed as well as current and
known circumstances and events. There is no assurance that actual portfolio
losses will not be substantially different that those that were estimated.
22
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED DECEMBER 31, 2002 AND
2001
GENERAL
Net income for the three months ended December 31, 2002 was $10.3 million, or
$.21 per diluted share, an increase of $1.5 million, or 16.8%, from $8.8
million, or $.18 per diluted share, for the same quarter last year. The
prior-year figures have been adjusted, as required by SFAS 147, to reflect
operating results excluding the amortization of certain unidentifiable
intangible assets that arose as a result of branch acquisitions completed by the
Company in previous years. The net income effect of the adoption of SFAS 147 was
an increase of $1.1 million and $1.0 million, or $.02 per diluted share, for
each three-month period ended December 31, 2002 and 2001, respectively. The
increase in net income resulted from a $3.9 million increase in net interest
income and a $2.3 million increase in noninterest income offset by a $686,000
increase in the provision for loan losses, a $3.5 million increase in
noninterest expenses and a $478,000 increase in income taxes.
Net income for the three months ended December 31, 2002 represents a 12.33% and
..84% return on average equity and return on average assets, respectively,
compared to 12.10% and .88% for the prior year period.
INTEREST INCOME
Total interest income increased by $2.2 million, or 3.1%, on a taxable
equivalent basis, to $71.6 million due to an increase in average interest
earning assets of $757.8 million, or 19.9%, to $4.568 billion. The effect of the
increase in interest earning assets on interest income was offset by a decrease
in the yield on interest earning assets to 6.27% from 7.29%. The increase in
average interest earning assets resulted from strong internal deposit growth,
additional borrowings invested in variable rate investments and the acquisition
of Prestige. The decrease in the overall yield on interest earning assets
quarter-over-quarter resulted from the repricing of variable rate assets, as
well as the growth of interest earning assets during a period of declining
interest rates.
Interest income on loans receivable increased by $1.7 million, or 2.9%, on a
taxable equivalent basis, to $58.4 million primarily because average loans
outstanding increased by $290.7 million, or 10.0%, to $3.197 billion. The effect
of this increase was partially offset by a decrease in the average yield on
loans to 7.30% from 7.80%. Average loans outstanding increased because of
continued strong loan demand throughout the Company's market area as well as the
acquisition of Prestige. The decrease in average yield resulted primarily from
the repricing of variable rate loans and the refinancing of fixed rate loans in
a declining interest rate environment, along with the growth in the Company's
loan portfolio over the past year at interest rate levels lower than the
existing average portfolio rate.
Interest income on mortgage-backed securities remained relatively flat at $6.5
million, as the increase in the average balance of $140.2 million, or 27.5%, to
$650.0 million was offset by a decrease in yield to 4.01% from 5.13%. The
average balance increased primarily as a result of investing the funds from the
aforementioned deposit and borrowing growth. The average yield on
mortgage-backed securities, approximately 87% are variable rate, primarily
decreased in response to the continued reduction in short-term market interest
rates.
Interest income on investment securities also remained relatively flat at $5.2
million, on a taxable-equivalent basis. The average balance increased $71.2
million, or 27.8% to $327.4 million, while
23
the average yield decreased to 6.41% from 8.22%. The increase in the average
balance of investment securities was primarily due to the investment of funds
generated from the aforementioned deposit and borrowing growth. The decrease in
the taxable equivalent yield was a result of purchasing investment securities in
a lower interest rate environment.
Interest income on interest-earning deposits increased by $641,000, or 111.7%,
because the average balance of interest-earning deposits increased by $251.6
million, or 217.7%, to $367.2 million which was partially offset by a decrease
in the average yield to 1.32% from 1.99%. The increase in average balance is
primarily because the proceeds from the $99.0 million of trust preferred
securities and some of the funds from FHLB borrowings are currently invested in
overnight federal funds. The decrease in the average yield is a result of the
sharp decline in short-term market rates over the last twelve months.
INTEREST EXPENSE
Total interest expense decreased by $2.4 million, or 6.2%, to $35.9 million
primarily due to a decrease in the average cost of interest-bearing liabilities
to 3.30% from 4.33% which was partially offset by an increase in the average
balance of interest-bearing liabilities of $813.1 million, or 23.0%, to $4.342
billion. The decrease in the cost of funds resulted primarily from the Company's
deposit accounts repricing at much lower rates in response to the significant
decrease in short-term interest rates. In addition, the Company was able to
secure long-term fixed-rate borrowings from the FHLB at favorable funding rates
which lowered its overall cost of borrowings. The increase in the average
balance of interest-bearing liabilities resulted primarily from an increase of
$503.7 million, or 15.5%, in the average balance of deposits, mainly attributed
to the growth of existing offices along with new office openings and
acquisitions. Average borrowed funds also increased by $239.4 million, or 95.2%,
as the Company secured these long-term fixed-rate borrowings from the FHLB to
invest in variable rate assets. The average balance of Trust Preferred
Securities, which were issued in November and December of 2001, increased by
$70.1 million or 242.0%.
