SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
[_] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE
EXCHANGE ACT
For the transition period from to
Commission file number 0-26012.
NORTHEAST INDIANA BANCORP, INC.
---------------------------------------------------------------
(Exact Name of Small Business Issuer as Specified in its Charter)
Delaware 35-1948594
------------------------------- -----------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
648 North Jefferson Street, Huntington, IN 46750
------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (219) 356-3311
Check whether the Issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the Issuer was required to file such reports), and (2) has been
subject to such requirements for the past 90 days. YES [X] NO [ ]
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
CLASS OUTSTANDING AT JULY 26, 2000
--------------------------------------------------------------------------------
Common Stock, par value $.01 per share 1,733,036
Transitional Small Business Disclosure Format: YES [ ] NO [X]
<PAGE>
NORTHEAST INDIANA BANCORP, INC.
INDEX
<TABLE>
<CAPTION>
Page
<S> <C> <C>
PART 1. FINANCIAL INFORMATION (UNAUDITED)
Item 1. Financial Statements (Condensed)
Consolidated Balance Sheets
June 30, 2000 and December 31, 1999 1
Consolidated Statements of Income for the
three and six months ended June 30, 2000 and 1999 2
Consolidated Statement of Change in Shareholders' Equity
for the six months ended June 30, 2000 3
Consolidated Statements of Cash Flows for the six
months ended June 30, 2000 and 1999 4
Notes to Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II. OTHER INFORMATION 15
Signature page 17
</TABLE>
<PAGE>
NORTHEAST INDIANA BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
June 30, 2000 And December 31, 1999
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
(Unaudited)
ASSETS
<S> <C> <C>
Interest earning cash and cash equivalents $ 2,490,772 $ 2,938,701
Noninterest earning cash and cash equivalents 2,787,242 2,960,502
--------------------- ---------------------
Total Cash and cash equivalents 5,278,014 5,899,203
Interest-earning deposits in financial institutions - 100,000
Securities available for sale 33,173,189 33,192,217
Securities held to maturity (fair value:
June 30, 2000- $420,147;December 31, 1999 - $456,511) 420,147 456,511
Loans receivable, net of allowance for loan losses: June 30,
2000 - $1,438,687; and December 31, 1999 - $1,766,700 208,697,189 208,394,576
Accrued interest receivable 893,818 839,967
Premises and equipment 2,270,208 2,292,342
Investments in limited liability partnerships 1,774,664 1,332,128
Other assets 3,385,462 2,239,874
--------------------- ---------------------
Total assets $ 255,892,691 $ 254,746,818
===================== =====================
LIABILITIES AND SHAREHOLDERS' EQUITY
Demand deposits $ 4,636,028 $ 4,407,411
Savings 10,022,139 9,709,295
NOW and MMDDA 27,886,435 30,544,441
Other time deposits 83,816,211 98,550,446
--------------------- ---------------------
Total deposits 126,360,813 143,211,593
Borrowed funds 102,020,577 84,753,919
Accrued expenses and other liabilities 1,144,133 1,126,007
--------------------- ---------------------
Total liabilities 229,525,523 229,091,519
Shareholders' equity
Preferred Stock 500,000 shares authorized; 0 shares issued -- --
Common stock, $.01 par value: 4,000,000 shares
authorized; 2,640,672 shares issued at
June 30, 2000 and December 31,1999 26,407 26,407
Additional paid in capital 28,755,734 28,733,423
Retained earnings, substantially restricted 11,316,189 10,641,144
Unearned employee stock ownership plan shares (945,588) (1,018,325)
Unearned recognition and retention plan shares (123,097) (229,851)
Net unrealized appreciation (depreciation) on securities available
for sale (473,629) (543,742)
Treasury stock, 907,636 and 887,152 common shares, at
cost, at June 30, 2000 and December 31, 1999 (12,188,848) (11,953,757)
--------------------- ---------------------
Total shareholders' equity 26,367,168 25,655,299
