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 June 30, 1996
[ ] 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)
(219) 356-3311
Issuer's telephone number, including area code:
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 August 12, 1996
Common Stock, par value $.01 per share 1,967,670
Transitional Small Business Disclosure Format: YES [ ] NO [X]
NORTHEAST INDIANA BANCORP, INC.
INDEX
PART 1. FINANCIAL INFORMATION (UNAUDITED)
Item 1. Consolidated Condensed Financial Statements
Consolidated Condensed Balance Sheets
June 30, 1996 and December 31, 1995
Consolidated Condensed Statements of Income for the
three months ended June 30, 1996 and 1995 and the six
months ended June 30, 1996 and 1995
Consolidate Statement of Change in Shareholders' Equity
for the six months ended June 30, 1996
Consolidated Statements of Cash Flows for the six months
ended June 30, 1996 and 1995
Notes to Consolidated Condensed Financial Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
PART II. OTHER INFORMATION
Signature page
NORTHEAST INDIANA BANCORP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, 1996 AND DECEMBER 31, 1995
See accompanying notes to financial statements
June 30 December 31
1996 1995
------------- -------------
(Unaudited)
ASSETS
Cash and due from financial institutions ................................................. $ 2,921,125 $ 2,467,934
Interest earning deposits in financial institutions - short term ......................... 455,320 2,204,407
------------- -------------
Total cash and cash equivalents ........................................................ 3,376,445 4,672,341
Interest earning deposits in financial institutions ...................................... 100,000 100,000
Securities available for sale ............................................................ 9,962,085 3,820,759
Securities held to maturity, estimated market value of $920,000 and $986,000 at
June 30, 1996 and December 31, 1995, respectively
923,958 985,906
Loans receivable, net of allowance for loan losses June 30, 1996 -
$984,000 and December 31, 1995 - $881,000 ................................................ 133,957,264 122,640,770
Accrued interest receivable .............................................................. 317,305 232,925
Other real estate owned, net ............................................................. -- --
Federal Home Loan Bank stock, at cost .................................................... 2,500,000 2,075,000
Premises and equipment, net .............................................................. 2,064,577 2,131,617
Other assets ............................................................................. 926,828 909,263
------------- -------------
TOTAL ASSETS ............................................................................. $ 154,128,462 $ 137,568,581
============= =============
LIABILTIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits ............................................................................... $ 74,239,757 $ 68,202,930
Short Term Borrowed Funds .............................................................. 23,500,000 22,500,000
Long Term Debt ......................................................................... 26,495,044 15,000,000
Advances from borrowers for taxes and insurance ........................................ 109,481 116,786
Accrued interest payable and other liabilities ......................................... 659,408 715,820
------------- -------------
Total liabilities .................................................................... 125,003,690 106,535,536
Shareholders' equity
Preferred Stock, $.01 par value, authorized and unissued
500,000 shares ...................................................................... -- --
Common stock, $.01 par value, authorized
4,000,000 shares; issued: 2,182,125 shares ............................................ 21,821 21,821
Additional paid-in capital ............................................................. 21,241,955 21,215,284
Unearned ESOP compensation ............................................................. (1,527,550) (1,600,225)
Unearned RRP compensation .............................................................. (922,622) --
Treasury Stock 120,455 shares at cost .................................................. (1,597,420) --
Retained earnings - substantially restricted ........................................... 11,935,872 11,393,893
Net Unrealized appreciation (loss) on securities ....................................... (27,284) 2,272
------------- -------------
Total shareholders' equity .......................................................... 29,124,772 31,033,045
------------- -------------
Total Liabilities and Shareholder's Equity ...................................... $ 154,128,462 $ 137,568,581
============= =============
NORTHEAST INDIANA BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
Three and Six months ended June 30, 1996
See accompanying notes to financial statements
Three Months Ended Six Months Ended
June 30 June 30
1996 1995 1996 1995
---------- ---------- ---------- ----------
(Unaudited)
Interest income
Loans receivable
Mortgage loans ........................................ $2,217,187 $1,864,110 $4,332,345 $3,661,878
Consumer and other loans .............................. 423,549 326,383 830,010 621,750