NET INTEREST INCOME
Net interest income increased by $4.5 million, or 14.5%, on a taxable equivalent
basis, to $35.7 million compared to $31.2 million. This increase in net interest
income was attributable to the growth in the Company's balance sheet. The
Company was able to maintain its net interest rate spread as the cost of funds
on short-term interest bearing liabilities decreased slightly more than the
yield on interest earning assets in response to lower market interest rates.
PROVISION FOR LOAN LOSSES
The provision for loan losses increased by $686,000, or 46.6%, to $2.2 million
from $1.5 million. Management analyzes the allowance for loan losses as
described in the section entitled "Allowance for Loan Losses." The provision
that is recorded is sufficient, in management's judgement, to bring this reserve
to a level that reflects the risk inherent in the Company's loan portfolio
relative to loan mix, economic conditions and historical loss experience. As
part of this analysis, management considered the increase in net charge-offs for
the period of $104,000, or 11.4%, to $1.018 million compared to $914,000. In
addition, management considered the growth in the commercial loan portfolio for
the current quarter of $21.3 million and the increase in nonperforming loans of
$9.9 million, or 54.7%, to $27.9 million at December 31, 2002 from $18.0 million
at December 31, 2001.
24
NONINTEREST INCOME
Noninterest income increased by $2.3 million, or 47.3%, to $7.0 million for the
current quarter from $4.7 million for the same period in the prior year. The
Company experienced a favorable increase in the fee income associated with loans
and deposits of $418,000, or 13.6%, to $3.5 million for the quarter related
primarily to the growth of those portfolios. Trust and other financial services
income increased by $275,000, or 51.7%, to $807,000 for the quarter primarily as
a result of the additional fee income contributed by Boetger and Associates, an
actuarial and retirement plan services company acquired on July 1, 2002. The
Company's gain on sale of loans increased by $347,000, or 95.9%, to $709,000 as
the Company sold almost all of the fixed-rate mortgage loans originated through
its wholesale lending business while retaining the rights to service those
loans. The Company is also realizing the benefit of purchasing $60 million of
insurance on the lives of its directors and a certain group of key employees.
The increase in the cash surrender value of these policies amounted to $872,000
of noninterest income for the quarter. These investment returns are used to help
offset the increase in employee benefit costs such as healthcare.
NONINTEREST EXPENSE
Noninterest expense, on a comparable basis as adjusted for SFAS 147, increased
by $3.5 million, or 16.7%, to $24.5 million from $21.0 million for the same
quarter of fiscal year 2002. All major expense categories increased primarily as
a result of the significant growth of the Company's retail network over the past
twelve months, the expansion of its investment management, trust and brokerage
services, as well as the addition of new products and services. Management
believes, however, that despite these increases in costs due to expansion,
progress has been made in controlling operating expense as the ratio of
operating expense to average assets has remained at a level below 2.0%.
INCOME TAXES
The provision for income taxes for the three months ended December 31, 2002
increased by $478,000, or 12.1%, compared to the same period last year. This
increase is primarily due to an increase in net income before tax of $2.0
million, or 15.4%.
COMPARISON OF OPERATING RESULTS FOR THE SIX MONTHS ENDED DECEMBER 31, 2002 AND
2001
Net income for the six months ended December 31, 2002 was $21.7 million, or $.45
per diluted share, an increase of $2.5 million, or 12.9%, from $19.2 million, or
$.40 per diluted share, for the same period last year. The effect on net income
of adopting SFAS 147 and not amortizing goodwill that originated from branch
acquisitions was $2.2 million and $2.1 million for the six-month periods ended
December 31, 2002 and 2001, respectively. Included in the six-month period ended
December 31, 2001 is the cumulative effect of an accounting change. The
accounting change in the prior year was required when the Company adopted
Statement of Financial Accounting Standards No. 142, "Goodwill and Other
Intangible Assets" and recognized as income $2.2 million of negative goodwill
that arose from a previous acquisition. On a comparable basis, the increase in
net income resulted from a $9.8 million increase in net interest income and a
$4.3 million increase in
25
noninterest income offset by an increase in noninterest expense of $6.5 million
and an increase in the provision for loan losses of $0.9 million.
Net income for the six months ended December 31, 2002 represents a 13.25% and
..93% return on average equity and return on average assets, respectively,
compared to 13.50% and .98% for the same prior year period.
INTEREST INCOME
Total interest income increased by $2.1 million, or 1.5%, on a taxable
equivalent basis, to $141.9 million due to an increase in average interest
earning assets of $618.1 million, or 16.5%, to $4.355 billion. The effect of the
increase in interest earning assets was offset by a decrease in the yield on
interest earning assets to 6.52% from 7.48%. The increase in average interest
earning assets resulted from strong internal deposit growth, additional
borrowings invested in variable rate investments and the acquisition of
Prestige. The decrease in the overall yield on interest earning assets year over
year resulted from the repricing of variable rate assets, as well as the growth
of interest earning assets during the period of declining interest rates.
