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 March 31, 2004
|_| 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 APRIL 23, 2004
- --------------------------------------------------------------------------------
Common Stock, par value $.01 per share 1,492,057
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, 2004 and December 31, 2003 1
Consolidated Statements of Income for the
three months ended March 31, 2004 and 2003 2
Consolidated Statement of Changes in Shareholders' Equity
for the three months ended March 31, 2004 3
Consolidated Statements of Cash Flows for the three
months ended March 31, 2004 and 2003 4
Notes to Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Item 3. Controls and Procedures 16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 2. Changes In Securities 18
Item 3. Defaults Upon Senior Securities 19
Item 4. Submission of Matters to a Vote
of Security Holders 19
Item 5. Other Information 20
Item 6. Exhibits and Reports on Form 8-K 20
Signature page 21
Certifications Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002 22
Exhibit 99.1 and Exhibit 99.2 -Certifications Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002 23
PART 1 ITEM 1 - FINANCIAL STATEMENTS
NORTHEAST INDIANA BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
March 31, 2004 and December 31, 2003
March 31, December 31,
2004 2003
(Unaudited)
ASSETS
Interest earning cash and cash equivalents $ 3,902,462 $ 6,849,198
Noninterest earning cash and cash equivalents 1,874,128 2,483,881
------------- -------------
Total cash and cash equivalents 5,776,590 9,333,079
Securities available for sale 40,278,949 43,687,318
Securities held to maturity (fair value: March 31, 2004- $60,000
December 31, 2003- $150,000) 60,000 150,000
Loans held for sale 228,350 --
Loans receivable, net of allowance for loan losses (March 31, 2004 of
$1,694,249 and at December 31, 2003 of $1,772,109) 165,192,738 163,676,825
Accrued interest receivable 779,914 798,722
Premises and equipment, net 2,126,833 2,061,781
Investments in limited liability partnerships 1,544,340 1,602,147
Cash surrender value of life insurance 5,005,688 4,352,129
Other assets 1,462,454 1,732,531
------------- -------------
Total assets $ 222,455,856 $ 227,394,532
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Demand deposits - noninterest bearing $ 6,550,209 $ 5,945,039
Savings 12,505,815 10,916,937
NOW 13,126,239 13,005,299
MMDA 22,009,606 19,335,140
Time deposits 74,679,731 72,807,321
------------- -------------
Total deposits 128,871,600 122,009,736
Borrowed funds 64,142,637 76,545,485
Accrued expenses and other liabilities 2,115,216 1,644,751
------------- -------------
Total liabilities 195,129,453 200,199,972
Shareholders' equity
Preferred Stock, no par value: 500,000 shares authorized; 0 shares issued -- --
Common stock, $.01 par value: 4,000,000 shares authorized;
3/31/04: 2,640,672 shares issued, 1,488,914 shares outstanding
12/31/03: 2,640,672 shares issued, 1,487,514 shares outstanding 26,407 26,407
Additional paid in capital 29,277,995 29,143,357
Retained earnings, substantially restricted 14,622,564 14,428,855
Unearned employee stock ownership plan shares (320,149) (351,190)
Unearned recognition and retention plan shares (59,813) --
Accumulated other comprehensive income (loss), net of tax (237,427) (236,943)
Treasury stock, 1,151,758 and 1,153,158 common shares, at
cost, at March 31, 2004 and December 31, 2003 (15,983,174) (15,815,926)
------------- -------------
Total shareholders' equity 27,326,403 27,194,560
------------- -------------
Total liabilities and shareholders' equity $ 222,455,856 $ 227,394,532
============= =============
See accompanying notes to financial statements
1.
