SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 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 OCTOBER 31, 1996
- --------------------------------------------------------------------------------
Common Stock, par value $.01 per share 1,870,086
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
September 30, 1996 and December 31, 1995
Consolidated Condensed Statements of Income
for the Three months ended September 30, 1996 and 1995 and the nine
months ended September 30, 1996 and 1995
Consolidated Statement of Change in Shareholders' Equity
for the nine months ended September 30, 1996
Consolidated Statements of Cash Flows for the nine
months ended September 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
SEPTEMBER 30, 1996 AND DECEMBER 31, 1995
- --------------------------------------------------------------------------------------------------
September 30 December 31
1996 1995
------------- -------------
(Unaudited)
ASSETS
Cash and due from financial institutions ....................... $ 3,512,555 $ 2,467,934
Interest earning deposits in financial institutions - short term 312,918 2,204,407
------------- -------------
Total cash and cash equivalents .............................. 3,825,473 4,672,341
Interest earning deposits in financial institutions ............ 100,000 100,000
Securities available for sale .................................. 10,062,365 3,820,759
Securities held to maturity, estimated market value of
$894,000 and $986,000 at September 30, 1996 and
December 31, 1995, respectively .............................. 892,342 985,906
Loans receivable, net of allowance for loan losses
September 30, 1996 - $1,018,000 and
December 31, 1995 - $881,000 ................................. 139,188,298 122,640,770
Accrued interest receivable .................................... 313,122 232,925
Other real estate owned, net ................................... -- --
Federal Home Loan Bank stock, at cost .......................... 2,650,000 2,075,000
Premises and equipment, net .................................... 2,041,468 2,131,617
Other assets ................................................... 959,239 909,263
------------- -------------
TOTAL ASSETS ................................................... $ 160,032,307 $ 137,568,581
============= =============
Continued
NORTHEAST INDIANA BANCORP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1996 AND DECEMBER 31, 1995
- --------------------------------------------------------------------------------------------------
September 30 December 31
1996 1995
------------- -------------
(Unaudited)
LIABILTIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits ..................................................... $ 77,922,142 $ 68,202,930
Short Term Borrowed Funds .................................... 21,000,000 22,500,000
Long Term Debt ............................................... 31,995,389 15,000,000
Advances from borrowers for taxes and insurance .............. 181,143 116,786
Accrued interest payable and other liabilities ............... 1,017,463 715,820
------------- -------------
Total liabilities .......................................... 132,116,137 106,535,536
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 ................................... 21,245,288 21,215,284
Unearned ESOP compensation ................................... (1,527,550) (1,600,225)
Unearned RRP compensation .................................... (871,366) --
Treasury Stock 228,539 shares at cost ........................ (2,934,334) --
Retained earnings - substantially restricted ................. 12,006,140 11,393,893
Net Unrealized appreciation (loss) on securities ............. (23,829) 2,272
------------- -------------
-------------
Total shareholders' equity ................................ 27,916,170 31,033,045
------------- -------------
Total Liabilities and Shareholder's Equity ............ $ 160,032,307 $ 137,568,581
============= =============
See accompanying notes to financial statements
NORTHEAST INDIANA BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
Three and Nine months ended September 30, 1996
- ------------------------------------------------------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30 September 30
1996 1995 1996 1995
---------- ---------- ---------- ----------
(Unaudited)
Interest income
Loans receivable
Mortgage loans ........................................ $2,345,788 $1,929,218 $6,678,133 $5,591,096
Consumer and other loans .............................. 453,065 362,212 1,283,076 983,962
Securities
Taxable ............................................... 209,799 84,282 479,197 242,760
Tax exempt ............................................ 8,292 8,978 25,338 27,381
Other interest-earning assets ........................... 35,738 116,349 99,493 220,921
---------- ---------- ---------- ----------
Total interest income ................................. 3,052,682 2,501,039 8,565,237 7,066,120
Interest expense
Deposits ................................................. 936,975 791,857 2,625,775 2,371,773
Borrowed funds ........................................... 689,709 494,978 1,812,583 1,640,053
---------- ---------- ---------- ----------
Total interest expense ................................ 1,626,684 1,286,835 4,438,358 4,011,826
---------- ---------- ---------- ----------