Interest income on loans receivable increased by $2.3 million, or 2.0%, on a
taxable equivalent basis, to $116.3 million due to an increase in average loans
outstanding of $241.5 million, or 8.4%, to $3.128 billion. The effect of this
increase was largely offset by a decrease in the average yield on loans to 7.43%
from 7.90%. Average loans outstanding increased because of strong loan demand
throughout the Company's market area as well as the aforementioned acquisition.
The decrease in average yield resulted primarily from the repricing of variable
rate loans and the refinancing of fixed rate loans in a declining interest rate
environment along with the growth in the Company's loan portfolio over the past
year at interest rate levels lower than the existing average portfolio rate.
Interest income on mortgage-backed securities decreased by $1.0 million, or
7.5%, to $12.9 million. This decrease in interest income is attributed to the
decrease in average yield to 4.30% from 5.48%. The decrease in rate was
partially offset by an increase in average balance of $91.1 million, or 17.9%,
to $599.2 million. The average yield on mortgage-backed securities,
approximately 87% are variable rate, decreased in response to the continued
reduction in short-term market rates. The average balance increased primarily as
a result of investing the funds from the aforementioned deposit and borrowing
growth as well as the securities received as part of the Prestige acquisition.
Interest income on investment securities increased slightly by $239,000, or
2.4%, on a taxable equivalent basis, to $10.2 million. The increase in average
balance of $74.5 million, or 31.0%, to $314.6 million was offset by a decrease
in average yield to 6.51% from 8.34%. The increase in the average balance of
investment securities was primarily due to the investment of funds generated
from the aforementioned deposit and borrowing growth. The decrease in the
taxable equivalent yield was a result of purchasing investment securities in a
lower interest rate environment.
Interest income on interest-earning deposits increased by $893,000, or 74.9%, to
$2.1 million as the increase in the average balance to $288.3 million from $80.1
million was partially offset by a decrease in the average yield to 1.45% from
2.98%. The increase in average balance is primarily because the proceeds from
the $99.0 million of trust preferred securities and some of the funds from FHLB
borrowings are currently invested in overnight federal funds. The decrease in
the average yield is a result of the sharp decline in short-term market rates
over the last eighteen months.
26
INTEREST EXPENSE
Total interest expense decreased by $9.0 million, or 11.3%, to $70.5 million
primarily due to a decrease in the average cost of interest-bearing liabilities
to 3.42% from 4.58% which was partially offset by an increase in the average
balance of interest-bearing liabilities of $648.6 million, or 18.7%, to $4.118
billion. The decrease in the cost of funds resulted primarily from the Company's
deposit accounts repricing at much lower rates in response to the significant
decrease in short-term interest rates. Also, the Company was able to lower its
average cost of borrowed funds by securing long-term fixed-rate borrowings from
the FHLB at favorable interest rates. The increase in the average balance of
interest-bearing liabilities resulted primarily from an increase of $429.4
million, or 13.5%, in the average balance of deposits, mainly attributed to the
growth of existing offices along with new office openings and acquisitions.
Average borrowed funds and trust preferred securities also increased by $134.7
million, or 51.1%, and $84.5 million, respectively, as the Company secured
long-term sources of funds at favorable interest rates.
NET INTEREST INCOME
Net interest income increased by $11.0 million, or 18.3%, on a taxable
equivalent basis, to $71.4 million compared to $60.4 million. This increase in
net interest income was attributable to the combination of the growth of the
Company, both internally and through acquisitions, coupled with an increase in
interest rate spread to 3.10% from 2.90%. The increase in spread resulted from
the cost of funds on interest bearing liabilities decreasing by more than the
yield on interest earning assets in response to lower market interest rates.
PROVISION FOR LOAN LOSSES
The provision for loan losses increased by $935,000, or 32.3%, to $3.8 million
from $2.9 million in the same period last year. Management analyzes the
allowance for loan losses as described in the section entitled "Allowance for
Loan Losses." The provision that is recorded is sufficient, in management's
judgement, to bring this reserve to a level that reflects the risk inherent in
the Company's loan portfolio relative to loan mix, economic conditions and
historical loss experience. As part of this analysis, management considered the
increase in net charge-offs for the period, the average growth of the loan
portfolio of $241.5 million and the increase in nonperforming loans of $9.9
million, or 54.7%, to $27.9 million at December 31, 2002 from $18.0 million at
December 31, 2001.
NONINTEREST INCOME
Noninterest income increased by $4.3 million, or 45.2%, to $13.7 million from
$9.4 million in the same period last year. Fee income associated with loans and
deposits increased by $938,000, or 15.8%, to $6.9 million for the six-month
period primarily due to the growth of those portfolios. Trust and other
financial services income increased by $598,000, or 56.3%, to $1.7 million
primarily as a result of the additional fee income contributed by Boetger and
Associates, an actuarial and retirement plan services company acquired on July
1, 2002. The Company's gain on sale of loans increased by $753,000, to $1.2
million, as the Company sold most of the fixed-rate mortgage loans originated
through its wholesale lending business while retaining the rights to service
those loans. The Company is also realizing the benefit of purchasing $60 million
of insurance on the lives of its directors and a certain group of key employees
during the fourth fiscal quarter of the previous year. The increase in the cash
surrender value of these policies amounted to
27
$1.6 million for the first six months of the current fiscal year. These
investment returns are used to help offset the increase in employee benefit
costs such as healthcare.
