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, 1998
[ ] 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 10, 1998
- --------------------------------------------------------------------------------
Common Stock, par value $.01 per share 1,623,117
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, 1998 and December 31, 1997
Consolidated Condensed Statements of Income for the
three months and six months ended June 30, 1998 and 1997
Consolidated Statement of Change in Shareholders' Equity
for the six months ended June 30, 1998
Consolidated Statements of Cash Flows for the three and six
months ended June 30, 1998 and 1997
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, 1998 And December 31, 1997
June 30, December 31,
1998 1997
(Unaudited)
ASSETS
Interest earning cash and cash equivalents $ 2,486,132 $ 3,036,847
Noninterest earning cash and cash equivalents 2,404,049 1,782,839
------------- -------------
Total Cash and cash equivalents 4,890,181 4,819,686
Interest-earning deposits in financial institutions 100,000 100,000
Securities available for sale 15,385,534 14,628,590
Securities held to maturity (fair value: June 30, 1998- $563,000;
December 31, 1997 - $757,000) 563,221 756,846
Loans receivable, net of allowance for loan losses June 30, 1998
$1,315,740 and December 31, 1997 $1,194,000 177,888,932 174,538,907
Other real estate owned 0 0
Accrued interest receivable 469,531 511,950
Premises and equipment 2,048,910 1,964,374
Other assets 1,916,777 2,048,244
------------- -------------
Total assets $ 203,263,086 $ 199,368,597
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Demand deposits 2,722,736 $ 2,502,911
Savings, NOW and MMDA 38,594,511 35,968,057
Other time deposits 80,723,242 69,078,818
------------- -------------
Total deposits 122,040,489 107,549,786
Securities Sold with Repurchase agreements 220,919 0
Borrowed funds 53,897,195 63,521,682
Accrued expenses and other liabilities 591,987 1,004,495
------------- -------------
Total liabilities 176,750,590 172,075,963
NORTHEAST INDIANA BANCORP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, 1998 And December 31, 1997
(continued)
June 30, December 31,
1998 1997
(Unaudited)
Shareholders' equity
Preferred Stock 500,000 shares authorized; 0 shares issued -- --
Common stock, $.01 par value: 4,000,000 shares
authorized; 2,182,125 shares issued 21,821 21,821
Additional paid in capital 21,469,103 21,350,326
Retained earnings, substantially restricted 14,798,866 13,956,340
Unearned employee stock ownership plan shares (1,236,538) (1,309,275)
Unearned recognition and retention plan shares (528,132) (621,817)
Net unrealized appreciation on securities available
for sale 40,636 41,672
Treasury stock, 532,508 and 449,798 common shares, at
cost, at June 30, 1998 and December 31, 1997 (8,053,260) (6,146,433)
------------- -------------
Total shareholders' equity 26,512,496 27,292,634
------------- -------------
Total liabilities and shareholders' equity $ 203,263,086 $ 199,368,597
============= =============
The accompanying notes are an integral part
of these consolidated financial statements.
