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, 2005
|_| 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 22, 2005
- --------------------------------------------------------------------------------
Common Stock, par value $.01 per share 1,411,921
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, 2005 and December 31, 2004 1
Consolidated Statements of Income for the
three months ended March 31, 2005 and 2004 2
Consolidated Statement of Changes in Shareholders' Equity
for the three months ended March 31, 2005 3
Consolidated Statements of Cash Flows for the three
months ended March 31, 2005 and 2004 4
Notes to Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis or Plan of
Operation 8
Item 3. Controls and Procedures 15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 17
Item 3. Defaults Upon Senior Securities 18
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 5. Other Information 18
Item 6. Exhibits 18
Signature page 19
Certifications Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 20
Exhibit 99.1 and Exhibit 99.2 -Certifications Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002 21
- --------------------------------------------------------------------------------
PART 1 ITEM 1 - FINANCIAL STATEMENTS
NORTHEAST INDIANA BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
March 31, 2005 and December 31, 2004
- --------------------------------------------------------------------------------
March 31, December 31,
2005 2004
(Unaudited)
ASSETS
Interest earning cash and cash equivalents $ 4,536,661 $ 1,142,340
Noninterest earning cash and cash equivalents 1,883,479 2,242,859
------------- -------------
Total cash and cash equivalents 6,420,140 3,385,199
Securities available for sale 39,687,804 38,903,998
Securities held to maturity (fair value: March 31, 2005- $0;
December 31, 2004- $60,000) -- 60,000
Loans receivable, net of allowance for loan losses (March 31, 2005 of
$1,362,952 and at December 31, 2004 of $1,357,505) 174,779,325 174,800,272
Accrued interest receivable 828,791 830,837
Premises and equipment, net 2,147,299 2,175,981
Investments in limited liability partnerships 1,313,112 1,370,919
Cash surrender value of life insurance 5,409,349 5,159,178
Other assets 2,025,363 1,985,839
------------- -------------
Total assets $ 232,611,183 $ 228,672,223
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Demand deposits - noninterest bearing $ 8,561,513 $ 7,123,510
Savings 12,919,422 11,830,095
NOW 22,848,113 13,689,018
MMDA 14,145,117 15,585,845
Time deposits 74,314,144 75,722,300
------------- -------------
Total deposits 132,788,309 123,950,768
Borrowed funds 72,031,882 77,066,576
Accrued expenses and other liabilities 1,794,613 1,608,346
------------- -------------
Total liabilities 206,614,804 202,625,690
Shareholders' equity
Preferred Stock, no par value: 500,000 shares authorized; 0 shares issued -- --
Common stock, $.01 par value: 4,000,000 shares authorized;
3/31/05: 2,640,672 shares issued, 1,417,279 shares outstanding
12/31/04: 2,640,672 shares issued, 1,420,779 shares outstanding 26,407 26,407
Additional paid in capital 29,555,314 29,502,677
Retained earnings, substantially restricted 14,759,969 14,576,087
Unearned employee stock ownership plan shares (197,765) (227,026)
Unearned recognition and retention plan shares (68,898) (50,531)
Accumulated other comprehensive loss, net of tax (91,262) (36,810)
Treasury stock, 1,223,393 and 1,219,893 common shares, at
cost, at March 31, 2005 and December 31, 2004 (17,987,386) (17,744,271)
------------- -------------
Total shareholders' equity 25,996,379 26,046,533
------------- -------------
Total liabilities and shareholders' equity $ 232,611,183 $ 228,672,223
============= =============
- --------------------------------------------------------------------------------
See accompanying notes to financial statements
1.