NONINTEREST EXPENSE
Noninterest expense, on a comparable basis as adjusted for SFAS 147, increased
by $6.5 million, or 15.9%, to $47.2 million from $40.8 million for the same
period last year. All major expense categories increased primarily as a result
of the significant growth of the Company's retail network over the past twelve
months, the expansion of its investment management, trust and brokerage
services, as well as the addition of new products and services. The Company has
added 12 retail offices to its network over the past twelve months through new
office openings and acquisitions. Management believes, however, that despite
these increases in costs due to expansion, progress has been made in controlling
operating expense.
INCOME TAXES
The provision for income taxes for the six months ended December 31, 2002
increased by $2.0 million, or 25.7%, compared to the same period last year. This
increase is primarily due to an increase in income before income taxes and
cumulative effect of accounting change of $6.7 million, or 27.1%.
RECENTLY ISSUED ACCOUNTING STANDARDS
The Financial Accounting Standards Board ("FASB") issued Statement of Financial
Accounting Standards No. 148, "Accounting for Stock-Based Compensation -
Transition and Disclosure, an amendment of FASB Statement No. 123" ("SFAS 148")
during December 2002. This Statement amends FASB Statement No. 123 to provide
alternative methods of transition for voluntary change to the fair value based
method of accounting for stock-based employee compensation. This Statement also
amends the disclosure requirements of Statement 123 to require prominent
disclosure on both annual and interim financial statements about the method of
accounting for stock-based compensation and the effect of the method used on
reported results. The transition alternatives of SFAS 148 are available for
fiscal years beginning after December 15, 2003 and, if the fair value provisions
of SFAS 123 are adopted, the effect on the Company's financial statements is
contingent on the transition provision elected. The pro-forma disclosure
requirements are effective for the Company's third fiscal quarter.
In November 2002 the FASB issued Interpretation No. 45 "Guarantor's Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others" ("FIN 45"). This interpretation elaborates on the
existing disclosures to be made by a guarantor in its financial statements about
its obligations under certain guarantees that it has issued ("disclosure
requirements"). This interpretation also clarifies that a guarantor is required
to recognize, at inception of a guarantee, a liability for the fair value of the
obligation undertaken in issuing the guarantee ("recognition and measurement
provisions"). The initial recognition and initial measurement provisions of FIN
45 are applicable on a prospective basis to guarantees issued or modified after
December 31, 2002. The recognition and measurement provisions are not expected
to have a material effect on the Company. The disclosure requirements in FIN 45
are effective for financial statements of interim and annual periods ending
after December 15, 2002. The Company's disclosure of guarantees is included in
Note 7 to the Notes to Unaudited Consolidated Financial Statements.
28
AVERAGE BALANCE SHEET
(Dollars in Thousands)
The following table sets forth certain information relating to the Company's
average balance sheet and reflects the average yield on assets and average cost
of liabilities for the periods indicated. Such yields and costs are derived by
dividing income or expense by the average balance of assets or liabilities,
respectively, for the periods presented. Average balances are calculated using
daily averages.
Three Months Ended December 31,
2002 2001
-------------------------------- ----------------------------------
Average Interest Avg. Average Interest Avg.
Balance Yield/ Balance Yield/
Cost Cost
---------- -------- ------ ---------- -------- ------
ASSETS:
Interest earning assets:
Loans receivable (a)(b)(d) $3,196,734 $58,364 7.30% $2,906,042 $56,702 7.80%
Mortgage-backed securities (c) $ 649,968 $ 6,512 4.01% $ 509,799 $ 6,543 5.13%
Investment securities (c)(d)(e) $ 327,351 $ 5,246 6.41% $ 256,170 $ 5,262 8.22%
FHLB stock $ 26,675 $ 220 3.30% $ 22,499 $ 326 5.80%
Other interest earning deposits $ 367,193 $ 1,215 1.32% $ 115,578 $ 574 1.99%
---------- ------- ---- ---------- ------- ----
Total interest earning assets $4,567,921 $71,557 6.27% $3,810,088 $69,407 7.29%
Noninterest earning assets (f) $ 330,315 $ 210,448
---------- ----------
TOTAL ASSETS $4,898,236 $4,020,536
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY:
- -------------------------------------
Interest bearing liabilities:
Savings accounts $ 775,107 $ 4,448 2.30% $ 499,291 $ 3,558 2.85%
Now accounts $ 527,397 $ 1,838 1.39% $ 380,840 $ 1,168 1.23%
Money market demand accounts $ 489,163 $ 2,992 2.45% $ 282,949 $ 2,060 2.91%
Certificate accounts $1,960,375 $19,119 3.90% $2,085,290 $27,463 5.27%
Borrowed funds (g) $ 491,018 $ 5,543 4.52% $ 251,605 $ 3,420 5.44%
Guaranteed preferred beneficial interests in the
Company's junior subordinated debentures $ 99,000 $ 1,916 7.74% $ 28,945 $ 562 7.77%
---------- ------- ---- ---------- ------- ----
Total interest bearing liabilities $4,342,060 $35,856 3.30% $3,528,920 $38,231 4.33%
Noninterest bearing liabilities $ 222,542 $ 200,315
---------- ----------
Total liabilities $4,564,602 $3,729,235
Shareholders' equity $ 333,634 $ 291,301
---------- ----------
TOTAL LIABILITIES AND EQUITY $4,898,236 $4,020,536
========== ==========
Net interest income/ Interest rate spread $35,701 2.97% $31,176 2.96%
Net interest earning assets/ Net interest margin $ 225,861 3.13% $ 281,168 3.27%
Ratio of interest earning assets to
interest bearing liabilities 1.05X 1.08X
(a) Average gross loans receivable includes loans held as available-for-sale and
loans placed on nonaccrual status.
