UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 0-26012
NORTHEAST INDIANA BANCORP, INC.
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(Name of small business issuer in its charter)
Delaware 35-1948594
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
648 North Jefferson Street, Huntington, Indiana 46750
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (260) 356-3311
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Securities Registered Pursuant to Section 12(b) of the Act:
None
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Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, par value $0.01 per share
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(Title of class)
Check whether the issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
past 12 months (or for such shorter period that the registrant was required to
file such reports) and (2) has been subject to such filing requirements for the
past 90 days. YES [X]. NO [ ].
Check if there is no disclosure of delinquent filers in
response to Item 405 of Regulation S-B contained herein, and no disclosure will
be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
Our revenues for the most recent fiscal year: $18.8 million
The aggregate market value of the voting stock held by
non-affiliates, computed by reference to the average of the bid and asked price
of such stock as of March 12, 2002, was $15.8 million. (The exclusion from such
amount of the market value of the shares owned by any person shall not be deemed
an admission by the registrant that such person is an affiliate.)
As of March 12, 2002, there were 1,532,979 shares outstanding
of the registrant's Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Parts II of Form 10-KSB - Annual Report to Stockholders for the fiscal year
ended December 31, 2001. Part III of Form 10-KSB - Proxy Statement for Annual
Meeting of Stockholders.
Transitional Small Business Disclosure Format: YES [ ]; NO [X]
FORWARD-LOOKING STATEMENTS
Northeast Indiana Bancorp, Inc. (Northeast Indiana) and its
wholly-owned subsidiary, First Federal Savings Bank (First Federal) and its
wholly-owned subsidiary, Northeast Indiana Financial, Inc. (Northeast
Financial), may from time to time make written or oral "forward-looking
statements," including statements contained in its filings with the Securities
and Exchange Commission (the SEC). These forward-looking statements may be
included in this Annual Report on Form 10-KSB and the exhibits attached to it,
in Northeast Indiana's reports to stockholders and in other communications,
which are made in good faith by us pursuant to the "safe harbor" provisions of
the Private Securities Litigation Reform Act of 1995.
These forward-looking statements include statements about our
beliefs, plans, objectives, goals, expectations, anticipations, estimates and
intentions, that are subject to significant risks and uncertainties, and are
subject to change based on various factors, some of which are beyond our
control. The words "may," "could," "should," "would," "believe," "anticipate,"
"estimate," "expect," "intend," "plan" and similar expressions are intended to
identify forward-looking statements. The following factors, among others, could
cause our financial performance to differ materially from the plans, objectives,
expectations, estimates and intentions expressed in the forward-looking
statements:
o the strength of the United States economy in general and the
strength of the local economies in which we conduct
operations;
o the effects of, and changes in, trade, monetary and fiscal
policies and laws, including interest rate policies of the
Federal Reserve Board;
o inflation, interest rate, market and monetary fluctuations;
o the timely development of and acceptance of our new products
and services and the perceived overall value of these products
and services by users, including the features, pricing and
quality compared to competitors' products and services;
o the willingness of users to substitute our products and
services for products and services of our competitors;
o our success in gaining regulatory approval of our products and
services, when required;
o the impact of changes in financial services' laws and
regulations (including laws concerning taxes, banking,
securities and insurance);
o the impact of technological changes;
o acquisitions;
o changes in consumer spending and saving habits; and
o our success at managing the risks involved in the foregoing.
The list of important factors stated above is not exclusive.
We do not undertake to update any forward-looking statement, whether written or
oral, that may be made from time to time by or on behalf of Northeast Indiana,
First Federal or Northeast Financial.
2
PART I
Item 1. Description of Business
Northeast Indiana, a Delaware corporation, is the holding
company for First Federal and its subsidiary Northeast Financial. All references
to Northeast Indiana prior to June 27, 1995, the date of First Federal's
conversion from mutual to stock form, except where otherwise indicated, are to
First Federal. References in this Form 10-KSB to "we," "us" and "our" refer to
Northeast Indiana and/or First Federal and/or Northeast Financial as the context
requires.
At December 31, 2001, we had $238.4 million of assets and
stockholders' equity of $26.3 million (or 11.03% of total assets).
First Federal is a federally chartered stock savings
association headquartered in Huntington, Indiana. Our deposits are insured up to
applicable limits by the Federal Deposit Insurance Corporation (FDIC), which is
backed by the full faith and credit of the United States Government.
Northeast Financial, an Indiana corporation, was established
as a subsidiary of First Federal to provide brokerage services through an
affiliation with VESTAX Securities Corporation (broker/dealer).
Our principal business consists of attracting retail deposits
from the general public and investing those funds primarily in first mortgage
loans on owner-occupied, single-family residential real estate. We also
originate commercial real estate, construction, consumer and commercial business
loans. We have in the past purchased a limited number of loans and equipment
leases. At December 31, 2001, substantially all of the real estate mortgage
loans, including commercial and multi-family, were secured by properties located
in our market area. We also invest in obligations of states and political
subdivisions, mutual funds and other permissible investments.
We offer traditional trust services, including but not limited
to, revocable living trusts, testamentary trusts, investment agency
relationships, estate administration, guardianships, and custodial accounts. The
professionals in our trust department have collectively over 30 years of banking
and investments experience.
Our revenues are derived principally from interest on loans,
investment and other securities and service fee income. We do not originate
loans to fund leveraged buyouts, and have no loans to foreign corporations or
governments. While we generally solicit deposits only in our primary market
area, at December 31, 2001, we had $10.1 million in brokered deposits.
Our executive offices are located at 648 North Jefferson
Street, Huntington, Indiana 46750, and our telephone number at that address is
(260) 356-3311.
3
Market Area
Our office is located at 648 North Jefferson Street in
Huntington, Indiana. The City of Huntington is located in Huntington County,
Indiana, and 25 miles southwest of Fort Wayne, Indiana. The City of Huntington
is the County Seat of Huntington County and has a population of approximately
17,500. Along with an agricultural base, the major employers in Huntington
County are engaged in the light industry and include Wabash/Optek Sensor Group,
United Technologies Electronic Controls, Hayes Lemmerz, CFM Majestic, Dana
Corporation, Good Humor-Breyer, Bendix Commercial Vehicle System Co., Square D
and Our Sunday Visitor.
Lending Activities
Our loan portfolio consists primarily of conventional, first
mortgage loans secured by one-to four-family residences and, to a lesser extent,
consumer loans, commercial real estate loans, commercial business loans,
construction or development loans and loans secured by multi-family real estate.
At December 31, 2001, gross loans outstanding totaled $167.9 million, of which
$95.8 million or 57.03% were one-to four-family residential mortgage loans. Of
the one-to four-family mortgage loans outstanding at that date, 58.51% were
fixed-rate loans, and 41.49% were adjustable-rate loans. At that same date,
commercial real estate and multi-family loans totaled $23.8 million, of which
87.43% were fixed-rate loans and 12.57% were adjustable-rate loans. Also at that
date, construction or development loans totaled $6.4 million or 3.79% of the
total loan portfolio, 25.92% of which were adjustable-rate loans. At December
31, 2001, commercial business loans totaled $14.3 million or 8.49% of the total
loan portfolio, of which 49.08% were fixed-rate loans and 50.92% were
adjustable-rate loans.
At December 31, 2001, the balance of our consumer loans
consisted of $27.7 million of loans, which represented 16.50% of the gross loan
portfolio. Of the consumer loans outstanding, 69.74% were fixed-rate loans and
30.26% were adjustable-rate loans.
We also invest in mutual funds, obligations of states and
political subdivisions, and other debt securities and mortgage-backed
securities. At December 31, 2001, mutual funds totaled $899,000 or 0.38% of
total assets, mortgage-backed securities totaled $25.3 million or 10.59% of
total assets, Government agencies totaled $4.0 million or 1.68% of total assets,
and obligations of states and political subdivisions totaled $462,000 or 0.19%
of total assets. See "Investment Activities."
The aggregate amount of loans that First Federal is permitted
to make under applicable federal regulations to any one borrower, including
related entities, is generally equal to the greater of 15% of unimpaired capital
and surplus or $500,000. At December 31, 2001, the maximum amount, which First
Federal could have lent to any one borrower and the borrower's related entities,
was approximately $3.8 million. See "Regulation - Federal Regulation of Savings
Associations." At December 31, 2001, we had no loans or groups of loans to
related borrowers with outstanding balances in excess of this amount. Our
largest lending relationship at December 31, 2001 was $2.7 million in loans to
one borrower secured by real estate, inventory, accounts receivable and
equipment.
4
Loan Portfolio Composition. The following table sets forth
information concerning the composition of our loan portfolio in dollar amounts
and in percentages (before deductions for loans in process, deferred fees and
discounts and allowance for loan losses) as of the dates indicated.