--------------------- ---------------------
Total liabilities and shareholders' equity $ 255,892,691 $ 254,746,818
===================== =====================
</TABLE>
The accompanying notes to financial statements
1
<PAGE>
NORTHEAST INDIANA BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
Three and six months ended June 30, 2000 and 1999
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
2000 1999 2000 1999
---- ----- ----- ----
(Unaudited)
<S> <C> <C> <C> <C>
Interest income
Loans, including fees $ 4,297,346 $ 3,879,112 $ 8,531,780 $ 7,649,579
Taxable securities 567,664 348,835 1,116,141 575,750
Non-taxable securities 5,544 6,363 11,362 12,850
Deposits with banks 61,630 46,841 113,820 93,107
----------- ----------- ----------- -----------
Total interest income 4,932,184 4,281,151 9,773,103 8,331,286
Interest expense
Deposits 1,593,214 1,333,376 3,270,957 2,661,719
Borrowed funds 1,479,554 983,410 2,714,360 1,821,279
----------- ----------- ----------- -----------
Total interest expense 3,072,768 2,316,786 5,985,317 4,482,998
Net interest income 1,859,416 1,964,365 3,787,786 3,848,288
Provision for loan losses 191,250 34,500 382,500 135,000
----------- ----------- ----------- -----------
Net interest income after provision
for loan losses 1,668,166 1,929,865 3,405,286 3,713,288
Noninterest income
Service charges on deposit accounts 93,161 91,029 178,956 164,079
Loan servicing fees 45,537 58,173 98,144 126,016
Net realized loss on sale of securities (1,563) - (1,563) -
Other 88,053 58,967 179,148 107,365
----------- ----------- ----------- -----------
Total noninterest income 225,188 208,169 454,685 397,460
Noninterest expense
Salaries and employee benefits 601,453 526,082 1,191,000 1,049,561
Occupancy 103,661 96,472 219,841 195,662
Data processing 137,286 135,420 281,147 261,986
Insurance expense 7,402 18,152 13,762 37,867
Professional fees 56,025 35,563 119,090 74,437
Correspondent bank charges 60,894 56,600 116,864 109,128
Other expense 196,765 161,024 390,996 332,075
----------- ----------- ----------- -----------
Total noninterest expense 1,163,486 1,029,313 2,332,700 2,060,716
Income before income taxes 729,868 1,108,721 1,527,271 2,050,032
Income tax expense 225,270 418,680 503,698 778,967
----------- ----------- ----------- -----------
Net income $ 504,598 $ 690,041 $ 1,023,573 $ 1,271,065
=========== =========== =========== ===========
Comprehensive Income $ 574,030 $ 520,898 $ 1,093,686 $ 1,077,139
=========== =========== =========== ===========
Basic earnings per common share $ 0.32 $ 0.42 $ 0.64 $ 0.77
Diluted earnings per common share $ 0.31 $ 0.42 $ 0.63 $ 0.75
Return on average assets 0.79% 1.22% 0.80% 1.16%
Return on average equity 7.77% 10.88% 7.90% 10.03%
Equity to assets 10.30% 10.64% 10.30% 10.64%
</TABLE>
See accompanying notes to financial statements
2
<PAGE>
NORTHEAST INDIANA BANCORP, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDER'S EQUITY
Six months ended June 30, 2000
(Unaudited)
<TABLE>
<CAPTION>
Unearned Unearned
Employee Regcognition
Additional Stock And on Securities
Common Paid in Retained Ownership Retention Available
Stock Capital Earnings Plan Shares Plan Shares For-Sale
------- --------- ---------- ----------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 2000 26,407 28,733,423 10,641,144 (1,018,325) (229,851) (543,742)
Net Income June 30, 2000 1,023,573
70,113
Total other comprehensive income
Comprehensive income
Dividends Paid $.20 per share year to date (348,528)
Purchase of 24,422 shares of Treasury Stock
Sale of 4,422 shares of Treasury Stock (5,942)
Shares committed to be released under ESOP 28,124 72,737
Purchase of 500 shares for RRP 129 (5,656)
Amortization of RRP Contributions 112,410
----------- ---------- ---------- --------- --------- ---------
Balance at June 30, 2000 26,407 28,755,734 11,316,189 (945,588) (123,097) (473,629)
=========== ========== ========== ========= ========= =========
</TABLE>
See accompanying notes to financial statements
3
<PAGE>
<TABLE>
<CAPTION>
Total
Treasury Shareholders'
Stock Equity
----------- ------------
<S> <C> <C>
