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 March 31, 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 APRIL 8, 1998
Common Stock, par value $.01 per share 1,673,427
Transitional Small Business Disclosure Format: YES [ ] NO [X]
<PAGE>
NORTHEAST INDIANA BANCORP, INC.
INDEX
PART 1. FINANCIAL INFORMATION (UNAUDITED) PAGE NO.
Item 1. Consolidated Condensed Financial Statements
Consolidated Condensed Balance Sheets
March 31, 1998 and December 31, 1997
Consolidated Condensed Statements of Income for the
three months ended March 31, 1998 and 1997
Consolidated Statement of Change in Shareholders' Equity
for the three months ended March 31, 1998
Consolidated Statements of Cash Flows for the three
months ended March 31, 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
March 31, 1998 And December 31, 1997
March 31, December 31,
1998 1997
------------- -------------
<S> <C> <C>
ASSETS
Interest earning cash and cash equivalents .......................... 3,479,550 $ 3,036,847
Noninterest earning cash and cash equivalents ....................... 1,825,077 1,782,839
------------- -------------
Total Cash and cash equivalents ............................ 5,304,627 4,819,686
Interest-earning deposits in financial institutions ................. 100,000 100,000
Securities available for sale ....................................... 14,597,047 14,628,590
Securities held to maturity (fair value: March 31, 1998- $563,581;
December 31, 1997 - $756,846) ..................................... 563,581 756,846
Loans receivable, net of allowance for loan losses March 31, 1998
$1,266,589 and December 31, 1997 $1,194,000 ....................... 175,662,986 174,538,907
Other real estate owned ............................................. 19,500 0
Accrued interest receivable ......................................... 429,300 511,950
Premises and equipment .............................................. 1,978,658 1,964,374
Other assets ........................................................ 1,650,310 2,048,244
------------- -------------
Total assets ............................................... $ 200,306,009 $ 199,368,597
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Demand deposits ..................................................... 2,825,904 $ 2,502,911
Savings, NOW and MMDA ............................................... 36,922,605 35,968,057
Other time deposits ................................................. 80,104,826 69,078,818
------------- -------------
Total deposits ............................................. 119,853,335 107,549,786
Securities Sold with Repurchase agreements .......................... 182,621 0
Borrowed funds ...................................................... 52,296,937 63,521,682
Accrued expenses and other liabilities .............................. 1,245,744 1,004,495
------------- -------------
Total liabilities .......................................... 173,578,637 172,075,963
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NORTHEAST INDIANA BANCORP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, 1998 And December 31, 1997
March 31, December 31,
1998 1997
------------- -------------
<S> <C> <C>
Shareholders' equity
Preferred Stock 500,000 shares authorized; 0 shares issued . -- --
Common stock, $.01 par value: 4,000,000 shares
authorized; 2,182,125 shares issued ...................... 21,821 21,821
Additional paid in capital ................................. 21,385,249 21,350,326
Retained earnings, substantially restricted ................ 14,354,422 13,956,340
Unearned employee stock ownership plan shares .............. (1,309,275) (1,309,275)
Unearned recognition and retention plan shares ............. (580,302) (621,817)
Net unrealized appreciation on securities available
for sale ................................................. 44,821 41,672
Treasury stock, 493,198 and 449,798 common shares, at
cost, at March 31, 1998 and December 31, 1997 ............ (7,189,364) (6,146,433)
------------- -------------
Total shareholders' equity ........................ 26,727,372 27,292,634
------------- -------------
Total liabilities and shareholders' equity $ 200,306,009 $ 199,368,597
============= =============
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
NORTHEAST INDIANA BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
Three months ended March 31, 1998
Three months ended
March 31,
1998 1997
(Unaudited)
<S> <C> <C>
Interest income
Loans, including fees .......................... $ 3,660,797 $ 3,041,783
Taxable securities ............................. 243,783 219,871
Non-taxable securities ......................... 5,081 9,994
Deposits with banks ............................ 63,593 43,492
----------- -----------
Total interest income ................. $ 3,973,254 $ 3,315,140
Interest expense
Deposits ........................................ 1,405,483 1,041,273
Borrowed funds ................................. 800,239 771,017
----------- -----------
