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, 1998
[ ] 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 NOVEMBER 9, 1998
- -------------------------------------- -------------------------------
Common Stock, par value $.01 per share 1,673,229
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, 1998 and December 31, 1997
Consolidated Condensed Statements of Income for the
nine months ended September 30, 1998 and 1997
Consolidated Statement of Change in Shareholders' Equity
for the nine months ended September 30, 1998
Consolidated Statements of Cash Flows for the nine
months ended September 30, 1998 and 1997
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, 1998 And December 31, 1997
September 30, December 31,
1998 1997
------------- -------------
(Unaudited)
<S> <C> <C>
ASSETS
Interest earning cash and cash equivalents $ 7,406,113 $ 3,036,847
Noninterest earning cash and cash equivalents 1,389,449 1,782,839
------------- -------------
Total Cash and cash equivalents 8,795,562 4,819,686
Interest-earning deposits in financial institutions 100,000 100,000
Securities available for sale 13,158,549 14,628,590
Securities held to maturity (fair value: September 30, 1998- $529,000;
December 31, 1997 - $757,000) 528,731 756,846
Loans receivable, net of allowance for loan losses September 30, 1998
$1,393,425 and December 31, 1997 $1,194,000 182,224,811 174,538,907
Other real estate owned 0 0
Accrued interest receivable 428,629 511,950
Premises and equipment 2,142,187 1,964,374
Other assets 1,884,014 2,048,244
------------- -------------
Total assets $ 209,262,483 $ 199,368,597
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Demand deposits 2,525,671 $ 2,502,911
Savings, NOW and MMDA 44,644,237 35,968,057
Other time deposits 82,808,620 69,078,818
------------- -------------
Total deposits 129,978,528 107,549,786
Securities Sold with Repurchase agreements 184,963 0
Borrowed funds 53,784,955 63,521,682
Accrued expenses and other liabilities 688,486 1,004,495
------------- -------------
Total liabilities 184,636,932 172,075,963
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NORTHEAST INDIANA BANCORP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, 1998 And December 31, 1997
September 30, December 31,
1998 1997
------------- -------------
(Unaudited)
<S> <C> <C>
Shareholders' equity
Preferred Stock 500,000 shares authorized; 0 shares issued -- --
Common stock, $.01 par value: 4,000,000 shares
authorized; 2,400,338 and 2,182,125 shares issued at
September 30, 1998 and December 31,1997 24,003 21,821
Additional paid in capital 25,094,220 21,350,326
Retained earnings, substantially restricted 11,646,562 13,956,340
Unearned employee stock ownership plan shares (1,236,538) (1,309,275)
Unearned recognition and retention plan shares (486,402) (621,817)
Net unrealized appreciation on securities available
for sale 77,528 41,672
Treasury stock, 713,359 and 449,798 common shares, at
cost, at September 30, 1998 and December 31, 1997 (10,493,822) (6,146,433)
------------- -------------
Total shareholders' equity 24,625,551 27,292,634
------------- -------------
Total liabilities and shareholders' equity $ 209,262,483 $ 199,368,597
============= =============
</TABLE>
The accompanying notes are an integral part
of these consolidated financial tatements.
