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, 2001
[_] 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:
OUTSTANDING AT
CLASS OCTOBER 31, 2001
- --------------------------------------------------------------------------------
Common Stock, par value $.01 per share approximately 1,587,536
Transitional Small Business Disclosure Format: YES [_] NO [X]
NORTHEAST INDIANA BANCORP, INC.
INDEX
-----
PART 1. FINANCIAL INFORMATION (UNAUDITED) PAGE NO.
Item 1. Financial Statements (Condensed)
Consolidated Balance Sheets
September 30, 2001 and December 31, 2000 1
Consolidated Statements of Income for the
three and nine months ended September 30, 2001 and 2000 2
Consolidated Statement of Change in Shareholders' Equity
for the nine months ended September 30, 2001 3
Consolidated Statements of Cash Flows for the nine
months ended September 30, 2001 and 2000 4
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis or Plan of Operation 8
PART II. OTHER INFORMATION 15
Signature page 17
NORTHEAST INDIANA BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
September 30, 2001 And December 31, 2000
September 30, December 31,
2001 2000
(Unaudited)
ASSETS
Interest earning cash and cash equivalents $ 21,538,003 $ 3,208,993
Noninterest earning cash and cash equivalents 2,476,385 3,367,273
------------------- ------------------
Total Cash and cash equivalents 24,014,388 6,576,266
Securities available for sale 33,233,629 31,226,026
Securities held to maturity (fair value: September
30, 2001- $306,000; December 31, 2000 - $383,000) 306,000 383,000
Loans held for sale 514,800 -
Loans receivable, net of allowance for loan losses (September 30,
2001 $1,872,046 and December 31, 2000 $2,001,172) 175,685,545 200,151,133
Accrued interest receivable 712,849 895,612
Premises and equipment, net 2,276,247 2,244,179
Investments in limited liability partnerships 1,585,597 1,703,839
Other assets 3,387,200 3,914,247
------------------- ------------------
Total assets $ 241,716,255 $ 247,094,302
=================== ==================
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Demand deposits $ 4,408,447 $ 4,571,661
Savings 9,584,052 9,265,835
NOW and MMDDA 30,089,311 30,896,868
Time deposits 98,739,859 102,071,754
------------------- ------------------
Total deposits 142,821,669 146,806,118
Borrowed funds 70,758,152 72,538,670
Accrued expenses and other liabilities 1,443,913 1,175,757
------------------- ------------------
Total liabilities 215,023,734 220,520,545
Shareholders' equity
Preferred Stock, no par value: 500,000 shares authorized;
0 shares issued - -
Common stock, $.01 par value: 4,000,000 shares authorized;
9/30/01: 2,640,672 shares issued, 1,595,036 shares outstanding
12/31/00: 2,640,672 shares issued, 1,692,536 shares outstanding 26,407 26,407
Additional paid in capital 28,858,889 28,817,843
Retained earnings, substantially restricted 12,107,748 11,213,771
Unearned employee stock ownership plan shares (657,437) (766,395)
Unearned recognition and retention plan shares (14,718) (21,196)
Accumulated other comprehensive income (loss), net of tax 231,107 (55,418)
Treasury stock, 1,045,636 and 948,136 common shares, at
cost, at September 30, 2001 and December 31, 2000 (13,859,475) (12,641,255)
-------------------- -------------------
Total shareholders' equity 26,692,521 26,573,757
------------------- ------------------
Total liabilities and shareholders' equity $ 241,716,255 $ 247,094,302
=================== ==================
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The accompanying notes are an integral part
of these consolidated financial statements.
1.
