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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended DECEMBER 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transaction period from __________ to __________
Commission file number 0-26128
NORTHWEST INDIANA BANCORP
(Exact name of registrant as specified in its charter)
INDIANA 35-1927981
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
9204 COLUMBIA AVENUE 46321
MUNSTER, INDIANA (Zip Code)
(Address of principal executive offices)
(219) 836-9690
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, WITHOUT PAR VALUE
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Based on the average bid and ask prices for the registrant's Common Stock at
February 29, 2000, at that date, the aggregate market value of the registrant's
Common Stock held by nonaffiliates of the registrant (assuming solely for the
purposes of this calculation that all directors and executive officers of the
registrant are "affiliates") was $40,887,259.
There were 2,727,403 shares of the registrant's Common Stock, without par value,
outstanding at February 29, 2000.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents have been incorporated by reference into
this Annual Report on Form 10-K:
1. 1999 Annual Report to Shareholders. (Parts II and IV)
2. Definitive Proxy Statement for the 2000 Annual Meeting of
Shareholders. (Part III)
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PART I
ITEM 1. BUSINESS
GENERAL
NorthWest Indiana Bancorp, an Indiana corporation (the "Bancorp"), was
incorporated on January 31, 1994, and is the holding company for Peoples Bank SB
(the "Bank"), the resulting Indiana savings bank in the conversion of Peoples
Bank from a federal stock savings bank to an Indiana stock savings bank.
Pursuant to the conversion, on July 31, 1994, all of the outstanding stock of
Peoples Bank was converted into shares of Common Stock, without par value, of
the Bancorp. As a result, Peoples Bank SB is a wholly owned subsidiary of the
Bancorp. The Bancorp has no other business activity other than being the holding
company for Peoples Bank SB.
The Bank is primarily engaged in the business of attracting deposits
from the general public and the origination of loans, mostly upon the security
of single family residences and commercial real estate, as well as, construction
loans and various types of consumer loans and commercial business loans, within
its primary market area of Lake County, in northwest Indiana. In addition, the
Bank's trust department provides estate administration, estate planning,
guardianships, land trusts, retirement planning, self-directed IRA and Keogh
accounts, investment agency accounts, and serves as personal representative of
estates and acts as trustee for revocable and irrevocable trusts.
The Bank's deposit accounts are insured up to applicable limits by the
Savings Association Insurance Fund ("SAIF") which is administered by the Federal
Deposit Insurance Corporation ("FDIC"), an agency of the federal government. As
the holding company for the Bank, the Bancorp is subject to comprehensive
examination, supervision and regulation by the Board of Governors of the Federal
Reserve System ("FRB"), while the Bank is subject to comprehensive examination,
supervision and regulation by both the FDIC and the Indiana Department of
Financial Institutions ("DFI"). The Bank is also subject to regulation by the
FRB governing reserves required to be maintained against certain deposits and
other matters. The Bank is also a member of the Federal Home Loan Bank ("FHLB")
of Indianapolis, which is one of the twelve regional banks comprising the system
of Federal Home Loan Banks ("FHLB System").
The Bancorp maintains its corporate office at 9204 Columbia Avenue,
Munster, Indiana, from which it oversees the operation of its seven branch
locations. For further information, see "Properties."
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FORWARD-LOOKING STATEMENTS
Statements contained in this filing on Form 10-K that are not
historical facts are forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. The words or phrases "would
be," "will allow," "intends to," "will likely result," "are expected to," "will
continue," "is anticipated," "estimate," "project," or similar expressions are
also intended to identify "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act. The Bancorp cautions readers that
forward-looking statements, including without limitation those relating to the
Bancorp's future business prospects, interest income and expense, net income,
liquidity, and capital needs are subject to certain risks and uncertainties that
could cause actual results to differ materially from those indicated in the
forward-looking statements, due to, among other things, factors identified in
this filing, including the following:
REGULATORY RISK. The banking industry is heavily regulated. These
regulations are intended to protect depositors, not shareholders. As discussed
above, the Bank and Bancorp are subject to regulation and supervision by the
DFI, FDIC, and FRB. The burden imposed by federal and state regulations puts
banks at a competitive disadvantage compared to less regulated competitors such
as finance companies, mortgage banking companies and leasing companies. The
banking industry continues to lose market share to competitors.
LEGISLATION. Because of concerns relating to the competitiveness and
the safety and soundness of the industry, Congress continues to consider a
number of wide-ranging proposals for altering the structure, regulation, and
competitive relationships of the nation's financial institutions. Among such
bills are proposals to combine banks and thrifts under a unified charter, to
combine regulatory agencies, and to further expand the powers of depository
institutions, bank holding companies, and competitors of depository
institutions. Management cannot predict whether or in what form any of these
proposals will be adopted or the extent to which the business of the Bancorp or
the Bank may be affected thereby.
CREDIT RISK. One of the greatest risks facing lenders is credit risk,
that is, the risk of losing principal and interest due to a borrower's failure
to perform according to the terms of a loan agreement. While management attempts
to provide an allowance for loan losses at a level adequate to cover losses
based on loan portfolio growth, past loss experience, general economic
conditions, information about specific borrower situations, and other factors,
future adjustments to reserves may become necessary, and net income could be
significantly affected, if circumstances differ substantially from assumptions
used with respect to such factors.
EXPOSURE TO LOCAL ECONOMIC CONDITIONS. The Bank's primary market area
for deposits and loans encompasses Lake County, in northwest Indiana, where
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all of its offices are located. Ninety-five percent of the
Bank's business activities are within this area. This concentration exposes the
Bank to risks resulting from changes in the local economy. A dramatic drop in
local real estate values would, for example, adversely affect the quality of the
Bank's loan portfolio.
INTEREST RATE RISK. The Bancorp's earnings depend to a great extent
upon the level of net interest income, which is the difference between interest
income earned on loans and investments and the interest expense paid on deposits
and other borrowings. Interest rate risk (IRR) is the risk that the earnings and
capital will be adversely affected by changes in interest rates. While the
Bancorp attempts to adjust its asset/liability mix in order to limit the
magnitude of interest rate risk, IRR management is not an exact science. Rather,
it involves estimates as to how changes in the general level of interest rates
will impact the yields earned on assets and the rates paid on liabilities.
Moreover, rate changes can vary depending upon the level of rates and
competitive factors. From time to time, maturities of assets and liabilities are
not balanced, and a rapid increase or decrease in interest rates could have an
adverse effect on net interest margins and results of operations of the Bancorp.
To moderate unfavorable operating results in periods of rising or high interest
rates, the Bancorp restructures its asset-liability mix on an ongoing basis.
Increasing the amount of interest-earning assets that are rate sensitive,
extending the maturities of customer deposits, increasing the balances of
checking/NOW accounts and utilizing cost effective borrowings are all part of
management's commitment toward reducing the Bancorp's overall vulnerability to
interest rate risk. While these steps may reduce the overall vulnerability to
interest rate risk, the Bancorp will still be adversely affected by a rising or
high interest rate environment, and is beneficially affected by a falling or low
interest rate environment because rate sensitive liabilities exceed rate
sensitive assets within a one year time period. Further discussion of interest
rate risk can be found under the caption "Asset/Liability Management and Market
Risk" in the Management's Discussion and Analysis of Financial Condition and
Results of Operations section of the Bancorp's 1999 Annual Report to
Shareholders.
COMPETITION. The activities of the Bancorp and the Bank in the
geographic market served involve competition with other banks as well as with
other financial institutions and enterprises, many of which have substantially
greater resources than those available to the Bancorp. In addition, non-bank
competitors are generally not subject to the extensive regulation applicable to
the Bancorp and the Bank.
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LENDING ACTIVITIES
GENERAL. The Bancorp's product offerings include residential mortgage
loans, construction loans, commercial real estate loans, consumer loans and
commercial business loans. Over the years, the Bancorp has directed its lending
efforts toward the origination of loans with adjustable rates and/or shorter
terms to maturity. Product offerings include adjustable rate residential and
commercial mortgages, commercial business loans tied to the prime interest rate,
variable rate home equity lines of credit and consumer loans. It is management's
goal that all programs are marketed aggressively and priced competitively.
The Bancorp is primarily a portfolio lender. Mortgage banking
activities are limited to the sale of fixed rate mortgage loans with contractual
maturities of twenty-five years or longer. These loans are sold, on a
case-by-case basis, in the secondary market as part of the Bancorp's efforts to
manage interest rate risk. All loan sales are made to the Federal Home Loan
Mortgage Corporation ("FHLMC"). Loans are sold in the secondary market with
servicing retained by the Bancorp. All loans held for sale are recorded at the
lower of cost or market value.
Under Indiana Law, an Indiana stock savings bank generally may not make
any loan to a borrower or its related entities if the total of all such loans by
the savings bank exceeds 15% of its unimpaired capital and unimpaired surplus
(plus up to an additional 10% of unimpaired capital and unimpaired surplus, in
the case of loans fully collateralized by readily marketable collateral);
provided, however, that certain specified types of loans are exempted from these
limitations or subject to different limitations. The maximum amount which the
Bank could have loaned to one borrower and the borrower's related entities at
December 31, 1999, under the 15% of capital and surplus limitation was
approximately $5,367,000. At December 31, 1999, the Bank had no loans that
exceeded the regulatory limitations.
At December 31, 1999, there were no concentrations of loans in any type
of industry that exceeded 10% of total loans that were not otherwise disclosed
as a loan category.
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LOAN PORTFOLIO. The following table sets forth selected data relating
to the composition of the Bancorp's loan portfolio by type of loan and type of
collateral at the end of each of the last five years. The amounts are stated in
thousands (000's).