Total interest expense .................................. $ 2,205,722 $ 1,812,290
Net interest income ..................................... 1,767,532 1,502,850
Provision for loan losses ...................... 90,000 58,500
----------- -----------
Net interest income after provision for loan losses...... $1,677,532 $ 1,444,350
Noninterest income
Service charges on deposit accounts ............ 65,385 50,687
Loan servicing fees ............................ 62,923 34,245
Net realized gain on sale of securities ........ 0 0
Other .......................................... 41,100 31,126
----------- -----------
Total noninterest income .............. $ 169,408 $ 116,058
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NORTHEAST INDIANA BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
Three months ended March 31, 1998
(continued)
Three months ended
March 31,
1998 1997
(Unaudited)
<S> <C> <C>
Noninterest expense
Salaries and employee benefits ................. 453,909 383,002
Occupancy ...................................... 89,224 70,068
Data processing ................................ 97,362 73,231
Insurance expense............................... 15,107 12,685
Professional fees .............................. 51,766 36,063
Correspondent bank charges ..................... 33,820 49,639
Other expense .................................. 206,037 127,350
----------- -----------
Total noninterest expense ............. $ 947,225 $ 752,038
Income before income taxes .............................. 899,715 808,370
Income tax expense ............................. 356,171 314,630
----------- -----------
Net income .............................................. $ 543,544 $ 493,740
=========== ===========
Other comprehensive income, net of tax
Change in unrealized gains on securities ....... 3,149 (52,353)
----------- -----------
Comprehensive income .................................... $ 546,693 $ 441,387
=========== ===========
Basic earnings per common share ......................... $ 0.36 $ 0.31
=========== ===========
Diluted earnings per common share ....................... $ 0.34 $ 0.30
=========== ===========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
NORTHEAST INDIANA BANCORP, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDER'S EQUITY
Three months ended March 31, 1998
(Unaudited)
Unearned
Employee
Additional Stock
Common Paid-in Retained Ownership
Stock Capital Earnings Plan Shares
----- ------- -------- -----------
<S> <C> <C> <C> <C>
Balance, January 1, 1998 21,821 21,350,326 13,956,3340 (1,309,275)
Dividends Paid $0.085 per
share year to date (145,462)
Shares committed to be
released under ESOP 49,641
Purchase of 57,410 shares
of Treasury Stock
Sale of 14,010 shares
of Treasury Stock (14,718)
Purchase of RRP Stock
Amortization of RRP
Contributions
Net Income March 31, 1998 543,544
Other comprehensive
income, net of tax:
Change in unrealized gains
on securities
------ ---------- ---------- ----------
Balance, March 31, 1998 21,821 21,385,249 14,354,422 (1,309,275)
====== ========== ========== ==========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NORTHEAST INDIANA BANCORP, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDER'S EQUITY
Three months ended March 31, 1998
(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, 1998 (621,817) 41,672 (6,146,433) 27,292,634
Dividends Paid $0.085 per
share year to date (145,462)
Shares committed to be
released under ESOP 49,641
Purchase of 57,410 shares
of Treasury Stock (1,227,048) (1,227,048)
Sale of 14,010 shares
of Treasury Stock 184,117 169,399
Purchase of RRP Stock (10,656) (10,656)
Amortization of RRP
Contributions 52,171 52,171
Net Income March 31, 1998 543,544
----------
Other comprehensive
income, net of tax
Change in unrealized gains
on securities 3,149 3,149
Comprehensive income 546,693
-------- -------- ---------- ----------
Balance, March 31, 1998 (580,302) 44,821 (7,189,364) 26,727,372
======== ====== ========== ==========
</TABLE>
See accompanying notes to financial statements
<PAGE>
<TABLE>
<CAPTION>
NORTHEAST INDIANA BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months ended March 31, 1998 and 1997
Three Months Ended
March 31,
1998 1998
------------ ------------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities
Net income .............................................................. $ 543,545 $ 493,740
Adjustments to reconcile net income to net cash from operating activities
Net (gain) loss on sale of premises and equipment .................... (8,500) 0
Net (gain) loss on sale of foreclosed real estate .................... 3,200 0
Net (gain) loss on sale of other repossessed assets .................. (3,468) 0
Provision for loan losses ............................................ 90,000 58,500
Depreciation and amortization, net of accretion ...................... 39,000 33,456
Amortization of ESOP Contributions ................................... 49,642 17,275
Amortization of RRP Contributions .................................... 41,515 51,257