NORTHEAST INDIANA BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
Three and nine months ended September 30, 2001 and 2000
Three months ended Nine months ended
September 30, September 30,
2001 2000 2001 2000
---- ----- ---- ----
(Unaudited)
Interest income
Loans, including fees $ 3,697,561 $ 4,322,293 $ 11,649,908 $ 12,854,072
Taxable securities 398,220 578,573 1,276,213 1,694,714
Non-taxable securities 58,953 5,475 123,138 16,837
Deposits with financial institutions 139,178 63,506 320,087 177,326
---------------- ------------------ --------------- ---------------
Total interest income 4,293,912 4,969,847 13,369,346 14,742,949
Interest expense
Deposits 1,719,865 1,671,821 5,586,772 4,942,778
Borrowed funds 923,602 1,578,409 2,759,057 4,292,769
---------------- ------------------ --------------- ---------------
Total interest expense 2,643,467 3,250,230 8,345,829 9,235,547
Net interest income 1,650,445 1,719,617 5,023,517 5,507,402
Provision for loan losses 135,000 891,250 385,000 1,273,750
---------------- ------------------ --------------- ---------------
Net interest income after provision
for loan losses 1,515,445 828,367 4,638,517 4,233,652
Noninterest income
Service charges on deposit accounts 92,778 97,472 276,080 276,428
Loan servicing fees 58,557 49,030 185,029 147,174
Net gain (loss) on sale of
securities - - - (1,563)
Net gain on sale of loans 50,626 - 139,048 -
Other service charges and fees 152,484 125, 852 340,185 303,437
---------------- ------------------ --------------- ---------------
Total noninterest income 354,445 272,354 940,342 725,476
Noninterest expense
Salaries and employee benefits 569,130 714,714 1,732,875 1,905,713
Occupancy 114,118 100,979 346,232 320,820
Data processing 151,806 150,675 467,006 431,822
Deposit insurance expense 6,970 7,239 20,416 21,001
Professional fees 42,526 40,216 186,256 159,306
Correspondent bank charges 56,764 58,024 169,420 174,888
Other expense 170,749 181,073 595,854 570,507
---------------- ------------------ --------------- ---------------
Total noninterest expense 1,112,063 1,252,920 3,518,059 3,584,057
Income before income taxes 757,827 (152,199) 2,060,800 1,375,071
Income tax expense 226,673 (138,347) 621,708 365,351
---------------- ------------------ --------------- ---------------
Net income $ 531,154 $ (13,852) $ 1,439,092 $ 1,009,720
================ ================== =============== ===============
Comprehensive Income $ 713,337 $ 145,325 $ 1,725,617 $ 1,239,010
=============== ================== =============== ===============
Basic earnings (loss) per common share $ 0.35 $ (0.01) $ 0.92 $ 0.63
Diluted earnings (loss) per common share $ 0.35 $ (0.01) $ 0.91 $ 0.62
- --------------------------------------------------------------------------------
See accompanying notes to financial statements
2.
NORTHEAST INDIANA BANCORP, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
Nine months ended September 30, 2001
(Unaudited)
Unearned
Employee Unearned
Additional Stock Recognition
Common Paid-in Retained Ownership And Retention
Stock Capital Earnings Plan Shares Plan Shares
----- ------- -------- ----------- -----------
Balance, December 31, 2000 26,407 28,817,843 11,213,771 (766,395) (21,196)
Net Income for nine months ended
September 30, 2001 1,439,092
Other Comprehensive income:
Net change in unrealized gains on securities
available for sale
Total tax effect
Total other comprehensive income
Comprehensive income
Cash dividends declared $.33 per share year to date (545,115)
Purchase of 124,992 shares of treasury stock
Issuance of 27,492 shares of treasury stock upon
exercise of options (35,326)
Tax effect on stock plans 24,064
13,191 shares committed to be released under ESOP 52,308 108,958
Amortization of RRP Contributions 6,478
------------ --------------- -------------- -------------- ------------------
Balance at September 30, 2001 26,407 28,858,889 12,107,748 (657,437) (14,718)
============ =============== ============== ============== ==================
Accumulated
Other
Comprehensive
Income Total
(Loss) Treasury Shareholders'
Net of Tax Stock Equity
---------- ----- ------
Balance, December 31, 2000 (55,418) (12,641,255) 26,573,757
Net Income for nine months ended
September 30, 2001 1,439,092
Other Comprehensive income:
Net change in unrealized gains on securities
available for sale 476,033
Total tax effect (189,508)
------------------
Total other comprehensive income 286,525 286,525
---------------
Comprehensive income 1,725,617
Cash dividends declared $.33 per share year to date (545,115)
Purchase of 124,992 shares of treasury stock (1,520,494) (1,520,494)
Issuance of 27,492 shares of treasury stock upon 302,274 266,948
exercise of options
Tax effect on stock plans 24,064
13,191 shares committed to be released under ESOP 161,266
Amortization of RRP Contributions
Balance at September 30, 2001 6,478
------------------ ---------------- ----------------
231,107 (13,859,475) 26,692,521
================== ================ ================
- --------------------------------------------------------------------------------
See accompanying notes to financial statements
3.
