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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2003
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE
EXCHANGE ACT
For the transition period from ______ to _____
Commission file number 0-26012.
NORTHEAST INDIANA BANCORP, INC.
(Exact Name of Small Business Issuer as Specified in its Charter)
Delaware 35-1948594
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
648 North Jefferson Street, Huntington, IN 46750
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (260) 356-3311
Check whether the Issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the Issuer was required to file such reports), and (2) has been
subject to such requirements for the past 90 days. YES [X] NO [ ]
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
CLASS OUTSTANDING AT April 23, 2003
________________________________________________________________________________
Common Stock, par value $.01 per share 1,483,909
Transitional Small Business Disclosure Format: YES [ ] NO [X]
NORTHEAST INDIANA BANCORP, INC.
INDEX
PAGE NO.
PART 1. FINANCIAL INFORMATION (UNAUDITED)
ITEM 1. Financial Statements
Consolidated Balance Sheets
March 31, 2003 and December 31, 2002 1
Consolidated Statements of Income for the
three months ended March 31, 2003 and 2002 2
Consolidated Statement of Changes in Shareholders'
Equity for the three months ended March 31, 2003 3
Consolidated Statements of Cash Flows for the three
months ended March 31, 2003 and 2002 4
Notes to Consolidated Financial Statements 5
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
ITEM 3. Controls and Procedures 15
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings 16
ITEM 2. Changes In Securities 16
ITEM 3. Defaults Upon Senior Securities 16
ITEM 4. Submission of Matters to a Vote
of Security Holders 16
ITEM 5. Other Information 17
ITEM 6. Exhibits and Reports on Form 8-K 17
Signature page 18
Certifications Pursuant to Section 302 of the Sarbanes-
Oxley Act of 2002 19
Exhibit 99.1 and Exhibit 99.2 -Certifications Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002 20
________________________________________________________________________________
NORTHEAST INDIANA BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2003 AND DECEMBER 31, 2002
________________________________________________________________________________
MARCH 31, DECEMBER 31,
2003 2002
(UNAUDITED)
ASSETS
Interest earning cash and cash equivalents $ 12,505,165 $ 15,195,326
Noninterest earning cash and cash equivalents 2,231,569 3,061,082
----------------- -----------------
Total cash and cash equivalents 14,736,734 18,256,408
Securities available for sale 46,671,761 42,838,211
Securities held to maturity (fair value: March 31, 2003- $184,000
December 31, 2002- $225,000) 184,000 225,000
Loans held for sale 1,036,868 409,375
Loans receivable, net of allowance for loan losses (March 31, 2003 of
$1,796,511 and at December 31, 2002 of $2,135,630) 150,778,893 154,559,565
Accrued interest receivable 717,806 694,593
Premises and equipment, net 2,116,710 2,176,356
Investments in limited liability partnerships 1,775,568 1,833,375
Cash surrender value of life insurance 4,110,243 2,082,890
Other assets 2,424,098 1,943,142
----------------- -----------------
Total assets $ 224,552,681 $ 225,018,915
================= =================
LIABILITIES AND SHAREHOLDERS' EQUITY
Demand - noninterest bearing $ 5,384,196 $ 4,926,793
Savings 11,263,563 10,396,258
NOW and MMDA 34,479,386 31,029,233
Time deposits 74,394,971 76,004,368
----------------- -----------------
Total deposits 125,522,116 122,356,652
Borrowed funds 70,478,403 74,893,922
Accrued expenses and other liabilities 1,946,263 1,205,856
----------------- -----------------
Total liabilities 197,946,782 198,456,430
Shareholders' equity
Preferred Stock, no par value: 500,000 shares authorized; 0 shares
issued - -
Common stock, $.01 par value: 4,000,000 shares authorized;
3/31/03: 2,640,672 shares issued, 1,483,909 shares outstanding
12/31/02: 2,640,672 shares issued, 1,497,058 shares outstanding 26,407 26,407
Additional paid in capital 29,049,172 29,000,459
Retained earnings, substantially restricted 13,572,187 13,285,229
Unearned employee stock ownership plan shares (449,543) (482,351)
Unearned recognition and retention plan shares (1,759) (3,918)
Accumulated other comprehensive income (loss), net of tax 89,331 139,555
Treasury stock, 1,156,763 and 1,143,614 common shares, at
cost, at March 31, 2003 and December 31, 2002 (15,679,896) (15,402,896)
------------------ ------------------
Total shareholders' equity 26,605,899 26,562,485
----------------- -----------------
Total liabilities and shareholders' equity $ 224,552,681 $ 225,018,915
================= ================
________________________________________________________________________________
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
1.