Net change in other assets ........................................... 411,191 51,039
Net change in accrued interest receivable ............................ 82,650 25,872
Net change in accrued expenses and other liabilities ................. 131,851 (715,778)
------------ ------------
Total adjustments ................................................ 837,081 (478,379)
------------ ------------
Net cash from operating activities ........................... $ 1,380,626 $ 15,361
Cash flows from investing activities
Proceeds from maturities and principal repayments of securities
held to maturity ...................................................... 193,265 102,242
Proceeds from maturities and principal repayments of securities
available for sale .................................................... 1,550,000 0
Purchases of securities available for sale .............................. (1,509,749) (1,009,266)
Net change in loans ..................................................... (1,277,11) (4,500,107)
Expenditures on premises and equipment .................................. (56,523) (14,645)
Proceeds from sale of premises and equipment ............................ 8,500 0
Proceeds froms sales of other real estate ............................... 20,000 0
Proceeds froms sales of other repossessed assets ........................ 27,507 0
------------ ------------
Net cash from investing activities ...................................... $ (1,044,111) $ (5,421,776)
------------ ------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NORTHEAST INDIANA BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months ended March 31, 1998 and 1997
(continued)
Three Months Ended
March 31,
1998 1998
------------ ------------
(Unaudited)
<S> <C> <C>
Cash flows from financing activities
Advances from FHLB ...................................................... 10,000,000 8,000,000
Repayment of FHLB advances .............................................. (21,225,000) (10,000,000)
Net increase (decrease) in other borrowings ............................. 182,621 0
Cash dividends paid ..................................................... (145,463) (143,607)
Net proceeds from stock issuance ........................................ 169,398 0
Increase (decrease) in advances from borrowers for taxes and insurance .. 90,369 79,030
Repurchase stock ........................................................ (1,227,048) (682,836)
Net change in deposits .................................................. 12,303,549 6,316,758
------------ ------------
Net cash from financing activities ................................. 148,426 3,569,345
------------ ------------
Net increase in cash and cash equivalents ................................. 484,941 (1,837,070)
Cash and cash equivalents at beginning of period .......................... 4,819,686 6,672,374
------------ ------------
Cash and cash equivalents at end of period ................................ $ 5,304,627 $ 4,835,304
============ ============
Cash paid during the period for:
Interest ............................................................. $ 2,255,858 $ 1,810,165
Income taxes ......................................................... 20,000 137,308
</TABLE>
See accompanying notes to financial statements
<PAGE>
NORTHEAST INDIANA BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months ended March 31, 1998 and 1997
NOTE 1 - BASIS OF PRESENTATION
The unaudited information for the three months ended March 31, 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 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.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months ended March 31, 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 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, 1998, 43,643 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.
<TABLE>
<CAPTION>
Three Months Ended
------------------------
March 31,
----- ---
1998 1997
---------- ----------
<S> <C> <C>
Earnings Per Share
Net Income ...................................... $ 543,544 $ 493,740
Weighted average common shares outstanding ...... 1,528,400 1,580,555
Basic Earnings Per Share ........................ $ .36 $ 0.31
Earnings Per Share Assuming Dilution
Net Income ...................................... $ 543,544 $ 493,740
Weighted average common shares outstanding ...... 1,528,400 1,580,555
Add: dilutive effects of assumed exercises
incentive stock options and now qualified
stock options ......................... 74,214 50,017
Weighted average and dilutive common shares
outstanding ................................ 1,602,615 1,630,572
Diluted earnings per share ..................... $ 0.34 $ 0.30
</TABLE>
NOTE 5 - COMMON STOCK CASH DIVIDENDS
On April 22, 1998 the Board of Directors of Northeast Indiana Bancorp, Inc.
announced a quarterly cash dividend of $.085 per share. The dividend will be
paid on May 22, 1998 to shareholders of record on May 8, 1998. The payment of
the cash dividend will reduce shareholders' equity (second quarter) by $142,241.