Balance, January 1, 2000 (11,953,757) 25,655,299
Net Income June 30, 2000 1,023,573
Total other comprehensive income 70,113
----------
Comprehensive income 1,093,686
Dividends Paid $.20 per share year to date (348,528)
Purchase of 24,422 shares of Treasury Stock (278,520) (278,520)
Sale of 4,422 shares of Treasury Stock 48,879 42,937
Shares committed to be released under ESOP 100,861
Purchase of 500 shares for RRP 5,527 --
Amortization of RRP Contributions (10,977) 101,433
------------ ------------
Balance at June 30, 2000 (12,188,848) 26,367,168
============ ============
</TABLE>
See accompanying notes to financial statements
3
<PAGE>
NORTHEAST INDIANA BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six months ended June 30, 2000 and 1999
<TABLE>
<CAPTION>
Six months ended
June 30,
2000 1999
---- ----
(Unaudited)
<S> <C> <C>
Cash flows from operating activities
Net income $ 1,023,573 $ 1,271,065
Adjustments to reconcile net income
to net cash from operating activities
Depreciation and amortization 200,551 109,989
Provision for loan losses 382,500 135,000
Net (gain) loss on sale of foreclosed real estate 18,116 (1,811)
Net (gain) loss on sale of premises and equipment 14,377 --
Net (gain) loss on sale of securities 1,563 --
Reduction of obligation under ESOP 100,861 119,856
Amortization of RRP 101,433 105,942
Net change in:
Other assets (874,713) 478,403
Accrued interest receivable (53,851) (221,044)
Accrued expenses and other liabilities 18,126 (407,599)
------------- -------------
Total adjustments (91,037) 318,736
------------- -------------
Net cash from operating activities 932,536 1,589,801
Cash flows from investing activities
Net decrease in interest bearing deposits in other
other financial institutions 100,000 --
Purchases of securities available for sale (5,070,223) (24,532,035)
Proceeds from maturities and principal payments
of securities available for sale 179,884 3,832,663
Proceeds from maturities and principal payments
of securities held to maturity 36,316 35,512
Proceeds from sale of securities available for sale 4,998,438 --
Purchases of loans (1,006,837) --
Net change in loans (122,996) (9,372,723)
Proceeds from sale of foreclosed real estate 109,763 93,306
Expenditures on premises and equipment (110,287) (164,463)
Proceeds from sale of premises and equipment 450 --
------------- -------------
Net cash from investing activities (885,492) (30,107,740)
Cash flows from financing activities
Net change in deposits (16,850,780) 364,532
Advances from FHLB 102,000,000 58,500,000
Repayment of FHLB advances (86,099,545) (35,099,487)
Payments of demand notes (25,000) (576,250)
Net change in other borrowed funds 891,203 3,938,156
Dividends paid (348,528) (298,424)
Purchase of stock (278,520) (538,725)
Sale of treasury stock 42,937 22,747
------------- -------------
Net cash from financing activities (668,233) 26,312,549
------------- -------------
Net change in cash and cash equivalents (621,189) (2,205,390)
Cash and cash equivalents at beginning of period 5,899,203 6,295,637
------------- -------------
Cash and cash equivalents at end of period $ 5,278,014 $ 4,090,247
============= =============
Cash paid for:
Interest $ 5,977,053 $ 4,434,680
Income taxes 671,700 693,000
Non-cash transactions:
Obligation relative to investment in limited partnership $ 500,000 $ --
Transfer from loans to other real estate 444,720 70,144
</TABLE>
See accompanying notes to financial statements
4
<PAGE>
NORTHEAST INDIANA BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000
NOTE 1 - BASIS OF PRESENTATION
The unaudited information for the three and six months ended June 30, 2000 and
1999 includes the results of operations 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"). In the opinion of
management, the information reflects all adjustments (consisting only of normal
recurring adjustments) necessary for a fair presentation of the results of
operations for the three and six month periods reported but should not be
considered as indicative of the results to be expected for the full year.
