SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended September 30, 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 OCTOBER 31, 2000
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Common Stock, par value $.01 per share approximately 1,718,036
Transitional Small Business Disclosure Format: YES [_] NO [X]
NORTHEAST INDIANA BANCORP, INC.
INDEX
PART 1. FINANCIAL INFORMATION PAGE NO.
Item 1. Financial Statements (Condensed)
Consolidated Balance Sheets
September 30, 2000 and December 31, 1999 1
Consolidated Statements of Income for the
three and nine months ended September 30, 2000 and 1999 2
Consolidated Statement of Change in Shareholders' Equity
for the nine months ended September 30, 2000 3
Consolidated Statements of Cash Flows for the nine
months ended September 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 7
PART II. OTHER INFORMATION 14
Signature page 16
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NORTHEAST INDIANA BANCORP, INC.
CONSOLIDATED BALANCE SHEET
September 30, 2000 and December 31, 1999
- --------------------------------------------------------------------------------
September 30, December 31,
2000 1999
(Unaudited)
ASSETS
Interest earning cash and cash equivalents $ 8,204,380 $ 2,938,701
Noninterest earning cash and cash equivalents 2,630,878 2,960,502
------------------- ------------------
Total Cash and cash equivalents 10,835,258 5,899,203
Interest-earning deposits in financial institutions - 100,000
Securities available for sale 33,365,941 33,192,217
Securities held to maturity (fair value: September
30, 2000- $383,081;December 31, 1999 - $456,511) 383,081 456,511
Loans receivable, net of allowance for loan losses of $2,284,987
at September 30, 2000 and $1,766,700 at December 31, 1999 205,451,838 208,394,576
Accrued interest receivable 1,082,684 839,967
Premises and equipment 2,223,343 2,292,342
Investments in limited liability partnerships 1,739,252 1,332,128
Other assets 3,481,803 2,239,874
------------------- ------------------
Total assets $ 258,563,200 $ 254,746,818
=================== ==================
LIABILITIES AND SHAREHOLDERS' EQUITY
Demand deposits $ 4,625,443 $ 4,407,411
Savings 9,478,113 9,709,295
NOW and MMDDA 28,694,466 30,544,441
Other time deposits 89,878,781 98,550,446
------------------- ------------------
Total deposits 132,676,803 143,211,593
Borrowed funds 98,190,697 84,753,919
Accrued expenses and other liabilities 1,195,083 1,126,007
------------------- ------------------
Total liabilities $ 232,062,583 $ 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 and 2,640,672 shares issued at
September 30, 2000 and December 31,1999 26,407 26,407
Additional paid in capital 28,807,997 28,733,423
Retained earnings, substantially restricted 11,129,033 10,641,144
Unearned employee stock ownership plan shares (804,515) (1,018,325)
Unearned recognition and retention plan shares (72,380) (229,851)
Net unrealized appreciation on securities available
for sale (314,452) (543,742)
Treasury stock, 914,636 and 887,152 common shares, at
cost, at September 30, 2000 and December 31, 1999 (12,271,473) (11,953,757)
------------------- ------------------
Total shareholders' equity 26,500,617 25,655,299
Total liabilities and shareholders' equity $ 258,563,200 $ 254,746,818
=================== =================
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See accompanying notes to financial statements
1.