Net interest income ........................................ 1,425,998 1,214,204 4,126,879 3,054,294
Provision for loan losses .................................. 51,000 71,610 184,200 182,148
---------- ---------- ---------- ----------
Net interest income after provision for loan
losses ..................................................... 1,374,998 1,142,594 3,942,679 2,872,146
Noninterest income
Gain on sale of securities ............................... 348 -- 348 --
Other .................................................... 106,265 92,939 304,999 257,882
---------- ---------- ---------- ----------
Total noninterest income .............................. 106,613 92,939 305,347 257,882
Continued
NORTHEAST INDIANA BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
Three and Nine months ended September 30, 1996
- ------------------------------------------------------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30 September 30
1996 1995 1996 1995
---------- ---------- ---------- ----------
(Unaudited)
Noninterest expense
Compensation and benefits ................................ 382,549 309,264 1,123,049 897,371
Occupancy and equipment .................................. 72,102 53,440 204,088 146,919
SAIF deposit insurance premiums .......................... 494,927 39,640 572,206 118,141
Other .................................................... 172,550 178,191 594,899 507,006
---------- ---------- ---------- ----------
Total noninterest expense ............................. 1,122,128 580,535 2,494,242 1,669,437
---------- ---------- ---------- ----------
Income before income taxes ................................. 359,483 654,998 1,753,784 1,460,591
Income tax expense ......................................... 134,589 256,576 668,627 525,081
---------- ---------- ---------- ----------
Net income ................................................. $ 224,894 $ 398,422 $1,085,157 $ 935,510
========== ========== ========== ==========
Earnings per share subsequent
to conversion
Net income ............................................... $ .12 .18 $ .56 N/A
See accompanying notes to financial statements
NORTHEAST INDIANA BANCORP, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDER'S EQUITY
Nine months ended September 30, 1996
- ---------------------------------------------------------------------------------------------------------------------------
(Unaudited)
Unrealized
Common Common Appreciation
Additional Stock Stock on Securities
Common Paid-in Retained Treasury Acquired Acquired Available-
Stock Capital Earnings Stock by ESOP by RRP for-Sale
---------- ------------ ----------- ------------ ----------- ----------- --------------
Balance, January 1, 1996 21,821 21,215,284 11,393,893 -- (1,600,225) -- 2,272
Dividends Paid $0.225 per
share year to date -- -- (472,912) -- -- -- --
Shares committed to be
released under ESOP -- 30,005 -- -- 72,675 -- --
Purchase of shares
of Treasury Stock -- -- -- (2,934,334) -- -- --
Purchase of RRP Stock -- -- -- -- -- (1,025,136) --
Amortization of RRP
Contributions -- -- -- -- -- 153,771 --
Change in net unrealized
appreciation on securities
available-for-sale -- -- -- -- -- -- (26,101)
Net Income September 30, 1996 -- -- 1,085,157 -- -- -- --
------ ---------- ---------- ---------- ---------- ---------- -------
Balances, September 30, 1996 21,821 21,245,289 12,006,138 (2,934,334) (1,527,550) (871,365) (23,829)
====== ========== ========== ========== ========== ========== =======
Continued
NORTHEAST INDIANA BANCORP, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDER'S EQUITY
Nine months ended September 30, 1996
- ---------------------------------------------------------------------------------------------------------------------------
(Unaudited)
Total
Shareholders'
Equity
----------------
Balance, January 1, 1996 31,033,045
Dividends Paid $0.225 per
share year to date (472,912)
Shares committed to be
released under ESOP 102,680
Purchase of shares
of Treasury Stock (2,934,334)
Purchase of RRP Stock (1,025,136)
Amortization of RRP
Contributions 153,771
Change in net unrealized
appreciation on securities
available-for-sale (26,101)
Net Income September 30, 1996 1,085,157
----------
Balances, September 30, 1996 27,916,170
==========
See accompanying notes to financial statements
NORTHEAST INDIANA BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine months ended September 30, 1996 and 1995
- ----------------------------------------------------------------------------------------------------------------
Three Months Ended
September 30,
1996 1995
------------ ------------
(Unaudited)
Cash flows from operating activities
Net income ................................................................... $ 1,085,157 $ 935,510
Adjustments to reconcile net income to net cash from operating activities
Depreciation and amortization, net of accretion ........................... 160,207 73,086
Net (gain) loss on sale of real estate owned .............................. (6,879) (2,489)
Net (gain) loss on sale of fixed assets ................................... (50) (368)
Unrealized (gain) loss on assets available-for-sale ....................... 17,120 --
Provision for loan losses ................................................. 137,542 66,187
Amortization of ESOP Contributions ........................................ 72,676 72,737