1999 1998 1997 1996 1995
--------- --------- --------- --------- ---------
Type of loan:
Conventional real estate loans:
Construction and
development loans $ 14,847 $ 19,211 $ 21,440 $ 13,248 $ 8,913
Loans on existing
properties (1) 240,862 220,755 221,482 208,601 194,779
Consumer loans 10,449 10,187 5,661 4,890 3,527
Commercial business, other(2) 29,655 23,280 23,630 17,957 15,074
--------- --------- --------- --------- ---------
Loans receivable(3) $ 295,813 $ 273,433 $ 272,213 $ 244,696 $ 222,293
========= ========= ========= ========= =========
Type of collateral:
Real estate:
1-to-4 family $ 175,963 $ 172,949 $ 178,091 $ 164,590 $ 152,485
Other dwelling units, land
and commercial real estate 79,746 67,018 64,831 57,259 51,207
Consumer loans 10,177 9,887 5,410 4,619 3,335
Commercial business, other(2) 27,374 21,433 21,712 16,306 13,893
--------- --------- --------- --------- ---------
Loans receivable (4) $ 293,260 $ 271,287 $ 270,044 $ 242,774 $ 220,920
========= ========= ========= ========= =========
Average loans outstanding
during the period (3) $ 286,580 $ 271,406 $ 254,219 $ 232,465 $ 221,352
========= ========= ========= ========= =========
(1) Includes construction loans converted to permanent loans and commercial real
estate loans.
(2) Includes government loans and overdrafts to deposit accounts.
(3) Net of unearned income and deferred loan fees.
(4) Net of unearned income and deferred loan fees. Does not include unsecured loans.
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LOAN ORIGINATIONS, PURCHASES AND SALES. Set forth below is a table
showing loan origination, purchase and sale activity for each of the last three
years. The amounts are stated in thousands (000's).
1999 1998 1997
-------- -------- --------
Loans originated:
Conventional real estate loans:
Construction and development loans $ 13,128 $ 9,683 $ 13,168
Loans on existing property 43,335 29,448 23,461
Loans refinanced 7,981 10,961 14,824
-------- -------- --------
Total conventional real estate
loans originated 64,444 50,092 51,453
Commercial business loans 84,854 59,646 60,944
Consumer loans 5,829 6,519 4,591
-------- -------- --------
Total loans originated $155,127 $116,257 $116,988
======== ======== ========
Loan participations purchased $ 300 $ 5,238 $ 3,240
======== ======== ========
Whole loans and participations sold $ 3,214 $ 3,785 $ 1,820
======== ======== ========
LOAN MATURITY SCHEDULE. The following table sets forth certain
information at December 31, 1999 regarding the dollar amount of loans in the
Bancorp's portfolio based on their contractual terms to maturity. Demand loans,
loans having no schedule of repayments and no stated maturity, and overdrafts
are reported as due in one year or less. Contractual principal repayments of
loans do not necessarily reflect the actual term of the loan portfolio. The
average life of mortgage loans is substantially less than their contractual
terms because of loan prepayments and because of enforcement of due-on-sale
clauses, which give the Bancorp the right to declare a loan immediately due and
payable in the event, among other things, that the borrower sells the property
subject to the mortgage. The amounts are stated in thousand's (000's).
Maturing
--------------------------------------------------------------------
After one
Within but within After
one year five years five years Total
-------- -------- -------- --------
Real estate loans $ 40,124 $ 67,608 $147,977 $255,709
Consumer loans 6,537 3,642 270 10,449
Commercial business loans 18,582 8,006 3,067 29,655
-------- -------- -------- --------
Total loans receivable $ 65,243 $ 79,256 $151,314 $295,813
======== ======== ======== ========
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The table below sets forth the dollar amount of all loans due after one
year from December 31, 1999 which have predetermined interest rates or have
floating or adjustable interest rates. The amounts are stated in thousands
(000's).
Predetermined Floating or
rates adjustable rates Total
------------- ---------------- --------
Real estate loans $103,234 $112,351 $215,585
Consumer loans 3,910 2 3,912
Commercial business loans 4,963 6,110 11,073
-------- -------- --------
Total $112,107 $118,463 $230,570
======== ======== ========
LENDING AREA. The primary lending area of the Bancorp encompasses all
of Lake County in northwest Indiana, where a majority of loan activity is
concentrated. The Bancorp is also an active lender in Porter, LaPorte, Newton
and Jasper counties in Indiana. During the past 15 years, the communities of
Munster, Highland, Crown Point, Dyer, St. John, Merrillville and Schererville
have experienced rapid growth and, therefore, have provided the greatest lending
opportunities. At December 31, 1999 the housing vacancy rate in the Bancorp's
primary lending area was below 5%.
LOAN ORIGINATION FEES. All loan origination and commitment fees, as
well as incremental direct loan origination costs, are deferred and amortized
into income as yield adjustments over the contractual lives of the related
loans.
LOAN ORIGINATION PROCEDURE. The primary sources for loan originations
are referrals from commercial customers, real estate brokers and builders,
solicitations by the Bancorp's lending staff, and advertising of loan programs
and rates. The Bancorp employs no staff appraisers. All appraisals are performed
by fee appraisers that have been approved by the Board of Directors and who meet
all federal guidelines and state licensing and certification requirements.
Designated officers have authorities, established by the Board of
Directors, to approve loans. Loans from $600,000 to $1,000,000 are approved by
the loan officers loan committee. Loans from $1,000,000 to $2,000,000 are
approved by the senior officers loan committee. All loans in excess of
$2,000,000, up to the legal lending limit of the Bank, must be approved by the
Bank's Board of Directors or its Executive Committee. (All members of the Bank's
Board of Directors and Executive Committee are also members of the Bancorp's
Board of Directors and Executive Committee, respectively.) Peoples Bank will not
extend credit to any of its executive officers, directors, or principal
shareholders or to any related interest of that person in an amount that, when
aggregated with all other extensions of credit to that person, exceeds $500,000
unless: (1) the extension of credit has been approved in advance by a majority
of the entire Board of Directors of the Bank, and (2) the interested party has
abstained from participating directly or indirectly in the voting.
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All loans secured by personal property must be covered by insurance in
an amount sufficient to cover the full amount of the loan. All loans secured by
real estate must be covered by insurance in an amount sufficient to cover the
full amount of the loan or restore the property to its original state. First
mortgage loans must be covered by a lenders title insurance policy in the amount
of the loan.
THE CURRENT LENDING PROGRAMS
RESIDENTIAL MORTGAGE LOANS. The primary lending activity of the Bancorp
has been the granting of conventional mortgage loans to enable borrowers to
purchase existing homes, refinance existing homes, or construct new homes. The
residential loan portfolio also includes loans on two-to-four family dwellings.
Conventional loans are made up to a maximum of 97% of the purchase price or
appraised value, whichever is less. For loans made in excess of 80% of value,
private mortgage insurance is required in an amount sufficient to reduce the
Bancorp's exposure to 80% or less of the appraised value of the property. Loans
insured by private mortgage insurance companies can be made for up to 97% of
value. During 1999 over 90% of mortgage loans closed were conventional loans
with borrowers having 20% or more equity in the property. This type of loan does
not require private mortgage insurance because of the borrower's level of equity
investment.
Fixed-rate loans currently being originated, generally conform to FHLMC
guidelines for loans purchased under the one-to-four family program. Loan
interest rates are determined based on secondary market yield requirements and
local market conditions. Fixed rate mortgage loans with contractual maturities
of twenty-five years or longer have been sold and/or classified as held for sale
to control exposure to interest rate risk.
The 15 year mortgage loan program has gained wide acceptance in the
Bancorp's primary market area. As a result of the shortened maturity of the 15
year loan, the product has been priced below the comparable 30 year loan
offering. Mortgage applicants for the 15 year loan tend to have a larger than
normal down payment; this, coupled with the larger principal and interest
payment amount, has caused the 15 year mortgage loan portfolio to consist, to a
significant extent, of second time home buyers whose underwriting qualifications
tend to be above average.
The Bancorp has offered Adjustable Rate Mortgage Loans ("ARMs") since
1984. The "Mini-Fixed ARM" has been very popular with Bancorp customers. The
"Mini-Fixed" mortgage reprices annually after a three, five or seven year
period. ARM originations totaled $24.9 million for 1999, $16.9 million for 1998,
and $23.6 million for 1997. During 1999, ARMs represented 48% of total mortgage
loan originations. The ability of the Bancorp to successfully market ARM's
depends upon loan demand, prevailing interest rates, volatility of
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interest rates, public acceptance of such loans, and terms offered by
competitors.
CONSTRUCTION LOANS. Construction loans on residential properties are
made primarily to individuals and contractors who are under contract with
individual purchasers. These loans are personally guaranteed by the borrower.
The maximum loan to value ratio is 80% of either the current appraised value or
the cost of construction, whichever is less. Residential construction loans are
typically made for periods of six months to one year.
Loans are also made for the construction of commercial properties. All
such loans are made in accordance with well defined underwriting standards,
subject to prior lease of the mortgaged property and a confirmed end-loan
takeout. In most cases, these loans are personally guaranteed by the borrower.
In general, loans made do not exceed 75% of the appraised value of the property.
Commercial construction loans are typically made for periods not to exceed two
years or date of occupancy, whichever is less.
COMMERCIAL REAL ESTATE LOANS. Commercial real estate loans are
typically made to a maximum of 75% of the appraised value. Such loans are
generally made on an adjustable rate basis. These loans are typically made for
terms of 15 to 20 years. Loans with an amortizing term exceeding 20 years
normally have a balloon feature calling for a full repayment within seven to ten
years from the date of the loan. The balloon feature affords the Bancorp the
opportunity to restructure the loan if economic conditions so warrant.
Commercial real estate loans include loans secured by commercial rental units,
apartments, condominium developments, small shopping centers,
commercial/industrial properties, and other retail and commercial developments.
