SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
(Mark one)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2002
[ ] 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: (260) 356-3311
Check whether the Issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the Issuer was required to file such reports), and (2) has been
subject to such requirements for the past 90 days. YES [X] NO [ ]
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
CLASS OUTSTANDING AT May 1, 2002
- --------------------------------------------------------------------------------
Common Stock, par value $.01 per share 1,532,979
Transitional Small Business Disclosure Format: YES [ ] NO [X]
NORTHEAST INDIANA BANCORP, INC.
INDEX
PAGE NO.
PART 1. FINANCIAL INFORMATION (UNAUDITED)
Item 1. Financial Statements
Consolidated Balance Sheets
March 31, 2002 and December 31, 2001 1
Consolidated Statements of Income for the
three months ended March 31, 2002 and 2001 2
Consolidated Statement of Changes in Shareholders' Equity
for the three months ended March 31, 2002 3
Consolidated Statements of Cash Flows for the three
months ended March 31, 2002 and 2001 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
Item 1. Legal Proceedings 14
Item 2. Change In Securities 14
Item 3. Defaults Upon Senior Securities 14
Item 4. Submissions of Matter to a Vote
of Security Holders 14
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
Signature page 16
NORTHEAST INDIANA BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
March 31, 2002 and December 31, 2001
- --------------------------------------------------------------------------------
March 31, December 31,
2002 2001
(Unaudited)
ASSETS
Interest earning cash and cash equivalents $ 21,651,440 $ 23,541,599
Noninterest earning cash and cash equivalents 2,320,873 2,750,133
-------------- --------------
Total cash and cash equivalents 23,972,313 26,291,732
Securities available for sale 35,464,507 39,365,026
Securities held to maturity (fair value: March 31, 2002- $266,000;
December 31, 2001- $306,000) 266,000 306,000
Loans held for sale 604,101 1,543,422
Loans receivable, net of allowance for loan losses (March 31, 2002 of
$2,071,139 and at December 31, 2001 of $1,954,900) 162,182,012 162,830,186
Accrued interest receivable 741,224 753,000
Premises and equipment, net 2,270,310 2,298,102
Investments in limited liability partnerships 1,505,788 1,546,177
Other assets 3,368,154 3,460,884
-------------- --------------
Total assets $ 230,374,409 $ 238,394,529
============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Demand deposits- noninterest bearing $ 6,036,993 $ 4,579,159
Savings 10,432,469 9,261,040
NOW and MMDA 32,664,262 31,350,364
Time deposits 85,456,229 91,839,448
-------------- --------------
Total deposits 134,589,953 137,030,011
Borrowed funds 68,412,392 73,966,411
Accrued expenses and other liabilities 1,254,212 1,117,069
-------------- --------------
Total liabilities 204,256,557 212,113,491
Shareholders' equity
Preferred Stock, no par value: 500,000 shares authorized; 0 shares issued - -
Common stock, $.01 par value: 4,000,000 shares authorized;
3/31/02: 2,640,672 shares issued, 1,532,979 shares outstanding
12/31/01: 2,640,672 shares issued, 1,550,656 shares outstanding 26,407 26,407
Additional paid in capital 28,893,737 28,874,771
Retained earnings, substantially restricted 12,615,858 12,447,813
Unearned employee stock ownership plan shares (620,566) (620,566)
Unearned recognition and retention plan shares (10,396) (12,555)
Accumulated other comprehensive income (loss), net of tax (85,839) 20,979
Treasury stock, 1,107,693 and 1,090,016 common shares, at
cost, at March 31, 2002 and December 31, 2001 (14,701,349) (14,455,811)
-------------- --------------
Total shareholders' equity 26,117,852 26,281,038
-------------- --------------
Total liabilities and shareholders' equity $ 230,374,409 $ 238,394,529
============== ==============
- --------------------------------------------------------------------------------
See accompanying notes to financial statements
1.