NORTHEAST INDIANA BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
Three and Six months ended June 30, 1998
Three months ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
(Unaudited)
Interest income
Loans, including fees $ 3,689,531 $ 3,148,474 $ 7,350,328 $ 6,190,258
Taxable securities 273,183 219,854 516,966 439,724
Non-taxable securities 5,073 7,693 10,154 17,687
Deposits with banks 50,836 48,226 114,429 91,718
----------- ----------- ----------- -----------
Total interest income $ 4,018,623 $ 3,424,247 $ 7,991,877 6,739,387
Interest expense
Deposits 1,487,126 1,076,385 2,892,609 2,117,658
Borrowed funds 771,731 806,346 1,571,970 1,577,363
----------- ----------- ----------- -----------
Total interest expense $ 2,258,857 $ 1,882,731 4,464,579 3,695,021
Net interest income 1,759,766 1,541,516 3,527,298 3,044,366
Provision for loan losses 90,000 58,500 180,000 117,000
----------- ----------- ----------- -----------
Net interest income after provision for loan
losses $ 1,669,766 $ 1,483,016 $ 3,347,298 $ 2,927,366
Noninterest income
Service charges on deposit accounts 72,131 59,378 137,516 110,065
Loan servicing fees 63,120 63,153 126,043 97,398
Net realized gain on sale of securities 0 0 0 0
Other 34,880 32,329 75,980 63,455
----------- ----------- ----------- -----------
Total noninterest income $ 170,131 $ 154,860 $ 339,539 $ 270,918
Noninterest expense
Salaries and employee benefits 446,118 356,163 900,026 739,165
Occupancy 84,904 85,569 174,128 155,637
Data processing 115,407 79,525 212,769 152,756
Insurance expense 16,592 13,900 31,699 26,585
Professional fees 30,204 54,074 81,970 90,137
Correspondent bank charges 66,516 49,310 100,336 98,949
Other expense 126,918 129,652 332,955 257,002
----------- ----------- ----------- -----------
Total noninterest expense $ 886,659 $ 768,193 $ 1,833,883 $ 1,520,231
Income before income taxes 953,238 869,683 1,852,954 1,678,053
Income tax expense 366,552 348,054 722,723 662,684
----------- ----------- ----------- -----------
Net income $ 586,686 $ 521,629 1,130,231 1,015,369
----------- ----------- ----------- -----------
NORTHEAST INDIANA BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
Three and Six months ended June 30, 1998
Three months ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
(Unaudited)
Other comprehensive income, net of tax
Change in unrealized gains (losses)
on securities (4,185) (52,353) (1,036) 37,267
----------- ----------- ----------- -----------
Comprehensive income $ 582,501 $ 469,276 $ 1,129,195 $ 1,052,636
=========== =========== =========== ===========
Basic earnings per common share $ 0.39 $ 0.34 $ 0.75 $ 0.65
Diluted earnings per common share $ 0.38 $ 0.33 $ 0.71 $ 0.62
Return on average assets 1.16% 1.19% 1.12% 1.18%
Return on average equity 8.84% 7.87% 8.39% 7.64%
Equity to assets 13.09% 15.12% 13.38% 15.39%
See accompanying notes to financial statements
NORTHEAST INDIANA BANCORP, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDER'S EQUITY
Six months ended June 30, 1998
(Unaudited)
Net
Unearned Unearned Unrealized
Employee Recognition Appreciation
Additional Stock and Retention on Securities
Common Paid-in Retained Ownership Plan Shares Available-
Stock Capital Earnings Plan Shares For-Sale
----- ------- -------- ----------- ------------- --------
Balance, January 1, 1998 21,821 21,350,326 13,956,340 (1,309,275) (621,817) 41,672
Dividends Paid $0.17 per
share year to date (287,705)
Shares committed to be
released under ESOP 90,919 72,737
Purchase of 97,910
shares
of Treasury Stock
Sale of 15,200 shares
of Treasury Stock (16,652)
Tax effect of stock plans 44,510
Purchase of RRP Stock (10,656)
Amortization of RRP
Contributions 104,341
Net Income June 30, 1998 1,130,231
Other comprehensive
income, net of tax:
Change in unrealized gains
on securities (1,036)
------ ---------- ---------- ---------- -------- ------
Comprehensive income
Balance, June 30, 1998 21,821 21,469,103 14,798,866 (1,236,538) (528,132) 40,636
====== ========== ========== ========== ======== ======
NORTHEAST INDIANA BANCORP, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDER'S EQUITY
Six months ended June 30, 1998
(Unaudited)
(continued)
Total
Treasury Shareholders'
Stock Equity
----- ------
Balance, January 1, 1998 (6,146,433) 27,292,634
Dividends Paid $0.17 per
share year to date (287,705)
Shares committed to be
released under ESOP 163,656
Purchase of 97,910
shares (2,106,861) (2,106,861)
of Treasury Stock
Sale of 15,200 shares
of Treasury Stock 200,034 183,382
Tax effect of stock plans 44,510
Purchase of RRP Stock (10,656)
Amortization of RRP
Contributions 104,341
Net Income June 30, 1998 1,130,231
----------
Other comprehensive
income, net of tax:
Change in unrealized gains