- --------------------------------------------------------------------------------
NORTHEAST INDIANA BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
Three months ended March 31, 2005 and 2004
- --------------------------------------------------------------------------------
Three months ended
March 31,
2005 2004
---------- ----------
(Unaudited)
Interest income
Loans, including fees $2,670,174 $2,600,678
Taxable securities 337,229 375,513
Non-taxable securities 32,222 23,434
Deposits with financial institutions 14,761 9,872
---------- ----------
Total interest income 3,054,386 3,009,497
Interest expense
Deposits 659,510 637,358
Borrowed funds 803,974 797,033
---------- ----------
Total interest expense 1,463,484 1,434,391
Net interest income 1,590,902 1,575,106
Provision for loan losses 20,000 --
---------- ----------
Net interest income after provision for loan
losses 1,570,902 1,575,106
Noninterest income
Service charges on deposit accounts 146,526 84,371
Loan servicing fees 65,549 59,846
Net gain on sale of securities
available for sale -- 18,970
Net gain on sale of loans held for sale 24,497 28,549
Net gain on sale of foreclosed
real estate and repossessed assets 2,716 5,670
Trust and brokerage fees 104,240 14,924
Other income 108,708 99,151
---------- ----------
Total noninterest income 452,236 311,481
Noninterest expense
Salaries and employee benefits 838,265 746,306
Occupancy 120,070 112,255
Data processing 171,518 164,084
Deposit insurance premium 4,504 4,684
Professional fees 79,161 70,648
Correspondent bank charges 62,615 53,373
Other expense 218,814 204,588
---------- ----------
Total noninterest expense 1,494,947 1,355,938
---------- ----------
Income before income taxes 528,191 530,649
Income tax expense 129,392 128,059
---------- ----------
Net income $ 398,799 $ 402,590
========== ==========
Comprehensive income $ 344,347 $ 402,106
========== ==========
Basic earnings per common share $ 0.29 $ 0.28
Diluted earnings per common share $ 0.28 $ 0.27
- --------------------------------------------------------------------------------
See accompanying notes to financial statements
2.
NORTHEAST INDIANA BANCORP, INC.
CONSOLIDATED CHANGES IN SHAREHOLDER'S EQUITY
Three months ended March 31, 2005 and 2004
- --------------------------------------------------------------------------------
(Unaudited)
Unearned
Employee
Additional Stock
Common Paid in Retained Ownership
Stock Capital Earnings Plan Shares
------------ ------------ ------------ ------------
Balance, January 1, 2005 $ 26,407 $ 29,502,677 $ 14,576,087 $ (227,026)
Net income for three months ended March 31,
2005 398,799
Other comprehensive income (loss):
Net change in unrealized gains (losses)
on securities available for sale, net of tax
Total other comprehensive income (loss)
Total comprehensive income (loss)
Cash dividends ($.15 per share year to date) (214,917)
Purchase of 18,500 shares of treasury stock
Issuance of 14,000 shares of treasury stock
upon exercise of options (2,503)
3,543 shares committed to be released under
ESOP 43,167 29,261
Purchase of 1,000 treasury shares for RRP 11,973
Amortization of RRP contributions
------------ ------------ ------------ ------------
Balance at March 31, 2005 $ 26,407 $ 29,555,314 $ 14,759,969 $ (197,765)
============ ============ ============ ============
Accumulated
Unearned Other
Recognition Comprehensive Total
and Retention Income (Loss), Treasury Shareholders'
Plan Shares Net of Tax Stock Equity
------------- -------------- ------------ -------------
Balance, January 1, 2005 $ (50,531) $ (36,810) $(17,744,271) $ 26,046,533
Net income for three months ended March 31,
2005 398,799
Other comprehensive income (loss):
Net change in unrealized gains (losses)
on securities available for sale, net of tax (54,452)
------------
Total other comprehensive income (loss) (54,452)
------------
Total comprehensive income (loss) 344,347
Cash dividends ($.15 per share year to date) (214,917)
Purchase of 18,500 shares of treasury stock (396,525) (396,525)
Issuance of 14,000 shares of treasury stock
upon exercise of options 143,183 140,680
3,543 shares committed to be released under
ESOP 72,428
Purchase of 1,000 treasury shares for RRP (22,200) 10,227 --
Amortization of RRP contributions 3,833 3,833
------------ ------------ ------------ ------------
Balance at March 31, 2005 $ (68,898) $ (91,262) $(17,987,386) $ 25,996,379
============ ============ ============ ============
- --------------------------------------------------------------------------------
See accompanying notes to financial statements
3.