NORTHEAST INDIANA BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
Three months ended March 31, 2002 and 2001
- --------------------------------------------------------------------------------
Three months ended
March 31,
2002 2001
---- ----
(Unaudited)
Interest income
Loans, including fees $ 3,179,398 $ 4,012,862
Taxable securities 467,504 467,362
Non-taxable securities 4,836 5,346
Deposits with financial institutions 102,562 50,092
-------------- --------------
Total interest income 3,754,300 4,535,662
Interest expense
Deposits 1,271,588 1,972,512
Borrowed funds 894,421 915,005
-------------- --------------
Total interest expense 2,166,009 2,887,517
Net interest income 1,588,291 1,648,145
Provision for loan losses 217,300 150,000
-------------- --------------
Net interest income after provision for loan
losses 1,370,991 1,498,145
Noninterest income
Service charges on deposit accounts 83,627 88,641
Loan servicing fees 63,512 51,396
Net gain on sale of loans 30,425 31,259
Other service charges or fees 125,221 114,989
-------------- --------------
Total noninterest income 302,785 286,285
Noninterest expense
Salaries and employee benefits 608,610 575,174
Occupancy 116,521 113,999
Data processing 152,061 160,703
Deposit insurance premium 6,485 6,497
Professional fees 49,494 83,195
Correspondent bank charges 53,428 52,976
Other expense 216,191 238,810
-------------- --------------
Total noninterest expense 1,202,790 1,231,354
-------------- --------------
Income before income taxes 470,986 553,076
Income tax expense 117,762 160,375
-------------- --------------
Net income $ 353,224 $ 392,701
============== ==============
Comprehensive income $ 246,406 $ 518,836
============== ==============
Basic earnings per common share $ 0.24 $ 0.25
Diluted earnings per common share $ 0.23 $ 0.24
- --------------------------------------------------------------------------------
See accompanying notes to financial statements
2.
NORTHEAST INDIANA BANCORP, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDER'S EQUITY
Three months ended March 31, 2002
- -------------------------------------------------------------------------------
(Unaudited)
Unearned
Employee
Additional Stock
Common Paid-in Retained Ownership
Stock Capital Earnings Plan Shares
----------- ------------ ------------ ------------
Balance, January 1, 2002 $ 26,407 $ 28,874,771 $ 12,447,813 $ (620,566)
Net Income for three months ended March 31, 2002 353,224
Other comprehensive income (loss):
Net change in unrealized gains (losses)
on securities available for sale, net of tax
Total other comprehensive income (loss)
Comprehensive income
Cash dividends declared $.12 per share year to date (185,179)
Purchase of 19,676 shares of treasury stock
Issuance of 1,999 shares of treasury stock
upon exercise of options (2,480)
4,183 shares committed to be released under ESOP 21,446
Amortization of RRP contributions
----------- ------------ ------------ ------------
Balance at March 31, 2002 $ 26,407 $ 28,893,737 $ 12,615,858 $ (620,566)
=========== ============ ============ ============
Accumulated
Unearned Other
Recognition Comprehensive Total
And Retention Income (Loss), Treasury Shareholder's
Plan Shares Net of Tax Stock Equity
----------- ------------ ------------ ------------
Balance, January 1, 2002 $(12,555) $ 20,979 $(14,455,811) $ 26,281,038
Net Income for three months ended March 31, 2002 353,224
Other comprehensive income (loss):
Net change in unrealized gains (losses)
on securities available for sale, net of tax (106,818)
Total other comprehensive income (loss)
(106,818)
-------
Comprehensive income 246,406
Cash dividends declared $.12 per share year to date (185,179)
Purchase of 19,676 shares of treasury stock (267,428) (267,428)
Issuance of 1,999 shares of treasury stock
upon exercise of options 21,890 19,410
4,183 shares committed to be released under ESOP 21,446
Amortization of RRP contributions 2,159 2,159
- - ----------- ------------ ------------ ------------
Balance at March 31, 2002 $ (10,396) $ (85,839) $(14,701,349) $ 26,117,852
=========== ============ ============ ============
- --------------------------------------------------------------------------------
See accompanying notes to financial statements
3.