on securities (1,036)
Comprehensive income 1,129,195
----------- -----------
Balance, June 30, 1998 (8,053,260) 26,512,496
=========== ===========
See accompanying notes to financial statements
NORTHEAST INDIANA BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six months ended June 30, 1998 and 1997
Six months ended
June 30,
1998 1997
------------ ------------
(Unaudited)
Cash flows from operating activities
Net income $ 1,130,231 $ 1,015,369
Adjustments to reconcile net income to net cash from operating activities
Net (gain) loss on sale of premises and equipment (8,500) 0
Net (gain) loss on sale of foreclosed real estate 2,200 0
Net (gain) loss on sale of other repossessed assets 3,235 0
Provision for loan losses 180,000 117,000
Depreciation and amortization, net of accretion 80,941 69,587
Amortization of ESOP Contributions 163,657 109,106
Amortization of RRP Contributions 93,686 102,514
Net change in other assets 149,703 18,408
Net change in accrued interest receivable 42,419 (52,528)
Net change in accrued expenses and other liabilities (436,414) (852,427)
------------ ------------
Total adjustments 270,927 (488,340)
------------ ------------
Net cash from operating activities $ 1,401,158 $ 527,029
Cash flows from investing activities
Proceeds from maturities and principal repayments of securities
held to maturity 193,625 102,702
Proceeds from maturities and principal repayments of securities
available for sale 2,326,788 0
Purchases of securities available for sale (3,082,207) (1,218,753)
Net change in loans (6,053,935) (9,036,341)
Expenditures on premises and equipment (168,204) (60,635)
Proceeds from sale of loans 2,430,541 0
Proceeds from sale of premises and equipment 8,500 889
Proceeds from sales of other real estate 40,500 0
Proceeds from sales of other repossessed assets 46,162 0
------------ ------------
Net cash from investing activities $ (4,258,230) $(10,212,138)
Cash flows from financing activities
Advances from FHLB 26,000,000 28,000,000
Repayment of FHLB advances (35,400,000) (23,000,000)
Net increase (decrease) in other borrowings (4,081) 0
Cash dividends paid (287,705) (284,625)
Net proceeds from stock issuance 227,890 0
Increase (decrease) in advances from borrowers for taxes and insurance 7,621 5,042
Repurchase stock (2,106,861) (682,837)
Net change in deposits 14,490,703 2,377,248
------------ ------------
Net cash from financing activities 2,927,567 6,414,828
------------ ------------
NORTHEAST INDIANA BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six months ended June 30, 1998 and 1997
(continued)
Six months ended
June 30,
1998 1997
------------ ------------
(Unaudited)
Net increase in cash and cash equivalents 70,495 (3,270,281)
Cash and cash equivalents at beginning of period 4,819,686 6,672,374
------------ ------------
Cash and cash equivalents at end of period $ 4,890,181 $ 3,402,093
------------ ------------
Cash paid during the period for:
Interest $ 4,496,845 $ 3,700,717
Income taxes 837,000 670,308
See accompanying notes to financial statements
NORTHEAST INDIANA BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three and six months ended June 30, 1998 and 1997
NOTE 1 - BASIS OF PRESENTATION
The unaudited information for the three and six months ended June 30, 1998 and
1997 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"). 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
period reported but should not be considered as indicative of the results to be
expected for the full year.
For fiscal years beginning after December 15, 1997 the Financial Accounting
Standards Board (FASB) issued its Statement of Financial Accounting Standards
(SFAS) #130 on reporting comprehensive income. Comprehensive income includes
both net income and other comprehensive income. Other comprehensive income will
include the change in unrealized gains and losses on securities available for
sale, foreign currency translation adjustments, and additional minimum pension
liability adjustments when applicable. The financial statements reflect the
adoption of SFAS #130.
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").
NORTHEAST INDIANA BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three and six months ended June 30, 1998 and 1997
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, 1998, 43,643 shares have been distributed to the plan
participants.
NOTE 4 - EARNINGS PER SHARE
Basic earnings per share is based on weighted-average common shares outstanding.
Diluted earnings per share further assumes issue of any dilutive potential
common shares. The accounting standard for computing earnings per share was
revised for 1997, and all earnings per shares previously reported are restated
to follow the new standard.