<PAGE>
NORTHEAST INDIANA BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months ended March 31, 1998 and 1997
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. As of May 8, 1998 93,000 shares have been repurchased under this
plan since July 18, 1997. There were also 10,910 shares repurchased from
exercised options during the first quarter 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 March 31,
1998, the capital requirements for the Bank under FIRREA and the Bank's actual
capital ratios. As of March 31, 1998, the Bank substantially exceeded all
current regulatory capital standards.
Regulatory Actual
Capital Requirement Capital Requirement
------------------- -------------------
Amount Percent Amount Percent
------ ------- ------ -------
(Dollars in thousands)
Risk-based capital $ 10,348 8.0 % $ 25,525 19.73 %
Core capital $ 8,018 4.0 % $ 24,372 12.16 %
Tangible capital $ 4,009 2.0 % $ 24,372 12.16 %
<PAGE>
NOTE 8 - RECLASSIFICATIONS
Certain amounts in the 1997 consolidated financial statements have been
reclassified to conform to the 1998 presentation.
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 March 31, 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.
<PAGE>
NORTHEAST INDIANA BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months ended March 31, 1998 and 1997
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 $937,000 or 0.47% from $199.4 million at
December 31, 1997 to $200.3 million at March 31, 1998. This increase was due
primarily to funds generated from increased deposits growth of $12.3 million net
of decreased borrowings of $11.0 million so that new loans could be funded. In
addition to asset growth through the first three months of 1998 we purchased
2.7% of the outstanding shares to fund Treasury Stock which reduced our capital.
The Bank's cash and cash equivalents increased $490,000 from $4.8 million at
December 31, 1997 to $5.3 million at March 31, 1998. This increase was due
primarily from the funds being available to fund the net increase in loans.
Net loans receivable increased $1.1 million or 0.64% from $174.5 million at
December 31, 1997 to $175.7 million at March 31, 1998. The increase in loans
during the first three months of 1998 was predominantly in consumer and
commercial loan products which accounted for $924,000 of the increase. This
growth was because of the generally favorable market conditions. Allowances for
loan losses increased approximately $73,000 through the three months ended March
31, 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 $1.3 million include $113,300
of specific reserves for loans or partial loans classified as substandard in the
amount of $335,983.
INVESTMENTS
Securities available-for-sale decreased $31,000 from $14.6 million at December
31, 1997 to $14.6 million at March 31, 1998. This decrease was due to the
purchase of investments used to maintain our liquidity requirements offset by
investments being called or maturing during the quarter.
RESULTS OF OPERATIONS
The Company had net income of $544,000 or $0.36 per basic share for the three
months ended March 31, 1998 compared to $494,000 or $0.31 per basic share for
the three months ended March 31, 1997.
<PAGE>
NORTHEAST INDIANA BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months ended March 31, 1998 and 1997
Net interest income increased to $1.7 million for the three months ended March
31, 1998 compared to $1.5 million for the three months ended March 31, 1997.
Interest income increased $658,000 to $4.0 million from $3.3 million for the
first quarter March 31, 1998 and March 31, 1997, respectively. For the first
quarter interest expense increased $393,000 to $2.2 million from $1.8 million
for the quarter ended March 31, 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 for the three months ended March
31, 1998 compared to the same period ended March 31, 1997.
Non-interest expense increased to $947,000 for the three months ended March 31,
1998 compared to $752,000 for the corresponding period in 1997. This represents
an increase of $195,000 for the three months ended March 31, 1998. This increase
is due to higher salaries and benefits reflecting increases in compensation for
1998 and additional employees added during 1997 to support customer service as
we grow.
Income tax expense is up for the three months ended March 31, 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 for the three
months ended March 31, 1998 compared to $58,000 for the same period ended March
31, 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.