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NORTHEAST INDIANA BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
Three and nine months ended September 30, 2000 and 1999
- --------------------------------------------------------------------------------
Three months ended Nine months ended
September 30, September 30,
2000 1999 2000 1999
---- ----- ---- ----
(Unaudited)
Interest income
Loans, including fees $ 4,322,293 $ 3,981,230 $ 12,854,072 $ 11,630,809
Taxable securities 578,573 546,527 1,694,714 1,122,277
Non-taxable securities 5,475 6,227 16,837 19,077
Deposits with banks 63,506 36,703 177,326 129,810
Total interest income 4,969,847 4,570,687 14,742,949 12,901,973
Interest expense
Deposits 1,671,821 1,315,487 4,942,778 3,977,206
Borrowed funds 1,578,409 1,253,615 4,292,769 3,074,894
---------------- ------------------ --------------- ---------------
Total interest expense 3,250,230 2,569,102 9,235,547 7,052,100
Net interest income 1,719,617 2,001,585 5,507,402 5,849,873
Provision for loan losses 891,250 46,500 1,273,750 181,500
---------------- ------------------ --------------- ---------------
Net interest income after provision
for loan losses 828,367 1,955,085 4,233,652 5,668,373
Noninterest income
Service charges on deposit accounts 97,472 84,433 276,428 248,512
Loan servicing fees 49,030 56,172 147,174 182,188
Net realized gain on sale of securities - - (1,563) -
Other 125,852 72,995 303,437 180,360
---------------- ------------------ --------------- ---------------
Total noninterest income $ 272,354 $ 213,600 $ 725,476 $ 611,060
Noninterest expense
Salaries and employee benefits 714,714 559,510 1,905,713 1,609,071
Occupancy 100,979 103,010 320,820 298,672
Data processing 150,675 135,275 431,822 397,261
Insurance expense 7,239 17,862 21,001 55,728
Professional fees 40,216 32,162 159,306 106,599
Correspondent bank charges 58,024 56,598 174,888 165,726
Other expense 181,073 162,259 570,507 494,335
---------------- ------------------ --------------- ---------------
Total noninterest expense $ 1,252,920 1,066,676 3,584,057 3,127,392
Income (loss) before income taxes (152,199) 1,102,009 1,375,071 3,152,041
Income tax expense (benefit) (138,347) 429,815 365,351 1,208,782
---------------- ------------------ --------------- ---------------
Net income (loss) $ (13,852) $ 672,194 $ 1,009,720 $ 1,943,259
================ ================== =============== ===============
Comprehensive Income $ 145,325 $ 539,114 $ 1,239,010 $ 1,616,253
================ ================== =============== ===============
Basic earnings (loss) per common share $ (0.01) $ 0.42 $ 0.63 $ 1.19
Diluted earnings (loss) per common share $ (0.01) $ 0.41 $ 0.62 $ 1.15
Return on average assets (0.02)% 1.11% 0.53% 1.15%
Return on average equity (0.21)% 10.51% 5.15% 10.19%
Equity to average assets 10.46 % 10.58% 10.24% 11.23%
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See accompanying notes to financial statements
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2.
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NORTHEAST INDIANA BANCORP, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDER'S EQUITY
Nine months ended September 30, 2000
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(Unaudited)
Net
Unearned
Employee Unearned
Additional Stock Recognition
Common Paid-in Retained Ownership And Retention
Stock Capital Earnings Plan Shares Plan Shares
------------ --------------- -------------- -------------- ------------------
Balance, January 1, 2000 26,407 28,733,423 10,641,144 (1,018,325) (229,851)
Net Income September 30, 2000 1,009,720
Other Comprehensive income:
Unrealized gains on securities
Total tax effect
Total other comprehensive income
Comprehensive income
Dividends Paid $.30 per share year to date (521,831)
Purchase of 27,484 shares of Treasury Stock
Sale of 4,422 shares of Treasury Stock (5,942)
Tax effect on stock plans
Shares committed to be released under ESOP 80,387 213,810
Purchase of 500 shares for RRP 129 (5,656)
Amortization of RRP Contributions 163,127
------------ --------------- -------------- -------------- ------------------
Balance at September 30, 2000 26,407 28,807,997 11,129,033 (804,515) (72,380)
============ =============== ============== ============== ==================
Unrealized
Appreciation
On Securities Total
Available- Treasury Shareholders'
For-Sale Stock Equity
------------------ ---------------- ------------------
Balance, January 1, 2000 (543,742) (11,953,757) 25,655,299
Net Income September 30, 2000
1,009,720
Other Comprehensive income:
Unrealized gains on securities
379,618
Total tax effect (150,328)
------------------
Total other comprehensive income 229,290 229,290
------------------
Comprehensive income 1,239,010
Dividends Paid $.30 per share year to date (521,831)
Purchase of 27,484 shares of Treasury Stock (361,145) (361,145)
Sale of 4,422 shares of Treasury Stock 48,879 42,937
Tax effect on stock plans -
Shares committed to be released under ESOP 294,197
Purchase of 500 shares for RRP 5,527 -
Amortization of RRP Contributions (10,977) 152,150
------------------ ---------------- ------------------
Balance at September 30, 2000 (314,452) (12,271,473) 26,500,617
================== ================ ==================
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See accompanying notes to financial statements
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3.