NOTE 2 - EMPLOYEE STOCK OWNERSHIP PLAN
Northeast Indiana Bancorp has established an employee stock ownership plan
("ESOP"). At the date of conversion the ESOP purchased 211,261 shares of common
stock of Northeast Indiana Bancorp which was financed by Northeast Indiana
Bancorp and collateralized by the shares purchased. The borrowing is payable in
semi-annual principal payments of $72,000 over a 12 year period plus interest.
All employees of First Federal are eligible to participate in the ESOP after
they attain age 21 and complete one year of service during which they worked at
least 1,000 hours. As of December 31, 1999, 88,044 shares have been distributed
to the plan participants.
NOTE 3 - EARNINGS PER SHARE
Basic earnings per share is based on weighted-average common shares outstanding.
Diluted earnings per share further assumes issue of any dilutive potential
common shares. The following table has been restated to reflect the 10% stock
dividend announced on October 26, 1999 and payable on November 22, 1999 to
shareholders of record on November 8, 1999.
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
-------- --------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Earnings Per Share
Net Income available to common shareholders $ 504,598 $ 690,041 $ 1,023,573 $1,271,065
Weighted average common shares outstanding 1,600,061 1,634,024 1,603,190 1,642,016
Basic Earnings Per Share $ 0.32 $ 0.42 $ 0.64 $ 0.77
Earnings Per Share Assuming Dilution
Net Income available to common shareholders $ 504,598 $ 690,041 $1,023,573 $1,271,065
Weighted average common shares outstanding 1,600,061 1,634,024 1,603,190 1,642,016
Add: dilutive effects of assumed exercises of
incentive stock options and non qualified
stock options 12,674 20,457 28,443 58,999
Weighted average and dilutive common shares
Outstanding 1,612,735 1,654,481 1,631,633 1,701,015
Diluted earnings per share $ 0.31 $ 0.42 $ 0.63 $ 0.75
</TABLE>
6
<PAGE>
NOTE 4 - COMMON STOCK DIVIDENDS
On July 31, 2000, the Board of Directors of Northeast Indiana Bancorp, Inc.
announced a quarterly cash dividend of $.10 per share. The dividend will be paid
on August 28, 2000 to shareholders of record on August 16, 2000. The payment of
the cash dividend will reduce shareholders' equity (second quarter) by
approximately $173,000.
Common share amounts, market values and price per share disclosures related to
stock repurchase programs, stock based compensation plans and earnings and
dividends per share disclosures have been restated for the 10% stock dividend
declared on October 26, 1999. Stock dividends for 20% or less are reported by
transferring the market value, as of the ex-dividend date, of the stock issued
from retained earnings to common stock and additional paid-in-capital.
Fractional shares were rounded up to the next whole share.
NOTE 5 - STOCK REPURCHASE PLAN
On June 29, 1999, Northeast Indiana Bancorp announced a stock repurchase program
to repurchase up to 10% of the outstanding shares in the open market as Treasury
shares over the next twelve months. At June 30, 2000, the end of the twelve
month period, approximately 63,000 shares were repurchased by this program.
There were also 4,422 shares repurchased from exercised options year to date
through July 31, 2000 and 984 shares of RRP's relinquished due to early
retirement.