Three and Six Months Ended
--------------------------
June 30,
1998 1997 1998 1997
---- ---- ---- ----
Earnings Per Share
Net Income available to common shareholders $ 586,686 $ 521,629 $ 1,130,231 $ 1,015,369
Weighted average common shares outstanding 1,491,258 1,556,508 1,509,727 1,568,465
Basic Earnings Per Share $ 0.39 $ 0.34 $ 0.75 $ 0.65
Earnings Per Share Assuming Dilution
Net Income available to common shareholders $ 586,686 $ 521,629 $ 1,130,231 $ 1,015,369
Weighted average common shares outstanding 1,491,258 1,556,508 1,509,727 1,568,465
Add: dilutive effects of assumed exercises of
incentive stock options and non qualified
stock options 37,183 16,881 76,027 52,031
Weighted average and dilutive common shares
Outstanding 1,528,441 1,573,389 1,585,753 1,620,496
Diluted earnings per share $ 0.38 $ 0.33 $ 0.71 $ 0.63
NOTE 5 - COMMON STOCK CASH DIVIDENDS
On July 29, 1998 the Board of Directors of Northeast Indiana Bancorp, Inc.
announced a quarterly cash dividend of $.085 per share. The dividend will be
paid on August 24, 1998 to shareholders of record on August 10, 1998. The
payment of the cash dividend will reduce shareholders' equity (third quarter) by
$141,965.
NORTHEAST INDIANA BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three and six months ended June 30, 1998 and 1997
NOTE 6 - STOCK REPURCHASE PLAN
On July 18, 1997, Northeast Indiana Bancorp, Inc. (the "Company") announced its
intention to repurchase up to 10% of the outstanding shares or 176,273 shares in
the open market as Treasury shares over a twelve month period. As of the July
1998 completion date 125,000 shares had been repurchased since its initial
announcement date.
On July 7, 1998 the Company announced a new stock repurchase program to
repurchase 10% of the outstanding shares in the open market as Treasury shares
over the next twelve months. This program will include up to 164,262 shares. As
of August 10, 1998, 20,000 shares have been repurchased under this program since
its announcement.
There were also 11,810 shares repurchased from exercised options year to date
through August 10, 1998.
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,
1998, the capital requirements for the Bank under FIRREA and the Bank's actual
capital ratios. As of June 30, 1998, 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 $10,496 8.0 % $23,846 18.17 %
Core capital $ 8,139 4.0 % $22,622 11.12 %
Tangible capital $ 4,069 2.0 % $22,622 11.12 %
NOTE 8 - RECLASSIFICATIONS
Certain amounts in the 1997 consolidated financial statements have been
reclassified to conform to the 1998 presentation.
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, 1998, had no
significant assets other than the investment in the capital stock of First
Federal and cash and cash equivalents.
NORTHEAST INDIANA BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three and six months ended June 30, 1998 and 1997
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 $3.9 million or 2.0% from $199.4 million at
December 31, 1997 to $203.3 million at June 30, 1998. This increase was due
primarily to funds generated from increased deposits growth of $14.5 million net
of decreased borrowings of $9.6 million so that new loans could be funded. In
addition to asset growth through the first six months of 1998 we purchased 6.6%
of the outstanding shares to fund Treasury Stock which reduced our capital $2.1
million.
Net loans receivable increased $3.4 million or 1.92% from $174.5 million at
December 31, 1997 to $177.9 million at June 30, 1998. The increase in loans
during the first six months of 1998 was predominantly in mortgage loan products
which accounted for $3.2 million of the increase along with a $753,000 increase
in consumer lending and $2.0 million increase in commercial lending. This was
offset by the sale of a $2.4 million package of mobile home loans which were
sold at par in June 1998. This growth was because of the generally favorable
market conditions. Allowances for loan losses increased approximately $155,000
through the six months ended June 30, 1998. 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
$1.3 million include $92,000 of specific reserves for loans or partial loans
classified as substandard in the amount of $1.1 million.
INVESTMENTS
Securities available-for-sale increased $757,000 from $14.6 million at December
31, 1997 to $15.4 million at June 30, 1998. Investments were purchased to
replenish portfolio balances being reduced by calls, payments and maturities.
NORTHEAST INDIANA BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three and six months ended June 30, 1998 and 1997
RESULTS OF OPERATIONS
The Company had net income of $587,000 or $0.39 per basic share and $1.1 million
or $0.75 per basic share for the three and six months ended June 30, 1998
compared to $348,000 or $0.33 per basic share and $1.0 million or $0.65 per
basic share for the three and six months ended June 30, 1997.