Amortization of ESOP-SOP 93-6 ............................................. 30,005 6,140
Amortization of RRP Contributions ......................................... 153,771 --
Increase in accrued interest receivable ................................... (80,198) (35,054)
Increase in other assets .................................................. (49,975) 62,307
Increase in accrued interest payable and other liabilities ................ 301,643 (30,806)
------------ ------------
Total adjustments ..................................................... 735,862 211,740
------------ ------------
Net cash from operating activities ................................ 1,821,019 1,147,250
Cash flows from investing activities
Net increase in interest-earning deposits in financial institutions .......... -- (100,000)
Purchase of securities available-for-sale .................................... (9,031,933) (113,007)
Proceeds from sale of securities available-for-sale .......................... 2,100,000 --
Purchase of securities held-to-maturity ...................................... -- --
Proceeds from maturities and principal repayments of securities
available-for-sale ......................................................... 600,000 --
Proceeds from maturities and principal repayments of securities
held-to-maturity ........................................................... 93,564 66,875
Net increase in loans ........................................................ (16,705,181) (10,092,339)
Purchase of FHLB Stock ....................................................... (575,000) (300,000)
Proceeds from sale of premises, furniture and equipment ...................... 50 368
Purchase of premises, furniture and equipment ................................ (22,952) (550,434)
Proceeds from sales of other real estate ..................................... 26,990 20,315
------------ ------------
Net cash from investing activities ........................................... (23,514,462) (11,068,222)
Continued
NORTHEAST INDIANA BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine months ended September 30, 1996 and 1995
- ----------------------------------------------------------------------------------------------------------------
Three Months Ended
September 30,
1996 1995
------------ ------------
(Unaudited)
Cash flows from financing activities
Net increase (decrease) in deposits .......................................... 9,719,212 (1,580,111)
Advances from FHLB ........................................................... 49,995,044 20,000,000
Repayment of FHLB advances ................................................... (34,499,655) (24,000,080)
Increase in advances from borrowers for taxes and insurance .................. 64,357 79,014
Net proceeds from stock issuance ............................................. -- 19,465,158
Repurchase stock ............................................................. (3,959,471) --
Cash dividends paid .......................................................... (472,912) --
------------ ------------
Net cash from financing activities ...................................... 20,846,575 13,963,981
------------ ------------
Net increase in cash and cash equivalents ...................................... (846,868) 4,043,009
Cash and cash equivalents at beginning of period ............................... 4,672,341 2,814,424
------------ ------------
Cash and cash equivalents at end of period ..................................... $ 3,825,473 $ 6,857,433
============ ============
Supplemental disclosure of cash flow information Cash paid during the period
for:
Interest .................................................................. $ 4,422,868 $ 2,910,499
Income taxes .............................................................. 964,946 630,108
See accompanying notes to financial statements
NORTHEAST INDIANA BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three and Nine months ended September 30, 1996 and 1995
- --------------------------------------------------------------------------------
NOTE 1 - BASIS OF PRESENTATION
The unaudited information for the three and nine months ended September 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 nine months ended
September 30, 1995 reflects the results of operations of First Federal Savings
Bank only through June 27, 1995 (conversion date). The three months ended
September 30, 1995 and the balance of the nine months ended September 30, 1995
reflect consolidated results of the Company. In the opinion of management, the
information reflects all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of the results of operations for
the three and nine month periods reported but should not be considered as
indicative of the results to be expected for the full year.
NOTE 2 - 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 have been 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 nine months ended September 30,
1995 were reported. Earnings per share for the three months ended September 30,
1995 was $0.18 per common share. Earnings per common share for the three and
nine months ended September 30, 1996 was $0.12 and $0.56 respectively.
NOTE 5 - COMMON STOCK CASH DIVIDENDS
On July 3, 1996 the Board of Directors of Northeast Indiana Bancorp, Inc.
announced 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 by $154,625.
