UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 0-26012
NORTHEAST INDIANA BANCORP, INC.
-------------------------------
(Name of small business issuer in its charter)
Delaware 35-1948594
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
648 North Jefferson Street, Huntington, Indiana 46750
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (219) 356-3311
--------------
Securities Registered Pursuant to Section 12(b) of the Act:
None
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, par value $0.01 per share
---------------------------------------
(Title of class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports) and (2) has been subject to such filing requirements for the past 90
days. YES [X]. NO [ ].
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained herein, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
<PAGE>
Our revenues for the most recent fiscal year: $18.6 million.
The aggregate market value of the voting stock held by non-affiliates,
computed by reference to the average of the bid and ask price of such stock as
of March 10, 2000, was $14.3 million. (The exclusion from such amount of the
market value of the shares owned by any person shall not be deemed an admission
by the registrant that such person is an affiliate.)
As of March 10, 2000, there were 1,748,036 shares outstanding of the
registrant's Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Parts II and IV of Form 10-KSB - annual report to stockholders for the fiscal
year ended December 31, 1999. Part III of Form 10-KSB - proxy statement for
annual meeting of stockholders.
<PAGE>
FORWARD-LOOKING STATEMENTS
Northeast Indiana Bancorp, Inc., and its wholly-owned
subsidiaries, First Federal Savings Bank and Northeast Indiana Financial, Inc.,
may from time to time make written or oral "forward-looking statements,"
including statements contained in its filings with the Securities and Exchange
Commission. These forward-looking statements may be included in this Annual
Report on Form 10-KSB and the exhibits attached to it, in Northeast Indiana
Bancorp's reports to stockholders and in other communications, which are made in
good faith by us pursuant to the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995.
These forward-looking statements include statements about our
beliefs, plans, objectives, goals, expectations, anticipations, estimates and
intentions, that are subject to significant risks and uncertainties, and are
subject to change based on various factors, some of which are beyond our
control. The words "may", "could", "should", "would", "believe", "anticipate",
"estimate", "expect", "intend", "plan" and similar expressions are intended to
identify forward-looking statements. The following factors, among others, could
cause our financial performance to differ materially from the plans, objectives,
expectations, estimates and intentions expressed in the forward-looking
statements:
o the strength of the United States economy in general and the
strength of the local economies in which we conduct operations;
o the effects of, and changes in, trade, monetary and fiscal
policies and laws, including interest rate policies of the
Federal Reserve Board;
o inflation, interest rate, market and monetary fluctuations;
o the timely development of and acceptance of our new products and
services and the perceived overall value of these products and
services by users, including the features, pricing and quality
compared to competitors' products and services;
o the willingness of users to substitute our products and services
for products and services of our competitors;
o our success in gaining regulatory approval of our products and
services, when required;
o the impact of changes in financial services' laws and regulations
(including laws concerning taxes, banking, securities and
insurance);
o the impact of technological changes;
o acquisitions;
o changes in consumer spending and saving habits; and
o our success at managing the risks involved in the foregoing.
The list of important factors stated above is not exclusive. We
do not undertake to update any forward-looking statement, whether written or
oral, that may be made from time to time by or on behalf of Northeast Indiana,
First Federal Savings or Northeast Financial.
2
<PAGE>
PART I
Item 1. Description of Business
-----------------------
Northeast Indiana Bancorp, Inc., a Delaware corporation, is the
holding company for First Federal Savings Bank and Northeast Indiana Financial,
Inc. All references to Northeast Indiana Bancorp prior to June 27, 1995, the
date of First Federal's conversion from mutual to stock form, except where
otherwise indicated, are to First Federal. References in this Form 10-KSB to
"we", "us" and "our" refer to Northeast Indiana Bancorp and/or First Federal as
the context requires.
At December 31, 1999, we had $254.75 million of assets and
stockholders' equity of $25.66 million (or 10.07% of total assets).
First Federal is a federally chartered stock savings association
headquartered in Huntington, Indiana. Our deposits are insured up to applicable
limits by the FDIC, which is backed by the full faith and credit of the United
States.
Northeast Indiana Financial, an Indiana corporation, was
established as a subsidiary of First Federal to provide brokerage services
through an affiliation with VESTAX Securities Corporation (broker/dealer).
Our principal business has historically consisted of attracting
retail deposits from the general public and investing those funds primarily in
first mortgage loans on owner-occupied, single-family residential real estate.
We also originate commercial real estate, construction, consumer and commercial
business loans. We have in the past purchased a limited number of loans and
equipment leases. At December 31, 1999, substantially all of the real estate
mortgage loans, including commercial and multi-family, were secured by
properties located in our market area. We also invest in obligations of states
and political subdivisions, mutual funds and other permissible investments.
We offer traditional trust services, including but not limited
to, revocable living trusts, testamentary trusts, investment agency
relationships, estate administration, guardianships and custodial accounts. The
professionals in our trust department have collectively over 30 years of banking
and investments experience.
Our revenues are derived principally from interest on loans,
interest on investment and other securities and service fee income. We do not
originate loans to fund leveraged buyouts, and have no loans to foreign
corporations or governments. While we generally solicit deposits only in our
primary market area, at December 31, 1999, we had $5.8 million in brokered
deposits.
Our executive offices are located at 648 North Jefferson Street,
Huntington, Indiana 46750, and its telephone number at that address is (219)
356-3311.
3
<PAGE>
Market Area
Our office is located at 648 North Jefferson Street in
Huntington, Indiana. The City of Huntington is located in Huntington County,
Indiana, 25 miles southwest of Fort Wayne, Indiana. The City of Huntington is
the County Seat of Huntington County and has a population of approximately
17,000. Along with an agricultural base, the major employers in Huntington
County are engaged in light industry and include Wabash Technologies, United
Technologies Electronic Controls, Hayes Lemmerz, CFM Majestic, Dana, Pyle Mfg,
LLC, Good Humor-Breyer, Bendix Commercial Vehicle System Corporation and Wayne
Metal Products.
Lending Activities
Our loan portfolio consists primarily of conventional, first
mortgage loans secured by one- to four-family residences and, to a lesser
extent, commercial real estate loans, construction or development loans,
consumer loans and commercial business loans. At December 31, 1999, gross loans
outstanding totaled $214.93 million, of which $119.28 million or 55.50% were
one-to four-family residential mortgage loans. Of the one- to four-family
mortgage loans outstanding at that date, 48.60% were fixed-rate loans, and
51.40% were adjustable-rate loans. At that same date, commercial real estate and
multi-family loans totaled $28.25 million, of which 76.24% were fixed-rate loans
and 23.76% were adjustable-rate loans. Also at that date, construction or
development loans totaled $12.61 million or 5.87% of the total loan portfolio,
66.24% of which were adjustable-rate loans. At December 31, 1999, commercial
business loans totaled $24.18 million or 11.25% of the total loan portfolio, of
which 46.17% were fixed-rate loans and 53.83% were adjustable-rate loans.
At December 31, 1999, the balance of our consumer loans consisted
of $30.59 million of loans, which represented 14.23% of the gross loan
portfolio. Of the consumer loans outstanding, 70.95% were fixed-rate loans and
29.05% were adjustable-rate loans.
We also invest in mutual funds, obligations of states and
political subdivisions, and other debt securities and mortgage-backed
securities. At December 31, 1999, mutual funds totaled $814,000 or 0.32% of
total assets, mortgage-backed securities totaled $2.25 million or 0.88% of total
assets, Government agencies totaled $25.04 million or 9.83% of total assets and
obligations of states and political subdivisions totaled $183,000 or 0.07% of
total assets. See "Investment Activities."
The aggregate amount of loans that First Federal is permitted to
make under applicable federal regulations to any one borrower, including related
entities, is generally equal to the greater of 15% of unimpaired capital and
surplus or $500,000. At December 31, 1999, the maximum amount which First
Federal could have lent to any one borrower and the borrower's related entities
was approximately $3.78 million. See "Regulation - Federal Regulation of Savings
Associations." At December 31, 1999, we had no loans or groups of loans to
related borrowers with outstanding balances in excess of this amount. Our
largest lending relationship at December 31, 1999 was $3.34 million in loans to
one borrower secured by a fleet of automobiles registered in the State of
Indiana.
4
<PAGE>
Loan Portfolio Composition. The following is information
concerning the composition of the loan portfolios in dollar amounts and in
percentages (before deductions for loans in process, deferred fees and discounts
and allowance for loan losses) as of the dates indicated.
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------------------------------------
1999 1998 1997
--------------------- ------------------------ ---------------------
Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Real Estate Loans:
- -----------------
One- to four-family............................ $119,283 55.50% $113,919 59.66% $109,080 60.53%
Multi-family................................... 3,779 1.76 2,908 1.52 2,606 1.45
Commercial..................................... 24,471 11.39 16,514 8.65 16,734 9.29
Construction or development.................... 12,613 5.87 11,365 5.95 10,596 5.88
-------- ------ -------- ------ -------- ------
Total real estate loans.................... 160,146 74.52 144,706 75.78 139,016 77.15
-------- ------ -------- ------ -------- ------
Other Loans:
- -----------
Consumer Loans:
Deposit account............................... 47 0.02 146 0.08 44 0.02
Student....................................... --- --- --- --- --- ---
Automobile.................................... 15,442 7.18 12,248 6.41 11,573 6.42
Home equity................................... 6,366 2.96 5,206 2.73 5,506 3.06
Home improvement 805 0.37 742 0.39 656 0.36
Other......................................... 7,935 3.70 6,521 3.41 5,873 3.26
-------- ------ -------- ------ -------- ------
Total consumer loans....................... 30,595 14.23 24,863 13.02 23,652 13.12
-------- ------ -------- ------ -------- ------
Commercial business loans...................... 24,184 11.25 21,393 11.20 17,526 9.73
Total loans................................ 214,925 100.00% 190,962 100.00% 180,194 100.00%
======= ====== =======
Less:
- ----
Undisbursed portion of construction loans...... 4,088 2,800 3,981
Loans in process............................... 443 663 355
Deferred fees and discounts.................... 233 139 125
Allowance for loan losses...................... 1,766 1,454 1,194
-------- -------- --------
Total loans receivable, net.................... $208,395 $185,906 $174,539
======== ======== ========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------------
1996 1995
---------------------- -------------------------
Amount Percent Amount Percent
------ ------- ------ -------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Real Estate Loans:
- -----------------
One- to four-family............................ $ 99,325 65.10% $ 85,533 67.88%
Multi-family................................... 2,993 1.96 2,029 1.61
Commercial..................................... 12,301 8.06 11,742 9.32
Construction or development.................... 10,749 7.04 6,359 5.05
-------- ----- -------- -----
Total real estate loans.................... 125,368 82.16 105,663 83.86
-------- ----- -------- -----
Other Loans:
- -----------
Consumer Loans:
Deposit account............................... 157 0.10 170 0.13
Student....................................... --- --- --- ---
Automobile.................................... 8,820 5.78 7,756 6.16
Home equity................................... 4,176 2.74 3,121 2.48
Home improvement 291 0.19 258 0.20
Other......................................... 4,204 2.76 3,245 2.58
-------- ----- -------- -----
Total consumer loans....................... 17,648 11.57 14,550 11.55
-------- ----- -------- -----
Commercial business loans...................... 9,568 6.27 5,783 4.59
Total loans................................ 152,584 100.00% 125,996 100.00%
====== ======
Less:
- ----
Undisbursed portion of construction loans...... 4,380 2,210
Loans in process............................... 208 169
Deferred fees and discounts.................... 114 95
Allowance for loan losses...................... 1,027 881
-------- --------
Total loans receivable, net.................... $146,855 $122,641
======== ========
</TABLE>
5
<PAGE>
The following table shows the composition of the loan portfolios
by fixed- and adjustable-rate at the dates indicated.
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------------------------------------------
1999 1998 1997
----------------------- ----------------------- -------------------------
Amount Percent Amount Percent Amount Percent
-------- ------- -------- ------ ------- -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Fixed-Rate Loans:
- ----------------
Real estate:
One- to four-family....................... $ 57,974 26.97% $49,993 26.18% $44,203 24.53%
Multi-family.............................. 2,300 1.07 2,323 1.21 1,586 0.88
Commercial................................ 19,237 8.95 11,089 5.81 9,916 5.50
Construction or development............... 4,258 1.98 3,935 2.06 2,163 1.20
-------- ------ ------- ------ ------- ------
Total real estate loans................ 83,769 38.97 67,340 35.26 57,868 32.11
-------- ------ ------- ------ ------- ------
Consumer................................... 21,708 10.10 17,909 9.38 16,462 9.14
Commercial business........................ 11,166 5.20 14,683 7.69 11,694 6.49
-------- ------ ------- ------ ------- ------
Total fixed-rate loans 116,643 54.27 99,932 52.33 86,024 47.74
Adjustable-Rate Loans:
- ----------------------
Real estate:
One- to four-family....................... 61,309 28.53 63,926 33.48 64,877 36.00
Multi-family.............................. 1,479 0.69 585 0.31 1,020 .57
Commercial................................ 5,234 2.44 5,425 2.84 6,818 3.78
Construction or development............... 8,355 3.89 7,430 3.89 8,433 4.68
-------- ------ ------- ------ ------- ------
Total real estate loans................ 76,377 35.55 77,366 40.52 81,148 45.03
-------- ------ ------- ------ ------- ------
Consumer................................... 8,887 4.13 6,954 3.64 7,190 3.99
Commercial business........................ 13,018 6.05 6,710 3.51 5,832 3.24
-------- ------ ------- ------ ------- ------
Total adjustable-rate loans............ 98,282 45.73 91,030 47.67 94,170 52.26
-------- ------ ------- ------ ------- ------
Total loans............................ 214,925 100.00% 190,962 100.00% 180,194 100.00%
====== ====== ======
Less:
- ----
Undisbursed portion of construction loans.. 4,088 2,800 3,981
Loans in process........................... 443 663 355
Deferred fees and discounts................ 233 139 125
Allowance for loan losses.................. 1,766 1,454 1,194
-------- -------- --------
Total loans receivable, net............. $208,395 $185,906 $174,539
======== ======== ========
</TABLE>
6
<PAGE>
The following schedule illustrates the interest rate sensitivity
of the loan portfolio at December 31, 1999. Mortgages which have adjustable or
renegotiable interest rates are shown as maturing in the period during which the
contract is due. The schedule does not reflect the effects of possible
prepayments or enforcement of due-on-sale clauses.
<TABLE>
<CAPTION>
Real Estate
One to Four Multi/Commercial Construction/Development Consumer
------------------- ------------------- ----------------------- ----------------------
Amount Weighted Amount Weighted Amount Weighted Amount Weighted
------ -------- ------ -------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
2000 $ 5,103 7.58% $ 1,703 8.82% $ 6,692 8.70% $ 11,303 9.73%
2001 and 2002 19,943 7.44 1,635 8.50 - 0.00 3,520 9.15
2003 and 2004 943 7.96 2,625 8.20 - 0.00 8,571 9.12
2005 to 2009 16,693 7.80 8,583 8.63 60 7.25 6,899 8.97
2010 to 2029 76,601 7.36 13,704 8.51 5,862 7.84 302 9.26
-------- -------- -------- --------
$119,283 7.45 $ 28,250 8.54 $ 12,614 8.29 $ 30,595 9.32
======== ======== ======== ========
<CAPTION>
Commercial Total
-------------------- --------------------
Amount Weighted Amount Weighted
------ -------- ------ --------
<C> <C> <C> <C> <C>
2000 $ 12,736 9.02% $ 37,537 8.97%
2001 and 2002 3,893 8.71 28,991 7.88
2003 and 2004 4,772 8.95 16,911 8.87
2005 to 2009 1,912 9.50 34,147 8.34
2010 to 2029 871 9.15 97,340 7.57
-------- --------
$ 24,184 9.00 $214,926 8.08
======== ========
</TABLE>
(1) Includes demand loans, loans having no stated maturity and overdraft loans.
The total amount of loans due after December 31, 2000 which have
predetermined interest rates is $100.27 million, while the total amount of loans
due after such dates which have floating or adjustable interest rates is $77.12
million.
7
<PAGE>
All of our lending is subject to our written underwriting
standards and loan origination procedures. Decisions on loan applications are
made on the basis of detailed applications and property valuations. Properties
securing real estate loans made by us are generally appraised by Board-approved
independent appraisers. In the loan approval process, we assess the borrower's
ability to repay the loan, the adequacy of the proposed security, the employment
stability of the borrower and the credit-worthiness of the borrower.
We require evidence of marketable title and lien position or
appropriate title insurance on all loans secured by real property. We also
require fire and extended coverage casualty insurance in amounts at least equal
to the lesser of the principal amount of the loan or the value of improvements
on the property, depending on the type of loan. As required by federal
regulations, we also require flood insurance to protect the property securing
its interest if such property is located in a designated flood area.
One- to Four-Family Residential Mortgage Lending. Residential
loan originations are generated by our marketing efforts, our present customers,
walk-in customers and referrals from real estate brokers. We have focused our
lending efforts primarily on the origination of loans secured by first mortgages
on owner-occupied, single-family residences in its market area. At December 31,
1999, one- to four-family residential mortgage loans totaled $119.28 million, or
55.50%, of the gross loan portfolio.
We currently offer fixed-rate and adjustable-rate mortgage loans.
For the year ended December 31, 1999, we originated $17.68 million of fixed-rate
loans and $11.42 million of adjustable-rate real estate loans, all of which were
secured by one- to four-family residential real estate. Substantially all of our
one- to four-family residential mortgage originations are secured by properties
located in our market area.
We offer adjustable-rate mortgage loans at rates and on terms
determined in accordance with market and competitive factors. We originate
adjustable-rate mortgage loans with a term of up to 30 years. We offer one-year,
three-year, five-year and seven-year adjustable-rate mortgage loans (where the
terms are fixed for the first one-year, three-years, five-years and seven-years,
respectively, and thereafter adjust annually) with a stated interest rate margin
over the United States Treasury. Increases or decreases in the interest rate of
our adjustable-rate loans are generally limited to 1.0% at any adjustment date
and, for example the one year adjustable rate mortgage product has limits of
5.0% over the life of a loan. As a consequence of using caps, the interest rates
on these loans may not be as rate sensitive as is our cost of funds. Currently,
all adjustable-rate mortgage loans originated do provide for a minimum interest
rate based on margins and caps over the life of the loans. At December 31, 1999,
the total balance of one-to four-family adjustable-rate loans was $61.31 million
or 28.53% of our gross loan portfolio.
We also offer fixed-rate mortgage loans with maturities of up to
30 years. At December 31, 1999, the total balance of one- to four-family
fixed-rate loans was $57.97 million or 26.97% of our gross loan portfolio.
8
<PAGE>
Currently, we will lend up to 97% of the lesser of the sales
price or appraised value of the security property on owner occupied one- to
four-family loans, provided that private mortgage insurance is obtained in an
amount sufficient to reduce our exposure to not more than 80% of the appraised
value or sales price, as applicable. Residential loans do not include prepayment
penalties, are non-assumable (other than government-insured or guaranteed
loans), and do not produce negative amortization. Real estate loans originated
by us contain a "due on sale" clause allowing us to declare the unpaid principal
balance due and payable upon the sale of the security property.
The loans currently originated by us are not typically
underwritten and documented pursuant to the guidelines of Freddie Mac. Under
current policy, we originate these loans for portfolio, except 30 year fixed.
Commercial and Multi-Family Real Estate Lending. We have also
engaged in commercial and multi-family real estate lending in its market area.
At December 31, 1999, we had $24.47 million and $3.78 million of commercial and
multi-family real estate loans, respectively, which represented 11.39% and
1.76%, respectively, of the gross loan portfolio.
The commercial and multi-family real estate loan portfolio is
secured primarily by retail properties, apartments, churches and real estate
located in Huntington and Allen Counties, Indiana. Commercial and multi-family
real estate loans generally have terms that do not exceed 15 years and a variety
of rate adjustment features and other terms. Generally, the loans are made in
amounts up to 70% of the lesser of the appraised value or sales price of the
security property. We currently offer one-year, three-year and five-year
adjustable-rate commercial and multi-family real estate loans (where the terms
are fixed for the first one-year, three-years and five-years, respectively, and
thereafter adjust annually) with a margin over a designated index. In
underwriting these loans, we analyze the financial condition of the borrower,
the borrower's credit history, and the reliability and predictability of the
cash flow generated by the property securing the loan. We generally require
personal guaranties of the borrowers. Appraisals on properties securing
commercial real estate loans originated by us are performed by independent
appraisers, to the extent required by federal regulations.
Multi-family and commercial real estate loans generally present a
higher level of risk than loans secured by one- to four-family residences. This
greater risk is due to several factors, including the concentration of principal
in a limited number of loans and borrowers, the effect of general economic
conditions on income producing properties and the increased difficulty of
evaluating and monitoring these types of loans. Furthermore, the repayment of
loans secured by multi-family and commercial real estate is typically dependent
upon the successful operation of the related real estate project. If the cash
flow from the project is reduced (for example, if leases are not obtained or
renewed, or a bankruptcy court modifies a lease term, or a major tenant is
unable to fulfill its lease obligations), the borrower's ability to repay the
loan may be impaired.
Construction or Development Lending. At December 31, 1999, we had
$12.61 million of construction or development loans. We offer loans to both
builders and borrowers for the construction of one- to four-family residences,
and to a lesser extent, commercial real estate and multi-family properties.
<PAGE>
Currently, such loans are offered with fixed or adjustable rates of interest. At
December 31, 1999, we had $4.26 million and $8.35 million of fixed-rate and
adjustable-rate construction or development loans, respectively, which
represented 1.98% and 3.89%, respectively, of our gross loan portfolio.
Following the construction period, these loans may become permanent loans, with
terms for up to 30 years for adjustable-rate loans and 20 years for fixed-rate
loans.