(b) Interest income includes accretion/ amortization of deferred loan fees/
expenses.
(c) Average balances do not include the effect of unrealized gains or losses on
securities held as available-for-sale.
(d) Interest income on tax-free investment securities and tax-free loans is
presented on a taxable equivalent basis.
(e) Average balances include FNMA and FHLMC stock.
(f) Average balances include the effect of unrealized gains or losses on
securities held as available-for-sale.
(g) Average balances include FHLB borrowings, securities sold under agreements
to repurchase and other borrowings.
29
RATE/ VOLUME ANALYSIS
(Dollars in Thousands)
The following tables represent the extent to which changes in interest rates and
changes in the volume of interest-earning assets and interest-bearing
liabilities have affected the Company's interest income and interest expense
during the periods indicated. Information is provided in each category with
respect to (i) changes attributable to changes in volume (changes in volume
multiplied by prior rate), (ii) changes attributable to changes in rate (changes
in rate multiplied by prior volume), (iii) changes in rate-volume (changes in
rate multiplied by changes in volume), and (iv) the net change.
Three months ended December 31, 2002 and 2001
RATE/ NET
RATE VOLUME VOLUME CHANGE
------- -------- ------- -------
Interest earning assets:
Loans receivable $(3,645) $ 5,672 $ (365) $ 1,662
Mortgage-backed securities $(1,435) $ 1,799 $ (395) $ 31
Investment securities $(1,157) $ 1,462 $ (321) $ (16)
FHLB stock $ (140) $ 60 $ (26) $ (106)
Other interest-earning deposits $ (192) $ 1,250 $ (417) $ 641
------- -------- ------- -------
Total interest-earning assets $(6,569) $ 10,243 $(1,524) $ 2,150
Interest-bearing liabilities:
Savings accounts $ (692) $ 1,965 $ (383) $ 890
Now accounts $ 159 $ 450 $ 61 $ 670
Money market demand accounts $ (329) $ 1,501 $ (240) $ 932
Certificate accounts $(7,126) $ (1,645) $ 427 $(8,344)
Borrowed funds $ (580) $ 3,255 $ (552) $ 2,123
Guaranteed preferred beneficial
interests in the Company's junior
subordinated debentures $ (2) $ 1,360 $ (4) $ 1,354
------- -------- ------- -------
Total interest-bearing liabilities $(8,570) $ 6,886 $ (691) $(2,375)
------- -------- ------- -------
Net change in net interest income $ 2,001 $ 3,357 $ (833) $ 4,525
======= ======== ======= =======
30
AVERAGE BALANCE SHEET
(Dollars in Thousands)
The following table sets forth certain information relating to the Company's
average balance sheet and reflects the average yield on assets and average cost
of liabilities for the periods indicated. Such yields and costs are derived by
dividing income or expense by the average balance of assets or liabilities,
respectively, for the periods presented. Average balances are calculated using
daily averages.
Six Months Ended December 31,
2002 2001
---------------------------------- ----------------------------------
Average Interest Avg. Average Interest Avg.