NORTHEAST INDIANA BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine months ended September 30, 2001 & 2000
Nine months ended
September 30,
-------------
2001 2000
---- ----
(Unaudited)
Cash flows from operating activities
Net income $ 1,439,092 $ 1,009,720
Adjustments to reconcile net income
to net cash from operating activities
Depreciation and amortization 302,911 286,893
Provision for loan losses 385,000 1,273,750
Net (gain) loss on sale of:
Premises and equipment -- 14,227
Securities available for sale -- 1,563
Loans held for sale (139,048) --
Originations of loans held for sale (8,308,965) --
Proceeds from loans sold 7,933,213 --
Reduction of obligation under ESOP 161,266 294,197
Amortization of RRP 6,478 152,150
Net change in:
Other assets (93,160) (1,072,097)
Accrued interest receivable 182,763 (242,717)
Accrued expenses and other liabilities 268,156 69,076
------------- -------------
Total adjustments 698,614 777,042
------------- -------------
Net cash from operating activities 2,137,706 1,786,762
Cash flows from investing activities
Net decrease in interest bearing deposits in
financial institutions -- 100,000
Purchases of securities available for sale (18,492,982) (5,112,294)
Proceeds from maturities and principal payments of:
securities available for sale 16,963,405 297,987
securities held to maturity 77,000 73,382
Proceeds from sales of securities available for sale -- 4,998,438
Purchases of loans (79,997) (1,006,837)
Net change in loans 22,508,139 1,302,378
Proceeds from sale of participation loans 1,150,000 682,095
Proceeds from sale of foreclosed real estate and repossessed assets 957,209 371,192
Expenditures on premises and equipment (218,730) (119,497)
Proceeds from sale of premises and equipment -- 500
------------- -------------
Net cash from investing activities 22,864,044 1,587,344
Cash flows from financing activities
Net change in deposits (3,984,449) (10,534,790)
Advances from FHLB 29,000,000 120,000,000
Repayment of FHLB advances (31,399,663) (111,099,315)
Payments of demand notes (125,000) (265,000)
Net change in other borrowed funds 744,145 4,301,093
Cash dividends paid (545,115) (521,831)
Purchase of treasury stock (1,520,494) (361,145)
Sale of treasury stock 266,948 42,937
------------- -------------
Net cash from financing activities (7,563,628) 1,561,949
------------- -------------
Net change in cash and cash equivalents 17,438,122 4,936,055
Cash and cash equivalents at beginning of period 6,576,266 5,899,203
------------- -------------
Cash and cash equivalents at end of period $ 24,014,388 $ 10,835,258
============= =============
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(Continued)
4.
NORTHEAST INDIANA BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine months ended September 30, 2001 & 2000
Nine months ended
September 30,
2001 2000
---- ----
(Unaudited)
Cash paid for:
Interest $ 8,394,665 $ 9,221,470
Income taxes 756,000 692,300
Non-cash transactions:
Obligation relative to investment in limited partnership $ - $ 500,000
Transfer from loans to other real estate and repossessed assets 502,446 691,352
- --------------------------------------------------------------------------------
See accompanying notes to financial statements
5.
NORTHEAST INDIANA BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
September 30, 2001
- --------------------------------------------------------------------------------
NOTE 1 - BASIS OF PRESENTATION
The unaudited information for the three and nine months ended September 30, 2001
and 2000 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 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.
Three months ended Nine months ended
September 30, September 30,
------------- -------------
2001 2000 2001 2000
---- ---- ---- ----
Earnings (Loss) Per Share
Net Income (loss) available to common shareholders $ 531,154 $ (13,852) $ 1,439,092 $ 1,009,720
Weighted average common shares outstanding, net
of unallocated ESOP and non-vested RRP shares 1,521,506 1,591,815 1,556,299 1,597,394
=========== =========== =========== ===========
Basic earnings (Loss) Per Share $ 0.35 $ (.01) $ 0.92 $ 0.63
Earnings (Loss) Per Share Assuming Dilution
Net income (loss) available to common shareholders $ 531,154 $ (13,852) $ 1,439,092 $ 1,009,720
Weighted average common shares outstanding, for
basic earnings per share 1,521,506 1,591,815 1,556,299 1,597,394
Add: dilutive effects of assumed exercises of
incentive stock options and non qualified
stock options 15,553 -- 33,641 28,754
----------- ----------- ----------- -----------
Weighted average and dilutive common shares
Outstanding 1,537,059 1,591,815 1,589,940 1,626,148
=========== =========== =========== ===========
Diluted earnings (loss) per share $ 0.35 $ (.01) $ 0.91 $ 0. 62
NOTE 3 - SUBSEQUENT EVENT - COMMON STOCK DIVIDEND
On October 24, 2001 the Board of Directors of Northeast Indiana Bancorp, Inc.