9
<PAGE>
Construction lending is generally considered to involve a higher
level of credit risk than one- to four-family residential lending since the risk
of loss on construction loans is dependent largely upon the accuracy of the
initial estimate of the individual property's value upon completion of the
project and the estimated cost (including interest) of the project. If the cost
estimate proves to be inaccurate, we may be required to advance funds beyond the
amount originally committed to permit completion of the project.
Consumer Lending. We offer a variety of secured consumer loans,
including automobile, home equity lines of credit, second mortgage and loans
secured by savings deposits. We also offer unsecured consumer loans. We
currently originate substantially all of our consumer loans in our primary
market area. We originate consumer loans on a direct basis and on an indirect
basis through the acquisition of installment payment contracts from dealers who
extend credit to their customers for the purchase of an automobile, both new and
used.
A significant component of our consumer loan portfolio consists
of automobile loans. These loans generally have terms that do not exceed five
and a half years and carry a variety of rate adjustment features and other
terms. Generally, loans on new vehicles are made in amounts up to 100% of dealer
cost and loans on used vehicles are made in amounts up to its published value,
less certain adjustments. At December 31, 1999, automobile loans totaled $15.44
million or 7.18% of the gross loan portfolio. Of this amount, approximately
$5.51 million or 35.69% and $9.93 million or 64.31% were originated on a direct
and indirect basis, respectively.
We also originate fixed rate second mortgages and adjustable rate
home equity line of credit loans. Home equity and second mortgage loans secured
by mortgages, together with loans secured by all prior liens, are generally
limited to 90% or less of the appraised value (where we have the first mortgage)
of the property securing the loan or 80% or less of appraised value (where we do
not have the first mortgage or where the collateral property is non-owner
occupied). Generally, such loans have a maximum term of up to 10 years. As of
December 31, 1999, home equity and second mortgage loans, most of which are
secured by mortgages, amounted to $6.37 million and $805,000, respectively,
which represented 2.96% and 0.37%, respectively, of the gross loan portfolio.
At December 31, 1999, the consumer loan portfolio totaled $30.59
million, or 14.23% of its gross loan portfolio. At December 31, 1999,
approximately 70.96% of consumer loans were short- and intermediate-term,
fixed-rate consumer loans and 29.04% were adjustable rate consumer loans.
Our underwriting standards for consumer loans include an
application, a determination of the applicant's payment history on other debts
and an assessment of ability to meet existing obligations and payments on the
proposed loan. Although creditworthiness of the applicant is a primary
consideration, the underwriting process also includes a comparison of the value
of the security, if any, in relation to the proposed loan amount.
Consumer loans may entail greater credit risk than do residential
mortgage loans, particularly in the case of consumer loans which are unsecured
or are secured by rapidly depreciable assets, such as automobiles. In addition,
consumer loan collections are dependent on the borrower's continuing financial
stability, and thus are more likely to be affected by adverse personal
circumstances. Furthermore, the application of various federal and state laws,
including bankruptcy and insolvency laws, may limit the amount which can be
recovered on such loans. At December 31, 1999, $186,000 of our consumer loans
were non-performing representing 0.09% of the gross loan portfolio.
10
<PAGE>
Commercial Business Lending. We also originate commercial
business loans and purchase commercial leases. At December 31, 1999
approximately $24.18 million, or 11.25% of our gross loan portfolio was
commercial business lending. The largest commercial business loan is a line of
credit of $3.40 million to an automobile leasing company, of which $3.34 million
was outstanding at December 31, 1999.
Commercial business loans typically are made on the basis of the
borrower's ability to make repayment from the cash flow of the borrower's
business. As a result, the availability of funds for the repayment of commercial
business loans may be substantially dependent on the success of the business
itself (which, in turn, is likely to be dependent upon the general economic
environment). Our commercial business loans are usually, but not always, secured
by business assets. However, the collateral securing the loans may depreciate
over time, may be difficult to appraise and may fluctuate in value based on the
success of the business.
Our commercial business lending policy includes credit file
documentation and analysis of the borrower's character, capacity to repay the
loan, the adequacy of the borrower's capital and collateral as well as an
evaluation of conditions affecting the borrower. Analysis of the borrower's
past, present and future cash flows is also an important aspect of our credit
analysis. Nonetheless, such loans carry a higher credit risk than more
traditional thrift lending.
Originations, Purchases and Sales of Loans
Loan originations are developed from continuing business with
depositors and borrowers, soliciting realtors, builders, walk-in customers and
other third-party sources.
While we originate both adjustable-rate and fixed-rate loans, our
ability to originate loans to a certain extent is dependent upon the relative
customer demand for loans in its market, which is affected by the interest rate
environment, among other factors. For the year ended December 31, 1999, we
originated $61.59 million in fixed-rate loans and $28.85 million in adjustable
rate loans.
One- to four-family originations decreased for the year to $29.1
million in 1999 from $37.6 million in 1998, reflecting the drop in refinances as
rates began increasing during 1999.
<PAGE>
The following table shows our loan origination, purchase, sale
and repayment activities for the periods indicated.
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------
1999 1998 1997
-------- -------- -------
(In Thousands)
<S> <C> <C> <C>
Originations by type:
- --------------------
Fixed rate:
Real estate - one- to four-family.............. $ 17,681 $ 17,332 $13,024
- multi-family............... 763 347 729
- commercial................. 6,363 1,988 3,757
- construction............... 14,629 4,334 2,962
Non-real estate - consumer..................... 16,877 13,482 14,216
- commercial business........ 5,273 4,586 7,658
-------- -------- -------
Total fixed-rate........................ 61,586 42,069 42,346
-------- -------- -------
Adjustable rate:
Real estate - one- to four-family.............. 11,421 20,263 8,983
- multi-family............... 1,005 --- ---
- commercial................. 835 1,382 2,632
- construction............... 2,080 8,122 10,551
Non-real estate - consumer..................... 3,454 2,094 2,414
- commercial business........ 10,056 6,653 7,661
-------- -------- -------
Total adjustable-rate................... 28,851 38,514 32,241
-------- -------- -------
Total loans originated.................. 90,437 80,583 74,587
-------- -------- -------
Purchases:
- ---------
Real estate - one- to four-family.............. --- --- ---
- multi-family............... --- --- ---
- commercial................. 1,200 --- 300
Non real estate - commercial.................. 2,400 3,046 2,962
-------- -------- -------
Total loans purchased................... 3,600 3,046 3,262
Sales and Repayments:
- --------------------
Real estate - multi-family..................... --- --- 352
- commercial................. 227 --- ---
Non real estate - commercial................... --- 2,431 ---
-------- -------- -------
Total loans sold........................ 227 2,431 352
Principal repayments........................... 69,847 70,430 49,887
-------- -------- -------
Total reductions........................ 70,074 72,861 50,239
-------- -------- -------
Net increase (decrease)................. $ 23,963 $ 10,768 $27,610
======== ======== =======
</TABLE>
<PAGE>
Asset Quality
When a borrower fails to make a required payment on a loan, we
contact the borrower in an attempt to cure the delinquency. In the case of loans
secured by real estate, reminder notices are sent to borrowers. If payment is
late, appropriate late charges are assessed, and a notice of late charges is
sent to the borrower. If the loan is in excess of 90 days delinquent, the loan
will be referred to our legal counsel for collection. In all cases, if we
believe that its collateral is at risk and added delay would place the
collectibility of the balance of the loan in further question, we may refer
loans for collection even sooner than the 90 days described above.
12
<PAGE>
When a loan becomes delinquent 90 days or more, we place the loan
on non-accrual status and previously accrued interest income on the loan is
charged against current income. The loan will remain on a non-accrual status as
long as the loan is 90 days delinquent.
Delinquent consumer loans are handled in a similar manner as
those described above; however, shorter time frames for each step apply due to
the type of collateral generally associated with such types of loans. Our
procedures for repossession and sale of consumer collateral are subject to
various requirements under Indiana consumer protection laws.
The following table sets forth our loan delinquencies by type, by
amount and by percentage of type at December 31, 1999. The amounts presented in
the table below represent the total remaining principal balances of the loans,
rather than the actual payment amounts which are overdue.
<TABLE>
<CAPTION>
30 to 89 Days 90 Days and Over Total Delinquent Loans
---------------------------- -------------------------- -----------------------------
Percent Percent Percent
of Loan of Loan of Loan
Number Amount Category Number Amount Category Number Amount Category
------ ------ -------- ------ ------ -------- ------ ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real Estate:
One- to four-family 19 $ 794 0.67% 7 $ 339 0.28% 26 $1,133 0.95%
Commercial 4 1,406 4.98 3 269 0.95 7 1,675 5.93
Construction or 1 103 0.82 3 683 5.41 4 786 6.23
Development
Consumer 65 844 2.76 16 186 0.61 81 1,030 3.37
Commercial business 11 221 0.91 3 233 0.96 14 454 1.87
------ ------ ------
Total 100 $3,368 32 $1,710 132 $5,078
====== ====== ======
</TABLE>
13
<PAGE>
Non-Performing Assets. The table below sets forth the amounts and
categories of non-performing assets in our loan portfolio. Loans are placed on
non-accrual status when the collection of principal and/or interest becomes
doubtful. For all years presented, we had no troubled debt restructurings (which
involve forgiving a portion of interest or principal on any loans or making
loans at a rate materially less than that of market rates). Foreclosed assets
include assets acquired in settlement of loans.
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------
1999 1998 1997 1996 1995
------ ------ ------ ------ ------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Non-accruing loans:
One- to four-family $ 339 $ 149 $ 334 $ 470 $ 9
Multi-family 22 --- --- --- ---
Commercial real estate 247 614 706 172 171
Construction or development 683 --- --- --- ---
Consumer 186 107 37 63 94
Commercial business 233 338 89 --- 10
------ ------ ------ ------ ------
Total 1,710 1,208 1,166 705 284
------ ------ ------ ------ ------
Foreclosed assets:
One- to four-family 49 58 --- --- ---
Commercial --- 52 --- --- ---
------ ------ ------ ------ ------
Total 49 110 --- --- ---
------ ------ ------ ------ ------
Repossessed assets:
Consumer 14 10 7 8 ---
------ ------ ------ ------ ------
Total 14 10 7 8 ---
------ ------ ------ ------ ------
Total non-performing assets $1,773 $1,328 $1,173 $ 713 $ 284
====== ====== ====== ==== ====
Total as a percentage of total assets . 0.70 % 0.63 % 0.58% 0.42% 0.21%
===== ===== ==== ==== ====
</TABLE>
For the year ended December 31, 1999, gross interest income which
would have been recorded had the non-accruing loans been current in accordance
with their original terms was $84,000, none of which was included in interest
income.
<PAGE>
Classified Assets. Federal regulations classify loans and other
assets, such as debt and equity securities considered by the Office of Thrift
Supervision to be of lesser quality, as "substandard," "doubtful" or "loss." An
asset is considered "substandard" if it is inadequately protected by the current
net worth and paying capacity of the obligor or of the collateral pledged, if
any. "Substandard" assets include those characterized by the "distinct
possibility" that the insured institution will sustain "some loss" if the
deficiencies are not corrected. Assets classified as "doubtful" have all of the
weaknesses inherent in those classified "substandard," with the added
characteristic that the weaknesses present make "collection or liquidation in
full," on the basis of currently existing facts, conditions, and values, "highly
questionable and improbable." Assets classified as "loss" are those considered
"uncollectible" and of such little value that their continuance as assets
without the establishment of a specific loss reserve is not warranted.
14
<PAGE>
When an insured institution classifies problem assets as either
substandard or doubtful, it may establish specific allowances for loan losses in
an amount deemed prudent by management. General allowances represent loss
allowances which have been established to recognize the inherent risk associated
with lending activities, but which, unlike specific allowances, have not been
allocated to particular problem assets. When an insured institution classifies
problem assets as "loss," it is required either to establish a specific
allowance for losses equal to 100% of that portion of the asset so classified or
to charge off such amount. An institution's determination as to the
classification of its assets and the amount of its valuation allowances is
subject to review by the regulatory authorities, who may order the establishment
of additional general or specific loss allowances.
In connection with the filing of our periodic reports with the
Office of Thrift Supervision and in accordance with our classification of assets
policy, we regularly review the problem assets in our portfolio to determine
whether any assets require classification in accordance with applicable
regulations. At December 31, 1999, we had classified $1.72 million of our assets
as substandard, none as doubtful and none as loss, representing 6.70% of the
stockholders' equity or 0.68% of assets. We have also classified $5.08 million
of our assets as special mention.
Other Loans of Concern. Other than the non-performing loans and
foreclosed real estate held for sale set forth in the tables above, impaired
loans incorporated by reference from the Annual Report and the classified
assets, there were no loans classified with respect to which known information
about the possible credit problems of the borrowers or the cash flows of the
security properties have caused management to have some doubts as to the ability
of the borrowers to comply with present loan repayment terms and which may
result in the future inclusion of such items in the non-performing asset
categories.
Allowance for Loan Losses. The allowance for loan losses is
established through a provision for loan losses based on our evaluation of the
risk inherent in our loan portfolio and changes in the nature and volume of its
loan activity, including those loans which are being specifically monitored.
Such evaluation, which includes a review of loans for which full collectibility
may not be reasonably assured, considers among other matters, the loan
classifications discussed above, the estimated fair value of the underlying
collateral, economic conditions, historical loan loss experience, the amount of
loans outstanding and other factors that warrant recognition in providing for an
adequate loan loss allowance.
Although we believe that we use the best information available to
determine the allowance, unforeseen market conditions could result in
adjustments and net earnings could be significantly affected if circumstances
differ substantially from the assumptions used in making the final
determination. Future additions to the allowance will be the result of periodic
loan, property and collateral reviews and thus cannot be predicted in advance.
At December 31, 1999, we had a total allowance for loan losses of $1.77 million
or 99.66% of non-performing loans. See Note 3 of the Notes to Consolidated
Financial Statements.
15
<PAGE>
The distribution of the allowance for loan losses at the dates
indicated is summarized as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
Percent Percent
of Loans of Loans
Loan in Each Loan in Each
Amount of Amounts Category Amount of Amounts Category
Loan Loss by to Total Loan Loss by to Total
Allowance Category Loans Allowance Category Loans
--------- -------- ----- --------- -------- -----
<S> <C> <C> <C> <C> <C> <C>
One- to four-family. $ 278 $119,283 55.50% $ 266 $113,919 59.66%
Multi-family........ 35 3,779 1.76 27 2,908 1.52
Commercial real estate 272 24,471 11.39 204 16,514 8.65
Construction or development 284 12,614 5.87 278 11,365 5.95
Consumer............ 273 30,594 14.23 183 24,863 13.02
Commercial business. 413 24,184 11.25 305 21,393 11.20
Unallocated......... 212 -- -- 191 -- --
------- --------- ------ ------- --------- ------
Total.......... $ 1,767 $ 214,925 100.00% $ 1,454 $ 190,962 100.00%
======= ========= ====== ======= ========= =====
<CAPTION>
1997 1996
---- ----
Percent Percent
of Loans of Loans
Loan in Each Loan in Each
Amount of Amounts Category Amount of Amounts Category
Loan Loss by to Total Loan Loss by to Total
Allowance Category Loans Allowance Category Loans
--------- -------- ----- --------- -------- -----
<S> <C> <C> <C> <C> <C> <C>
One- to four-family. $240 $109,080 60.53% $209 $ 99,325 65.10%
Multi-family........ 22 2,606 1.45 74 2,993 1.96
Commercial real estate 163 16,734 9.29 106 10,996 7.20
Construction or development 237 10,596 5.88 311 12,054 7.90
Consumer............ 136 23,652 13.12 79 17,648 11.57
Commercial business. 244 17,526 9.73 165 9,568 6.27
Unallocated......... 152 --- --- 83 --- ---
------ -------- ------ ------ -------- ------
Total.......... $1,194 $180,194 100.00% $1,027 $152,584 100.00%
====== ======== ====== ====== ======== ======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
1995
----
Percent
of Loans
Loan in Each
Amount of Amounts Category
Loan Loss by to Total
Allowance Category Loans
--------- -------- -----
<S> <C> <C> <C>
One- to four-family. $180 $ 85,533 67.88%
Multi-family........ 50 2,029 1.61
Commercial real estate 100 11,742 9.32
Construction or development 200 6,359 5.05
Consumer............ 65 14,550 11.55
Commercial business. 100 5,783 4.59
Unallocated......... 186 --- ---
---- ------- ------
Total.......... $881 $125,996 100.00%
==== ======== ======
</TABLE>
16
<PAGE>
The following table sets forth an analysis of the allowance for
loan losses activity.
<TABLE>
<CAPTION>
-----------------------------------------------------
Year Ended December 31,
-----------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Balance at beginning of period $1,454 $1,194 $1,027 $ 881 $ 694
Charge-offs:
One- to four-family 1 47 2 3 ---
Commercial 26 --- 1 --- 9
Consumer 159 99 133 131 65
------ ------ ------ ------ ------
186 146 136 134 74
------ ------ ------ ------ ------
Recoveries:
One- to four-family --- 3 --- --- ---
Consumer 50 42 38 45 10
Commercial --- 1 --- --- ---
------ ------ ------ ------ ------
50 46 38 45 10
------ ------ ------ ------ ------
Net charge-offs 136 100 98 89 64
Additions charged to operations 449 360 265 235 251
------ ------ ------ ------ ------
Balance at end of period $1,767 $1,454 $1,194 $1,027 $ 881
====== ====== ====== ====== ====
Ratio of net charge-offs during the period to
average loans outstanding during the period 0.07% 0.06% 0.06% 0.07% 0.06%
==== ==== ==== ==== ====
Ratio of net charge-offs during the period to
average non-performing loans 9.80% 12.99% 13.07% 20.23% 16.41%
==== ===== ===== ===== =====
</TABLE>
Investment Activities
Liquidity may increase or decrease depending upon the
availability of funds and comparative yields on investments in relation to the
return on loans. Though our liquidity level is below our peers, historically we
have generally maintained liquid assets at levels above the minimum requirements
that had been imposed by Office of Thrift Supervision regulations and at levels
believed adequate to meet the requirements of normal operations, including
repayments of maturing debt and potential deposit outflows. At December 31,
1999, our liquidity ratio (liquid assets as a percentage of net withdrawable
savings deposits and current borrowings) was 7.28%.
<PAGE>
Federally chartered savings institutions have the authority to
invest in various types of liquid assets, including United States Treasury
obligations, securities of various federal agencies, certain certificates of
deposit of insured banks and savings institutions, certain bankers' acceptances,
repurchase agreements and federal funds. Subject to various restrictions,
federally chartered savings institutions may also invest their assets in
commercial paper, investment grade corporate debt securities and mutual funds
whose assets conform to the investments that a federally chartered savings
institution is otherwise authorized to make directly.
17
<PAGE>
Generally, our investment policy is to invest funds among various
categories of investments and maturities based upon our liquidity needs,
asset/liability management policies, investment quality, marketability and
performance objectives.
Securities and Other Interest-Earning Assets. At December 31,
1999, our interest-earning deposits with other financial institutions totaled
$3.04 million, or 1.19% of total assets, and our securities, consisting of
obligations of states and political subdivisions, money market mutual funds, and
other securities totaled $33.65 million, or 13.21% of total assets. Included in
other securities, as of such date, we had a $4.91 million investment in Federal
Home Loan Bank stock, satisfying our requirement for membership in the Federal
Home Loan Bank of Indianapolis.
At December 31, 1999, we had $456,000 in securities held to
maturity consisting of obligations of states and political subdivisions and
other debt securities, and securities available for sale with a fair value of
$33.19 million. See Note 2 of the Notes to the Consolidated Financial
Statements.
The following table sets forth the composition of our securities
portfolio at the dates indicated.
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
Carrying % of Carrying % of Carrying % of
-------- ---- -------- ---- -------- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Debt securities:
Obligations of states and political.......... $ 524 1.56% $ 612 4.31% $ 639 4.15%
Mortgage-backed securities................... 2,246 6.67 5,354 37.74 6,599 42.89
Federal agency obligations................... 25,036 74.41 4,080 28.76 4,044 26.29
Corporate bonds.............................. 116 0.34 116 0.82 118 0.77
------ ------ ------ ------ ------ -----
Total debt securities..................... 27,922 82.98 10,162 71.63 11,400 74.10
Equity securities:
Mutual funds................................. 814 2.42 775 5.46 735 4.78
Equity securities............................ 4,913 14.60 3,250 22.91 3,250 21.12
------- ------ ------- ------ ------- ------
Total securities.......................... $33,649 100.00% $14,187 100.00% $15,385 100.00%
======= ====== ======= ====== ======= ======
</TABLE>
18
<PAGE>
Sources of Funds
Our primary sources of funds are deposits, payment of principal
and interest on loans, interest earned on securities, interest earned on
interest-earning deposits with other banks, Federal Home Loan Bank advances, and
other funds provided from operations.
Federal Home Loan Bank advances are used to support lending
activities and to assist in our asset/liability management strategy. Typically,
we do not use other forms of borrowings. At December 31, 1999, we had total
Federal Home Loan Bank advances of $80.50 million with the capacity to borrow as
of December 31, 1999 an additional $5.52 million. See Note 6 of the Notes to
Consolidated Financial Statements.
Deposits. We offer a variety of deposit accounts having a wide
range of interest rates and terms. Deposits consist of passbook, savings, NOW,
checking, money market deposit and time deposit accounts. The time deposit
accounts currently range in terms from 90 days to five years.
We rely primarily on advertising, competitive pricing policies
and customer service to attract and retain these deposits. We generally solicit
deposits from our market area and do not use brokers regularly to obtain
deposits. The flow of deposits is influenced significantly by general economic
conditions, changes in money market and prevailing interest rates and
competition.
We have become more susceptible to short-term fluctuations in
deposit flows as customers have become more interest rate conscious. We endeavor
to manage the pricing of our deposits in keeping with its profitability
objectives giving consideration to its asset/liability management. Our ability
to attract and maintain savings accounts and time deposit accounts and the rates
paid on these deposits, has been and will continue to be significantly affected
by market conditions.