________________________________________________________________________________
NORTHEAST INDIANA BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED MARCH 31, 2003 AND 2002
________________________________________________________________________________
THREE MONTHS ENDED
MARCH 31,
2003 2002
---- ----
(Unaudited)
Interest income
Loans, including fees $ 2,788,643 $ 3,179,398
Taxable securities 392,162 467,504
Non-taxable securities 17,195 4,836
Deposits with financial institutions 36,387 102,562
------------------ -----------------
Total interest income 3,234,387 3,754,300
Interest expense
Deposits 841,258 1,271,588
Borrowed funds 898,791 894,421
------------------ -----------------
Total interest expense 1,740,049 2,166,009
Net interest income 1,494,338 1,588,291
Provision for loan losses - 217,300
------------------ -----------------
Net interest income after provision for loan
losses 1,494,338 1,370,991
Noninterest income
Service charges on deposit accounts 84,535 83,627
Trust fees 38,540 30,600
Brokerage fees 13,156 15,244
Net gain on sale of loans 165,574 30,425
Other service charges or fees 141,871 142,889
------------------ -----------------
Total noninterest income 443,676 302,785
Noninterest expense
Salaries and employee benefits 659,752 644,152
Occupancy 123,727 116,521
Data processing 169,085 152,061
Deposit insurance premium 5,154 6,485
Professional fees 77,717 49,494
Correspondent bank charges 45,937 53,428
Other expense 211,080 180,649
------------------ -----------------
Total noninterest expense 1,292,452 1,202,790
------------------ -----------------
Income before income taxes 645,562 470,986
Income tax expense 164,350 117,762
------------------ -----------------
Net income $ 481,212 $ 353,224
================== =================
Comprehensive income $ 430,988 $ 246,406
================== =================
Basic earnings per common share $ 0.34 $ 0.24
Diluted earnings per common share $ 0.33 $ 0.23
________________________________________________________________________________
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
2.
NORTHEAST INDIANA BANCORP, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDER'S EQUITY
THREE MONTHS ENDED MARCH 31, 2003
________________________________________________________________________________
(UNAUDITED)
UNEARNED
EMPLOYEE UNEARNED ACCUMULATED OTHER
ADDITIONAL STOCK RECOGNITION COMPREHENSIVE
COMMON PAID IN RETAINED OWNERSHIP AND RETENTION INCOME (LOSS),
STOCK CAPITAL EARNINGS PLAN SHARES PLAN SHARES NET OF TAX
------- ----------- ----------- ----------- ------------- -----------------
Balance, January 1, 2003 $26,407 $29,000,459 $13,285,229 $(482,351) $(3,918) $139,555
Net income for three months ended March 31,
2003 481,212
Other comprehensive income (loss):
Net change in unrealized gains (losses)
on securities available for sale, net
of tax
Total other comprehensive income (loss) (50,224)
Comprehensive income
Cash dividends declared $.13 per common
share year to date (194,254)
Purchase of 29,163 shares of treasury stock
Issuance of 16,014 shares of treasury stock
upon exercise of options (16,661)
Tax effect of stock plans 33,999
3,970 shares committed to be released under
ESOP 31,375 32,808
Amortization of RRP contributions 2,159
----------------------------------------------------------------------------------
BALANCE AT MARCH 31, 2003 $26,407 $29,049,172 $13,572,187 $(449,543) $(1,759) $89,331
==================================================================================
TOTAL
TREASURY SHAREHOLDERS'
STOCK EQUITY
------------ ------------
Balance, January 1, 2003 $(15,402,896) $26,562,485
Net income for three months ended March 31,
2003 481,212
Other comprehensive income (loss):
Net change in unrealized gains (losses)
on securities available for sale, net
of tax
Total other comprehensive income (loss) (50,224)
------------
Comprehensive income 430,988
Cash dividends declared $.13 per common
share year to date (194,254)
Purchase of 29,163 shares of treasury stock (452,360) (452,360)
Issuance of 16,014 shares of treasury stock
upon exercise of options 175,360 158,699
Tax effect of stock plans 33,999
3,970 shares committed to be released under
ESOP 64,183
Amortization of RRP contributions 2,159
------------------------------
BALANCE AT MARCH 31, 2003 $(15,679,896) $26,605,899
==============================
________________________________________________________________________________
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
3.