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:
<PAGE>
NORTHEAST INDIANA BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months ended March 31, 1998 and 1997
March 31 December 31
1997 1997
Non-accruing loans $ 336 $ 1,166
Accruing loans delinquent 90 days and more 0 0
Troubled debt restructuring 0 0
Foreclosed assets 23 7
----- -------
Total non-performing assets 359 1,173
----- -------
Total non-performing assets as a percentage
of total assets .18% .58%
----- --------
Total non-performing assets decreased from $1.2 million to $359,000 or 0.18% of
total assets at March 31, 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 March
31, 1998, the Bank exceeded all regulatory capital standards.
At March 31, 1998, the Bank's risk based capital was $25.5 million or 19.73% of
risk adjusted assets which exceeds the $10.3 million and the 8.0% OTS
requirement by $15.2 million and 11.73%. The Bank's core capital at March 31,
1998 is $24.3 million or 12.16% which exceeds the OTS requirement of $8.0
million and 4.00% by $16.3 million and 8.16%. The tangible capital requirement
is $4.0 million and 2.00% which the Bank exceeded by $20.3 million and 10.16%
which is reflected by March 31, 1998 tangible capital balance of $24.3 million
and a 12.16% 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 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 March 31, 1998, First Federal's liquidity ratio was 9.65%,
which is in excess of the minimum regulatory requirements.
<PAGE>
NORTHEAST INDIANA BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months ended March 31, 1998 and 1997
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 March 31, 1998, First
Federal had commitments to originate loans and to fund open lines of credit
totaling $17.4 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 first quarter of 1998 equal to 6.28 basis points annualized per $100 of
domestic deposits, as compared to a FICO assessment on BIF-assessable deposits
for that same period equal to 1.30 basis points per $100 of domestic deposits.
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.
<PAGE>
IMPACT OF THE YEAR 2000
The Company has conducted a comprehensive review of its computer systems to
identify applications that could be affected by the "Year 2000" issue, and has
developed an implementation plan to address the issue. The Company and the
Bank's data processing are performed primarily by a third party servicer. The
Company and the Bank also utilizes software and hardware which is under
maintenance agreements with third party vendors, consequently the Company and
Bank are very dependent on those vendors to conduct its business. The Company
has already contacted each vendor to request time tables for year 2000
compliance and expected costs, if any, to be passed along to the Company. To
date, the Company has been informed that its primary service providers
anticipate that all reprogramming efforts will be completed by December 31,
1998, allowing the Company adequate time for testing. Certain other vendors have
not yet responded, however, the Company will pursue other options if it appears
that these vendors will be unable to comply. Management does not expect these
costs 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. The Company has identified certain hardware and
software equipment that will not be Year 2000 compliant and intends to purchase
new equipment and software prior to December 31, 1998. These capital
expenditures are not expected to be material.
<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
The Annual Meeting of Shareholders ("the meeting") of Northeast Indiana Bancorp,
Inc. was held on April 22, 1998. The matters approved by shareholders at the
meeting and the number of votes cast for, against or withheld (as well as the
number of abstentions) as to each matter are set forth below:
(1) The election of the following directors for a three year term
Votes For Withheld
Dan L. Stephan 1,387,308 4,545
Stephen E. Zahn 1,389,848 2,005
(2) Ratification of Crowe, Chizek and Company, LLP as auditors for the year
ending December 31, 1998
Votes For Against Withheld
1,387,048 1,500 4,305
ITEM 5 - OTHER INFORMATION
None
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
Exhibits
None
(b) Reports on Form 8-K
January 29, 1998 Press Release announcing Cash Dividend, Fourth Quarter Earnings
1997 and Year End 1997 Earnings April 14, 1998 Press Release announcing First
Quarter Earnings April 24, 1998 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: May 13, 1998 By: /S/ STEPHEN E. ZAHN
-------------------
Stephen E. Zahn
President and Chief Executive Officer
(Duly Authorized Officer)
Date: May 13, 1998 By: /S/ DARRELL E. BLOCKER
----------------------
Darrell E. Blocker
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
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<PERIOD-END> MAR-31-1998
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