announced a quarterly cash dividend of $.12 per share. This is the sixth
consecutive year the dividend has been increased. The dividend will be paid on
November 21, 2001 to shareholders of record on November 7, 2001. The payment of
the cash dividend will reduce shareholders' equity (fourth quarter) by
approximately $191,000.
- --------------------------------------------------------------------------------
(Continued)
6.
NORTHEAST INDIANA BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
September 30, 2001
- --------------------------------------------------------------------------------
NOTE 4 - STOCK REPURCHASE PLAN
On September 25, 2001 Northeast Indiana Bancorp announced a new stock repurchase
program to repurchase up to 5.00% of the outstanding shares in the open market
as treasury shares over the next twelve months. This program will include up to
80,677 shares. As of October 31, 2001, 26,000 shares have been acquired towards
this new repurchase program.
NOTE 5 - REGULATORY CAPITAL REQUIREMENTS
Pursuant to federal regulatory agencies, savings institutions must meet certain
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, 2001, First Federal substantially exceeded all current regulatory capital
standards.
Minimum Required To Be Well
Minimum Required For Capital Capitalized Under Prompt
Actual Adequacy Purpose Corrective Action Regulations
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
(Dollars in thousands)
Total Capital
(to risk weighted assets) $25,223 17.14% $11,770 8.00% $14,713 10.00%
Tier 1 (core) capital (to risk
weighted assets) 23,957 16.28% 5,885 4.00% 8,828 6.00%
Tier 1(core) capital (to
adjusted total assets) 23,957 9.94% 9,644 4.00% 12,055 5.00%
Tier 1 (core) capital (to
average assets) 23,957 9.92% 9,653 4.00% 12,066 5.00%
NOTE 6 - RECLASSIFICATIONS
Certain amounts in the 2000 consolidated financial statements have been
reclassified to conform to the 2001 presentation.
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7.
NORTHEAST INDIANA BANCORP, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
- --------------------------------------------------------------------------------
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,
2001, 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.
Provisions for loan losses, service charge and fee income, and other
non-interest 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 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, 2001,
approximately $30.4 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.
NORTHEAST INDIANA BANCORP, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
- --------------------------------------------------------------------------------
FINANCIAL CONDITION
Northeast Indiana Bancorp's total assets decreased $5.4 million or 2.19% from
$247.1 million at December 31, 2000 to $241.7 million at September 30, 2001.
This decrease resulted from a reduction in net loan receivables of $23.9 million
offset by an increase in cash and cash equivalents of $17.4 million.
The 11.97% decrease in net loan receivables for the first nine months of 2001
was primarily attributed to a $4.9 million decrease in commercial lending and a
$20.4 million runoff in mortgage lending. We also originated $8.3 million in
residential mortgages to be sold to the secondary market with servicing retained
during the first nine months of the year. Allowance for loan losses decreased
approximately $129,000 during the nine months ended September 30, 2001, reducing
the allowance for loan losses to a balance of $1.9 million.
The bank continues to improve its overall liquidity position by repositioning
its liabilities. Total deposits shrunk by 2.72% to $142.8 million at September
30, 2001. This decrease of $3.9 million primarily occurred in jumbo time
deposits. Borrowings have been reduced by 2.5% to $70.8 million as of September
30, 2001 from the $72.5 million as of December 31, 2000.
INVESTMENTS
Securities available for sale increased by $2.0 million or 6.4% from $31.2
million at December 31, 2000 to $33.2 million at September 30, 2001. The
securities are 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 net income of $531,000 or basic and diluted income
per share of $0.35 for the three months ended September 30, 2001 compared to net
loss of ($14,000) or basic and diluted loss per share of ($0.01) each for the
third quarter of 2000. Net income for the nine months ended September 30, 2001
was $1,439,000 or $0.92 per basic share and $0.91 diluted earnings per share
compared to net income of $1.0 million or basic and diluted earnings per share
of $0.63 and $0.62. This represents a 46.0% increase in earnings per share for
the nine months ended September 30, 2001.