NORTHEAST INDIANA BANCORP, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
Three months ended March 31, 2005 and 2004
- --------------------------------------------------------------------------------
Three months ended
March 31,
2005 2004
------------ ------------
(Unaudited)
Cash flows from operating activities
Net income $ 398,799 $ 402,590
Adjustments to reconcile net income
to net cash from operating activities
Depreciation and amortization 105,489 207,268
Provisions for loan losses 20,000 --
Net (gain) loss on sale of:
Foreclosed real estate and repossessed assets (450) (3,404)
Loans held for sale (24,497) (28,549)
Securities available for sale -- (18,970)
Originations of loans held for sale (185,900) (1,070,649)
Proceeds from loans sold 210,397 870,848
Reduction of obligation under ESOP 72,428 80,081
Amortization of RRP 3,833 2062
Net change in:
Other assets 131,991 136,918
Accrued interest receivable 2,046 18,808
Accrued expenses and other liabilities 186,267 470,465
------------ ------------
Total adjustments 521,604 664,878
------------ ------------
Net cash from operating activities 920,403 1,067,468
Cash flows from investing activities
Purchases of securities available for sale (2,762,438) (1,751,976)
Proceeds from maturities and principal payments of:
Securities available for sale 1,792,047 3,385,979
Securities held to maturity 60,000 90,000
Proceeds from sale of securities available for sale -- 1,786,137
Purchase of life insurance (200,000) (600,000)
Purchase of participation loans (1,632,660) (192,906)
Net change in loans 1,546,207 (1,349,482)
Proceeds from sale of foreclosed real estate and repossessed vehicles 15,350 89,370
Expenditures on premises and equipment (36,053) (125,963)
------------ ------------
Net cash from investing activities (1,217,547) 1,331,159
Cash flows from financing activities
Net change in deposits 8,837,541 6,861,864
Advances from FHLB 4,750,000 1,000,000
Repayment of FHLB advances (6,750,000) (2,000,000)
Payments of demand notes -- --
Net change in other borrowed funds (3,034,694) (11,402,848)
Dividends paid (214,917) (208,881)
Purchase of treasury stock (396,525) (354,199)
Sale of treasury stock 140,680 148,948
------------ ------------
Net cash from financing activities 3,332,085 (5,955,116)
------------ ------------
Net change in cash and cash equivalents 3,034,941 (3,556,489)
Cash and cash equivalents at beginning of period 3,385,199 9,333,079
------------ ------------
Cash and cash equivalents at end of period $ 6,420,140 $ 5,776,590
============ ============
Cash paid for:
Interest $ 1,452,628 $ 1,432,939
Non-cash transactions:
Transfer from loans to foreclosed real estate and repossessed assets $ 87,400 $ 26,475
- --------------------------------------------------------------------------------
See accompanying notes to financial statements
4.
NORTHEAST INDIANA BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Three months ended March 31, 2005 and 2004
- --------------------------------------------------------------------------------
NOTE 1 - BASIS OF PRESENTATION
The unaudited information for the three months ended March 31, 2005 and 2004
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 issuance of any
dilutive potential common shares.
Three months ended
March 31,
-----------------------
2005 2004
---------- ----------
Earnings Per Common Share
Net income available to common shareholders $ 398,799 $ 402,590
========== ==========
Weighted average common shares outstanding, net of
unallocated ESOP shares and non-vested RRP shares 1,396,838 1,445,178
========== ==========
Basic Earnings Per Common Share $ 0.29 $ 0.28
========== ==========
Earnings Per Common Share Assuming Dilution
Net income available to common shareholders $ 398,799 $ 402,590
========== ==========
Weighted average common shares outstanding 1,396,838 1,445,178
Add: Dilutive effects of assumed exercises of
incentive stock options and non qualified
stock options 37,557 53,270
---------- ----------
Weighted average and dilutive common shares
outstanding 1,434,395 1,498,448
========== ==========
Diluted earnings per common share $ 0.28 $ 0.27
========== ==========
NOTE 3 - SUSEQUENT EVENT-CASH DIVIDENDS
On April 26, 2005 the Board of Directors of Northeast Indiana Bancorp announced
a quarterly cash dividend of $.15 per common share. The dividend will be paid on
May 24, 2005 to shareholders of record on May 10, 2005. The payment of the cash
dividend will reduce shareholders' equity (second quarter) by approximately
$213,000.
- --------------------------------------------------------------------------------
5.
NORTHEAST INDIANA BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Three months ended March 31, 2005 and 2004
- --------------------------------------------------------------------------------
NOTE 4 - STOCK REPURCHASE PLAN
On September 29, 2004, Northeast Indiana Bancorp announced a 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
71,268 shares. There were 18,500 common shares repurchased during the quarter
ended March 31, 2005 at an average cost of $21.43 per common share. The Company
has approximately 37,000 shares that may be repurchased under this existing
program.