<PAGE>
<TABLE>
<CAPTION>
NORTHEAST INDIANA BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
Three and Nine months ended September 30, 1998
Three months ended Nine Months Ended
September 30, September 30,
---------------------------- ----------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
(Unaudited)
<S> <C> <C> <C> <C>
Interest income
Loans, including fees $ 3,725,141 $ 3,416,687 $11,075,468 $ 9,606,944
Taxable securities 262,995 232,507 779,961 672,231
Non-taxable securities 4,819 7,571 14,973 25,258
Deposits with banks 60,041 46,312 174,471 138,031
----------- ----------- ----------- -----------
Total interest income $ 4,052,996 $ 3,703,077 $12,044,873 10,442,464
Interest expense
Deposits 1,532,625 1,134,910 4,425,234 3,252,568
Borrowed funds 765,646 928,765 2,337,616 2,506,128
----------- ----------- ----------- -----------
Total interest expense $ 2,298,271 $ 2,063,675 6,762,850 5,758,696
Net interest income 1,754,725 1,639,402 5,282,023 4,683,768
Provision for loan losses 90,000 58,500 270,000 175,500
----------- ----------- ----------- -----------
Net interest income after provision for loan
losses $ 1,664,725 $ 1,580,902 $ 5,012,023 $ 4,508,268
Noninterest income
Service charges on deposit accounts 76,433 63,555 213,949 173,620
Loan servicing fees 57,106 60,428 183,149 157,826
Net realized gain on sale of securities 0 0 0 0
Other 53,465 36,916 129,445 100,371
----------- ----------- ----------- -----------
Total noninterest income $ 187,004 $ 160,899 $ 526,543 $ 431,817
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NORTHEAST INDIANA BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
Three and Nine months ended September 30, 1998
(continued)
Three months ended Nine Months Ended
September 30, September 30,
---------------------------- ----------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
(Unaudited)
<S> <C> <C> <C> <C>
Noninterest expense
Salaries and employee benefits 461,440 397,927 1,361,467 1,137,092
Occupancy 87,699 81,816 261,826 237,452
Data processing 104,972 73,994 317,741 226,750
Insurance expense 18,124 14,392 49,823 40,977
Professional fees 30,956 44,964 112,926 135,101
Correspondent bank charges 52,763 49,058 153,099 148,008
Other expense 147,048 117,770 480,003 374,772
----------- ----------- ----------- -----------
Total noninterest expense $ 903,002 $ 779,921 $ 2,736,885 $ 2,300,152
Income before income taxes 948,727 961,880 2,801,681 2,639,933
Income tax expense 362,551 375,478 1,085,274 1,038,162
----------- ----------- ----------- -----------
Net income $ 586,176 $ 586,402 1,716,407 1,601,771
----------- ----------- ----------- -----------
Other comprehensive income, net of tax
Change in unrealized gains (losses)
on securities 36,892 36,335 35,856 21,249
----------- ----------- ----------- -----------
Comprehensive income $ 623,068 $ 622,737 $ 1,752,263 $ 1,623,020
=========== =========== =========== ===========
Basic earnings per common share (restated) $ 0.37 $ 0.34 $ 1.05 $ 0.93
Diluted earnings per common share (restated) $ 0.37 $ 0.34 $ 1.00 $ 0.91
Return on average assets 1.14% 1.25% 1.13% 1.21%
Return on average equity 9.11% 8.66% 8.63% 7.96%
Equity to assets 12.57% 14.48% 13.10% 15.15%
</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, 1998
(Unaudited)
Unearned
Employee Unrealized
Stock Unearned
Additional Ownership Recognition
Common Paid-in Retained Plan And Retention
Stock Capital Earnings Shares Plan Shares
----- ------- -------- ------ -----------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1998 21,821 21,350,326 13,956,340 (1,309,275) (621,817)
Dividends Paid $0.2318 per
share year to date (425,671)
Shares committed to be
released under ESOP 114,667 72,737
Purchase of 215,310 shares
of Treasury Stock
Sale of 16,600 shares
of Treasury Stock (13,615)
Tax effect of stock plans 44,510
Purchase of RRP Stock (21,843)
Amortization of RRP
Contributions 157,258
Issuance of 218,213 common shares from
declaration of 10% stock dividend 2,182 3,598,332 (3,600,514)
Net Income September 30, 1998 1,716,407
Other comprehensive income, net of tax:
Change in unrealized gains
on securities
Comprehensive income
------ ---------- ---------- ---------- --------
Balance, September 30, 1998 24,003 25,094,220 11,246,562 (1,236,538) (486,402)
====== ========== ========== ========== ========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NORTHEAST INDIANA BANCORP, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDER'S EQUITY
Nine months ended September 30, 1998
