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, 1999
[ ] 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)
Issuer's telephone number, including area code: (219) 356-3311
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 MAY 7, 1999
- --------------------------------------------------------------------------------
Common Stock, par value $.01 per share 1,649,347
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
March 31, 1999 and December 31, 1998
Consolidated Condensed Statements of Income for the
three months ended March 31, 1999 and 1998
Consolidated Statement of Change in Shareholders' Equity
for the three months ended March 31, 1999
Consolidated Statements of Cash Flows for the three
months ended March 31, 1999 and 1998
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, 1999 And December 31, 1998
March 31, December 31,
1999 1998
------------- -------------
(Unaudited)
<S> <C> <C>
ASSETS
Interest earning cash and cash equivalents $ 3,614,309 $ 4,079,792
Noninterest earning cash and cash equivalents 2,181,317 2,215,845
------------- -------------
Total Cash and cash equivalents 5,795,626 6,295,637
Interest-earning deposits in financial institutions 100,000 100,000
Securities available for sale 11,961,484 13,658,691
Securities held to maturity (fair value: March 31, 1999- $493,160;
December 31, 1998 - $528,424) 493,160 528,424
Loans receivable, net of allowance for loan losses March 31, 1999
$1,558,346 and December 31, 1998 $1,454,000 190,600,078 185,906,309
Other real estate owned 52,496 110,712
Accrued interest receivable 416,978 487,393
Premises and equipment 2,365,602 2,265,347
Investments in limited liability partnerships 1,383,032 1,400,000
Other assets 1,194,010 1,672,079
------------- -------------
Total assets $ 214,362,466 $ 212,424,592
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Demand deposits $ 3,136,728 $ 3,058,581
Savings 10,133,069 9,811,696
NOW and MMDDA 32,657,798 31,354,647
Other time deposits 77,242,725 79,110,658
------------- -------------
Total deposits 123,170,320 123,335,582
Borrowed funds 65,203,942 63,080,275
Accrued expenses and other liabilities 818,577 1,004,099
------------- -------------
Total liabilities $ 189,192,839 $ 187,419,956
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NORTHEAST INDIANA BANCORP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, 1999 And December 31, 1998
March 31, December 31,
1999 1998
------------- -------------
(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; 2,400,466 shares issued at
March 31, 1999 and December 31,1998 24,005 24,005
Additional paid in capital 25,161,305 25,128,717
Retained earnings, substantially restricted 12,597,706 12,166,794
Unearned employee stock ownership plan shares (1,163,800) (1,163,800)
Unearned recognition and retention plan shares (388,764) (433,672)
Net unrealized appreciation on securities available
for sale 19,322 44,105
Treasury stock, 747,549 and 728,409 common shares, at
cost, at March 31, 1999 and December 31, 1998 (11,080,147) (10,761,513)
------------- -------------
Total shareholders' equity 25,169,627 25,004,636
Total liabilities and shareholders' equity $ 214,362,466 $ 212,424,592
============= =============
</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, 1999
Three months ended
March 31,
1999 1998
---------- ----------
(Unaudited)
<S> <C> <C>
Interest income
Loans, including fees $3,770,467 $3,660,797
Taxable securities 226,915 243,783
Non-taxable securities 6,487 5,081
Deposits with banks 46,266 63,593
---------- ----------
Total interest income 4,050,135 3,973,254
Interest expense
Deposits 1,328,343 1,405,483
Borrowed funds 837,869 800,239
---------- ----------
Total interest expense 2,166,212 2,205,722
Net interest income 1,883,923 1,767,532
Provision for loan losses 100,500 90,000
---------- ----------
Net interest income after provision for loan
losses 1,783,423 1,677,532
Noninterest income
Service charges on deposit accounts 73,050 65,385
Loan servicing fees 67,843 62,923
Net realized gain on sale of securities - -
Other 48,398 41,100
---------- ----------
Total noninterest income $ 189,291 $ 169,408
Noninterest expense
Salaries and employee benefits 523,479 453,909
Occupancy 99,190 89,224
Data processing 126,566 97,362