Securities
Taxable ............................................... 171,201 81,770 269,399 158,478
Tax exempt ............................................ 8,409 9,091 17,046 18,403
Other interest-earning assets ........................... 25,318 78,263 63,754 104,572
---------- ---------- ---------- ----------
Total interest income ................................. 2,845,664 2,359,617 5,512,554 4,565,081
Interest expense
Deposits ................................................. 866,835 827,333 1,688,799 1,579,916
Borrowed funds ........................................... 596,210 590,097 1,122,874 1,145,075
---------- ---------- ---------- ----------
Total interest expense ................................ 1,463,045 1,417,430 2,811,673 2,724,991
---------- ---------- ---------- ----------
Net interest income ........................................ 1,382,619 942,187 2,700,881 1,840,090
Provision for loan losses .................................. 51,000 63,288 133,200 110,538
---------- ---------- ---------- ----------
Net interest income after provision for loan
losses ..................................................... 1,331,619 878,899 2,567,681 1,729,552
Noninterest income
Gain on sale of securities ............................... -- -- -- --
Other .................................................... 105,201 83,966 198,734 164,943
---------- ---------- ---------- ----------
Total noninterest income .............................. 105,201 83,966 198,734 164,943
Noninterest expense
Compensation and benefits ................................ 372,664 329,524 740,498 588,107
Occupancy and equipment .................................. 66,037 46,057 131,986 93,479
SAIF deposit insurance
premiums ................................................ 38,981 39,250 77,279 78,501
Other .................................................... 200,786 157,582 422,351 328,815
---------- ---------- ---------- ----------
Total noninterest expense ............................. 678,468 572,413 1,372,114 1,088,902
---------- ---------- ---------- ----------
NORTHEAST INDIANA BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
Three and Six months ended June 30, 1996
See accompanying notes to financial statements
Three Months Ended Six Months Ended
June 30 June 30
1996 1995 1996 1995
---------- ---------- ---------- ----------
(Unaudited)
Income before income taxes ................................. 758,352 390,452 1,394,301 805,593
Income tax expense ......................................... 295,336 125,022 534,038 268,505
---------- ---------- ---------- ----------
Net income ................................................. $ 463,016 $ 265,430 $ 860,263 $ 537,088
========== ========== ========== ==========
Earnings per share subsequent
to conversion
Net income ............................................... $ 0.24 N/A $ 0.44 N/A
NORTHEAST INDIANA BANCORP, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDER'S EQUITY
Six months ended June 30, 1996
See accompanying notes to financial statements
(Unaudited)
Common Common
Additional Stock Stock
Common Paid-in Retained Treasury Acquired Acquired
---------- ------------ ----------- ------------ ----------- -----------
Balance, January 1, 1996 ............. 21,821 21,215,284 11,393,893 -- (1,600,225) --
Dividends Paid $0.15 per
share year to date ................. -- -- (318,284) -- -- --
Shares committed to be
released under ESOP ................. -- 26,671 -- -- 72,675 --
Purchase of 120,455
shares of Treasury Stock ............. -- -- -- (1,597,420) -- --
Purchase of RRP Stock ................ -- -- -- -- -- (1,025,136)
Amortization of RRP
Contributions ...................... -- -- -- -- -- 102,514
Change in net unrealized
appreciation on securities
available-for-sale ................. -- -- -- -- -- --
Net Income June 30, 1996 ............. -- -- 860,263 -- -- --
Balances, June 30, 1996 .............. 21,821 21,241,955 11,935,872 (1,597,420) (1,527,550) (922,622)
NORTHEAST INDIANA BANCORP, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDER'S EQUITY
Six months ended June 30, 1996
See accompanying notes to financial statements
(Unaudited)
(continued)
Unrealized
Appreciation
on Securities Total
Available- Shareholders'
for-Sale Equity
Balance, January 1, 1996 ............... 2,272 31,033,045
Dividends Paid $0.15 per
share year to date ................... -- (318,284)
Shares committed to be
released under ESOP ................... -- 99,346
Purchase of 120,455
shares of Treasury Stock ............... -- (1,597,420)
Purchase of RRP Stock .................. -- (1,025,136)
Amortization of RRP
Contributions ........................ -- 102,514
Change in net unrealized
appreciation on securities
available-for-sale ................... (29,556) (29,556)
Net Income June 30, 1996 ............... -- 860,263
Balances, June 30, 1996 ................ (27,284) 29,124,772
NORTHEAST INDIANA BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six months ended June 30, 1996 and 1995
See accompanying notes to financial statements
Six Months Ended
June 30,
1996 1995
------------ ------------
(Unaudited)
Cash flows from operating activities
Net income ............................................................................. $ 860,263 $ 537,088
Adjustments to reconcile net income to net cash from operating activities