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NORTHEAST INDIANA BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine months ended September 30, 2000 & 1999
- --------------------------------------------------------------------------------
Nine months ended
September 30,
2000 1999
-------------- --------------
(Unaudited)
Cash flows from operating activities
Net income $ 1,009,720 $ 1,943,259
Adjustments to reconcile net income
to net cash from operating activities
Depreciation and amortization 286,893 169,949
Provision for loan losses 1,273,750 181,500
Net (gain) loss on sale of foreclosed real estate 20,903 10,595
Net (gain) loss on sale of premises and equipment 14,227 (50)
Net (gain) loss on sale of securities 1,563 -
Reduction of obligation under ESOP 294,197 144,975
Amortization of RRP 152,150 158,913
Net change in:
Other asset (1,198,281) 443,647
Accrued interest receivable (242,717) (423,559)
Accrued expenses and other liabilities 69,076 (165,486)
-------------- ---------------
Total adjustments 671,761 520,484
-------------- --------------
Net cash from operating activities 1,681,481 2,463,743
Cash flows from investing activities
Net decrease in interest bearing deposits in
Other financial institutions 100,000 -
Purchases of securities available for sale (5,112,294) (24,792,089)
Proceeds from maturities and principal payments
of securities available for sale 297,987 4,403,886
Proceeds from maturities and principal payments
of securities held to maturity 73,382 71,670
Proceeds from sale of securities available for sale 4,998,438 -
Purchases of loans (1,006,837) -
Net change in loans 1,549,010 (14,292,860)
Proceeds from sale of participation loans 682,095 46,051
Proceeds from sale of foreclosed real estate 229,841 170,261
Expenditures on premises and equipment (119,497) (202,407)
Proceeds from sale of premises and equipment 500 50
-------------- --------------
Net cash from investing activities 1,692,625 (34,595,438)
Cash flows from financing activities
Net change in deposits (10,534,790) (3,021,791)
Advances from FHLB 120,000,000 79,000,000
Repayment of FHLB advances (111,099,315) (47,599,227)
Payments of demand notes (265,000) (576,250)
Net change in other borrowed funds 4,301,093 4,589,135
Dividends paid (521,831) (445,831)
Purchase of stock (361,145) (801,850)
Sale of treasury stock 42,937 22,747
-------------- --------------
Net cash from financing activities 1,561,949 31,166,933
-------------- --------------
Net change in cash and cash equivalents 4,936,055 (964,762)
Cash and cash equivalents at beginning of year 5,899,203 6,295,637
-------------- --------------
Cash and cash equivalents at end of year $ 10,835,258 $ 5,330,875
============== ==============
Cash paid for:
Interest $ 9,221,470 $ 6,988,115
Income taxes 692,300 1,039,800
Non-cash transactions:
Obligation relative to investment in limited partnership $ 500,000 $ -
Transfer from loans to other real estate 444,720 70,144
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See accompanying notes to financial statements
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4.
NORTHEAST INDIANA BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
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NOTE 1 - BASIS OF PRESENTATION
The unaudited information for the three and nine months ended September 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 nine month periods reported but should not be
considered as indicative of the results to be expected for the full year.
NOTE 2 - EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share are based on weighted-average common shares
outstanding. Diluted earnings (loss) per share further assumes issue of any
dilutive potential common shares.
Three months ended Nine months ended
September 30, September 30,
------------- -------------
2000 1999 2000 1999
---- ---- ---- ----
Earnings (Loss) Per Share
Net income(loss) available to common shareholders $ (13,852) $ 672, 194 $ 1,009,720 $ 1,943,259
Weighted average common shares outstanding 1,591,815 1,619,144 1,597,394 1,634,308
Basic Earnings (Loss) Per Share $ (0.01) 0.42 $ 0.63 $ 1.19
Earnings (Loss) Per Share Assuming Dilution
Net income(loss) available to common shareholders $ (13,852) $ 672,194 $ 1,009,720 $ 1,943,259
Weighted average common shares outstanding 1,591,815 1,619,144 1,597,394 1,634,308
Add: dilutive effects of assumed exercises of
incentive stock options and non qualified
stock options -- 19,414 28,754 60,471
Weighted average and dilutive common shares
Outstanding 1,591,815 1,638,558 1,626,148 1,694,779
Diluted Earnings (Loss) Per Share $ (0.01) $ 0.41 $ 0.62 $ 1.15
NOTE 3 - COMMON STOCK DIVIDENDS
On October 25, 2000 the Board of Directors of Northeast Indiana Bancorp, Inc.
announced a quarterly cash dividend of $.11 per share. This represents an
effective increase of 10% over the quarterly amount previously paid. The
dividend will be paid on November 22, 2000 to shareholders of record on November
8, 2000. The payment of the cash dividend will reduce shareholders' equity
(fourth quarter) by approximately $189,000.