NORTHEAST INDIANA BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months ended March 31, 2002 and 2001
- --------------------------------------------------------------------------------
Three months ended
March 31,
2002 2001
---- ----
(Unaudited)
Cash flows from operating activities
Net income $ 353,224 $ 392,701
Adjustments to reconcile net income
to net cash from operating activities
Depreciation and amortization 111,610 101,972
Provision for loan losses 217,300 150,000
Net (gain) loss on sale of :
Foreclosed real estate and repossessed assets (59,375) 9,917
Loans held for sale (30,425) (31,259)
Originations of loans held for sale (1,930,700) (1,685,981)
Proceeds from loans sold 2,900,446 1,717,240
Reduction of obligation under ESOP 21,446 49,139
Amortization of RRP 2,159 2,159
Net change in:
Other assets 3,927 195,783
Accrued interest receivable 11,776 119,729
Accrued expenses and other liabilities 137,143 14,528
------------ ------------
Total adjustments 1,385,307 643,227
------------ ------------
Net cash from operating activities 1,738,531 1,035,928
Cash flows from investing activities
Purchases of securities available for sale (3,564) (6,143,764)
Proceeds from maturities and principal payments of:
Securities available for sale 3,815,376 9,579,144
Securities held to maturity 40,000 38,000
Purchases of loans -- (79,997)
Net change in loans 365,270 4,867,912
Proceeds from sale of foreclosed real estate and repossessed assets 185,125 236,665
Expenditures on premises and equipment (41,026) (52,137)
Proceeds from sale of premises and equipment 8,143 --
------------ ------------
Net cash from investing activities 4,369,324 8,445,823
Cash flows from financing activities
Net change in deposits (2,440,058) 3,039,420
Advances from FHLB -- 12,000,000
Repayment of FHLB advances -- (22,999,775)
Payments of demand notes -- (125,000)
Net change in other borrowed funds (5,554,019) (1,756,723)
Dividends paid (185,179) (186,178)
Purchase of treasury stock (267,428) (221,580)
Sale of treasury stock 19,410 114,210
------------ ------------
Net cash from financing activities (8,427,274) (10,135,626)
------------ ------------
Net change in cash and cash equivalents (2,319,419) (653,875)
Cash and cash equivalents at beginning of period 26,291,732 6,576,266
------------ ------------
Cash and cash equivalents at end of period $ 23,972,313 $ 5,922,391
============ ============
Cash paid for:
Interest $ 2,125,948 $ 2,938,854
Income taxes 21,000 --
Non-cash transactions:
Transfer from loans to other real estate and repossessed assets $ 65,604 $ 180,633
- --------------------------------------------------------------------------------
See accompanying notes to financial statements
4.
NORTHEAST INDIANA BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 2002
- --------------------------------------------------------------------------------
NOTE 1 - BASIS OF PRESENTATION
The unaudited information for the three months ended March 31, 2002 and 2001
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 month period reported but should not be considered as
indicative of the results to be expected for the full year. Certain
reclassifications were made to the prior period financial statements to conform
to the current period presentation.
NOTE 2 - EARNINGS PER SHARE
Basic earnings per share are based on weighted-average common shares
outstanding. Diluted earnings per share further assume issue of any dilutive
potential common shares.
Three months ended
March 31,
-------------------------
2002 2001
---- ----
Earnings Per Share
Net income available to common shareholders $ 353,224 $ 392,701
========== ==========
Weighted average common shares outstanding
net of unallocated ESOP shares and non-vested
RRP shares 1,465,452 1,592,959
========== ==========
Basic Earnings Per Share $ 0.24 $ 0.25
========== ==========
Earnings Per Share Assuming Dilution
Net income available to common shareholders $ 353,224 $ 392,701
========== ==========
Weighted average common shares outstanding 1,465,452 1,592,959
Add: dilutive effects of assumed exercises of
incentive stock options and non qualified
stock options 46,522 16,727
---------- ----------
Weighted average and dilutive common shares
outstanding 1,511,974 1,609,686
========== ==========
Diluted earnings per share $ 0.23 $ 0.24
========== ==========
NOTE 3 - SUSEQUENT EVENT-CASH DIVIDENDS
On May 3, 2002, the Board of Directors of Northeast Indiana Bancorp, Inc.
announced a quarterly cash dividend of $.12 per share. The dividend will be paid
on May 30, 2002, to shareholders of record on May 16, 2002. The payment of the
cash dividend will reduce shareholders' equity (second quarter) by approximately
$184,000.