Depreciation and amortization, net of accretion ..................................... 108,147 44,388
Net (gain) loss on sale of real estate owned ........................................ -- --
Net (gain) loss on sale of fixed assets ............................................. -- (368)
Unrealized (gain) loss on assets available-for-sale ................................. 19,386 --
Provision for loan losses ........................................................... 97,295 110,538
Amortization of ESOP Contributions .................................................. 72,676 72,737
Amortization of ESOP-SOP 93-6 ....................................................... 26,672 --
Amortization of RRP Contributions ................................................... 102,514 --
Increase in accrued interest receivable ............................................. (84,381) (49,055)
Increase in other assets ............................................................ (17,565) (82,722)
Increase in accrued interest payable and other liabilities .......................... (56,413) 104,916
------------ ------------
Total adjustments ............................................................... 268,331 200,434
------------ ------------
Net cash from operating activities .......................................... 1,128,594 737,522
Cash flows from investing activities
Net increase in interest-earning deposits in financial institutions .................... -- (100,000)
Purchase of securities available-for-sale .............................................. (7,423,133) (75,067)
Purchase of securities held-to-maturity ................................................ -- --
Proceeds from maturities and principal repayments of securities
available-for-sale ................................................................... 1,200,000 --
Proceeds from maturities and principal repayments of securities
held-to-maturity ..................................................................... 61,948 35,769
Net increase in loans .................................................................. (11,413,789) (7,421,757)
Purchase of FHLB Stock ................................................................. (425,000) (300,000)
Proceeds from sale of premises, furniture and equipment ................................ -- 368
Purchase of premises, furniture and equipment .......................................... (8,242) (203,297)
Proceeds from sales of other real estate ............................................... -- --
------------ ------------
Net cash from investing activities ..................................................... (18,008,216) (8,063,984)
Cash flows from financing activities
Net increase (decrease) in deposits .................................................... 6,036,827 (2,248,450)
Advances from FHLB ..................................................................... 31,495,044 20,000,000
Repayment of FHLB advances ............................................................. (19,000,000) (23,000,499)
Increase in advances from borrowers for taxes and insurance ............................ (7,305) 12,998
Net proceeds from stock issuance ....................................................... -- 19,465,158
Repurchase stock ....................................................................... (2,622,556) --
Cash dividends paid .................................................................... (318,284) --
------------ ------------
Net cash from financing activities ................................................ 15,583,726 14,229,207
------------ ------------
NORTHEAST INDIANA BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six months ended June 30, 1996 and 1995
See accompanying notes to financial statements
Six Months Ended
June 30,
1996 1995
------------ ------------
(Unaudited)
Net increase in cash and cash equivalents ................................................ (1,295,896) 6,902,745
Cash and cash equivalents at beginning of period ......................................... 4,672,341 2,814,424
------------ ------------
Cash and cash equivalents at end of period ............................................... $ 3,376,445 $ 9,717,169
============ ============
Supplemental disclosure of cash flow information Cash paid during the period
for:
Interest ............................................................................ $ 2,792,488 $ 2,720,566
Income taxes ........................................................................ 598,446 321,094
NORTHEAST INDIANA BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three and Six months ended June 30, 1996 and 1995
NOTE 1 - BASIS OF PRESENTATION
The unaudited information for the three and six months ended June 30, 1996
includes the results of operations of Northeast Indiana Bancorp, Inc. (the
"Company") and its wholly-owned subsidiary, First Federal Savings Bank ("First
Federal" or the "Bank"). The unaudited information for the three and six months
ended June 30, 1996 reflects the results of operations of First Federal Savings
Bank. In the opinion of management, the information reflects all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of the results of operations for the three and six month periods
reported but should not be considered as indicative of the results to be
expected for the full year.