NORTHEAST INDIANA BANCORP, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2003 AND 2002
THREE MONTHS ENDED
MARCH 31,
2003 2002
---- ----
(UNAUDITED)
Cash flows from operating activities
Net income $ 481,212 $ 353,224
Adjustments to reconcile net income
to net cash from operating activities
Depreciation and amortization 57,854 111,610
Provision for loan losses - 217,300
Net (gain) loss on sale of:
Foreclosed real estate and repossessed assets (14,354) (59,375)
Loans held for sale (165,574) (30,425)
Originations of loans held for sale (6,502,442) (991,379)
Proceeds from loans sold 6,040,523 1,961,125
Reduction of obligation under ESOP 64,183 21,446
Amortization of RRP 2,159 2,159
Net change in:
Other assets 146,674 3,927
Accrued interest receivable (23,213) 11,776
Accrued expenses and other liabilities 740,407 137,143
------------- --------------
Total adjustments 346,217 1,385,307
------------- --------------
Net cash from operating activities 827,429 1,738,531
Cash flows from investing activities
Purchases of securities available for sale (9,049,951) (3,564)
Proceeds from maturities and principal payments of:
Securities available for sale 5,215,505 3,815,376
Securities held to maturity 41,000 40,000
Purchases of life insurance (2,000,000) -
Net change in loans 2,879,676 365,270
Proceeds from sale of foreclosed real estate and repossessed assets 310,418 185,125
Expenditures on premises and equipment (5,781) (41,026)
Proceeds from sale of premises and equipment - 8,143
------------- --------------
Net cash from investing activities (2,609,133) 4,369,324
Cash flows from financing activities
Net change in deposits 3,165,464 (2,440,058)
Payments of demand notes (50,000) -
Net change in other borrowed funds (4,365,519) (5,554,019)
Dividends paid (194,254) (185,179)
Purchase of treasury stock (452,360) (267,428)
Sale of treasury stock 158,699 19,410
------------- --------------
Net cash from financing activities (1,737,970) (8,427,274)
-------------- ---------------
Net change in cash and cash equivalents (3,519,674) (2,319,419)
Cash and cash equivalents at beginning of period 18,256,408 26,291,732
------------- --------------
Cash and cash equivalents at end of period $ 14,736,734 $ 23,972,313
============= ==============
Cash paid for:
Interest $ 1,774,061 $ 2,125,948
Income taxes - 21,000
Non-cash transactions:
Transfer from loans to foreclosed real estate and repossessed assets $ 900,996 $ 65,604
________________________________________________________________________________
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
4.
NORTHEAST INDIANA BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 2003 AND 2002
________________________________________________________________________________
NOTE 1 - BASIS OF PRESENTATION
The unaudited information for the three months ended March 31, 2003 and 2002
includes the results of operations of Northeast Indiana Bancorp, Inc.
("Northeast Indiana Bancorp" or "the Company") and its wholly owned subsidiary,
First Federal Savings Bank ("First Federal") and its wholly owned subsidiary,
Northeast Indiana Financial, Inc. ("Northeast Indiana Financial"). In the
opinion of management, the information reflects all adjustments (consisting only
of normal recurring adjustments) necessary for a fair presentation of the
results of operations for the three month period reported but should not be
considered as indicative of the results to be expected for the full year.
Certain reclassifications were made to the prior period financial statements to
conform to the current period presentation.
NOTE 2 - EARNINGS PER COMMON SHARE
Basic earnings per common share are based on weighted-average common shares
outstanding. Diluted earnings per common share further assume issue of any
dilutive potential common shares.
THREE MONTHS ENDED
MARCH 31,
2003 2002
---- ----
EARNINGS PER COMMON SHARE
Net income available to common shareholders $ 481,212 $ 353,224
================ =============
Weighted average common shares outstanding
net of unallocated ESOP shares and non-vested
RRP shares 1,432,020 1,465,452
=============== =============
BASIC EARNINGS PER COMMON SHARE $ 0.34 $ 0.24
=============== =============
EARNINGS PER COMMON SHARE ASSUMING DILUTION
Net income available to common shareholders $ 481,212 $ 353,224
=============== =============
Weighted average common shares outstanding 1,432,020 1,465,452
Add: Dilutive effects of assumed exercises of
incentive stock options and non qualified
stock options 46,731 46,522
------ ------
Weighted average and dilutive common shares
outstanding 1,478,751 1,511,974
=============== =============
DILUTED EARNINGS PER COMMON SHARE $ 0.33 $ 0.23
=============== =============
NOTE 3 - SUSEQUENT EVENT-CASH DIVIDENDS
On April 23, 2003 the Board of Directors of Northeast Indiana Bancorp announced
a quarterly cash dividend of $.13 per common share. The dividend will be paid on
May 21, 2003 to shareholders of record on May 7, 2003. The payment of the cash
dividend will reduce shareholders' equity (second quarter) by approximately
$193,000.
________________________________________________________________________________
5.
NORTHEAST INDIANA BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 2003 AND 2002
________________________________________________________________________________
NOTE 4 - STOCK REPURCHASE PLAN
On March 26, 2003, Northeast Indiana Bancorp announced a new stock repurchase
program to repurchase up to 5.00% of the outstanding shares in the open market
as Treasury shares over the next twelve months. This program will include up to
74,195 shares. As of April 23, 2003, no shares have been repurchased under this
program since its announcement.