NORTHEAST INDIANA BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
Three months ended March 31, 2004 and 2003
Three months ended
March 31,
2004 2003
---------- ----------
(Unaudited)
Interest income
Loans, including fees $2,600,678 $2,788,643
Taxable securities 375,513 392,162
Non-taxable securities 23,434 17,195
Deposits with financial institutions 9,872 36,387
---------- ----------
Total interest income 3,009,497 3,234,387
Interest expense
Deposits 637,358 841,258
Borrowed funds 797,033 898,791
---------- ----------
Total interest expense 1,434,391 1,740,049
Net interest income 1,575,106 1,494,338
Provision for loan losses -- --
---------- ----------
Net interest income after provision for loan
losses 1,575,106 1,494,338
Noninterest income
Service charges on deposit accounts 84,371 84,535
Loan servicing fees 59,846 50,208
Net gain on sale of securities
available for sale 18,970 --
Net gain on sale of loans held for sale 28,549 165,574
Net gain on sale of foreclosed
real estate and repossessed assets 5,670 14,354
Trust and brokerage fees 14,924 51,696
Other income 99,151 77,309
---------- ----------
Total noninterest income 311,481 443,676
Noninterest expense
Salaries and employee benefits 746,306 659,752
Occupancy 112,255 123,727
Data processing 164,084 169,085
Deposit insurance premium 4,684 5,154
Professional fees 70,648 77,717
Correspondent bank charges 53,373 45,937
Other expense 204,588 211,080
---------- ----------
Total noninterest expense 1,355,938 1,292,452
---------- ----------
Income before income taxes 530,649 645,562
Income tax expense 128,059 164,350
---------- ----------
Net income $ 402,590 $ 481,212
========== ==========
Comprehensive income $ 402,106 $ 430,988
========== ==========
Basic earnings per common share $ 0.28 $ 0.34
Diluted earnings per common share $ 0.27 $ 0.33
See accompanying notes to financial statements
2.
NORTHEAST INDIANA BANCORP, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
Three months ended March 31, 2004
(Unaudited)
Accumu-
Unearned lated
Recogni- Other
Unearned tion Compre-
Employee and hensive
Stock Reten- Income Total
Additional Ownership tion (Loss), Share-
Common Paid in Retained Plan Plan Net of Treasury holders'
Stock Capital Earnings Shares Shares Tax Stock Equity
------ ---------- -------- --------- -------- -------- -------- --------
Balance, January 1, 2004 $26,407 $29,143,357 $14,428,855 $(351,190) -- $(236,943) $(15,815,926) $27,194,560
Net income for three months ended
March 31, 2004 402,590 402,590
Other comprehensive income (loss):
Net change in unrealized
gains (losses) on
securities available
for sale, net of tax (484)
---------
Total other comprehensive
income (loss) (484)
-----------
Total comprehensive income (loss) 402,106
Cash dividends ($.14 per share
year to date) (208,881) (208,881)
Purchase of 16,750 shares of
treasury stock (354,199) (354,199)
Issuance of 15,150 shares of
treasury stock upon exercise
of options (6,496) 155,444 148,948
Tax effect of stock plans 61,726 61,726
3,758 shares committed to be
released under ESOP 49,040 31,041 80,081
Purchase of 3,000 treasury
shares for RRP 30,368 (61,875) 31,507 --
Amortization of RRP
contributions 2,062 2,062
------- ----------- ----------- --------- -------- --------- ------------ -----------
Balance at March 31, 2004 $26,407 $29,277,995 $14,622,564 $(320,149) $(59,813) $(237,427) $(15,983,174) $27,326,403
======= =========== =========== ========= ======== ========= ============ ===========
See accompanying notes to financial statements
3.
NORTHEAST INDIANA BANCORP, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
Three months ended March 31, 2004 and 2003
Three months ended
March 31,
2004 2003
---- ----
(Unaudited)
Cash flows from operating activities
Net income $ 402,590 $ 481,212
Adjustments to reconcile net income
to net cash from operating activities
Depreciation and amortization 207,268 57,854
Net (gain) loss on sale of:
Foreclosed real estate and repossessed assets (3,404) (14,354)
Loans held for sale (28,549) (165,574)
Securities available for sale (18,970) --
Originations of loans held for sale (1,070,649) (6,502,442)
Proceeds from loans sold 870,848 6,040,523
Reduction of obligation under ESOP 80,081 64,183
Amortization of RRP 2,062 2,159
Net change in:
Other assets 136,918 146,674
Accrued interest receivable 18,808 (23,213)
Accrued expenses and other liabilities 470,465 740,407
------------ ------------
Total adjustments 664,878 346,217
------------ ------------
Net cash from operating activities 1,067,468 827,429
Cash flows from investing activities
Purchases of securities available for sale (1,751,976) (9,049,951)
Proceeds from maturities and principal payments of:
Securities available for sale 3,385,979 5,215,505
Securities held to maturity 90,000 41,000
Proceeds from sale of securities available for sale 1,786,137 --
Purchase of life insurance (600,000) (2,000,000)
Purchase of participation loans (192,906) --
Net change in loans (1,349,482) 2,879,676
Proceeds from sale of foreclosed real estate and repossessed vehicles 89,370 310,418
Expenditures on premises and equipment (125,963) (5,781)
------------ ------------
Net cash from investing activities 1,331,159 (2,609,133)
Cash flows from financing activities
Net change in deposits 6,861,864 3,165,464
Advances from FHLB 1,000,000 --
Repayment of FHLB advances (2,000,000) --
Payments of demand notes -- (50,000)
Net change in other borrowed funds (11,402,848) (4,365,519)
Dividends paid (208,881) (194,254)
Purchase of treasury stock (354,199) (452,360)
Sale of treasury stock 148,948 158,699
------------ ------------
Net cash from financing activities (5,955,116) (1,737,970)
------------ ------------
Net change in cash and cash equivalents (3,556,489) (3,519,674)
Cash and cash equivalents at beginning of period 9,333,079 18,256,408
------------ ------------
Cash and cash equivalents at end of period $ 5,776,590 $ 14,736,734
============ ============
Cash paid for:
Interest $ 1,432,939 $ 1,774,061
Non-cash transactions:
Transfer from loans to foreclosed real estate and repossessed assets $ 26,475 $ 900,996
See accompanying notes to financial statements
4.