NOTE 2 - CONVERSION
First Federal completed a conversion from a mutual to a stock savings bank on
June 27, 1995. Simultaneous with the conversion was the formation of the
Company, incorporated in the state of Delaware. The initial issuance of shares
of common stock in the Company on June 27, 1995 was 2,182,125 shares at $10 per
share, resulting in net proceeds of $21,210,857, and was accomplished through an
offering to the Bank's eligible account holders of record and the tax qualified
employee stock ownership plan. Costs associated with the conversion and stock
offering amounted to $610, 393, and were accounted for as a reduction of the
proceeds from the issuance of common stock of the Company. The Company purchased
all common shares issued by the Bank. This transaction was accounted for at
historical cost in a manner similar to the pooling of interests method.
Federal regulations require that, upon conversion from a mutual to stock form of
ownership, a "liquidation account" be established by restricting a portion of
net worth for the benefit of eligible savings account holders who maintain their
savings accounts with the Bank after conversion. In the event of complete
liquidation (and only in such event), each savings account holder who continues
to maintain his savings account shall be entitled to receive a distribution from
the liquidation account after payment to all creditors, but before liquidation
distribution with respect to capital stock. This account will be proportionally
reduced for any subsequent reduction in eligible holder's savings accounts.
Federal regulations impose limitations on the payment of dividends and other
capital distributions, including, among others, that First Federal may not
declare or pay cash dividends on any of its stock if the effect thereof would
cause the Bank's capital to be reduced below the amount required for the
liquidation account or the capital requirements imposed by the Financial
Institutions Reform Recover and Enforcement Act (FIRREA) and the Office of
Thrift Supervision (the "OTS").
NOTE 3 - EMPLOYEE STOCK OWNERSHIP PLAN
The Company has established an employee stock ownership plan ("ESOP"). At the
date of conversion described in Note 2, the ESOP purchased 174,570 shares of
common stock of the Company which was financed by the Company and collateralized
by the shares purchased. The borrowing is payable in semi-annual principal
payments of $72,000 over a 12 year period plus interest. All employees of the
Bank are eligible to participate in the ESOP after they attain age 21 and
complete one year of service during which they worked at least 1,000 hours. As
of January 1, 1996, 14,548 shares were distributed to the plan participants.
NOTE 4 - EARNINGS PER SHARE
Earnings per common share is computed by dividing net income subsequent to the
conversion by the weighted average number of shares of common stock outstanding
subsequent to the conversion. As the conversion was effective on June 27, 1995,
no earnings per share for the three and six months ended June 30, 1995. Earnings
per common share for the three and six months ended June 30, 1996 is $.24 and
$.44 respectively.
NOTE 5 - COMMON STOCK CASH DIVIDENDS
On April 25, 1996 the Board of Directors of Northeast Indiana Bancorp, Inc.
announced a quarterly cash dividend of $.075 per share. The dividend was paid on
May 20, 1996 to shareholders of record on May 6, 1996. The payment of the cash
dividend reduced shareholders' equity by $154,625.
It should also be noted that subsequently to the end of the second quarter, the
Board of Directors announced on July 3, 1996 a quarterly cash dividend of $.075
per share. The dividend was paid on July 29, 1996 to shareholders of record on
July 15, 1996. The payment of the cash dividend reduced shareholders' equity
(third quarter) by $154,625.