The following table sets forth our savings flows during the
periods indicated.
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------
1999 1998 1997
-------- -------- -------
(Dollars in Thousands)
<S> <C> <C> <C>
Opening balance....................... $123,336 $107,550 $85,346
Deposits.............................. 578,790 336,345 303,686
Withdrawals........................... 564,483 326,471 286,040
Interest credited..................... 5,569 5,912 4,558
-------- -------- -------
Ending balance........................ $143,212 $123,336 $107,550
======== ======== ========
Net increase (decrease)............... $19,876 $15,786 $22,204
======= ======= =======
Percent increase (decrease)........... 16.12% 14.68% 26.02%
===== ===== =====
</TABLE>
19
<PAGE>
The following table sets forth the dollar amount of deposits in
the various types of deposit programs we offered for the periods indicated.
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
Percent Percent Percent
Amount Of Total Amount Of Total Amount of Total
------ -------- ------ -------- ------ --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Transactions and Savings Deposits:
- ----------------------------------
Passbook Accounts (2.05%).................... $ 9,709 6.78% $ 9,812 7.96% $ 9,336 8.68%
Demand and NOW Accounts (1.08%).............. 15,685 10.95 13,905 11.27 12,037 11.19
Money Market Accounts (4.83%)................ 19,268 13.45 20,508 16.63 17,098 15.90
-------- ------ -------- ------ -------- ------
Total Non-Time Deposits...................... 44,662 31.18 44,225 35.86 38,471 35.77
-------- ------ -------- ------ -------- ------
Time Deposits:
- -------------
2.00 - 3.99%............................... 873 0.61 939 0.76 1,045 .97
4.00 - 5.99%............................... 53,627 37.45 72,690 58.94 38,467 35.77
6.00 - 7.99%............................... 44,050 30.76 5,482 4.44 29,567 27.49
-------- ------ -------- ------ -------- ------
Total Time Deposits.......................... 98,550 68.82 79,111 64.14 69,079 64.23
-------- ------ -------- ------ -------- ------
Total Deposits............................... $143,212 100.00% $123,336 100.00% $107,550 100.00%
======== ====== ======== ====== ======== ======
</TABLE>
20
<PAGE>
The following table shows rate and maturity information for our
time deposit accounts as of December 31, 1999.
<TABLE>
<CAPTION>
2.00- 4.00- 6.00- Percent
3.99% 5.99% 7.99% Total of Total
----- ----- ----- ----- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Time deposit accounts
maturing in quarter ending:
- ---------------------------
March 31, 2000 $ 374 $18,301 $ 1,437 $20,112 20.41%
June 30, 2000 499 11,789 24,068 36,356 36.89
September 30, 2000 - 9,560 6,796 16,356 16.60
December 31, 2000 - 4,328 7,826 12,154 12.33
March 31, 2001 - 4,399 1,320 5,719 5.80
June 30, 2001 - 2,379 - 2,379 2.41
September 30, 2001 - 1,464 313 1,777 1.80
December 31, 2001 - 936 1,136 2,072 2.10
March 31, 2002 - 228 348 576 0.59
June 30, 2002 - 291 - 291 0.30
September 30, 2002 - 160 - 160 0.16
December 31, 2002 - 142 - 142 0.15
Thereafter - 456 - 456 0.46
------- ------- ------- ------- ------
Total $ 873 $54,433 $43,244 $98,550 100.00%
======= ======= ======= ======= ======
Percent of total....... 0.89% 55.23% 43.88% 100.00%
</TABLE>
The following table indicates the amount of our time deposit
accounts by time remaining until maturity as of December 31, 1999.
<TABLE>
<CAPTION>
Maturity
Over Over
3 Months 3 to 6 6 to 12 Over
or Less Months Months 12 months Total
------- ------ ------ --------- -----
<S> <C> <C> <C> <C> <C>
Time deposit accounts less than $100,000 $10,554 $13,478 $11,900 $ 9,508 $45,440
Time deposit accounts of $100,000 or more 8,558 22,852 16,218 3,989 51,617
Public funds (1) 1,000 26 392 75 1,493
------- ------- ------- ------- -------
Total time deposit accounts $20,112 $36,356 $28,510 $13,572 $98,550
======= ======= ======= ======= =======
</TABLE>
(1) Deposits from governmental and other public entities.
21
<PAGE>
Borrowings. Although deposits are our primary source of funds,
our policy has been to utilize borrowings when they are a less costly source of
funds or can be invested at a positive rate of return. We may obtain advances
from the Federal Home Loan Bank of Indianapolis upon the security of our capital
stock in the Federal Home Loan Bank of Indianapolis and certain of our mortgage
loans and mortgage-backed securities. Such advances may be made pursuant to
several different credit programs, each of which has its own interest rate and
range of maturities. At December 31, 1999, we had $80.50 million in Federal Home
Loan Bank advances outstanding. For additional information regarding the term to
maturity and average rate paid on Federal Home Loan Bank advances, see Note 6 of
the Notes to Consolidated Financial Statements and "Business - Lending
Activities."
The following table sets forth the maximum month-end balance and
average balance of Federal Home Loan Bank advances for the periods indicated.
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------
1999 1998 1997
------- ------- -------
(In Thousands)
<S> <C> <C> <C>
Maximum Balance:
- ----------------
Federal Home Loan Bank advances $97,500 $62,100 $63,000
Average Balance:
- ----------------
Federal Home Loan Bank advances $74,466 $54,841 $58,859
</TABLE>
Service Corporation Activities
At December 31, 1999, First Federal had one subsidiary, Northeast
Indiana Financial, which is now functioning as our brokerage subsidiary and we
have three registered representatives to provide this service to the customers.
Regulation
First Federal is a federally chartered savings bank, the deposits
of which are federally insured and backed by the full faith and credit of the
United States Government. Accordingly, we are subject to broad federal
regulation and oversight extending to all its operations. First Federal is a
member of the Federal Home Loan Bank of Indianapolis and is subject to certain
limited regulation by the Board of Governors of the Federal Reserve System. As
the savings and loan holding company of First Federal, Northeast Indiana Bancorp
also is subject to federal regulation and oversight. However, since Northeast
Indiana Bancorp existed as a unitary savings and loan holding company prior to
May 4, 1999, there is virtually no restriction on its activities.
<PAGE>
Federal Regulation of Savings Associations. The Office of Thrift
Supervision has extensive authority over the operations of savings associations.
As part of this authority, we are required to file periodic reports with the
Office of Thrift Supervision and are subject to periodic examinations by the
Office of Thrift Supervision and the FDIC. When these examinations are conducted
by the Office of Thrift Supervision and the FDIC, the examiners may require
First Federal to provide for higher general or specific loan loss reserves.
22
<PAGE>
The Office of Thrift Supervision also has extensive enforcement
authority over all savings institutions and their holding companies, such as
First Federal and Northeast Indiana Bancorp. This enforcement authority
includes, among other things, the ability to assess civil money penalties, to
issue cease-and-desist or removal orders, and to initiate injunctive actions.
Our general permissible lending limit for loans-to-one-borrower
is equal to the greater of $500,000 or 15% of unimpaired capital and surplus
(except for loans fully secured by certain readily marketable collateral, in
which case this limit is increased to 25% of unimpaired capital and surplus). At
December 31, 1999, our lending limit under this restriction was approximately
$3.78 million. At December 31, 1999, we had no loans in excess of our
loans-to-one-borrower limit.
Insurance of Accounts and Regulation by the FDIC. As insurer, the
FDIC imposes deposit insurance premiums and is authorized to conduct
examinations of, and to require reporting by, FDIC-insured institutions. It also
may prohibit any FDIC-insured institution from engaging in any activity the FDIC
determines by regulation or order to pose a serious risk to the Federal Home
Loan Bank System or the Savings Association Insurance Fund. The FDIC also has
the authority to initiate enforcement actions against savings associations,
after giving the Office of Thrift Supervision an opportunity to take such
action, and may terminate deposit insurance if it determines that the
institution has engaged in unsafe or unsound practices, or is in an unsafe or
unsound condition.
The FDIC's deposit insurance premiums are assessed through a
risk-based system under which all insured depository institutions are placed
into one of nine categories and assessed insurance premiums based upon their
level of capital and supervisory evaluation. Under the system, institutions
classified as well capitalized (i.e., a core capital ratio of at least 5%, a
ratio of core capital to risk-weighted assets of at least 6% and a risk-based
capital ratio of at least 10%) and considered healthy, pay the lowest premium,
while institutions that are less than adequately capitalized (i.e., core
risk-based capital ratios of less than 4% or a risk-based capital ratio of less
than 8%) and considered of substantial supervisory concern pay the highest
premium. Risk classification of all insured institutions is made by the FDIC
semi-annually. At December 31, 1999, First Federal was classified as a
well-capitalized institution.
The current premium schedule for Bank Insurance Fund and Savings
Association Insurance Fund insured institutions ranged from 0 to 27 basis
points. However, Savings Association Insurance Fund insured institutions and
Bank Insurance Fund insured institutions are required to pay a Financing
Corporation assessment in order to fund the interest on bonds issued to resolve
thrift failures in the 1980s. For the quarter ended December 31, 1999, this
amount was equal to 5.920 basis points for each $100 in domestic deposits for
Savings Association Insurance Fund members while Bank Insurance Fund insured
institutions pay an assessment equal to about 1.184 basis points for each $100
in domestic deposits. These assessments, which may be revised based upon the
level of Bank Insurance Fund and Savings Association Insurance Fund deposits,
will continue until the bonds mature in 2017 through 2019.
Regulatory Capital Requirements. Federally insured savings
associations, such as First Federal, are required to maintain a minimum level of
regulatory capital. The Office of Thrift Supervision has established capital
standards, including a tangible capital requirement, a leverage ratio (or core
capital) requirement and a risk-based capital requirement applicable to such
savings associations.
23
<PAGE>
The capital standards also require core capital equal to 4% of
adjusted total assets, depending on an institution's supervisory rating. Core
capital generally consists of tangible capital plus certain intangible assets,
including a limited amount of purchased credit card relationships. At December
31, 1999, First Federal had core capital equal to $23.9 million, or 9.4% of
adjusted total assets, which is $13.7 million above the minimum leverage ratio
requirement of 4% in effect on that date.
The Office of Thrift Supervision risk-based requirement requires
savings associations to have total capital of at least 8% of risk-weighted
assets. Total capital consists of core capital, as defined above, and
supplementary capital. Supplementary capital consists of certain capital
instruments that do not qualify as core capital and general valuation loan and
lease loss allowances up to a maximum of 1.25% of risk-weighted assets.
Supplementary capital may be used to satisfy the risk-based requirement only to
the extent of core capital. At December 31, 1999, First Federal had $1.27
million of general loss reserves, which was less than 0.78% of risk-weighted
assets.
In determining the amount of risk-weighted assets, all assets,
including certain off-balance sheet items, will be multiplied by a risk weight,
ranging from 0% to 100%, based on the risk inherent in the type of asset. For
example, the Office of Thrift Supervision has assigned a risk weight of 50% for
prudently underwritten permanent one- to four-family first lien mortgage loans
not more than 90 days delinquent and having a loan to value ratio of not more
than 80% at origination, unless insured to such ratio by an insurer approved by
Fannie Mae or Freddie Mac.
On December 31, 1999, First Federal had total risk-based capital
of $25.2 million, including approximately $23.9 million in core capital and $1.3
million in qualifying supplementary capital and risk-weighted assets of $162.6
million; or total capital of 15.5% of risk-weighted assets. This amount was
$12.2 million above the 8% requirement in effect on that date.
The Office of Thrift Supervision is authorized to impose capital
requirements in excess of these standards on individual associations on a
case-by-case basis. The Office of Thrift Supervision and the FDIC are authorized
and, under certain circumstances required, to take certain actions against
savings associations that fail to meet their capital requirements. The Office of
Thrift Supervision is generally required to take action to restrict the
activities of an "undercapitalized association" (generally defined to be one
with less than either a 4% core capital ratio, a 4% core risked-based capital
ratio or an 8% risk-based capital ratio). Any such association must submit a
capital restoration plan and until such plan is approved by the Office of Thrift
Supervision may not increase its assets, acquire another institution, establish
a branch or engage in any new activities, and generally may not make capital
distributions. The Office of Thrift Supervision is authorized to impose the
additional restrictions that are applicable to significantly undercapitalized
associations.
The Office of Thrift Supervision is also generally authorized to
reclassify an association into a lower capital category and impose the
restrictions applicable to such category if the institution is engaged in unsafe
or unsound practices or is in an unsafe or unsound condition.
The imposition by the Office of Thrift Supervision or the FDIC of
any of these measures on Northeast Indiana Bancorp or First Federal may have a
substantial adverse effect on our operations and profitability.
24
<PAGE>
Limitations on Dividends and Other Capital Distributions. The
Office of Thrift Supervision imposes various restrictions on savings
associations with respect to their ability to make distributions of capital,
which include dividends, stock redemptions or repurchases, cash-out mergers and
other transactions charged to the capital account. The Office of Thrift
Supervision also prohibits a savings association from declaring or paying any
dividends or from repurchasing any of its stock if, as a result of such action,
the regulatory capital of the association would be reduced below the amount
required to be maintained for the liquidation account established in connection
with the association's mutual to stock conversion.
First Federal may make a capital distribution without the
approval of the Office of Thrift Supervision provided we notify the Office of
Thrift Supervision, 30 days before we declare the capital distribution and we
meet the following requirements: (i) we have a regulatory rating in one of the
two top examination categories, (ii) we are not of supervisory concern, and will
remain adequately- or well-capitalized, as defined in the Office of Thrift
Supervision prompt corrective action regulations, following the proposed
distribution, and (iii) the distribution does not exceed our net income for the
calendar year-to-date plus retained net income for the previous two calendar
years (less any dividends previously paid). If we do not meet the above stated
requirements, we must obtain the prior approval of the Office of Thrift
Supervision before declaring any proposed distributions.
Qualified Thrift Lender Test. All savings institutions are
required to meet a qualified thrift lender test to avoid certain restrictions on
their operations. This test requires a savings institution to have at least 65%
of its portfolio assets (as defined by regulation) in qualified thrift
investments on a monthly average for nine out of every 12 months on a rolling
basis. As an alternative, the savings institutions may maintain 60% of its
assets in those assets specified in Section 7701(a)(19) of the Internal Revenue
Code. Under either test, these assets primarily consist of residential housing
related loans and investments. At December 31, 1999, First Federal met the test
and has always met the test since its effectiveness. First Federal's qualified
thrift lender percentage was 85.78% at December 31, 1999.
Any savings institution that fails to meet the qualified thrift
lender test must convert to a national bank charter, unless it requalifies as a
qualified thrift lender and remains a qualified thrift lender. If an institution
does not requalify and converts to a national bank charter, it must remain
Savings Association Insurance Fund-insured until the FDIC permits it to transfer
to the Banking Insurance Fund. If an institution has not yet requalified or
converted to a national bank, its new investments and activities are limited to
those permissible for both a savings association and a national bank, and it is
limited to national bank branching rights in its home state. In addition, the
institution is immediately ineligible to receive any new Federal Home Loan Bank
borrowings and is subject to national bank limits for payment of dividends. If
the institution has not requalified or converted to a national bank within three
years after the failure, it must sell all investments and stop all activities
not permissible for a national bank. In addition, it must repay promptly any
outstanding Federal Home Loan Bank borrowings, which may result in prepayment
penalties. If any institution that fails the qualified thrift lender test is
controlled by a holding company, then within one year after the failure, the
holding company must register as a bank holding company and become subject to
all restrictions on bank holding companies. See "- Holding Company Regulation."
25
<PAGE>
Community Reinvestment Act. Under the Community Reinvestment Act,
every FDIC insured institution has a continuing and affirmative obligation,
consistent with safe and sound banking practices, to help meet the credit needs
of its entire community, including low- and moderate- income neighborhoods. The
Community Reinvestment Act requires the Office of Thrift Supervision, in
connection with its examination of First Federal, to assess the institution's
record of meeting the credit needs of our community and to take this record into
account in our evaluation of certain applications, such as a merger or the
establishment of a branch, by First Federal. An unsatisfactory rating may be
used as the basis for the denial of an application by the Office of Thrift
Supervision. First Federal was examined for Community Reinvestment Act
compliance in March 1997 and received a rating of "satisfactory".
Transactions with Affiliates. Generally, transactions between a
savings association or its subsidiaries and its affiliates are required to be on
terms as favorable to the association or subsidiary as transactions with
non-affiliates. In addition, certain of these transactions, such as loans to an
affiliate, are restricted to a percentage of the association's capital.
Affiliates of First Federal include Northeast Indiana Bancorp and any company
which is under common control with First Federal. In addition, a savings
association may not lend to any affiliate engaged in activities not permissible
for a bank holding company or acquire the securities of most affiliates. The
Office of Thrift Supervision has the discretion to treat subsidiaries of savings
associations as affiliates on a case by case basis.
Certain transactions with directors, officers or controlling
persons are also subject to conflict of interest regulations enforced by the
Office of Thrift Supervision. These conflict of interest regulations and other
statutes also impose restrictions on loans to such persons and their related
interests. Among other things, such loans must generally be made on terms
substantially the same as for loans to unaffiliated individuals.
Holding Company Regulation. Northeast Indiana Bancorp is a
unitary savings and loan holding company subject to regulatory oversight by the
Office of Thrift Supervision. As such, we are required to register and file
reports with the Office of Thrift Supervision and are subject to regulation and
examination by the Office of Thrift Supervision. In addition, the Office of
Thrift Supervision has enforcement authority over Northeast Indiana Bancorp and
its non-savings association subsidiaries which also permits the Office of Thrift
Supervision to restrict or prohibit activities that are determined to be a
serious risk to the subsidiary savings association.
As a unitary savings and loan holding company, that has been in
existence since before May 4, 1999, Northeast Indiana Bancorp generally is not
subject to activity restrictions. If Northeast Indiana Bancorp acquires control
of another savings association as a separate subsidiary, it would become a
multiple savings and loan holding company, and the activities of Northeast
Indiana Bancorp and any of its subsidiaries (other than First Federal or any
other Savings Association Insurance Fund-insured savings association) would
become subject to certain restrictions.
Additionally, if we fail the qualified thrift lender test, within
one year Northeast Indiana Bancorp must register as and will become subject to,
the restrictions applicable to bank holding companies.
Federal Securities Law. The stock of Northeast Indiana Bancorp is
registered with the SEC under the Securities Exchange Act of 1934, as amended.
Northeast Indiana Bancorp is subject to the information, proxy solicitation,
insider trading restrictions and other requirements of the SEC under the
Exchange Act of 1934.
26
<PAGE>
Northeast Indiana Bancorp stock held by persons who are
affiliates (generally officers, directors and principal stockholders) of
Northeast Indiana Bancorp may not be resold without registration or unless sold
in accordance with certain resale restrictions. If Northeast Indiana Bancorp
meets specified current public information requirements, each affiliate of
Northeast Indiana Bancorp is able to sell in the public market, without
registration, a limited number of shares in any three-month period.
Federal Reserve System. The Federal Reserve Board requires all
depository institutions to maintain non-interest bearing reserves at specified
levels against their transaction accounts (primarily checking, NOW and Super NOW
checking accounts). At December 31, 1999, First Federal was in compliance with
these reserve requirements. The balances maintained to meet the reserve
requirements imposed by the Federal Reserve Board may also be used to satisfy
liquidity requirements that may be imposed by the Office of Thrift Supervision.
Savings associations are authorized to borrow from the Federal
Reserve Bank "discount window," but Federal Reserve Board regulations require
associations to exhaust other reasonable alternative sources of funds, including
Federal Home Loan Bank borrowings, before borrowing from the Federal Reserve
Bank.
Federal Home Loan Bank System. First Federal is a member of the
Federal Home Loan Bank of Indianapolis, which is one of 12 regional Federal Home
Loan Banks that administer the home financing credit function of savings
associations. Each Federal Home Loan Bank serves as a reserve or central bank
for its members within its assigned region. It makes loans to members (i.e.,
advances) in accordance with policies and procedures, established by the board
of directors of the Federal Home Loan Bank, which are subject to the oversight
of the Federal Housing Finance Board. All advances from the Federal Home Loan
Bank are required to be fully secured by sufficient collateral as determined by
the Federal Home Loan Bank. In addition, all long-term advances must be used for
residential home financing.
As a member, First Federal is required to purchase and maintain a
minimum amount of stock in the Federal Home Loan Bank of Indianapolis. At
December 31, 1999, First Federal had $4.91 million in Federal Home Loan Bank
stock, which was in compliance with this requirement. For the fiscal year ended
December 31, 1999, dividends paid by the Federal Home Loan Bank of Indianapolis
to First Federal totaled $322,000, which constitutes a $62,000 increase over the
amount of dividends received in fiscal 1998. Over the past five fiscal years
these dividends have averaged 7.94% and were 8.00% for fiscal 1999.
Taxation
Federal Taxation. We file consolidated federal income tax returns
on a fiscal year basis using the accrual method of accounting. Savings
institutions that met certain definitional tests relating to the composition of
assets and other conditions prescribed by the Internal Revenue Code of 1986, as
amended, had been permitted to establish reserves for bad debts and to make
annual additions which could, within specified formula limits, be taken as a
deduction in computing taxable income for federal income tax purposes. The
amount of the bad debt reserve deduction is now computed under the experience
method.
27
<PAGE>
In addition to the regular income tax, corporations, including
savings institutions, generally are subject to a minimum tax. An alternative
minimum tax is imposed at a minimum tax rate of 20% on alternative minimum
taxable income, which is the sum of a corporation's regular taxable income (with
certain adjustments) and tax preference items, less any available exemption. The
alternative minimum tax is imposed to the extent it exceeds the corporation's
regular income tax and net operating losses can offset no more than 90% of
alternative minimum taxable income.