December 31,
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2001 2000 1999 1998
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Amount Percent Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ ------- ------ -------
(Dollars in Thousands)
Real Estate Loans
One- to four-family........................ $95,777 57.03% $117,683 57.61% $119,283 55.50% $113,919 59.66%
Multi-family............................... 3,625 2.16 4,377 2.14 3,779 1.76 2,908 1.52
Commercial................................. 20,199 12.03 24,519 12.00 24,471 11.39 16,514 8.65
Construction or development................ 6,363 3.79 7,188 3.52 12,613 5.87 11,365 5.95
----- ---- ----- ---- ------ ---- ------ ----
Total real estate loans............... 125,964 75.01 153,767 75.27 160,146 74.52 144,706 75.78
------- ----- ------- ----- ------- ----- ------- -----
Other Loans:
-----------
Consumer Loans:
Deposit account............................ 34 .02 53 0.03 47 0.02 146 0.08
Automobile................................. 12,788 7.61 14,098 6.90 15,442 7.18 12,248 6.41
Home equity................................ 5,821 3.47 6,961 3.41 6,366 2.96 5,206 2.73
Home improvement........................... 2,791 1.66 1,251 0.61 805 0.37 742 0.39
Other...................................... 6,277 3.74 7,422 3.63 7,935 3.70 6,521 3.41
----- ---- ----- ----- ----- ------ ----- ------
Total consumer loans.................. 27,711 16.50 29,785 14.58 30,595 14.23 24,863 13.02
------ ----- ------ ----- ------ ------ ------ ------
Commercial business loans.................. 14,259 8.49 20,730 10.15 24,184 11.25 21,393 11.20
------ ---- ------ ----- ------ ----- ------ -----
Total loans........................... 167,934 100.00% 204,282 100.00% 214,925 100.00% 190,962 100.00%
======== ======= ======= =======
Less:
----
Undisbursed portion of construction loans 2,217 1,745 4,088 2,800
Loans in process........................... 641 156 443 663
Deferred fees and discounts................ 291 229 233 139
Allowance for loan losses.................. 1,955 2,001 1,766 1,454
----- ----- ----- -----
Total loans receivable, net................ $162,830 $200,151 $208,395 $185,906
======== ======== ======== ========
December 31,
--------------------
1997
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Amount Percent
------ -------
Real Estate Loans
One- to four-family........................ $109,080 60.53%
Multi-family............................... 2,606 1.45
Commercial................................. 16,734 9.29
Construction or development................ 10,596 5.88
------ ----
Total real estate loans............... 139,016 77.15
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Other Loans:
-----------
Consumer Loans:
Deposit account............................ 44 0.02
Automobile................................. 11,573 6.42
Home equity................................ 5,506 3.06
Home improvement........................... 656 0.36
Other...................................... 5,873 3.26
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Total consumer loans.................. 23,652 13.12
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Commercial business loans.................. 17,526 9.73
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Total loans........................... 180,194 100.00%
=======
Less:
----
Undisbursed portion of construction loans 3,981
Loans in process........................... 355
Deferred fees and discounts................ 125
Allowance for loan losses.................. 1,194
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Total loans receivable, net................ $174,539
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5
The following table shows the composition of our loan
portfolio by fixed-and adjustable-rate at the dates indicated.
December 31,
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2001 2000 1999
Amount Percent Amount Percent Amount Percent
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(Dollars in Thousands)
Fixed-Rate Loans:
----------------
Real estate:
One- to four-family.................... $56,043 33.37% $58,485 28.63% $57,974 26.97%
Multi-family........................... 2,732 1.63 2,514 1.23 2,300 1.07
Commercial............................. 18,097 10.78 19,835 9.71 19,237 8.95
Construction or development............ 4,714 2.81 1,972 0.97 4,258 1.98
----- ---- ----- ------ ----- ------
Total real estate loans........... 81,586 48.59 82,806 40.54 83,769 38.97
------ ----- ------ ----- ------ -----
Consumer............................... 19,325 11.51 21,005 10.28 21,708 10.10
Commercial business.................... 6,999 4.17 9,408 4.61 11,166 5.20
----- ---- ----- ------ ------ --------
Total fixed-rate loans............ 107,910 64.27 113,219 55.43 116,643 54.27
Adjustable-Rate Loans:
---------------------
Real estate:
One- to four-family.................... 39,734 23.66 59,198 28.98 61,309 28.53
Multi-family........................... 893 0.53 1,863 0.91 1,479 0.69
Commercial............................. 2,102 1.25 4,684 2.29 5,234 2.44
Construction or development............ 1,649 0.98 5,216 2.55 8,355 3.89
----- ---- ----- ---- ----- ----
Total real estate loans........... 44,378 26.42 70,961 34.74 76.377 35.55
------ ----- ------ ----- ------ -----
Consumer............................... 8,386 4.99 8,780 4.30 8,887 4.13
Commercial business.................... 7,260 4.32 11,322 5.54 13,018 6.05
----- ---- ------ ---- ------ ----
Total adjustable-rate loans....... 60,024 35.73 91,063 44.58 98,282 45.73
------ ----- ------ ----- ------ -----
Total loans....................... 167,934 100.00% 204,282 100.00% 214,925 100.00%
======= ======= =======
Less:
----
Undisbursed portion of construction loans 2,217 1,745 4,088
Loans in process........................... 641 156 443
Deferred fees and discounts................ 291 229 233
Allowance for loan losses.................. 1,955 2,001 1,766
----- ------ -----
Total loans receivable, net.......... $162,830 $200,151 $208,395
======== ======== ========
6
The following schedule illustrates the interest rate
sensitivity of our loan portfolio at December 31, 2001. Mortgages which have
adjustable or renegotiable interest rates are shown as maturing in the period
during which the contract is due. The schedule does not reflect the effects of
possible prepayments or enforcement of due-on-sale clauses.
Real Estate
-----------------------------------------------------------
Multi-family and Construction or Commercial Total
One- to Four-Family Commercial Development Consumer Business
---------------------------------------------------------------------------------------------------------------
Weighted Weighted Weighted Weighted Weighted Weighted
Average Average Average Average Average Average
Amount Rate Amount Rate Amount Rate Amount Rate Amount Rate Amount Rate
-------- ------- --------- -------- -------- ------- --------- ------- -------- ------- -------- --------
(Dollars in Thousands)
Due During
the Period
Ending
December 31,
2002 ............ $ 980 8.06% $ 7 14.29% $ 4,166 6.51% $ 5,714 3.80% $ 5,047 7.65% $ 15,914 5.96%
2003 and 2004 ... 349 8.02 542 8.49 254 6.88 5,198 9.35 1,440 9.10 7,783 8.88
2005 and 2006 ... 1,668 8.27 3,070 9.06 -- -- 8,861 8.84 3,026 6.38 16,625 8.37
2007 to 2011 .... 16,296 7.93 7,254 8.42 1,463 9.02 6,898 8.23 1,589 9.31 33,500 8.21
2012 to 2031 .... 76,484 7.44 12,951 8.50 480 6.32 1,040 8.65 3,157 8.84 94,112 7.61
-------- -------- -------- -------- -------- --------
$ 95,777 7.54 $ 23,824 8.55 $ 6,363 6.33 $ 27.711 7.74 $ 14,259 7.97 $167,934 7.71
======== ======== ======== ======== ======== ========
The total amount of loans due after December 31, 2001 which
have predetermined interest rates is $99.8 million, while the total amount of
loans due after such dates which have floating or adjustable interest rates is
$52.2 million.
7
All of our lending is subject to our written underwriting
standards and loan origination procedures. Decisions on loan applications are
made on the basis of detailed applications and property valuations. Properties
securing real estate loans made by us are generally appraised by Board-approved
independent appraisers. In the loan approval process, we assess the borrower's
ability to repay the loan, the adequacy of the proposed security, the employment
stability of the borrower and the credit-worthiness of the borrower.
We require evidence of marketable title and lien position or
appropriate title insurance on all loans secured by real property. We also
require fire and extended coverage casualty insurance in amounts at least equal
to the lesser of the principal amount of the loan or the value of improvements
on the property, depending on the type of loan. As required by federal
regulations, we also require flood insurance to protect the property securing
its interest if such property is located in a designated flood area.
One- to Four-Family Residential Mortgage Lending. Residential
loan originations are generated by our marketing efforts, our present customers,
walk-in customers and referrals from real estate brokers. We have focused our
lending efforts primarily on the origination of loans secured by first mortgages
on owner-occupied, single-family residences in our market area. At December 31,
2001, one- to four-family residential mortgage loans totaled $95.8 million, or
57.03%, of the gross loan portfolio.
We currently offer fixed-rate and adjustable-rate mortgage
loans. For the year ended December 31, 2001, we originated $24.5 million of
fixed-rate loans and $2.5 million of adjustable-rate real estate loans, all of
which were secured by one- to four-family residential real estate. Substantially
all of our one- to four-family residential mortgage originations are secured by
properties located in our market area.
We offer adjustable-rate mortgage loans at rates and on terms
determined in accordance with market and competitive factors. We originate
adjustable-rate mortgage loans with terms of up to 30 years. We offer one-year,
three-year and five-year adjustable-rate mortgage loans (where the terms are
fixed for the first one-year, three-years and five-years, respectively, and
thereafter adjust annually) with a stated interest rate margin over the United
States Treasury. Increases or decreases in the interest rate of our
adjustable-rate loans are generally limited to 1.0% at any adjustment date and,
for example the one year adjustable rate mortgage product has limits of 4.0%
over the life of a loan. As a consequence of using caps, the interest rates on
these loans may not be as rate sensitive as is our cost of funds. Currently, all
adjustable-rate mortgage loans originated do provide for a minimum interest rate
based on margins and caps over the life of the loans. At December 31, 2001, the
total balance of one- to four-family adjustable-rate loans was $39.7 million or
23.66% of our gross loan portfolio.
We also offer fixed-rate mortgage loans with maturities of up
to 30 years. At December 31, 2001, the total balance of one- to four-family
fixed-rate loans was $56.0 million or 33.37% of our gross loan portfolio.
Currently we will lend up to 97% of the lesser of the sales
price or appraised value of the security property on owner occupied single
family residence loans, provided that private mortgage insurance is obtained in
an amount sufficient to reduce our exposure to not more than 80% of the
appraised value or sales price, as applicable. Residential loans do not include
prepayment penalties, are non-assumable (other than government-insured or
guaranteed loans), and do not produce negative amortization. Real estate loans
originated by us contain a "due on sale" clause allowing us to declare the
unpaid principal balance due and payable upon the sale of the security property.
The loans currently originated by us are typically
underwritten and documented pursuant to the guidelines of Freddie Mac. Under
current policy, we originate these loans for portfolio, except the conforming
fixed rate single family mortgage loans are being sold.
Commercial and Multi-Family Real Estate Lending. We have also
engaged in commercial and multi-family real estate lending in our market area.
At December 31, 2001, we had $20.2 million and $3.6 million of commercial and
multi-family real estate loans, which represented 12.03% and 2.16%, of the gross
loan portfolio.