It should also be noted that subsequently to the end of the third quarter, the
Board of Directors announced on October 18, 1996 a quarterly cash dividend of
$.08 per share. The dividend will be paid on November 15, 1996 to shareholders
of record on November 1, 1996. The payment of the cash dividend will reduce
shareholders' equity (fourth quarter) by $149,607.
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.
NOTE 6 - STOCK REPURCHASE PLAN (Continued)
On July 8, 1996 the Board of Directors announced its intention to repurchase
another 5% of its outstanding shares. This repurchase of 103,084 shares was
completed on August 16, 1996 and reduced capital by approximately $1,273,000.
These shares became 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.
On September 16, 1996 the Board of Directors approved another stock repurchase
program for the purchase of up to 10% of the outstanding shares in the open
market over the next twelve months. Through October 31, 1996 the Company has
repurchased 88,500 shares of the approximate 195,859 shares approved for
repurchase as Treasury Shares.
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 September
30, 1996, the capital requirements for the Bank under FIRREA and the Bank's
actual capital ratios. As of September 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 ........ $ 7,685 8.00% $21,407 22.28%
Core capital .............. 4,811 3.00 20,596 12.84
Tangible capital .......... 2,406 1.50 20,596 12.84
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 September 30, 1996, 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 $22.4 million or 16.4% from $137.6 million
at December 31, 1995 to $160.0 million at September 30, 1996. This increase was
due primarily to funds generated from increased deposits growth of $9.7 million
and an additional $15.5 million in FHLB advances. In addition to asset growth
through the first nine months of 1996 we purchased 14% of the original
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 $0.9 million from $4.7 million at
December 31, 1995 to $3.8 million at September 30, 1996. This decrease was due
primarily from the funds being used to purchase investment securities and to
fund the net increase in loans.
FINANCIAL CONDITION (Continued)
Net loans receivable increased $16.6 million or 13.5% from $122.6 million at
December 31, 1995 to $139.2 million at September 30, 1996. The increase in loans
during the first nine months of 1996 was predominantly in net mortgage loans
which accounted for $13.4 million of the increase, and also consumer and
commercial products increasing because of the generally favorable market
conditions. Allowances for loan losses increased $137,000 through the nine
months ended September 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 $1,018,000 include
specific reserves for loans or partial loans classified as loss in the amount of
$207,300.
INVESTMENTS
Securities available-for-sale increased $6.2 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 $6.1 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 $39,000 before the effect of deferred taxes of $15,000 or a net mark to
market loss of $24,000 at September 30, 1996.
RESULTS OF OPERATIONS
The Company had net income of $225,000 or $0.12 per share and $1,085,000 or
$0.56 per share for the three and nine months ended September 30, 1996 compared
to $398,000 or $0.18 per share and $936,000 for the three and nine months ended
September 30, 1995. The decrease in net income was due to a one time assessment
of approximately $453,000 which was the result of the federal legislation
enacted on September 30, 1996 (See Regulatory Developments). The approximate
after tax effect was $274,000 less income or $0.14 per share. The costs
associated with the new office overhead, employee compensation and RRP expense
excluding the SAIF special assessment contributed to the remainder of higher
non-interest expense resulting in an increase of $88,000 for the quarter and
$372,000 for the nine months ended September 30, 1996 over the comparable
periods in 1995.
Net interest income increased to $1.4 million for the third quarter and $4.1
million for the nine months ended September 30, 1996 compared to $1.2 million
and $3.1 million for the three and nine months ended September 30, 1995.
Interest income increased $552,000 to $3.15 million from $2.5 million for the
third quarter ended September 30, 1996 and September 30, 1995, respectively. For
the third quarter interest expense increased $340,000 to $1.6 million from $1.3
million for the quarter ended September 30, 1996 and 1995, respectively. The
increased expense for the period was due to a combination of higher average
balances in deposits and advances.
RESULTS OF OPERATIONS (Continued)
Provisions for loan losses decreased by $20,000 and increased by $2,000 for the
three and nine months ended September 30, 1996 compared to the same period ended
September 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 $1.1 million and $2.5 million for the three
and nine months ended September 30, 1996 compared to $581,000 and $1.7 million
for the corresponding period in 1995. This represents an increase of $542,000
and $825,000 for the three and nine months ended September 30, 1996. Again the
majority of this increase was due to the one time SAIF special assessment of
$453,000. Another increased expense was reflected in compensation and benefits.