6
<PAGE>
NOTE 6 - REGULATORY CAPITAL REQUIREMENTS
Pursuant to federal regulatory agencies, savings institutions must meet three
separate minimum capital-to-asset requirements. The following table summarizes,
as of June 30, 2000, the capital requirements for First Federal under federal
regulatory agencies and First Federal's actual capital ratios. As of June 30,
2000, First Federal substantially exceeded all current regulatory capital
standards.
<TABLE>
<CAPTION>
Minimum Required To Be Well
Capitalized Under Prompt
Minimum Required For Corrective Action Regulations
Actual Capital Adequacy Purpose
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Total Capital
(to risk weighted assets) $ 25,941 15.9% $ 13,079 8.0% $ 16,349 10.0%
Tier 1 (core) capital (to risk weighted assets)
24,846 15.2% 6,539 4.0% 9,809 6.0%
Tier 1(core) capital (to adjusted total assets)
24,846 9.7% 10,240 4.0% 12,800 5.0%
Tier 1 (core) capital (to average assets)
24,846 9.7% 10,240 4.0% 12,800 5.0%
</TABLE>
NOTE 7 - RECLASSIFICATIONS
Certain amounts in the 1999 consolidated financial statements have been
reclassified to conform to the 2000 presentation.
7
<PAGE>
NORTHEAST INDIANA BANCORP, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND OPERATING RESULTS
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 the common stock of First Federal Savings Bank ("First Federal") as a
unitary thrift holding company. Prior to the conversion, Northeast Indiana
Bancorp did not engage in any material operations and at June 30, 2000, had no
significant assets other than the investment in the capital stock of First
Federal and cash and cash equivalents.
The principal business of savings banks, including First Federal, has
historically consisted of attracting deposits from the general public and making
loans secured by residential real estate. 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 the function of the balances of deposits and borrowings.
First Federal's earnings are also affected by provisions for loan losses,
service charge and fee income, and other non-interest income, operating expenses
and income taxes. Operating expenses consist primarily of employee compensation
and benefits, occupancy and equipment expenses, data processing, federal deposit
insurance premiums and other general administrative expenses.
The most significant outside factors influencing the operations of First Federal
Savings Bank and other savings institutions include general economic conditions,
competition in the local market place and related monetary and fiscal policies
of agencies that regulate financial institutions. More specifically, the cost of
funds is influenced by interest rates on competing investments and general
market rates of interest. Lending activities are influenced by the demand for
real estate financing and other types of loans, which in turn is affected by the
interest rates at which such loans may be offered and other factors affecting
loan demand and funds availability.
TRUST/FINANCIAL SERVICES
During the year of 1998, First Federal established a trust department which
began operations in the fourth quarter. At the end of June 30, 2000,
approximately $21.8 million in trust assets were held under management. In
February 1999, Northeast Indiana Bancorp announced the establishment of
Northeast Indiana Financial, Inc., a wholly-owned subsidiary of First Federal.
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.
(Continued)
8
<PAGE>
NORTHEAST INDIANA BANCORP, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND OPERATING RESULTS
FINANCIAL CONDITION
Northeast Indiana Bancorp's total assets increased $1.2 million or 0.47% from
$254.7 million at December 31, 1999 to $255.9 million at June 30, 2000. This
small increase was due primarily to slow loan growth. Funds were generated from
$933,000 of operating activities and increased borrowings of $17.3 million,
which were offset by decreased deposits of $16.9 million. During the first six
months of 2000 Northeast Indiana Bancorp purchased 1.39% of the outstanding
shares to fund Treasury Stock which reduced our capital $278,000.
Net loans receivable increased $302,000 or 0.15% from $208.4 million at December
31, 1999 to $208.7 million at June 30, 2000. The increase in loans during the
first six months of 2000 was predominantly in commercial loan products which
accounted for $1.2 million of the increase, offset by a $1.3 million decrease in
consumer lending and an $892,000 decrease in mortgage loan products. The loan
contra accounts including undisbursed loan funds decreased from $4.6 million to
$3.6 million approximately $1.0 million. This slow growth on lending products
was generally because of the market conditions reflecting higher rates.