To the extent earnings appropriated to a savings institution's
bad debt reserves for "qualifying real property loans" and deducted for federal
income tax purposes exceed the allowable amount of such reserves computed under
the experience method and to the extent of the institution's supplemental
reserves for losses on loans, such excess may not, without adverse tax
consequences, be utilized for the payment of cash dividends or other
distributions to a shareholder (including distributions on redemption,
dissolution or liquidation) or for any other purpose (except to absorb bad debt
losses). As of December 31, 1999, First Federal's excess for tax purposes
totaled approximately $1.30 million.
We have not been audited by the IRS recently with respect to
federal income tax returns. In our opinion, any examination of still open
returns would not result in a deficiency which could have a material adverse
effect on our financial condition.
Indiana Taxation. The State of Indiana imposes an 8.5% franchise
tax on the net income of financial (including thrift) institutions, exempting
them from the current gross income, supplemental net income and intangible
taxes. Net income for franchise tax purposes will constitute federal taxable
income before net operating loss deductions and special deductions, adjusted for
certain items, including Indiana income taxes, tax exempt interest and bad
debts. Other applicable Indiana taxes include sales, use and property taxes.
Delaware Taxation. As a company incorporated under Delaware state
law, Northeast Indiana Bancorp is exempted from Delaware corporate income tax
but is required to file an annual report with, and pay an annual fee to, the
State of Delaware. We are also subject to an annual franchise tax imposed by the
State of Delaware.
Competition
We face strong competition, both in originating real estate loans
and in attracting deposits. Competition in originating real estate loans comes
primarily from commercial banks, mortgage companies, credit unions and savings
institutions located in our market area. Commercial banks, savings institutions
and credit unions provide vigorous competition in consumer lending. We compete
for real estate and other loans principally on the basis of the quality of
services we provide to borrowers, the interest rates and loan fees we charge,
and the types of loans we originate. See "- Lending Activities."
28
<PAGE>
We attract all of our deposits through our retail banking
offices, primarily from the communities in which those retail banking offices
are located. Therefore, competition for those deposits is principally from
retail brokerage offices, commercial banks, savings institutions and credit
unions located in these communities. We compete for these deposits by offering a
variety of account alternatives at competitive rates and by providing convenient
business hours, branch locations and interbranch deposit and withdrawal
privileges.
We primarily serve Huntington County, Indiana. There are five
commercial banks, one savings institution, other than First Federal, and six
credit unions which compete for deposits and loans in Huntington County. We
estimate that our share of the savings market in Huntington County is
approximately 28% and our share of the residential mortgage market is
approximately 30%.
Employees
At December 31, 1999, we had a total of 47 full-time, 6 part-time
and 0 seasonal employees. Our employees are not represented by any collective
bargaining group. Management considers its employee relations to be good.
Item 2. Description of Properties
-------------------------
We conduct our business through three offices, all of which are
located in Huntington, Indiana and are owned by First Federal. The following
table sets forth information relating to each of our offices as of December 31,
1999. The total net book value of our premises and equipment (including land,
buildings and leasehold improvements and furniture, fixtures and equipment) at
December 31, 1999 was approximately $2.29 million. See Note 4 of the Notes to
the Consolidated Financial Statements.
<TABLE>
<CAPTION>
Date Square Net Book Value at
Location Acquired Footage December 31, 1999
-------- -------- ------- -----------------
<S> <C> <C> <C>
Main Office:
648 North Jefferson Street 1974 5,200 774
Huntington, Indiana 46750
Branch Offices:
1240 South Jefferson Street 1981 1,700 243
Huntington, Indiana 46750
100 Frontage Road 1995 5,000(1) 1,275
Huntington, Indiana 46750
</TABLE>
(1) Includes addition completed in early 1999.
29
<PAGE>
There was a 2,000 square foot addition to the office located at
100 Frontage Road which was completed during the first quarter 1999. This
addition provides space for the financial services subsidiary, the Trust
Department and future growth.
We believe that our current and planned facilities are adequate
to meet our present and foreseeable needs. We also maintain an on-line database
with an independent service bureau servicing financial institutions.
Item 3. Legal Proceedings
-----------------
We are involved, from time to time, as plaintiff or defendant in
various legal actions arising in the normal course of their businesses. While
the ultimate outcome of these proceedings cannot be predicted with certainty, it
is the opinion of management, after consultation with counsel representing us in
the proceedings, that the resolution of these proceedings should not have a
material effect on our results of operations on a consolidated basis.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
None
30
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters
-----------------------------------------
Page 37 of the attached annual report to stockholders is herein
incorporated by reference.
Item 6. Management's Discussion and Analysis of Financial
Condition and Results of Operation
-------------------------------------------------
Pages 5 through 15 of the attached annual report to stockholders
are herein incorporated by reference.
Item 7. Financial Statements
--------------------
The following information appearing in our annual report to
stockholders for the year ended December 31, 1999, is incorporated by reference
in this annual report on Form 10-KSB as Exhibit 13.
Pages in
Annual
Report
------
Annual Report Section
- ---------------------
Report of Independent Auditors 16
Consolidated Balance Sheets as of December 31, 1999 and 1998 17
Consolidated Statements of Income for the Years Ended December 31, 18
1999, 1998 and 1997
Consolidated Statements of Changes in Shareholders' Equity for the 19
Years Ended December 31, 1999, 1998 and 1997
Consolidated Statements of Cash Flows for the Years Ended December 31, 20
1999, 1998 and 1997
Notes to Consolidated Financial Statements 21
With the exception of the aforementioned information, our annual
report to stockholders for the year ended December 31, 1999, is not deemed filed
as part of this annual report on Form 10-KSB.
Item 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
------------------------------------------------
There have been no current reports on Form 8-K filed within 24
months prior to the date of the most recent financial statements reporting a
change of accountants and/or reporting disagreements on any matter of accounting
principle or financial statement disclosure.
31
<PAGE>
PART III
Item 9. Directors, Executive Officers, Promoters and
Control Persons; Compliance with Section 16(a)
of the Exchange Act
----------------------------------------------
Directors
- ---------
Information concerning our Directors is incorporated herein by
reference from the definitive proxy statement for the annual meeting of
stockholders to be held in 2000, a copy of which will be filed not later than
120 days after the close of the fiscal year.
Executive Officers of Northeast Indiana Bancorp and First Federal
- -----------------------------------------------------------------
The following table sets forth certain information regarding our
executive officers who are not also a directors.
<TABLE>
<CAPTION>
Position held with the
Name Age(1) First Federal and Northeast Indiana Bancorp
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Darrell E. Blocker 46 Senior Vice President, Treasurer and
Chief Financial Officer
Dee Ann Hammel 47 Senior Vice President, Secretary and Chief
Operating Officer
Joseph A. Byers 47 Vice President and Senior Trust Officer
</TABLE>
- --------------
(1) At December 31, 1999
The business experience of the executive officers who are not
also directors is set forth below.
Darrell E. Blocker is Senior Vice President, Treasurer and Chief
Financial Officer, positions he has held since March 1995. Mr. Blocker first
joined First Federal in 1988 as an accountant. Mr. Blocker is responsible for
the overall financial functions of First Federal.
Dee Ann Hammel is Senior Vice President, Secretary and Chief
Operations Officer, positions she has held since March 1995. Ms. Hammel first
joined First Federal in 1975 as a teller. Ms. Hammel is responsible for
directing and controlling First Federal's daily activities.
Joseph A. Byers is Vice President and Senior Trust Officer of
First Federal, a position he has held since August 1998. Mr. Byers first joined
First Federal in July 1998 to help establish and manage the Trust Department.
Mr. Byers is responsible for management of the Trust Department and the
financial services subsidiary. Mr. Byers came to us with 28 years in banking
experience, including 20 years of Trust experience.
32
<PAGE>
Compliance with Section 16(a)
- -----------------------------
Section 16(a) of the Securities Exchange Act of 1934 requires our
directors and executive officers, and persons who own more than 10% of a
registered class of Northeast Indiana Bancorp's equity securities, to file with
the SEC initial reports of ownership and reports of changes in ownership of
Common Stock and other equity securities of Northeast Indiana Bancorp. Officers,
directors and greater than 10% stockholders are required by SEC regulation to
furnish us with copies of all Section 16(a) forms they file.
To our knowledge, based solely on a review of the copies of such
reports furnished to the us and written representations that no other reports
were required, all Section 16(a) filing requirements applicable to its officers,
directors and greater than 10 percent beneficial owners were complied with
during the fiscal year ended December 31, 1999.
Item 10. Executive Compensation
----------------------
Information concerning executive compensation is incorporated
herein by reference from the definitive proxy statement for the annual meeting
of stockholders to be held in 2000, a copy of which will be filed not later than
120 days after the close of the fiscal year.
Item 11. Security Ownership of Certain Beneficial
Owners and Management
----------------------------------------
Information concerning security ownership of certain beneficial
owners and management is incorporated herein by reference from the definitive
proxy statement for the annual meeting of stockholders to be held in 2000, a
copy of which will be filed not later than 120 days after the close of the
fiscal year.
Item 12. Certain Relationships and Related Transactions
----------------------------------------------
Information concerning certain relationships and related
transactions is incorporated herein by reference from the definitive proxy
statement for the annual meeting of stockholders to be held in 2000, a copy of
which will be filed not later than 120 days after the close of the fiscal year.
33
<PAGE>
Item 13. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
<TABLE>
<CAPTION>
Sequential
Page Number
Where Attached
Exhibits Are
Located in This
Form 10-KSB
Reference Report
---------------------------------
<S> <C> <C> <C>
3(i) Articles of Incorporation, including amendments thereto * Not applicable
3(ii) By-Laws * Not applicable
4 Instruments defining the rights of security holders, including debentures * Not applicable
9 Voting Trust Agreement None Not applicable
10 Executive Compensation Plans and Arrangements
(a) Employment Contract between Stephen E. Zahn * Not applicable
and First Federal
(b) Employment Contract between Darrell Blocker * Not applicable
and First Federal
(c) Employment Contract between Dee Ann Hammel * Not applicable
and First Federal
(d) 1995 Stock Option and Incentive Plan * Not applicable
(e) Recognition and Retention Plan * Not applicable
11 Statement re: computation of per share earnings None Not applicable
13 Annual Report to Security Holders 13 13
16 Letter re: change in certifying accountants None Not applicable
18 Letter re: change in accounting principles None Not applicable
21 Subsidiaries of Registrant 21 21
22 Published report regarding matters submitted to vote of security holders None Not applicable
23 Consents of Experts and Counsel 23 23
24 Power of Attorney Not required Not applicable
27 Financial Data Schedule 27 27
99 Additional Exhibits None Not applicable
</TABLE>
- ----------------
* Filed as exhibits to our Form S-1 registration statement filed on
March 23, 1995 (File No. 33-90558) of the Securities Act of 1933.
All of such previously filed documents are hereby incorporated
herein by reference in accordance with Item 601 of Regulation
S-B.
35
<PAGE>
(b) Reports on Form 8-K
<TABLE>
<CAPTION>
<S> <C>
For the year ended December 31, 1999, we filed the following:
(i) Form 8-K filed on January 27, 1999, regarding fourth quarter earnings for 1998 and cash
dividend.
(ii) Form 8-K filed on February 8, 1999, regarding additional financial planning alternatives
offered by First Federal.
(iii) Form 8-K filed April 14, 1999, announcing first quarter earnings.
(iv) Form 8-K filed April 26, 1999, announcing cash dividend and
annual shareholder meeting.
(v) Form 8-K filed June 30, 1999, announcing stock repurchase program.
(vi) Form 8-K filed July 19, 1999, announcing second quarter earnings.
(vii) Form 8-K filed July 29, 1999, announcing second quarter cash dividend.
(viii) Form 8-K filed October 22, 1999, announcing third quarter earnings.
(ix) Form 8-K filed October 28, 1999, declaring stock dividend and effective increase in cash dividend.
</TABLE>
35
<PAGE>
SIGNATURES
----------
In accordance with Section 13 of 15(d) of the Exchange Act, the
Issuer caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
NORTHEAST INDIANA BANCORP, INC.
Date: March 29, 2000 By: /S/ Stephen E. Zahn
--------------- -------------------
Stephen E. Zahn
(Duly Authorized Representative)
In accordance with the Exchange Act, this report has been signed
below by the following persons on behalf of the Issuer and in the capacities and
on the dates indicated.
<TABLE>
<CAPTION>
<S> <C>
By: /s/ Stephen E. Zahn By: /s/ Darrell E. Blocker
------------------- ----------------------
Stephen E. Zahn, Chairman of the Darrell E. Blocker, Senior Vice
Board, President and Chief President, Treasurer and Chief
Executive Officer Financial Officer
(Principal Executive and Operating (Chief Financial and Accounting
Officer) Officer)
Date: March 29, 2000 Date: March 29, 2000
By: /s/ Dan L. Stephan By: /s/ J. David Carnes
------------------ --------------------
Dan L. Stephan, Director J. David Carnes, Director
Date: March 29, 2000 Date: March 29, 2000
By: /s/ Michael S. Zahn By: /s/ Randall C. Rider
------------------- --------------------
Michael S. Zahn, Director Randall C. Rider, Director
Date: March 29, 2000 Date: March 29, 2000
</TABLE>
NOW MORE THAN EVER...FIRST IN HOMETOWN BANKING
[GRAPHIC-LOGO OF NORTHEAST INDIANA Bancopr, Inc.
1 9 9 9
ANNUAL REPORT
<PAGE>
PRESIDENT'S MESSAGE TO OUR SHAREHOLDERS
[Graphic - photo]
Stephen E. Zahn
Chairman of the Board, President
and Chief Executive Officer
In 1999 Northeast Indiana Bancorp, Inc. and its principal subsidiary First
Federal Savings Bank completed its most successful year in our short four and
one half-year history as a public company.
Net income for the year was $2,590,000, an increase of 8.4% over 1998 income and
the fourth straight record year for the company. This resulted in a return on
average assets (ROA) of 1.11% and a return on equity (ROE) of 10.15% with
diluted earnings per share (E.P.S.) of $1.54, an increase of 20.3%. The assets
of the company now stand at $254,747,000 as of December 31, 1999, a 19.9%
increase over December 31, 1998 and a 96.1% increase (16.1% compounded annual
rate) over June 1995, the month we converted to a public company.
During the past year the profile of your company continued to change. Dedicated
to continuing to expand products and services to better serve our customers, a
number of new initiatives were started and existing programs expanded. Our Debit
Card Program is now in place and the first cards are being distributed to our
customers. The Financial Services Division and Trust Services completed a very
successful first year and continue to expand their customer base. New cash
management programs implemented for our business clientele and our basic
checking and savings programs have been enhanced to better serve our customers.
Commercial and consumer lending continues to become a larger percentage of our
loan portfolio and management continued to upgrade systems and staff training in
these areas.
You, our stockholders, continued to be rewarded by your faith and confidence in
Northeast Indiana Bancorp. In 1999 cash dividends were increased from $0.293 per
share to $0.345 per share and for the second time in two years your Board of
Directors approved an additional 10% stock dividend. The stock dividends effect
for the shareholders who have been with us since the initial public offering
provided a cash dividend yield of 4.84% over adjusted cost. We also understand
the importance of doing those things within our control that enhance shareholder
value. To that end we continue to pursue a stock buy back program. In 1999 we
purchased 84,020 shares in the open market, and as long as market conditions
warrant, we will continue this strategy of repurchasing our own stock.
As proud as we are of our tradition of achievement, we're not resting on our
laurels. As we look forward and approach the challenges of the new century, we
are confident we have built a solid foundation, through our employees and
technology, to enhance our leadership not only in our community but in the
ever-increasing competitive financial service market place. We are confident in
our future success due to the dedication of our employees and the excellent
guidance and judgement of our Board of Directors. All of us are grateful to you,
our shareholders, who put your faith and confidence in us and we will continue
to strive to justify your support.
Sincerely,
/S/Stephen E. Zahn
- ------------------
Stephen E. Zahn
Chairman of the Board,
President, Chief Executive Officer
<PAGE>
Table of Contents
PRESIDENT'S MESSAGE TO OUR SHAREHOLDERS 1
FINANCIAL HIGHLIGHTS 3
SELECTED CONSOLIDATED FINANCIAL INFORMATION 4
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 5
REPORT OF INDEPENDENT AUDITORS 16
CONSOLIDATED FINANCIAL STATEMENTS 17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 21
STOCKHOLDER INFORMATION 37
DIRECTORS AND OFFICERS 38
Description of Business
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 of the common stock of First Federal Savings Bank ("First Federal" or
"Bank") as a unitary thrift holding company. The Bank conducts business from its
three offices located in Huntington, Indiana. The principal business of First
Federal consists of attracting deposits from the general public and making loans
secured by residential real estate. Historically, First Federal has been among
the top real estate lenders and is the largest financial institution by asset
size in Huntington County. In order to serve additional financial needs of area
residents, First Federal established a Trust Department during 1998, and now
provides brokerage services via its new wholly owned subsidiary, Northeast
Indiana Financial, Inc. First Federal has been serving the Huntington community
since 1912.
2
<PAGE>
Financial Highlights
[Graphic - 5 bar charts]
Total Assets 1
Net Income
Earnings Per Share 2
Dividends Paid 2
Per Share Market Value 2
Return on Assets
Return on Equity
1 End of period
2 All share information restated to reflect the November 1998 and November 1999
10% Stock Dividends
3
<PAGE>
<TABLE>
<CAPTION>
Selected Consolidated Financial Information
December 31
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Selected Financial Condition Data:
Total assets ....................................... $254,747 $212,425 $199,369 $169,544 $137,569
Loans receivable, net .............................. 208,395 185,906 174,539 146,855 122,641
Securities ......................................... 33,649 14,187 15,385 12,388 6,882
Deposits ........................................... 143,212 123,336 107,550 85,346 68,203
Total borrowings ................................... 84,754 63,080 63,522 56,000 37,500
Shareholders' equity ............................... 25,655 25,005 27,293 26,529 31,033
Selected Operations Data:
Total interest income .............................. $ 17,722 $ 16,139 $ 14,316 $ 11,767 $ 9,644
Total interest expense ............................. 9,846 9,061 7,950 6,197 5,307
-------- -------- -------- -------- --------
Net interest income .............................. 7,876 7,078 6,366 5,570 4,337
Provision for loan losses .......................... 449 360 265 235 251
-------- -------- -------- -------- --------
Net interest income after provision for loan
losses ........................................... 7,427 6,718 6,101 5,335 4,086
Total noninterest income ........................... 832 731 565 402 347
Total noninterest expense .......................... 4,194 3,691 3,062 3,208 2,364
-------- -------- -------- -------- --------
Income before income taxes ......................... 4,065 3,758 3,604 2,529 2,069
Income tax expense ................................. 1,475 1,369 1,411 962 750
-------- -------- -------- -------- --------
Net income ......................................... $ 2,590 $ 2,389 $ 2,193 $ 1,567 $ 1,319
======== ======== ======== ======== ========
Basic earnings per common share (2)(3) ............. $ 1.59 $ 1.36 $ 1.16 $ 0.73 $ 0.32
Diluted earnings per common share (2)(3) ........... $ 1.54 $ 1.28 $ 1.13 $ 0.72 $ 0.32
Selected Financial Ratios and Other Data:
Performance Ratios:
Return on assets
(ratio of net income to average total assets) 1.11% 1.17% 1.21% 1.03% 1.04%
Return on equity
(ratio of net income to average total equity) 10.15 9.15 8.12 5.43 6.55
Interest rate spread information:
Average during period .......................... 3.03 2.95 2.91 2.90 2.80
End of period .................................. 3.02 3.11 2.95 2.70 2.77
Net interest margin (1) ........................ 3.50 3.57 3.63 3.81 3.57
Ratio of operating expense to average total
assets ...................................... 1.80 1.81 1.69 2.12 1.87
Ratio of average interest-earning assets to
average interest-bearing liabilities ........ 110.74 113.66 115.97 121.48 117.70
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Quality Ratios:
Non-performing loans to total assets at end
of period ................................... .70 .56 .58 .42 .21
Allowance for loan losses to non-performing
loans ....................................... 82.00 122.53 102.50 144.00 310.21
Allowance for loan losses to total loans ....... .82 .76 .66 .67 .70
Capital Ratios:
Shareholders' equity to total assets at end of
period ...................................... 10.07 11.77 13.69 15.65 22.56
Average shareholders' equity to average total
assets ...................................... 10.94 12.80 14.89 19.03 15.92
Other Data:
Dividends declared per share (2) (3) ........... $ 0.345 $ 0.293 $ 0.268 $ 0.252 $ 0.062
Dividend payout ratio .......................... 21.70% 21.54% 23.10% 34.52% 19.38%
Number of full-service offices ................. 3 3 3 3 3
</TABLE>
(1) Net interest income divided by average interest-earning assets.
(2) 1995 earnings per share amounts are subsequent to conversion.
(3) All share and per share amounts have been restated to reflect the 10% stock
dividends paid on November 23, 1998 to shareholders of record November 6,
1998 and again on November 22, 1999 to shareholders of record November 6,
1999.
4
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations
General
Northeast Indiana Bancorp, Inc. ("Northeast Indiana Bancorp") was formed as a
Delaware corporation in March, 1995 for the purpose of issuing common stock and
owning all of the common stock of First Federal Savings Bank ("First Federal")
as a unitary thrift holding company. First Federal conducts business from its
three offices located in Huntington, Indiana. Northeast Indiana Bancorp's
primary business activity is its investment in First Federal, and therefore, the
following discussion relates primarily to its operations.
During 1998, First Federal established a trust department which began operations
in the fourth quarter. At the end of 1999, $14.7 million was held under asset
management. In February 1999, Northeast Indiana Bancorp 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.