(Unaudited)
(continued)
Net
Appreciation
on Securities Total
Available- Treasury Shareholders'
For-Sale Stock Equity
-------- ----- ------
<S> <C> <C> <C>
Balance, January 1, 1998 41,672 (6,146,433) 27,292,634
Dividends Paid $0.2318 per
share year to date (425,671)
Shares committed to be
released under ESOP 187,404
Purchase of 215,310 shares
of Treasury Stock (4,566,147) (4,566,147)
Sale of 16,600 shares
of Treasury Stock 218,758 205,143
Tax effect of stock plans 44,510
Purchase of RRP Stock (21,843)
Amortization of RRP
Contributions 157,258
Issuance of 218,213 common shares from
declaration of 10% stock dividend --
Net Income September 30, 1998 1,716,407
----------
Other comprehensive income, net of tax:
Change in unrealized gains
on securities 35,856 35,856
----------
Comprehensive income 1,752,263
------ ----------- ----------
Balance, September 30, 1998 77,528 (10,493,822) 24,625,551
====== =========== ==========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
NORTHEAST INDIANA BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three and Nine months ended September 30, 1998
Nine months ended
September 30,
------------------------------
1998 1997
------------ ------------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities
Net income $ 1,716,407 $ 1,601,771
Adjustments to reconcile net income to net cash from operating activities
Net (gain) loss on sale of premises and equipment (8,500) (152)
Net (gain) loss on sale of foreclosed real estate (10,091) (1,335)
Net (gain) loss on sale of other repossessed assets 12,403 7,230
Provision for loan losses 270,000 175,500
Depreciation and amortization, net of accretion 129,972 111,806
Amortization of ESOP Contributions 187,405 144,746
Amortization of RRP Contributions 135,416 153,771
Net change in other assets 182,710 (139,671)
Net change in accrued interest receivable 83,321 (59,716)
Net change in accrued expenses and other liabilities (452,018) (782,796)
------------ ------------
Total adjustments 530,618 (390,617)
------------ ------------
Net cash from operating activities $ 2,247,025 $ 1,211,154
Cash flows from investing activities
Proceeds from maturities and principal repayments of securities
held to maturity 228,115 134,942
Proceeds from maturities and principal repayments of securities
available for sale 5,618,549 1,244,423
Purchases of securities available for sale (4,091,337) (3,428,506)
Purchase of loans (3,261,911) --
Net change in loans (10,612,282) (19,444,258)
Expenditures on premises and equipment (304,819) (94,163)
Proceeds from sale of loans 2,430,541 351,500
Proceeds from sale of premises and equipment 8,500 5,948
Proceeds from sales of other real estate 177,750 46,245
Proceeds from sales of other repossessed assets 44,259 20,170
------------ ------------
Net cash from investing activities $ (6,500,724) $(24,425,610)
Cash flows from financing activities
Advances from FHLB 42,000,000 50,000,000
Repayment of FHLB advances (51,400,000) (41,000,000)
Net increase (decrease) in other borrowings (152,537) --
Cash dividends paid (425,671) (425,643)
Net proceeds from stock issuance 249,651 --
Increase (decrease) in advances from borrowers for taxes and insurance 95,537 107,712
Repurchase stock (4,566,147) (682,836)
Net change in deposits 22,428,742 11,623,115
------------ ------------
Net cash from financing activities 8,229,575 19,622,348
------------ ------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NORTHEAST INDIANA BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three and Nine months ended September 30, 1998
(continued)
Nine months ended
September 30,
------------------------------
1998 1997
------------ ------------
(Unaudited)
<S> <C> <C>
Net increase in cash and cash equivalents 3,975,876 (3,592,108)
Cash and cash equivalents at beginning of period 4,819,686 6,672,374
------------ ------------
Cash and cash equivalents at end of period $ 8,795,562 $ 3,080,266
------------ ------------
Cash paid during the period for:
Interest $ 6,806,133 $ 5,752,007
Income taxes 1,259,000 1,036,308
</TABLE>
See accompanying notes to financial statements.
<PAGE>
NORTHEAST INDIANA BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three and Nine months ended September 30, 1998 and 1997
NOTE 1 - BASIS OF PRESENTATION
The unaudited information for the three and nine months ended September 30, 1998
and 1997 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 period reported but should not be considered as indicative of the
results to be expected for the full year.