8
The commercial and multi-family real estate loan portfolio is
secured primarily by retail properties, apartments, churches and real estate
located in Huntington and Allen Counties, Indiana. Commercial and multi-family
real estate loans generally have terms that do not exceed 15 years and a variety
of rate adjustment features and other terms. Generally, the loans are made in
amounts up to 75% of the lesser of the appraised value or sales price of the
security property. We currently offer one-year, three-year and five-year
adjustable-rate commercial and multi-family real estate loans (where the terms
are fixed for the first one-year, three-years and five-years, respectively, and
thereafter adjust annually) with a margin over a designated index. In
underwriting these loans, we analyze the financial condition of the borrower,
the borrower's credit history, and the reliability and predictability of the
cash flow generated by the property securing the loan. We generally require
personal guaranties of the borrowers. Appraisals on properties securing
commercial real estate loans originated by us are performed by independent
appraisers, to the extent required by federal regulations.
Multi-family and commercial real estate loans generally
present a higher level of risk than loans secured by one- to four-family
residences. This greater risk is due to several factors, including the
concentration of principal in a limited number of loans and borrowers, the
effect of general economic conditions on income producing properties and the
increased difficulty of evaluating and monitoring these types of loans.
Furthermore, the repayment of loans secured by multi-family and commercial real
estate is typically dependent upon the successful operation of the related real
estate project. If the cash flow from the project is reduced (for example, if
leases are not obtained or renewed, or a bankruptcy court modifies a lease term,
or a major tenant is unable to fulfill its lease obligations), the borrower's
ability to repay the loan may be impaired.
Construction or Development Lending. At December 31, 2001, we
had $6.4 million of construction or development loans. We offer loans to both
builders and borrowers for the construction of one- to four-family residences,
and to a lesser extent, commercial real estate and multi-family properties.
Currently, such loans are offered with fixed or adjustable rates of interest. At
December 31, 2001, we had $4.7 million and $1.6 million of fixed-rate and
adjustable-rate construction or development loans, respectively, which
represented 2.80% and 0.95%, respectively, of our gross loan portfolio.
Following the construction period, these loans may become permanent loans, with
terms for up to 25 years for adjustable-rate loans and 20 years for fixed-rate
loans.
Construction lending is generally considered to involve a
higher level of credit risk than one- to four-family residential lending since
the risk of loss on construction loans is dependent largely upon the accuracy of
the initial estimate of the individual property's value upon completion of the
project and the estimated cost (including interest) of the project. If the cost
estimate proves to be inaccurate, we may be required to advance funds beyond the
amount originally committed to permit completion of the project.
Consumer Lending. We offer a variety of secured consumer
loans, including automobile, home equity lines of credit, second mortgage and
loans secured by savings deposits. We also offer unsecured consumer loans. We
currently originate substantially all of our consumer loans in our primary
market area. We originate consumer loans on a direct basis and on an indirect
basis through the acquisition of installment payment contracts from dealers who
extend credit to their customers for the purchase of an automobile, both new and
used.
A significant component of our consumer loan portfolio
consists of automobile loans. These loans generally have terms that do not
exceed five and a half years and carry a variety of rate adjustment features and
other terms. Generally, loans on new vehicles are made in amounts up to 100% of
dealer cost and loans on used vehicles are made in amounts up to its published
value, less certain adjustments. At December 31, 2001, automobile loans totaled
$12.8 million or 7.61% of the gross loan portfolio. Of this amount,
approximately $4.5 million or 35.16% and $8.3 million or 64.84% were originated
on a direct and indirect basis, respectively.
We also originate fixed rate second mortgages and adjustable
rate home equity line of credit loans. Home equity and second mortgage loans
secured by mortgages, together with loans secured by all prior liens, are
generally limited to 90% or less of the appraised value (where we have the first
mortgage) of the property securing the loan or 80% or less of appraised value
(where we do not have the first mortgage) or 75% or less of appraised value
(where the collateral property is non-owner occupied). Generally, such loans
have a maximum term of up to 10 years. As of December 31, 2001, home equity and
second mortgage loans, most of which are secured by mortgages, amounted to $5.8
million and $2.8 million, which represented 3.47% and 1.66% of the gross loan
portfolio.
9
At December 31, 2001, the consumer loan portfolio totaled
$27.7 million, or 16.50% of its gross loan portfolio. At December 31, 2001,
approximately 69.74% of consumer loans were short- and intermediate-term,
fixed-rate consumer loans and 30.26% were adjustable rate consumer loans.
Our underwriting standards for consumer loans include an
application, a determination of the applicant's payment history on other debts
and an assessment of ability to meet existing obligations and payments on the
proposed loan. Although creditworthiness of the applicant is a primary
consideration, the underwriting process also includes a comparison of the value
of the security, if any, in relation to the proposed loan amount.
Consumer loans may entail greater credit risk than do
residential mortgage loans, particularly in the case of consumer loans which are
unsecured or are secured by rapidly depreciable assets, such as automobiles. In
addition, consumer loan collections are dependent on the borrower's continuing
financial stability, and thus are more likely to be affected by adverse personal
circumstances. Furthermore, the application of various federal and state laws,
including bankruptcy and insolvency laws, may limit the amount which can be
recovered on such loans. At December 31, 2001, $1.1 million of our consumer
loans were non-performing, representing 0.66% of the gross loan portfolio.
The $1.1 million of non-performing loans includes $685,000 of
present value of the individual lease contracts and their residual value that
were received from the foreclosure of a commercial borrower in the forth quarter
of 2000. The present value of $685,000 at December 31, 2001 has been reduced
from $1.5 million of present value of the collateral at December 31, 2000.
Commercial Business Lending. We also originate commercial
business loans and purchase commercial leases. At December 31, 2001
approximately $14.3 million, or 8.49% of our gross loan portfolio was commercial
business lending. The largest commercial business loan was a combination real
estate and equipment loan of $2.7 million to a foundry operation.
Commercial business loans typically are made on the basis of
the borrower's ability to make repayment from the cash flow of the borrower's
business. As a result, the availability of funds for the repayment of commercial
business loans may be substantially dependent on the success of the business
itself (which, in turn, is likely to be dependent upon the general economic
environment). Our commercial business loans are usually, but not always, secured
by business assets. However, the collateral securing the loans may depreciate
over time, may be difficult to appraise and may fluctuate in value based on the
success of the business.
Our commercial business lending policy includes credit file
documentation and analysis of the borrower's character, capacity to repay the
loan, the adequacy of the borrower's capital and collateral as well as an
evaluation of conditions affecting the borrower. Analysis of the borrower's
past, present and future cash flows is also an important aspect of our credit
analysis. Nonetheless, such loans carry a higher credit risk than more
traditional thrift lending.
Originations, Purchases and Sales of Loans
Loan originations are developed from continuing business with
depositors and borrowers, soliciting realtors, builders, walk-in customers and
other third-party sources.
While we originate both adjustable-rate and fixed-rate loans,
our ability to originate loans to a certain extent is dependent upon the
relative customer demand for loans in its market, which is affected by the
interest rate environment, among other factors. For the year ended December 31,
2001, we originated $45.2 million in fixed-rate loans and $12.8 million in
adjustable rate loans.
One- to four-family loan originations increased for the year
to $27.0 million in 2001 from $16.2 million in 2000, reflecting the drop in
mortgage rates resulting in an increase in refinancing during 2001.
10
Asset Quality
The following table sets forth our loan delinquencies by type,
by amount and by percentage of type at December 31, 2001. The amounts presented
in the table below represent the total remaining principal balances of the
loans, rather than the actual payment amounts which are overdue.
Loans Delinquent For:
-------------------------------------------------------------
30 to 89 Days 90 Days and Over Total Delinquent Loans
--------------------------------------------------------------------------------------------------
Percent Percent Percent
of Loan of Loan of Loan
Number Amount Category Number Amount Category Number Amount Category
--------------------------------------------------------------------------------------------------
(Dollars in Thousands)
Real Estate:
One- to four-family 46 $1,203 1.26% 9 $ 442 0.46% 156 $3,751 3.92%
Multi-family ................ 4 69 1.90 -- -- -- 4 69 1.90
Commercial .................. 2 47 0.23 105 4,260 21.09 6 2,201 10.90
Construction or
development ................. -- -- -- -- -- -- -- -- --
Consumer ....................... 96 964 3.48 44 440 1.59 140 1,404 5.07
Commercial
Business ..................... 6 230 1.61 2 227 1.59 8 457 3.20
--------------------------------------------------------------------------------------------------
Total ....................... 154 $2,513 1.50% 160 $5,369 3.20% 314 $8,354 4.97%
==================================================================================================
When a borrower fails to make a required payment on a loan, we
contact the borrower in an attempt to cure the delinquency. In the case of loans
secured by real estate, reminder notices are sent to borrowers. If payment is
late, appropriate late charges are assessed, and a notice of late charges is
sent to the borrower. If the loan is in excess of 90 days delinquent, the loan
will be referred to our legal counsel for collection. In all cases, if we
believe that its collateral is at risk and added delay would place the
collectibility of the balance of the loan in further question, we may refer
loans for collection even sooner than the 90 days described above.
When a loan becomes delinquent 90 days or more, we place the
loan on non-accrual status and previously accrued interest income on the loan is
charged against current income. The loan will remain on a non-accrual status as
long as the loan is 90 days delinquent.
Delinquent consumer loans are handled in a similar manner as
those described above; however, shorter time frames for each step apply due to
the type of collateral generally associated with such types of loans. Our
procedures for repossession and sale of consumer collateral are subject to
various requirements under Indiana consumer protection laws.
11
Non-Performing Assets. The table below sets forth the amounts
and categories of non-performing assets in our loan portfolio. Loans are placed
on non-accrual status when the collection of principal and/or interest becomes
doubtful. For all years presented, we had no troubled debt restructurings (which
involve forgiving a portion of interest or principal on any loans or making
loans at a rate materially less than that of market rates). Foreclosed assets
include assets acquired in settlement of loans.