5.
NORTHEAST INDIANA BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 2002
- --------------------------------------------------------------------------------
NOTE 4 - STOCK REPURCHASE PLAN
On March 28, 2002, 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
76,649 shares. As of May 3, 2002, no shares have been repurchased under this
program since its announcement.
There were also 1,999 shares repurchased from exercised options year to date
through May 3, 2002.
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 March 31, 2002, the capital requirements for First Federal under those
regulatory requirements and First Federal's actual capital ratios. As of March
31, 2002, First Federal substantially exceeded all current regulatory capital
standards.
Minimum Required To Be Well
Minimum Required For Capitalized Under Prompt
Actual Capital Adequacy Purposes Corrective Action Regulations
--------------- ------------------------- -----------------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
(Dollars in thousands)
Total capital
(to risk weighted assets) $25,601 17.52% $11,687 8.00% $14,609 10.00%
Tier 1 (core) capital (to
risk weighted assets) 24,291 16.63% 5,844 4.00% 8,766 6.00%
Tier 1(core) capital (to
Adjusted total assets) 24,291 10.55% 9,211 4.00% 11,514 5.00%
Tier 1 (core) capital (to
Average assets) 24,291 10.04% 9,676 4.00% 12,095 5.00%
6.
NORTHEAST INDIANA BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 2002
- --------------------------------------------------------------------------------
NOTE 6- NEW ACCOUNTING PRONOUNCEMENTS
On January 1, 2002, Northeast Indiana Bancorp adopted a new accounting standard,
which addresses accounting for goodwill and intangible assets arising from
business combinations. Identifiable intangible assets must be separated from
goodwill. Identifiable intangible assets with finite useful lives are amortized
under the new standard, whereas unidentified intangible assets resulting from
business combinations, both amounts previously recorded and future amounts
purchased, cease being amortized. Annual impairment testing is required for
goodwill with impairment being recorded if the carrying amount of goodwill
exceeds its implied fair value. Adoption of this standard on January 1, 2002 did
not have a material effect on Northeast Indiana Bancorp's consolidated financial
position or results of operations.
In August 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 143, "Accounting for Asset Retirement
Obligations" which will be adopted by Northeast Indiana Bancorp on January 1,
2003. The new accounting standard addresses accounting for obligations
associated with the retirement of tangible, long-lived assets and requires a
liability to be recognized for the fair value of any such obligations. Adoption
of this standard on January 1, 2003 is not expected to have a material effect on
Northeast Indiana Bancorp's consolidated financial position or results of
operations.
On January 1, 2002, Northeast Indiana Bancorp adopted SFAS No. 144, "Accounting
for the Impairment or Disposal of Long-Lived Assets." This new accounting
standard establishes more restrictive requirements for the classification of
assets as "held for sale" and also expands the types of dispositions that are to
be accounted for as discontinued operations. Adoption of this standard on
January 1, 2002 did not have a material effect on Northeast Indiana Bancorp's
consolidated financial position or results of operations.
7.
NORTHEAST INDIANA BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
GENERAL
Northeast Indiana Bancorp, Inc. ("Northeast Indiana Bancorp") was formed as a
Delaware corporation in March, 1995, for the purpose of issuing common stock and
owning all 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 March 31, 2002, 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 AND FINANCIAL SERVICES
During the year of 1998, First Federal established a trust department, which
began operations in the fourth quarter. At the end of March 31, 2002, $41.0
million was held under asset management. In February 1999, Northeast Indiana
Bancorp announced the establishment of Northeast Indiana Financial, Inc., a
wholly owned subsidiary of First Federal. Northeast Indiana Financial, Inc.
provides 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.
