SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE
EXCHANGE ACT
For the transition period from to
Commission file number 0-26012
NORTHEAST INDIANA BANCORP, INC.
(Exact Name of Small Business Issuer as Specified in its Charter)
Delaware 35-1948594
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
648 North Jefferson Street, Huntington, IN 46750
(Address of principal executive offices) (Zip Code)
(219) 356-3311
Issuer's telephone number, including area code:
Check whether the Issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the Issuer was required to file such reports), and (2) has been
subject to such requirements for the past 90 days. YES [X] NO [ ]
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
CLASS OUTSTANDING AT SEPTEMBER 30, 1997
- ----- ---------------------------------
Common Stock, par value $.01 per share 1,762,727
Transitional Small Business Disclosure Format: YES [ ] NO [X]
<PAGE>
NORTHEAST INDIANA BANCORP, INC.
INDEX
PART 1. FINANCIAL INFORMATION (UNAUDITED)
Item 1. Consolidated Condensed Financial Statements
Consolidated Condensed Balance Sheets
September 30, 1997 and December 31, 1996
Consolidated Condensed Statements of Income for the
three and nine months ended September 30, 1997 and 1996
Consolidated Statement of Change in Shareholders' Equity
for the nine months ended September 30, 1997
Consolidated Statements of Cash Flows for the three and nine
months ended September 30, 1997 and 1996
Notes to Consolidated Condensed Financial Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
PART II. OTHER INFORMATION
Signature page
<PAGE>
<TABLE>
<CAPTION>
NORTHEAST INDIANA BANCORP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1997 AND DECEMBER 31, 1996
September 30 December 31
1997 1996
------------- -------------
(Unaudited)
<S> <C> <C>
ASSETS
Cash and due from financial institutions .......................... $ 3,080,266 $ 6,672,374
Interest earning deposits in financial institutions ............... 100,000 100,000
Securities available for sale ..................................... 13,714,184 11,496,031
Securities held to maturity, estimated market value of
$757,000 and $891,000 at September 30, 1997 and
December 31, 1996, respectively ................................... 757,094 892,036
Loans receivable, net of allowance for loan losses
September 30, 1997 - $1,148,000 and December 31, 1996 - $1,027,300
168,958,300 146,854,690
Other Real Estate Owned ........................................... 0 0
Accrued interest receivable ....................................... 423,279 363,563
Premises and equipment ............................................ 1,987,470 2,009,026
Other assets ...................................................... 1,299,320 1,156,400
------------- -------------
TOTAL ASSETS ...................................................... $ 190,319,913 $ 169,544,120
============= =============
LIABILTIES AND SHAREHOLDERS' EQUITY
Liabilities
Total deposits .................................................. 96,969,355 85,346,240
Borrowed Funds .................................................. 65,000,000 56,000,000
Accrued expenses and other liabilities .......................... 1,008,384 1,668,764
------------- -------------
Total liabilities ............................................. 162,977,739 143,015,004
Shareholders' equity
Preferred stock, $.01 par value, authorized & unissued
500,000 shares ............................................... 0 0
Common stock, $.01 par value: 4,000,000 shares
authorized; 2,182,125 shares issued ............................. 21,821 21,821
Additional paid-in capital ...................................... 21,325,467 21,253,458
Retained earnings - substantially restricted .................... 13,515,047 12,338,919
Unearned ESOP compensation ...................................... (1,382,013) (1,454,750)
Unearned RRP compensation ....................................... (666,338) (820,109)
Net Unrealized appreciation (loss) on securities ................ 37,048 15,799
Treasury Stock shares at cost: 419,398 at
September 30, 1997 and 371,539 at December 31, 1996 ............. (5,508,858) (4,826,022)
------------- -------------
Total shareholders' equity ................................... 27,342,174 26,529,116
------------- -------------
Total Liabilities and Shareholder's Equity ............... $ 190,319,913 $ 169,544,120
============= =============
</TABLE>
See accompanying notes to financial statements
<PAGE>
<TABLE>
<CAPTION>
NORTHEAST INDIANA BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
Three and Nine Months ended September 30, 1997
Three Months Ended Nine Months Ended
September 30 September 30
1997 1996 1997 1996
----------- ----------- ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Interest income
Loans, including fees .................... $ 3,416,876 $ 2,799,373 9,606,664 7,962,539
Taxable Securities ....................... 232,507 209,799 672,231 479,198
Non-taxable securities ................... 7,571 8,292 25,258 25,338
Deposits with banks ...................... 46,312 35,739 138,031 99,493