December 31,
----------------------------------------------------------------
2001 2000 1999 1998 1997
----------------------------------------------------------------
(Dollars in Thousands)
Non-accruing loans:
One- to four-family .................. $ 442 $ 608 $ 339 $ 149 $ 334
Multi-family ......................... -- 29 22 -- --
Commercial real estate ............... 5,085 708 247 614 706
Construction or development .......... -- 472 683 -- --
Consumer ............................. 1,125 1,691 186 107 37
Commercial business .................. 267 198 233 338 89
------ ------ ------ ------ ------
Total ............................ 6,919 3,706 1,710 1,208 1,166
------ ------ ------ ------ ------
Foreclosed assets:
One- to four-family .................. 46 -- 49 58 --
Commercial and land .................. 173 185 -- 52 --
------ ------ ------ ------ ------
Total ............................ 219 185 49 110 --
------ ------ ------ ------ ------
Repossessed assets:
Consumer and commercial .............. 83 539 14 10 7
------ ------ ------ ------ ------
Total ............................ 83 539 14 10 7
------ ------ ------ ------ ------
Total non-performing assets ............... $7,221 $4,430 $1,773 $1,328 $1,173
====== ====== ====== ====== ======
Total as a percentage of total assets ..... 3.03% 1.79% 0.70% 0.63% 0.59%
====== ====== ====== ====== ======
For the year ended December 31, 2001, gross interest income
which would have been recorded had the non-accruing loans been current in
accordance with their original terms was $453,000, of which $387,000 was
included in interest income.
Classified Assets. Federal regulations classify loans and
other assets, such as debt and equity securities considered by the Office of
Thrift Supervision ("OTS") to be of lesser quality, as "substandard," "doubtful"
or "loss." An asset is considered "substandard" if it is inadequately protected
by the current net worth and paying capacity of the obligor or of the collateral
pledged, if any. "Substandard" assets include those characterized by the
"distinct possibility" that the insured institution will sustain "some loss" if
the deficiencies are not corrected. Assets classified as "doubtful" have all of
the weaknesses inherent in those classified "substandard," with the added
characteristic that the weaknesses present make "collection or liquidation in
full," on the basis of currently existing facts, conditions, and values, "highly
questionable and improbable." Assets classified as "loss" are those considered
"uncollectible" and of such little value that their continuance as assets
without the establishment of a specific loss reserve is not warranted.
When an insured institution classifies problem assets as
either substandard or doubtful, it may establish general allowances for loan
losses in an amount deemed prudent by management. General allowances represent
loss allowances which have been established to recognize the inherent risk
associated with lending activities, but which, unlike specific allowances, have
not been allocated to particular problem assets. When an insured institution
classifies problem assets as "loss," it is required either to establish a
specific allowance for losses equal to 100% of that portion of the asset so
classified or to charge off such amount. An institution's determination as to
the classification of its assets and the amount of its valuation allowances is
subject to review by the regulatory authorities, who may order the establishment
of additional general or specific loss allowances.
12
In connection with the filing of our periodic reports with the
OTS and in accordance with our classification of assets policy, we regularly
review the problem assets in our portfolio to determine whether any assets
require classification in accordance with applicable regulations. At December
31, 2001, we had classified $6.7 million of our assets net of specific reserves
as substandard, representing 25.5% of the stockholders' equity or 2.8% of
assets.
Other Loans of Concern. Other than the (i) non-performing
loans, repossessed assets and foreclosed real estate held for sale set forth in
the tables above, (ii) impaired loans incorporated by reference from the Annual
Report to Shareholders, and (iii) the classified assets, there were no
classified loans with respect to which known information about the possible
credit problems of the borrowers or the cash flows of the security properties,
have caused management to have doubts as to the ability of the borrowers to
comply with present loan repayment terms and which may result in the future
inclusion of such items in the non-performing asset categories.
Allowance for Loan Losses. The allowance for loan losses is
established based on our evaluation of the risk inherent in our loan portfolio
and changes in the nature and volume of our loan activity, including those loans
which are being specifically monitored. Such evaluation, which includes a review
of loans for which full collectibility may not be reasonably assured, considers
among other matters, the loan classifications discussed above, the estimated
fair value of the underlying collateral, economic conditions, historical loan
loss experience, the amount of loans outstanding and other factors that warrant
recognition in providing for an adequate loan loss allowance.
Although we believe that we use the best information available
to determine the allowance, unforeseen market conditions could result in
adjustments and net earnings could be significantly affected if circumstances
differ substantially from the assumptions used in making the final
determination. Future additions to the allowance will be the result of periodic
loan, property and collateral reviews and thus cannot be predicted in advance.
At December 31, 2001, we had a total allowance for loan losses of $2.0 million
or 28.3% of non-performing loans. See Note 3 of the Notes to Consolidated
Financial Statements in our Annual Report to Stockholders for the year ended
December 31, 2001, attached hereto as Exhibit 13 (Annual Report to
Shareholders).
13
The distribution of the allowance for loan losses at the dates
indicated is summarized as follows:
December 31,
------------------------------------------------------------------------------------------------
2001 2000 1999
------------------------------------------------------------------------------------------------
Percent Percent
of Loans of Loans
Amount Loan in Each Amount Loan in Each Amount Loan
of Loan Amounts Category of Loan Amounts Category of Loan Amounts
Loss by to Total Loss by to Total Loss by
Allowance Category Loans Allowance Category Loans Allowance Category
------------------------------------------------------------------------------------------------
(Dollars in Thousands)
One- to four-family ......... $ 108 $ 95,777 57.03% $ 172 $117,683 57.61% $ 278 $119,283
Multi-family ................ 6 3,625 2.16 9 4,377 2.14 35 3,779
Commercial real estate ...... 825 20,199 12.03 595 24,519 12.00 272 24,471
Construction or development . 8 6,363 3.79 182 7,188 3.52 284 12,614
Consumer .................... 535 27,711 16.50 608 29,785 14.58 273 30,594
Commercial business ......... 473 14,259 8.49 435 20,730 10.15 413 24,184
Unallocated ................. -- -- -- -- -- -- 212 --
-------- -------- ------ ------- -------- ------ -------- --------
Total ................. $ 1,955 $167,934 100.00% $ 2,001 $204,282 100.00% $ 1,767 $214,925
======== ======== ====== ======= ======== ====== ======== ========
December 31,
-----------------------------------------------------------------------------------
1998 1997
-----------------------------------------------------------------------------------
Percent Percent Percent
of Loans of Loans of Loans
in Each Amount Loan in Each Amount Loan in Each
Category of Loan Amounts Category of Loan Amounts Category
to Total Loss by to Total Loss by to Total
Loans Allowance Category Loans Allowance Category Loans
-----------------------------------------------------------------------------------
(Dollars in Thousands)
One- to four-family ......... 55.50% $ 266 $ 113.919 59.66% $ 240 $ 109.080 60.53%
Multi-family ................ 1.76 27 2,908 1.52 22 2,606 1.45
Commercial real estate ...... 11.39 204 16,514 8.65 163 16,734 9.29
Construction or development . 5.87 278 11,365 5.95 237 10,596 5.88
Consumer .................... 14.23 183 24,863 13.02 136 23,652 13.12
Commercial business ......... 11.25 305 21,393 11.20 244 17,526 9.73
Unallocated ................. -- 191 -- -- 152 -- --
------ -------- -------- -------- -------- -------- -------
Total ................. 100.00% $ 1,454 $190,962 100.00% $ 1,194 $180,194 100.00%
====== ======== ======== ====== ======== ======== ======
14
The following table sets forth an analysis of the allowance
for loan losses.
Year Ended December 31,
--------------------------------------------------------------
2001 2000 1999 1998 1997
--------------------------------------------------------------
(Dollars in Thousands)
Balance at beginning of period .............. $2,001 $1,767 $1,454 $1,194 $1,027
Charge-offs:
One- to four family .................... 58 1 1 47 2
Commercial ............................. 392 1,150 26 -- 1
Consumer ............................... 385 259 159 99 133
------ ------ ------ ------ ------
835 1,410 186 146 136
------ ------ ------ ------ ------
Recoveries:
One- to four-family .................... 3 -- -- 3 --
Consumer ............................... 58 50 50 42 38
Commercial ............................. 153 4 -- 1 --
------ ------ ------ ------ ------
214 54 50 46 38
------ ------ ------ ------ ------
Net charge-offs ............................. 621 1,356 136 100 98
Additions charged to operations ............. 575 1,590 449 360 265
------ ------ ------ ------ ------
Balance at end of period .................... $1,955 $2,001 $1,767 $1,454 $1,194
====== ====== ====== ====== ======
Ratio of net charge offs during the period to
average loans outstanding during the period . 0.33% 0.65% 0.07% 0.06% 0.06%
====== ====== ====== ====== ======
Ratio of net charge-offs during the period to
average non-performing loans ................ 8.81% 51.77% 9.80% 12.99% 13.07%
====== ====== ====== ====== ======
Investment Activities
Liquidity may increase or decrease depending upon the
availability of funds and comparative yields on investments in relation to the
return on loans. Our liquidity level is now higher than our peers, historically
we have generally maintained liquid assets at levels above the minimum
requirements that had been imposed by OTS regulations and at levels believed
adequate to meet the requirements of normal operations, including repayments of
maturing debt and potential deposit outflows. At December 31, 2001, our
liquidity ratio (liquid assets as a percentage of net withdrawable savings
deposits and current borrowings) was 25.5%.
Federally chartered savings institutions have the authority to
invest in various types of liquid assets, including United States Treasury
obligations, securities of various federal agencies, certain certificates of
deposit of insured banks and savings institutions, certain bankers' acceptances,
repurchase agreements and federal funds. Subject to various restrictions,
federally chartered savings institutions may also invest their assets in
commercial paper, investment grade corporate debt securities and mutual funds
whose assets conform to the investments that a federally chartered savings
institution is otherwise authorized to make directly.
15
Generally, our investment policy is to invest funds among
various categories of investments and maturities based upon our liquidity needs,
asset/liability management policies, investment quality, marketability and
performance objectives.