Balance Yield/ Balance Yield/
Cost Cost
---------- ---------- ------ ---------- -------- ------
ASSETS:
Interest earning assets:
Loans receivable (a)(b)(d) $3,127,902 $ 116,264 7.43% $2,886,359 $113,975 7.90%
Mortgage-backed securities (c) $ 599,216 $ 12,867 4.30% $ 508,143 $ 13,910 5.48%
Investment securities (c)(d)(e) $ 314,643 $ 10,246 6.51% $ 240,132 $ 10,007 8.34%
FHLB stock $ 25,203 $ 417 3.31% $ 22,499 $ 709 6.30%
Other interest earning deposits $ 288,327 $ 2,085 1.45% $ 80,096 $ 1,192 2.98%
---------- ---------- ---- ---------- -------- ----
Total interest earning assets $4,355,291 $ 141,879 6.52% $3,737,229 $139,793 7.48%
Noninterest earning assets (f) $ 307,404 $ 209,222
---------- ----------
TOTAL ASSETS $4,662,695 $3,946,451
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY:
- -------------------------------------
Interest bearing liabilities:
Savings accounts $ 747,813 $ 9,199 2.46% $ 476,993 $ 7,244 3.04%
Now accounts $ 480,355 $ 3,147 1.31% $ 381,937 $ 2,346 1.23%
Money market demand accounts $ 455,793 $ 5,818 2.55% $ 249,438 $ 4,194 3.36%
Certificate accounts $1,936,550 $ 38,836 4.01% $2,082,786 $ 58,004 5.57%
Borrowed funds (g) $ 398,404 $ 9,631 4.84% $ 263,715 $ 7,083 5.37%
Guaranteed preferred beneficial interests in the
Company's junior subordinated debentures $ 99,000 $ 3,845 7.77% $ 14,473 $ 562 7.77%
---------- ---------- ---- ---------- -------- ----
Total interest bearing liabilities $4,117,915 $ 70,476 3.42% $3,469,342 $ 79,433 4.58%
Noninterest bearing liabilities $ 216,682 $ 191,984
---------- ----------
Total liabilities $4,334,597 $3,661,326
Shareholders' equity $ 328,098 $ 285,125
---------- ----------
TOTAL LIABILITIES AND EQUITY $4,662,695 $3,946,451
========== ==========
Net interest income/ Interest rate spread $ 71,403 3.10% $ 60,360 2.90%
Net interest earning assets/ Net interest margin $ 237,376 3.28% $ 267,887 3.23%
Ratio of interest earning assets to
interest bearing liabilities 1.06X 1.08X
(a) Average gross loans receivable includes loans held as available-for-sale and
loans placed on nonaccrual status.
(b) Interest income includes accretion/ amortization of deferred loan fees/
expenses.
(c) Average balances do not include the effect of unrealized gains or losses on
securities held as available-for-sale.
(d) Interest income on tax-free investment securities and tax-free loans is
presented on a taxable equivalent basis.
(e) Average balances include FNMA and FHLMC stock.
(f) Average balances include the effect of unrealized gains or losses on
securities held as available-for-sale.
(g) Average balances include FHLB borrowings, securities sold under agreements
to repurchase and other borrowings.
31
RATE/ VOLUME ANALYSIS
(Dollars in Thousands)
The following tables represent the extent to which changes in interest rates and
changes in the volume of interest-earning assets and interest-bearing
liabilities have affected the Company's interest income and interest expense
during the periods indicated. Information is provided in each category with
respect to (i) changes attributable to changes in volume (changes in volume
multiplied by prior rate), (ii) changes attributable to changes in rate (changes
in rate multiplied by prior volume), (iii) changes in rate-volume (changes in
rate multiplied by changes in volume), and (iv) the net change.
Six months ended December 31, 2002 and 2001
RATE/ NET
RATE VOLUME VOLUME CHANGE
-------- -------- ------- --------
Interest earning assets:
Loans receivable $ (6,689) $ 9,538 $ (560) $ 2,289
Mortgage-backed securities $ (2,999) $ 2,493 $ (537) $ (1,043)
Investment securities $ (2,187) $ 3,105 $ (679) $ 239
FHLB stock $ (337) $ 85 $ (40) $ (292)
Other interest-earning deposits $ (613) $ 3,099 $(1,593) $ 893
-------- -------- ------- --------
Total interest-earning assets $(12,825) $ 18,320 $(3,409) $ 2,086
Interest-bearing liabilities:
Savings accounts $ (1,376) $ 4,112 $ (781) $ 1,955
Now accounts $ 156 $ 605 $ 40 $ 801
Money market demand accounts $ (1,010) $ 3,470 $ (836) $ 1,624
Certificate accounts $(16,235) $ (4,073) $ 1,140 $(19,168)
Borrowed funds $ (708) $ 3,618 $ (362) $ 2,548
Guaranteed preferred beneficial
interests in the Company's junior
subordinated debentures $ -- $ 3,282 $ 1 $ 3,283
-------- -------- ------- --------
Total interest-bearing liabilities $(19,173) $ 11,014 $ (798) $ (8,957)
-------- -------- ------- --------
Net change in net interest income $ 6,348 $ 7,306 $(2,611) $ 11,043
======== ======== ======= ========
32
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a savings bank holding company, the Company's primary market risk is interest
rate risk. Interest rate risk is the sensitivity of net interest income to
variations interest rates over a specified time period. The sensitivity results
from differences in the time periods in which interest rate sensitive assets and
liabilities mature or reprice. The Company attempts to control interest rate
risk by matching, within acceptable limits, the repricing periods of its assets
and liabilities. Because the Company's interest sensitive liabilities typically
have repricing periods or maturities of short duration, the Company has
attempted to shorten the maturities of its assets by emphasizing the origination
of short-term, fixed-rate consumer loans, one-to-four family residential
mortgage loans with terms of fifteen years or less and adjustable rate mortgage
loans, consumer loans and commercial loans. In addition, the Company has
purchased shorter term or adjustable-rate investment securities and
adjustable-rate mortgage-backed securities.