For fiscal years beginning after December 15, 1997 the Financial Accounting
Standards Board (FASB) issued its Statement of Financial Accounting Standards
(SFAS) #130 on reporting comprehensive income. Comprehensive income includes
both net income and other comprehensive income. Other comprehensive income will
include the change in unrealized gains and losses on securities available for
sale, foreign currency translation adjustments, and additional minimum pension
liability adjustments when applicable. The financial statements reflect the
adoption of SFAS #130.
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").
<PAGE>
NORTHEAST INDIANA BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three and Nine months ended September 30, 1998 and 1997
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 192,027 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, 1998, 48,007 shares have been distributed to the plan
participants.
NOTE 4 - EARNINGS PER SHARE
Basic earnings per share is based on weighted-average common shares outstanding.
Diluted earnings per share further assumes issue of any dilutive potential
common shares. The accounting standard for computing earnings per share was
revised for 1997, and all earnings per shares previously reported are restated
to follow the new standard. The following table has been restated to reflect the
10% stock dividend announced on October 27, 1998 and payable on November 23,
1998 to shareholders of record on November 6, 1998.
<TABLE>
<CAPTION>
Three and Nine Months Ended
September 30,
-------------------------------------------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Earnings Per Share
Net Income available to common shareholders $ 586,176 $ 586,402 $1,716,407 $1,601,771
Weighted average common shares outstanding 1,568,277 1,712,159 1,629,553 1,720,880
Basic Earnings Per Share $ 0.37 $ 0.34 $ 1.05 $ 0.93
Earnings Per Share Assuming Dilution
Net Income available to common shareholders $ 586,176 $ 586,402 $1,716,407 $1,601,771
Weighted average common shares outstanding 1,568,277 1,712,159 1,629,553 1,720,880
Add: dilutive effects of assumed exercises of
incentive stock options and non qualified
stock options 25,618 18,753 83,840 37,771
Weighted average and dilutive common shares
Outstanding 1,593,895 1,730,912 1,713,393 1,758,651
Diluted earnings per share $ 0.37 $ 0.34 $ 1.00 $ 0.91
</TABLE>
NOTE 5 - COMMON STOCK DIVIDENDS
On October 26, 1998 the Board of Directors of Northeast Indiana Bancorp, Inc.
announced a 10% stock dividend and a quarterly cash dividend of $.09 per share.
The dividend will be paid on November 23, 1998 to shareholders of record on
November 6, 1998. The payment of the cash dividend will reduce shareholders'
equity (fourth quarter) by approximately $150,000 and is subsequent to the 10%
stock dividend. This cash dividend represents an effective increase of 16.5%
over the $0.85 per share paid during the previous four quarters.
<PAGE>
NORTHEAST INDIANA BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three and Nine months ended September 30, 1998 and 1997
Common share amounts, market values and price per share disclosures related to
stock repurchase programs, stock based compensation plans and earnings and
dividends per share disclosures have been restated for the 10% stock dividend
declared on October 23,1998. Stock dividends for 20% or less are reported by
transferring the market value, as of the ex-dividend date, of the stock issued
from retained earnings to common stock and additional paid-in-capital.
Fractional shares will be rounded up to the next whole share. The entry to
record the 10% stock dividend have been estimated using current information
available and are subject to final calculations.
NOTE 6 - STOCK REPURCHASE PLAN
On July 7, 1998 the Company announced a new stock repurchase program to
repurchase 10% of the outstanding shares in the open market as Treasury shares
over the next twelve months. This program will include up to 180,688 shares. As
of October 23, 1998, 134,200 shares have been repurchased under this program
since its announcement.
There were also 12,991 shares repurchased from exercised options year to date
through October 23, 1998.
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, 1998, the capital requirements for the Bank under FIRREA and the Bank's
actual capital ratios. As of September 30, 1998, the Bank substantially exceeded
all current regulatory capital standards.
<TABLE>
<CAPTION>
Regulatory
Capital Requirement Actual Capital
-------------------- ---------------------
Amount Percent Amount Percent
------ ------- ------ -------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Risk-based capital $10,792 8.0% $23,307 17.28%
Core capital $ 8,379 4.0% $22,024 10.51%
Tangible capital $ 4,190 2.0% $22,024 10.51%
</TABLE>
NOTE 8 - RECLASSIFICATIONS
Certain amounts in the 1997 consolidated financial statements have been
reclassified to conform to the 1998 presentation.