Allowance for loan losses decreased approximately $328,000 through the six
months ended June 30, 2000. This decrease was a result of net actual losses
taken of $710,000 through the first six months of 2000 offset by the provision
for loan losses of $382,000.
INVESTMENTS
Securities available for sale remained unchanged at $33.2 million at December
31, 1999 to June 30, 2000. Investments of $5.1 million were purchased to
replenish the $5.1 million of calls, payments, maturities and sales of
investments.
RESULTS OF OPERATIONS
Northeast Indiana Bancorp had net income of $505,000 or $0.31 per diluted share
and $1.0 million or $0.63 per diluted share for the three and six months ended
June 30, 2000 compared to $690,000 or $0.42 per diluted share and $1.3 million
or $0.75 per diluted share for the three and six months ended June 30, 1999.
Note that all per share earnings have been restated to reflect the 10% stock
dividend to be paid on November 22, 1999.
(Continued)
9
<PAGE>
NORTHEAST INDIANA BANCORP, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND OPERATING RESULTS
RESULTS OF OPERATIONS (CONTINUED)
Net interest income decreased to $1.9 million for the three months ended June
30, 2000 compared to $2.0 million for the three months ended June 30, 1999. Net
interest income remained flat at $3.8 million for the six months ended June 30,
2000 and June 30, 1999. Interest income increased $651,000 to $4.9 million for
June 30, 2000 compared to $4.3 million for June 30, 1999. Interest income for
the six months ended June 30, 2000 was $9.8 million compared to $8.3 million for
the six months ended June 30, 1999, an increase of $1.4 million or 17.31%. For
the second quarter, interest expense increased $756,000 to $3.1 million for the
quarter ended June 30, 2000 compared to $2.3 million June 30, 1999. Interest
expense for the six months ended June 30, 2000 was approximately $6.0 million an
increase of $1.5 million over the $4.5 million expensed for the same period
ended June 30, 1999. This increase is due to borrowed funds and time deposits
repricing at higher rates as they mature. During the first half of 2000, we have
changed our mix to reduce wholesale time deposit balances, which increased our
FHLB advances position.
Provisions for loan losses increased by $157,000 for the three months ended June
30, 2000 compared to the same period ended June 30, 1999. The increases to
provisions are discussed in more detail under non-performing assets and
allowances for loan losses.
Non-interest income increased to $225,000 for the three months ended June 30,
2000 compared to $208,000 for the comparable period in 1999. This represents an
increase of $17,000 for the quarter over the same period last year. Non-interest
income increased to $455,000 compared to $397,000 for the six months ended June
30, 2000 and 1999 respectively. This increase of $58,000 or 14.6% is the result
of deposit account service fees and other income including fee income from the
Trust and the Financial Services.
Non-interest expense increased to $1.2 million and $2.3 million for the three
and six months ended June 30, 2000 compared to $1.0 million and $2.1 million for
the corresponding period in 1999. This represents an increase of $134,000 and
$272,000 for the three and six months ended June 30, 2000 compared to the
corresponding periods in 1999. This increase is due partially to higher salaries
and benefits reflecting increases in compensation for 2000 and additional
employees added to support customer service needs. Data processing expense has
increased to $137,000 and $281,000 for the three and six months ended June 30,
2000 due to software upgrades and increased processing volume and fees compared
to $135,000 and $262,000 for the same periods ended June 30, 1999.
(Continued)
10
<PAGE>
NORTHEAST INDIANA BANCORP, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND OPERATING RESULTS
RESULTS OF OPERATIONS (CONTINUED)
Income tax expense decreased for the three and six months ended June 30, 2000
due to lower taxable income compared to the same periods 1999 and an increase in
the available tax credits from First Federal's investment in low income housing
projects.