NOTE 6 - STOCK REPURCHASE PLAN
On February 12, 1996 and February 16, 1996 Northeast Indiana Bancorp, Inc. (the
"Company") announced its intention to repurchase 5% of the outstanding shares in
the open market along with 4% of the outstanding shares to fund the Company's
Recognition and Retention Plan (RRP). These two programs totaling 196,391 shares
of common stock were completed on March 25, 1996. These programs reduced capital
by approximately $1,597,000 and $1,025,000 respectively.
Subsequent to the end of the second quarter on July 8, 1996 the Board of
Directors announced its intention to repurchase another 5% of its outstanding
shares over the next six months. These shares will become Treasury Shares and
will be used for general corporate purposes, including the issuance of shares in
connection with grants and awards under the Company's stock based benefit plans.
Through August 12, 1996, the Company has repurchased 94,000 of the 103,084
shares to be repurchased. It is estimated this repurchase program will reduce
capital by approximately $1.25 million when completed.
NOTE 7 - REGULATORY CAPITAL REQUIREMENTS
Pursuant to FIRREA, savings institutions must meet three separate minimum
capital-to-asset requirements. The following table summarizes, as of June 30,
1996, the capital requirements for the Bank under FIRREA and the Bank's actual
capital ratios. As of June 30, 1996, the Bank substantially exceeded all current
regulatory capital standards.
Regulatory Actual
Capital Requirement Capital Requirement
Amount Percent Amount Percent
------ ------- ------ -------
(Dollars in thousands)
Risk-based capital $ 7,502 8.00 % $ 21,166 22.57%
Core capital 4,630 3.00 20,377 13.20
Tangible capital 2,315 1.50 20,377 13.20
NORTHEAST INDIANA BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATION
GENERAL
Northeast Indiana Bancorp, Inc. (the "Company") was formed as a Delaware
corporation in March, 1995, for the purpose of issuing common stock and owning
all the common stock of First Federal Savings Bank ("First Federal" or the
"Bank") as a unitary thrift holding company. Prior to the conversion, the
Company did not engage in any material operations and at June 30, 1995, 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. The Bank'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. The
Bank'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.
FINANCIAL CONDITION
The Company's total assets increased $16.5 million or 12.0% from $137.6 million
at December 31, 1995 to $154.1 million at June 30, 1996. This increase was due
primarily to funds generated from increased deposits growth of $6.0 million and
an additional $12.5 million in FHLB advances. In addition to asset growth we
purchased 9.0% of the outstanding shares to fund the Recognition and Retention
Plan (RRP) and Treasury Stock which reduced our capital.
The Bank's cash and cash equivalents decreased $1.3 million from $4.7 million at
December 31, 1995 to $3.4 million at June 30, 1996. This decrease was due
primarily from the funds being used to purchase investment securities and to
fund the net increase in loans.
Net loans receivable increased $11.4 million or 9.3% from $122.6 million at
December 31, 1995 to $134.0 million at June 30, 1996. The increase in loans
during the first six months of 1996 was
FINANCIAL CONDITION (Continued)
predominantly in net mortgage loans which accounted for $9.6 million of the
increase, and consumer and commercial products and the general favorable market
conditions during the first quarter which carried over into the second quarter.
Allowances for loan losses increased $103,000 through the six months ended June
30, 1996. This increase was to provide a general increase for the higher loan
amounts and the additional loans secured by non-residential real estate,
commercial and credit cards. These allowances of $984,000 include specific
reserves for loans or partial loans classified as loss in the amount of
$195,000.
INVESTMENTS
Securities available-for-sale increased $6.1 million from $3.8 million at
December 31, 1995 to $10.0 million. This substantial increase includes $3.3
million in callable agencies with various call features and terms to help
balance the liquidity portfolios interest rate risk and return. This increase
also includes a $4.5 million in mortgage backed security products which provide
additional investments that allow the bank to broaden the earning asset base as
the institution grows. These investments have an aggregate mark to market loss
of $45,000 before the effect of deferred taxes of $18,000 or a net mark to
market loss of $27,000 at June 30, 1996.