<PAGE>
NORTHEAST INDIANA BANCORP, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND OPERATING RESULTS
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, 1998, 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 $9.9 million or 5.0% from $199.4 million at
December 31, 1997 to $209.3 million at September 30, 1998. This increase was due
primarily to funds generated from increased deposits growth of $22.5 million net
of decreased borrowings of $9.7 million so that new loans could be funded. In
addition to asset growth through the first nine months of 1998 the company
purchased 12.4% of the outstanding shares to fund Treasury Stock which reduced
our capital $4.6 million.
Net loans receivable increased $7.7 million or 4.41% from $174.5 million at
December 31, 1997 to $182.2 million at September 30, 1998. The increase in loans
during the first nine months of 1998 was predominantly in mortgage loan products
which accounted for $4.9 million of the increase along with a $1.0 million
increase in consumer lending and $835,000 increase in
<PAGE>
NORTHEAST INDIANA BANCORP, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND OPERATING RESULTS
FINANCIAL CONDITION (Continued)
commercial lending. This was offset by the sale of a $2.4 million package of
mobile home loans which were sold at par in June 1998. This growth was because
of the generally favorable market conditions. Allowances for loan losses
increased approximately $199,000 through the nine months ended September 30,
1998. 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 $1.4 million include $110,000
of specific reserves for loans or partial loans classified as substandard in the
amount of $934,000.
INVESTMENTS
Securities available-for-sale decreased $1.4 million from $14.6 million at
December 31, 1997 to $13.2 million at September 30, 1998. Investments of $4.0
million were purchased to replenish the $5.6 million of portfolio balances being
reduced by calls, payments and maturities.
RESULTS OF OPERATIONS
The Company had net income of $586,000 or $0.37 per basic share and $1.7 million
or $1.05 per basic share for the three and nine months ended September 30, 1998
compared to $586,000 or $0.34 per basic share and $1.6 million or $.93 per basic
share for the three and nine months ended September 30, 1997. Note that all per
share earnings have been restated to reflect the 10% stock dividend to be paid
on November 23, 1998.
Net interest income increased to $1.8 million for the third quarter and $5.2
million for the nine months ended September 30, 1998 compared to $1.6 million
and $4.7 million for the three and nine months ended September 30, 1997.
Interest income increased $350,000 to $4.1 million from $3.7 million for the
third quarter September 30, 1998 and September 30, 1997, respectively. For the
third quarter interest expense increased $235,000 to $2.3 million from $2.1
million for the quarter ended September 30, 1998 and 1997, respectively. The
increased expense for the period was due to the net effect of higher average
balances in deposits and lower average balances in borrowings.
Provisions for loan losses increased by $31,500 and $94,500 for the three and
nine months ended September 30, 1998 compared to the same periods ended
September 30, 1997.
Non-interest income increased to $187,000 and $527,000 for the three and nine
months ended September 30,1998 compared to $161,000 and $432,000 for the
comparable periods in 1997. This represents an increase of $26,000 and $95,000
for the three and nine months ended September 30, 1998. For the quarter and year
to date the majority of the period over period gain was from deposit fee income
including fees from our Family Club Checking accounts, commercial checking
account fees, and increased NSF fee income. Other non-interest income includes
increases from ATM and charge card fees.
<PAGE>
NORTHEAST INDIANA BANCORP, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND OPERATING RESULTS
RESULTS OF OPERATIONS (Continued)
Non-interest expense increased to $903,000 and $2.7 million for the three and
nine months ended September 30, 1998 compared to $780,000 and $2.3 million for
the corresponding periods in 1997. This represents an increase of $123,000 and
$437,000 for the three and nine months ended September 30, 1998. This increase
is due partially to higher salaries and benefits reflecting increases in
compensation for 1998 and additional employees added during late 1997 and 1998
to support customer service as we grow.
Data processing expense has increased $31,000 and $91,000 for the three and nine
months ended September 1998 due to the installation of the wide area network and
software upgrades.