Net interest income increased to $1.7 million for the second quarter and $3.3
million for the six months ended June 30, 1998 compared to $1.5 million and $2.9
million for the three and six months ended June 30, 1997. Interest income
increased $594,000 to $4.0 million from $3.4 million for the second quarter June
30, 1998 and June 30, 1997, respectively. For the second quarter interest
expense increased $376,000 to $2.3 million from $1.9 million for the quarter
ended June 30, 1998 and 1997, respectively. The increased expense for the period
was due to the net effect of higher average balances in deposits and lower
average balances in borrowings.
Provisions for loan losses increased by $31,500 and $155,000 for the three and
six months ended June 30, 1998 compared to the same period ended June 30, 1997.
Non-interest expense increased to $887,000 and $1.8 million for the three and
six months ended June 30, 1998 compared to $768,000 and $1.5 million for the
corresponding periods in 1997. This represents an increase of $118,000 and
$314,000 for the three and six months ended June 30, 1998. This increase is due
partially to higher salaries and benefits reflecting increases in compensation
for 1998 and additional employees added during late 1997 and early 1998 to
support customer service as we grow.
Data processing expense has increased $36,000 and $60,000 for the three and six
months ended June 1998 due to the installation of the wide area network and
software upgrades. This project was started in second quarter 1998 and is
expected to be complete by fourth quarter 1998. The upgrades of our computer
system will not only enable increased efficiencies but provide better
communication between our three offices.
Income tax expense is up for the three and six months ended June 30, 1998 due to
higher taxable income compared to 1997.
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 $90,000 and $180,000 for
the three and six months ended June 30, 1998 compared to $58,000 and $117,000
for the same period ended June 30, 1997. 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.
NORTHEAST INDIANA BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three and six months ended June 30, 1998 and 1997
RESULTS OF OPERATIONS (Continued)
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
1998 1997
---- ----
Non-accruing loans $ 816 $1,166
Accruing loans delinquent 90 days and more 0 0
Troubled debt restructuring 0 0
Foreclosed assets 8 7
------ ------
Total non-performing assets 824 1,173
====== ======
Total non-performing assets as a percentage
of total assets .40% .58%
====== ======
Total non-performing assets decreased from $1.2 million to $816,000 or 0.40% of
total assets at June 30, 1998 from 0.58% of total assets at December 31, 1997.
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, 1998, the Bank exceeded all regulatory capital standards.
At June 30, 1998, the Bank's risk based capital was $23.8 million or 18.17% of
risk adjusted assets which exceeds the $10.5 million and the 8.0% OTS
requirement by $13.3 million and 10.17%. The Bank's core capital at June 30,
1998 is $22.6 million or 11.12% which exceeds the OTS requirement of $8.1
million and 4.00% by $14.5 million and 7.12%. The tangible capital requirement
is $4.1 million and 2.00% which the Bank exceeded by $18.5 million and 9.12%
which is reflected by June 30, 1998 tangible capital balance of $22.6 million
and a 11.12% 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.
NORTHEAST INDIANA BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three and six months ended June 30, 1998 and 1997
LIQUIDITY AND CAPITAL RESOURCES (Continued)
Current OTS regulations require that First Federal maintain cash and eligible
investments in an amount equal to at least 4% of its average daily balance of
net withdrawable customer deposit accounts and short-term borrowings to assure
its ability to meet demands for withdrawals and repayment of short-term
borrowings. As of June 30, 1998, First Federal's liquidity ratio was 9.95%,
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, 1998, First
Federal had commitments to originate loans and to fund open lines of credit
totaling $22.3 million. First Federal considers its liquidity and capital
resources to be adequate to meet its foreseeable short and long term needs.
First Federal expects to be able to fund or refinance, on a timely basis, its
material commitments and long-term liabilities.
REGULATORY DEVELOPMENTS
As a result of the SAIF recapitalization in September 1996 the FDIC has amended
its regulation concerning the insurance premiums payable by SAIF-insured
institutions. The FDIC has reduced the SAIF insurance premium to a range of 0 to
27 basis points per $100 of domestic deposits, effective January 1, 1997. The
Bank qualifies for the minimum SAIF assessment.