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. First Federal'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 a function of the balances of deposits and borrowings
outstanding during the same period and the rates paid on such deposits and
borrowings. Provisions for loan losses, service charge and fee income, other
noninterest income, operating expenses and income taxes also affect First
Federal's earnings. Operating expenses consist primarily of employee
compensation and benefits, occupancy and equipment expenses, data processing,
federal deposit insurance premiums and other general and administrative
expenses.
Prevailing economic conditions as well as federal regulations concerning
monetary and fiscal policies and financial institutions significantly affect
First Federal. 1999 ended with inflation continuing to stay low but with some
signs of rising. The Federal Reserve in anticipation, raised short term rates
three times for a total of 75 basis points to help the United States economy
maintain low inflation. The economy has stayed relatively stable during 1999.
Although we have had fluctuations throughout 1999, in general the economy was
favorable to First Federal's lending growth for most of the year. There can be
no assurance in periods of rising interest rates, that First Federal will be
able to continue to market its lending products successfully or that such
interest rate movements will not adversely affect net income.
<PAGE>
Deposit balances are influenced by a number of factors including interest rates
paid on competing personal investments and the level of personal income and
savings within First Federal's market. Lending activities are influenced by the
demand for housing as well as competition from other lending institutions.
Liquidity levels and funds available to originate loans may also impact lending
activities. The primary sources of funds for lending activities include
deposits, borrowed funds, loan payments and funds provided from operations.
5
<PAGE>
Forward-Looking Statements
When used in this filing and in future filings by Northeast Indiana Bancorp with
the Securities and Exchange Commission, in our 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 our market area, changes in policies by regulatory agencies, fluctuations in
interest rates, demand for loans in our 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.
Northeast Indiana Bancorp 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 our financial performance and could cause our
actual results for future periods to differ materially from those anticipated or
projected.
Northeast Indiana Bancorp 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
At this point, we have not experienced any significant Year 2000 issues as a
result of the Year 2000 rollover and are not aware of any customers that have
experienced Year 2000 issues. This success can be attributed to the two years of
planning and preparation efforts. Part of the preparation included evaluating,
upgrading and/or replacing hardware and software that was not Year 2000
compliant.
Also, to prepare for the Year 2000, we contacted all vendors and commercial
business customers to assess their Year 2000 efforts. While the rollover went
smoothly, Year 2000 monitoring will continue throughout the remainder of the
year to assure that all Year 2000 issues have been addressed.
6
<PAGE>
Financial Condition
Northeast Indiana Bancorp's total assets increased from $212.4 million at
December 31, 1998 to $254.7 million at December 31, 1999, an increase of $42.3
million, or 19.9%. The increase was due primarily to the increases in net loans
receivable of $22.5 million or 12.1% and an increase of $19.5 million in the
securities available for sale. This growth was funded by a $19.9 million
increase in deposits and by a $21.7 million increase in borrowed funds.
The increase in the loan portfolio was partially attributable to mortgage loans,
which increased $15.4 million. Mortgage loans secured by one-to-four family
residences increased $5.4 million to $119.3 million at December 31, 1999 and
represent 55.5% of First Federal's loan portfolio. The increase in one to
four-family mortgage loans was comprised of an $8.0 million increase in fixed
rate loans offset by a $2.6 million decrease in adjustable rate loans. Mortgage
loans secured by multi-family and commercial real estate increased $8.8 million
to $28.2 million at December 31, 1999 and construction loans secured by
residential and non-residential real estate increased $1.2 to $12.6 million.
First Federal also offers a variety of consumer loans including automobile,
credit card, commercial, home equity and second mortgage loans. Total consumer
and commercial business loans increased $8.5 million to $54.8 million at
December 31, 1999. Automobile loans comprise $15.4 million of total consumer
loans while home equity and second mortgage loans represent another $7.2 million
at December 31, 1999.
Future loan growth and profitability related thereto, are dependent on the
economy. First Federal currently anticipates slower growth in mortgages compared
to the last few years. First Federal will continue to expand its commercial and
consumer lending and anticipates non-mortgage lending to increase as a
percentage of total loans. While non-mortgage lending exposes First Federal to
additional credit risks, management is endeavoring to improve its underwriting
and monitoring capabilities in these areas. Total deposits increased $19.9
million to $143.2 million at December 31, 1999. The 16.1% growth in 1999 was due
to aggressive advertising, pricing of selected products for a limited time
slightly above local market competitors, and accepting jumbo deposits
competitively priced from time to time during the year. Jumbo deposit growth
contributed $16.2 million of the total deposit increase and came from both
inside and outside of our market area.
Total borrowed funds increased $21.7 million, from $63.1 million to $84.8
million at December 31, 1999. Borrowed funds include advances from the FHLB with
variable interest rates and stated maturities ranging through 2009. Management
plans to continue to utilize FHLB advances in conjunction with efforts to
increase our deposit base to provide the necessary funding for loan demand.
First Federal's borrowing limit at the FHLB as of December 31, 1999, was $86.1
million. Borrowings also include two demand notes totaling $140,000 for
investments in two low income housing limited liability partnerships as well as
various repurchase agreements that started being offered in 1998. The securities
sold under repurchase agreements balance at December 31, 1999 was $4.1 million.
<PAGE>
Results of Operations
Comparison of Years Ended
December 31, 1999 and 1998
General. Net income for the year ended December 31, 1999 provided another record
year of $2.6 million in earnings, an increase of $200,000 over net income of
$2.4 million for 1998. This improvement was primarily a result of an increase in
net interest income after provision for loan losses of $709,000, and
non-interest income improvements of $101,000. These increases were partially
offset by increases in non-interest operating expenses of $503,000 and higher
income tax expense of $107,000. Further details regarding the changes in the
income and expenses are discussed below.
Interest Income. Interest income increased $1.6 million or 9.8% to $17.7 million
for the year ended December 31, 1999. The increase in interest income was
primarily the result of mortgage loan interest
7
<PAGE>
income increasing $454,000 to $11.4 million and an increase of $503,000 to $4.5
million in consumer and other loan interest income. The average yield for the
year on the loan portfolio decreased to 8.08% in 1999 compared to 8.29% in 1998.
The increase in loan interest income was due to higher average balances of loans
outstanding in 1999 compared to 1998.
Interest Expense. Interest expense for 1999 rose $785,000 or 8.7% over 1998
interest expense. The majority of the increase was due to higher balances in
FHLB advances which averaged $19.6 million more in 1999 compared to 1998. The
average rate for time deposits decreased 34 basis points from 1998 to 1999.
Average money market account balances increased in 1999 by $870,000 or 4.2%. The
average rate for money market accounts decreased by 58 basis points to 4.31% for
1999. Interest expense for borrowed funds increased by $1.1 million primarily
due to higher average FHLB advance balances and higher securities sold with
repurchase agreements balances during 1999.
Net Interest Income. Net interest income increased $798,000 or 11.3% from $7.1
million to $7.9 million for the year ended December 31, 1999. The average spread
increased by 8 basis points to 3.03%. Average interest-earning assets yield
decreased to 7.88% due to lower yielding products offered during the first half
of 1999 but was offset by a larger decrease in the rates paid for
interest-bearing liabilities.
Provision for Loan Losses. The provision for loan losses for 1999 was $449,000
compared to $360,000 in 1998, an increase of $89,000. The provision for loan
losses less net charge-offs for the year resulted in a $313,000 increase in the
allowance for loan losses. The allowance for loan losses of $1.8 million at
December 31, 1999 was a 21.5% increase compared to December 31, 1998. Management
will continue to maintain the allowance for loan losses at a level deemed
adequate by management based on its quarterly analysis. This analysis includes
looking at our mix of loans by major product lines. We continue to increase our
allowance for loan losses because of our growth in commercial and consumer
lending as well as overall loan growth.
Noninterest Income. Noninterest income increased from $731,000 in 1998 to
$832,000 in 1999. The majority of this change was due to our increases in
deposit growth, service charges and fees on deposit accounts to $344,000 in 1999
compared to $287,000 for 1998, which was a $57,000 increase.
Noninterest Expense. Noninterest expense increased from $3.7 million to $4.2
million or $503,000. Salaries and employee benefits increased $284,000 in 1999
over 1998, the result of higher personnel costs, additional staff and salary
increases. During 1999 data processing increased $94,000. Primarily the data
processing costs increased due to higher volume and additional processing costs
incurred as we grow and expand our product lines. Correspondent bank charges and
other expenses increased mainly due to increased volume in deposits and loans.
Income Tax Expense. Income tax expense increased from $1.4 million to $1.5
million. This increase was due to higher taxable income for 1999 partially
reduced by the tax benefits from the investment in low income housing limited
liability partnerships.
Comparison of Years Ended
December 31, 1998 and 1997
General. Net income for the year ended December 31, 1998 provided another record
year of $2.4 million in earnings, an increase of $196,000 over net income of
$2.2 million for 1997. This improvement was primarily a result of increased net
<PAGE>
interest income after provision for loan losses of $618,000, non-interest income
improvements of $165,000 and lower income tax expense of $42,000. These
increases were partially offset by increases in non-interest operating expenses
of $629,000. Further details regarding the changes in the income and expenses
are discussed below.
Interest Income. Interest income increased $1.8 million or 12.7% to $16.1
million for the year ended December 31, 1998. The increase in interest income
was primarily the result of mortgage loan interest income increasing $777,000 to
$10.9 million and an increase of $903,000 to $3.9 million in consumer and other
loan interest income. The average yield for the
8
<PAGE>
year on the loan portfolio increased by just one basis point to 8.29% in 1998
compared to 8.28% in 1997. The increase in loan interest income was largely due
to higher average balances of loans outstanding in 1998 compared to 1997.
Interest Expense. Interest expense for 1998 rose $1.1 million or 14.0% over 1997
interest expense. The majority of the increase was due to higher balances in
time deposits which averaged $19.4 million more in 1998 compared to 1997. The
average rate for time deposits decreased 2 basis points from 1997 to 1998.
Average money market account balances increased in 1998 by $6.5 million or
45.7%. The average rate for money market accounts decreased by 16 basis points
to 4.89% for 1998. Interest expense for borrowed funds decreased by $260,000
primarily due to lower average FHLB advance balances during 1998.
Net Interest Income. Net interest income increased $712,000 or 11.2% from $6.4
million to $7.1 million for the year ended December 31, 1998. The average spread
increased by 4 basis points to 2.95%. Average loan yields increased slightly to
8.29% due to a higher percentage of new commercial, consumer and other
installment loans being added in 1998 offsetting the general drop in rates
during 1998 by product type.
Provision for Loan Losses. The provision for loan losses for 1998 was $360,000
compared to $265,000 in 1997, an increase of $95,000. The provision for loan
losses less net charge-offs for the year resulted in a $260,000 increase in the
allowance for loan losses. The allowance for loan losses of $1.5 million at
December 31, 1998 was a 21.8% increase compared to December 31, 1997.
Noninterest Income. Noninterest income increased from $566,000 in 1997 to
$731,000 in 1998. The majority of this increase is due to the increase in other
services charges and fees to $443,000 compared to $320,000 in 1997, a $123,000
increase. Due to our deposit growth, service charges and fees on deposit
accounts also increased to $287,000 in 1998 compared to $245,000 for 1997, which
was a $42,000 increase.
Noninterest Expense. Noninterest expense increased from $3.1 million to $3.7
million or $629,000. Salaries and employee benefits increased $311,000 in 1998
over 1997, the result of higher ESOP costs, additional staff and salary
increases. During 1998 data processing increased $125,000. These costs are
primarily associated with the installation of a wide area network, communication
upgrades, imaging equipment and new software which will enable increased
efficiencies of operations. Correspondent bank charges and other expenses
increased mainly due to increased volume in deposits and loans.
Income Tax Expense. Income tax expense decreased $42,000 to $1.4 million. This
reduction was mainly the result of the tax benefits in 1998 from the investment
in the low income housing limited liability partnership.
9
<PAGE>
Asset/Liability Management
First Federal, like other financial institutions, is subject to interest rate
risk to the extent that its interest-bearing liabilities reprice on a different
basis than its interest-earning assets. Office of Thrift Supervision ("OTS")
regulations provide a Net Portfolio Value ("NPV") approach to the quantification
of interest rate risk. In essence, this approach calculates the difference
between the present value of liabilities, expected cash flows from assets and
cash flows from off balance sheet contracts.
Management has established maximum limits for changes in net portfolio value
resulting from changes in interest rates based on consideration of First
Federal's portfolio mix of interest-earning assets and interest-bearing
liabilities along with management's objectives for managing these portfolios in
varying interest rate environments. Management monitors various indicators of
interest rate risk, including NPV, and expectations regarding interest rate
movements along with consideration of First Federal's overall capital levels to
determine acceptable levels of interest rate risk. First Federal's
interest-earning assets are composed primarily of loans, especially mortgage
loans. Management has offered adjustable rate loan products to assist in the
management of interest rate risk. At December 31, 1999, adjustable rate loans
comprised 45.73% of the total loan portfolio. The interest rate exposure as
outlined in the NPV table reflects our exposure to a rising interest rate
environment due to the concentration of longer term mortgage loans funded by
relatively shorter-term deposits and FHLB advances. In addition, the interest
rate risk is also impacted by adjustable rate loans which are tied to indices
which lag behind market rates. Management is aware of First Federal's interest
rate risk exposure in a rising interest rate environment. To address this
interest rate risk, which we would categorize as moderately high in comparison
to our peers, management will continue to market adjustable rate mortgage loans
when possible and review longer term funding sources. Management also considers
the current capital position of First Federal and the composition of the loan
portfolio and monitors these factors in conjunction with its strategic plan of
offering various mortgage loan products to customers in our market area.
Nonetheless, our interest rate exposure, particularly in a rising interest rate
environment, will grow, especially to the extent that loan demand produces
increases in balance sheet growth. While management monitors and, from time to
time, takes actions to adjust our interest rate risk, we believe a rising
interest rate environment will have an adverse impact on our profitability.
Presented below, as of December 31, 1999, is an analysis of First Federal's
estimated interest rate risk as measured by changes in NPV for instantaneous and
sustained parallel shifts in interest rates, up and down 300 basis points in 100
point increments. Assumptions used in calculating the amounts in this table are
those assumptions utilized by the OTS in assessing the interest rate risk of the
thrifts it regulates. NPV is calculated by the OTS for the purposes of interest
rate risk assessment and should not be considered as an indicator of value of
First Federal.
<PAGE>
<TABLE>
<CAPTION>
At December 31, 1999
Net Portfolio Value as % of
Net Portfolio Value Present Value of Assets
Change In Rates $ Amount $ Change % Change NPV Ratio Change
--------------- -------- -------- -------- --------- ------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
+300 bp $ 12,802 $ (11,581) (47) 5.35% (425)
+200 16,779 (7,604) (31) 6.87 (273)
+100 20,721 (3,661) (15) 8.31 (129)
0 24,383 - - 9.60 -
-100 28,072 3,689 15 10.84 125
-200 30,804 6,421 26 11.72 212
-300 33,242 8,859 36 12.47 288
</TABLE>
10
<PAGE>
Asset/Liability Management (continued)
In the event of a 300 basis point change in interest rate based upon estimates
as of December 31, 1999, First Federal would experience a 36% increase in NPV in
a declining rate environment and a 47% decrease in NPV in a rising rate
environment. During periods of rising rates, the value of monetary assets and
liabilities decline. Conversely, during periods of falling rates, the value of
monetary assets and liabilities increase. However, the amount of change in value
of specific assets and liabilities due to changes in rates is not the same in a
rising rate environment as in a falling rate environment (i.e., the amount of
value increase under a specific rate decline may not equal the amount of value
decrease under an identical upward rate movement). Based upon the NPV
methodology, the increased level of interest rate risk experienced by First
Federal in recent periods was due to the increased use of relatively short-term
deposits and FHLB advances to fund its investment in loans with substantially
longer maturities and our use of an interest rate index which lags behind market
rate indices to adjust the interest rate on its ARM loans originated prior to
June 1999. Effective May 1, 1999 ARM loan applications are tied to the weekly
one year CMT which is a current index. To the extent that we continue to use
liabilities with shorter terms to maturity than the assets in which it invests,
we will continue to experience increased levels of interest rate risk in a
rising interest rate environment.
In evaluating First Federal's exposure to interest rate risk, certain
shortcomings inherent in the method of analysis presented in the foregoing table
must be considered. For example, although certain assets and liabilities may
have similar maturities or periods to repricing, they may react in different
degrees to changes in market interest rates. Also, the interest rates on certain
types of assets and liabilities may fluctuate in advance of changes in market
interest rates, while interest rates on other types may lag behind changes in
market rates. Further, in the event of a change in interest rates, prepayments
and early withdrawal levels could deviate significantly from those assumed in
calculating the table. Finally, the ability of many borrowers to service their
debt may decrease in the event of an interest rate increase. As a result, the
actual effect of changing interest rates may differ from that presented in the
foregoing table.
11
<PAGE>
Average Balances, Interest Rates and Yields
The following table presents for the periods indicated the total dollar amount
of interest income from average interest earning assets and the resultant
yields, as well as the interest expense on average interest bearing liabilities,
expressed both in dollars and rates. No tax equivalent adjustments were made.
All average balances are daily average balances. Non-accruing loans have been
included in the table as loans carrying a zero yield.
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998
------------------------------------ ---------------------------------
Average Interest Average Interest
Outstanding Earned/ Yield/ Oustanding Earned/ Yield/
Balance Paid Rate Balance Paid Rate
------- ---- ---- ------- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-Earning Assets:
Loans receivable(1) ................ $195,504 $ 15,806 8.08 % $179,114 $ 14,848 8.29%
Securities ......................... 21,948 1,395 6.36 11,692 785 6.71
FHLB stock ......................... 4,026 322 8.00 3,250 260 8.00
Other interest-earning
assets .......................... 3,297 199 6.04 4,006 246 6.14
-------- -------- -------- --------
Total interest
earning assets(1) ........... 224,775 17,722 7.88 198,062 16,139 8.15
-------- -------- -------- --------
Non-interest earning assets .......... 8,315 6,086
-------- --------
Total assets ................... $233,090 $204,148
======== ========
Interest-Bearing Liabilities:
Savings ............................ $ 9,970 199 2.00 $ 9,577 235 2.45
Money market ....................... 21,602 930 4.31 20,732 1,014 4.89
Demand and NOW ..................... 11,185 170 1.52 9,947 148 1.49
Time deposit accounts .............. 79,487 4,271 5.37 79,156 4,516 5.71
Borrowings ......................... 80,734 4,276 5.30 54,841 3,148 5.74
-------- -------- -------- --------
Total interest
bearing liabilities .......... 202,978 9,846 4.85 174,253 9,061 5.20
-------- -------- -------- --------
Non-interest bearing
liabilities ......................... 4,607 3,774
-------- --------
Total liabilities .............. 207,585 178,027
Total equity ................... 25,505 26,121
-------- --------
Total liabilities and
equity ....................... $233,090 $204,148
======== ========
Net interest income .................. $ 7,876 $ 7,078
======== =======
Net interest rate spread ............. 3.03% 2.95%
==== ====
Net interest earning assets .......... $ 21,797 $ 23,809
======== ========
Net yield on average
interest-earning assets ............ 3.50% 3.57%
==== ====
Average interest-earning assets to
average interest-bearing liabilities 1.11x 1.14x
==== ====
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
1997
-----------------------------------
Average Interest
Outstanding Earned/ Yield/
Balance Paid Rate
------- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C>
Interest-Earning Assets:
Loans receivable(1) ................ $159,095 $ 13,167 8.28%
Securities ......................... 10,659 709 6.66
FHLB stock ......................... 3,054 244 7.99
Other interest-earning
assets .......................... 2,670 195 7.29
-------- --------
Total interest
earning assets(1) ........... 175,478 14,315 8.16
-------- --------
Non-interest earning assets .......... 6,001
--------
Total assets ................... $181,479
========
Interest-Bearing Liabilities:
Savings ............................ $ 9,655 265 2.75
Money market ....................... 14,232 719 5.05
Demand and NOW ..................... 8,960 148 1.65
Time deposit accounts .............. 59,608 3,416 5.73
Borrowings ......................... 58,859 3,402 5.78
-------- --------
Total interest
bearing liabilities .......... 151,314 7,950 5.25
-------- --------
Non-interest bearing
liabilities ......................... 3,142
--------
Total liabilities .............. 154,456
Total equity ................... 27,023
--------
Total liabilities and
equity ....................... $181,479
========
Net interest income .................. $ 6,365
========
Net interest rate spread ............. 2.91%
====
Net interest earning assets .......... $ 24,164
========
Net yield on average
interest-earning assets ............ 3.63%
====
Average interest-earning assets to
average interest-bearing liabilities 1.16x
====
</TABLE>
(1) Calculated net of deferred loan fees, loan discounts, loans in process and
allowance for loan losses.
<PAGE>
Interest Rate Spread
The following table presents the weighted average yields on loans, investments
and other interest-earning assets, and the weighted average rate on deposits and
borrowings and the resulting interest rate spreads at the dates indicated.