Insurance expense 19,714 15,107
Professional fees 38,874 51,766
Correspondent bank charges 52,528 33,820
Other expense 171,052 206,037
---------- ----------
Total noninterest expense $1,031,403 $ 947,225
Income before income taxes 941,311 899,715
Income tax expense 360,287 356,171
---------- ----------
Net income $ 581,024 $ 543,544
========== ==========
Basic earnings per common share (restated) $ 0.39 $ 0.32
Diluted earnings per common share (restated) $ 0.37 $ 0.31
Return on average assets 1.10% 1.09%
Return on average equity 9.18% 7.96%
Equity to assets 11.97% 13.68%
</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, 1999
(Unaudited)
Net
Unearned Unearned Unrealized
Employee Recognition Appreciation
Additional Stock And on Securities
Common Paid-in Retained Ownership Retention Available-
Stock Capital Earnings Plan Shares Plan Shares For-Sale
----- ------- -------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1999 24,005 25,128,717 12,166,794 (1,163,800) (433,672) 44,105
Net Income March 31, 1999 581,024
Other Comprehensive income:
Unrealized gains on securities (42,998)
Total tax effect 18,215
----------------
Total other comprehensive income (24,783)
Comprehensive income
Dividends Paid $.09 per share year to date (150,112)
Purchase of 20,700 shares of Treasury Stock
Sale of 700 shares of Treasury Stock (1,035)
Shares committed to be released under ESOP 31,640
Purchase of 500 shares for RRP 1,983 (8,063)
Amortization of RRP Contributions 52,971
====== ========== ========== ========== ======== ======
Balance at March 31, 1999 24,005 25,161,305 12,597,706 (1,163,800) (388,764) 19,322
====== ========== ========== ========== ======== ======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Total
Treasury Shareholders'
Stock Equity
----------- ----------
<S> <C> <C>
Balance, January 1, 1999 (10,761,513) 25,004,636
Net Income March 31, 1999 581,024
Other Comprehensive income:
Unrealized gains on securities
Total tax effect
Total other comprehensive income (24,783)
----------
Comprehensive income 556,241
Dividends Paid $.09 per share year to date (150,112)
Purchase of 20,700 shares of Treasury Stock (333,225) (333,225)
Sale of 700 shares of Treasury Stock 8,511 7,476
Shares committed to be released under ESOP 31,640
Purchase of 500 shares for RRP 6,080 -
Amortization of RRP Contributions 52,971
=========== ===========
Balance at March 31, 1999 (11,080,147) 25,169,627
=========== ===========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
NORTHEAST INDIANA BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months ended March 31, 1999 and 1998
(Continued)
Three months ended
March 31,
1999 1998
------------ ------------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities
Net income $ 581,024 $ 543,545
Adjustments to reconcile net income
to net cash from operating activities
Net (gain) loss on sale of premises and equipment - (8,500)
Gain on sale of securities - -
Gain on sale of foreclosed real estate (1,811) 3,200
Provision for loan losses 100,500 90,000
Depreciation and amortization 55,256 38,745
Reduction of obligation under ESOP 31,640 49,642
Amortization of RRP 52,971 41,515
Net change in:
Other assets 506,155 123,353
Accrued interest receivable 70,415 82,650
Accrued expenses and other liabilities (198,191) 211,863
------------ ------------
Total adjustments 616,935 632,468
------------ ------------
Net cash from operating activities 1,197,959 1,176,013
Cash flows from investing activities
Proceeds from maturities and principal payments
of securities held to maturity 35,264 193,265
Proceeds from maturities and principal payments
of securities available for sale 2,356,987 1,872,234
Proceeds from sale of securities available for sale - -
Purchases of securities available for sale (689,783) (1,509,749)
Proceeds from sale of loans - -
Purchases of loans - -
Net change in loans (4,824,301) (1,277,111)
Expenditures on premises and equipment (151,537) (56,523)
Proceeds from sale of premises and equipment - 8,500
Proceeds from sale of foreclosed real estate 92,856 20,000
------------ ------------
Net cash from investing activities (3,180,514) (749,384)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NORTHEAST INDIANA BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months ended March 31, 1999 and 1998