NORTHEAST INDIANA BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Three months ended March 31, 2004 and 2003
NOTE 1 - BASIS OF PRESENTATION
The unaudited information for the three months ended March 31, 2004 and 2003
includes the results of operations of Northeast Indiana Bancorp, Inc.
("Northeast Indiana Bancorp" or "the Company") 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 COMMON SHARE
Basic earnings per common share are based on weighted-average common shares
outstanding. Diluted earnings per common share further assume issue of any
dilutive potential common shares.
Three months ended
March 31,
2004 2003
---- ----
Earnings Per Common Share
Net income available to common shareholders $ 402,590 $ 481,212
========== ==========
Weighted average common shares outstanding, net of
unallocated ESOP shares and non-vested RRP shares 1,445,178 1,432,020
========== ==========
Basic Earnings Per Common Share $ 0.28 $ 0.34
========== ==========
Earnings Per Common Share Assuming Dilution
Net income available to common shareholders $ 402,590 $ 481,212
========== ==========
Weighted average common shares outstanding 1,445,178 1,432,020
Add: Dilutive effects of assumed exercises of
incentive stock options and non qualified
stock options 53,270 46,731
---------- ----------
Weighted average and dilutive common shares
outstanding 1,498,448 1,478,751
========== ==========
Diluted earnings per common share $ 0.27 $ 0.33
========== ==========
NOTE 3 - SUSEQUENT EVENT-CASH DIVIDENDS
On April 21, 2004 the Board of Directors of Northeast Indiana Bancorp announced
a quarterly cash dividend of $.14 per common share. The dividend will be paid on
May 19, 2004 to shareholders of record on May 5, 2004. The payment of the cash
dividend will reduce shareholders' equity (second quarter) by approximately
$209,000.
5.
NORTHEAST INDIANA BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Three months ended March 31, 2004 and 2003
NOTE 4 - STOCK REPURCHASE PLAN
On March 31, 2004, Northeast Indiana Bancorp announced a new stock repurchase
program to repurchase up to 5% of the outstanding shares in the open market as
Treasury shares over the next twelve months. This program will include up to
74,446 shares. As of April 23, 2004, no shares have been repurchased under this
program since its announcement. There were 3,100 common shares repurchased
during the quarter ended March 31, 2004 under a previously announced stock
repurchase program that expired during the quarter.
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, 2004, the capital requirements for First Federal under those
regulatory requirements and First Federal's actual capital ratios. As of March
31, 2004, 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) $26,442 18.43% $11,476 8.00% $14,345 10.00%
Tier 1 (core) capital (to
risk weighted assets) 25,267 17.61% 5,738 4.00% 8,607 6.00%
Tier 1(core) capital (to
adjusted total assets) 25,267 11.36% 8,894 4.00% 11,118 5.00%
Tier 1 (core) capital (to
average assets) 25,267 11.41% 8,861 4.00% 11,076 5.00%
NOTE 6 - INVESTMENTS IN LIMITED LIABILITY PARTNERSHIPS
These represent First Federal's investments in affordable housing projects for
the primary purpose of available tax benefits. They are accounted for using the
cost method of accounting. The excess of the carrying amount of the investment
over its estimated residual value is amortized during the periods in which
associated tax credits are allocated to the investor.