The Company has an Asset/ Liability Committee consisting of several members of
senior management which meets monthly to review market interest rates, economic
conditions, the pricing of interest earning assets and interest bearing
liabilities and the Company's balance sheet structure. On a quarterly basis,
this Committee also reviews the Company's interest rate risk position.
The Company also has a Risk Management Committee comprised of certain members of
the Board of Directors which meets quarterly and reviews interest rate risks and
trends, the Company's interest sensitivity position, the Company's liquidity
position and the market risk inherent in the Company's investment portfolio.
In an effort to assess market risk, the Company utilizes a simulation model to
determine the effect of immediate incremental increases and decreases in
interest rates in net interest income and the market value of the Company's
equity. Certain assumptions are made regarding loan prepayments and decay rates
of passbook and NOW accounts. Because it is difficult to accurately project the
market reaction of depositors and borrowers, the effect of actual changes in
interest on these assumptions may differ from simulated results. The Company has
established the following guidelines for assessing interest rate risk:
Net income simulation. Given a parallel shift of 2% in interest rates, the
estimated net interest may not decrease by more than 20% within a one-year
period.
Market value of equity simulation. The market value of the Company's equity is
the present value of the Company's assets and liabilities. Given a parallel
shift of 2% in interest rates, the market value of equity may not decrease by
more than 50% of total shareholders' equity.
The following table illustrates the simulated impact of a 1% or 2% upward or 1%
downward movement in interest rates on net income, return on average equity,
earnings per share and market value of equity. Given the low interest rate
environment that existed in the current period, the impact of a 2% downward
shift is not shown in the table. This analysis was prepared assuming that
interest-earning asset levels at December 31, 2002 remain constant. The impact
of the rate movements was computed by simulating the effect of an immediate and
sustained shift in interest rates over a twelve-month period from December 31,
2002 levels.
33
Increase Decrease
-------------- --------------
Parallel shift in interest rates over the next 12 months 1.0% 2.0% 1.0% 2.0%
---- ---- ------ ----
Projected percentage increase/ (decrease) in net income 3.0% 13.2% (11.4%) NM
Projected increase/ (decrease) in return on average equity 0.3% 1.7% (1.5%) NM
Projected increase/ (decrease) in earnings per share $0.03 $0.13 ($0.11) NM
Projected percentage increase/ (decrease) in market value of equity 12.8% 9.8% (12.8%) NM
NM - Not meaningful
The figures included in the table above represent projections which were
computed based upon certain assumptions including prepayment rates and decay
rates which cannot be accurately predicted. There are no assurances that these
assumptions and the resultant impact on the Company's financial ratios will
approximate the figures presented above.
ITEM 4. CONTROLS AND PROCEDURES
Under the supervision of and the participation of the Company's management,
including the Chief Executive Officer and Chief Financial Officer, the Company
evaluated the effectiveness of the design and operation of its disclosure
controls and procedures (as defined in Rule 13a-14(c) under the Exchange Act) as
of a date (the "Evaluation Date") within 90 days prior to the filing date of
this report. Based upon that evaluation, the Chief Executive Officer and Chief
Financial Officer concluded that, as of the Evaluation Date, these disclosure
controls and procedures are effective in timely alerting them to the material
information relating to the Company (or the consolidated subsidiaries) required
to be included in the Company's periodic SEC filings.
There were no significant changes in the Company's internal controls during the
period covered by this report or in other factors that could significantly
affect these controls subsequent to the date of the most recent evaluation.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company and its subsidiaries are subject to a number of asserted and
unasserted claims encountered in the normal course of business. Management
believes that the aggregate liability, if any, that may result from such
potential litigation will not have a material adverse effect on the Company's
financial statements.
ITEM 2. CHANGES IN SECURITIES
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
34
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Company held its Annual Meeting of Shareholders on November 20,
2002
(b) The name of each director elected at the Annual Meeting is as follows:
William J. Wagner
Thomas K. Creal, III.
A. Paul King
The name of each director whose term of office continued after the
Annual Meeting is as follows:
John O. Hanna
Richard L. Carr
John M. Bauer
Robert G. Ferrier
Richard E. McDowell
Joseph T. Stadler
Joseph F. Long
(c) The following matters were voted upon at the Annual Meeting:
(i) Election of three directors of the Company:
For Withheld
---------- --------
William J. Wagner 44,166,843 250,523
Thomas K. Creal, III. 44,342,663 74,703
A. Paul King 44,364,463 52,903
(ii) Ratification of the appointment of KPMG LLP as the Company's
independent auditors for the fiscal year ending June 30, 2003.
For Against Withheld
----------- ------- --------
43,961,857 427,571 23,934
ITEM 5. OTHER INFORMATION
Not applicable.