NON-PERFORMING ASSETS AND ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is established through a provision for loan losses
based on management's quarterly asset classification review and evaluation of
the risk inherent in its loan portfolio and changes in the nature and volume of
its loan activity. Such evaluation, which considers among other matters, the
estimated value of the underlying collateral, economic conditions, cash flow
analysis, historical loan loss experience, discussion held with delinquent
borrowers and other factors that warrant recognition in providing for an
adequate allowance for loan loss. As a result of this review process, management
recorded provisions for loan losses in the amount of $191,000 and $383,000 for
the three and six months ended June 30, 2000 compared to $35,000 and $135,000
for the same periods ended June 30, 1999. Management believes our current
allowance for loan loss is adequate and is weighted for the mix of loans
currently held; therefore we anticipate that the quarterly expense will be
maintained for the third quarter 2000.
We had several consumer and commercial loans which had been classified and were
written off during the second quarter ended June 30, 2000. The net write-off
amount was $710,000 for the quarter of which $375,000 were included in the first
quarter specific reserves, bringing our June 30, 2000 allowances for loan losses
to $1.4 million from $1.8 million at December 1999. The $1.4 million includes
$343,000 assigned to specific loans and the remaining $1.1 million is allocated
across loan product lines.
(Continued)
11
<PAGE>
NORTHEAST INDIANA BANCORP, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND OPERATING RESULTS
NON-PERFORMING ASSETS AND ALLOWANCE FOR LOAN LOSSES(Continued)
The non-performing assets to total assets ratio is one indicator of the exposure
to credit risk. Non-performing assets of First Federal consist of the
non-accruing loans, troubled debt restructuring and real estate owned which has
been acquired as a result of foreclosure. The following table summarizes in
thousands the various categories of non-performing assets:
<TABLE>
<CAPTION>
June 30 December 31
2000 1999
---- ----
<S> <C> <C>
Non-accruing loans
One-to-four family $ 396 $ 399
Multi- family 27 22
Commercial real estate -- 247
Construction or development 453 683
Consumer 122 186
Commercial business 354 233
----------------- ------------------
Total 1,352 1,710
----------------- ------------------
Foreclosed assets
One -to-four -family 123 49
Commercial -- --
Land 243 --
----------------- -----------------
Total 366 49
Repossessed assets
Consumer 99 14
---------------- -----------------
Total 99 14
================ =================
Total non-performing assets $ 1,817 $ 1,773
================ =================
Total non-performing assets as a
percentage of total assets 0.71% 0.70%
</TABLE>
Total non-performing assets remained at $1.8 million for both June 30, 2000 and
December 31, 1999. The non-performing asset ratio increased slightly to 0.71% on
June 30, 2000 from 0.70% at December 31, 1999.
(Continued)
12
<PAGE>
NORTHEAST INDIANA BANCORP, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND OPERATING RESULTS
LIQUIDITY AND CAPITAL RESOURCES
First Federal is required to maintain specific amounts of regulatory capital
pursuant to regulations of the Office of Thrift Supervision (OTS). Those capital
requirements follow: a risk-based capital standard expressed as a percent of
risk adjusted assets, and a leverage ratio of core capital to total assets. At
June 30, 2000, First Federal exceeded all regulatory capital standards.
At June 30, 2000, First Federal's risk based capital was $25.9 million or 15.87%
of risk adjusted assets which exceeds the $13.1 million and the 8.0% OTS
requirement by $12.8 million and 7.87%. First Federal's core capital at June 30,
2000 is $24.8 million or 9.71% which exceeds the OTS requirement of $10.2
million and 4.00% by $14.6 million and 5.71%.
First Federal's primary sources of funds are deposits, FHLB advances, principal
and interest payments of loans, operations income and short-term investments.
Deposit flows and mortgage payments are greatly influenced by general interest
rates, economic conditions and competition.