6.
NORTHEAST INDIANA BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Three months ended March 31, 2004 and 2003
NOTE 6 - INVESTMENTS IN LIMITED LIABILITY PARTNERSHIPS (Continued)
The annual amortization of the investment is based on the proportion of tax
credits received in the current year to total estimated tax credits to be
allocated to First Federal. These investments are reviewed for impairment when
events indicate their carrying amounts may not be recoverable from future
discounted cash flows. First Federal's involvement in these types of investments
is for tax planning purposes only and as such, First Federal is not involved in
the management or operation of such investments. At March 31, 2004, First
Federal had four such investments with a carrying value of $1.5 million. No new
investments of similar structure are being considered at this time.
NOTE 7 - STOCK OPTIONS
The following proforma information presents net income and basic and diluted
earning per common share had the fair value method been used to measure
compensation for stock options granted. The exercise price of options granted is
equivalent to the market price of the underlying stock at the grant date;
therefore, no compensation expense has been recorded for stock options granted.
2004 2003
---- ----
Net income as reported $ 402,590 $ 481,212
Proforma net income 395,502 476,613
Reported earnings per common share
Basic 0.28 0.34
Diluted 0.27 0.33
Proforma earnings per common share
Basic 0.27 0.33
Diluted 0.26 0.32
The weighted average fair value of stock options granted during the three months
ended March 31, 2003 was $2.96 per option. No options were granted in the same
period of 2004. The fair value of options granted during the three months ended
March 31, 2003 were estimated using an option pricing model with the following
weighted average information as of the grant date:
2003
----
Risk free rate of interest 3.27%
Expected option life 6 years
Expected dividend yield 3.37%
Expected volatility 24.84%
7.
NORTHEAST INDIANA BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Three months ended March 31, 2004 and 2003
NOTE 7 - STOCK OPTIONS (Continued)
In future years, as additional options are granted, the proforma effect on net
income and earnings per common share may increase. Stock options are used to
reward directors and certain executive officers and provide them with an
additional equity interest. Options are issued for 10 year periods and have five
year vesting schedules. Information about options available for grant and
options granted follows:
Weighted-
Average
Available Options Exercise
For Grant Outstanding Price
--------- ----------- -----
Balance at December 31, 2003 141,174 138,495 $ 11.46
Options exercised (15,150) $ 9.83
Balance at March 31, 2004 141,174 123,345 $ 11.66
======= =======
At March 31, 2004, options outstanding had a weighted average remaining life of
approximately 3.57 years. There were 98,545 options exercisable at March 31,
2004 with a weighted-average exercise price of $10.41.
8.
NORTHEAST INDIANA BANCORP, INC.
ITEM 2 -MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
Three months ended March 31, 2004 and 2003
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, 2004, 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 noninterest income, operating expenses
and income taxes. Operating expenses consist primarily of salaries and employee
benefits, occupancy expenses, data processing, deposit insurance premiums and
other general administrative expenses.
The most significant outside factors influencing the operations of First Federal
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.
FINANCIAL CONDITION
Northeast Indiana Bancorp's total assets decreased $4.9 million or 2.2% from
$227.4 million at December 31, 2003 to $222.5 million at March 31, 2004.
Securities available for sale decreased $3.4 million to $40.3 million as
management utilized called/matured/sold securities proceeds to fund new loans
and to purchase new Bank-Owned Life Insurance ("BOLI"). Cash and cash
equivalents decreased by $3.5 million, from $9.3 million to $5.8 million.
Net loans receivable increased $1.5 million or 0.9% from $163.7 million at
December 31, 2003 to $165.2 million at March 31, 2004. The increase was
primarily from commercial real estate transactions that were originated during
the quarter. Allowance for loan losses decreased approximately $78,000 through
the three months ended March 31, 2004, which is discussed in more detail on the
next page.
9.
NORTHEAST INDIANA BANCORP, INC.
ITEM 2 -MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
Three months ended March 31, 2004 and 2003
FINANCIAL CONDITION (CONTINUED)
Cash surrender value of life insurance increased $654,000 to $5.0 million at
March 31, 2004 as First Federal purchased new BOLI policies on a pool of
officers. Management believes the earnings crediting rate and the tax-advantaged
status of the new BOLI will help offset existing expenses related to benefits
plans that are currently in place for employees.