There were also 16,014 shares exercised from officer and director options and
repurchased by Northeast Indiana Bancorp during the three months ended March 31,
2003.
NOTE 5 - REGULATORY CAPITAL REQUIREMENTS
Pursuant to federal regulatory agencies, savings institutions must meet three
separate minimum capital-to-asset requirements. The following table summarizes,
as of March 31, 2003, the capital requirements for First Federal under those
regulatory requirements and First Federal's actual capital ratios. As of March
31, 2003, First Federal substantially exceeded all current regulatory capital
standards.
MINIMUM REQUIRED TO BE WELL
MINIMUM REQUIRED FOR CAPITAL CAPITALIZED UNDER PROMPT
ACTUAL ADEQUACY PURPOSES CORRECTIVE ACTION REGULATIONS
------ ----------------- -----------------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------ ----- ------ ----- ------ -----
(Dollars in thousands)
Total capital
(to risk weighted assets) $26,054 18.41% $11,325 8.00% $14,156 10.00%
Tier 1 (core) capital (to
risk weighted assets) 24,786 17.51% 5,662 4.00% 8,493 6.00%
Tier 1(core) capital (to
Adjusted total assets) 24,786 11.06% 8,965 4.00% 11,206 5.00%
Tier 1 (core) capital (to
Average assets) 24,786 11.20% 8,850 4.00% 11,063 5.00%
NOTE 6 - INVESTMENTS IN LIMITED LIABILITY PARTNERSHIPS
These represent First Federal's investments in affordable housing projects for
the primary purpose of available tax benefits. They are accounted for using the
cost method of accounting. The excess of the carrying amount of the investment
over its estimated residual value is amortized during the periods in which
associated tax credits are allocated to the investor. The annual amortization of
the investment is based on the proportion of tax credits received in the current
year to total estimated tax credits to be allocated to First Federal.
________________________________________________________________________________
6.
NORTHEAST INDIANA BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 2003 AND 2002
________________________________________________________________________________
NOTE 6 - INVESTMENTS IN LIMITED LIABILITY PARTNERSHIPS (CONTINUED)
These investments are reviewed for impairment when events indicate their
carrying amounts may not be recoverable from future discounted cash flows. If
impaired, the investments are reported at discount amounts. First Federal's
involvement in these types of investments is for tax planning purposes only and
as such, First Federal is not involved in the management or operation of such
investments. At March 31, 2003, First Federal had four such investments with a
carrying value of $1.8 million. The most recent investment, in the amount of
$500,000, was committed but not fully funded as of the end of the current
period. The remaining $50,000 obligation is included in borrowed funds in the
consolidated balance sheet as of March 31, 2003 and is anticipated to be
disbursed during the second quarter of 2003.
NOTE 7 - STOCK OPTIONS
The following proforma information presents net income and basic and diluted
earnings per common share had the fair value method been used to measure
compensation for stock options granted. The exercise price of options granted is
equivalent to the market price of the underlying stock at the grant date;
therefore, no compensation expense has been recorded for stock options granted.
2003 2002
---- ----
Net income as reported $ 481,212 $ 353,224
Proforma net income 476,613 349,327
Reported earnings per common share
Basic 0.34 0.24
Diluted 0.33 0.23
Proforma earnings per common share
Basic 0.33 0.24
Diluted 0.32 0.23
The weighted average fair value of stock options granted during the three months
ended March 31, 2003 was $2.96 per option. No options were granted in the same
period of 2002. The fair value of options granted during the three months ended
March 31, 2003 were estimated using an option pricing model with the following
weighted average information as of the grant date:
2003
Risk free rate of interest 3.27 %
Expected option life 6 years
Expected dividend yield 3.37 %
Expected volatility 24.84 %
________________________________________________________________________________
7.
NORTHEAST INDIANA BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 2003 AND 2002
________________________________________________________________________________
NOTE 7 - STOCK OPTIONS (CONTINUED)
In future years, as additional options are granted, the proforma effect on net
income and earnings per common share may increase. Stock options are used to
reward directors and certain executive officers and provide them with an
additional equity interest. Options are issued for 10 year periods and have five
year vesting schedules. Information about options available for grant and
options granted follows:
WEIGHTED-
AVERAGE
AVAILABLE OPTIONS EXERCISE
FOR GRANT OUTSTANDING PRICE
--------- ----------- -----
Balance at December 31, 2002 155,024 169,429 $ 10.37
Options exercised (16,014) $ 9.91
Options issued (5,000) 5,000 $ 15.27
Options forfeited 1,150 (1,150) $ 12.91
------------ ------------- ----------
Balance at March 31, 2003 151,174 157,265 $ 10.56
============= ============= ==========
At March 31, 2003, options outstanding had a weighted average remaining life of
approximately 3.74 years. There were 136,202 options exercisable March 31, 2003
with a weighted-average exercise price of $10.04.