While commercial real estate lending is generally considered to involve
a higher degree of risk than single-family residential lending due to the
concentration of principal in a limited number of loans and the effects of
general economic conditions on real estate developers and managers, the Bancorp
has endeavored to reduce this risk in several ways. In originating commercial
real estate loans, the Bancorp considers the feasibility of the project, the
financial strength of the borrowers and lessees, the managerial ability of the
borrowers, the location of the project and the economic environment. Management
evaluates the debt coverage ratio and analyzes the reliability of cash flows, as
well as the quality of earnings. All such loans are made in accordance with well
defined underwriting standards and are generally supported by personal
guarantees which represent a secondary source of repayment.
Loans for the construction of commercial properties are generally
located within an area permitting physical inspection and regular review of
business records. Projects financed outside of the Bancorp's primary lending
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area generally involve borrowers and guarantors who are or were previous
customers of the Bancorp.
CONSUMER LOANS. The Bancorp offers consumer loans to individuals for
most personal, household or family purposes. Consumer loans are either secured
by adequate collateral, or unsecured. Unsecured loans are based on the strength
of the applicant's financial condition. All borrowers must meet current
underwriting standards. The consumer loan program includes both fixed and
variable rate products. The Bancorp purchases indirect dealer paper from various
well established businesses in its immediate banking area.
HOME EQUITY LINE OF CREDIT. The Bancorp offers "Prime Line", a
revolving line of credit secured by the equity in the borrower's home. The
offering, which is tied to the prime rate of interest, requires borrowers to
repay 1.5% of their outstanding balance each month. In most cases, Prime Line
loans will require a second mortgage appraisal and a second mortgage lenders
title insurance policy. Loans are made up to a maximum of 80% of the appraised
value of the property less any outstanding liens.
HOME IMPROVEMENT LOANS AND EQUITY LOANS--FIXED TERM. Home improvement
and equity loans are made up to a maximum of 80% of the appraised value of the
improved property, less any outstanding liens. These loans are offered on both a
fixed and variable rate basis with a maximum term of 120 months. All home equity
loans are made on a direct basis to borrowers.
COMMERCIAL BUSINESS LOANS. Although the Bancorp's priority in extending
various types of commercial business loans changes from time to time, the basic
considerations in determining the makeup of the commercial business loan
portfolio are economic factors, regulatory requirements and money market
conditions. The Bancorp seeks commercial loan relationships from the local
business community and from its present customers. Conservative lending policies
based upon sound credit analysis governs the extension of commercial credit. The
following loans, although not inclusive, are considered preferable for the
Bancorp's commercial loan portfolio: loans collateralized by liquid assets;
loans secured by general use machinery and equipment; secured short-term working
capital loans to established businesses; short-term loans with established
sources of repayment and secured by sufficient equity and real estate; and
unsecured loans to customers whose character and capacity to repay are firmly
established.
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NON-PERFORMING ASSETS, ASSET CLASSIFICATION AND PROVISION FOR LOAN LOSSES
Loans are reviewed on a regular basis and are generally placed on a
non-accrual status when, in the opinion of management, serious doubt exists as
to the collectibility of a loan. Loans are generally placed on non-accrual
status when either principal or interest is 90 days or more past due. Consumer
loans are generally charged off when the loan becomes over 120 days delinquent.
Interest accrued and unpaid at the time a loan is placed on non-accrual status
is charged against interest income. Subsequent payments are either applied to
the outstanding principal balance, tax and insurance reserve, or recorded as
interest income, depending on the assessment of the ultimate collectibility of
the loan.
The Bancorp's mortgage loan collection procedures provide that, when a
mortgage loan is 15 days or more delinquent, the borrower will be contacted by
mail and payment requested. If the delinquency continues, subsequent efforts
will be made to contact the delinquent borrower. In certain instances, the
Bancorp will recast the loan or grant a limited moratorium on loan payments to
enable the borrower to reorganize their financial affairs. If the loan continues
in a delinquent status for 60 days, the Bancorp will generally initiate
foreclosure proceedings. Any property acquired as the result of foreclosure or
by voluntary transfer of property made to avoid foreclosure is classified as
foreclosed real estate until such time as it is sold or otherwise disposed of by
the Bancorp. Foreclosed real estate is recorded at fair value at the date of
foreclosure. At foreclosure, any write-down of the property is charged to the
allowance for loan losses. Costs relating to improvement of property are
capitalized, whereas holding costs are expensed. Valuations are periodically
performed by management, and an allowance for losses is established by a charge
to operations if the carrying value of a property exceeds its estimated fair
value less selling costs. Subsequent gains or losses on disposition, including
expenses incurred in connection with the disposition, are charged to operations.
Collection procedures for consumer loans provide that when a consumer loan
becomes ten days delinquent, the borrower will be contacted by mail and payment
requested. If the delinquency continues, subsequent efforts will be made to
contact the delinquent borrower. In certain instances, the Bancorp may grant a
payment deferral. If a loan continues delinquent after 90 days and all
collection efforts have been exhausted, the Bancorp will initiate legal
proceedings. Collection procedures for commercial business loans provide that
when a commercial loan becomes ten days delinquent, the borrower will be
contacted by mail and payment requested. If the delinquency continues,
subsequent efforts will be made to contact the delinquent borrower pursuant to
the commercial loan collection policy. In certain instances, the Bancorp may
grant a payment deferral or restructure the loan. Once it has been determined
that collection efforts are unsuccessful, the Bancorp will initiate legal
proceedings.
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The table that follows sets forth information with respect to the
Bancorp's non-performing assets at December 31, for the periods indicated.
During the periods shown, the Bancorp had no troubled debt restructurings which
involve forgiving a portion of interest or principal on any loans or making
loans at a rate materially less than market rates. The amounts are stated in
thousands (000's).
1999 1998 1997 1996 1995
------ ------ ------ ------ ------
Loans accounted for on a non-accrual basis:
Real estate:
Residential $ 565 $ 636 $ 715 $ 583 $ 361
Commercial -- 131 44 45 --
Commercial business -- 69 56 111 --
Consumer -- 18 151 49 11
------ ------ ------ ------ ------
Total $ 565 $ 854 $ 966 $ 788 $ 372
====== ====== ====== ====== ======
Accruing loans which are contractually past due 90 days or more:
Real estate:
Residential $ 235 $ 429 $ 220 $ 373 $ 637
Commercial 3 -- -- -- --
Commercial business -- 188 -- 5 --
Consumer -- -- 6 1 46
------ ------ ------ ------ ------
Total $ 238 $ 617 $ 226 $ 379 $ 683
====== ====== ====== ====== ======
Total of non-accrual
and 90 days past due $ 803 $1,471 $1,192 $1,167 $1,055
====== ====== ====== ====== ======
Ratio of non-performing
loans to total assets 0.22% 0.43% 0.37% 0.39% 0.38%
Ratio of non-performing
loans to total loans 0.27% 0.54% 0.44% 0.48% 0.47%
Foreclosed real estate $ -- $ 32 $ 259 $ 189 $ 86
====== ====== ====== ====== ======
Ratio of foreclosed real
estate to total assets 0.00% 0.01% 0.08% 0.06% 0.03%
During 1999, gross interest income of $69,687 would have been recorded
on loans accounted for on a non-accrual basis if the loans had been current
throughout the period. Interest on such loans included in income during the
period amounted to $27,981.
Federal regulations require savings banks to classify their own loans
and to establish appropriate general and specific allowances, subject to
regulatory review. These regulations are designed to encourage management to
evaluate loans on a case-by-case basis and to discourage automatic
classifications. Loans classified as substandard or doubtful must be evaluated
by management to determine loan loss reserves. Loans classified as
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loss must either be written off or reserved for by a specific allowance. Amounts
reported in the general loan loss reserve are included in the calculation of the
Bancorp's total risk-based capital requirement (to the extent that the amount
does not exceed 1.25% of total risk-based assets), but are not included in
tier-one leverage ratio calculations, tier-one risk-based capital requirements,
or in capital under Generally Accepted Accounting Principles ("GAAP"). Amounts
reserved for by a specific allowance are not counted toward capital for purposes
of any of the regulatory capital requirements. At December 31, 1999, $689
thousand of the Bancorp's loans were classified as substandard. The total
represents 18 loans. No loans were classified as doubtful or loss.
Because some loans may not be repaid in accordance with contractual
agreements, an allowance for loan losses ("ALL") is maintained. Because
estimating the risk of loss and the amount of loss on any loan is necessarily
subjective, the ALL is maintained by management at a level considered adequate
to cover losses based on loan portfolio growth, past loss experience, general
economic conditions, information about specific borrower situations including
their financial position and collateral values, and other factors and estimates
which are subject to change over time. Although management believes that it uses
the best information available to make such estimations, future adjustments to
the ALL may be necessary, and net income could be significantly affected, if
circumstances differ substantially from the assumptions used in making the
initial estimations. While management may periodically allocate portions of the
allowance for specific problem loans, the whole allowance is available for any
loan charge-offs that occur. A loan is charged-off against the allowance by
management as a loss when deemed uncollectible, although collection efforts
continue and future recoveries may occur. The allocation of the ALL reflects
consideration of the facts and circumstances that affect the repayment of
individual loans, as well as, loans which have been pooled as of the evaluation
date, with particular attention given to loans which have been classified as
substandard, doubtful or loss.
At December 31, 1999, management of the Bancorp is of the opinion that
there are no loans, except those discussed above, where known information about
possible credit problems of borrowers causes management to have serious doubts
as to the ability of such borrowers to comply with the present loan repayment
terms and which may result in disclosure of such loans as nonaccrual, past due
or restructured loans.
Also, at December 31, 1999, there are no other interest bearing assets
that would be required to be disclosed as nonaccrual, past due, restructured or
potential problem if such assets were loans.
The table that follows sets forth the allowance for loan losses and
related ratios for the periods indicated. There were no charge-offs or
recoveries of real estate construction loans or commercial real estate loans
during the periods presented. The amounts are stated in thousands (000's).