----------- ----------- ----------- -----------
Total interest income ................. 3,703,266 3,053,203 10,442,184 8,566,568
Interest expense
Deposits ................................. 1,134,910 936,975 3,252,568 2,625,775
Borrowed funds ........................... 928,767 689,709 2,506,128 1,812,583
----------- ----------- ----------- -----------
Total interest expense ................ 2,063,677 1,626,684 5,758,696 4,438,358
----------- ----------- ----------- -----------
Net interest income ........................ 1,639,589 1,426,519 4,683,488 4,128,210
Provision for loan losses .................. 58,500 51,000 175,500 184,200
----------- ----------- ----------- -----------
Net interest income after provision for loan
losses ..................................... 1,581,089 1,375,519 4,507,988 3,944,010
Noninterest income
Service charges on deposit accounts ...... 63,555 38,272 173,620 112,393
Loans servicing fees ..................... 49,633 29,165 142,918 93,125
Net realized gain on sale of securities .. 0 348 0 348
Other .................................... 37,385 36,517 101,846 92,234
----------- ----------- ----------- -----------
Total noninterest income .............. 150,573 104,302 418,384 298,100
Noninterest expense
Salaries and employee benefits ........... 397,927 340,156 1,137,092 991,643
Occupancy ................................ 81,816 72,102 237,452 204,088
Data processing .......................... 72,765 63,991 224,589 205,447
Insurance expense ........................ 14,392 494,927 40,977 572,206
Professional fees ........................ 44,964 26,779 135,101 107,133
Correspondent bank charges ............... 33,908 34,640 107,125 106,440
Other expense ............................ 124,010 87,743 404,103 301,369
----------- ----------- ----------- -----------
Total noninterest expense ............. 769,782 1,120,338 2,286,439 2,488,326
----------- ----------- ----------- -----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NORTHEAST INDIANA BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
Three and Nine Months ended September 30, 1997
(continued)
Three Months Ended Nine Months Ended
September 30 September 30
1997 1996 1997 1996
----------- ----------- ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Income before income taxes ................. 961,880 359,483 2,639,933 1,753,784
Income tax expense ......................... 375,478 134,589 1,038,162 668,627
----------- ----------- ----------- -----------
Net income ................................. $ 586,402 $ 224,894 $ 1,601,771 $ 1,085,157
=========== =========== =========== ===========
Earnings Per Share:
Primary .................................... $ 0.35 $ 0.12 $ 0.96 $ 0.56
Fully Diluted .............................. 0.33 0.12 0.94 0.56
</TABLE>
See accompanying notes to financial statements
<PAGE>
<TABLE>
<CAPTION>
NORTHEAST INDIANA BANCORP, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDER'S EQUITY
Nine months ended September 30, 1997
(Unaudited)
Unearned
Employee
Additional Stock
Common Paid-in Retained Ownership
Stock Capital Earnings Plan Shares
----- ------- -------- -----------
<S> <C> <C> <C> <C>
Balance, January 1, 1997 ... 21,821 21,253,458 12,338,919 (1,454,750)
Dividends Paid $0.24 per
share year to date ....... -- -- (425,643) --
Shares committed to be
released under ESOP ....... -- 72,009 -- 72,737
Purchase of 47,859
shares ..................... -- -- -- --
of Treasury Stock
Purchase of RRP Stock ...... -- -- -- --
Amortization of RRP
Contributions ............ -- -- -- --
Change in net unrealized
appreciation on securities
available-for-sale ....... -- -- -- --
Net Income
September 30, 1997 ........ -- -- 1,601,771 --
------ ---------- ---------- ----------
Balances,
September 30, 1997 ......... 21,821 21,325,467 13,515,047 (1,382,013)
====== ========== ========== ==========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NORTHEAST INDIANA BANCORP, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDER'S EQUITY
Nine months ended September 30, 1997
(Unaudited)
(continued)
Net
Unearned Unrealized
Recognition Appreciation
and on Securities Total
Retention Available- Treasury Shareholders'
Plan Shares For-Sale Stock Equity
----------- -------- ----- ------
<S> <C> <C> <C> <C>
Balance, January 1, 1997 ... (820,109) 15,799 (4,826,022) 26,529,116
Dividends Paid $0.24 per
share year to date ....... -- -- -- (425,643)
Shares committed to be
released under ESOP ....... -- -- -- 144,746
Purchase of 47,859
shares ..................... -- -- (682,836) (682,836)
of Treasury Stock
Purchase of RRP Stock ...... -- -- -- --
Amortization of RRP
Contributions ............ 153,771 -- -- 153,771
Change in net unrealized
appreciation on securities
available-for-sale ....... -- 21,249 -- 21,249
Net Income
September 30, 1997 ........ -- -- -- 1,601,771
-------- -------- ---------- ----------
Balances,
September 30, 1997 ......... (666,338) 37,048 (5,508,858) 27,342,174
</TABLE>
See accompanying notes to financial statements
<PAGE>
<TABLE>
<CAPTION>