35
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBIT 11: STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
Three Months Three Months
Ended Ended
December 31, 2002 December 31, 2001
Reported net income $ 10,287,869 $ 8,807,952
Deduct: Cumulative effect of accounting change $ -- $ --
-------------- --------------
Net income before cumulative effect of accounting change $ 10,287,869 $ 8,807,952
Weighted-average common shares outstanding (basic) 47,610,073 47,448,433
Common stock equivalents due to effect of stock options 522,776 460,541
-------------- --------------
Total weighted-average common shares and equivalents (diluted) 48,132,849 47,908,974
BASIC EARNINGS PER SHARE:
Reported net income $ 0.22 $ 0.19
Deduct: Cumulative effect of accounting change $ 0.00 $ 0.00
-------------- --------------
Net income before cumulative effect of accounting change $ 0.22 $ 0.19
============== ==============
DILUTED EARNINGS PER SHARE:
Reported net income $ 0.21 $ 0.18
Deduct: Cumulative effect of accounting change $ 0.00 $ 0.00
-------------- --------------
Net income before cumulative effect of accounting change $ 0.21 $ 0.18
============== ==============
36
Six Months Six Months
Ended Ended
December 31, 2002 December 31, 2001
Reported net income $ 21,730,755 $ 19,246,888
Deduct: Cumulative effect of accounting change $ -- $ 2,236,918
-------------- --------------
Net income before cumulative effect of accounting change $ 21,730,755 $ 17,009,970
Weighted-average common shares outstanding (basic) 47,587,006 47,440,297
Common stock equivalents due to effect of stock options 508,509 466,845
-------------- --------------
Total weighted-average common shares and equivalents (diluted) 48,095,515 47,907,142
BASIC EARNINGS PER SHARE:
Reported net income $ 0.46 $ 0.41
Deduct: Cumulative effect of accounting change $ 0.00 $ 0.05
-------------- --------------
Net income before cumulative effect of accounting change $ 0.46 $ 0.36
============== ==============
DILUTED EARNINGS PER SHARE:
Reported net income $ 0.45 $ 0.40
Deduct: Cumulative effect of accounting change $ 0.00 $ 0.05
-------------- --------------
Net income before cumulative effect of accounting change $ 0.45 $ 0.35
============== ==============
37
Three Months Three Months
Ended Ended
September 30, 2002 September 30, 2001
Reported net income $ 11,442,886 $ 10,438,936
Deduct: Cumulative effect of accounting change $ -- $ 2,236,918
-------------- --------------
Net income before cumulative effect of accounting change $ 11,442,886 $ 8,202,018
Weighted-average common shares outstanding (basic) 47,563,940 47,432,161
Common stock equivalents due to effect of stock options 494,242 473,150
-------------- --------------
Total weighted-average common shares and equivalents (diluted) 48,058,182 47,905,311
BASIC EARNINGS PER SHARE:
Reported net income $ 0.24 $ 0.22
Deduct: Cumulative effect of accounting change $ 0.00 $ 0.05
-------------- --------------
Net income before cumulative effect of accounting change $ 0.24 $ 0.17
============== ==============
DILUTED EARNINGS PER SHARE:
Reported net income $ 0.24 $ 0.22
Deduct: Cumulative effect of accounting change $ 0.00 $ 0.05
-------------- --------------
Net income before cumulative effect of accounting change $ 0.24 $ 0.17
============== ==============
38
(b) EXHIBIT 99.1: CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS
ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
The undersigned officers of Northwest Bancorp, Inc. (the "Company") hereby
certify that, to the best of their knowledge:
1. the Company's quarterly report on Form 10-Q for the period ended December
31, 2002 (the "Report") fully complies with the requirements of section
13(a) or 15(d) of the Securities Exchange Act of 1934, and
2. that, as of the date of this statement, the information contained in the
Report fairly presents, in all material respects, the financial condition
and results of operations of the Company.
The purpose of this statement is solely to comply with Title 18, Chapter 63,
Section 1350 of the United States Code, as amended by Section 906 of the
Sarbanes-Oxley Act of 2002.
- -------------------- ----------------------------------------
Date William J. Wagner
President and Chief Executive Officer
- -------------------- ----------------------------------------
Date William W. Harvey, Jr.
Senior Vice President and Chief
Financial Officer
39
(c) REPORTS ON FORM 8-K
None Filed.
40
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed by the undersigned thereunto
duly authorized.
NORTHWEST BANCORP, INC.
Date: By:
------------------------------ --------------------------------
William J. Wagner
President and Chief Executive
Officer
Date: By:
------------------------------ --------------------------------
William W. Harvey, Jr.
Senior Vice President and
Chief Financial Officer
41
CERTIFICATION PURSUANT TO RULE 13a-14
OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED,
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, William J. Wagner, President and Chief Executive Officer, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Northwest Bancorp,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statements of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based in
our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
42
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
- -------------------- ----------------------------------------
Date William J. Wagner
President and Chief Executive Officer
43
CERTIFICATION PURSUANT TO RULE 13a-14
OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED,
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, William W. Harvey, Jr., Senior Vice President, Finance and Chief Financial
Officer, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Northwest Bancorp,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statements of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
d) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
e) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
f) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based in
our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons performing the
equivalent functions):
c) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
d) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
44
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
- -------------------- ----------------------------------------
Date William W. Harvey, Jr.
Senior Vice President, Finance and
Chief Financial Officer
45