________________________________________________________________________________
8.
NORTHEAST INDIANA BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
________________________________________________________________________________
GENERAL
Northeast Indiana Bancorp, Inc. ("Northeast Indiana Bancorp") was formed as a
Delaware corporation in March, 1995, for the purpose of issuing common stock and
owning all the common stock of First Federal Savings Bank ("First Federal") as a
unitary thrift holding company. Prior to the conversion, Northeast Indiana
Bancorp did not engage in any material operations and at March 31, 2003, had no
significant assets other than the investment in the capital stock of First
Federal and cash and cash equivalents.
The principal business of savings banks, including First Federal, has
historically consisted of attracting deposits from the general public and making
loans secured by residential real estate. First Federal's earnings are primarily
dependent on net interest income, the difference between interest income and
interest expense. Interest income is a function of the balances of loans and
investments outstanding during the period and the yield earned on such assets.
Interest expense is the function of the balances of deposits and borrowings.
First Federal's earnings are also affected by provisions for loan losses,
service charge and fee income, and other 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
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.
TRUST AND FINANCIAL SERVICES
During 1998, First Federal established a trust department which began operations
in the fourth quarter. As of March 31, 2003, $39.3 million was held under asset
management. The trust department has grown to a level where it provides a slight
positive impact to Northeast Indiana Bancorp. In February 1999, Northeast
Indiana Bancorp announced the establishment of Northeast Indiana Financial,
Inc., a wholly owned subsidiary of First Federal. Northeast Indiana Financial,
Inc. provides brokerage services through the purchase of mutual funds,
annuities, stocks and bonds for its customers. Northeast Indiana Financial, Inc.
has not been able to produce positive results thus far primarily due to the
extremely challenging equity markets over the past three years.
________________________________________________________________________________
9.
NORTHEAST INDIANA BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
________________________________________________________________________________
FINANCIAL CONDITION
Northeast Indiana Bancorp's total assets decreased $466,000 or 0.2% from $225.0
million at December 31, 2002 to $224.6 million at March 31, 2003. Securities
available for sale increased $3.8 million to $46.7 million as management
invested excess funds in an effort to increase interest earning asset yields
over current overnight fund yields. Cash and cash equivalents decreased by $3.6
million, from $18.3 million to $14.7 million.
Net loans receivable decreased $3.8 million or 2.5% from $154.6 million at
December 31, 2002 to $150.8 million at March 31, 2003. Most of the decline was
due to both residential loans being sold into the secondary market and loan
balances transferred to both foreclosed real estate and repossessed assets of
$901,000. Loans held for sale increased $627,000 from $409,000 at December 31,
2002 to $1.0 million at March 31, 2003 as the current low residential mortgage
interest rate environment has led to another refinancing wave. Allowances for
loan losses decreased approximately $339,000 through the three months ended
March 31, 2003, which is discussed in more detail on the next page.
Cash surrender value of life insurance increased $2.0 million to $4.1 million at
March 31, 2003 as First Federal purchased new Bank-Owned Life Insurance ("BOLI")
policies on a pool of officers. Management believes the earnings crediting rate
and the tax-advantaged status of the new BOLI will help offset existing expenses
related to benefits plans that are currently in place for employees.
Total deposits increased $3.2 million or 2.6% from $122.3 million at December
31, 2002 to $125.5 million at March 31, 2003. Borrowed funds have been reduced
by $4.4 million predominantly through a reduction in short term borrowings under
repurchase agreements.
RESULTS OF OPERATIONS
Northeast Indiana Bancorp had net income of $481,000 or $0.33 per diluted common
share for the three months ended March 31, 2003 compared to $353,000 or $0.23
per diluted common share for the three months ended March 31, 2002, an increase
of 36.3%.
Net interest income declined to $1.5 million for the three months ended March
31, 2003 compared to $1.6 million reported for the three months ended March 31,
2002. Interest income decreased $520,000 to $3.2 million for the current period
compared to $3.8 million for the year earlier period. Conversely, interest
expense decreased $426,000 to $1.7 million for the quarter ended March 31, 2003
compared to $2.2 million for the quarter ended March 31, 2002. The overall 6.0%
decline in net interest income is due to a combination of non-performing asset
average balances, the prolonged low interest rate environment, Northeast Indiana
Bancorp's inability to re-price liabilities at the same pace as its assets, and
modest loan demand.
________________________________________________________________________________
10.