This project was started in second quarter 1998 and is expected to be complete
by fourth quarter 1998. The upgrades of our computer system will not only enable
increased efficiencies but provide better communication between our three
offices.
Income tax expense is up for the three and nine months ended September 30, 1998
due to higher taxable income compared to 1997.
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 $90,000 and $270,000 for
the three and nine months ended September 30, 1998 compared to $58,000 and
$175,000 for the same period ended September 30, 1997. 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.
<PAGE>
NORTHEAST INDIANA BANCORP, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND OPERATING RESULTS
NON-PERFORMING ASSETS AND ALLOWANCE FOR LOAN LOSSES(Continued)
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
1998 1997
------------ ------------
<S> <C> <C>
Non-accruing loans $ 580 $1,166
Accruing loans delinquent 90 days and more 0 0
Troubled debt restructuring 0 0
Foreclosed assets 9 7
------ ------
Total non-performing assets 589 1,173
====== ======
Total non-performing assets as a percentage
of total assets .28% .58%
====== ======
</TABLE>
Total non-performing assets decreased from $1.2 million to $589,000 or 0.28% of
total assets at September 30, 1998 from 0.58% of total assets at December 31,
1997.
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, 1998, the Bank exceeded all regulatory capital standards.
At September 30, 1998, the Bank's risk based capital was $23.3 million or 17.28%
of risk adjusted assets which exceeds the $10.8 million and the 8.0% OTS
requirement by $12.5 million and 9.28%. The Bank's core capital at September 30,
1998 is $22.0 million or 10.51% which exceeds the OTS requirement of $8.4
million and 4.00% by $13.6 million and 6.51%. The tangible capital requirement
is $4.2 million and 2.00% which the Bank exceeded by $17.8 million and 8.51%
which is reflected by September 30, 1998 tangible capital balance of $22.0
million and a 10.51% ratio of tangible capital to assets.
<PAGE>
NORTHEAST INDIANA BANCORP, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND OPERATING RESULTS
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 4% of its average daily balance of
net withdrawable customer deposit accounts and short-term borrowings to assure
its ability to meet demands for withdrawals and repayment of short-term
borrowings. As of September 30, 1998, First Federal's liquidity ratio was 9.72%,
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, 1998,
First Federal had commitments to originate loans and to fund open lines of
credit totaling $21.2 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 1996 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.
Additionally, the FDIC has imposed a FICO assessment on SAIF-assessable deposits
for the third quarter of 1998 equal to 5.82 basis points annualized per $100 of
domestic deposits, as compared to a FICO assessment on BIF-assessable deposits
for that same period equal to 1.16 basis points per $100 of domestic deposits.
TRUST/FINANCIAL SERVICES
The bank recently applied to the OTS for the expansion of its charter to include
trust powers so that we may provide trust and asset management services to our
community. We received approval for the trust and asset management services from
the OTS during the third quarter 1998 and we anticipate approval for the
financial services subsidiary from the OTS during the fourth quarter 1998. The
bank is also in the process of establishing a wholly-owned subsidiary as an
Indiana corporation. This subsidiary will provide financial service products
including but not limited to mutual funds, brokerage and insurance products.
In order to provide the expertise these new initiatives will require, the bank
has hired an individual with 28 years experience in trust services. This
individual has served the last nine years as a Senior Trust Officer responsible
for managing over $100 million in trust assets.
<PAGE>
NORTHEAST INDIANA BANCORP, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND OPERATING RESULTS
OFFICE EXPANSION
The bank began an expansion project of its North office located on Frontage Road
in July 1998. This expansion will provide approximately 2,000 square feet more
space which will be utilized for offices needed for additional banking
operations staff, the new Trust department and Financial Services Subsidiary as
well as storage for the computer equipment needed for these new endeavors. This
building addition should be completed in the fourth quarter of 1998.