Securities and Other Interest-Earning Assets. At December 31,
2001, our interest-earning cash and cash equivalents totaled $23.5 million, or
9.9% of total assets, and our securities, consisting of obligations of states
and political subdivisions, money market mutual funds, and other securities
totaled $39.7 million, or 16.6% of total assets. Included in other securities,
as of such date, we had a $4.9 million investment in Federal Home Loan Bank
(FHLB) stock, satisfying our requirement for membership in the FHLB of
Indianapolis.
At December 31, 2001, we had $306,000 in securities held to
maturity consisting of obligations of states and political subdivisions and
other debt securities, and we had securities available for sale with a fair
value of $39.4 million. See Note 2 of the Notes to the Consolidated Financial
Statements in the Annual Report to Shareholders.
The following table sets forth the composition of our
securities portfolio at the dates indicated.
2001 2000 1999
-------------------------------------------------------------------
Carrying % of Carrying % of Carrying % of
-------------------------------------------------------------------
(Dollars in Thousands)
Debt securities:
Obligations of states and political ..... $ 462 1.16% $ 493 1.56% $ 524 1.56%
Mortgage-backed securities .............. 25,301 63.78 6,863 21.71 2,246 6.67
Federal agency obligations .............. 4,045 10.20 18,359 58.08 25,036 74.41
Corporate bonds ......................... 115 0.29 115 0.37 116 .34
------- ------ ------- ------ ------ ------
Total debt securities ............... 29,923 75.43 25,830 81.72 27,922 82.98
Equity securities:
Mutual funds ............................ 899 2.27 866 2.74 814 2.42
Equity securities ....................... 8,849 22.30 4,913 15.54 4,913 14.60
------- ------ ------- ------ ------ ------
Total securities .................... $39,671 100.00% $31,609 100.00% $33,649 100.00%
======= ====== ======= ====== ======= ======
The following table sets forth the amortized cost of debt
securities by maturity and weighted average yield for each range of maturities
at December 31, 2001.
Maturity
------------------------------------------------------------------------------
Within One Year 1 to 5 years 5 to 10 years Over 10 years
--------------- ------------ ------------- -------------
Amount Yield Amount Yield Amount Yield Amount Yield
------ ----- ------ ----- ------ ----- ------ -----
U.S. Government securities ........ $ 3,996 6.04% $ -- --% $ -- --% $ -- --%
Mortgage-backed securities ........ -- -- 1,634 5.51 5,531 5.28 18,084 4.92
State and Political subdivision (1) -- -- 211 4.51 249 4.27 -- --
Other debt securities ............. -- -- 115 8.55 -- -- -- --
Total ........................ $ 3,996 6.04% $ 1,960 5.58% $ 5,780 5.24% $18,084 4.92%
======= ======= ======= =======
--------------------------------------------------------------------------------------------------------------------
(1) Yields are not presented on a tax equivalent basis.
16
The weighted average rates are based on coupon rates for
securities purchased at par value and on effective rates considering
amortization or accretion if the securities were purchased at a premium or
discount.
Sources of Funds
Our primary sources of funds are deposits, payment of
principal and interest on loans, interest earned on securities, interest earned
on interest-earning deposits with other banks, FHLB advances, and other funds
provided from operations.
FHLB advances are used to support lending activities and to
assist in our asset/liability management strategy. Typically, we do not use
other forms of borrowings. At December 31, 2001, we had total FHLB advances of
$65.0 million with the capacity to borrow as of December 31, 2001 an additional
$2.2 million. See Note 6 of the Notes to Consolidated Financial Statements in
the Annual Report.
Deposits. We offer a variety of deposit accounts having a wide
range of interest rates and terms. Deposits consist of passbook savings, NOW,
checking, money market deposit and time deposit accounts. The time deposit
accounts currently range in terms from 182 days to five years.
We rely primarily on advertising, competitive pricing policies
and customer service to attract and retain these deposits. We generally solicit
deposits from our market area and occasionally accept brokered funds and out of
area jumbos as a source of deposits. The flow of deposits is influenced
significantly by general economic conditions, changes in money market and
prevailing interest rates and competition.
We have become more susceptible to short-term fluctuations in
deposit flows as customers have become more interest rate conscious. We endeavor
to manage the pricing of our deposits in keeping with our profitability
objectives giving consideration to our asset/liability management. Our ability
to attract and maintain savings accounts and time deposit accounts and the rates
paid on these deposits, has been and will continue to be significantly affected
by market conditions.
17
The following table sets forth our savings flows during the
periods indicated.
Year Ended December 31,
---------------------------------------------
2001 2000 1999
---------------------------------------------
(Dollars in Thousands)
Opening balance .................... $ 146,806 $ 143,212 $ 123,336
Deposits ........................... 649,701 641,902 578,790
Withdrawals ........................ 666,529 645,128 564,483
Interest credited .................. 7,052 6,820 5,569
--------- --------- ---------
Ending Balance ..................... $ 137,030 $ 146,806 $ 143,212
========= =========
Net change ......................... $ (9,776) $ 3,594 $ 19,876
========= ========= =========
Percent change ..................... (6.66%) 2.51% 16.12%
--------- --------- ---------
The following table sets forth the dollar amount of savings
deposits in the various types of deposit programs we offered for the periods
indicated.
December 31,
-----------------------------------------------------------------------
2001 2000 1999
-----------------------------------------------------------------------
Percent of Percent of Percent of
Amount Total Amount Total Amount Total
----------------------------------------------------------------------
(Dollars in Thousands)
Transactions and savings deposits:
----------------------------------
Passbook Accounts (1.49%)(1) ............ $ 9,261 6.76% $ 9,266 6.31% $ 9,709 6.78%
Demand and NOW Accounts (0.94%)(1) ...... 16,962 12.38 16,447 11.20 15,685 10.95
Money Market Accounts (2.18%)(1) ........ 18,968 13.84 19,021 12.96 19,268 13.45
-------- ------ -------- ------ -------- ------
Total non-time deposits ................. 45,191 32.98 44,734 30.47 44,662 31.18
-------- ------ -------- ------ -------- ------
Time deposits:
-------------
2.00 - 3.99% ............................ 22,424 16.36 271 0.18 873 0.61
4.00 - 5.99% ............................ 41,233 30.09 10,996 7.49 53,627 37.45
6.00 - 7.99% ............................ 28,182 20.57 90,805 61.86 44,050 30.76
-------- ------ -------- ------ -------- ------
Total time deposits ..................... 91,839 67.02 102,072 69.53 98,550 68.82
-------- ------ -------- ------ -------- ------
Total deposits .......................... $137,030 100.00% $146,806 100.00% $143,212 100.00%
======== ====== ======== ====== ======== =======
---------------------------------------
(1) End of year 2001 average rates.
18
The following table shows rate and maturity information for
our time deposit accounts as of December 31, 2001.
2.00- 4.00- 6.00- Percent of
3.99% 5.99% 7.99% Total Total
--------------------------------------------------------------------
(Dollars in Thousands)
Time deposit accounts maturing in quarter ending:
March 31, 2002 .................................. $ 6,475 $11,443 $ 8,187 $26,105 28.43%
June 30, 2002 ................................... 5,026 5,097 6,755 16,878 18.38
September 30, 2002 .............................. 5,548 10,444 2,747 18,739 20.40
December 31, 2002 ............................... 2,549 2,643 2,937 8,129 8.85
March 31, 2003 .................................. 1,558 3,462 996 6,016 6.55
June 30, 2003 ................................... -- 4,374 892 5,266 5.73
September 30, 2003 .............................. 625 1,577 617 2,819 3.07
December 31, 2003 ............................... 189 419 1,994 2,602 2.83
March 31, 2004 .................................. -- 498 674 1,172 1.28
June 30, 2004 ................................... 115 384 426 925 1.01
September 30, 2004 .............................. 139 699 -- 838 0.91
December 31, 2004 ............................... 106 23 499 628 0.68
Thereafter ...................................... 94 170 1,458 1,722 1.88
-------------------------------------------------------------------
Total .................................. $22,424 $41,233 $ 8,182 $91,839 100.00%
===================================================================
Percent of total ....................... 24.42% 44.90% 30.69% 100.00%
======= ======= ======= =======
The following table indicates the amount of our time deposit
accounts by time remaining until maturity as of December 31, 2001.
Maturity
-----------------------------------------------------------
Over Over
3 Months or 3 to 6 6 to 12 Over
Less Months Months 12 Months Total
-----------------------------------------------------------
(Dollars in Thousands)
Time deposits less than $100,000 $12,662 $ 6,451 $13,342 $12,177 $44,632
Time deposits of $100,000 or more 11,770 10,252 11,899 9,608 43,529
Public funds (1) ................ 1,673 175 1,627 203 3,678
------- ------- ------- ------- -------
Total time deposit .............. $26,105 $16,878 $26,868 $21,988 $91,839
======= ======= ======= ======= =======
-------------------------------
(1) Deposits from governmental and other public entities, all over $100,000.
19
Borrowings. Although deposits are our primary source of funds,
our policy has been to utilize borrowings when they are a less costly source of
funds or can be invested at a positive rate of return. We may obtain advances
from the FHLB of Indianapolis upon the security of our capital stock in the FHLB
of Indianapolis and certain of our mortgage loans and mortgage-backed
securities. Such advances may be made pursuant to several different credit
programs, each of which has its own interest rate and range of maturities. At
December 31, 2001, we had $65.0 million in FHLB advances outstanding. For
additional information regarding the term to maturity and the interest rates on
FHLB advances, see Note 6 of the Notes to Consolidated Financial Statements in
the Annual Report to Shareholders and "- Borrowed Funds."
The following table sets forth the maximum month-end balance
and average balance of FHLB advances for the periods indicated.