Additionally, the FDIC has imposed a FICO assessment on SAIF-assessable deposits
for the second quarter of 1998 equal to 6.10 basis points annualized per $100 of
domestic deposits, as compared to a FICO assessment on BIF-assessable deposits
for that same period equal to 1.22 basis points per $100 of domestic deposits.
TRUST/FINANCIAL SERVICES
The bank has recently applied to the OTS for the expansion of its charter to
include trust powers so that we may provide trust and asset management services
to our community. The bank is also in the process of establishing a wholly-owned
subsidiary as an Indiana corporation. This subsidiary will provide financial
service products including but not limited to mutual funds, brokerage and
insurance products.
In order to provide the expertise these new initiatives will require, the bank
has hired an individual with 28 years experience in trust services. This
individual has served the last six years as a Senior Trust Officer responsible
for managing over $100 million in trust assets.
OFFICE EXPANSION
The bank began an expansion project of its North office located on Frontage Road
in July 1998. This expansion will provide approximately 2,000 square feet more
space which will be utilized for offices needed for additional banking
operations staff, the new Trust department and Financial Services Subsidiary as
well as storage for the computer equipment needed for these new endeavors. This
building addition should be completed in the fourth quarter of 1998.
NORTHEAST INDIANA BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three and six months ended June 30, 1998 and 1997
FORWARD-LOOKING STATEMENTS
When used in this filing and in future filings by the Company with the
Securities and Exchange Commission, in the Company'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 the Company's market area, changes in policies by regulatory
agencies, fluctuations in interest rates, demand for loans in the Company'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.
The Company 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 the Company's financial performance and could cause the
Company's actual results for future periods to differ materially from those
anticipated or projected.
The Company 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.
IMPACT OF THE YEAR 2000
The Company has been and will continue to follow the guidelines provided by the
Federal Financial Institutions Examination's Council (FFIEC). The Company has
formulated a Year 2000 Action Plan which has been presented to, and approved by,
the Board of Directors. Management believes that all affected systems whether it
be internal or services provided by a third party have been identified and plans
have been made to ensure that all necessary changes are accomplished in a timely
manner. Implementation of the plan is progressing and the Board of Directors
receives quarterly reports regarding the progress made. Testing with our service
provider will begin in fourth quarter 1998 and should be complete by first
quarter 1999. This timeline complies with the FFIEC guidelines. Management does
not expect any costs related to the Year 2000 to have a significant impact on
its financial positions or results of operations however, there can be no
assurance that the vendors systems will be 2000 compliant, consequently the
Company could incur incremental costs to convert to another vendor.
PART II
ITEM 1 - LEGAL PROCEEDING
The Company 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 the Company's results of operations on a
consolidated basis.
ITEM 2 - CHANGES IN SECURITIES
None
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDER
(a) The Annual Meeting of Shareholders ("the meeting") of Northeast
Indiana Bancorp, Inc. was held on April 22, 1998. The matters
approved by shareholders at the meeting and the number of votes
cast for, against or withheld (as well as the number of
abstentions) as to each matter are set forth below:
(1) The election of the following directors for a three year
term
Votes For Withheld
----- --- --------
Dan L. Stephan 1,387,308 4,545
Stephen E. Zahn 1,389,848 2,005
(2) Ratification of Crowe, Chizek and Company, LLP as auditors
for the year ending December 31, 1998
Votes For Against Withheld
----- --- ------- --------
1,387,048 1,500 4,305
ITEM 5 - OTHER INFORMATION
None
PART II CONTINUED
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
(1) April 14, 1998 Press Release announcing First Quarter Earnings
(2) April 24, 1998 Press Release announcing Quarterly Cash
Dividend
(3) July 7, 1998 Press Release announcing Stock Repurchase Program
(4) July 17, 1998 Press Release announcing Second Quarter Earnings
(5) July 29, 1998 Press Release announcing 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: August 12, 1998 By: /S/ STEPHEN E. ZAHN
Stephen E. Zahn
President and Chief Executive Officer
(Duly Authorized Officer)
Date: August 12, 1998 By: /S/ DARRELL E. BLOCKER
Darrell E. Blocker
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)