13
15
1999 1998 1997 1996 1995
------- ------- ------- ------- -------
Balance at beginning of period $ 3,132 $ 3,074 $ 2,887 $ 2,830 $ 2,751
Loans charged-off:
Real estate - residential (16) (38) (9) (28) --
Commercial business -- (20) (19) -- --
Consumer (17) (10) (6) -- (2)
------- ------- ------- ------- -------
Total charge-offs (33) (68) (34) (28) (2)
Recoveries:
Commercial business 10 9 -- -- --
Consumer -- 7 -- -- 1
------- ------- ------- ------- -------
Total recoveries 10 16 -- -- 1
Net (charge-offs)/recoveries (23) (52) (34) (28) (1)
------- ------- ------- ------- -------
Provision for loan losses 200 110 221 85 80
------- ------- ------- ------- -------
Balance at end of period $ 3,309 $ 3,132 $ 3,074 $ 2,887 $ 2,830
======= ======= ======= ======= =======
ALL to loans outstanding 1.12% 1.14% 1.13% 1.18% 1.27%
ALL to nonperforming loans 412.1% 212.9% 257.8% 247.4% 268.3%
Net charge-offs/recoveries
to average loans out-
standing during the period 0.01% 0.02% 0.01% 0.01% 0.00%
The table below shows the allocation of the allowance for loan losses
at December 31, for the dates indicated. The dollar amounts are stated in
thousands (000's). The percent columns represent the percentage of loans in each
category to total loans.
1999 1998 1997 1996 1995
--------------- -------------- --------------- --------------- ---------------
$ % $ % $ % $ % $ %
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Real estate loans:
Residential 302 54.5 302 56.7 322 57.5 372 61.8 372 64.6
Commercial and
other dwelling 1,106 27.0 953 24.0 932 23.8 880 23.4 860 23.0
Construction and
development 275 5.0 268 7.1 268 7.9 153 5.4 130 4.0
Consumer loans 200 3.5 196 3.7 153 2.1 110 2.0 110 1.6
Commercial business
and other 932 10.0 630 8.5 630 8.7 650 7.4 650 6.8
Unallocated 494 783 769 722 708
----- ------- ----- ------- ----- ------- ----- ------- ----- -------
Total 3,309 100.0 3,132 100.0 3,074 100.0 2,887 100.0 2,830 100.0
===== ======= ===== ======= ===== ======= ===== ======= ===== =======
INVESTMENT ACTIVITIES
The primary objective of the investment portfolio is to provide for the
liquidity needs of the Bancorp and to contribute to profitability by providing a
stable flow of dependable earnings. Securities are classified as either
held-to-maturity (HTM) or available-for-sale (AFS) at the time of purchase.
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16
No securities are classified as trading investments. At December 31, 1999, AFS
securities totaled $24.2 million or 60.2% of total securities. The AFS portfolio
permits the active management of the Bancorp's liquidity position. On October 1,
1998, the Bancorp adopted Statement of Financial Accounting Standard (SFAS) No.
133, Accounting for Derivative Instruments and Hedging Activities. During 1999,
the Bancorp did not have derivative instruments and was not involved in hedging
activities as defined by SFAS No. 133. It has been the policy of the Bancorp to
invest its excess cash in U.S. government securities and federal agency
obligations. In addition, short-term funds are generally invested as
interest-bearing balances in financial institutions and federal funds. At
December 31, 1999, the Bancorp's investment portfolio totaled $40.2 million. In
addition, the Bancorp had $1.8 million in FHLB stock.
The table below shows the carrying values of the components of the
investment securities portfolio at December 31, on the dates indicated. The
amounts are stated in thousands (000's).
1999 1998 1997
------- ------- -------
U.S. government securities:
Available-for-sale $ 4,993 $ 7,669 $ --
Held-to-maturity -- -- 6,537
U.S. government agencies:
Available-for-sale 19,178 12,853 --
Held-to-maturity 15,228 13,074 19,648
Mortgage-backed securities(1) 755 1,059 1,531
------- ------- -------
Totals $40,154 $34,655 $27,716
======= ======= =======
(1) Mortgage-backed securities are classified as held-to-maturity.
The contractual maturities and weighted average yields for the U.S.
government securities, agency securities and mortgaged-backed securities at
December 31, 1999, are summarized as follows. The carrying values are stated in
thousands (000's).
Within 1 Year 1-5 Years 5-10 Years After 10 Years
------------------ ----------------- ------------------ ------------------
Amount Yield Amount Yield Amount Yield Amount Yield
------- ----- ------- ----- ------- ------ ------ ------
U.S. government
Securities:
AFS $ 2,504 6.11% $ 2,489 5.35% $ -- -- % $ -- -- %
U.S. government
Agencies:
AFS 2,509 6.17 16,669 5.75 -- -- -- --
HTM 499 5.74 14,729 6.09 -- -- -- --
Mortgaged-backed
securities -- -- 19 8.10 735 8.39 1 15.50
------- ---- ------- ---- ------- ---- ------- -----
Totals $ 5,512 5.94% $33,906 5.90% $ 735 8.39% $ 1 15.50%
======= ==== ======= ==== ======= ==== ======= =====
15
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SOURCES OF FUNDS
GENERAL. Deposits are the major source of the Bancorp's funds for
lending and other investment purposes. In addition to deposits, the Bancorp
derives funds from maturing investment securities and certificates of deposit,
dividend receipts from the investment portfolio, loan principal repayments,
repurchase agreements, advances from the Federal Home Loan Bank of Indianapolis
(FHLB) and other borrowings. Loan repayments are a relatively stable source of
funds, while deposit inflows and outflows are significantly influenced by
general interest rates and money market conditions. Borrowings may be used on a
short-term basis to compensate for reductions in the availability of other
sources of funds. They may also be used on a longer-term basis for general
business purposes. The Bancorp uses repurchase agreements and advances from the
FHLB for borrowings. At December 31, 1999, the Bancorp had $3.1 million in
repurchase agreements. Other borrowings totaled $18.6 million, of which $14.0
million represents FHLB advances.
DEPOSITS. Retail and commercial deposits are attracted principally from
within the Bancorp's primary market area through the offering of a broad
selection of deposit instruments including checking accounts, NOW accounts,
savings accounts, money market deposit accounts, certificate accounts currently
ranging in maturity from ten days to 42 months, and retirement savings plans.
Deposit accounts vary as to terms, with the principal differences being the
minimum balance required, the time period the funds must remain on deposit and
the interest rate. The deregulation of federal controls on insured deposits has
allowed the Bancorp to be more competitive in obtaining funds and to be flexible
in meeting the threat of net deposit outflows. The Bancorp does not obtain funds
through brokers.
The following table presents the average daily amount of deposits and
average rates paid on such for the years indicated. The amounts are stated in
thousands (000's).
1999 1998 1997
------------------------ ------------------------ ------------------------
Amount Rate % Amount Rate % Amount Rate %
-------- ------- -------- ------- -------- -------
Demand deposits $ 23,577 -- $ 18,957 -- $ 14,836 --
NOW accounts 29,649 1.18 26,290 1.96 23,451 2.13
MMDA accounts 39,511 3.39 26,898 3.49 23,115 3.30
Savings accounts 48,704 2.10 46,179 2.86 43,673 3.01
Certificates of deposit 158,937 4.81 160,805 5.37 158,041 5.52
-------- ------- -------- ------- -------- -------
Total deposits $300,378 3.45 $279,129 4.09 $263,116 4.30
======== ======= ======== ======= ======== =======
16
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Maturities of time certificates of deposit and other time deposits of
$100,000 or more at December 31, 1999 are summarized as follows. The amounts are
stated in thousands (000's).
3 months or less $24,769
Over 3 months through 6 months 8,491
Over 6 months through 12 months 5,856
Over 12 months 3,961
-------
Total $43,077
=======
BORROWINGS. Borrowed money is used on a short-term basis to compensate
for reductions in the availability of other sources of funds and is generally
accomplished through repurchase agreements, as well as, through a line of credit
and advances from the FHLB. Repurchase agreements generally mature within one
year and are generally secured by U.S. government securities or U.S. agency
securities, under the Bancorp's control. FHLB advances with maturities ranging
from one year to ten years are used to fund securities and loans of comparable
duration, as well as, to reduce the impact that movements in short-term interest
rates have on the Bancorp's overall cost of funds. Fixed rate advances are
payable at maturity, with a prepayment penalty. Putable advances are fixed for a
period of one to three years and then may adjust quarterly to the three-month
London Interbank Offered Rate (LIBOR) until maturity. Once the putable advance
interest rate adjusts, the Bancorp has the option to prepay the advance on
specified quarterly interest rate reset dates without prepayment penalty.
The following table sets forth the balances in borrowed funds at
December 31, on the dates indicated. The amounts are stated in thousands
(000's).
1999 1998 1997
------- ------- -------
Repurchase agreements $ 3,051 $ 3,937 $ 4,541
Variable rate advances from the FHLB 1,000 -- --
Fixed rate advances from the FHLB -- 4,000 4,000
Putable advances from the FHLB 13,000 8,000 4,000
Limited partnership obligation 500 500 --
Other borrowings 1,056 883 2,087
------- ------- -------
Total borrowings $18,607 $17,320 $14,628
======= ======= =======
The limited partnership obligation represents an investment interest in
a partnership formed for the construction, ownership and management of
affordable housing projects. The amount of the note is $500,000. Funding is
expected to begin during 2000 and will continue over a seven year period.
Payments are required within ten days of written demand. The obligation to make
payment is absolute and unconditional. The note requires no payment of interest.
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19
The following table sets forth certain information regarding repurchase
agreements by the Bancorp at the end of and during the periods indicated. The
amounts are stated in thousands (000's).
At December 31,
------------------------------------------------
1999 1998 1997
------ ------ ------
Balance $3,051 $3,937 $4,541
Securities underlying the agreements:
Ending book value 4,998 6,460 7,988
Ending market value 4,895 6,483 8,014
Weighted average rate paid (1) 5.30% 5.13% 5.54%
For year ended December 31,
------------------------------------------------
1999 1998 1997
------ ------ ------
Highest month-end balance $3,927 $6,154 $4,975
Approximate average outstanding balance 3,369 4,693 4,308
Approximate weighted average rate
paid on securities sold under
agreements to repurchase (2) 5.01% 5.62% 5.43%
(1) The weighted average rate for each period is calculated by weighting the principal balances
outstanding for the various interest rates.