- --------------------------------------------------------------------------------
(Continued)
9.
NORTHEAST INDIANA BANCORP, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
- --------------------------------------------------------------------------------
RESULTS OF OPERATIONS (Continued)
Net interest income decreased to $1.6 million for the three months ended
September 30, 2001 compared to $1.7 million for the three months ended September
30, 2000. Net interest income decreased $484,000 to $5.0 million or 8.78% for
the nine months ended September 30, 2001 compared to $5.5 million for the same
period in 2000. Interest income for the quarter decreased $676,000 to $4.3
million for September 30, 2001 compared to $5.0 million for September 30, 2000.
Interest income for the nine months ended September 30, 2001 was $13.4 million
compared to $14.7 million for the nine months ended September 30, 2000 a
decrease of $1.4 million or 9.3%. Of the $1.4 million decrease, 73.0% of the
variance is attributed to decreases in volume while 27.0% of the variance is
related to lower rates. During the third quarter 2001, interest expense
decreased $607,000 to $2.6 million compared to $3.2 million. Interest expense
for the nine months ended September 30, 2001 was $8.3 million a decrease of
$890,000 compared to $9.2 million incurred for the same periods ended September
30, 2000. This decrease is due to a reduction of borrowed funds and jumbo
deposit balances along with deposits repricing at lower rates as they mature.
Provisions for loan losses decreased by $756,000 and $889,000 for the three and
nine months ended September 30, 2001 compared to the same period ended September
30, 2000. The decreases to provisions are discussed in more detail under
non-performing assets and allowances for loan losses.
Non-interest income increased to $354,000 for the three months ended September
30, 2001 compared to $272,000 for the comparable period in 2000. This represents
an increase of $82,000 for the quarter over the same period last year.
Non-interest income increased to $940,000 compared to $725,000 for the nine
months ended September 30, 2001 and 2000 respectively. Of the $215,000 or 29.6%
increase, $139,000 is from the gain on sale of loans as the bank has
significantly increased the volume of loan sales; other increases include loan
servicing fees associated with sold loans with servicing retained and an
increase in ATM and Debit Card interchange fees.
Non-interest expense decreased to $1.1 million for the three months ended
September 30, 2001 compared to $1.2 million for the same time period during
2000. This represents a decrease of $140,000 for the three months ended
September 30, 2001 compared to the corresponding period in 2000. This decrease
is primarily due to a one time additional allocation of $155,000 to the ESOP
program made during the third quarter of 2000 to bring the allocated shares into
compliance with the weighted-average allocation requirement. The total
non-interest expense for the nine months ended September 30, 2000 decreased by
$66,000 for the same time period during 2000. This decrease includes the one
time allocation of $155,000 to the ESOP program for 2000 and is off set by the
following: higher occupancy expenses of $25,000, increased data processing
expenses of $35,000 due to software upgrades and increased fees, an increase in
professional fees of 27,000 including legal expenses and consulting fees.
- --------------------------------------------------------------------------------
(Continued)
10.
NORTHEAST INDIANA BANCORP, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
- --------------------------------------------------------------------------------
RESULTS OF OPERATIONS (Continued)
Income tax expense increased for both the three months and nine months ended
September 30, 2001 compared to the same periods in 2000. The effective tax rate
for the three months ended September 30, 2001 and 2000 was 30% and (90%) and for
the nine months ended September 30, 2001 and 2000 was 30% and 27%. The
significant tax benefit recorded for the three months ended September 30, 2000
was due to the net tax loss for the period and an Indiana Financial Institutions
Franchise tax law change, which was favorable to the institution. During the
third quarter of 2000, entries to record the adjustment for the 1999 and year to
date 2000 were made reducing third quarter 2000 tax expense.
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 considers among other matters, the estimated
value of the underlying collateral, economic conditions, cash flow analysis,
historical loan loss experience, discussions held with delinquent borrowers and
other factors that warrant recognition in providing for an adequate allowance
for loan losses. As a result of this review process, management recorded
provisions for loan losses in the amount of $135,000 and $385,000 for the three
and nine months ended September 30, 2001 compared to $891,000 and $1.3 million
for the same periods ended September 30, 2000. The reason for the large
provision for loan losses recorded for the three and nine month periods ended
September 30, 2000 are discussed below.