Total deposits increased $6.9 million or 5.7% from $122.0 million at December
31, 2003 to $128.9 million at March 31, 2004. All deposit areas experienced
growth during the quarter, but most of the growth came in noninterest bearing,
savings, NOW, and MMDA as management continues to focus on enhancing funding
cost efficiencies by attracting lower cost funds. Borrowed funds have been
reduced by $12.4 million predominantly through a reduction in short term
borrowings under repurchase agreements.
RESULTS OF OPERATIONS
Northeast Indiana Bancorp had net income of $403,000 or $0.27 per diluted common
share for the three months ended March 31, 2004 compared to $481,000 or $0.33
per diluted common share for the three months ended March 31, 2003, a decrease
of $78,000 or 16.2%. The decrease is primarily due to much lower mortgage
refinancing volumes during the current quarter when compared to the year earlier
period.
Net interest income increased to $1.6 million for the three months ended March
31, 2004 compared to $1.5 million reported for the three months ended March 31,
2003. The Company's net interest margin also improved 17 basis points to 3.01%
for the current quarter compared to 2.84% for the earlier quarter. This was
primarily due to a decline in the cost of interest-bearing liabilities that was
greater than the decline in interest-earning asset yields and to a lesser
extent, higher average loan balances during the quarter ended March 31, 2004
compared to the quarter ended March 31, 2003.
Net charge-offs declined to $78,000 for the quarter ended March 31, 2004
compared to $339,000 for the quarter ended March 31, 2003. This trend along with
relative stability in non-performing assets and minimal loan growth since year
end 2003 allowed the Company to continue with no provision for loan losses
during the current quarter, unchanged from the year earlier period.
Noninterest income decreased $132,000 or 29.7% to $312,000 for the current
period compared to $444,000 during the year earlier period. This decline was
primarily due to decreases of $137,000 in net gain on sale of loans and $37,000
in trust and brokerage fees partially offset by increases in other noninterest
income items of $42,000.
10.
NORTHEAST INDIANA BANCORP, INC.
ITEM 2 -MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
Three months ended March 31, 2004 and 2003
RESULTS OF OPERATIONS (CONTINUED)
Mortgage refinancing volume declines led to the decrease in net gain on sale of
loans, while the conversion of trust assets to another financial institution
during the third quarter of 2003 under a revenue sharing agreement led to the
decline in trust and brokerage fees.
Other noninterest income items increased mainly due to increases in cash
surrender value of life insurance on new bank owned life insurance ("BOLI")
acquired during late first quarter 2003 and to a lesser extent, a decline in the
amortization of mortgage servicing rights from quarter to quarter.
Noninterest expense increased $63,000 to $1.4 million for the quarter ended
March 31, 2004 compared to $1.3 million for the quarter ended march 31, 2003.
This increase came primarily in salaries and employee benefits due to increased
funding on a defined benefit pension plan, increased ESOP expense due to the
Company's current share price, and less deferred loan origination fees due to
lower mortgage volumes.
Income tax expense decreased $36,000 to $128,000 for the period ended March 31,
2004 from $164,000 reported for the period ended March 31, 2003. The decrease
was mainly due to lower taxable income in the current quarter compared to the
same quarter of 2003 and more non-taxable income related to increased cash
surrender values on BOLI acquired during late first quarter 2003 and again
during first quarter 2004. This decrease was reflected by an effective tax rate
of 24.1% for the quarter ended March 31, 2004 compared to a 25.5% effective tax
rate for the quarter ended March 31, 2003.
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,
relative stability in non-performing assets, decline in net charge-offs and
minimal loan growth management continued with no provision for loan losses for
the three months ended March 31, 2004 unchanged for the same period ended March
31, 2003.
11.
NORTHEAST INDIANA BANCORP, INC.