(2) The weighted average rate is calculated by dividing the interest expense for the period by the
average daily balances of securities sold under agreements to repurchase for the period.
TRUST POWERS
The activities of the Trust Department include the management of
self-directed investments, IRA and Keogh plans, investment agency accounts, land
trusts, serving as court-appointed executor of estates and as guardian or
conservator of estates, and trustee with discretionary investment authority for
revocable and irrevocable trusts. At December 31, 1999, the market value of the
trust department's assets totaled $120.0 million.
ANALYSIS OF PROFITABILITY AND KEY OPERATING RATIOS
DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY;
INTEREST RATES AND INTEREST DIFFERENTIAL.
The net earnings of the Bancorp depend primarily upon the "spread"
(difference) between (a) the income it receives from its loan portfolio and
other investments and (b) its cost of money, consisting principally of the
interest paid on savings accounts and on other borrowings.
The following table presents the weighted average yields on loans and
investment securities, the weighted average cost of interest-bearing deposits
and other borrowings, and the interest rate spread at December 31, 1999.
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20
Weighted average yield:
Securities 6.00%
Loans receivable 7.86
Loans held for sale 7.32
Federal Home Loan Bank stock 8.00
Total interest-earning assets 7.64
Weighted average cost:
Interest bearing deposits 3.56
Borrowed funds 5.45
Total interest-bearing liabilities 3.67
Interest rate spread:
Weighted average yield on interest-earning
assets minus the weighted average cost of
interest-bearing funds 3.97
FINANCIAL RATIOS AND THE ANALYSIS OF CHANGES IN NET INTEREST INCOME
The tables below set forth certain financial ratios of the Bancorp for
the periods indicated:
Year ended December 31,
---------------------------------------------------
1999 1998 1997
-------- -------- ------
Return on average assets 1.20% 1.14% 1.13%
Return on average equity 13.17 12.35 11.87
Average equity-to-average assets ratio 9.08 9.23 9.49
Dividend payout ratio 54.75 54.33 51.76
At December 31,
---------------------------------------------------
1999 1998 1997
------- ------- -------
Total stockholders' equity to
total assets 8.98% 9.07% 9.22%
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21
The average balance sheet amounts, the related interest income or expense,
and average rates earned or paid are presented in the following table. The
amounts are stated in thousands (000's).
----------------------------------------------------------------------------------------
Year ended December 31, 1999 Year ended December 31, 1998
-------------------------------------- ---------------------------------------------
Interest Interest
Average Income/ Average Average Income/ Average
Balance Expense Rate Balance Expense Rate
-------------------------------------- ---------------------------------------------
Assets:
Interest bearing balances
in financial institutions $ 7,950 $ 477 6.00 % $ 7,867 $ 505 6.42 %
Federal funds sold 2,504 121 4.83 3,844 206 5.36
Securities 39,495 2,358 5.97 32,199 1,981 6.15
------------ ----------- ------------ ----------
Total investments 49,949 2,956 5.92 43,910 2,692 6.13
------------ ----------- ------------ ----------
Loans:*
Real estate mortgage loans 250,734 19,541 7.79 240,670 19,747 8.21
Commercial business loans 25,422 2,248 8.84 22,350 2,071 9.27
Consumer loans 10,424 862 8.27 8,386 725 8.65
------------ ----------- ------------ ----------
Total loans 286,580 22,651 7.90 271,406 22,543 8.31
------------ ----------- ------------ ----------
Total interest-earning assets 336,529 25,607 7.61 315,316 25,235 8.00
----------- ----------
Allowance for loan losses (3,225) (3,101)
Cash and due from banks 10,342 7,616
Premises and equipment 6,625 6,722
Other assets 3,889 3,603
------------ ------------
Total assets $ 354,160 $ 330,156
============ ============
Liabilities:
Demand deposit $ 23,577 -- 0.00 % $ 18,957 -- 0.00 %
NOW accounts 29,649 350 1.18 26,290 515 1.96
Money market demand accounts 39,511 1,338 3.39 26,898 940 3.49
Savings accounts 48,704 1,024 2.10 46,179 1,321 2.86
Certificates of deposit 158,937 7,646 4.81 160,805 8,629 5.37
------------ ----------- ------------ ----------
Total interest-bearing deposits 300,378 10,358 3.45 279,129 11,405 4.09
Borrowed funds 18,049 923 5.11 16,736 905 5.41
------------ ----------- ------------ ----------
Total interest-bearing liabilities 318,427 11,281 3.54 295,865 12,310 4.16
Other liabilities 3,569 3,807
------------ ------------
Total liabilities 321,996 299,672
Stockholders' equity 32,164 30,484
------------ ------------
Total liabilities and
stockholders' equity $ 354,160 $ 330,156
============ ---------- =========== ----------
Net interest income $ 14,326 $ 12,925
=========== ==========
Net interest spread 4.07 % 3.84 %
Net interest margin** 4.04 % 3.91 %
---------------------------------------
Year ended December 31, 1997
---------------------------------------
Interest
Average Income/ Average
Balance Expense Rate
---------------------------------------
Assets:
Interest bearing balances
in financial institutions $ 2,282 $ 139 6.09 %
Federal funds sold 102 5 5.32
Securities 33,454 2,155 6.44
------------ -----------
Total investments 35,838 2,299 6.42
------------ -----------
Loans:*
Real estate mortgage loans 230,420 19,128 8.30
Commercial business loans 18,380 1,780 9.68
Consumer loans 5,419 462 8.52
------------ -----------
Total loans 254,219 21,370 8.41
------------ -----------
Total interest-earning assets 290,057 23,669 8.16
------------ -----------
Allowance for loan losses (2,959)
Cash and due from banks 6,005
Premises and equipment 6,992
Other assets 3,220
------------
Total assets $ 303,315
============
Liabilities:
Demand deposit $ 14,836 -- 0.00 %
NOW accounts 23,451 500 2.13
Money market demand accounts 23,115 762 3.30
Savings accounts 43,673 1,315 3.01
Certificates of deposit 158,041 8,730 5.52
------------ ----------
Total interest-bearing deposits 263,116 11,307 4.30
Borrowed funds 8,082 414 5.13
------------ ----------
Total interest-bearing liabilities 271,198 11,721 4.32
Other liabilities 3,343
------------
Total liabilities 274,541
Stockholders' equity 28,774
------------
Total liabilities and
stockholders' equity $ 303,315
============= -----------
Net interest income $ 11,948
============
Net interest spread 3.84 %
Net interest margin** 3.94 %
- ---------------------------------------------------------------------------------------------------------------------------------
* Non-accruing loans have been included in the average balances.
** Net interest income divided by average total assets.
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22
RATE/VOLUME ANALYSIS
The table below sets forth certain information regarding changes in
interest income and interest expense of the Bancorp for the periods indicated.
For each category of interest-earning asset and interest-bearing liability,
information is provided on changes attributable to: (1) changes in volume
(change in volume multiplied by old rate) and (2) changes in rate (change in
rate multiplied by old volume). Changes attributable to both rate and volume
which cannot be segregated have been allocated proportionately to the change
due to volume and the change due to rate. The amounts are stated in
thousands (000's).
Year Ended December 31, Year Ended December 31, Year Ended December 31,
----------------------------- ---------------------------- -----------------------------
1999 vs. 1998 1998 vs. 1997 1997 vs. 1996
----------------------------- ---------------------------- -----------------------------
Increase/(Decrease) Increase/(Decrease) Increase/(Decrease)
Due To Due To Due To
----------------------------- ----------------------------- ------------------------------
Volume Rate Total Volume Rate Total Volume Rate Total
------- ------- ------- ------- ------- ------- ------- ------- -------
Interest income:
Loans receivable $ 1,228 $(1,120) $ 108 $ 1,430 $ (257) $ 1,173 $ 1,840 $ 122 $ 1,962
Securities 437 (60) 377 (79) (95) (174) (578) 128 (450)
Other interest-earning assets (74) (39) (113) 566 1 567 (146) (34) (180)
------- ------- ------- ------- ------- ------- ------- ------- -------
Total interest-earning assets 1,591 (1,219) 372 1,917 (351) 1,566 1,116 216 1,332
------- ------- ------- ------- ------- ------- ------- ------- -------
Interest Expense:
Deposits 824 (1,871) (1,047) 669 (571) 98 289 (48) 241
Federal Home Loan Bank Advances
and other borrowings 69 (51) 18 467 24 491 167 26 193
------- ------- ------- ------- ------- ------- ------- ------- -------
Total interest-bearing
liabilities 893 (1,922) (1,029) 1,136 (547) 589 456 (22) 434
------- ------- ------- ------- ------- ------- ------- ------- -------
Net change in net interest
income/(expense) $ 698 $ 703 $ 1,401 $ 781 $ 196 $ 977 $ 660 $ 238 $ 898
======= ======= ======= ======= ======= ======= ======= ======= =======
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BANK SUBSIDIARY ACTIVITIES
The Bank's wholly owned subsidiary Peoples Service Corporation, which
is incorporated under the laws of the State of Indiana, is inactive. At December
31, 1999, the Bank had an investment balance of $10,000 in Peoples Service
Corporation. During 1997, the Bank dissolved its wholly owned subsidiary PSA
Insurance Corporation, which had been inactive.
The Consolidated Financial Statements of the Bancorp include the
assets, liabilities, net worth and results of operations of the Bank and its
subsidiaries. Significant intercompany transactions have been eliminated in the
consolidation.
COMPETITION
The Bancorp's primary market area for deposits and mortgage and other
loans encompasses Lake County, in northwest Indiana, where all of its offices
are located. Ninety-five percent of the Bancorp's business activities are within
this area.