Year Ended December 31,
---------------------------------------------
2001 2000 1999
---------------------------------------------
(Dollars in Thousands)
Maximum Balance:
---------------
FHLB advances.................. $67,400 $96,400 $97,500
Average Balance:
---------------
FHLB advances.................. $62,539 $84,761 $74,466
Service Corporation Activities
At December 31, 2001, First Federal had one subsidiary,
Northeast Financial, which is now functioning as our brokerage subsidiary and we
have three registered representatives to provide this service to the customers.
The description of the provision that follows is a summary of the complex
statutory and regulatory framework that governs the Company and its
subsidiaries; it does not purport to be, and is not a complete description.
Regulation
First Federal is a federally chartered savings bank, the
deposits of which are federally insured and backed by the full faith and credit
of the United States Government. Accordingly, we are subject to broad federal
regulation and oversight extending to all of our operations. First Federal is a
member of the FHLB of Indianapolis and is subject to certain limited regulation
by the Board of Governors of the Federal Reserve System ("Federal Reserve
Board"). As the savings and loan holding company of First Federal, Northeast
Indiana also is subject to federal regulation and oversight. However, since
Northeast Indiana existed as a unitary savings and loan holding company prior to
May 4, 1999, there is virtually no restriction on its activities.
Federal Regulation of Savings Associations. The OTS has
extensive authority over the operations of savings associations. As part of this
authority, we are required to file periodic reports with, and pay assessments
to, the OTS and are subject to periodic examinations by the OTS and the FDIC.
When these examinations are conducted by the OTS and the FDIC, the examiners may
require First Federal to provide for higher general or specific loan loss
reserves.
The OTS also has extensive enforcement authority over all
savings institutions and their holding companies, such as First Federal and
Northeast Indiana. This enforcement authority includes, among other things, the
ability to assess civil money penalties, to issue cease-and-desist or removal
orders, and to initiate injunctive actions.
Our general permissible lending limit for
loans-to-one-borrower is equal to the greater of $500,000 or 15% of unimpaired
capital and surplus (except for loans fully secured by certain readily
marketable collateral, in which case this limit is increased to 25% of
unimpaired capital and surplus). At December 31, 2001, our lending limit under
20
this restriction was approximately $3.8 million. At December 31, 2001, we had no
loans in excess of our loans-to-one-borrower limit.
Insurance of Accounts and Regulation by the FDIC. As insurer,
the FDIC imposes deposit insurance premiums and is authorized to conduct
examinations of, and to require reporting by, FDIC-insured institutions. It also
may prohibit any FDIC-insured institution from engaging in any activity the FDIC
determines by regulation or order to pose a serious risk to the FHLB System or
the Savings Association Insurance Fund (SAIF). The FDIC also has the authority
to initiate enforcement actions against savings associations, after giving the
OTS an opportunity to take such action, and may terminate deposit insurance if
it determines that the institution has engaged in unsafe or unsound practices,
or is in an unsafe or unsound condition.
The FDIC's deposit insurance premiums are assessed through a
risk-based system under which all insured depository institutions are placed
into one of nine categories and assessed insurance premiums based upon their
level of capital and supervisory evaluation. Under the system, institutions
classified as well-capitalized (i.e., a core capital ratio of at least 5%, a
ratio of core capital to risk-weighted assets of at least 6% and a risk-based
capital ratio of at least 10%) and considered healthy, pay the lowest premium,
while institutions that are less than adequately capitalized (i.e., core
risk-based capital ratios of less than 4% or a risk-based capital ratio of less
than 8%) and considered of substantial supervisory concern pay the highest
premium. Risk classification of all insured institutions is made by the FDIC
semi-annually. At December 31, 2001, First Federal was classified as a
well-capitalized institution.
The current premium schedule for Bank Insurance Fund (BIF) and
SAIF insured institutions ranged from 0 to 27 basis points. However, SAIF
insured institutions and BIF insured institutions are required to pay a
Financing Corporation Assessment in order to fund the interest on bonds issued
to resolve thrift failures in the 1980s. For the quarter ended December 31,
2001, this amount was equal to an annualized rate of 1.84 basis points for each
$100 in domestic deposits for SAIF members and BIF insured institutions. These
assessments, which may be revised based upon the level of BIF and SAIF deposits,
will continue until the bonds mature in 2017 through 2019.
Regulatory Capital Requirements. Federally insured savings
associations, such as First Federal, are required to maintain a minimum level of
regulatory capital. The OTS has established capital standards, including a
tangible capital requirement, a leverage ratio (or core capital) requirement and
a risk-based capital requirement applicable to such savings associations.
The capital regulations require tangible capital of at least
1.5% of adjusted total assets (as defined by regulation). Tangible capital
generally includes common stockholders' equity and retained income, and certain
noncumulative perpetual preferred stock and related income and excluding certain
intangible assets. At December 31, 2001, First Federal had tangible capital of
$24.3 million, or 10.2% of adjusted total assets, which is approximately $20.8
million above the minimum requirement of 1.5% of adjusted total assets in effect
on that date. At December 31, 2001, First Federal had intangible assets
consisting of loan servicing rights of $120,000.
The capital standards also require core capital equal to 4% of
adjusted total assets, depending on an institution's supervisory rating. Core
capital generally consists of tangible capital plus certain intangible assets,
including a limited amount of purchased credit card relationships. At December
31, 2001, First Federal had core capital equal to $24.3 million, or 10.2% of
adjusted total assets, which is $14.8 million above the minimum leverage ratio
requirement of 4% in effect on that date.
The OTS risk-based capital requirement requires savings
associations to have total capital of at least 8% of risk-weighted assets. Total
capital consists of core capital, as defined above, and supplementary capital.
Supplementary capital consists of certain capital instruments that do not
qualify as core capital and general valuation loan and lease loss allowances up
to a maximum of 1.25% of risk-weighted assets. Supplementary capital may be used
to satisfy the risk-based requirement only to the extent of core capital. At
December 31, 2001, First Federal had $1.2 million of general loan loss reserves,
which was less than 1.25% of risk-weighted assets.
In determining the amount of risk-weighted assets, all assets,
including certain off-balance sheet items, will be multiplied by a risk weight,
ranging from 0% to 100%, based on the risk inherent in the type of asset. For
example, the OTS has assigned a risk weight of 50% for prudently underwritten
permanent one- to four-family first lien mortgage loans not more than 90 days
21
delinquent and having a loan to value ratio of not more than 80% at origination,
unless insured to such ratio by an insurer approved by Fannie Mae or Freddie
Mac.
On December 31, 2001, First Federal had total risk-based
capital of $25.6 million, including approximately $24.3 million in core capital
and $1.3 million in qualifying supplementary capital and risk-weighted assets of
$142.7 million, or total capital of 17.9% of risk-weighted assets. This amount
was $14.2 million above the 8% requirement in effect on that date.
The OTS is authorized to impose capital requirements in excess
of these standards on individual associations on a case-by-case basis. The OTS
and the FDIC are authorized and, under certain circumstances required, to take
certain actions against savings associations that fail to meet their capital
requirements. The OTS is generally required to take action to restrict the
activities of an "undercapitalized association" (generally defined to be one
with less than either a 4% core capital ratio, a 4% core risked-based capital
ratio or an 8% risk-based capital ratio). Any such association must submit a
capital restoration plan and until such plan is approved by the OTS may not
increase its assets, acquire another institution, establish a branch or engage
in any new activities, and generally may not make capital distributions. The OTS
is authorized to impose the additional restrictions that are applicable to
significantly undercapitalized associations.
The imposition by the OTS or the FDIC of any of these measures
on Northeast Indiana or First Federal may have a substantial adverse effect on
our operations and profitability and the value of Northeast Indiana's common
stock. Northeast Indiana shareholders do not have preemptive rights and,
therefore, if Northeast Indiana is directed by the OTS or the FDIC to issue
additional shares of common stock, such issuance may result in the dilution of
the percentage of ownership of Northeast Indiana.
Limitations on Dividends and Other Capital Distributions. The
OTS imposes various restrictions on savings associations with respect to their
ability to make distributions of capital, which include dividends, stock
redemptions or repurchases, cash-out mergers and other transactions charged to
the capital account. The OTS also prohibits a savings association from declaring
or paying any dividends or from repurchasing any of its stock if, as a result of
such action, the regulatory capital of the association would be reduced below
the amount required to be maintained for the liquidation account established in
connection with the association's mutual to stock conversion.
First Federal may make a capital distribution without the
approval of the OTS provided we notify the OTS 30 days before we declare the
capital distribution and we meet the following requirements: (i) we have a
regulatory rating in one of the two top examination categories, (ii) we are not
of supervisory concern, and will remain adequately- or well-capitalized, as
defined in the OTS prompt corrective action regulations, following the proposed
distribution, and (iii) the distribution does not exceed our net income for the
calendar year-to-date plus retained net income for the previous two calendar
years (less any dividends previously paid). If we do not meet the above stated
requirements, we must obtain the prior approval of the OTS before declaring any
proposed distributions.
Qualified Thrift Lender Test. All savings institutions are
required to meet a qualified thrift lender test to avoid certain restrictions on
their operations. This test requires a savings institution to have at least 65%
of its portfolio assets (as defined by regulation) in qualified thrift
investments on a monthly average for nine out of every 12 months on a rolling
basis. As an alternative, the savings institutions may maintain 60% of its
assets in those assets specified in Section 7701(a)(19) of the Internal Revenue
Code of 1986, as amended (the "Internal Revenue Code"). Under either test, these
assets primarily consist of residential housing related loans and investments.
At December 31, 2001, First Federal met the test and has always met the test
since its effectiveness. First Federal's qualified thrift lender percentage was
84.91% at December 31, 2001.
Any savings institution that fails to meet the qualified
thrift lender test must convert to a national bank charter, unless it
requalifies as a qualified thrift lender and remains a qualified thrift lender.