NORTHEAST INDIANA BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine months ended September 30, 1997 and 1996
Nine Months Ended
September 30,
1997 1996
------------ ------------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities
Net income .............................................................. $ 1,601,771 $ 1,085,157
Adjustments to reconcile net income to net cash from operating activities
Net (gain) loss on sale of premises and equipment .................... (152) (50)
Gain on sale of securities
Gain on sale of foreclosed real estate ............................... (1,335) (6,879)
Provision for loan losses ............................................ 175,500 137,542
Depreciation and amortization, net of accretion ...................... 111,034 160,207
Amortization of ESOP Contributions ................................... 72,737 72,676
Amortization of ESOP - SOP 93-6 ...................................... 72,009 30,005
Amortization of RRP Contributions .................................... 153,771 153,771
Net change in other assets ........................................... (142,920) (49,976)
Net change in accrued interest receivable ............................ (59,716) (80,197)
Net change in accrued payable and other liabilities .................. (782,024) 314,152
------------ ------------
Total adjustments ................................................ (401,096) 731,251
------------ ------------
Net cash from operating activities ........................... 1,200,675 1,816,408
Cash flows from investing activities
Proceeds from maturities and principal repayments of securities
held to maturity ...................................................... 134,942 93,564
Proceeds from maturities and principal repayments of securities
available for sale .................................................... 1,244,423 600,000
Proceeds from sale of securities available for sale ..................... 0 2,100,000
Purchases of securities available for sale .............................. (3,028,506) (9,031,933)
Purchases of securities held to maturity ................................ 0 0
Purchase of FHLB Stock .................................................. (400,000) (575,000)
Net change interest-earning deposits in financial institutions .......... 0 0
Proceeds from sale of participation loans ............................... 351,500 0
Purchase of participation loans ......................................... (3,261,911) 0
Net change in loans ..................................................... (19,413,609) (16,705,182)
Expenditures on premises and equipment .................................. 5,948 50
Purchase of sale of premises, furniture and equipment ................... (94,163) (22,952)
Proceeds from sales of foreclosed real estate ........................... 46,245 26,991
------------ ------------
Net cash from investing activities ...................................... (24,415,131) (23,514,462)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NORTHEAST INDIANA BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine months ended September 30, 1997 and 1996
Nine Months Ended
September 30,
1997 1996
------------ ------------
(Unaudited)
<S> <C> <C>
Cash flows from financing activities
Advances from FHLB ...................................................... 50,000,000 50,000,000
Repayment of FHLB advances .............................................. (41,000,000) (34,500,000)
Cash dividends paid ..................................................... (425,643) (472,912)
Proceeds from issuance of stock, net of conversion costs and stock
acquired by ESOP ...................................................... 0 0
Increase (decrease) in advances from borrowers for taxes and insurance .. 107,712 64,357
Repurchase stock ........................................................ (682,836) (3,959,471)
Net increase (decrease) in deposits ..................................... 11,623,115 9,719,212
------------ ------------
Net cash from financing activities ................................. 19,622,348 20,851,186
------------ ------------
Net increase in cash and cash equivalents ................................. (3,592,108) (846,868)
Cash and cash equivalents at beginning of period .......................... 6,672,374 4,672,341
------------ ------------
Cash and cash equivalents at end of period ................................ $ 3,080,266 $ 3,825,473
============ ============
Cash paid during the period for:
Interest ............................................................. $ 5,752,007 $ 4,422,868
Income taxes ......................................................... 1,036,308 964,946
</TABLE>
See accompanying notes to financial statements
<PAGE>
NORTHEAST INDIANA BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three and Nine months ended September 30, 1997 and 1996
NOTE 1 - BASIS OF PRESENTATION
The unaudited information for the three and nine months ended September 30, 1997
and 1996 includes the results of operations of Northeast Indiana Bancorp, Inc.