The Bancorp faces strong competition in its primary market area for the
attraction and retention of deposits and in the origination of loans. The
Bancorp's most direct competition for deposits has historically come from
commercial banks and from savings associations located in its primary market
area. Particularly in times of high interest rates, the Bancorp has had
significant competition from mutual funds and other firms offering financial
services. The Bancorp's competition for loans comes principally from savings
associations, commercial banks, mortgage banking companies, credit unions,
insurance companies and other institutional lenders.
The Bancorp competes for loans principally through the interest rates
and loan fees it charges and the efficiency and quality of the services it
provides borrowers, real estate brokers and homebuilders. It competes for
deposits by offering depositors a wide variety of savings accounts, checking
accounts, competitive interest rates, convenient branch locations, drive-up
facilities, automatic teller machines, tax-deferred retirement programs,
electronic banking and other miscellaneous services.
The activities of the Bancorp and the Bank in the geographic market
served involve competition with other banks as well as with other financial
institutions and enterprises, many of which have substantially greater resources
than those available to the Bancorp. In addition, non-bank competitors are
generally not subject to the extensive regulation applicable to the Bancorp and
the Bank.
The Bancorp believes that it has a minority share of the deposits and
residential mortgage loan market within its primary market area.
22
24
PERSONNEL
As of December 31, 1999, the Bank had 105 full-time and 26 part-time
employees. The employees are not represented by a collective bargaining
agreement. Management believes its employee relations are good. The Bancorp has
four officers (listed below under "Executive Officers of the Bancorp"), but has
no other employees. The Bancorp's officers also are full-time employees of the
Bank, and are compensated by the Bank.
REGULATION AND SUPERVISION
BANK HOLDING COMPANY REGULATION. As a registered bank holding company
for the Bank, the Bancorp is subject to the regulation and supervision of the
FRB under the Bank Holding Company Act of 1956, as amended (the "BHCA"). Bank
holding companies are required to file periodic reports with and are subject to
periodic examination by the FRB.
Under the BHCA, without the prior approval of the FRB, the Bancorp may
not acquire direct or indirect control of more than 5% of the voting stock or
substantially all of the assets of any company, including a bank, and may not
merge or consolidate with another bank holding company. In addition, the Bancorp
is generally prohibited by the BHCA from engaging in any nonbanking business
unless such business is determined by the FRB to be so closely related to
banking as to be a proper incident thereto. Under the BHCA, the FRB has the
authority to require a bank holding company to terminate any activity or
relinquish control of a nonbank subsidiary (other than a nonbank subsidiary of a
bank) upon the FRB's determination that such activity or control constitutes a
serious risk to the financial soundness and stability of any bank subsidiary of
the bank holding company.
Under FRB policy, a bank holding company is expected to serve as a
source of financial and managerial strength to its subsidiary banks. It is the
policy of the FRB that, pursuant to this requirement, a bank holding company
should stand ready to use its resources to provide adequate capital funds to its
subsidiary banks during periods of financial stress or adversity. This support
may be required by the FRB at times when the Bancorp may not have the resources
to provide it or, for other reasons, would not be inclined to provide it.
Additionally, under the Federal Deposit Insurance Corporation Improvements Act
of 1991 ("FDICIA"), a bank holding company is required to provide limited
guarantee of the compliance by any insured depository institution subsidiary
that may become "undercapitalized" (as defined in the statute) with the terms of
any capital restoration plan filed by such subsidiary with its appropriate
federal banking agency.
SAVINGS BANK REGULATION. As an Indiana stock savings bank, the Bank is
subject to federal regulation and supervision by the FDIC and to state
regulation and supervision by the Indiana Department of Financial Institutions
(the "DFI"). The Bank's deposit accounts are insured by the SAIF, which is
23
25
administered by the FDIC. The Bank is not a member of the Federal Reserve
System.
Both federal and Indiana law extensively regulate various aspects of
the banking business such as reserve requirements, truth-in-lending and
truth-in-savings disclosures, equal credit opportunity, fair credit reporting,
trading in securities and other aspects of banking operations. Current federal
law also requires savings banks, among other things, to make deposited funds
available within specified time periods.
Under FDICIA, insured state chartered banks are prohibited from
engaging as principal in activities that are not permitted for national banks,
unless: (i) the FDIC determines that the activity would pose no significant risk
to the appropriate deposit insurance fund, and (ii) the bank is, and continues
to be, in compliance with all applicable capital standards. The Board of
Directors does not believe that these restrictions will have a material adverse
effect on the Bank.
DEPOSIT INSURANCE AND THE BANKING INDUSTRY. The Bank's deposits are
insured up to $100,000 per insured account by the SAIF. The Deposit Insurance
Funds Act of 1996 (the "Funds Act") required the FDIC to take steps to
recapitalize the SAIF and to change the basis on which funds are raised to make
the scheduled payments on the FICO bonds issued in 1987 to replenish the Federal
Savings and Loan Insurance Corporation. As part of the SAIF recapitalization,
during 1996 the Bank paid a special assessment of $1.6 million. The Funds Act
generally limited future SAIF assessments to the level required to maintain its
capitalization. Accordingly, periodic SAIF insurance assessments have fallen
toward the level paid by BIF members, thereby reducing a competitive advantage
for BIF members. While SAIF members continue to face higher FICO bond
assessments than BIF members, the disparity is small relative to the former
disparity in insurance assessments.
BRANCHES AND AFFILIATES. The establishment of branches by the Bancorp
is subject to approval of the DFI and FDIC and geographic limits established by
state laws. The Riegle-Neal Interstate Banking and Branching Efficiency Act of
1994 (the "Riegle-Neal Act") facilitates the interstate expansion and
consolidation of banking organizations by permitting, among other things,(i)
bank holding companies that are adequately capitalized and managed to acquire
banks located in states outside their home state regardless of whether such
acquisitions are authorized under the law of the host state, (ii) the interstate
merger of banks, subject to the right of individual states to "opt out" of this
authority, and (iii) banks to establish new branches on an interstate basis
provided that such action is specifically authorized by the law of the host
state. The effect of this law may be to increase competition in the Bancorp's
market area, although the extent and timing of this increase cannot be
predicted.
24
26
TRANSACTIONS WITH AFFILIATES. Under Indiana law, the Bank is subject to
Sections 22(h), 23A and 23B of the Federal Reserve Act which restrict financial
transactions between banks and affiliated companies, such as the Bancorp. The
statute limits credit transactions between a bank and its executive officers and
its affiliates, prescribes terms and conditions for bank affiliate transactions
deemed to be consistent with safe and sound banking practices, and restricts the
types of collateral security permitted in connection with a bank's extension of
credit to an affiliate.
CAPITAL REQUIREMENTS. The FRB and the FDIC have issued substantially
similar risk-based and leverage capital guidelines that are applicable to the
Bancorp and the Bank. These guidelines require a minimum ratio of total capital
to risk-weighted assets (including certain off-balance sheet activities such as
standby letters of credit) of 8%. At least half of the total required capital
must be "Tier I capital," consisting principally of common stockholders' equity,
noncumulative perpetual preferred stock, a limited amount of cumulative
perpetual preferred stock and minority interests in the equity accounts of
consolidated subsidiaries, less certain goodwill items. The remainder ("Tier II
capital") may consist of a limited amount of subordinated debt and
intermediate-term preferred stock, certain hybrid capital instruments and other
debt securities, cumulative perpetual preferred stock, and a limited amount of
the allowance for loan losses.
In addition to the risk-based capital guidelines, the Bancorp and the
Bank are subject to a Tier I (leverage) capital ratio which requires a minimum
level of Tier I capital to adjusted average assets of 3% in the case of
financial institutions that have the highest regulatory examination ratings and
are not contemplating significant growth or expansion. All other institutions
are expected to maintain a ratio of at least 1% to 2% above the stated minimum.
FDICIA requires, among other things, federal bank regulatory
authorities to take "prompt corrective action" with respect to banks that do not
meet minimum capital requirements. The FDIC has adopted regulations to implement
the prompt corrective action provisions of FDICIA, which, among other things,
define the relevant capital measures for five capital categories. An institution
is deemed to be "well capitalized" if it has a total risk-based capital ratio of
10% or greater, a Tier I risk-based capital ratio of 6% or greater, and a
leverage ratio of 5% or greater, and is not subject to a regulatory order,
agreement or directive to meet and maintain a specific capital level for any
capital measure.
The following table shows that, at December 31, 1999, the Bancorp's
capital exceeded all regulatory capital requirements. At December 31, 1999, the
Bancorp's and the Bank's regulatory capital ratios were substantially the same.
At December 31, 1999, the Bancorp and the Bank were categorized as well
capitalized. The dollar amounts are stated in millions.
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Required for To be well
Actual adequate capital capitalized
-------------------- ------------------- --------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
Total capital to
risk-weighted assets $ 35.7 14.8% $ 19.3 8.0% $ 24.2 10.0%
Tier I capital
to risk-weighted assets $ 32.7 13.5% $ 9.7 4.0% $ 14.5 6.0%
Tier I capital to
adjusted average assets $ 32.7 9.0% $ 10.9 3.0% $ 18.2 5.0%
Banking regulators continue to indicate their desire to raise capital
requirements applicable to banking organizations beyond their current levels.
The Bancorp is unable to predict whether and when higher capital requirements
would be imposed and, if so, to what levels and on what schedule.