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, 2005, the capital requirements for First Federal under those
regulatory requirements and First Federal's actual capital ratios. As of March
31, 2005, 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) $25,582 16.76% $12,213 8.00% $15,266 10.00%
Tier 1 (core) capital (to
risk weighted assets) 24,443 16.01% 6,107 4.00% 9,160 6.00%
Tier 1(core) capital (to
adjusted total assets) 24,443 10.52% 9,292 4.00% 11,615 5.00%
Tier 1 (core) capital (to
average assets) 24,443 10.71% 9,132 4.00% 11,415 5.00%
NOTE 6 - 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.
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6.
NORTHEAST INDIANA BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Three months ended March 31, 2005 and 2004
- --------------------------------------------------------------------------------
NOTE 6 - STOCK OPTIONS (continued)
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.
2005 2004
-------- --------
Net income as reported $398,799 $402,590
Proforma net income 392,455 395,502
Reported earnings per common share
Basic 0.29 0.28
Diluted 0.28 0.27
Proforma earnings per common share
Basic 0.28 0.27
Diluted 0.27 0.26
No options were granted during the quarters ended March 31, 2005 or March 31,
2004.
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 January 1, 2005 141,474 100,604 $ 11.92
Options exercised -- (14,000) $ 10.05
-------- -------- --------
Balance at March 31, 2005 141,474 86,604 $ 12.23
======== ======== ========
At March 31, 2005, options outstanding had a weighted average remaining life of
approximately 3.08 years. There were 68,604 options exercisable at March 31,
2005 with a weighted-average exercise price of $10.96.
Under newly released accounting guidance in Financial Accounting Standard 123R,
future option grants will be required to be expensed beginning with fiscal year
2006. The same treatment will be required on prior option grants that vest after
the date of adoption. The effect on results of operations will depend on the
level of future option grants, as well as the vesting periods provided, and so
cannot currently be predicted.
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7.
NORTHEAST INDIANA BANCORP, INC.
ITEM 2 -MANAGEMENT DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Three months ended March 31, 2005 and 2004
- --------------------------------------------------------------------------------
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, 2005, 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 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 increased $3.9 million or 1.7% from
$228.7 million at December 31, 2004 to $232.6 million at March 31, 2005. Cash
and cash equivalents increased by $3.0 million, from $3.4 million to $6.4
million primarily through new deposit growth from a retail account promotion
that was implemented at the start of the current year.
Net loans receivable were unchanged at $174.8 million at both December 31, 2004
and March 31, 2005. Allowance for loan losses increased approximately $5,000
through the three months ended March 31, 2005, which is discussed in more detail
under the non-performing assets and allowance for loan losses section.
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8.
NORTHEAST INDIANA BANCORP, INC.
ITEM 2 -MANAGEMENT DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Three months ended March 31, 2005 and 2004
- --------------------------------------------------------------------------------
FINANCIAL CONDITION (CONTINUED)
Cash surrender value of life insurance increased $250,000 to $5.4 million at
March 31, 2005 as First Federal purchased a new Bank-Owned Life Insurance
("BOLI") policy. 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 $8.8 million or 7.1% from $124.0 million at December
31, 2004 to $132.8 million at March 31, 2005. Decreases of $2.8 million in time
deposits and MMDA accounts were more than offset by strong growth of $11.6
million in NOW, Savings and noninterest bearing accounts. Borrowed funds have
been reduced by $5.0 million from decreases in short term borrowings under
repurchase agreements and from decreases in FHLB borrowings.
RESULTS OF OPERATIONS
Northeast Indiana Bancorp had net income of $399,000 or $0.28 per diluted common
share for the three months ended March 31, 2005 compared to $403,000 or $0.27
per diluted common share for the three months ended March 31, 2004. A
significant increase in noninterest income was primarily offset by an increase
in noninterest expense between periods and is discussed in more detail below.
Net interest income was unchanged at $1.6 million for the quarters ended March
31, 2005 and March 31, 2004. The Company's net interest margin decreased
slightly to 2.96% for the current quarter compared to 3.01% for the year earlier
quarter.