(the "Company") and its wholly-owned subsidiary, First Federal Savings Bank
("First Federal" or the "Bank"). In the opinion of management, the information
reflects all adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of the results of operations for the three and
nine month periods reported but should not be considered as indicative of the
results to be expected for the full year.
NOTE 2 - CONVERSION
First Federal completed a conversion from a mutual to a stock savings bank on
June 27, 1995. Simultaneous with the conversion was the formation of the
Company, incorporated in the state of Delaware. The initial issuance of shares
of common stock in the Company on June 27, 1995 was 2,182,125 shares at $10 per
share, resulting in net proceeds of $21,210,857, and was accomplished through an
offering to the Bank's eligible account holders of record and the tax qualified
employee stock ownership plan. Costs associated with the conversion and stock
offering amounted to $610,393, and were accounted for as a reduction of the
proceeds from the issuance of common stock of the Company. The Company purchased
all common shares issued by the Bank. This transaction was accounted for at
historical cost in a manner similar to the pooling of interests method.
Federal regulations require that, upon conversion from a mutual to stock form of
ownership, a "liquidation account" be established by restricting a portion of
net worth for the benefit of eligible savings account holders who maintain their
savings accounts with the Bank after conversion. In the event of complete
liquidation (and only in such event), each savings account holder who continues
to maintain his savings account shall be entitled to receive a distribution from
the liquidation account after payment to all creditors, but before liquidation
distribution with respect to capital stock. This account will be proportionally
reduced for any subsequent reduction in eligible holder's savings accounts.
Federal regulations impose limitations on the payment of dividends and other
capital distributions, including, among others, that First Federal may not
declare or pay cash dividends on any of its stock if the effect thereof would
cause the Bank's capital to be reduced below the amount required for the
liquidation account or the capital requirements imposed by the Financial
Institutions Reform Recover and Enforcement Act (FIRREA) and the Office of
Thrift Supervision (the "OTS").
NOTE 3 - EMPLOYEE STOCK OWNERSHIP PLAN
The Company has established an employee stock ownership plan ("ESOP"). At the
date of conversion described in Note 2, the ESOP purchased 174,570 shares of
common stock of the Company which was financed by the Company and collateralized
by the shares purchased. The borrowing is payable in semi-annual principal
payments of $72,000 over a 12 year period plus interest. All employees of the
Bank are eligible to participate in the ESOP after they attain age 21 and
complete one year of service during which they worked at least 1,000 hours. As
of January 1, 1997, 29,095 shares have been distributed to the plan
participants.
<PAGE>
NORTHEAST INDIANA BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three and Nine months ended September 30, 1997 and 1996
NOTE 4 - EARNINGS PER SHARE
Earnings per common share have been computed by dividing net income by the
weighted average number of shares of common stock outstanding and common stock
equivalents which would arise from considering dilutive stock options.