<TABLE>
<CAPTION>
At December 31,
- -----------------------------------------------------------------------------------
1999 1998 1997
<S> <C> <C> <C>
Weighted average yield on:
Loans receivable ................................ 8.14% 8.17% 8.38%
Investment securities ........................... 6.72 6.88 6.90
Other interest-earning assets ................... 4.96 4.68 5.65
Combined weighted average yield on
interest-earning assets ...................... 7.91 8.00 8.26
Weighted average rate on:
Savings deposits ................................. 2.00 2.00 2.75
Money market ..................................... 4.28 4.29 5.10
NOW deposits ..................................... 1.53 1.49 1.53
Time deposit accounts ............................ 5.65 5.48 5.76
Borrowings ....................................... 4.91 5.40 5.83
Repurchase agreements ........................... 5.38 4.53 0.00
Combined weighted average rate on interest-
bearing liabilities .......................... 4.89 4.89 5.31
Spread ........................................... 3.02 3.11 2.95
</TABLE>
The loans receivable yield, which is the largest portion of interest income,
dropped 3 basis points to 8.14%, a 0.4% drop at the end of period 1999 yield
compared to 8.17% at the end of 1998. The overall weighted average yield dropped
9 basis points to 7.91% at the end of 1999 down from 8.00% at the end of 1998, a
1.1% decrease. Interest-bearing liabilities rate changes were mixed on the major
liability products. Time deposits increased to 5.65% at the end of 1999 compared
to 5.48% at the end of 1998, a 17 basis point increase. Money market accounts
dropped 1 basis point to 4.28% at the end of 1999 compared to 4.29% at the end
of 1998, a 0.2% drop. Borrowings rates dropped 49 basis points in 1999 to 4.91%
compared to 5.40% at the end of 1998. The repurchase agreements reflect the end
of period rates paid on our sweep accounts which were introduced in 1998 for
commercial customers. The combined interest-bearing liabilities weighted average
rates remained the same at 4.89% at the end of 1999 compared to the end of 1998.
This reflection of no change in interest costs compared to the earning assets
yields reduction of 9 basis points caused the spread to tighten to 3.02 at the
end of 1999 compared to 3.11% at the end of 1998, a 9 basis point reduction over
1998.
13
<PAGE>
Rate/Volume Analysis
The following schedule presents the dollar amount of changes in interest income
and interest expense for major components of interest-earning assets and
interest-bearing liabilities. It distinguishes between the changes related to
outstanding balances and that due to the changes in interest rates. For each
category of interest-earning assets and interest-bearing liabilities,
information is provided on changes attributable to:
Changes in volume
(i.e., changes in volume multiplied by old rate)
Changes in rate
(i.e., changes in rate multiplied by old volume)
For purposes of this table, changes attributable to both rate and volume, which
cannot be segregated, have been allocated proportionately to the change due to
volume and the change due to rate.
<TABLE>
<CAPTION>
Year Ended December 31,
1999 vs. 1998 1998 vs. 1997
------------------------------- -------------------------------
Increase Increase
(Decrease) Total (Decrease) Total
Due to Increase Due to Increase
Volume Rate (Decrease) Volume Rate (Decrease)
------ ---- ---------- ------ ---- ----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable ... $ 1,332 $ (374) $ 958 $ 1,659 $ 22 $ 1,681
Securities ......... 654 (44) 610 69 7 76
FHLB stock ......... 62 -- 62 16 -- 16
Other interest-
earning assets ... (43) (4) (47) 86 (35) 51
------- ------- ------- ------- ------- -------
Total interest-
earning assets ... $ 2,005 $ (422) $ 1,583 $ 1,830 $ (6) $ 1,824
======= ======= ======= ======= ======= =======
Interest-bearing
liabilities:
Savings ............ $ 9 $ (45) $ (36) $ (2) $ (28) $ (30)
Money market ....... 41 (125) (84) 319 (24) 295
NOW ................ 19 3 22 15 (15) -
Time deposit
accounts ......... 19 (264) (245) 1,115 (15) 1,100
Borrowings ......... 1,388 (260) 1,128 (224) (30) (254)
------- ------- ------- ------- ------- -------
Total interest-
bearing
liabilities .. $ 1,476 $ (691) $ 785 $ 1,223 $ (112) $ 1,111
======= ======= ======= ======= ======= =======
Net interest income $ 798 $ 713
======= =======
</TABLE>
14
<PAGE>
Liquidity and Capital Resources
Liquidity and Capital Resources First Federal's primary sources of funds are
deposits, borrowings from the FHLB and principal and interest payments on loans.
While scheduled repayments of loans are a predictable source of funds, deposit
flows and mortgage prepayments are greatly influenced by general interest rates,
economic conditions and competition. Though its liquidity is somewhat lower than
its peers, First Federal has managed this fluctuation in its source of funds
through borrowings from the FHLB.
A standard measure of liquidity for thrift institutions is the ratio of cash and
eligible investments to a certain percentage of net withdrawable savings and
borrowings due within one year. As of December 31, 1999, First Federal's average
liquidity ratio was 7.05%, of which 63.00% was comprised of short-term
investments.
During the year ended December 31, 1999, there was a net decrease in cash and
cash equivalents of $396,000. The major source of funds during the year included
an increase in deposits of $19.9 million and $21.7 million in borrowed funds,
which were used to fund a net increase of $22.5 million in loans, $19.5 million
in securities and $1.2 million to purchase treasury stock.
During the year ended December 31, 1998, there was a net increase in cash and
cash equivalents of $1.5 million. The major source of funds during the year
included an increase in deposits of $15.8 million which were used to fund a net
increase of $11.4 million in loans and $4.9 million to purchase treasury stock.
During the year ended December 31, 1997, there was a net decrease in cash and
cash equivalents of $1.9 million. The major source of funds during the year
included net additional borrowings of $7.0 million from the FHLB and an increase
in deposits of $22.2 million which were used to fund a net increase of $28.0
million in loans and a $3.0 million increase in securities.
Under currently effective capital regulations, savings associations must meet a
4.0% core capital requirement and a total capital to risk weighted assets ratio
of 8.0%. At December 31, 1999, First Federal's core capital ratio was 9.4% and
its total capital to risk weighted assets ratio was 15.5%. Therefore, First
Federal's capital significantly exceeds all capital requirements currently in
effect.
During 1999 Northeast Indiana Bancorp completed its fifth stock repurchase
program which began in July 1998. Northeast Indiana Bancorp also received
approval from the OTS to begin its sixth stock repurchase program. As the stock
is repurchased, it becomes treasury stock and can be used for general corporate
purposes. The sixth repurchase program was approved in July 1999 for 10% of the
outstanding shares or 180,165 shares. Northeast Indiana Bancorp had repurchased
43,100 of these shares at the end of December 1999. At December 31, 1999 we had
887,152 shares of treasury stock and 1,753,520 shares outstanding.
Impact of Inflation and Changing Prices
The Financial Statements have been prepared in accordance with generally
accepted accounting principles, which require the measurement of financial
position and operating results in terms of historical dollars without
consideration for changes in the relative purchasing power of money over time
due to inflation. The impact of inflation can be found in the increased cost of
Northeast Indiana Bancorp's operations. Nearly all of our assets and liabilities
are financial, unlike most industrial companies. As a result, Northeast Indiana
<PAGE>
Bancorp's performance is directly impacted by changes in interest rates, which
are indirectly influenced by inflationary expectations. Our ability to match the
financial assets to the financial liabilities in its asset/liability management
will tend to minimize the change of interest rates on our performance. Changes
in investment rates do not necessarily move to the same extent as changes in the
price of goods and services.
15
<PAGE>
[Graphic - logo]
[letterhead CROWE CHIZEK]
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Northeast Indiana Bancorp, Inc.
Huntington, Indiana
We have audited the accompanying consolidated balance sheets of Northeast
Indiana Bancorp, Inc. and Subsidiary as of December 31, 1999 and 1998 and the
related consolidated statements of income, changes in shareholders' equity and
cash flows for the years ended December 31, 1999, 1998 and 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Northeast Indiana
Bancorp, Inc. and Subsidiary as of December 31, 1999 and 1998 and the results of
their operations and their cash flows for the years ended December 31, 1999,
1998 and 1997 in conformity with generally accepted accounting principles.
/s/Crowe, Chizek and Company LLP
--------------------------------
Crowe, Chizek and Company LLP
South Bend, Indiana
February 4, 2000
16
<PAGE>
<TABLE>
<CAPTION>
NORTHEAST INDIANA BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
December 31, 1999 and 1998
1999 1998
------------- -------------
<S> <C> <C>
ASSETS
Interest earning cash and cash equivalents $ 2,938,701 $ 4,079,792
Noninterest earning cash and cash equivalents 2,960,502 2,215,845
------------- -------------
Total cash and cash equivalents 5,899,203 6,295,637
Interest-earning deposits in financial institutions 100,000 100,000
Securities available for sale 33,192,217 13,658,691
Securities held to maturity (fair value: 1999 - $456,511;
1998 - $528,424) 456,511 528,424
Loans receivable, net of allowance for loan losses of
$1,766,700 in 1999 and $1,454,000 in 1998 208,394,576 185,906,309
Accrued interest receivable 839,967 487,393
Premises and equipment, net 2,292,342 2,265,347
Investments in limited liability partnerships 1,332,128 1,400,000
Other assets 2,239,874 1,782,791
------------- -------------
Total assets $ 254,746,818 $ 212,424,592
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Demand deposits $ 4,407,411 $ 3,058,581
Savings 9,709,295 9,811,696
NOW and MMDA 30,544,441 31,354,647
Time deposits 98,550,446 79,110,658
------------- -------------
Total deposits 143,211,593 123,335,582
Borrowed funds 84,753,919 63,080,275
Accrued expenses and other liabilities 1,126,007 1,004,099
------------- -------------
Total liabilities 229,091,519 187,419,956
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Shareholders' equity
Preferred stock, no par value: 500,000 shares
authorized, 0 shares issued - -
Common stock, $.01 par value: 4,000,000 shares
authorized; 1999: 2,640,672 shares issued, 1,753,520
shares outstanding; 1998: 2,400,466 shares issued,
1,672,417 outstanding 26,407 24,005
Additional paid in capital 28,733,423 25,128,717
Retained earnings, substantially restricted 10,641,144 12,166,794
Unearned employee stock ownership plan shares (1,018,325) (1,163,800)
Unearned recognition and retention plan shares (229,851) (433,672)
Accumulated other comprehensive income (loss),
net of tax (543,742) 44,105
Treasury stock, 887,152 and 728,049 common shares, at
cost, at December 31, 1999 and 1998 (11,953,757) (10,761,513)
------------- -------------
Total shareholders' equity 25,655,299 25,004,636
------------- -------------
Total liabilities and shareholders' equity $ 254,746,818 $ 212,424,592
============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
17
<PAGE>
<TABLE>
<CAPTION>
NORTHEAST INDIANA BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31, 1999, 1998 and 1997
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Interest income
Loans, including fees $15,805,546 $14,848,080 $13,167,279
Taxable securities 1,692,134 1,025,151 921,263
Non-taxable securities 25,031 19,706 32,587
Deposits with banks 198,964 246,175 194,647
----------- ----------- -----------
Total interest income 17,721,675 16,139,112 14,315,776
Interest expense
Deposits 5,569,243 5,912,572 4,547,834
Borrowed funds 4,276,240 3,148,229 3,402,363
----------- ----------- -----------
Total interest expense 9,845,483 9,060,801 7,950,197
----------- ----------- -----------
Net interest income 7,876,192 7,078,311 6,365,579
Provision for loan losses 448,647 359,988 265,300
----------- ----------- -----------
Net interest income after provision for loan
losses 7,427,545 6,718,323 6,100,279
Noninterest income
Service charges on deposit accounts 343,928 287,480 245,304
Other service charges and fees 488,199 443,375 320,282
----------- ----------- -----------
Total noninterest income 832,127 730,855 565,586
Noninterest expense
Salaries and employee benefits 2,126,443 1,841,998 1,530,579
Occupancy 408,578 357,133 318,945
Data processing 530,758 436,757 311,537
Deposit insurance premium 74,016 67,637 54,829
Professional fees 130,901 143,960 147,319
Correspondent bank charges 227,953 144,637 142,466
Other expense 695,798 699,176 556,648
----------- ----------- -----------
Total noninterest expense 4,194,447 3,691,298 3,062,323
----------- ----------- -----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Income before income taxes 4,065,225 3,757,880 3,603,542
Income tax expense 1,475,288 1,368,526 1,410,563
----------- ----------- -----------
Net income $ 2,589,937 $ 2,389,354 $ 2,192,979
=========== =========== ===========
Basic earnings per common share $ 1.59 $ 1.36 $ 1.16
=========== =========== ===========
Diluted earnings per common share $ 1.54 $ 1.28 $ 1.13
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
18
<PAGE>
<TABLE>
<CAPTION>
NORTHEAST INDIANA BANCORP, INC
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
Years ended December 31, 1999, 1998 and 1997
Unearned
Employee
Additional Stock
Common Paid in Retained Ownership
Stock Capital Earnings Plan Shares
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Balance, January 1, 1997 $ 21,821 $ 21,253,458 $ 12,338,919 $ (1,454,750)
Net income --- --- 2,192,979 ---
Other comprehensive income:
Net change in unrealized gains (losses)
on securities available for sale --- --- --- ---
Total tax effect --- --- --- ---
Total other comprehensive income --- --- --- ---
Total comprehensive income --- --- --- ---
Cash dividends ($.27 per share) --- --- (575,558) ---
Purchase of 78,936 shares of treasury stock - --- --- --- ---
Sale and issuance of 600 shares of treasury stock
including exercising of stock options --- 1,000 --- ---
17,603 shares committed to be released
under the ESOP --- 95,868 --- 145,475
Purchase of 605 shares for RRP --- --- --- ---
Amortization of RRP contributions --- --- --- ---
------------ ------------ ------------ ------------
Balance, December 31, 1997 21,821 21,350,326 13,956,340 (1,309,275)
Net income --- --- 2,389,354 ---
Other comprehensive income:
Net change in unrealized gains (losses)
on securities available for sale --- --- --- ---
Total tax effect --- --- --- ---
Total other comprehensive income --- --- --- ---
Total comprehensive income
Cash dividends ($.29 per share) --- --- (576,273) ---
Purchase of 257,591 shares of treasury stock --- --- --- ---
Issuance of 23,220 shares of treasury stock
upon exercise of stock options --- (31,234) --- ---
Tax effect on stock plans --- 50,762 --- ---
17,603 shares committed to be released
under the ESOP --- 149,764 --- 145,475
Purchase of 1,210 treasury stock shares for RRP --- 8,656 --- ---
Amortization of RRP contributions --- --- --- ---
Issuance of 218,341 common shares from
declaration of 10% stock dividend 2,184 3,600,443 (13,602,627) ---
------------ ------------ ------------ ------------
Balance, December 31, 1998 24,005 25,128,717 12,166,794 (1,163,800)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Unearned
Employee
Additional Stock
Common Paid in Retained Ownership
Stock Capital Earnings Plan Shares
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net income --- --- 2,589,937 ---
Other comprehensive loss:
Net change in unrealized gains (losses)
on securities available for sale --- --- --- ---
Total tax effect --- --- --- ---
Total other comprehensive loss --- --- --- ---
Total comprehensive income --- --- --- ---
Cash dividends ($.35 per share) --- --- (617,467) ---
Purchase of 84,020 shares of treasury stock - --- --- --- ---
Issuance of 2,453 shares of treasury stock
upon exercise of stock options --- (3,298) --- ---
Tax effect on stock plans --- 16,733 --- ---
17,603 shares committed to be released
under the ESOP --- 93,570 --- 145,475
Purchase of 550 treasury stock shares for RRP --- 1,983 --- ---
Amortization of RRP contributions --- --- --- ---
net of 5,281 RRP shares forfeited
Issuance of 240,206 common shares from
declaration of 10% stock dividend 2,402 3,495,718 (3,498,120) ---
------------ ------------ ------------ ------------
Balance, December 31, 1999 $ 26,407 $ 28,733,423 $ 10,641,144 $ (1,018,325)
============ ============ ============ ============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Accumulated
Unearned Other
Recognition Comprehensive Total
and Retention Income (Loss) Treasury Shareholders'
Plan Shares Net of Tax Stock Equity
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Balance, January 1, 1997 $ (820,109) $ 15,799 $ (4,826,022) $ 26,529,116
Net income --- --- --- 2,192,979
Other comprehensive income:
Net change in unrealized gains (losses)
on securities available for sale --- 42,836 --- ---
Total tax effect --- (16,963) --- ---
-----------
Total other comprehensive income --- 25,873 --- 25,873
Total comprehensive income --- --- --- 2,218,852
Cash dividends ($.27 per share) --- --- --- (575,558)
Purchase of 78,936 shares of treasury stock - --- (1,328,211) (1,328,211)
Sale and issuance of 600 shares of treasury stock
including exercising of stock options --- --- 7,800 8,800
17,603 shares committed to be released
under the ESOP --- --- --- 241,343
Purchase of 605 shares for RRP (7,625) --- --- (7,625)
Amortization of RRP contributions 205,917 --- --- 205,917
------------ ----------- ------------ ------------
Balance, December 31, 1997 (621,817) 41,672 (6,146,433) 27,292,634
Net income --- --- --- 2,389,354
Other comprehensive income:
Net change in unrealized gains (losses)
on securities available for sale --- 5,996 --- ---
Total tax effect --- (3,563) --- ---
------------
Total other comprehensive income --- 2,433 --- 2,433
Total comprehensive income 2,391,787
Cash dividends ($.29 per share) --- --- --- (576,273)
Purchase of 257,591 shares of treasury stock --- --- (4,907,522) (4,907,522)
Issuance of 23,220 shares of treasury stock
upon exercise of stock options --- --- 279,255 248,021
Tax effect on stock plans --- --- --- 50,762
17,603 shares committed to be released
under the ESOP --- --- --- 295,239
Purchase of 1,210 treasury stock shares for RRP (21,843) --- 13,187 ---
Amortization of RRP contributions 209,988 --- --- 209,988
Issuance of 218,341 common shares from
declaration of 10% stock dividend --- --- --- ---
------------ ----------- ------------ ------------
Balance, December 31, 1998 (433,672) 44,105 (10,761,513) 25,004,636
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Accumulated
Unearned Other
Recognition Comprehensive Total
and Retention Income (Loss) Treasury Shareholders'
Plan Shares Net of Tax Stock Equity
------------ ------------- ------------ ------------
<S> <C> <C> <C> <C>
Net income --- --- --- 2,589,937
Other comprehensive loss:
Net change in unrealized gains (losses)
on securities available for sale --- (975,223) --- ---
Total tax effect --- 387,376 --- ---
-----------
Total other comprehensive loss --- (587,847) --- (587,847)
Total comprehensive income --- --- --- 2,002,090
Cash dividends ($.35 per share) --- --- --- (617,467)
Purchase of 84,020 shares of treasury stock - --- (1,166,525) (1,166,525)
Issuance of 2,453 shares of treasury stock
upon exercise of stock options --- --- 27,114 23,816
Tax effect on stock plans --- --- --- 16,733
17,603 shares committed to be released
under the ESOP --- --- --- 239,045
Purchase of 550 treasury stock shares for RRP (8,063) --- 6,080 ---
Amortization of RRP contributions 211,884 --- (58,913) 152,971
net of 5,281 RRP shares forfeited
Issuance of 240,206 common shares from
declaration of 10% stock dividend --- --- --- ---
------------ ----------- ------------ ------------
Balance, December 31, 1999 $ (229,851) $ (543,742) $(11,953,757) $ 25,655,299)
============ =========== ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
19
<PAGE>
<TABLE>
<CAPTION>
NORTHEAST INDIANA BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1999, 1998 and 1997
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
Cash flows from operating activities
Net income $ 2,589,937 $ 2,389,354 $ 2,192,979
Adjustments to reconcile net income
to net cash from operating activities
Depreciation and amortization 239,731 161,240 144,898
Provision for loan losses 448,647 359,988 265,300
Net (gain) loss on sale of foreclosed real estate 13,925 (10,387) (1,335)
Net (gain) loss on sale of premises and equipment (160) (8,481) (152)
Reduction of obligation under ESOP 239,045 295,239 241,343
Amortization of RRP 152,971 209,988 205,917
Net change in:
Other assets (114,685) (326,636) (381,807)
Accrued interest receivable (352,574) 24,557 (148,387)
Accrued expenses and other liabilities 121,908 (396) (668,619)
------------- ------------- -------------
Total adjustments 748,808 705,112 (342,842)
------------- ------------- -------------
Net cash from operating activities 3,338,745 3,094,466) 1,850,137
Cash flows from investing activities
Purchases of securities available for sale (25,002,756) (5,334,188) (4,803,829)
Proceeds from maturities and principal payments
of securities available for sale 4,539,207 6,328,978 1,716,890
Proceeds from maturities and principal payments
of securities held to maturity 71,913 228,422 135,190
Purchases of loans (2,400,000) (3,045,695) (3,261,911)
Proceeds from sale of loans 273,049 2,430,541 351,500
Net change in loans (20,932,437) (11,390,311) (25,136,614)
Proceeds from sale of foreclosed real estate 170,261 177,750 98,843
Expenditures on premises and equipment (244,245) (481,452) (110,826)
Proceeds from sale of premises and equipment 350 8,825 5,948
------------- ------------- -------------
Net cash from investing activities (43,524,658) (11,077,130) (31,004,809)
------------- ------------- -------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Cash flows from financing activities
Net change in deposits 19,876,011 15,785,796 22,203,546
Advances from FHLB 101,000,000 67,000,000 56,000,000
Repayment of FHLB advances (82,598,967) (67,898,967) (48,998,968)
Payments of demand notes (641,250) (393,750) ---
Net change in other borrowed funds 3,913,861 201,310 ---
Dividends paid (617,467) (576,273) (575,558)
Purchase of stock (1,166,525) (4,907,522) (1,335,836)
Sale of treasury stock 23,816 248,021 8,800
------------- ------------- -------------
Net cash from financing activities 39,789,479 9,458,615 27,301,984
------------- ------------- -------------
Net change in cash and cash equivalents (396,434) 1,475,951 (1,852,688)
Cash and cash equivalents at beginning of year 6,295,637 4,819,686 6,672,374
------------- ------------- -------------
Cash and cash equivalents at end of year $ 5,899,203 $ 6,295,637 $ 4,819,686
============= ============= =============
Cash paid for:
Interest $ 9,754,294 $ 9,093,839 $ 7,909,627
Income taxes 1,442,300 1,637,000 1,573,308
Non-cash transactions:
Investment in obligation relative to limited
partnership $ - $ 650,000 $ 525,000
Transfer from loans to other real estate 122,474 278,075 97,508
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
20
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - Summary of Significant Accounting Policies
Nature of Operations and Principles of Consolidation: The consolidated financial
statements include the accounts of Northeast Indiana Bancorp, Inc. ("Northeast
Indiana Bancorp") and its wholly-owned subsidiary, First Federal Savings Bank
("First Federal") and its wholly owned subsidiary Northeast Indiana Financial,
Inc. ("Northeast Indiana Financial"). Northeast Indiana Bancorp, Inc. was
organized for the purpose of owning all of the outstanding stock of First
Federal Savings Bank. Intercompany transactions and balances have been
eliminated in consolidation.