The Company made a $20,000 provision for loan loss during the quarter ended
March 31, 2005 compared to no provision for loan loss for the quarter ended
March 31, 2004. Provision for loan losses is discussed in more detail in the
non-performing assets and allowance for loan losses section.
Noninterest income significantly increased by $141,000 or 45.3% to $452,000 for
the current period compared to $311,000 during the year earlier period. This
increase was primarily due to increases of $89,000 in trust and brokerage fees
and $62,000 in service charges on deposit accounts offset by a decrease of
$19,000 in gains on the sale of securities. Trust and brokerage fees increased
due to the brokerage acquisition that took place late in the quarter ended June
30, 2004 and was related to significant product volumes in that area for the
second quarter in a row. Service charges on deposit accounts increased due to
the implementation of a new retail overdraft program during the quarter ended
June 30, 2004.
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9.
NORTHEAST INDIANA BANCORP, INC.
ITEM 2 -MANAGEMENT DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Three months ended March 31, 2005 and 2004
- --------------------------------------------------------------------------------
RESULTS OF OPERATIONS (CONTINUED)
Noninterest expense increased $139,000 to $1.5 million for the quarter ended
March 31, 2005 compared to $1.4 million for the quarter ended March 31, 2004.
This increase came primarily in salaries and employee benefits due to more wages
for new personnel in the brokerage subsidiary, increased funding on a defined
benefit pension plan, increases in premium payments under a health insurance
program for employees, and less deferred loan origination fees due to lower
mortgage volumes.
Income tax expense increased slightly to $129,000 for the period ended March 31,
2005 compared to $128,000 for March 31, 2004. The Company's effective tax rate
was 24.5% for the quarter ended March 31, 2005 compared to a 24.1% effective tax
rate for the quarter ended March 31, 2004.
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 established a $20,000 provision for loan losses for the three months
ended March 31, 2005 compared to no provision for the same period ended March
31, 2004. This provision level of $20,000 was deemed prudent by management, in
light of $15,000 in quarterly net charge-offs, loan balances similar to the
prior quarter end and improvements in non-performing assets.
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10.
NORTHEAST INDIANA BANCORP, INC.
ITEM 2 -MANAGEMENT DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Three months ended March 31, 2005 and 2004
- --------------------------------------------------------------------------------
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,
2005 2004
------ ------
Non-performing loans
One-to-four-family $ 258 $ 272
Commercial real estate 1,103 1,327
Consumer 64 111
Commercial 1 3
------ ------
Total 1,426 1,713
------ ------
Foreclosed real estate
One-to-four-family 129 54
Commercial real estate 150 150
------ ------
Total $ 279 $ 204
------ ------
Repossessed Assets
Consumer 4 7
------ ------
Total $ 4 $ 7
------ ------
Total non-performing assets $1,709 $1,924
====== ======
Total non-performing assets as a
percentage of total assets 0.73% 0.84%
====== ======
Non-performing assets decreased $215,000 to $1.7 million at March 31, 2005 from
the $1.9 million reported at December 31, 2004. One borrower continues to
comprise $688,000 or 40.3% of the $1.7 million in total non-performing assets
reported at March 31, 2005. 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.
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11.
NORTHEAST INDIANA BANCORP, INC.
ITEM 2 -MANAGEMENT DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Three months ended March 31, 2005 and 2004
- --------------------------------------------------------------------------------
NON-PERFORMING ASSETS AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)
The following table represents an analysis of Northeast Indiana Bancorp's
allowance for loan losses for the three months ended March 31, 2005 and March
31, 2004:
Three Months Ended
March 31,
2005 2004
--------------------------------
Balance at beginning of period $ 1,357,505 $ 1,772,109
Charge-offs:
One-to-four family 7,029 --
Commercial real estate -- --
Commercial 1,305 --
Consumer 59,183 112,191
--------------------------------
67,517 112,191
--------------------------------
Recoveries:
One-to-four family -- --
Commercial real estate 7,892 --
Commercial 11,552 --
Consumer 33,520 34,331
--------------------------------
52,964 34,331
--------------------------------
Net Charge-offs 14,553 77,860
Additions charged to operations 20,000 --
--------------------------------
Balance at end of period $ 1,362,952 $ 1,694,249
================================
Ave. gross loans and loans HFS $178,021,822 $169,170,841
Ratio of net charge-offs during
the period to average loans
outstanding during the period
(annualized) 0.03% 0.18%
Average non-performing loans $ 1,425,965 $ 2,804,894
Ratio of net charge-offs during
the period to average non-
performing loans (annualized) 4.08% 11.10%
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12.