Current OTS regulations require that First Federal maintain cash and eligible
investments in an amount equal to at least 4% of its average daily balance of
net withdrawable customer deposit accounts and short-term borrowings to assure
its ability to meet demands for withdrawals and repayment of short-term
borrowings. As of June 30, 2000, First Federal's liquidity ratio was 4.53%,
which is in excess of the minimum regulatory requirements.
First Federal uses its capital resources principally to meet its ongoing
commitments to fund maturing certificates of deposit and loan commitments,
maintain its liquidity, and meet operating expenses. As of June 30, 2000, First
Federal had commitments to originate loans and to fund open lines of credit
totaling $19.0 million. First Federal considers its liquidity and capital
resources to be adequate to meet its foreseeable short and long term needs.
First Federal expects to be able to fund or refinance, on a timely basis, its
material commitments and long-term liabilities.
First Federal, however, has grown substantially for the last several years and
therefore our liquidity position has tightened as we have leveraged our capital.
First Federal now expects asset growth to slow as rates increase, therefore
reducing loan demand.
(Continued)
13
<PAGE>
NORTHEAST INDIANA BANCORP, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND OPERATING RESULTS
FORWARD-LOOKING STATEMENTS
When used in this filing and in future filings by Northeast Indiana Bancorp with
the Securities and Exchange Commission, in Northeast Indiana Bancorp's press
releases or other public or shareholder communications, or in oral statements
made with the approval of an authorized executive officer, the words or phrases
"would be," "will allow," "intends to," "will likely result," "are expected to,"
"will continue," "is anticipated," "estimate," "project" or similar expressions
are intended to identify "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995.
Such statements are subject to risks and uncertainties, including but not
limited to changes in economic conditions in Northeast Indiana Bancorp's market
area, changes in policies by regulatory agencies, fluctuations in interest
rates, demand for loans in Northeast Indiana Bancorp's market area and
competition, all or some of which could cause actual results to differ
materially from historical earnings and those presently anticipated or
projected.
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 Northeast Indiana Bancorp's financial
performance and could cause Northeast Indiana Bancorp's 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.
(Continued)
14
<PAGE>
NORTHEAST INDIANA BANCORP, INC.
PART II
Other Information
ITEM 1 - LEGAL PROCEEDING
Northeast Indiana Bancorp and First Federal are involved from
time to time, as plaintiff or defendant in various legal actions
arising from the normal course of their businesses. While the
ultimate outcome of these proceedings cannot be predicted with
certainty, it is the opinion of management that the resolution of
these proceedings should not have a material effect on Northeast
Indiana Bancorp's results of operations on a consolidated basis.
ITEM 2 - CHANGES IN SECURITIES
None
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDER
(a) The Annual Meeting of Shareholders ("the meeting") of Northeast
Indiana Bancorp, Inc. was held on April 19, 2000. The matters
approved by shareholders at the meeting and the number of votes
cast for, against or withheld (as well as the number of
abstentions) as to each matter are set forth below:
(1) The election of the following directors for a three year
term:
Votes
-----
For Withheld
--- --------
Michael S. Zahn 1,279,678 32,979
Randall C Rider 1,281,594 31,063
(2) Ratification of Crowe, Chizek and Company, LLP as auditors
for the year ending December 31, 2000:
Votes
-----
For Against Withheld
--- ------- --------
1,283,898 18,161 10,598
ITEM 5 - OTHER INFORMATION
None
15
<PAGE>
NORTHEAST INDIANA BANCORP, INC.
PART II (Continued)
Other Information
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
(1) April 21, 2000 Announcing First Quarter Earnings, Cash
Dividends and Annual Meeting Results
(2) July 21, 2000 Announcing Second Quarter Earnings
16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
NORTHEAST INDIANA BANCORP, INC.
Date: August 14, 2000 By: /S/ STEPHEN E. ZAHN
---------------------------
Stephen E. Zahn
President and Chief Executive Officer
(Duly Authorized Officer)
Date: August 14, 2000 By: /S/ DARRELL E. BLOCKER
----------------------------
Darrell E. Blocker
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