NORTHEAST INDIANA BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
________________________________________________________________________________
RESULTS OF OPERATIONS (CONTINUED)
Northeast Indiana Bancorp had improving trends in non-performing assets which
enabled The Company to make no provision for loan losses during the period ended
March 31, 2003 compared to $217,000 in provision for loan losses during the
quarter ended March 31, 2002. The decreased provisions and improving trends
related to this area are discussed in more detail under the non-performing
assets and allowance for loan losses section.
Noninterest income increased to $444,000 for the current three month period
compared to $303,000 for the comparable period in 2002. This represents an
increase of $141,000 or 46.5% for the three months ended March 31, 2003. This
increase is primarily due to a $135,000 increase in net gains on the sale of
loans between periods as the prolonged low interest rate environment led to
another round of residential mortgage refinancing activity.
Noninterest expense increased by $90,000 to $1.3 million for the three months
ended March 31, 2003 compared to $1.2 million for the corresponding period in
2002. This increase was primarily due to increases to professional fees and
other expenses, and to a lesser extent, smaller increases in salaries,
occupancy, and data processing. The increased professional fees and other
expenses was due to increased collection activity, costs associated the
Company's public reporting obligations, and increased impairment provisions on
First Federal's investments in limited liability partnerships between periods.
First Federal had an additional limited liability partnership investment during
the current period than during the quarter ended March 31, 2002.
Income tax expense increased $47,000 to $164,000 for the period ended March 31,
2003 from $118,000 reported for the period ended March 31, 2002. The increase
was mainly due to higher taxable income in the current quarter compared to the
same quarter of 2002, partially offset by increased federal tax credits
associated with First Federal's newest limited liability partnership acquired
during the latter half of 2002. This increase was reflected by an effective tax
rate of 25.5% for the quarter ended March 31, 2003 compared to a 25.0% effective
tax rate for the quarter ended March 31, 2002.
NON-PERFORMING ASSETS AND ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is established through a provision for loan losses
calculation based on management's quarterly asset classification review and
evaluation of the risk inherent in its loan portfolio and changes in the nature
and volume of its loan activity. Such evaluation, which considers among other
matters, the estimated value of the underlying collateral, economic conditions,
cash flow analysis, historical loan loss experience, discussions held with
delinquent borrowers and other factors that warrant recognition in providing for
an adequate allowance for loan losses. As a result of this review process and
due to improving trends in this area, management recorded no provision for loan
losses for the three months
________________________________________________________________________________
11.
NORTHEAST INDIANA BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
________________________________________________________________________________
NON-PERFORMING ASSETS AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)
ended March 31, 2003 compared to $217,000 for the same period ended March 31,
2002.
The non-performing assets to total assets ratio is one indicator of the exposure
to credit risk. Non-performing assets of First Federal consist of non-accruing
loans, troubled debt restructurings and foreclosed rea estate and repossessed
assets which have been acquired as a result of foreclosure or insubstance
foreclosure. The following table summarizes, in thousands, the various
categories of non-performing assets:
March 31, December 31,
2003 2002
---- ----
Non-performing loans
One-to-four-family $ 155 $ 495
Commercial real estate 4,005 5,006
Consumer 344 510
Commercial 107 207
--------------- ----------------
Total 4,611 6,218
--------------- ----------------
Foreclosed real estate
One-to-four-family 1,034 420
Commercial real estate 92 96
--------------- ----------------
Total $ 1,126 $ 516
--------------- ----------------
Repossessed Assets
Consumer 7 11
Commercial - 1
--------------- ----------------
Total $ 7 $ 12
--------------- ----------------
Total non-performing assets $ 5,744 6,746
Total non-performing assets as a =============== ================
Percentage of total assets 2.56% 3.00%
=============== ================
Non-performing assets declined $1.0 million to $5.7 million at March 31, 2003
from the $6.7 million reported at December 31, 2002. Management's increased
collection efforts were rewarded during the current period as several previously
reported non-performing loans were transferred to both foreclosed real estate
and repossessed assets. These loans were written down to fair market value at
the transfer date by utilizing specific reserves established in prior periods in
the allowance for loan losses, and several properties were sold prior to March
31, 2003 without additional loss to Northeast Indiana Bancorp. Subsequent to
March 31, 2003, management was successful at procuring an offer to sell a large
portion of one-to-four family rental properties under conventional terms to a
single investor at no further loss. These properties comprised approximately
$756,000 of the $1.1 million in foreclosed real estate reported at March 31,
2003.
________________________________________________________________________________
12.
NORTHEAST INDIANA BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
________________________________________________________________________________
NON-PERFORMING ASSETS AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)
Additionally, one borrower comprises $1.4 million or 24.6% of the $5.7 million
in total non-performing assets reported at March 31, 2003. Management was
notified of this borrower's intent to file bankruptcy during the current period
and is waiting to see if the borrower's financial plan will be accepted by the
bankruptcy courts. Management had already established a specific reserve during
prior periods to cover potential losses related to this borrower and does not
anticipate any further loss at this time.