DIVIDEND LIMITATIONS. The Bancorp is a legal entity separate and
distinct from the Bank. The primary source of the Bancorp's cash flow, including
cash flow to pay dividends on the Bancorp's Common Stock, is the payment of
dividends to the Bancorp by the Bank. Under Indiana law, the Bank may pay
dividends of so much of its undivided profits (generally, earnings less losses,
bad debts, taxes and other operating expenses) as is considered expedient by the
Bank's Board of Directors. However, the Bank must obtain the approval of the
Indiana Department of Financial Institutions for the payment of a dividend if
the total of all dividends declared by the Bank during the current year,
including the proposed dividend, would exceed the sum of retained net income for
the year to date plus its retained net income for the previous two years
(approximately $4,778,000 at December 31, 1999). For this purpose, "retained net
income" means net income as calculated for call report purposes, less all
dividends declared for the applicable period. Also, the FDIC has the authority
to prohibit the Bank from paying dividends if, in its opinion, the payment of
dividends would constitute an unsafe or unsound practice in light of the
financial condition of the Bank. In addition, under FRB supervisory policy, a
bank holding company generally should not maintain its existing rate of cash
dividends on common shares unless (i) the organization's net income available to
common shareholders over the past year has been sufficient to fully fund the
dividends and (ii) the prospective rate of earnings retention appears consistent
with the organization's capital needs, assets, quality, and overall financial
condition.
COMMUNITY REINVESTMENT ACT. Under the Community Reinvestment Act
("CRA"), the Bank has a continuing and affirmative obligation consistent with
its safe and sound operation to help meet the credit needs of its entire
community, including low and moderate income neighborhoods. The CRA does not
establish specific lending requirements or programs for financial institutions
nor does it limit an institution's discretion to develop the types of products
and services that it believes are best suited to its particular community,
consistent with the CRA. The CRA requires the FDIC in connection with its
examination of the Bank, to assess its record of meeting the credit needs of
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its community and to take that record into account in its evaluation of certain
applications by the Bank. For example, the regulations specify that a bank's CRA
performance will be considered in its expansion (e.g., branching) proposals and
may be the basis for approving, denying or conditioning the approval of an
application. As of the date of its most recent regulatory examination, the Bank
was rated "satisfactory" with respect to its CRA compliance.
RECENT LEGISLATION. The Gramm-Leach-Bliley Act ("Gramm-Leach") was
signed into law on November 12, 1999 and enables combinations among banks,
securities firms and insurance companies beginning March 12, 2000. Under
Gramm-Leach, bank holding companies are permitted to offer their customers
virtually any type of financial service, including banking, securities
underwriting, insurance (both agency and underwriting) and merchant banking.
In order to engage in these new financial activities, a bank holding
company must qualify and register with the FRB as a "financial holding company"
by demonstrating that each of its bank subsidiaries is well capitalized, well
managed, and has at least a satisfactory rating under the CRA.
Gramm-Leach establishes a system of functional regulation, under which
the federal banking agencies will regulate the banking activities of financial
holding companies, the U.S. Securities and Exchange Commission will regulate
their securities activities and state insurance regulators will regulate their
insurance activities. Gramm-Leach also provides new protections against the
transfer and use by financial institutions of consumers' nonpublic, personal
information.
Gramm-Leach does not significantly alter the regulatory regime under
which the Bancorp and the Bank currently operate, as described above. While
certain business combinations not currently permissible will be possible after
March 11, 2000, the Bancorp cannot predict at this time resulting changes in the
competitive environment. The Bancorp has no current intention to elect to become
a financial holding company under Gramm-Leach.
Various legislation, including proposals to substantially change the
financial institution regulatory system and to expand or contract the powers of
banking institutions and bank holding companies, is from time to time
introduced. This legislation may change banking statutes and the operating
environment of the Bancorp and the Bank in substantial and unpredictable ways.
If enacted, such legislation could increase or decrease the cost of doing
business, limit or expand permissible activities or affect the competitive
balance among banks, savings associations, credit unions and other financial
institutions. The Bancorp cannot accurately predict whether any of this
potential legislation will ultimately be enacted, and, if enacted, the ultimate
effect that it, or implementing regulations, would have upon the financial
condition or results of operations of the Bancorp or the Bank.
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FEDERAL TAXATION
Historically, savings institutions, such as the Bank, had been
permitted to compute bad debt deductions using either the bank experience method
or the percentage of taxable income method. However, In August, 1996,
legislation was enacted that repealed the reserve method of accounting for
federal income tax purposes. As a result, the Bank must recapture that portion
of the reserve that exceeds the amount that could have been taken under the
experience method for post-1987 tax years. The recapture is occurring over a
six-year period, the commencement of which began with the Bank's taxable year
ending December 31, 1998, since the Bank met certain residential lending
requirements. In addition, the pre-1988 reserve, for which no deferred taxes
have been recorded, will not have to be recaptured into income unless (i)the
Bank no longer qualifies as a bank under the Code, or (ii) excess dividends or
distributions are paid out by the Bank. The total amount of bad debt to be
recaptured is approximately $2,500,000.
Depending on the composition of its items of income and expense, a
savings bank may be subject to the alternative minimum tax. A savings bank must
pay an alternative minimum tax equal to the amount (if any) by which 20% of
alternative minimum taxable income ("AMTI"), as reduced by an exemption varying
with AMTI, exceeds the regular tax due. AMTI equals regular taxable income
increased or decreased by certain tax preferences and adjustments, including
depreciation deductions in excess of that allowable for alternative minimum tax
purposes, tax-exempt interest on most private activity bonds issued after August
7, 1986 (reduced by any related interest expense disallowed for regular tax
purposes), the amount of the bad debt reserve deduction claimed in excess of the
deduction based on the experience method and 75% of the excess of adjusted
current earnings over AMTI (before any alternative tax net operating loss). AMTI
may be reduced only up to 90% by net operating loss carryovers, but alternative
minimum tax paid can be credited against regular tax due in later years.
For federal income tax purposes, the Bank reports its income and
expenses on the accrual method of accounting. The Bancorp and the Bank file a
consolidated federal income tax return for each fiscal year ending December 31.
The federal income tax returns filed by the Bank have not been audited in the
last five years.
STATE TAXATION
The Bank is subject to Indiana's Financial Institutions Tax ("FIT"),
which is imposed at a flat rate of 8.5% on "adjusted gross income." "Adjusted
gross income," for purposes of FIT, begins with taxable income as defined by
Section 63 of the Code and, thus, incorporates federal tax law to the extent
that it affects the computation of taxable income. Federal taxable income is
then adjusted by several Indiana modifications. Other applicable state taxes
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30
include generally applicable sales and use taxes plus real and personal property
taxes.
The Bank's state income tax returns have not been audited in the last
five years.
ACCOUNTING FOR INCOME TAXES
At December 31, 1999, the Bancorp's consolidated total deferred tax
assets were $1,673 thousand and the consolidated total deferred tax liabilities
were $306 thousand, resulting in a consolidated net deferred tax asset of $1,367
thousand. Management believes it is probable that the benefit of the deferred
tax asset will be realized after considering the historical and anticipated
future levels of pretax earnings.
ITEM 2. PROPERTIES
The Bancorp maintains its corporate office at 9204 Columbia Avenue,
Munster, Indiana, from which it oversees the operation of the Bank's seven
banking locations. The Bancorp owns all of its office properties.
The table below sets forth additional information with respect to the
Bank's offices as of December 31, 1999. Net book value and total investment
figures are for land, buildings, furniture and fixtures.
Year Approximate
facility Net book square Total
Office location opened value footage investment
- --------------- -------- ---------- ----------- ----------
9204 Columbia Avenue
Munster, In 46307 1985 $1,332,368 11,640 $2,583,542
141 W. Lincoln Highway
Schererville, In 46375 1990 1,196,620 9,444 2,117,554
7120 Indianapolis Blvd.
Hammond, In 46324 1978 269,413 2,600 706,066
1300 Sheffield
Dyer, In 46311 1976 244,692 2,100 604,425
7915 Taft
Merrillville, In 46410 1968 124,009 2,750 481,673
8600 Broadway
Merrillville, In 46410 1996 1,894,781 4,400 2,399,392
4901 Indianapolis Blvd.
East Chicago, In 46312 1995 1,009,956 4,300 1,543,849
At December 31, 1999, the Bank had investments totaling $450 thousand
in land which has been acquired for a state-of-the-art branch facility in
Hobart, Indiana. The Hobart facility will open during 2000 and will cost
approximately $1.8 million. The new facility provides opportunities to expand
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31
market share for products and services in Hobart and the surrounding areas. The
Bank's primary recordkeeping is accomplished through the use of microcomputer
networks linked via data lines to M&I Data Services, Inc., located in Brown
Deer, Wisconsin. M&I provides real time services for mortgage and installment
loans, savings, certificates, NOW accounts and general ledger transactions. In
addition to the M&I System, the Bank utilizes a microcomputer network for the
trust department operations.
The net book value of the Bank's investment in property, premises and
equipment totaled $6.5 million at December 31, 1999.
ITEM 3. LEGAL PROCEEDINGS
The Bancorp is not engaged in any legal proceedings of a material
nature at the present time. From time to time, the Bank is a party to legal
proceedings incident to its business, including foreclosures.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter of 1999.
EXECUTIVE OFFICERS OF THE BANCORP
Pursuant to General Instruction G(3) of Form 10-K, the following
information is included as an unnumbered item in this Part I in lieu of being
included in the Bancorp's Proxy Statement for the 2000 Annual Meeting of
Shareholders:
The executive officers of the Bancorp are as follows:
AGE AT
DECEMBER 31,
1999 POSITION
------------ --------
David A. Bochnowski 54 Chairman and Chief Executive
Officer
Joel Gorelick 52 Vice President and Chief Lending Officer
Edward J. Furticella 52 Vice President, Chief Financial Officer
and Treasurer
Frank J. Bochnowski 61 Executive Vice President and Secretary
The following is a description of the principal occupation and
employment of the executive officers of the Bancorp during at least the past
five years:
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32
David A. Bochnowski is Chairman and Chief Executive Officer of the
Bancorp and the Bank. He has been the Chief Executive Officer since 1981 and
became the Chairman in 1995. He has been a director since 1977 and was the
Bank's legal counsel from 1977 to 1981. Mr. Bochnowski is the Vice-Chairman of
America's Community Bankers (ACB) and Chairman of ACB's Strategic Planning
Committee. He is a director of the Northwest Indiana Local Initiative Support
Corporation (LISC), a trustee of the Munster Community Hospital, and a
Commissioner of the Chicago-Gary Airport Authority. He is a former chairman of
the Indiana League of Savings Institutions, a former director of the Federal
Home Loan Bank of Indianapolis and a former member of the Federal Reserve Thrift
Institutions Advisory Committee. Before joining the Bank, Mr. Bochnowski was an
attorney, self-employed in private practice. He holds a Juris Doctor degree from
Georgetown University and a Masters Degree from Howard University.