RESULTS OF OPERATIONS
The Company had net income of $463,000 and $860,000 for the three and six months
ended June 30, 1996 compared to $265,000 and $537,000 for the three and six
months ended June 30, 1995. The increase in net income was primarily due to
higher interest income which exceeded the increase in interest expense,
resulting in a $541,000 increase in net interest income for the quarter and
$861,000 for the six months ended June 30, 1996. The costs associated with the
new office overhead, employee compensation and RRP expense contributed to the
higher non-interest expense resulting in an increase of $106,000 for the quarter
and $283,000 for the six months ended June 30, 1996 over the comparable periods
in 1995.
Net interest income increased to $1,382,000 for the second quarter and $2.7
million for the six months ended June 30, 1996 compared to $942,000 and $1.8
million for the three and six months ended June 30, 1995. Interest income
increased $482,000 to $2.85 million from $2.36 million for the second quarter
ended June 30, 1996 and June 30, 1995, respectively. For the second quarter
interest expense increased $46,000 to $1.46 million from $1.42 million for the
quarter ended June 30, 1996 and 1995, respectively. The increased expense for
the period was due to a combination of higher average balances in deposits and
advances.
Provisions for loan losses decreased by $12,000 and increased by $22,000 for the
three and six months ended June 30, 1996 compared to the same period ended June
30, 1995. This year to date increase was used to continue our effort to build
the provision as loan balances grow.
Non-interest expense increased to $678,000 and $1.4 million for the three and
six months ended June 30, 1996 compared to $572,000 and $1.1 million for the
corresponding period in 1995. This represents an increase of $106,000 and
$283,000 for the three and six months ended June 30, 1996. The majority of the
increase was reflected in compensation and benefits. This expense for the three
and six months ended June 30, 1996 reflected an increase of $43,000 to $373,000
and $152,000 to $740,000. The increased expense is due to establishing an ESOP
RESULTS OF OPERATIONS (Continued)
with the conversion, providing for RRP costs and growth in employment needed to
sustain growth in the institution for the three and six month periods ended June
30, 1996. Occupancy and equipment expense also increased for the three and six
month period ended June 30, 1996 compared to 1995 by $20,000 to $66,000 and by
$39,000 to $132,000. This is due to additional costs associated with the new
branch. Other non-interest operating expenses were not significantly different
for the three and six month period ended June 30, 1996 compared to June 30,
1995.
Income tax expense is up for the three and six months ended June 30, 1996 due to
higher taxable income compared to 1995.
NON-PERFORMING ASSETS AND ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is established through a provision for loan losses
based on management's quarterly asset classification review and evaluation of
the risk inherent in its loan portfolio and changes in the nature and volume of
its loan activity. Such evaluation, which considers among other matters, the
estimated value of the underlying collateral, economic conditions, cash flow
analysis, historical loan loss experience, discussion held with delinquent
borrowers and other factors that warrant recognition in providing for an
adequate allowance for loan loss. As a result of this review process, management
recorded provisions for loan losses in the amount of $51,000 and $133,000 for
the three and six months ended June 30, 1996 compared to $63,000 and $111,000
for the same periods ended June 30, 1995. While management believes current
allowance for loan loss is adequate to absorb possible losses, we anticipate
growth in our loan portfolio and will therefore, continue to add through
additional provisions for loan losses to our allowance accounts, there is no
assurance that subsequent evaluations may require additional provisions for loan
losses.
NON-PERFORMING ASSETS AND LOSSES PROVISIONS
The non-performing assets to total assets ratio is one indicator of the exposure
to credit risk. Non-performing assets of the Bank consist of the non-accruing
loans, troubled debt restructuring and real estate owned which has been acquired
as a result of foreclosure or insubstance foreclosure. The following table
summarizes in thousands the various categories of non-performing assets:
June 30 December 31
1996 1995
------- -----------
Non-accruing loans ..................................... $381 $284
Accruing loans delinquent 90 days and more ............. -- --
Troubled debt restructuring ............................ -- --
Foreclosed assets ...................................... -- --
Total non-performing assets ......................... $381 $284
Total non-performing assets as a percentage
of total assets ................................... .25% .21%
Total non-performing assets increased from $284,000 to $381,000 or .25% of total
assets at June 30, 1996 from .21% of total assets at December 31, 1995.