The following table represents an analysis of Northeast Indiana Bancorp's
allowance for loan losses for the three months ended March 31, 2003 and March
31, 2002:
Three Months Ended
March 31,
2003 2002
---------------- ----------------
Balance at beginning of period $ 2,135,630 $ 1,954,900
Charge-offs:
One-to-four family 25,954 -
Commercial real estate 201,379 -
Commercial 100,488 -
Consumer 92,148 162,213
---------------- ----------------
419,969 162,213
---------------- ----------------
Recoveries:
Commercial 13,000 9,463
Consumer 67,850 51,689
---------------- ----------------
80,850 61,152
---------------- ----------------
Net Charge-offs 339,119 101,061
Additions charged to operations - 217,300
---------------- ----------------
Balance at end of period $ 1,796,511 $ 2,071,139
================ ================
Ave. gross loans and loans HFS $ 158,838,181 $ 167,180,359
Ratio of net charge-offs during the period
to average loans outstanding during the
period
(annualized) 0.85% 0.24%
Average non-performing loans $ 4,611,388 $ 6,132,822
Ratio of net charge-offs during the period
to average non-performing loans (annualized)
29.42% 6.59%
________________________________________________________________________________
13.
NORTHEAST INDIANA BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
________________________________________________________________________________
NON-PERFORMING ASSETS AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)
Impaired loans at March 31, 2003 were $4.0 million compared to $5.5 million at
December 31, 2002. The net change in impaired loans of $1.5 million between
December 31, 2002 and March 31, 2003 was primarily due to a large group of
one-to-four family properties being transferred to foreclosed real estate, a
significant principal reduction due to asset sales on another impaired loan, and
another loan being removed from the impaired list due to improved cash flows and
an aggressive plan to bring the loan current. There were no new significant
loans added to the impaired list during the current period. As of March 31,
2003, management has set aside $528,000 in specific reserves against the
balances of these impaired loans.
LIQUIDITY AND CAPITAL RESOURCES
First Federal is required to maintain specific amounts of regulatory capital
pursuant to regulations of the Office of Thrift Supervision (OTS). Those capital
requirements follow: a risk-based capital standard expressed as a percent of
risk adjusted assets, a leverage ratio of core capital to total assets, and a
core capital ratio expressed as a percent of total adjusted assets. At March 31,
2003, First Federal exceeded all regulatory capital standards.
At March 31, 2003, First Federal's risk based capital was $26.1 million or
18.41% of risk adjusted assets, which exceeds the OTS requirement of $11.3
million and 8.00% by $14.8 million and 10.41%. First Federal's core capital at
March 31, 2003 was $24.8 million or 11.20% of average assets, which exceeds the
OTS requirement of $8.9 million, and 4.00% by $15.9 million and 7.20%. See Note
5 of Notes to Consolidated Financial Statements (Unaudited).
First Federal's primary sources of funds are deposits, borrowings from the FHLB,
the sale of fixed rate mortgages to the secondary market, principal and interest
payments of loans, operations income and short-term investments. While scheduled
repayments of loans area a predictable source of funds, deposit flows and
mortgage prepayments are greatly influenced by general interest rates, economic
conditions and competition. First Federal has maintained its liquidity position
by, among other things, monitoring its cash and cash equivalents while reducing
balances in rate sensitive jumbo deposits.
During the first quarter ended March 31, 2003, Northeast Indiana Bancorp
completed its ninth stock repurchase program which began in March 2002.
Northeast Indiana Bancorp repurchased 13,149 shares of treasury stock during
this time related to this program. Subsequent to the completion, the tenth stock
repurchase program was announced with the intent to repurchase another 5% of
common shares outstanding within the next twelve months.
First Federal considers its liquidity and capital resources to be adequate to
meet its foreseeable short and long-term needs. First Federal expects to be able
to fund or refinance, on a timely basis, its material commitments and long-term
liabilities.
________________________________________________________________________________
14.
NORTHEAST INDIANA BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
________________________________________________________________________________
FORWARD-LOOKING STATEMENTS
When used in this filing and in future filings by Northeast Indiana Bancorp with
the Securities and Exchange Commission, in Northeast Indiana Bancorp's press
releases or other public or shareholder communications, or in oral statements
made with the approval of an authorized executive officer, the words or phrases
"would be," "will allow," "intends to," "will likely result," "are expected to,"
"will continue," "is anticipated," "estimate," "project" or similar expressions
are intended to identify "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. Such statements are subject to
risks and uncertainties, including but not limited to changes in economic
conditions in Northeast Indiana Bancorp's market area, changes in policies by
regulatory agencies, fluctuations in interest rates, demand for loans in
Northeast Indiana Bancorp's market area and competition, all or some of which
could cause actual results to differ materially from historical earnings and
those presently anticipated or projected.