NOTE 5 - COMMON STOCK CASH DIVIDENDS
On October 28, 1997 the Board of Directors of Northeast Indiana Bancorp, Inc.
announced a quarterly cash dividend of $.085 per share. The dividend will be
paid on November 21, 1997 to shareholders of record on November 10, 1997. The
payment of the cash dividend will reduce shareholders' equity (fourth quarter)
by $149,832.
NOTE 6 - STOCK REPURCHASE PLAN
On July 18, 1997 Northeast Indiana Bancorp, Inc. (the "Company") announced its
intention to repurchase 10% of the outstanding shares in the open market as
Treasury Shares over the next twelve months. This program will total up to
176,273 shares.
NOTE 7 - REGULATORY CAPITAL REQUIREMENTS
Pursuant to FIRREA, savings institutions must meet three separate minimum
capital-to-asset requirements. The following table summarizes, as of September
30, 1997, the capital requirements for the Bank under FIRREA and the Bank's
actual capital ratios. As of September 30, 1997, the Bank substantially exceeded
all current regulatory capital standards.
<TABLE>
<CAPTION>
Regulatory Actual
Capital Requirement Capital Requirement
-------------------------- -----------------------
Amount Percent Amount Percent
------ ------- ------ -------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Risk-based capital $ 9,598 8.0 % $ 24,032 20.03 %
Core capital 5,713 3.0 % 23,031 12.09 %
Tangible capital 2,856 1.5 % 23,031 12.09 %
</TABLE>
NOTE 8 - RECLASSIFICATIONS
Certain amounts in the 1996 consolidated financial statements have been
reclassified to conform to the 1997 presentation.
<PAGE>
NORTHEAST INDIANA BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Northeast Indiana Bancorp, Inc. (the "Company") was formed as a Delaware
corporation in March, 1995, for the purpose of issuing common stock and owning
all the common stock of First Federal Savings Bank ("First Federal" or the
"Bank") as a unitary thrift holding company. Prior to the conversion, the
Company did not engage in any material operations and at September 30, 1997, had
no significant assets other than the investment in the capital stock of First
Federal and cash and cash equivalents.
The principal business of savings banks, including First Federal, has
historically consisted of attracting deposits from the general public and making
loans secured by residential real estate. The Bank's earnings are primarily
dependent on net interest income, the difference between interest income and
interest expense. Interest income is a function of the balances of loans and
investments outstanding during the period and the yield earned on such assets.
Interest expense is the function of the balances of deposits and borrowings. The
Bank's earnings are also affected by provisions for loan losses, service charge
and fee income, and other non-interest income, operating expenses and income
taxes. Operating expenses consist primarily of employee compensation and
benefits, occupancy and equipment expenses, data processing, federal deposit
insurance premiums and other general administrative expenses.
The most significant outside factors influencing the operations of First Federal
Savings Bank and other savings institutions include general economic conditions,
competition in the local market place and related monetary and fiscal policies
of agencies that regulate financial institutions. More specifically, the cost of
funds is influenced by interest rates on competing investments and general
market rates of interest. Lending activities are influenced by the demand for
real estate financing and other types of loans, which in turn is affected by the
interest rates at which such loans may be offered and other factors affecting
loan demand and funds availability.
FINANCIAL CONDITION
The Company's total assets increased $20.8 million or 12.3% from $169.5 million
at December 31, 1996 to $190.3 million at September 30, 1997. This increase was
due primarily to funds generated from increased deposits growth of $11.7 million
and increased borrowings of $9.0 so that new loans could be funded. In addition
to asset growth through the first nine months of 1997 we purchased 2% of the
outstanding shares to fund Treasury Stock which reduced our capital.
The Bank's cash and cash equivalents decreased $3.6 million from $6.7 million at
December 31, 1996 to $3.1 million at September 30, 1997. This decrease was due
primarily from the funds being used to fund the net increase in loans.