NORTHEAST INDIANA BANCORP, INC.
ITEM 2 -MANAGEMENT DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Three months ended March 31, 2005 and 2004
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NON-PERFORMING ASSETS AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)
Impaired loans at March 31, 2005 were $2.2 million unchanged from the $2.2
million reported at December 31, 2004. As of March 31, 2005, management has set
aside $320,000 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,
2005, First Federal exceeded all regulatory capital standards.
At March 31, 2005 First Federal's risk based capital was $25.6 million or 16.8%
of risk adjusted assets, which exceeds the OTS requirement of $12.2 million and
8.0% by $13.4 million and 8.8%. First Federal's core capital at March 31, 2005
was $24.4 million or 10.7% of average assets, which exceeds the OTS requirement
of $9.1 million, and 4.0% by $15.3 million and 6.7%. 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.
The Company repurchased 18,500 common shares on the open market at an average
cost of $21.43, for a total cost of $396,525 during the quarter ended March 31,
2005. The Company has approximately 37,000 shares that may be repurchased under
the current stock repurchase program.
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.
At Northeast Indiana Bancorp's annual stockholder meeting to be held June 15,
2005, its stockholders will be asked to approve amendments to the company's
Certificate of Incorporation that will result in a reverse/forward stock split
transaction. If the split transaction is completed our registered stockholders
who hold only fractional shares after giving effect to a 1-for-125 reverse stock
split will receive a payment of $23.50 per share for each pre-split share.
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13.
NORTHEAST INDIANA BANCORP, INC.
ITEM 2 -MANAGEMENT DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Three months ended March 31, 2005 and 2004
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These registered stockholders with fewer than 125 shares prior to the reverse
stock split will cease to own shares in Northeast Indiana Bancorp and will
become entitled only to a cash payment for their shares. Northeast Indiana
Bancorp expects to pay approximately $445,000 to those shareholders in the
aggregate in the reverse stock split, based on current shareholdings.
Immediately after it completes the reverse stock split and identifies those
shareholders entitled to payment for their pre-split shares, the company intends
to complete a forward stock split in which each share of common stock held by
stockholders not cashed out in the reverse stock split will be converted into
125 shares of common stock post-split. As a result, registered stockholders who
hold 125 or more shares prior to the split transaction will ultimately hold the
same number of shares following the split transaction. The effect of the split
transaction will be to reduce the number of shareholders of record of the
company to fewer than 300, which will allow Northeast Indiana Bancorp to suspend
its reporting obligations under the Securities Exchange Act of 1934, as amended
(the "Exchange Act").
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.
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.
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15.
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.
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16.
NORTHEAST INDIANA BANCORP, INC.
PART II
Other Information
(Continued)
ITEM 2 - UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
(e) The following table provides information about purchases by the Company
(and its affiliated purchasers) during the quarter ended March 31, 2005 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 Maximum
Shares Number of
Purchased as Shares That
Part of Publicly May Yet Be
Total Number of Announced Purchased
Shares Average Price Plans or Under the Plans
Period Purchased (1) Paid per Share Programs (1) or Programs (1)
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1/1/05 - 1/31/05 -- $ -- -- 55,138
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2/1/05 - 2/28/05 3,500 $21.65 3,500 51,638
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3/1/05 - 3/31/05 15,000 $21.38 15,000 36,638
- --------------------------------------------------------------------------------------------------------
Total: 18,500 $21.43 18,500 36,638
------ ------ ------
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(1) We repurchased an aggregate of 18,500 shares of our common stock pursuant
to the repurchase program that we publicly announced on September 29, 2004
(the "Program").
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17.
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
None
ITEM 5 - OTHER INFORMATION
None
ITEM 6 - EXHIBITS
None
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18.
SIGNATURES
In accordance with 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 12, 2005 By: /S/ STEPHEN E ZAHN
Stephen E. Zahn
President and Chief Executive Officer
(Duly Authorized Officer)
Date: May 12, 2005 By: /S/ RANDY J SIZEMORE
Randy J. Sizemore
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
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19.