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(Continued)
5.
NORTHEAST INDIANA BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
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NOTE 4 - STOCK REPURCHASE PLAN
On August 4, 2000 Northeast Indiana Bancorp announced a new stock repurchase
program to repurchase up to 6.75% of the outstanding shares in the open market
as Treasury shares over the next twelve months. This program will include up to
117,000 shares.
As of October 31, 2000, 15,000 shares have been acquired towards this new
repurchase program. There were also 4,422 shares repurchased from exercised
options year to date through October 31, 2000 and 984 shares of RRP's
relinquished due to early retirement.
NOTE 5 - 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 September 30, 2000, the capital requirements for First Federal under
federal regulatory agencies and First Federal's actual capital ratios. As of
September 30, 2000, First Federal substantially exceeded all current regulatory
capital standards.
Minimum Required
To Be Well
Minimum Required Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purpose Action Regulations
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
(Dollars in thousands)
Total Capital
(to risk weighted assets) $25,029 15.48% $12,935 8.00% $16,169 10.00%
Tier 1 (core) capital (to risk
weighted assets) 23,804 14.72% 6,468 4.00% 9,702 6.00%
Tier 1(core) capital (to
adjusted total assets) 23,804 9.21% 10,341 4.00% 12,927 5.00%
Tier 1 (core) capital (to
average assets) 23,804 9.32% 10,218 4.00% 12,772 5.00%
NOTE 6 - RECLASSIFICATIONS
Certain amounts in the 1999 consolidated financial statements have been
reclassified to conform to the 2000 presentation.
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(Continued)
6.
NORTHEAST INDIANA BANCORP, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
OPERATING RESULTS
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GENERAL
Northeast Indiana Bancorp, Inc. (the "Company") was formed as a Delaware
corporation in March, 1995, for the purpose of issuing common stock and owning
all the common stock of First Federal Savings Bank ("First Federal" or the
"Bank") as a unitary thrift holding company. Prior to the conversion, Northeast
Indiana Bancorp did not engage in any material operations and at September 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 that began
operations in the fourth quarter 1998. At the end of September 30, 2000,
approximately $26.1 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.
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7.
NORTHEAST INDIANA BANCORP, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
OPERATING RESULTS
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FINANCIAL CONDITION
Northeast Indiana Bancorp's total assets increased $3.9 million or 1.53% from
$254.7 million at December 31, 1999 to $258.6 million at September 30, 2000.
This increase was primarily from funds generated from increased borrowings of
$13.4 million including $8.9 million additional FHLB advances and a $4.3 million
increase in securities sold for repurchase. These increases were offset by
decreased deposits of $10.5 million, which were primarily jumbo time deposits.
In addition to asset growth through the first nine months of 2000, Northeast
Indiana Bancorp purchased 1.57% of the outstanding shares to fund Treasury Stock
which reduced our capital $361,000.
Net loans receivable decreased $2.9 million or 1.39% from $208.4 million at
December 31, 1999 to $205.5 million at September 30, 2000. The decrease in loans
during the first nine months of 2000 was predominantly in construction loans,
net of loans in process which accounted for $1.8 million of the decrease along
with a $1.1 million decrease in consumer lending offset by a $383,000 increase
in commercial lending. This reduction was because of the generally unfavorable
interest rate environment along with efforts to improve liquidity conditions.
Allowances for loan losses decreased the net loan receivables by approximately
$518,000 through the nine months ended September 30, 2000 increasing the
allowance for loan losses to a balance of $2.3 million. The classified loans
have been adjusted to include the approximately $2.6 million as of September 30,
2000 for the borrower referred to in the following Non-performing assets and
allowances for loan losses section. An additional provision for loan loss
expense of $700,000 was incurred as of the third quarter specifically for that
borrower.
INVESTMENTS
Securities available-for-sale increased $174,000 from $33.2 million at December
31, 1999 to $33.4 million at September 30, 2000. The securities were maintained
to provide collateral for growth in our securities sold under repurchase
agreements and collateral for FHLB advances.