FORWARD-LOOKING STATEMENTS
When used in this filing and in future filings by the Company with the
Securities and Exchange Commission, in the Company's press releases or other
public or shareholder communications, or in oral statements made with the
approval of an authorized executive officer, the words or phrases "would be,"
"will allow," "intends to," "will likely result," "are expected to," "will
continue," "is anticipated," "estimate," "project" or similar expressions are
intended to identify "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. Such statements are subject to
risks and uncertainties, including but not limited to changes in economic
conditions in the Company's market area, changes in policies by regulatory
agencies, fluctuations in interest rates, demand for loans in the Company's
market area and competition, all or some of which could cause actual results to
differ materially from historical earnings and those presently anticipated or
projected.
The Company wishes to caution readers not to place undue reliance on any such
forward-looking statements, which speak only as of the date made, and advises
readers that various factors, including regional and national economic
conditions, substantial changes in levels of market interest rates, credit and
other risks of lending and investment activities and competitive and regulatory
factors, could affect the Company's financial performance and could cause the
Company's actual results for future periods to differ materially from those
anticipated or projected.
The Company does not undertake, and specifically disclaims any obligation, to
update any forward-looking statements to reflect occurrences or unanticipated
events or circumstances after the date of such statements.
IMPACT OF THE YEAR 2000
The Company has been and will continue to follow the guidelines provided by the
Federal Financial Institutions Examination's Council (FFIEC). The Company has
formulated a Year 2000 Action Plan which has been presented to, and approved by,
the Board of Directors. Management believes that all affected systems whether it
be internal or services provided by a third party have been identified and plans
have been made to ensure that all necessary changes are accomplished in a timely
manner. Implementation of the plan is progressing and the Board of Directors
receives quarterly reports regarding the progress made. Testing with our service
provider will begin in fourth quarter 1998 and should be complete by first
quarter 1999. This timeline complies with the FFIEC guidelines. Management does
not expect any costs related to the Year 2000 to have a significant impact on
its financial positions or results of operations however, there can be no
assurance that the vendors systems will be 2000 compliant, consequently the
Company could incur incremental costs to convert to another vendor.
<PAGE>
NORTHEAST INDIANA BANCORP, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND OPERATING RESULTS
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) July 7, 1998 Press Release announcing Stock Repurchase
Program
(2) July 17, 1998 Press Release announcing Second Quarter
Earnings
(3) July 29, 1998 Press Release announcing Quarterly Cash
Dividend
(4) October 15, 1998 Press Release announcing Third Quarter
Earnings
(5) October 27, 1998 Press Release announcing 10% Stock Dividend
and Quarterly Cash Dividend Increases
<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 12, 1998 By: /S/ STEPHEN E. ZAHN
Stephen E. Zahn
President and Chief Executive Officer
(Duly Authorized Officer)
Date: November 12, 1998 By: /S/ DARRELL E. BLOCKER
Darrell E. Blocker
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 1,489,449
<INT-BEARING-DEPOSITS> 7,406,113
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 9,908,549
<INVESTMENTS-CARRYING> 528,731
<INVESTMENTS-MARKET> 0
<LOANS> 183,618,236
<ALLOWANCE> 1,393,425
<TOTAL-ASSETS> 209,262,483
<DEPOSITS> 129,878,528
<SHORT-TERM> 28,000,000
<LIABILITIES-OTHER> 1,060,949
<LONG-TERM> 25,597,455
0
0
<COMMON> 24,003
<OTHER-SE> 24,601,548
<TOTAL-LIABILITIES-AND-EQUITY> 209,262,483
<INTEREST-LOAN> 11,076,468
<INTEREST-INVEST> 794,934
<INTEREST-OTHER> 174,471
<INTEREST-TOTAL> 12,044,873
<INTEREST-DEPOSIT> 4,425,234
<INTEREST-EXPENSE> 6,762,850
<INTEREST-INCOME-NET> 5,282,023
<LOAN-LOSSES> 270,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,738,885
<INCOME-PRETAX> 2,801,681
<INCOME-PRE-EXTRAORDINARY> 1,716,407
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,716,407
<EPS-PRIMARY> 1.05
<EPS-DILUTED> 1.00
<YIELD-ACTUAL> 0
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,194,000
<CHARGE-OFFS> 111,000
<RECOVERIES> (40,000)
<ALLOWANCE-CLOSE> 1,393,425
<ALLOWANCE-DOMESTIC> 110,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,283,425
</TABLE>