(Continued)
Three months ended
March 31,
1999 1998
------------ ------------
(Unaudited)
<S> <C> <C>
Cash flows from financing activities
Advances from FHLB 27,000,000 10,000,000
Repayment of FHLB advances (24,999,745) (20,999,745)
Payments of demand notes (390,000) (225,000)
Net change in other borrowed funds 513,412 182,621
Dividends paid (150,112) (145,463)
Purchase of stock (333,225) (1,227,048)
Sale of treasury stock 7,476 169,398
Net change in deposits (165,262) 12,303,549
------------ ------------
Net cash from financing activities 1,482,544 58,312
------------ ------------
Net change in cash and cash equivalents (500,011) 484,941
Cash and cash equivalents at beginning of year 6,295,637 4,819,686
------------ ------------
Cash and cash equivalents at end of year $ 5,795,626 $ 5,304,627
============ ============
Cash paid for:
Interest $ 742,138 $ 2,255,858
Income taxes 50,000 20,000
Non-cash transactions:
Investment in obligation relative to limited partnership $ - $ -
Transfer from loans to other real estate 32,829 42,700
</TABLE>
See accompanying notes to financial statements.
<PAGE>
NORTHEAST INDIANA BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three months ended March 31, 1999 and 1998
NOTE 1 - BASIS OF PRESENTATION
The unaudited information for the three months ended March 31, 1999 and 1998
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") and its wholly owned subsidiary, Northeast Indiana
Financial, Inc. 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 (restated as of November 23, 1998; 2,400,466 shares at $9.09 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.
<PAGE>
NORTHEAST INDIANA BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three months ended March 31, 1999 and 1998
NOTE 2 - CONVERSION (Continued)
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 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, 1999, 63,719 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 1998, 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 months ended
March 31,
1999 1998
---------- ----------
<S> <C> <C>
Earnings Per Share
Net Income available to common shareholders $ 581,024 $ 543,543
Weighted average common shares outstanding 1,500,042 1,681,240
Basic Earnings Per Share $ 0.38 $ 0.32
Earnings Per Share Assuming Dilution
Net Income available to common shareholders $ 581,024 $ 543,543
Weighted average common shares outstanding 1,500,042 1,681,240
Add: dilutive effects of assumed exercises of
incentive stock options and non qualified
stock options 59,014 81,635
Weighted average and dilutive common shares
Outstanding 1,559,056 1,762,875
Diluted earnings per share $ 0.37 $ 0.31
</TABLE>
<PAGE>
NORTHEAST INDIANA BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three months ended March 31, 1999 and 1998
NOTE 5 - COMMON STOCK DIVIDENDS
On April 22, 1999 the Board of Directors of Northeast Indiana Bancorp, Inc.
announced a quarterly cash dividend of $.09 per share. The dividend will be paid
on May 21, 1999 to shareholders of record on May 7, 1999. The payment of the
cash dividend will reduce shareholders' equity (second quarter) by approximately
$148,000.
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.
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 April 29, 1999, 165,200 shares have been repurchased under this program since
its announcement.
There were also 700 shares repurchased from exercised options year to date
through April 29, 1999.
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,
1999, the capital requirements for the Bank under FIRREA and the Bank's actual
capital ratios. As of March 31, 1999, 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 $ 11,462 8.0 % $ 23,395 16.33 %
Core capital $ 8,581 4.0 % $ 21,940 10.23 %
Tangible capital $ 4,291 2.0 % $ 21,940 10.23 %
</TABLE>
<PAGE>
NORTHEAST INDIANA BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three months ended March 31, 1999 and 1998
NOTE 8 - RECLASSIFICATIONS
Certain amounts in the 1998 consolidated financial statements have been
reclassified to conform to the 1999 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 March 31, 1999, 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.