RESULTS OF OPERATIONS
Northeast Indiana Bancorp had a net loss of $(13,852) or basic and diluted loss
per share of $(0.01) each for the three months ended September 30, 2000 compared
to net income of $672,000 or basic and diluted earnings per share of $0.42 and
$0.41 each for the third quarter of 1999. Net income for the nine months ended
September 30, 2000 was $1.0 million or basic and diluted earnings per share of
$0.63 and $0.62 compared to $1.19 and $1.15 or a 53% decrease over the earnings
per share for the nine months ended September 30, 1999.
Net interest income decreased $282,000 to $1.7 million for the three months
ended September 30, 2000 compared to $2.0 million for the three months ended
September 30, 1999. Net interest income decreased $343,000 to $5.5 million or
5.9% for the nine months ended September 30, 2000 compared to $5.8 million for
the same period 1999.
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8.
NORTHEAST INDIANA BANCORP, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
OPERATING RESULTS
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RESULTS OF OPERATIONS (Continued)
Interest income increased $399,000 to $5.0 million for the three months ended
September 30, 2000 compared to $4.6 million for September 30, 1999. Interest
income for the nine months ended September 30, 2000 was $14.7 million compared
to $12.9 million for the nine months ended September 30, 1999, an increase of
$1.8 million or 14.27%. For the third quarter interest expense increased
$681,000 to $3.3 million for the quarter ended September 30, 2000 compared to
$2.6 million September 30, 1999. Interest expense for the nine months ended
September 30, 2000 and September 30, 1999 was approximately $9.2 million and
$7.1 million respectively. This change is primarily due to rate sensitivity.
Provision for loan losses increased by $845,000 for the three months ended
September 30, 2000 compared to the same period ended September 30, 1999. The
increase is explained in the following Non-performing assets and allowances for
loan losses section.
Non-interest income increased to $272,000 for the three months-ended September
30,2000 compared to $214,000 for the comparable period in 1999. This represents
an increase of $58,000 for the quarter over the same period last year.
Non-interest income increased to $725,000 compared to $611,000 for the nine
months ended September 30, 2000 and 1999 respectively. This increase of $114,000
is the result of revenue growth in deposit account service fees and non-interest
income for the Trust department and the Financial Services subsidiary. These two
new product lines opened in the fourth quarter 1998 and the first quarter 1999.
Non-interest expense increased to $1.3 million and $3.6 million for the three
and nine months ended September 30, 2000 compared to $1.1 million and $3.1
million for the corresponding periods in 1999. This represents an increase of
$186,000 and $457,000 for the three and nine months ended September 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. During the quarter
an additional allocation to the ESOP in the amount of $155,000 was made to bring
the allocated shares in compliance with the weighted- average allocation
requirement. Additionally, accrued bonuses year-to-date were reduced by $40,000.
Data processing expense has increased to $151,000 and $432,000 for the three and
nine months ended September 30, 2000 due to software upgrades costs related to
issuing and processing check cards and increased processing volume compared to
$135,000 and $397,000 for the same periods ended September 30, 1999.
Income tax expense decreased for the three and nine months ended September 30,
2000 due to lower taxable income compared to the same periods 1999 and an
Indiana Financial Institutions Franchise Tax law change which is favorable to
the institution. During the third quarter 2000 entries to record the adjustment
for 1999 and year to date 2000 were made reducing third quarter 2000 tax
expense.
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9.
NORTHEAST INDIANA BANCORP, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
OPERATING RESULTS
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NON-PERFORMING ASSETS AND ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is established by management's quarterly asset
classification review. Such evaluation 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 risks inherent in its loan portfolio.
As a result of this review process, management recorded provisions for loan
losses in the amount of $891,000 and $1.3 million for the three and nine months
ended September 30, 2000 compared to $47,000 and $182,000 for the same periods
ended September 30, 1999. Management will continue to make adequate provisions
to allowance for loan loss.
Subsequent to September 30, 2000 the Company became aware of circumstances that
had occurred involving loans the Bank originated to a single borrower. As a
result of these circumstances, management has determined that a loss is probable
and, accordingly has classified $700,000 of the Bank's allowance for loan losses
on borrower's outstanding balance of approximately $2.6 million as a specific
reserve. In addition, these loans are not considered in the non-performing loans
at September 30, 2000 but are considered to be impaired.