ITEM 2 -MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
Three months ended March 31, 2004 and 2003
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 non-accruing
loans, troubled debt restructurings and foreclosed real estate and repossessed
assets which have been acquired as a result of foreclosure. The following table
summarizes, in thousands, the various categories of non-performing assets:
March 31, December 31,
2004 2003
---- ----
Non-performing loans
One-to-four-family $ 165 $ 81
Commercial real estate 2,408 2,047
Consumer 154 207
Commercial 78 78
------ ------
Total 2,805 2,413
------ ------
Foreclosed real estate
One-to-four-family 74 146
Commercial real estate 15 16
------ ------
Total $ 89 $ 162
------ ------
Repossessed Assets
Consumer 17 3
Commercial -- --
------ ------
Total $ 17 $ 3
------ ------
Total non-performing assets $2,911 $2,578
====== ======
Total non-performing assets as a
percentage of total assets 1.31% 1.13%
====== ======
Non-performing assets increased $333,000 to $2.9 million at March 31, 2004 from
the $2.6 million reported at December 31, 2003. One commercial borrower
comprises approximately $284,000 of the $333,000 increase in non-performing
assets. Management is continuing to work with this borrower and is comfortable
with the current collateral position.
12.
NORTHEAST INDIANA BANCORP, INC.
ITEM 2 -MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
Three months ended March 31, 2004 and 2003
NON-PERFORMING ASSETS AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)
Additionally, one borrower continues to comprise $1.4 million or 48.3% of the
$2.9 million in total non-performing assets reported at March 31, 2004.
Management has already established a specific reserve to cover potential losses
related to this borrower and does not anticipate any further loss at this time.
The following table represents an analysis of Northeast Indiana Bancorp's
allowance for loan losses for the three months ended March 31, 2004 and March
31, 2003:
Three Months Ended
March 31,
2004 2003
-------------------------------
Balance at beginning of period $ 1,772,109 $ 2,135,630
Charge-offs:
One-to-four family -- 25,954
Commercial real estate -- 201,379
Commercial -- 100,488
Consumer 112,191 92,148
-------------------------------
112,191 419,969
-------------------------------
Recoveries:
Commercial -- 13,000
Consumer 34,331 67,850
-------------------------------
34,331 80,850
-------------------------------
Net Charge-offs 77,860 339,119
Additions charged to operations -- --
-------------------------------
Balance at end of period $ 1,694,249 $ 1,796,511
===============================
Ave. gross loans and loans HFS $169,170,841 $158,838,181
Ratio of net charge-offs during the period
to average loans outstanding during the
period
(annualized) 0.18% 0.85%
Average non-performing loans $ 2,804,894 $ 4,611,388
Ratio of net charge-offs during the period
to average non-performing loans (annualized) 11.10% 29.42%
13.
NORTHEAST INDIANA BANCORP, INC.
ITEM 2 -MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
Three months ended March 31, 2004 and 2003
NON-PERFORMING ASSETS AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)
Impaired loans at March 31, 2004 were $2.8 million compared to $2.5 million at
December 31, 2003. The net change in impaired loans of $300,000 between December
31, 2003 and March 31, 2004 was primarily due to the addition of one commercial
real estate relationship consisting of $284,000. As of March 31, 2004,
management has set aside $520,000 in specific reserves against the balances of
these impaired loans.
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,
2004, First Federal exceeded all regulatory capital standards.
At March 31, 2004 First Federal's risk based capital was $26.4 million or 18.4%
of risk adjusted assets, which exceeds the OTS requirement of $11.5 million and
8.0% by $14.9 million and 10.4%. First Federal's core capital at March 31, 2004
was $25.3 million or 11.4% of average assets, which exceeds the OTS requirement
of $8.9 million, and 4.0% by $16.4 million and 7.4%. See Note 5 of Notes to
Consolidated Financial Statements (Unaudited).
First Federal's primary sources of funds are deposits, borrowings from the FHLB,
the sale of fixed rate mortgages to the secondary market, principal and interest
payments of loans, operations income and short-term investments. While scheduled
repayments of loans are a predictable source of funds, deposit flows and
mortgage prepayments are greatly influenced by general interest rates, economic
conditions and competition. First Federal has monitored its liquidity position
by, among other things, reviewing cash flows generated from the balance sheet
during monthly asset/liability committee ("ALCO") sessions.
During the first quarter ended March 31, 2004, Northeast Indiana Bancorp closed
out a stock repurchase program which began in March 2003 prior to its
completion. The Company was able to repurchase 28,265 of the authorized 74,195
common shares previously announced over the past twelve months, including 3,100
during the quarter ended March 31, 2004. The Company subsequently announced a
new stock repurchase program authorizing another 5% or 74,446 common shares that
can be repurchased in the open market over the next twelve months.
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.
14.
NORTHEAST INDIANA BANCORP, INC.
ITEM 2 -MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
Three months ended March 31, 2004 and 2003
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.