TRUST/FINANCIAL SERVICES
During the year of 1998, First Federal established a trust department which
began operations in the fourth quarter. At the end of March 31, 1999 , $6.5
million was held under asset management. In February 1999, the Company announced
the establishment of Northeast Indiana Financial, Inc., a wholly-owned
subsidiary of the Bank. Northeast Indiana Financial, Inc. will provide brokerage
services through the purchase of mutual funds, annuities, stocks and bonds for
its customers. Until these operations are well established, management expects a
slight negative impact to net income.
<PAGE>
NORTHEAST INDIANA BANCORP, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND OPERATING RESULTS
FINANCIAL CONDITION
The Company's total assets increased $1.9 million or 0.91% from $212.4 million
at December 31, 1998 to $214.4 million at March 31, 1999. This increase was due
primarily to funds generated from increased borrowings of $2.1 million net of
decreased deposits of $200,000. In addition to asset growth through the first
three months of 1999 the company purchased 1.5% of the outstanding shares to
fund Treasury Stock which reduced our capital $323,000.
Net loans receivable increased $4.7 million or 2.53% from $185.9 million at
December 31, 1998 to $190.6 million at March 31, 1999. The increase in loans
during the first three months of 1999 was predominantly in mortgage loan
products which accounted for $2.3 million of the increase along with a $591,000
increase in consumer lending and $1.8 increase in commercial lending. This
growth was because of the generally favorable market conditions. Allowances for
loan losses increased approximately $104,000 through the three months ended
March 31, 1999. 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 $1.6 million include $103,000
of specific reserves for loans or partial loans classified as substandard in the
amount of $1.8 million.
INVESTMENTS
Securities available-for-sale decreased $1.7 million from $13.7 million at
December 31, 1998 to $12.0 million at March 31, 1999. Investments of $700,000
were purchased to replenish a portion of the $2.4 million of portfolio balances
being reduced by calls, payments and maturities.
RESULTS OF OPERATIONS
The Company had net income of $581,000 or $0.39 per basic share for the three
months ended March 31, 1999 compared to $544,000 or $0.32 per basic share for
the three months ended March 31, 1998. 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 $1.9 million for the three months ended March
31, 1999 compared to $1.8 million for the three months ended March 31, 1998.
Interest income increased $77,000 to $4.1 million for March 31, 1999 compared to
$4.0 million for March 31, 1998. For the first quarter interest expense
decreased $40,000 to $2.2 million for the quarter ended March 31, 1999 compared
to $2.2 million March 31, 1998.
Provisions for loan losses increased by $10,500 for the three months ended March
31, 1999 compared to the same period ended March 31, 1998.
<PAGE>
NORTHEAST INDIANA BANCORP, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND OPERATING RESULTS
RESULTS OF OPERATIONS (Continued)
Non-interest income increased to $189,000 for the three months ended March
31,1999 compared to $169,000 for the comparable period in 1998. This represents
an increase of $20,000 for the three months ended March 31, 1999.
Non-interest expense increased to $1.0 million for the three months ended March
31, 1999 compared to $947,000 for the corresponding period in 1998. This
represents an increase of $84,000 for the three months ended March 31, 1999.
This increase is due partially to higher salaries and benefits reflecting
increases in compensation for 1999 and additional employees added during late
1998 and early 1999 to support customer service as we grow.
Data processing expense has increased $29,000 for the three months ended March
31, 1999 due to software upgrades and increased processing volume.
Income tax expense is up for the three months ended March 31, 1999 due to higher
taxable income compared to 1998.
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 $100,000 for the three
months ended March 31, 1999 compared to $90,000 for the same period ended March
31, 1998. Management believes our current allowance for loan loss is adequate to
absorb possible losses and is weighted for the mix of loans currently held;
therefore we anticipate that the standard expense will be reduced for the second
quarter 1999.