The Bank 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
tangible capital ratio expressed as a percent of total adjusted assets. At June
30, 1996, the Bank exceeded all regulatory capital standards.
At June 30, 1996, the Bank's risk based capital was $21.2 million or 22.57% of
risk adjusted assets which exceeds the $7.5 million and the 8.0% OTS requirement
by $13.7 million and 14.57%. The Bank's core capital at June 30, 1996 is $20.4
million or 13.20% which exceeds the OTS requirement of $4.6 million and 3.00% by
$15.8 million and 10.20%. The tangible capital requirement is $2.3 million and
1.50% which the Bank exceeded by $18.1 million and 11.70% which is reflected by
June 30, 1996 tangible capital balance of $20.4 million and a 13.20% ratio of
tangible capital to assets.
LIQUIDITY AND CAPITAL RESOURCES
First Federal's primary sources of funds are deposits, FHLB advances, principal
and interest payments of loans, operations income and short-term investments.
Deposit flows and mortgage payments are greatly influenced by general interest
rates, economic conditions and competition.
Current OTS regulations require that First Federal maintain cash and eligible
investments in an amount equal to at least 5% of customer accounts and
short-term borrowings to assure its ability to meet demands for withdrawals and
repayment of short-term borrowings. As of June 30, 1996, First Federal's
liquidity ratio was 7.10%, which is in excess of the minimum regulatory
requirements.
First Federal uses its capital resources principally to meet its ongoing
commitments to fund maturing certificates of deposit and loan commitments,
maintain its liquidity, and meet operating expenses. As of June 30, 1996, First
Federal had commitments to originate loans and to fund open lines of credit
totaling $13.1 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.
REGULATORY DEVELOPMENTS
The deposits of savings associations such as First Federal are presently insured
by the SAIF which together with the BIF are the two insurance funds administered
by the FDIC. On August 8, 1995, the FDIC revised the premium schedule for
BIF-insured banks to provide a range of .04% to .31% of deposits as compared to
the current range of .23% to .31% of deposits for both BIF and SAIF-insured
institutions in anticipation of the BIF achieving its statutory reserve ratio.
As a result, BIF members generally pay lower premiums than the SAIF members. The
lower premiums for BIF members took effect the third quarter of 1995. It is
anticipated the SAIF will not be adequately recapitalized until 2002, absent a
substantial increase in premium rates or the imposition of special assessments
or other significant developments, such as a merger of the SAIF and the BIF. As
a result of this disparity, SAIF members have been placed at a significant,
competitive disadvantage to BIF members due to higher costs for deposit
insurance. Several recapitalization plans have been considered by the Treasury
Department, the FDIC, the OTS, and the Congress. But as of this time Congress
has not passed a plan to expedite the recapitalization of the SAIF fund.
Therefore, SAIF insured institutions such as First Federal are paying .23%
premiums on their deposits while some BIF insured banks are paying lower
premiums. At this time, no assurance can be given as to whether a
recapitalization plan will be implemented or as to the nature or extent of any
competitive disadvantage which may be experienced by SAIF members. First Federal
has paid $77,279 in premiums during the six months ended June 30, 1996.
PART II
ITEM 1 - LEGAL PROCEEDING
None
ITEM 2 - CHANGES IN SECURITIES
None
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5 - OTHER INFORMATION
None
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
(1) April 17, 1996 Press Release, Announcement of First Quarter
Earnings (2) April 25, 1996 Press Release, Announcement of
Declaration of Dividends (3) July 3, 1996 Press Release,
Announcement of Declaration of Dividends (4) July 8, 1996 Press
Release, Announcement of Stock Repurchase Program (5) July 19,
1996 Press Release, Announcement of Second Quarter Earnings
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: 8/14/96 By: /S/ STEPHEN E. ZAHN
---------------------------------
Stephen E. Zahn
President and Chief Executive Officer
(Duly Authorized Officer)
Date: 8/14/96 By: /S/ DARRELL E. BLOCKER
---------------------------------
Darrell E. Blocker
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)