Joel Gorelick is Vice President of the Bancorp and Vice President and
Chief Lending Officer for the Bank. He is responsible for overseeing new
business development and all loan functions of the Bank. Mr. Gorelick joined the
Bank in November, 1983 as vice president of commercial lending. Mr. Gorelick is
involved in many community service organizations and has recently served as
president of the Northwest Indiana Boys & Girls Club and chairman of the board
of the Northwest Indiana Regional Development Corporation. Mr. Gorelick received
recognition as the Small Business advocate for 1999 at the Northwest Indiana
Entrepreneurial Excellence awards program. Mr. Gorelick has been appointed as a
board member for the United States Selected Service System. Mr. Gorelick is also
a volunteer for numerous youth related sports activities. He holds a Masters of
Business Administration Degree from Indiana University and is a graduate of the
Graduate School of Banking at the University of Wisconsin at Madison.
Edward J. Furticella is Vice President, Chief Financial Officer and
Treasurer of the Bancorp and the Bank. He is responsible for managing the Bank's
investment portfolio and daily liquidity, as well as, overseeing the activities
of accounting, systems processing and branch operations. Mr. Furticella has been
with the Bank since 1981. Mr. Furticella holds a Masters of Education, Masters
of Business Administration and a Masters of Science in Accountancy from DePaul
University. Mr. Furticella is a Certified Public Accountant (CPA) and a
Certified Cash Manager (CCM). He is also a part-time finance instructor and
member of the School of Management's Advisory Group at Purdue University Calumet
and a member of the Customer Advisory Group for the Federal Reserve Bank of
Chicago.
Frank J. Bochnowski is Executive Vice President and Secretary for the
Bancorp and Executive Vice President, General Counsel, Trust Officer and
Corporate Secretary for the Bank. Mr. Bochnowski assumed his current
responsibilities with the Bank as of November 1984. He has been the Bank's
attorney since 1981. He was elected as a director in 1999. Mr. Bochnowski is a
member and past president of the Munster, Indiana Rotary Club and a former
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director and officer of the Lake County, Indiana Chapter of the American Red
Cross. He holds a Juris Doctor degree from St. John's University and a Masters
of Business Administration from Fairleigh Dickinson University. He is a graduate
of the United States Military Academy and served for twenty-one years as an army
officer, retiring in 1981 with the rank of lieutenant colonel. He is the first
cousin of the Bancorp's Chairman and Chief Executive Officer.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The information contained under the captions "Business" and "Market
Information" in the 1999 Annual Report to Shareholders is incorporated herein by
reference.
ITEM 6. SELECTED FINANCIAL DATA
The information contained in the table captioned "Selected Consolidated
Financial Data" in the 1999 Annual Report to Shareholders is incorporated herein
by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information contained in the section captioned "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in the
1999 Annual Report to Shareholders is incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information contained in the section captioned "Asset/Liability
Management and Market Risk" in the Management's Discussion and Analysis of
Financial Condition and Results of Operations section of the 1999 Annual Report
to Shareholders is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements contained in the 1999 Annual Report to
Shareholders, which are listed under Item 14 herein, are incorporated herein by
reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There are no items reportable under this caption.
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34
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information contained under the section captioned "Election of
Directors" and under the section captioned "Security Ownership by Certain
Beneficial Owners and Management -- Section 16(a) Beneficial Ownership Reporting
Compliance" in the Bancorp's definitive Proxy Statement for the 2000 Annual
Meeting of Shareholders is incorporated herein by reference. Information
regarding the Bancorp's executive officers is included under the unnumbered item
captioned "Executive Officers of the Bancorp" at the end of Part I hereof and is
incorporated herein by reference, in accordance with General Instruction G(3) to
Form 10-K and Instruction 3 to Item 401(b) of a Regulation S-K.
ITEM 11. EXECUTIVE COMPENSATION
The information contained under the section captioned "Compensation of
and Transactions with Officers and Directors" in the Bancorp's definitive Proxy
Statement for its 2000 Annual Meeting of Shareholders is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information under the section captioned "Security Ownership by
Certain Beneficial Owners and Management" in the Bancorp's definitive Proxy
Statement for the 2000 Annual Meeting of Shareholders is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information contained under the section captioned "Compensation of
and Transactions with Officers and Directors" in the Bancorp's definitive Proxy
Statement for its 2000 Annual Meeting of Shareholders, and in the footnote
captioned "Related Party Transactions" in the 1999 Annual Report to
Shareholders, is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) FINANCIAL STATEMENTS:
---------------------
The following financial statements of the Bancorp are incorporated
herein by reference to the 1999 Annual Report to Shareholders, filed as Exhibit
13 to this report:
(a) Report of Independent Auditors
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35
(b) Consolidated Balance Sheets, December 31, 1999 and
1998
(c) Consolidated Statements of Income for the years ended
December 31, 1999, 1998 and 1997
(d) Consolidated Statements of Changes in Stockholders'
Equity for the years ended December 31, 1999, 1998
and 1997
(e) Consolidated Statements of Cash Flows for the years
ended December 31, 1999, 1998 and 1997
(f) Notes to Consolidated Financial Statements
All other financial statements, schedules and historical financial
information have been omitted as the subject matter is not required, not present
or not present in amounts sufficient to require submission.
(3) EXHIBITS:
---------
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
2. Plan of Conversion of Peoples Bank, A Federal Savings Bank,
dated December 18, 1993 (incorporated herein by reference to
Exhibit A to the Bancorp's Definitive Proxy Statement/Prospectus
dated March 23, 1994, as filed pursuant to Rule 424(b) under the
1933 Act on March 28, 1994).
3.i. Articles of Incorporation (incorporated herein by reference to
Exhibit 3(i) to the Bancorp's Registration Statement on Form S-4
filed March 3, 1994 (File No. 33-76038)).
3.ii. By-Laws (incorporated herein by reference to Exhibit 3(i) to the
Bancorp's Registration Statement on Form S-4 filed March 3, 1994
(File No. 33-76038)).
3.iii. Amendment of By-Laws adopted July 27, 1994 (incorporated herein
by reference to Exhibit 3.iii to the Bancorp's Annual Report on
Form 10-K for the year ended December 31, 1994).
3.iv. Amendment of By-Laws adopted January 21, 1999 (incorporated
herein by reference to Exhibit 3.iv. to the Bancorp's Annual
Report on Form 10-K for the year ended December 31, 1998).
10.1. 1994 Stock Option and Incentive Plan (incorporated herein by
reference to Exhibit A to the Bancorp's Definitive Proxy
Statement/Prospectus dated March 23, 1994, as filed pursuant to
Rule 424(b) under the 1933 Act on March 28, 1994).
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36
10.2. Employment Agreement, dated March 1, 1988, between Peoples Bank
and David A. Bochnowski (incorporated herein by reference to
Exhibit 10.2 to the Bancorp's Annual Report on Form 10-K for the
year ended December 31, 1994).
10.3. Amendment, dated January 18, 1993, to the Employment Agreement
referred to in Exhibit 10.2 above (incorporated herein by
reference to Exhibit 10.3 to the Bancorp's Annual Report on Form
10-K for the year ended December 31, 1994).
10.4. Employee Stock Ownership Plan of Peoples Bank (incorporated
herein by reference to Exhibit 10.4 to the Bancorp's Annual
Report on Form 10-K for the year ended December 31, 1994).
10.5. Unqualified Deferred Compensation Plan of Peoples Bank
(incorporated herein by reference to Exhibit 10.5 to the
Bancorp's Annual Report on Form 10-K for the year ended December
31, 1996).
10.6 Supplemental Executive Retirement Plan of Peoples Bank.
13. 1999 Annual Report to Shareholders.
21. Subsidiaries of the Bancorp.
27. Financial Data Schedule.
(4) REPORTS ON FORM 8-K:
--------------------
No reports on Form 8-K were filed during the fourth quarter of 1999.
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37
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
NORTHWEST INDIANA BANCORP
By /s/David A. Bochnowski
-------------------------------
David A. Bochnowski
Chairman of the Board and
Chief Executive Officer
Date: March 15, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on March 15, 2000:
SIGNATURE TITLE
- --------- -----
Principal Executive Officer:
/s/David A. Bochnowski Chairman of the Board and
- ------------------------------- Chief Executive Officer
David A. Bochnowski
Principal Financial Officer and
Principal Accounting Officer:
/s/Edward J. Furticella Vice President, Chief Financial
- ------------------------------- Officer and Treasurer
Edward J. Furticella
The Board of Directors:
/s/Frank J. Bochnowski Director
- -------------------------------
Frank J. Bochnowski
/s/Leroy F. Cataldi Director
- -------------------------------
Leroy F. Cataldi
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38
/s/Lourdes M. Dennison Director
- -------------------------------
Lourdes M. Dennison
/s/Gloria C. Gray Director
- -------------------------------
Gloria C. Gray
/s/Stanley E. Mize Director
- -------------------------------
Stanley E. Mize
/s/Jerome F. Vrabel Director
- -------------------------------
Jerome F. Vrabel
/s/James L. Wieser Director
- ------------------------------
James L. Wieser
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EXHIBIT INDEX
Exhibit Description Page
10.6. Supplemental Executive Retirement Plan of Peoples Bank
13. 1999 Annual Report to Shareholders
21. Subsidiaries of the Bancorp
27. Financial Data Schedule
38