If an institution does not requalify and converts to a national bank charter, it
must remain SAIF-insured until the FDIC permits it to transfer to the BIF. If an
institution have not yet requalified or converted to a national bank, its new
investments and activities are limited to those permissible for both a savings
association and a national bank, and it is limited to national bank branching
rights in its home state. In addition, the institution is immediately ineligible
to receive any new FHLB borrowings and is subject to national bank limits for
payment of dividends. If the institution has not requalified or converted to a
national bank within three years after the failure, it must sell all investments
22
and stop all activities not permissible for a national bank. In addition, it
must repay promptly any outstanding FHLB borrowings, which may result in
prepayment penalties. If any institution that fails the qualified thrift lender
test is controlled by a holding company, then within one year after the failure,
the holding company must register as a bank holding company and become subject
to all restrictions on bank holding companies. See "- Holding Company
Regulation."
Community Reinvestment Act. Under the Community Reinvestment
Act (CRA), every FDIC insured institution has a continuing and affirmative
obligation, consistent with safe and sound banking practices, to help meet the
credit needs of its entire community, including low- and moderate-income
neighborhoods. The CRA requires the OTS, in connection with its examination of
First Federal, to assess the institution's record of meeting the credit needs of
our community and to take this record into account in our evaluation of certain
applications, such as a merger or the establishment of a branch, by First
Federal. An unsatisfactory rating may be used as the basis for the denial of an
application by the OTS. First Federal was examined for CRA compliance in March
1997 and received a rating of "satisfactory."
Other Laws and Regulations. The lending and deposit-taking
activities of the Bank are subject to a variety of federal and state consumer
protection laws, including the Equal Credit Opportunity Act (which prohibits
discrimination in all aspects of credit-granting), the Truth-in-Lending Act
(which principally mandates certain disclosures in connection with loans made
for personal, family or household purposes and imposes substantive restrictions
with respect to home equity lines of credit), the Truth-in-Savings Act (which
principally mandates certain disclosures in connection with deposit-taking
activities), the Fair Credit Reporting Act (which, among other things, requires
a lender to disclose the name and address of the credit bureau from whom a
lender obtains a report that resulted in a denial of credit), the Real Estate
Settlement Procedures Act (which, among other things, requires residential
mortgage lenders to provide loan applicants with closing cost information
shortly after the time of application and prohibits referral fees in connection
with loan originations and other real estate settlement services), the
Electronic Funds Transfer Act (which, among other things, requires certain
disclosures in connection with electronic funds transactions) and the Expedited
Funds Availability Act (which, among other things, requires that deposited funds
be made available for withdrawal in accordance with a prescribed schedule and
that the schedule be disclosed to customers). As a federal savings bank, the
Bank is exempt from most state laws, other than contract and commercial law;
real property law; tort law and criminal law.
Transactions with Affiliates. Generally, transactions between
a savings association or its subsidiaries and its affiliates are required to be
on terms as favorable to the association or subsidiary as transactions with
non-affiliates. In addition, certain of these transactions, such as loans to an
affiliate, are restricted to a percentage of the association's capital.
Affiliates of First Federal include Northeast Indiana and any company which is
under common control with First Federal. In addition, a savings association may
not lend to any affiliate engaged in activities not permissible for a bank
holding company or acquire the securities of most affiliates. The OTS has the
discretion to treat subsidiaries of savings associations as affiliates on a case
by case basis.
Certain transactions with directors, officers or controlling
persons are also subject to conflict of interest regulations enforced by the
OTS. These conflict of interest regulations and other statutes also impose
restrictions on loans to such persons and their related interests. Among other
things, such loans must generally be made on terms substantially the same as for
loans to unaffiliated individuals.
Holding Company Regulation. Northeast Indiana is a unitary
savings and loan holding company subject to regulatory oversight by the OTS. As
such, we are required to register and file reports with the OTS and are subject
to regulation and examination by the OTS. In addition, the OTS has enforcement
authority over Northeast Indiana and its non-savings association subsidiaries
which also permits the OTS to restrict or prohibit activities that are
determined to be a serious risk to the subsidiary savings association.
As a unitary savings and loan holding company, that has been
in existence since before May 4, 1999, Northeast Indiana generally is not
subject to activity restrictions. If Northeast Indiana acquires control of
another savings association as a separate subsidiary, it would become a multiple
savings and loan holding company, and the activities of Northeast Indiana and
any of its subsidiaries (other than First Federal or any other SAIF-insured
savings association) would become subject to certain restrictions. Additionally,
if we fail the qualified thrift lender test, within one year Northeast Indiana
23
must register as and will become subject to, the restrictions applicable to bank
holding companies.
Federal Securities Law. The stock of Northeast Indiana is
registered with the SEC under the Securities Exchange Act of 1934, as amended
(the Exchange Act). Northeast Indiana is subject to the information, proxy
solicitation, insider trading restrictions and other requirements of the
Exchange Act.
Northeast Indiana stock held by persons who are affiliates
(generally officers, directors and 10% stockholders) of Northeast Indiana may
not be resold without registration or unless sold in accordance with certain
resale restrictions. If Northeast Indiana satisfies the requirements of such
resale restrictions and meets specified current public information requirements,
each affiliate of Northeast Indiana is able to sell in the public market,
without registration, a limited number of shares in any three-month period.
Federal Reserve System. The Federal Reserve Board requires all
depository institutions to maintain non-interest bearing reserves at specified
levels against their transaction accounts (primarily checking, NOW and Super NOW
checking accounts). At December 31, 2001, First Federal was in compliance with
these reserve requirements.
Savings associations are authorized to borrow from the Federal
Reserve Bank "discount window," but Federal Reserve Board regulations require
associations to exhaust other reasonable alternative sources of funds, including
FHLB borrowings, before borrowing from the Federal Reserve Bank.
Federal Home Loan Bank System. First Federal is a member of
the FHLB of Indianapolis, which is one of 12 regional FHLBs that administer the
home financing credit function of savings associations. Each FHLB serves as a
reserve or central bank for its members within its assigned region. It makes
loans to members (i.e., advances) in accordance with policies and procedures,
established by the board of directors of the FHLB, which are subject to the
oversight of the Federal Housing Finance Board. All advances from the FHLB are
required to be fully secured by sufficient collateral as determined by the FHLB.
In addition, all long-term advances must be used for residential home financing.
As a member, First Federal is required to purchase and
maintain a minimum amount of stock in the FHLB of Indianapolis. At December 31,
2001, First Federal had $4.9 million in FHLB stock, which was in compliance with
this requirement. For the fiscal year ended December 31, 2001, dividends paid by
the FHLB of Indianapolis to First Federal totaled $365,000, which constitutes a
$40,000 decrease compared to the amount of dividends received in fiscal 2000.
Over the past five fiscal years these dividends have averaged 7.94% and were
7.43% for fiscal 2001.
Taxation
Federal Taxation. We file consolidated federal income tax
returns on a fiscal year basis using the accrual method of accounting. Savings
institutions that met certain definitional tests relating to the composition of
assets and other conditions prescribed by the Internal Revenue Code, had been
permitted to establish reserves for bad debts and to make annual additions which
could, within specified formula limits, be taken as a deduction in computing
taxable income for federal income tax purposes. The amount of the bad debt
reserve deduction is now computed under the experience method.
In addition to the regular income tax, corporations, including
savings institutions, generally are subject to a minimum tax. An alternative
minimum tax is imposed at a minimum tax rate of 20% on alternative minimum
taxable income, which is the sum of a corporation's regular taxable income (with
certain adjustments) and tax preference items, less any available exemption. The
alternative minimum tax is imposed to the extent it exceeds the corporation's
regular income tax and net operating losses can offset no more than 90% of
alternative minimum taxable income.
To the extent earnings appropriated to a savings institution's
bad debt reserves for "qualifying real property loans" and deducted for federal
income tax purposes exceed the allowable amount of such reserves computed under
the experience method and to the extent of the institution's supplemental
reserves for losses on loans, such excess may not, without adverse tax
consequences, be utilized for the payment of cash dividends or other
distributions to a shareholder (including distributions on redemption,
24
dissolution or liquidation) or for any other purpose (except to absorb bad debt
losses). As of December 31, 2001, First Federal's excess for tax purposes
totaled approximately $1.3 million.
We have not been audited by the IRS recently with respect to
federal income tax returns. In our opinion, any examination of still open
returns would not result in a deficiency which could have a material adverse
effect on our financial condition.
Indiana Taxation. The State of Indiana imposes an 8.5%
franchise tax on the net income of financial (including thrift) institutions,
exempting them from the current gross income, supplemental net income and
intangible taxes. Net income for franchise tax purposes will constitute federal
taxable income before net operating loss deductions and special deductions,
adjusted for certain items, including Indiana income taxes, tax exempt interest
and bad debts. Other applicable Indiana taxes include sales, use and property
taxes.
Delaware Taxation. As a company incorporated under Delaware
state law, Northeast Indiana is exempted from Delaware corporate income tax but
is required to file an annual report with, and pay an annual fee to, the State
of Delaware. We are also subject to an annual franchise tax imposed by the State
of Delaware.
Competition
We face strong competition, both in originating real estate
loans and in attracting deposits. Competition in originating real estate loans
comes primarily from commercial banks, mortgage companies, credit unions and
savings institutions located in our market area. Commercial banks, savings
institutions and credit unions provide vigorous competition in consumer lending.
We compete for real estate and other loans principally on the basis of the
quality of services we provide to borrowers, the interest rates and loan fees we
charge, and the types of loans we originate. See "-Lending Activities."
We attract most of our deposits through our retail banking
offices, primarily from the communities in which those retail banking offices
are located. Therefore, competition for those deposits is principally from
retail brokerage offices, commercial banks, savings institutions and credit
unions located in these communities. We compete for these deposits by offering a
variety of account alternatives at competitive rates and by providing convenient
business hours, branch locations and interbranch deposit and withdrawal
privileges.
We primarily serve Huntington County, Indiana. There are five
commercial banks, one savings institution, other than First Federal, and six
credit unions which compete for deposits and loans in Huntington County. We
estimate that our share of the savings market in Huntington County based on FDIC
insured institutions is approximately 31% and our share of the residential
mortgage market is approximately 18%.