<PAGE>
NORTHEAST INDIANA BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION (Continued)
Net loans receivable increased $22.1 million or 15.0% from $146.9 million at
December 31, 1996 to $169.0 million at September 30, 1997. The increase in loans
during the first nine months of 1997 was predominantly in net mortgage loans
which accounted for $12.2 million of the increase, and also consumer and
commercial products increasing because of the generally favorable market
conditions. Allowances for loan losses increased approximately $176,000 through
the nine months ended September 30, 1997. This increase was to provide a general
increase for the higher loan amounts and the additional loans secured by
non-residential real estate, commercial and credit cards. These allowances of
$1,148,000 include specific reserves for loans or partial loans classified as
doubtful in the amount of $416,000.
INVESTMENTS
Securities available-for-sale increased $2.2 million from $11.5 million at
December 31, 1996 to $13.7 million at September 30, 1997. This increase was due
to the purchase of investments used to maintain our liquidity requirements.
RESULTS OF OPERATIONS
The Company had net income of $586,000 or $0.35 per share and $1.6 million or
$0.96 per share for the three and nine months ended September 30, 1997 compared
to $225,000 or $0.12 per share and $1.1 million or $0.56 per share for the three
and nine months ended September 30, 1996.
Net interest income increased to $1.6 million for the third quarter and $4.7
million for the nine months ended September 30, 1997 compared to $1.4 million
and $4.1 million for the three and nine months ended September 30, 1996.
Interest income increased $650,000 to $3.7 million from $3.1 million for the
third quarter September 30, 1997 and September 30, 1996, respectively. For the
third quarter interest expense increased $437,000 to $2.1 million from $1.6
million for the quarter ended September 30, 1997 and 1996, respectively. The
increased expense for the period was due to a combination of higher average
balances in deposits and advances.
Provisions for loan losses increased by $7,500 and decreased by $8,700 for the
three and nine months ended September 30, 1997 compared to the same period ended
September 30, 1996.
Non-interest expense decreased to $769,000 and $2.3 million for the three and
nine months ended September 30, 1997 compared to $1.1 million and $2.5 million
for the corresponding period in 1996. This represents a decrease of $350,000 and
$202,000 for the three and nine months ended September 30, 1997. This decrease
is due to the FDIC's one time assessment to recapitalize the Savings Association
Insurance Fund (SAIF) in September 1996. This SAIF assessment was approximately
a $453,000 expense before tax.
Income tax expense is up for the three and nine months ended September 30, 1997
due to higher taxable income compared to 1996.
<PAGE>
NORTHEAST INDIANA BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
NON-PERFORMING ASSETS AND ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is established through a provision for loan losses
based on management's quarterly asset classification review and evaluation of
the risk inherent in its loan portfolio and changes in the nature and volume of
its loan activity. Such evaluation, which considers among other matters, the
estimated value of the underlying collateral, economic conditions, cash flow
analysis, historical loan loss experience, discussion held with delinquent
borrowers and other factors that warrant recognition in providing for an
adequate allowance for loan loss. As a result of this review process, management
recorded provisions for loan losses in the amount of $58,000 and $175,000 for
the three and nine months ended September 30, 1997 compared to $51,000 and
$184,000 for the same periods ended September 30, 1996. While management
believes current allowance for loan loss is adequate to absorb possible losses,
we anticipate growth in our loan portfolio and will therefore, continue to add
through additional provisions for loan losses to our allowance accounts, there
is no assurance that subsequent evaluations may require additional provisions
for loan losses.
The non-performing assets to total assets ratio is one indicator of the exposure
to credit risk. Non-performing assets of the Bank consist of the non-accruing
loans, troubled debt restructuring and real estate owned which has been acquired
as a result of foreclosure or insubstance foreclosure. The following table
summarizes in thousands the various categories of non-performing assets:
<TABLE>
<CAPTION>
September 30 December 31
1997 1996
---- ----
<S> <C> <C>
Non-accruing loans ................................. $325 $705
Accruing loans delinquent 90 days and more ......... -- --
Troubled debt restructuring ........................ -- --
Foreclosed assets .................................. 3 8
---- ----
Total non-performing assets ..................... $328 $713
==== ====
Total non-performing assets as a percentage
of total assets ............................... 0.17% 0.42%
==== ====
</TABLE>
<PAGE>
NORTHEAST INDIANA BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
NON-PERFORMING ASSETS AND LOSSES PROVISIONS (Continued)
Total non-performing assets decreased from $713,000 to $328,000 or 0.17% of
total assets at September 30, 1997 from 0.42% of total assets at December 31,
1996.