15.
NORTHEAST INDIANA BANCORP, INC.
ITEM 3 -CONTROLS AND PROCEDURES
Item 3. Controls and Procedures
Controls and Procedures
Any control system, no matter how well designed and operated, can provide only
reasonable (not absolute) assurance that its objectives will be met.
Furthermore, no evaluation of controls can provide absolute assurance that all
control issues and instances of fraud, if any, have been detected.
Disclosure Controls and Procedures
The Company's management, with the participation of the Company's Chief
Executive Officer and Chief Financial Officer, has evaluated the effectiveness
of the Company's disclosure controls and procedures (as such term is defined in
Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934
(Exchange Act)) as of the end of the period covered by this report. Based on
such evaluation, the Company's Chief Executive Officer and Chief Financial
Officer have concluded that, as of the end of such period, the Company's
disclosure controls and procedures are effective in recording, processing,
summarizing and reporting, on a timely basis, information required to be
disclosed by the Company in the reports that it files or submits under the
Exchange Act.
Internal Control Over Financial Reporting
There have not been any changes in the Company's internal control over financial
reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the
Exchange Act) during the fiscal quarter to which this report relates that have
materially affected, or are reasonably likely to materially affect, the
Company's internal control over financial reporting.
16.
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.
17.
NORTHEAST INDIANA BANCORP, INC.
PART II
Other Information
(Continued)
ITEM 2 - CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY
SECURITIES
(e) The following table provides information about purchases by the Company
(and its affiliated purchasers) during the quarter ended March 31, 2004 of
equity securities that are registered by the Company pursuant to Section
12 of the Exchange Act.
ISSUER PURCHASES OF EQUITY SECURITIES
- -------------------------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d)
Total Number of
Shares Maximum Number
Purchased as Part of of Shares
Total Number of Average Price Publicly That May Yet Be
Shares Paid per Share Announced Plans or Purchased Under the
Period Purchased (1) Programs (2) Plans or Programs (2)
- -------------------------------------------------------------------------------------------------------------------------------
1/1/04 -
1/31/04 2,500 $ 20.58 -- 49,030
- -------------------------------------------------------------------------------------------------------------------------------
2/1/04 -
2/29/04 -- $ -- -- 49,030
- -------------------------------------------------------------------------------------------------------------------------------
3/1/04 -
3/31/04 14,250 $ 21.25 3,100 74,446
- -------------------------------------------------------------------------------------------------------------------------------
Total: 16,750 $ 21.15 3,100 74,446
------ ----- ----- ------
- -------------------------------------------------------------------------------------------------------------------------------
(1) We repurchased an aggregate of 3,100 shares of our common stock pursuant
to the repurchase program that we publicly announced on March 26, 2003
(the "Program") and an aggregate of 13,650 shares of our common stock in
transactions outside of the Program.
(2) Our board of directors approved the repurchase by us of up to an aggregate
of 74,195 shares of common stock pursuant to the Program. 45,930 shares
remained available for repurchase upon the expiration of the Program on
March 26, 2004. On March 30, 2004 our board of directors approved a new
common stock repurchase program allowing for the repurchase of 74,446
shares prior to expiration on March 30, 2005.
18.
NORTHEAST INDIANA BANCORP, INC.
PART II
Other Information
(Continued)
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 April 24, 2004. The matters
approved by shareholders at the meeting and the number of votes cast
for, against or withheld (as well as the number of abstentions) as
to each matter are set forth below:
(1) The election of the following directors for a three year term:
Votes
-----
For Withheld
--- --------
Stephen E. Zahn 1,151,805 12,826
Dan L. Stpehan 1,137,163 27,468
(2) Ratification of Crowe Chizek and Company LLC as auditors:
Votes
-----
For Against Abstain
--- ------- -------
1,162,512 850 1,269
19.
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 21, 2004 Announcing Fourth Quarter 2003 Earnings
(2) January 28, 2004 Announcing Quarterly Cash Dividend and Ninth Annual
Shareholder's Meeting Date
(3) March 31, 2004 Announcing Re-Authorization of Stock Repurchase
Program
20.
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 13, 2004 By: /S/ STEPHEN E ZAHN
Stephen E. Zahn
President and Chief Executive Officer
(Duly Authorized Officer)
Date: May 13, 2004 By: /S/ RANDY J SIZEMORE
Randy J. Sizemore
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
21.