8.
NORTHEAST INDIANA BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
FINANCIAL CONDITION
Northeast Indiana Bancorp's total assets decreased $8.0 million or 3.36%from
$238.4 million at December 31, 2001 to $230.4 million at March 31, 2002. This
decrease was due primarily to a decrease in securities and cash equivalents,
which were used to fund net deposit outflows and to pay down borrowed funds.
Net loans receivable decreased $648,000 or 0.40% from $162.8 million at December
31, 2001 to $162.2 million at March 31, 2002. Loans held for sale decreased
$939,000 from $1.5 million at December 31, 2001 to $604,000 at March 31, 2002 as
First Federal has elected to keep some short term residential mortgages in its
portfolio. Allowances for loan losses increased approximately $116,000 through
the three months ended March 31, 2002, which is discussed in more detail on the
next page. Securities available-for-sale decreased $3.9 million or 9.91% from
$39.4 million to $35.5 million for the period December 31, 2001 to March 31,
2002. Borrowed funds have been reduced by $5.6 million predominately by a
reduction in short term borrowings under repurchase agreements at the bank
level.
RESULTS OF OPERATIONS
Northeast Indiana Bancorp had net income of $353,000 or $0.23 per diluted share
for the three months ended March 31, 2002 compared to $393,000 or $0.24 per
diluted share for the three months ended March 31, 2001.
Net interest income was stable at $1.6 million for both the three months ended
March 31, 2002 and the three months ended March 31, 2001. Interest income
decreased $781,000 to $3.8 million for March 31, 2002 compared to $4.5 million
for March 31, 2001. For the first quarter interest expense decreased $722,000 to
$2.2 million for the quarter ended March 31, 2002 compared to $2.9 million for
March 31, 2001. The decreases are from lower earning asset balances and
constricted margins due to the declining interest rate environment over the past
twelve months.
Provision for loan losses increased by $67,000 for the three months ended March
31, 2002 compared to the same period ended March 31, 2001. The increased
provisions are discussed in more detail under the non-performing assets and
allowance for loan loss section.
Non-interest income increased to $303,000 for the three months ended March 31,
2002 compared to $286,000 for the comparable period in 2001. This represents an
increase of $17,000 or 5.9% for the three months ended March 31, 2002. This
increase is primarily from a $12,000 increase in loan servicing fees and
increases in other income including fee income from Trust and Financial Services
and insurance.
9.
NORTHEAST INDIANA BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
RESULTS OF OPERATIONS (CONTINUED)
Non-interest expense remained at $1.2 million for the three months ended March
31, 2002 compared to $1.2 million for the corresponding period in 2001. Salaries
and employee benefits increased $33,000 for the three months ended March 31,
2002 due to both annual compensation increases and staffing changes between
periods, which were partially offset by decreases to data processing,
professional fees, and other expenses.
Income tax expense decreased for the three months ended March 31, 2002 due to
lower taxable income compared to 2001 combined with relatively unchanged
available tax credits from the Northeast Indiana Bancorp's investment in low
income housing partnerships. This decrease was reflected in an effective tax
rate of 25% for the quarter ended March 31, 2002 compared to a 29% effective tax
rate for the quarter ended March 31, 2001.
NON-PERFORMING ASSETS AND ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is established through a provision for loan losses
calculation 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, 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 $217,300 for the
three months ended March 31, 2002 compared to $150,000 for the same period ended
March 31, 2001. Even though non-performing loans have decreased to $6.1 million
at March 31, 2002 from $6.9 million at December 31, 2001, there were increased
loan charge-offs during the current quarter compared to the year earlier period.
This was the primary reason for the increase in the loan loss provisions for the
first quarter 2002 as compared to the first quarter 2001. Management has also
become more proactive with commercial loan grading and tracking to monitor the
impact of the continued economic slowdown and conditions within the local
economy.
10.