This expense for the three and nine months ended September 30, 1996 reflected an
increase of $74,000 to $383,000 and $226,000 to $1.1 million. The increased
expense is due to establishing an ESOP with the conversion, providing for RRP
costs and growth in employment needed to sustain growth in the institution for
the three and nine month periods ended September 30, 1996. Occupancy and
equipment expense also increased for the three and nine month period ended
September 30, 1996 compared to 1995 by $19,000 to $72,000 and by $57,000 to
$204,000. This is due to additional costs associated with the new branch. Other
non-interest operating expenses were not significantly different for the three
and nine month period ended September 30, 1996 compared to September 30, 1995.
Income tax expense is down for the three and up for the nine months ended
September 30, 1996 due to changes in 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 $184,000 for
the three and nine months ended September 30, 1996 compared to $72,000 and
$182,000 for the same periods ended September 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:
September 30 December 31
1996 1995
---- ----
Non-accruing loans ..................................... $318 $284
Accruing loans delinquent 90 days and more ............. -- --
Troubled debt restructuring ............................ -- --
Foreclosed assets ...................................... -- --
---- ----
Total non-performing assets ......................... $318 $284
==== ====
Total non-performing assets as a percentage
of total assets ................................... .20% .21%
==== ====
Total non-performing assets increased from $284,000 to $318,000 or .20% of total
assets at September 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
September 30, 1996, the Bank exceeded all regulatory capital standards.
At September 30, 1996, the Bank's risk based capital was $21.4 million or 22.28%
of risk adjusted assets which exceeds the $7.7 million and the 8.0% OTS
requirement by $13.7 million and 14.28%. The Bank's core capital at September
30, 1996 is $20.6 million or 12.84% which exceeds the OTS requirement of $4.8
million and 3.00% by $15.8 million and 9.84%. The tangible capital requirement
is $2.4 million and 1.50% which the Bank exceeded by $18.2 million and 11.34%
which is reflected by September 30, 1996 tangible capital balance of $20.6
million and a 12.84% 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.
LIQUIDITY AND CAPITAL RESOURCES (Continued)
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 September 30, 1996, First Federal's
liquidity ratio was 6.21%, 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 September 30, 1996,
First Federal had commitments to originate loans and to fund open lines of
credit totaling $13.8 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
On September 30, 1996, federal legislation was enacted that requires the
Savings Association Insurance Fund ("SAIF") to be recapitalized with a one-time
assessment on virtually all SAIF-insured institutions, such as the Bank, equal
to 65.7 basis points on SAIF-insured deposits maintained by those institutions
as of March 31, 1995. This SAIF assessment, which is to be paid to the FDIC by
November 27, 1996, is approximately $453,000 and has been accrued by the Company
at September 30, 1996.
As a result of the SAIF recapitalization, the FDIC has proposed to amend its
regulation concerning the insurance premiums payable by SAIF-insured
institution. Effective October 1, 1996 through December 31, 1996, the FDIC has
proposed that the SAIF insurance premium for all SAIF-insured institution that
are required to pay the Financing Corporation (FICO) obligation, such as the
Bank, be reduced to a range of 18 to 27 basis points from 23 to 31 basis points
per $100 of domestic deposits. The Bank currently qualifies for the minimum SAIF
insurance premium of 23 basis points. The FDIC has also proposed to further
reduce the SAIF insurance premium to a range of 0 to 27 basis points per $100 of
domestic deposits, effective January 1, 1997. Management cannot predict whether
or in what form the FDIC's final regulation may be promulgated.
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) August 16, 1996 Press Release, Announcement of Completion of
Stock Repurchase Program
(2) September 16, 1996 Press Release, Announcement of Stock
Repurchase Program
(3) October 16, 1996 Press Release, Announcement of Third Quarter
Earnings and the Impact of a One Time FDIC Recapitalization
Assessment
(4) October 18, 1996 Press Release, Announcement of Quarterly Cash
Dividend
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: 11/7/96 By: /S/ STEPHEN E. ZAHN
-------------------------------------
Stephen E. Zahn
President and Chief Executive Officer
(Duly Authorized Officer)
Date: 11/7/96 By: /S/ DARRELL E. BLOCKER
-------------------------------------
Darrell E. Blocker
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)