Employees
At December 31, 2001, we had a total of 46 full-time, 9
part-time and 0 seasonal employees. Our employees are not represented by any
collective bargaining group. Management considers its employee relations to be
good.
25
Item 2. Description of Properties
-------------------------
We conduct our business through three offices, all of which
are located in Huntington, Indiana and are owned by First Federal. The following
table sets forth information relating to each of our offices as of December 31,
2001. The total net book value of our premises and equipment (including land,
buildings and leasehold improvements and furniture, fixtures and equipment) at
December 31, 2001 was approximately $2.3 million. See Note 4 of the Notes to the
Consolidated Financial Statements in the Annual Report to Shareholders.
Total
Owned Approximate
Year or Square Net Book Value
Location Acquired Leased Footage at December 31, 2001
---------------------------------- ------------- ----------- ---------------- -----------------------
Main Office:
648 North Jefferson Street 1974 Owned 1,700 $782,437
Huntington, Indiana 46750
Branch Offices: 1981 Owned 1,700 255,767
1240 South Jefferson Street
Huntington, Indiana 46750
100 Frontage Road 1995 Owned 5,000 1,259,898
Huntington, Indiana 46750
We believe that our current and planned facilities are
adequate to meet our present and foreseeable needs. We also maintain an on-line
database with an independent service bureau servicing financial institutions.
Item 3. Legal Proceedings
-----------------
We are involved, from time to time, as plaintiff or defendant
in various legal actions arising in the normal course of their businesses. While
the ultimate outcome of these proceedings cannot be predicted with certainty, it
is the opinion of management, after consultation with counsel representing us in
the proceedings, that the resolution of these proceedings should not have a
material effect on our results of operations on a consolidated basis.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
No matter was submitted to a vote of security holders, through
the solicitation of proxies or otherwise, during the quarter ended December 31,
2001.
26
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
--------------------------------------------------------
Page 37 of the Annual Report is herein incorporated by
reference.
Item 6. Management's Discussion and Analysis of Financial Condition and Results
of Operation
------------
Pages 4 through 14 of the Annual Report are herein
incorporated by reference.
Item 7. Financial Statements
--------------------
The following information appearing in the Annual Report is
incorporated herein by reference.
Pages in
Annual
Annual Report Section Report
--------------------- --------
Report of Independent Auditors 15
Consolidated Balance Sheets as of December 31, 2001 and 2000 16
Consolidated Statements of Income for the Years Ended December 31, 2001, 2000 and 1999 17
Consolidated Statements of Changes in Shareholders' Equity for the Years Ended December 31,
2001, 2000 and 1999 18
Consolidated Statements of Cash Flows for the Years Ended December 31, 2001, 2000 and 1999 19
Notes to Consolidated Financial Statements 20
With the exception of the aforementioned information in Part
II of the Form 10-KSB, the Annual Report is not deemed filed as part of this
annual report on Form 10-KSB.
Item 8. Changes In and Disagreements With Accountants on
Accounting and Financial Disclosure
-----------------------------------
There has been no Current Report on Form 8-K filed within 24
months prior to the date of the most recent financial statements reporting a
change of accountants and/or reporting disagreements on any matter of accounting
principle or financial statement disclosure.
27
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance With Section 16(a) of the Exchange Act
-------------------------------------------------
Directors
Information concerning our Directors is incorporated herein by
reference from the definitive proxy statement for the annual meeting of
stockholders to be held in 2002, a copy of which will be filed not later than
120 days after the close of the fiscal year.
Executive Officers of Northeast Indiana and First Federal
The following table sets forth certain information regarding
our executive officers who are not also directors.
Position held with the
Name Age(1) First Federal and Northeast Indiana
--------------------------- ------------ --------------------------------------------------------------
Darrell E. Blocker 48 Senior Vice President, Treasurer and Chief Financial Officer
Dee Ann Hammel 49 Senior Vice President and Chief Operating Officer
Joseph A. Byers 49 Vice President and Senior Trust Officer
(1) At December 31, 2001
The business experience of the executive officers who are not
also directors is set forth below.
Darrell E. Blocker is Senior Vice President, Treasurer and
Chief Financial Officer, positions he has held since March 1995. Mr. Blocker
first joined First Federal in 1988 as an accountant. Mr. Blocker is responsible
for the overall financial functions of First Federal. Mr. Blocker has tendered
his resignation to First Federal, and effective April 12, 2002 he will cease to
be an executive officer.
Dee Ann Hammel is Senior Vice President, Secretary and Chief
Operations Officer, positions she has held since March 1995. Ms. Hammel first
joined First Federal in 1975 as a teller. Ms. Hammel is responsible for
directing and controlling First Federal's daily activities.
Joseph A. Byers is Vice President and Senior Trust Officer of
First Federal, a position he has held since August 1998. Mr. Byers first joined
First Federal in July 1998 to help establish and manage the Trust Department.
Mr. Byers is responsible for management of the Trust Department and the
financial services subsidiary. Mr. Byers came to us with 28 years in banking
experience, including 20 years of trust experience.
Compliance with Section 16(a)
Section 16(a) of the Exchange Act requires our directors and
executive officers, and persons who own more than 10% of a registered class of
Northeast Indiana's equity securities, to file with the SEC initial reports of
ownership and reports of changes in ownership of Common Stock and other equity
securities of Northeast Indiana. Officers, directors and greater than 10%
stockholders are required by SEC regulation to furnish us with copies of all
Section 16(a) forms they file.
To our knowledge, based solely on a review of the copies of
such reports furnished to us and the written representations that no other
reports were required, all Section 16(a) filing requirements applicable to our
officers, directors and greater than 10% beneficial owners were complied with
during the fiscal year ended December 31, 2001.
28
Item 10. Executive Compensation
----------------------
Information concerning executive compensation is incorporated
herein by reference from the definitive proxy statement for the annual meeting
of stockholders to be held in 2002, a copy of which will be filed not later than
120 days after the close of the fiscal year.
Item 11. Security Ownership of Certain Beneficial Owners and Management
--------------------------------------------------------------
Information concerning security ownership of certain
beneficial owners and management is incorporated herein by reference from the
definitive proxy statement for the annual meeting of stockholders to be held in
2002, a copy of which will be filed not later than 120 days after the close of
the fiscal year.
Item 12. Certain Relationships and Related Transactions
----------------------------------------------
Information concerning certain relationships and related
transactions is incorporated herein by reference from the definitive proxy
statement for the annual meeting of stockholders to be held in 2002, a copy of
which will be filed not later than 120 days after the close of the fiscal year.
29
Item 13. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
Reference to
Regulation Prior Filing or
S-B Exhibit Exhibit Number
Number Document Attached Hereto
-----------------------------------------------------------------------------------------------------------------
2 Plan of acquisition, reorganization, arrangement, liquidation or succession None
3(i) Certificate of Incorporation, including amendments thereto *
3(ii) By-Laws *
4 Instruments defining the rights of security holders, including debentures *
9 Voting trust agreement None
10 Executive Compensation Plans and Arrangements
(a) Employment Contract between Stephen E. Zahn and First Federal *
(b) Employment Contract between Darrell Blocker and First Federal *
(c) Employment Contract between Dee Ann Hammel and First Federal *
(d) 1995 Stock Option and Incentive Plan *
(e) Recognition and Retention Plan *
(f) Shareholder Benefit Plan **
11 Statement re: computation of per share earnings ***
13 Annual report to shareholders 13
16 Letter on change in certifying accountants None
18 Letter on change in accounting principles None
20 Other documents or statements to security holders None
21 Subsidiaries of registrant 21
22 Published report regarding matters submitted to vote None
23 Consents of experts 23
24 Power of attorney Not required
99 Additional exhibits
----------------------------------
* Filed as an exhibit to our Form S-1 Registration Statement (File No.
33-90558). All of such previously filed documents are hereby
incorporated herein by reference in accordance with Item 601 of
Regulation S-B.
** Filed as an exhibit to our Form 10-KSB filed on April 2, 2001. Such
previously filed document is hereby incorporated herein by reference
in accordance with Item 601 of Regulation S-B.
*** See Note 15 of the Notes to Consolidated Financial Statements in the
Annual Report to shareholders attached hereto as Exhibit 13.
(b) Reports on Form 8-K
During the quarter ended December 31, 2001, we filed the following
Current Reports on Form 8-K:
(i) Form 8-K filed on October 22, 2001, announcing third quarter
earnings;
(ii) Form 8-K filed on October 24, 2001, announcing increased
quarterly cash dividend;
30
SIGNATURES
In accordance with Section 13 of 15(d) of the Exchange Act,
the Issuer caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
NORTHEAST INDIANA BANCORP, INC.
Date: March 27, 2002 By: /s/ Stephen E. Zahn
--------------------------------
Stephen E. Zahn
(Duly Authorized Representative)
In accordance with the Exchange Act, this report has been
signed below by the following persons on behalf of the Issuer and in the
capacities and on the dates indicated.
By: /s/ Stephen E. Zahn By: /s/ Darrell E. Blocker
---------------------------------------------- --------------------------------------------
Stephen E. Zahn, Chairman of the Board, Darrell E. Blocker, Senior Vice President,
President and Chief Executive Officer Treasurer and Chief Financial Officer
(Principal Executive and Operating Officer) (Principal Financial and Accounting Officer)
Date: March 27, 2002 Date: March 27, 2002
By: /s/ Michael S. Zahn By: /s/ Randall C. Rider
---------------------------------------------- --------------------------------------------
Michael S. Zahn, Director and Vice President Randall C. Rider, Director
Date: March 27,2002 Date: March 27, 2002
By: /s/ Dan L. Stephan By: /s/ J. David Carnes
---------------------------------------------- --------------------------------------------
Dan L. Stephan, Director J. David Carnes, MD, Director
Date: March _27, 2002 Date: March 27, 2002
31
INDEX TO EXHIBITS
Exhibit No. Document
----------- --------
--------------------------------------------------------------------------------
13 Annual Report to Shareholders
21 Subsidiaries of the Registrant
23 Consent of Crowe, Chizek and Company LLP