NORTHEAST INDIANA BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
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 foreclosed assets and
repossessed assets which have been acquired as a result of foreclosure or
insubstance foreclosure. The following table summarizes in thousands the various
categories of non-performing assets:
March 31 December 31
2002 2001
---- ----
Non-performing loans
One-to-four-family $ 335 $ 442
Multi-family -- --
Commercial real estate 4,528 5,085
Construction or development -- --
Consumer 959 1,125
Commercial Business 311 267
------ ------
Total $6,133 $6,919
------ ------
Foreclosed assets
One-to-four-family 74 46
Commercial and land 102 173
------ ------
Total $ 176 $ 219
------ ------
Repossessed Assets
Consumer 27 38
Commercial 40 45
------ ------
Total $ 67 $ 83
------ ------
Total non-performing assets $6,376 $7,221
====== ======
Total non-performing assets as a
Percentage of total assets 2.77% 3.03%
====== ======
Total non-performing assets decreased from $7.2 million to $6.4 million or 2.77%
of total assets at March 31, 2002 from 3.03% of total assets at December 31,
2001. At March 31, 2002, one borrower comprised $1.4 million or 21.88% of the
$6.4 million in total non-performing assets. Management is continuing to work
with this borrower and is comfortable with the collateral position at this time.
In addition, the $4.5 million in commercial real estate non-performing loans
includes $800,000 in loans secured by one-to-four family residential rental
properties that were placed on non-accrual status at March 31, 2001 due to
weakness in cash flows.
11.
NORTHEAST INDIANA BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
NON-PERFORMING ASSETS AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)
Although the loans are on non-accrual status, the Bank continues to receive some
interest payments on a cash basis. Impaired loans at March 31, 2002 were $5.6
million compared to $5.9 million at December 31, 2001. No new impaired loans
were added during the first quarter 2002.
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, a leverage ratio of core capital to total assets, and a
core capital ratio expressed as a percent of total adjusted assets. At March 31,
2002, First Federal exceeded all regulatory capital standards.
At March 31, 2002, First Federal's risk based capital was $25.6 million or
17.52% of risk adjusted assets, which exceeds the OTS requirement of $11.7
million and 8.00% by $13.9 million and 9.52%. First Federal's core capital at
March 31, 2002 is $24.3 million or 10.04% of average assets, which exceeds the
OTS requirement of $9.7 million, and 4.00% by $14.6 million and 6.04%.
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.
First Federal uses its capital resources principally to meet its ongoing
commitments to fund maturing certificates of deposit and loan commitments,
maintain its liquidity, and meet operating expenses. As of March 31, 2002, First
Federal had commitments to originate loans and to fund open lines of credit
totaling $16.3 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.
12.
NORTHEAST INDIANA BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
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.
13.
NORTHEAST INDIANA BANCORP, INC.
PART II
Other Information
ITEM 1 - LEGAL PROCEEDINGS
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
(a) The Annual Meeting of Shareholders ("the meeting") of Northeast Indiana
Bancorp, Inc. was held on May 1, 2002. 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 director for a three year term:
Votes
-----
For Withheld
--- --------
J David Carnes 989,433 180,583
(2) Ratification of 2002 Omnibus Incentive Plan:
Votes
-----
For Against Withheld
--- ------- --------
496,579 298,445 21,745
14.
NORTHEAST INDIANA BANCORP, INC.
PART II
Other Information
Continued
ITEM 5 - OTHER INFORMATION
None
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
(1) January 23, 2002 Announcing Fourth Quarter 2001 Earnings
(2) January 29, 2002 Announcing Quarterly Cash Dividend
(3) February 20, 2002 Announcing Seventh Annual Shareholder's Meeting Date
(4) March 8, 2002 Announcing Completion of Stock Repurchase Program
(5) March 29, 2002 Announcing Stock Repurchase Program
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: May 15, 2002 By: /s/ Stephen E. Zahn
-------------------------------------
Stephen E. Zahn
President and Chief Executive Officer
(Duly Authorized Officer)
Date: May 15, 2002 By: /s/ Randy J Sizemore
-------------------------------------
Randy J. Sizemore
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
16.