<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>
March 31 December 31
1999 1998
------ ------
<S> <C> <C>
Non-accruing loans $1,146 $1,208
Accruing loans delinquent 90 days and more - -
Troubled debt restructuring - -
Foreclosed assets 52 120
------ ------
Total non-performing assets 1,198 1,328
====== ======
Total non-performing assets as a percentage
of total assets 0.56% 0.63%
====== ======
</TABLE>
Total non-performing assets decreased from $1.3 million to $1.2 million or 0.56%
of total assets at March 31, 1999 from 0.63% of total assets at December 31,
1998.
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, 1999, the Bank exceeded all regulatory capital standards.
At March 31, 1999, the Bank's risk based capital was $23.4 million or 16.33% of
risk adjusted assets which exceeds the $11.5 million and the 8.0% OTS
requirement by $11.9 million and 8.33%. The Bank's core capital at March 31,
1999 is $21.9 million or 10.23% which exceeds the OTS requirement of $8.6
million and 4.00% by $13.3 million and 6.23%. The tangible capital requirement
is $4.3 million and 2.00% which the Bank exceeded by $17.6 million and 8.23%
which is reflected by March 31, 1999 tangible capital balance of $21.9 million
and a 10.23% 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 March 31, 1999, First Federal's liquidity ratio was 7.94%,
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 March 31, 1999, First
Federal had commitments to originate loans and to fund open lines of credit
totaling $23.2 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.
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>
NORTHEAST INDIANA BANCORP, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND OPERATING RESULTS
IMPACT OF THE YEAR 2000
The Company relies heavily on computer technology to provide its products and
services and is well aware of all the issues involved with the Year 2000
including how operations could be impacted if a potential problem would arise.
An overall plan developed by the Year 2000 Committee was approved by the Board
of Directors and put into effect in 1998. This plan is a step by step process of
assessment, remediations and testing of hardware, software, embedded systems as
well as a customer awareness program, contingency and business continuity
planning and budgeting.
A test was performed on all computer systems to make sure they were able to
recognize year 2000 dates and hold these dates when powered off and on. Any new
computer equipment purchased will go through the same testing process. All
embedded systems have been assessed and will continue to be functional in the
year 2000.
The Company has no software that is internally developed. The various types of
software utilized by the Company are purchased through third party vendors and
our service bureau. Our service bureau has kept up informed of the Year 2000
status of the software products. Testing of all mission critical data file
interfaces began in the fourth quarter of 1998 and was completed in early second
quarter 1999. Testing of all other systems and procedures will continue through
June 30, 1999
Throughout the remainder of 1999, the Company will be focusing on Customer
Awareness, continuing to monitor the Y2K status of our various vendors and
completing our Business Continuity Plan. The Business Continuity Plan sets forth
certain procedures to be followed should problems be discovered resulting from
issues beyond our control. This plan will be finalized and presented to the
Board of Directors by June 30, 1999.
<PAGE>
NORTHEAST INDIANA BANCORP, INC.
PART II
Other Information
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
(a) The Annual Meeting of Shareholders ("the meeting") of Northeast
Indiana Bancorp, Inc. was held on April 21, 1999. 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
--------- --------
J. David Carnes 1,183,251 32,674
(2) Ratification of Crowe, Chizek and Company, LLP as auditors for
the year ending December 31, 1999:
Votes
-----
For Against Withheld
--------- ------- --------
1,212,514 990 2,421
ITEM 5 - OTHER INFORMATION
None
<PAGE>
NORTHEAST INDIANA BANCORP, INC.
PART II (Continued)
Other Information
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
(1) January 27, 1999 Announcing Cash Dividends and Fourth Quarter
Earnings
(2) February 8, 1999 Announcing establishment of Northeast Indiana
Financial, Inc.
(3) April 13, 1999 Announcing First Quarter Earnings
(4) April 22, 1999 Announcing Cash Dividends and Annual Meeting
Results
<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 14, 1999 By: /S/ STEPHEN E. ZAHN
-------------------
Stephen E. Zahn
President and Chief Executive Officer
(Duly Authorized Officer)
Date: May 14, 1999 By: /S/ DARRELL E. BLOCKER
----------------------
Darrell E. Blocker
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
<TABLE> <S> <C>
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<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
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0
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<COMMON> 24,005
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