The Bank is required to maintain specific amounts of regulatory capital pursuant
to regulations of the Office of Thrift Supervision (OTS). Those capital
requirements follow: a risk-based capital standard expressed as a percent of
risk adjusted assets, a leverage ratio of core capital to total assets, and a
tangible capital ratio expressed as a percent of total adjusted assets. At
September 30, 1997, the Bank exceeded all regulatory capital standards.
At September 30, 1997, the Bank's risk based capital was $24.0 million or 20.03%
of risk adjusted assets which exceeds the $9.6 million and the 8.0% OTS
requirement by $14.4 million and 12.03%. The Bank's core capital at September
30, 1997 is $23.0 million or 12.09% which exceeds the OTS requirement of $5.7
million and 3.00% by $17.3 million and 9.09%. The tangible capital requirement
is $2.9 million and 1.50% which the Bank exceeded by $20.1 million and 10.59%
which is reflected by September 30, 1997 tangible capital balance of $23.0
million and a 12.09% ratio of tangible capital to assets.
LIQUIDITY AND CAPITAL RESOURCES
First Federal's primary sources of funds are deposits, FHLB advances, principal
and interest payments of loans, operations income and short-term investments.
Deposit flows and mortgage payments are greatly influenced by general interest
rates, economic conditions and competition.
Current OTS regulations require that First Federal maintain cash and eligible
investments in an amount equal to at least 5% of customer accounts and
short-term borrowings to assure its ability to meet demands for withdrawals and
repayment of short-term borrowings. As of September 30, 1997, First Federal's
liquidity ratio was 5.23%, which is in excess of the minimum regulatory
requirements.
First Federal uses its capital resources principally to meet its ongoing
commitments to fund maturing certificates of deposit and loan commitments,
maintain its liquidity, and meet operating expenses. As of September 30, 1997,
First Federal had commitments to originate loans and to fund open lines of
credit totaling $17.5 million. First Federal considers its liquidity and capital
resources to be adequate to meet its foreseeable short and long term needs.
First Federal expects to be able to fund or refinance, on a timely basis, its
material commitments and long-term liabilities.
REGULATORY DEVELOPMENTS
As a result of the SAIF recapitalization in September 1997 the FDIC has amended
its regulation concerning the insurance premiums payable by SAIF-insured
institutions. The FDIC has reduced the SAIF insurance premium to a range of 0 to
27 basis points per $100 of domestic deposits, effective January 1, 1997. The
Bank qualifies for the minimum SAIF assessment.
<PAGE>
NORTHEAST INDIANA BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Additionally, the FDIC has imposed a FICO assessment on SAIF-assessable deposits
for the first semi-annual period of 1997 equal to 6.48 basis points per $100 of
domestic deposits, as compared to a FICO assessment on BIF-assessable deposits
for that same period equal to 1.30 basis points per $100 of domestic deposits.
<PAGE>
PART II
ITEM 1 - LEGAL PROCEEDING
The Company and First Federal are involved from time to time, as
plaintiff or defendant in various legal actions arising from the normal
course of their businesses. While the ultimate outcome of these
proceedings cannot be predicted with certainty, it is the opinion of
management that the resolution of these proceedings should not have a
material effect on the Company's results of operations on a
consolidated basis.
ITEM 2 - CHANGES IN SECURITIES
None
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDER
None
ITEM 5 - OTHER INFORMATION
None
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
(1) October 22, 1997 Press Release announcing Third Quarter
Earnings
(2) October 28, 1997 Press Release announcing Quarterly Cash
Dividend
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
NORTHEAST INDIANA BANCORP, INC.
Date: November 7, 1997 By: /S/ STEPHEN E. ZAHN
-------------------
Stephen E. Zahn
President and Chief Executive Officer
(Duly Authorized Officer)
Date: November 7, 1997 By: /S/ DARRELL E. BLOCKER
----------------------
Darrell E. Blocker
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
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<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 1,167,472
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