The primary source of income for Northeast Indiana Bancorp is the origination of
commercial and residential real estate loans in northeastern Indiana. Loans
secured by real estate mortgages comprise approximately 80% and 82% of the loan
portfolio at December 31, 1999 and 1998, and are primarily secured by
residential mortgages.
Use of Estimates: To prepare the consolidated financial statements in conformity
with generally accepted accounting principles, management makes estimates and
assumptions based on available information. These estimates and assumptions
affect the amounts reported in the financial statements and the disclosures
provided, and future results could differ. The collectibility of loans and fair
values of financial instruments are particularly subject to change.
Cash Flow Reporting: Cash and cash equivalents are defined as cash and due from
banks and short-term interest earning deposits in financial institutions with
original maturities under 90 days. Net cash flows are reported for customer loan
and deposit transactions as well as securities sold under agreements to
repurchase.
Securities: Securities are classified as held to maturity and carried at
amortized cost when management has the positive intent and ability to hold them
to maturity. Securities are classified as available for sale when they might be
sold before maturity. Securities available for sale are carried at fair value,
with unrealized holding gains and losses reported in other comprehensive income
or loss and shareholders' equity, net of tax. Trading securities are carried at
fair value, with changes in unrealized holding gains and losses included in
income. Other securities such as Federal Home Loan Bank stock are carried at
cost.
Interest income includes amortization of purchase premium or discount. Gains and
losses on sales are based on the amortized cost of the security sold. Securities
are written down to fair value when a decline in fair value is not temporary.
Loans:
Loans are reported at the principal balance outstanding, net of unearned
interest, deferred loan fees and costs, and an allowance for loan losses.
Interest income is reported on the interest method and includes amortization of
net deferred loan fees and costs over the loan term. Interest income is not
reported when full loan repayment is in doubt, typically when the loan is
impaired or payments are past due over 90 days. Payments received on such loans
are reported as principal reductions.
<PAGE>
Allowance for Loan Losses: The allowance for loan losses is a valuation
allowance for probable credit losses, increased by the provision for loan losses
and decreased by charge-offs less recoveries. Management estimates the allowance
balance required using past loan loss experience, known and inherent risks in
the nature and volume of the portfolio, information about specific borrower
situations and estimated collateral values, economic conditions, and other
factors. Allocations of the allowance may be made for specific loans, but the
entire allowance is available for any loan that, in management's judgment,
should be charged-off.
A loan is impaired when full payment under the loan terms is not expected.
Impairment is evaluated in total for smaller-balance loans of similar nature
such as residential mortgage, consumer, and credit card loans, and on an
individual loan basis for other loans. If a loan is impaired, a portion of the
allowance is allocated so that the loan is reported, net, at the present value
of estimated future cash flows using the loan's existing rate or at the fair
value of collateral if repayment is expected solely from the collateral. Loans
are evaluated for impairment when payments are delayed, typically 90 days or
more, or when it is probable that all principal and interest amounts will not be
collected according to the original terms of the loan.
Foreclosed Assets: Assets acquired through or instead of loan foreclosure are
initially recorded at fair value when acquired, establishing a new cost basis.
If fair value declines, a valuation allowance is recorded through expense. Costs
after acquisition are expensed.
Premises and Equipment: Premises and equipment are stated at cost less
accumulated depreciation. Depreciation is computed over asset useful lives on
the straight line basis.
Long-term Assets: These assets are reviewed for impairment when events indicate
their carrying amount may not be recoverable from future undiscounted cash
flows.
21
<PAGE>
NOTE 1 - Summary of Significant Accounting Policies (Continued)
If impaired, the assets are recorded at discounted amounts.
Repurchase Agreements: Substantially all repurchase agreement liabilities
represent amounts advanced by various customers. Securities are pledged to cover
these liabilities, which are not covered by federal deposit insurance.
Stock Compensation: Employee compensation expense under stock option plans is
reported if options are granted below market price at grant date. Pro forma
disclosures of net income and earnings per share are shown using the fair value
method of SFAS No. 123 to measure expense for options granted after 1994, using
an option pricing model to estimate fair value.
Income Taxes: Income tax expense is the total of the current year income tax due
or refundable and the change in deferred tax assets and liabilities. Deferred
tax assets and liabilities are the expected future tax amounts for the temporary
differences between carrying amounts and tax bases of assets and liabilities,
computed using enacted tax rates. A valuation allowance, if needed, reduces
deferred tax assets to the amount expected to be realized.
Employee Stock Ownership Plan: The cost of shares issued to the ESOP, but not
yet allocated to participants, is shown as a reduction of shareholders' equity.
Compensation expense is based on the market price of shares as they are
committed to be released to participant accounts. Dividends on allocated ESOP
shares reduce retained earnings; dividends on unearned ESOP shares reduce debt
and accrued interest.
Financial Instruments: Financial instruments include credit instruments, such as
commitments to make loans and standby letters of credit, issued to meet customer
financing needs. The face amount for these items represents the exposure to
loss, before considering customer collateral or ability to repay. Earnings Per
Common Share: Basic earnings per common share is net income divided by the
weighted average number of common shares outstanding during the period. ESOP
shares are considered outstanding for this calculation unless unearned. Diluted
earnings per common share includes the dilutive effect of additional potential
common shares issuable under stock options.
Stock Dividends: Common share amounts related to the ESOP plan, stock
compensation plans and earnings and dividends per share are restated for stock
dividends.
Comprehensive Income: Comprehensive income consists of net income and other
comprehensive income (loss). Other comprehensive income (loss) includes
unrealized gains and losses on securities available for sale, net of tax, which
are also recognized as separate components of equity.
Industry Segment: Northeast Indiana Bancorp and its subsidiary are primarily
organized to operate in the banking industry. Substantially all revenues and
services are derived from banking products and services in northeastern Indiana.
While Northeast Indiana Bancorp's chief decision makers monitor various products
and services, operations are managed and financial performance is evaluated on a
company-wide basis. Accordingly, all of Northeast Indiana Bancorp's banking
operations are considered by Management to be aggregated in one business
segment.
New Accounting Pronouncements: Beginning January 1, 2001, a new accounting
standard will require all derivatives to be recorded at fair value. Unless
designated as hedges, changes in these fair values will be recorded in the
<PAGE>
income statement. Fair value changes involving hedges will generally be recorded
by offsetting gains and losses on the hedge and on the hedged item, even if the
fair value of the hedged item is not otherwise recorded. This is not expected to
have a material effect but the effect will depend on derivative holdings when
this standard applies.
Loss Contingencies: Loss contingencies, including claims and legal actions
arising in the ordinary course of business, are recorded as liabilities when the
likelihood of loss is probable and an amount or range of loss can be reasonably
estimated. Management does not believe there now are such matters that will have
a material effect on the financial statements.
Dividend Restriction: Banking regulations require maintaining certain capital
levels and may limit the dividends paid by the bank to the holding company or by
the holding company to shareholders.
Fair Value of Financial Instruments: Fair values of financial instruments are
estimated using relevant market information and other assumptions, as more fully
disclosed in a separate note. Fair value estimates involve uncertainties and
matters of significant judgment regarding interest rates, credit risk,
prepayments, and other factors, especially in the absence of broad markets for
particular items. Changes in assumptions or in market conditions could
significantly affect the estimates.
Reclassifications: Some items in prior financial statements have been
reclassified to conform with the current presentation.
22
<PAGE>
NOTE 2 - SECURITIES
Year end securities were as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------ ------- ------------ ------------
<S> <C> <C> <C> <C>
Available for sale - 1999
U.S. Government agencies $ 25,874,381 $ - $ (838,841) $ 25,035,540
Mutual funds 814,409 - --- 814,409
Mortgage-backed 2,290,662 - (44,594) 2,246,068
States and political
subdivisions 200,000 - (16,800) 183,200
Equity securities 4,913,000 - --- 4,913,000
------------ ------- ------------ ------------
$ 34,092,452 $ - $ (900,235) $ 33,192,217
============ ======= ============ ============
Available for sale - 1998
U.S. Government agencies $ 4,057,809 $ 21,658 $ --- $ 4,079,467
Mutual funds 775,412 - --- 775,412
Mortgage-backed 5,300,481 60,362 (7,031) 5,353,812
States and political
subdivisions 200,000 - --- 200,000
Equity securities 3,250,000 - --- 3,250,000
------------ ------- ------------ ------------
$ 13,583,702 $ 82,020 $ (7,031) $ 13,658,691
============ ======== ============ ============
Held to maturity - 1999
States and political
subdivisions $ 341,000 $ --- $ --- $ 341,000
Other debt securities 115,511 --- --- 115,511
------------ --------- ------------ ------------
$ 456,511 $ --- $ --- $ 456,511
============ ========== ============ ============
Held to maturity - 1998
States and political
subdivisions $ 412,000 $ --- $ --- $ 412,000
Other debt securities 116,424 --- --- 116,424
------------ ------- ------------ ------------
$ 528,424 $ --- $ --- $ 528,424
============ ====== ========= ============
</TABLE>
Contractual maturities of debt securities at year end 1999 were as follows.
Securities not due at a single maturity date, primarily mortgage-backed
securities, are shown separately.
23
<PAGE>
NOTE 2 - SECURITIES (Continued)
<TABLE>
<CAPTION>
Available for Sale Held to Maturity
Amortized Fair Amortized Fair
Cost Value Cost Value
----------- ----------- ----------- -----------
<S> <C> <C> <C>
Due in one year or less $ 8,751,849 $ 8,434,810 $ -- $ --
Due from one to five years 17,122,532 16,600,730 341,511 341,511
Due from five to ten years 200,000 183,200 115,000 115,000
Mortgage backed securities 2,290,662 2,246,068 -- --
----------- ----------- ----------- -----------
$28,365,043 $27,464,808 $ 456,511 $ 456,511
=========== =========== =========== ===========
</TABLE>
There were no sales of securities for the years ended December 31, 1999, 1998,
or 1997.
NOTE 3 - Loans Receivable, Net
Year end loans were as follows:
<TABLE>
<CAPTION>
1999 1998
------------- -------------
<S> <C> <C>
Mortgage
Secured by one-to-four family residences $ 119,283,175 $ 113,919,222
Secured by other properties 28,249,799 19,421,609
Construction - residential 7,475,391 6,065,036
Construction - nonresidential 5,138,236 5,300,066
Automobile 15,441,586 12,247,990
Credit card 2,364,346 1,365,708
Commercial 24,184,104 21,392,663
Home equity and second mortgage 7,171,773 5,948,157
Other consumer 5,616,721 5,301,984
------------- -------------
Subtotal 214,925,131 190,962,435
Less:
Loans in process (443,138) (663,499)
Undisbursed portion of construction loans (4,087,965) (2,799,621)
Net deferred loan origination fees (232,752) (139,006)
Allowance for loan losses (1,766,700) (1,454,000)
------------- -------------
Loans receivable, net $ 208,394,576 $ 185,906,309
============= =============
</TABLE>
<PAGE>
NOTE 3 - LOANS RECEIVABLE, NET (Continued)
Activity in the allowance for loan losses was as follows:
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Balance at beginning of year $ 1,454,000 $ 1,194,000 $ 1,027,300
Provision charged to income 448,647 359,988 265,300
Charge-offs (185,896) (145,989) (136,601)
Recoveries 49,949 46,001 38,001
----------- ----------- -----------
Balance at end of year $ 1,766,700 $ 1,454,000 $ 1,194,000
=========== =========== ===========
</TABLE>
Impaired loans were as follows:
<TABLE>
<CAPTION>
1999 1998
---------- ---------
<S> <C> <C>
Year-end loans with no allocated allowance
for loan losses $1,247,012 $ -
Year-end loans with allocated allowance
for loan losses 1,140,235 -
---------- --------
Total $2,387,247 $ -
========== ========
Amount of the allowance for loan losses allocated $ 473,000 $ -
Average of impaired loans during the year 869,454 -
Interest income recognized during impairment 136,123 -
Cash-basis interest income recognized 47,087 -
</TABLE>
NOTE 4 - Premises and Equipment, Net
Year end premises and equipment were as follows:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Land $ 458,331 $ 458,331
Buildings and leasehold improvements 1,914,117 1,665,995
Furniture, fixtures and equipment 1,091,242 1,114,069
----------- -----------
Total costs 3,463,690 3,238,395
Accumulated depreciation and amortization (1,171,348) (973,048)
----------- -----------
$ 2,292,342 $ 2,265,347
=========== ===========
</TABLE>
<PAGE>
NOTE 5 - Deposits
Time deposits of $100,000 or more were $52,999,000 and $36,827,000 at year end
1999 and 1998.
Scheduled maturities of time deposits for the next five years were as follows:
2000 $ 84,978,204
2001 11,946,528
2002 1,169,054
2003 316,140
2004 140,520
--------------
$ 98,550,446
==============
25
<PAGE>
NOTE 6 - Borrowed Funds
Year end borrowed funds were as follows:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Federal Home Loan Bank advances $80,498,748 $62,097,715
Securities sold under repurchase agreements 4,115,171 201,310
Demand notes 140,000 781,250
----------- -----------
$84,753,919 $63,080,275
=========== ===========
</TABLE>
The majority of the FHLB advances have variable interest rates ranging from
4.05% to 6.54%. Scheduled maturities at year end 1999 were as follows:
2000 $ 44,099,085
2001 399,663
2002 -
2003 17,000,000
2004 6,000,000
Thereafter 13,000,000
------------
$ 80,498,748
============
FHLB advances are secured by Federal Home Loan Bank stock, eligible mortgage
loans and specifically pledged securities. At December 31, 1999, collateral of
approximately $135 million was pledged to the FHLB to secure advances
outstanding.
An analysis of securities sold under agreements to repurchase is as follows:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Highest month end balance $15,460,000 $ 220,000
Average balance 6,270,000 130,000
Weighted average interest rate during the period 4.84% 4.77%
Weighted average interest rate at end of period 5.38 4.53
</TABLE>
Securities with amortized cost of approximately $5,000,000 and $550,000 and fair
values of approximately $4,985,000 and $564,000, at year end 1999 and 1998 were
pledged as collateral for securities sold under repurchase agreements.
At year end 1999 and 1998, securities sold under agreements to repurchase had
maturities of one day.
<PAGE>
The demand notes relate to investments in limited partner interests in
partnerships formed for the construction, ownership and management of affordable
housing projects. The total original amount of the notes was $1,400,000 for 1999
and 1998, with $1,260,000 and $618,750 funded at year end 1999 and 1998.
Payments are required within five days of written demand; however, the note may
be prepaid in full or in part at the option of maker at any time without
penalty. The obligation to make payment is absolute and unconditional.
26
<PAGE>
NOTE 7 - Employee Benefits
Employee Pension Plan: First Federal is part of a noncontributory multi-employer
defined benefit pension plan covering substantially all employees. The trustees
of the Financial Institutions Retirement Fund administer the plan. There is no
separate actuarial valuation of plan benefits nor segregation of plan assets
specifically for First Federal because the plan is a multi-employer plan and
separate actuarial valuations are not made with respect to each employer nor are
the plan assets so segregated. Expense for 1999, 1998 and 1997 was approximately
$108,000, $23,000, and $30,000.
401(k) Plan: Northeast Indiana Bancorp has a 401(k) plan for all employees who
have completed one year of service (1,000 hours). Participants may make
deferrals up to 15% of compensation. Northeast Indiana Bancorp matches 50% of
elective deferrals on the first 6% of the participant's compensation. Expense
for 1999, 1998 and 1997 was approximately $39,000, $32,000 and $23,000.
Supplemental Retirement Plan: First Federal has a supplemental retirement plan
for the President and a deferred compensation plan for certain directors of
First Federal. First Federal is recording an expense equal to the change in the
present value of the payment due at retirement based on the projected remaining
years of service using the projected unit credit method. The balance of the
plans was approximately $219,000 and $200,000 at year-end 1999 and 1998. The
cost of the plan was approximately $68,000, $61,000 and $48,000 for 1999, 1998
and 1997.
First Federal has purchased insurance on the lives of the participants in the
supplemental retirement plan and the deferred compensation plan with First
Federal as beneficiary. The cash surrender value of the life insurance was
approximately $930,000 and $887,000 at year-end 1999 and 1998. The income
derived from the investment in life insurance included in other income was
approximately $42,000, $40,000 and $38,000 for 1999, 1998 and 1997.
Employee Stock Ownership Plan (ESOP): An ESOP exists for the benefit of
substantially all employees. Contributions to the ESOP are made by Northeast
Indiana Bancorp and are determined by the Board of Directors at their
discretion. The contributions may be made in the form of cash or common stock.
The annual contributions may not be greater than the amount deductible for
federal income tax purposes and cannot cause Northeast Indiana Bancorp to
violate regulatory capital requirements.
To fund the plan, the ESOP borrowed $1,745,700 from Northeast Indiana Bancorp
for the purpose of purchasing 211,261 shares of stock at $8.26 per share.
Principal payments on the loan are due in equal semi-annual installments over a
twelve-year period beginning June 30, 1995. Interest is payable semi-annually
during the term of the loan at 6.65%. The loan is collateralized by the shares
of Northeast Indiana Bancorp's common stock purchased with the proceeds and will
be repaid by the ESOP with funds from First Federal's contributions to the ESOP
and earnings on ESOP assets.
Shares are allocated among participants each December 31 on the basis of
principal repayments made by the ESOP on the loan from Northeast Indiana
Bancorp, according to each participant's relative compensation.
During 1999, 1998 and 1997, contributions, including dividends on unearned ESOP
shares, were approximately $145,000 each year. ESOP compensation expense was
approximately $239,000, $295,000, and $241,000 for 1999, 1998 and 1997.
<PAGE>
Shares held by the ESOP at year end are as follows:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Allocated shares 70,105 52,502
Shares released for allocation 17,603 17,603
Unreleased shares 123,217 140,820
Shares vested and withdrawn 336 336
---------- ----------
Total ESOP shares 211,261 211,261
========== ==========
Fair value of unreleased shares $1,524,810 $2,144,302
========== ==========
</TABLE>
Recognition and Retention Plan (RRP): The RRP provides for issue of shares to
directors, officers and employees. The maximum total shares available under the
RRP are 105,620. During 1997, an additional 605 shares were awarded at $12.60;
in 1998, there were an additional 1,210 shares awarded at $18.05; in 1999, there
were an additional 550 shares awarded at $14.66. Also in 1999, 5,281 shares were
forfeited and added to treasury stock. The expense associated with the RRP was
approximately $153,000, $210,000 and $206,000 in 1999, 1998 and 1997.
27
<PAGE>
NOTE 8 - Income Taxes Income tax expense is summarized as follows:
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Current federal $ 1,301,712 $ 1,147,495 $ 1,154,613
Deferred federal (182,585) (95,097) (55,894)
Current state 384,969 329,538 327,116
Deferred state (28,808) (13,410) (15,272)
----------- ----------- -----------
Income tax expense $ 1,475,288 $ 1,368,526 $ 1,410,563
=========== =========== ===========
</TABLE>
Total income tax expense differed from the amounts computed by applying the U.S.
federal income tax rate of 34% to income before income taxes as a result of the
following:
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Income taxes at statutory rate $ 1,382,177 $ 1,277,679 $ 1,225,204
Tax effect of:
State tax, net of federal income tax effect 235,066 208,644 205,817
Low income housing credit (138,000) (72,372) (14,000)
Other, net (3,955) (45,425) (6,458)
----------- ----------- -----------
Income tax expense $ 1,475,288 $ 1,368,526 $ 1,410,563
=========== =========== ===========
Effective tax rate 36.3% 36.4% 39.1%
==== ==== ====
</TABLE>
<PAGE>
The components of the net deferred tax asset recorded in the balance sheet at
year end are as follows:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Deferred tax assets
Deferred compensation $ 87,117 $ 79,080
Bad debts 495,717 325,901
Deferred loan fees 92,170 55,047
Unearned compensation 60,809 68,957
Unrealized loss on securities available for sale 356,493 ---
Other 41,095 15,752
---------- ----------
1,133,401 544,737
Deferred tax liabilities
Depreciation (122,915) (118,533)
Other (89,495) (73,099)
----------- -----------
(212,410) (191,632)
Valuation allowance --- ---
----------- -----------
Net deferred tax asset $ 920,991 $ 353,105
=========== ===========
</TABLE>
Retained earnings at December 31, 1999 and 1998 include approximately $ 1.3
million for which no deferred federal income tax liability has been recognized.
This amount represents an allocation of income to bad debt deductions for tax
purposes only. Reduction of amounts so allocated for purposes other than tax bad
debt losses or adjustments arising from carryback of net operating losses would
create income for tax purposes only, which would be subject to the then-current
corporate income tax rate.
The unrecorded deferred income tax liability on the above amount was
approximately $449,000 at December 31, 1999 and 1998. Legislation passed in
August 1996 now requires the Company to deduct a provision for bad debts for tax
purposes based on actual loss experience and to recapture the excess bad debt
reserve accumulated in tax years after 1986. The related amount of deferred tax
liability, which must be recaptured, is $276,000 and is payable over a six-year
period that began in 1998.