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 determined that a loss was probable
and, accordingly classified $700,000 of the Bank's allowance for loan losses, on
the borrower's outstanding balance of approximately $2.6 million as a specific
reserve. These loans were not included in the non-performing loans at September
30, 2000 but were 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 with outstanding balances of
$3.3 million. At September 30, 2000, $1.0 million of the allowance was allocated
to these impaired loans.
Management continues to be proactive with commercial loan grading and tracking
as we recognize the potential negative effects of the current economic slowdown.
Although non-performing assets were at $8.2 million for the first quarter 2001
they have continued to decrease during the second and third quarter of 2001.
This reduction can be attributed to several factors including the sale of
$481,000 in repossessed assets and reduction in construction or development
non-accrual loans by $472,000. During the third quarter of 2001 the bank
reclassified $2.0 million of non-accrual loans previously classified in one to
four family rental properties into commercial real estate properties.
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(Continued)
11.
NORTHEAST INDIANA BANCORP, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
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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 restructurings, other repossessed assets 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
2001 2000
---- ----
Non-accruing loans
One-to-four family 460 608
Multi-family 28 29
Commercial real estate 4,832 708
Construction or development - 472
Consumer 1,236 1,691
Commercial business 94 198
------------- --------------
Total 6,650 3,706
------------- --------------
Foreclosed assets
One-to-four family 19 -
Commercial - -
Land 185 185
------------- -------------
Total 204 185
Repossessed assets
Consumer 39 89
Commercial 19 450
------------ -------------
Total 58 539
------------ -------------
Total non-performing assets 6,912 4,430
============ =============
Total non-performing assets as a percentage
of total assets 2.86% 1.79%
============ =============
Total non-performing assets increased from $4.4 million to $6.9 million or 2.86%
of total assets at September 30, 2001 from 1.79% of total assets at December 31,
2000. Of the $4.8 million in commercial real estate, $2.2 million is for loans
secured by one-to four family residential rental properties that continue to be
on non-accrual status at September 30, 2001 due to weakness in cash flows. These
rental properties were identified as impaired at December 31, 2000 but were not
included in non-performing assets at December 31, 2000. Although the loans are
now on non-accrual, the bank is receiving some interest only payments on a cash
basis. Impaired loans at September 30, 2001 were $6.1 million compared to $8.5
million at December 31, 2000. No new impaired loans were added during third
quarter 2001.
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(Continued)
12.
NORTHEAST INDIANA BANCORP, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
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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, 2001, First Federal exceeded all regulatory capital standards.
At September 30, 2001, First Federal's risk based capital was $25.2 million or
17.1% of risk adjusted assets, which exceeds the $11.8 million and the 8.0% OTS
requirement by $13.4 million and 9.1%. First Federal's core capital at September
30, 2001 is $23.9 million or 9.9%, which exceeds the OTS requirement of $9.6
million, and 4.0% by $14.3 million and 5.9%.
First Federal's primary sources of funds are deposits, FHLB advances, principal
and interest payments of loans, operating income and sales and maturities of
short-term investments. Deposit flows and mortgage payments are greatly
influenced by general interest rates, economic conditions and competition.
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, 2001,
First Federal had commitments to originate loans and to fund open lines of
credit totaling $14.2 million. First Federal considers its liquidity and capital
resources to be adequate to meet its foreseeable short and long term needs.
First Federal expects to be able to fund or refinance, on a timely basis, its
material commitments and long-term liabilities.
First Federal, however, has grown substantially over the previous years and
therefore our liquidity position has tightened as we leveraged our capital
through 2000. First Federal's liquidity position has improved during 2001. This
improvement can be attributed to the following: a decline in overall loan
demand, and the selling of $8 million of residential mortgage loans.
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13.
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.
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14.
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 HOLDERS
None
ITEM 5 - OTHER INFORMATION
None
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15.
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 20, 2001 , Announcing Second Quarter Earnings
(2) August 6, 2001 Announcing Second Quarter Cash Dividend and completion
of Stock Repurchase Program
(3) September 26, 2001 Announcing Stock Repurchase Program
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16.
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 14, 2001 By: /s/ STEPHEN E. ZAHN
-----------------------------------------
Stephen E. Zahn
President and Chief Executive Officer
(Duly Authorized Officer)
Date: November 14, 2001 By: /s/ DARRELL E. BLOCKER
-----------------------------------------
Darrell E. Blocker
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
17.