At September 30, 2000 the balance of impaired loans was $4.9 million, including
loans with allowance allocated specifically to them of $3.3 million. These
compare to $2.4 million of impaired loans including $1.1 million with allowance
allocated at December 31, 1999. At September 30, 2000 $1.0 million of the
allowance was allocated to these impaired loans compared to $473,000 allocated
to impaired loans at December 31, 1999.
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10.
NORTHEAST INDIANA BANCORP, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
OPERATING RESULTS
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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 or insubstance foreclosure. The
following table summarizes in thousands the various categories of non-performing
assets:
September 30 December 31
2000 1999
---- ----
Non-accruing loans
One-to-four family 421 339
Multi-family 28 22
Commercial real estate - 247
Construction or development 468 683
Consumer 168 186
Commercial business 834 233
----------------- ------------------
Total 1,919 1,710
----------------- ------------------
Foreclosed assets
One-to-four family - 49
Commercial - -
Land 243 -
----------------- ------------------
Total 243 49
----------------- ------------------
Repossessed assets
Consumer 71 14
----------------- ------------------
Total 71 14
----------------- ------------------
Total non-performing assets 2,233 1,773
================= ==================
Total non-performing assets as a percentage of total assets 0.86% 0.70%
================= ==================
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
September 30, 2000, First Federal exceeded all regulatory capital standards.
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11.
NORTHEAST INDIANA BANCORP, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
OPERATING RESULTS
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LIQUIDITY AND CAPITAL RESOURCES(CONTINUED)
At September 30, 2000, First Federal's risk based capital was $25.0 million or
15.48% of risk adjusted assets, which exceeds the $13.0 million and the 8.0% OTS
requirement by $12.0 million and 7.48%. First Federal's core capital at
September 30, 2000 is $23.8 million or 9.21%, which exceeds the OTS requirement
of $10.3 million, and 4.00% by $13.5 million and 5.21%.
First Federal's primary sources of funds are deposits, FHLB advances, principal
and interest payments of loans, operations income and short-term investments.
Deposit flows and mortgage payments are greatly influenced by general interest
rates, economic conditions and competition.
Current OTS regulations require that First Federal maintain cash and eligible
investments in an amount equal to at least 4% of its average daily balance of
net withdrawable customer deposit accounts and short-term borrowings to assure
its ability to meet demands for withdrawals and repayment of short-term
borrowings. As of September 30, 2000, First Federal's liquidity ratio was 5.66%,
which is in excess of the minimum regulatory requirements.
First Federal uses its capital resources principally to meet its ongoing
commitments to fund maturing certificates of deposit and loan commitments,
maintain its liquidity, and meet operating expenses. As of September 30, 2000,
First Federal had commitments to originate loans and to fund open lines of
credit totaling $17.5 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.
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.
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12.
NORTHEAST INDIANA BANCORP, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
OPERATING RESULTS
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FORWARD-LOOKING STATEMENTS(CONTINUED)
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.
RECENT ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for
Derivative Instruments and Hedging Activities, as amended by SFAS No. 138,
requires derivative instruments be carried at fair value on the balance sheet.
The statement continues to allow derivative instruments to be used to hedge
various risks and sets forth specific criteria to be used to determine when
hedge accounting can be used. The statement also provides for offsetting changes
in fair value of cash flows of both the derivative and the hedged asset or
liability to be recognized in earnings in the same period; however, any changes
in fair value of cash flow that represent the ineffective portion of a hedge are
required to be recognized in earnings and cannot be deferred. For derivative
instruments not accounted for as hedges, changes in fair value are required to
be recognized in earnings. The adoption of this statement on January 1, 2001 is
not expected to have a material effect on the consolidated financial statements.
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13.
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
None
ITEM 5 - OTHER INFORMATION
None
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14.
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) July 21, 2000 Announcing Second Quarter Earnings
(2) August 01, 2000 Announcing Cash Dividend
(3) October 23, 2000 Announcing Third Quarter Earnings
(4) October 25, 2000 Announcing Increased Cash Dividend
(5) November 14, 2000 Announcing Intention to amend Third Quarter
Earnings
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15.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
NORTHEAST INDIANA BANCORP, INC.
Date: November 20, 2000 By: /s/ STEPHEN E. ZAHN
-------------------------------------
Stephen E. Zahn
President and Chief Executive Officer
(Duly Authorized Officer)
Date: November 20, 2000 By: /s/ DARRELL E. BLOCKER
-------------------------------------
Darrell E. Blocker
Senior Vice President and Chief
Financial Officer
(Principal Financial Officer
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16.