28
<PAGE>
NOTE 9 - Regulatory Matters
First Federal is subject to regulatory capital requirements administered by
federal regulatory agencies. Capital adequacy guidelines and prompt corrective
action regulations involve quantitative measures of assets, liabilities, and
certain off-balance-sheet items calculated under regulatory accounting
practices. Capital amounts and classifications are also subject to qualitative
judgments by regulators about components, risk weightings, and other factors,
and the regulators can lower classifications in certain cases. Failure to meet
various capital requirements can initiate regulatory action that could have a
direct material effect on the financial statements.
Prompt corrective action regulations provide five classifications: well
capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized, and critically undercapitalized, although these terms are not
used to represent overall financial condition. If adequately capitalized,
regulatory approval is required to accept brokered deposits. If
under-capitalized, capital distributions are limited, as is asset growth and
expansion, and capital restoration plans are required.
At year end, actual First Federal capital levels (in millions) and minimum
required levels were:
<TABLE>
<CAPTION>
Minimum Required
To Be Well
Minimum Required Capitalized
For Capital Under Prompt Corrective
Actual Adequacy Purposes Action Regulations
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
1999
Total capital
(to risk weighted assets) $ 25.2 15.5% $13.0 8.0% $16.3 10.0%
Tier 1 (core) capital
(to risk weighted assets) 23.9 14.7 6.5 4.0 9.8 6.0
Tier 1 (core) capital
(to adjusted total assets) 23.9 9.4 10.2 4.0 12.7 5.0
Tier 1 (core) capital
(to average assets) 23.9 10.3 9.3 4.0 11.7 5.0
1998
Total capital
(to risk weighted assets) $ 23.0 16.6% $11.1 8.0% $ 13.9 10.0%
Tier 1 (core) capital
(to risk weighted assets) 21.6 15.6 5.5 4.0 8.3 6.0
Tier 1 (core) capital
(to adjusted total assets) 21.6 10.2 8.5 4.0 10.6 5.0
Tier 1 (core) capital
(to average assets) 21.6 10.6 8.2 4.0 10.2 5.0
</TABLE>
First Federal was categorized as well capitalized at year end 1999 and 1998
Regulations of the Office of Thrift Supervision limit the amount of dividends
and other capital distributions that may be paid by savings institutions without
prior approval of the Office of Thrift Supervision. The regulatory restriction
is based on a three-tiered system with the greatest flexibility being afforded
to well-capitalized (Tier 1) institutions. First Federal is currently a Tier 1
institution. Accordingly, First Federal can make, without prior regulatory
<PAGE> approval, distributions during a calendar year up to 100% of its retained
net income for the calendar year-to-date plus retained net income for the
previous two calendar years as long as First Federal would remain
well-capitalized, as defined by the Office of Thrift Supervision prompt
corrective action regulations, following the proposed distribution. Under these
regulations, no dividendes may be paid by First Federal in 2000 without prior
approval of the Office of Thrift Supervision. First Federal has obtained
approval from the Office of Thrift Supervision for $700,000 of dividends
available to be paid to Northeast Indiana Bancorp, Inc. during 2000.
29
<PAGE>
NOTE 10 - Commitments and Contingencies and
Financial Instruments with Off-Balance-Sheet Risk
Some financial instruments, such as loan commitments, credit lines, letters of
credit, and overdraft protection, are issued to meet customer financing needs.
These agreements to provide credit or to support the credit of others, as long
as conditions established in the contract are met, usually have expiration
dates. Commitments may expire without being used. Off-balance-sheet risk to
credit loss exists up to the face amount of these instruments, although material
losses are not anticipated. The same credit policies are used to make such
commitments as are used for loans, including obtaining collateral at exercise of
the commitment.
Financial instruments with off-balance-sheet risk were as follows at year end.
1999 1998
Fixed rate commitments $ 4,429,000 $ 8,525,000
Variable rate commitments 13,901,000 13,628,000
Credit card arrangements 4,462,000 2,835,000
Letters of credit 1,109,000 770,000
Most loan commitments have terms up to 60 days. At year end 1999, fixed
commitments have contractual rates ranging from 6.88% to 9.75%. Credit cards are
fixed at 14.9% or 9.8%. Most variable rate arrangements are tied either to
national monthly median cost of funds, prime or the U.S. Treasury bill rate and
have spreads between 0% and 5%.
NOTE 11 - Stock Options
Options to buy stock are granted to directors, officers and employees under the
stock option and incentive plan. Exercise price is the market price at date of
grant. The maximum option term is ten years and options vest over five years. At
year end 1999, 19,312 shares were authorized for future grants.
Financial Accounting Standard No. 123 requires pro forma disclosures for
companies that do not adopt its fair value accounting method for stock-based
employee compensation. Accordingly, the following pro forma information presents
net income and earnings per share had the fair value method been used to measure
compensation cost for stock option plans. No compensation cost was actually
recognized for stock options for 1999, 1998 and 1997.
30
<PAGE>
NOTE 11 - Stock Options (Continued)
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ -------------
<S> <C> <C> <C>
Net income as reported $ 2,589,937 $ 2,389,354 $ 2,192,979
Pro forma net income 2,412,455 2,215,835 2,022,367
Basic earnings per common share as reported $ 1.59 $ 1.36 $ 1.16
Diluted earnings per common share as reported 1.54 1.28 1.13
Pro forma basic earnings per common share 1.49 1.26 1.07
Pro forma diluted earnings per common share 1.43 1.19 1.04
</TABLE>
In future years, the pro forma effect of not applying this standard is expected
to increase as additional options are granted.
Information about option grants follows:
<TABLE>
<CAPTION>
Number Exercise Fair Value
of Options Price of Grants
---------- ----- ---------
<S> <C> <C> <C>
Outstanding, beginning of 1997 231,038
Granted 1,815 $ 12.60 $ 3.98
Exercised (121) 9.71
-------
Outstanding, end of 1997 232,732
Granted 1,815 17.62 3.88
Granted 1,815 18.49 4.13
Exercised (25,542) 9.71
-------
Outstanding, end of 1998 210,820
Granted 8,250 14.66 2.43
Exercised (2,456) 9.71
-------
Outstanding, end of 1999 216,614
=======
</TABLE>
The fair value of options granted during 1999, 1998 and 1997 is estimated using
the following weighted-average information: risk-free interest rate of 4.76%,
5.49% and 5.75%, expected life of 7 years, 7 years and 10 years, expected
volatility of stock price of 22.3%, 17.5%, and 13.9% and expected dividends of
1.92%, 1.47% and 1.61%per year.
<PAGE>
Options outstanding at year end were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Number of options 216,614 210,820 232,732
Minimum exercise price $ 9.71 $ 9.71 $ 9.71
Maximum exercise price 18.49 18.49 12.60
Weighted-average exercise price 10.06 9.88 9.74
Weighted-average remaining option life 6.2 years 7.1 years 8.0 years
</TABLE>
The weighted average exercise price of options outstanding at January 1, 1997
was $9.71.
There were 117,232, 75,035 and 46,088 options exercisable at year end 1999, 1998
and 1997. The weighted average exercise price of options exercisable at year end
1999 was $9.78.
31
<PAGE>
NOTE 12 - Related Party Transactions
Certain directors and officers of First Federal are loan customers. A summary of
related party loan activity for loans aggregating $60,000 or more to any one
related party is as follows:
Balance - January 1, 1999 $ 2,860,622
New loans 938,989
Repayments (822,889)
Balance - December 31, 1999 $ 2,976,722
Related party deposits were approximately $301,000 at year end 1999.
NOTE 13 - Fair Values of Financial Instruments
Following are carrying amounts and estimated fair values at year end:
<TABLE>
<CAPTION>
1 9 9 9 1 9 9 8
------- -------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents
and interest earning deposits
in financial institutions $ 5,999,000 $ 5,999,000 $ 6,396,000 $ 6,396,000
Securities available for sale 33,192,000 33,192,000 13,659,000 13,659,000
Securities held to maturity 457,000 457,000 528,000 528,000
Loans receivable, net 208,395,000 208,774,000 185,906,000 189,539,000
Accrued interest receivable 840,000 840,000 487,000 487,000
Investments in limited
liability partnerships 1,332,000 1,332,000 1,400,000 1,400,000
Financial liabilities:
Deposits (143,212,000) (144,103,000) (123,336,000) (124,152,000)
Borrowed funds (84,754,000) (83,193,000) (63,080,000) (63,463,000)
Accrued interest payable (342,000) (342,000) (250,000) (250,000)
</TABLE>
32
<PAGE>
NOTE 13 - Fair Values of Financial Instruments (Continued)
For purposes of the above disclosures of estimated fair value, the following
assumptions were used. The estimated fair value for cash and cash equivalents
and interest-earning deposits in financial institutions, accrued interest and
investments in limited liability partnerships is considered to approximate cost.
The estimated fair value for securities is based on quoted market values for the
individual securities or equivalent securities. The estimated fair value for
loans is based on estimates of the rate Northeast Indiana Bancorp would charge
for similar such loans at December 31, 1999 and 1998, applied for the time
period until estimated repayment. The estimated fair value for demand and
savings deposits is based on their carrying value. The estimated fair value for
time deposits and borrowed funds is based on estimates of the rate Northeast
Indiana Bancorp would pay on such deposits or for such borrowings at December
31, 1999 and 1998, applied for the time period until maturity. The estimated
fair value of other financial instruments and off-balance-sheet loan commitments
approximates cost and is not considered significant for this presentation.
While these estimates of fair value are based on management's judgment of the
most appropriate factors, there is no assurance that were Northeast Indiana
Bancorp to have disposed of such items at December 31, 1999 or 1998, the
estimated fair values would necessarily have been achieved at that date, since
market values may differ depending on various circumstances. The estimated fair
values at December 31, 1999 and 1998 should not necessarily be considered to
apply at subsequent dates.
NOTE 14 - Parent Company Only Condensed
Financial Information
Condensed financial information of Northeast Indiana Bancorp, Inc. is as
follows:
<TABLE>
<CAPTION>
CONDENSED BALANCE SHEETS
December 31, 1999 and 1998
1999 1998
------------ ------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 908,680 $ 1,875,884
Securities available for sale 183,200 200,000
Loan receivable from Employee Stock Ownership Plan 1,018,325 1,163,800
Investment in subsidiary bank 23,542,192 21,649,524
Other assets 8,302 119,229
------------ ------------
Total assets $ 25,660,699 $ 25,008,437
============ ============
LIABILITIES
Accrued expenses $ 5,400 $ 3,801
SHAREHOLDERS' EQUITY 25,655,299 25,004,636
------------ ------------
Total liabilities and shareholders' equity $ 25,660,699 $ 25,008,437
============ ============
</TABLE>
33
<PAGE>
NOTE 14 - PARENT COMPANY ONLY CONDENSED
FINANCIAL INFORMATION (Continued)
<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF INCOME
Years ended December 31, 1999, 1998 and 1997
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Interest income $ 84,295 $ 118,569 $ 263,767
Dividend from subsidiary 600,000 5,000,000 ---
----------- ----------- -----------
Total income 684,295 5,118,569 263,767
Operating expenses 167,947 189,742 166,532
----------- ----------- -----------
Income before income taxes and equity in
undistributed earnings of subsidiary bank 516,348 4,928,827 97,235
Income tax expense/(benefit) (62,820) (54,297) 11,774
----------- ----------- -----------
Income before equity in undistributed
earnings of subsidiary bank 579,168 4,983,124 85,461
Equity in undistributed (excess distributed)
earnings of subsidiary bank 2,010,769 (2,593,770) 2,107,518
----------- ----------- -----------
Net income $ 2,589,937 $ 2,389,354 $ 2,192,979
=========== =========== ===========
</TABLE>
34
<PAGE>
NOTE 14 - PARENT COMPANY ONLY CONDENSED
FINANCIAL INFORMATION (Continued)
<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF CASH FLOWS Years ended
December 31, 1999, 1998 and 1997
1999 1998 1997
------------ ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities
Net income $ 2,589,937 $ 2,389,354 $ 2,192,979
Adjustments to reconcile net income to cash
provided by operations
Equity in (undistributed) excess distributed
earnings of subsidiary bank (2,010,769) 2,593,770 (2,107,518)
Change in
Other assets 117,580 (59,569) 57,050
Accrued expenses 1,599 (5,159) (288,197)
----------- ----------- -----------
Net cash from operating activities 698,347 4,918,396 (145,686)
Cash flows from investing activities
Repayments on loan receivable from
subsidiary bank --- 2,000,000 1,750,000
Repayments on loan receivable from ESOP 145,475 145,475 145,475
Purchase of securities available for sale --- (200,000) ---
----------- ----------- -----------
Net cash from investing activities 145,475 1,945,475 1,895,475
Cash flows from financing activities
Dividends paid (617,467) (576,273) (575,558)
Purchase of stock (1,225,438) (4,907,522) (1,328,211)
Proceeds from sales of stock 31,879 269,864 8,800
----------- ----------- -----------
Net cash from financing activities (1,811,026) (5,213,931) (1,894,969)
----------- ----------- -----------
Net change in cash and cash equivalents (967,204) 1,649,940 (145,180)
Cash and cash equivalents at beginning of period 1,875,884 225,944 371,124
----------- ----------- -----------
Cash and cash equivalents at end of period $ 908,680 $ 1,875,884 $ 225,944
=========== =========== ===========
</TABLE>
35
<PAGE>
NOTE 15 - Earnings Per Share
A reconciliation of the numerators and denominators of the earnings per common
share and earnings per common share assuming dilution computations for the years
ended December 31, 1999, 1998 and 1997 is presented below.
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Earnings Per Share
Net income available to common
shareholders $2,589,937 $2,389,354 $2,192,979
========== ========== ==========
Weighted average common shares
outstanding before adjustment 1,801,800 1,969,503 2,137,009
Less: unallocated ESOP shares 140,820 158,422 176,024
Less: non-vested RRP shares 36,545 53,673 74,117
---------- ---------- ----------
Weighted average common shares
outstanding for basic earnings per share 1,624,435 1,757,408 1,886,868
---------- ---------- ----------
Earnings Per Share $ 1.59 $ 1.36 $ 1.16
========== ========== ==========
Earnings Per Share Assuming Dilution
Net income available to common
shareholders, per above $2,589,937 $2,389,354 $2,192,979
========== ========== ==========
Weighted average common shares
outstanding 1,624,435 1,757,408 1,886,868
Add: dilutive effects of assumed conversions
and exercises of stock options 58,665 101,209 51,738
---------- ---------- ----------
Weighted average common and dilutive
potential common shares outstanding 1,683,100 1,858,617 1,938,606
========== ========== ==========
Earnings Per Share Assuming Dilution $ 1.54 $ 1.28 $ 1.13
========== ========== ==========
</TABLE>
36
<PAGE>
Stockholder Information
Stock Listing Information
The Company's common stock is traded on the NASDAQ National Market under the
symbol "NEIB".
Stock Price Information
The following table sets forth the high and low bid prices and dividends
declared per share of common stock for the periods indicated. The prices do not
represent actual transactions and do not include retail markups, markdowns or
commissions.
Dividends
Quarter Ended High Low Declared
------------- ----- ------ --------
March 31, 1998 $18.80 $17.36 $.070
June 30, 1998 $19.11 $17.25 $.070
September 30, 1998 $19.01 $13.64 $.070
December 31, 1998 $16.36 $13.54 $.082
March 31, 1999 $15.32 $12.96 $.082
June 30, 1999 $13.64 $12.05 $.082
September 30, 1999 $14.77 $13.18 $.082
December 31, 1999 $14.66 $11.59 $.100
Dividend payment decisions are made with consideration of a variety of factors
including earnings, financial condition, market considerations and regulatory
restrictions.
As of February 11, 2000, there were approximately 526 shareholders of record,
not including those shares held in nominee or street name through various
brokerage firms or banks.
Annual Report on Form 10-KSB
A copy of the Company's annual report on Form 10-KSB, filed with the Securities
and Exchange Commission, is available without charge by writing:
Darrell E. Blocker
Chief Financial Officer
Northeast Indiana Bancorp, Inc.
648 North Jefferson Street
Huntington, Indiana 46750
Stock Transfer Agent
Inquiries regarding stock transfer, registration, lost certificates or changes
in name and address should be directed to the stock transfer agent and registrar
by writing:
Registrar and Transfer Company
10 Commerce Drive
Cranford, New Jersey 07016
Investor Information
Stockholders, investors, and analysts interested in additional information may
contact Darrell E. Blocker, Chief Financial Officer, Northeast Indiana Bancorp,
Inc.
<PAGE>
Corporate Office
Northeast Indiana Bancorp, Inc.
648 North Jefferson Street
Huntington, Indiana 46750
(219) 356-3311
Special Counsel
Silver, Freedman & Taff, L.L.P
1100 New York Avenue, N.W.
Washington, D.C. 20005
Independent Auditor
Crowe, Chizek and Company LLP
330 E. Jefferson Blvd.
South Bend, Indiana 46624
37
<PAGE>
DIRECTORS AND OFFICERS
Board of Directors
Pictured left to right:
[Graphic - photo]
Randall C. Rider
President
Lime City Manufacturing Company, Inc.
Dan L. Stephan
Past State Representative
Indiana Legislature
Agent
Variable Annuity Life Insurance Company
Stephen E. Zahn
Chairman of the Board
President and Chief Executive Officer
J. David Carnes
Medical Doctor and Associate
Family Practice Associates
Samuel Preston, Jr.
Retired Pharmacist
Executive Officers
[Graphic - photo]
(L to R) Darrell E. Blocker, Senior Vice President,
Treasurer and Chief Financial Officer
Stephen E. Zahn, Chairman of the Board,
President and Chief Executive Officer
Dee Ann Hammel, Senior Vice President,
Secretary and Chief Operations Officer
Officers of
First Federal Savings Bank
Stephen E. Zahn, Chairman of the Board,
President and Chief Executive Officer
Dee Ann Hammel, Senior Vice President,
Secretary and Chief Operations Officer
Darrell E. Blocker, Senior Vice President,
Treasurer and Chief Financial Officer
Donald G. Carender, Vice President - Consumer Lending
Lil M. Holloway, Vice President - Mortgage Lending
Michael S. Zahn, Vice President - Mortgage Lending
<PAGE>
Ronald J. Tinkle, Vice President - Consumer Lending,
North Office Manager
James R. Landrum, Vice President - New Business Development
Joseph A. Byers, Vice President - Senior Trust Officer
Michael D. Brewer, Assistant Vice President,
South Office Manager
Rise K. Buzzard, Assistant Vice President - Operations, and
Assistant Secretary
Cynthia A. Zay, Assistant Vice President - Mortgage Lending
James M. Ryan, Assistant Vice President - Indirect Lending
Sherri S. Chaney, Assistant Vice President - Trust Officer
Annual Meeting
The Annual Meeting of Stockholders of Northeast Indiana Bancorp, Inc. will be
held on April 19, 2000 at 1:00 p.m. at the North Office Board Room of First
Federal Savings Bank, 100 Frontage Road, Huntington, Indiana.
<PAGE>
NOW MORE THAN EVER...FIRST IN HOMETOWN BANKING
First Federal Savings Bank
Office Locations
[GRAPHIC-PHOTOS OF THREE BANK OFFICES]
[GRAPHIC-LOGO OF NORTHEAST INDIANA Bancorp, Inc.]
Internet Address: www.firstfed-neib.com
Exhibit 21
<TABLE>
<CAPTION>
SUBSIDIARIES OF THE REGISTRANT
Percent of State of
Parent Subsidiary or Organization Ownership Incorporation
------ -------------------------- --------- -------------
<S> <C> <C> <C>
Northeast Indiana Bancorp, Inc. First Federal Savings Bank 100% Federal
First Federal Savings Bank Northeast Indiana Financial, Inc. 100% Indiana
</TABLE>
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the incorporation by reference of our report
dated February 4, 2000 on the consolidated financial statements of Northeast
Indiana Bancorp, Inc., (which report is incorporated by reference in Form 10-KSB
from Northeast Indiana Bancorp, Inc.'s Annual Report to Shareholders for the
year ended December 31, 1999) in Northeast Indiana Bancorp, Inc.'s previously
filed Registration Statements on Form S-8.
/S/ Crowe, Chizek and Company LLP
---------------------------------
Crowe, Chizek and Company LLP
South Bend, Indiana
March 29, 2000
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL
REPORT ON FORM 10-KSB FOR THE FISCAL YEAR ENDED DECEMBER 31,1999 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 2,960,502
<INT-BEARING-DEPOSITS> 3,038,701
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 33,192,217
<INVESTMENTS-CARRYING> 456,511
<INVESTMENTS-MARKET> 0
<LOANS> 210,161,276
<ALLOWANCE> 1,766,700
<TOTAL-ASSETS> 254,746,818
<DEPOSITS> 143,211,593
<SHORT-TERM> 40,753,919
<LIABILITIES-OTHER> 1,126,007
<LONG-TERM> 44,000,000
0
0
<COMMON> 26,407
<OTHER-SE> 25,628,892
<TOTAL-LIABILITIES-AND-EQUITY> 254,746,818
<INTEREST-LOAN> 15,805,546
<INTEREST-INVEST> 1,717,165
<INTEREST-OTHER> 198,964
<INTEREST-TOTAL> 17,721,675
<INTEREST-DEPOSIT> 5,569,243
<INTEREST-EXPENSE> 9,845,483
<INTEREST-INCOME-NET> 7,876,192
<LOAN-LOSSES> 448,647
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 4,194,447
<INCOME-PRETAX> 4,065,225
<INCOME-PRE-EXTRAORDINARY> 2,589,937
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,589,937
<EPS-BASIC> 1.59
<EPS-DILUTED> 1.54
<YIELD-ACTUAL> 0
<LOANS-NON> 1,710,000
<LOANS-PAST> 0
<LOANS-TROUBLED> 43,000
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,454,000
<CHARGE-OFFS> 186,000
<RECOVERIES> 50,000
<ALLOWANCE-CLOSE> 1,766,000
<ALLOWANCE-DOMESTIC> 1,554,700
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 212,000
</TABLE>