Northeast Indiana Bancorp wishes to caution readers not to place undue reliance
on any such forward-looking statements, which speak only as of the date made,
and advises readers that various factors, including regional and national
economic conditions, substantial changes in levels of market interest rates,
credit and other risks of lending and investment activities and competitive and
regulatory factors, could affect Northeast Indiana Bancorp's financial
performance and could cause Northeast Indiana Bancorp's actual results for
future periods to differ materially from those anticipated or projected.
Northeast Indiana Bancorp does not undertake, and specifically disclaims any
obligation, to update any forward-looking statements to reflect occurrences or
unanticipated events or circumstances after the date of such statements.
ITEM 3. CONTROLS AND PROCEDURES
With the participation and under the supervision of the Company's management,
including the Company's Chief Executive Officer and Chief Financial Officer, and
within 90 days of the filing date of this quarterly report, the Company's Chief
Executive Officer and Chief Financial Officer have evaluated the effectiveness
of the design and operation of the Company's disclosure controls and procedures
(as defined in Exchange Act Rules 13a-14(c) and 15(d)-14(c)) and, based on their
evaluation, have concluded that the disclosure controls and procedures are
effective. There were no significant changes in the Company's internal controls
or in other factors that could significantly affect these controls subsequent to
the date of their evaluation, including any corrective action with regard to
significant deficiencies and material weaknesses.
________________________________________________________________________________
15.
NORTHEAST INDIANA BANCORP, INC.
PART II
OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
Northeast Indiana Bancorp and First Federal are involved, from time to
time, as plaintiff or defendant in various legal actions arising from
the normal course of their businesses. While the ultimate outcome of
these proceedings cannot be predicted with certainty, it is the opinion
of management that the resolution of these proceedings should not have
a material effect on Northeast Indiana Bancorp's results of operations
on a consolidated basis.
ITEM 2 - CHANGES IN SECURITIES
None
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Annual Meeting of Shareholders ("the meeting") of Northeast
Indiana Bancorp, Inc. was held on April 23, 2003. 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
--- --------
Michael S. Zahn 946,850 227,127
Randall C. Rider 949,289 224,688
(2) Ratification of Crowe Chizek and Company LLC as auditors:
VOTES
-----
FOR AGAINST ABSTAIN
--- ------- -------
1,155,451 16,437 2,089
________________________________________________________________________________
16.
NORTHEAST INDIANA BANCORP, INC.
PART II
OTHER INFORMATION
(CONTINUED)
ITEM 5 - OTHER INFORMATION
None
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
(1) January 20, 2003 Announcing Fourth Quarter 2002 Earnings
(2) January 29, 2003 Announcing Quarterly Cash Dividend and
Eighth Annual Shareholder's Meeting Date
(3) March 5, 2003 Announcing Completion of Stock Repurchase
Program
(4) March 26, 2003 Announcing Stock Repurchase Program
________________________________________________________________________________
17.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
NORTHEAST INDIANA BANCORP, INC.
Date: May 12, 2003 By: /S/ STEPHEN E ZAHN
---------------------------------------
Stephen E. Zahn
President and Chief Executive Officer
(Duly Authorized Officer)
Date: May 12, 2003 By: /S/ RANDY J SIZEMORE
---------------------------------------
Randy J. Sizemore
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
________________________________________________________________________________
18.
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Stephen E. Zahn, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Northeast Indiana
Bancorp, Inc. (the "registrant");
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14(c) and 15d-14(c)) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: May 12, 2003 /s/ STEPHEN E. ZAHN
_________________________________
Stephen E. Zahn
President and Chief Executive Officer
________________________________________________________________________________
19.
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Randy J. Sizemore, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Northeast Indiana
Bancorp, Inc. (the "registrant");
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14(c) and 15d-14(c)) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: May 12, 2003 /s/ RANDY J. SIZEMORE
___________________________________
Randy J. Sizemore
Chief Financial Officer
________________________________________________________________________________
19.
EXHIBIT 99.1
CERTIFICATION PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-QSB of Northeast Indiana
Bancorp, Inc. (the "Company") for the quarterly period ending March 31, 2003 as
filed with the Securities and Exchange Commission on the date hereof (the
"Report"), I, Stephen E. Zahn, Chief Executive Officer of the Company, certify,
pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) the Report fully complies with the requirements of section 13(a)
or 15(d) of the Securities Exchange Act of 1934; and
(2) the information contained in the Report fairly presents, in all
material respects, the financial condition and result of
operations of the Company.
By: /s/ STEPHEN E. ZAHN
Name: Stephen E. Zahn
Chief Executive Officer
May 12, 2003
20.