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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended December 31, 1999
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _____________ to _______________
Commission File Number 0-25910
LOGANSPORT FINANCIAL CORP.
(Exact name of registrant as specified in its charter)
INDIANA 35-1945736
(State or other Jurisdiction (I.R.S. Employer Identification
of Incorporation or Organization) Number)
723 East Broadway, Logansport, Indiana 46947
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number including area code:
(219) 722-3855
Securities Registered Pursuant to Section 12(b) of the Act:
NONE
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, without par value
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 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 ____
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405,
Regulation S-K (ss. 229.405 of this chapter) is not contained herein, and will
not 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-K
or any amendment to this Form 10-K. [X]
The aggregate market value of the issuer's voting stock held by non-affiliates,
as of March 1, 2000, was $9,195,220.
The number of shares of the Registrant's Common Stock, without par value,
outstanding as of March 1, 2000, was 1,094,510 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Shareholders for the year ended December 31,
1999, are incorporated into Part II. Portions of the Proxy Statement for the
2000 Annual Meeting of Shareholders are incorporated in Part I and Part III.
Exhibit Index on Page E-1
Page 1 of 30 Pages
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LOGANSPORT FINANCIAL CORP.
Form 10-K
INDEX
Page
Forward Looking Statements................................................... 1
PART I
Item 1. Business.......................................................... 1
Item 2. Properties........................................................ 25
Item 3. Legal Proceedings................................................. 25
Item 4. Submission of Matters to a Vote of Security Holders............... 25
Item 4.5. Executive Officers of Registrant.................................. 26
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters............................................. 26
Item 6. Selected Financial Data........................................... 27
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................. 27
Item 7A. Quantitative and Qualitative Disclosures About Market Risk........ 27
Item 8. Financial Statements and Supplementary Data....................... 27
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure............................. 27
PART III
Item 10. Directors and Executive Officers of Registrant.................... 28
Item 11. Executive Compensation............................................ 28
Item 12. Security Ownership of Certain Beneficial Owners
and Management.................................................. 28
Item 13. Certain Relationships and Related Transactions.................... 28
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K..................................................... 29
Signatures........................................................ 30
FORWARD LOOKING STATEMENTS
This Annual Report on Form 10-K ("Form 10-K") contains statements which
constitute forward looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. These statements appear in a number of
places in this Form 10-K and include statements regarding the intent, belief,
outlook, estimate or expectations of the Company (as defined below), its
directors or its officers primarily with respect to future events and the future
financial performance of the Company. Readers of this Form 10-K are cautioned
that any such forward looking statements are not guarantees of future events or
performance and involve risks and uncertainties, and that actual results may
differ materially from those in the forward looking statements as a result of
various factors. The accompanying information contained in this Form 10-K
identifies important factors that could cause such differences. These factors
include but are not limited to changes in interest rates; loss of deposits and
loan demand to other savings and financial institutions; substantial changes in
financial markets; changes in real estate values and the real estate market;
regulatory changes; or unanticipated results in pending legal proceedings.
PART I
Item 1. Business.
General
Logansport Financial Corp. (the "Holding Company" and, together with
the Bank (as defined below), the "Company") is an Indiana corporation organized
in February, 1995, to become a unitary savings and loan holding company. The
Holding Company became a unitary savings and loan holding company upon the
conversion of Logansport Savings Bank, FSB (the "Bank") from a federal mutual
savings bank to a federal stock savings bank on June 13, 1995. The principal
asset of the Holding Company consists of 100% of the issued and outstanding
shares of common stock, $.01 par value per share, of the Bank. The Bank began
operations in Logansport, Indiana under the name Logansport Building and Loan
Association in 1925. In 1962, the Bank changed its name to Logansport Savings
and Loan Association, and in 1992, the Bank converted to a federally chartered
savings bank known as Logansport Savings Bank, FSB. The Bank serves the needs of
primarily residents of Cass County, Indiana.
The Bank is the oldest financial institution headquartered in
Logansport, Indiana. Management believes the Bank has developed a solid
reputation among its loyal customer base because of its commitment to personal
service and its strong support of the local community. The Bank offers a number
of consumer and commercial financial services. These services include: (i)
residential real estate loans; (ii) home equity loans; (iii) home improvement
loans; (iv) construction loans; (v) share loans; (vi) commercial real estate
loans; (vii) multi-family loans; (viii) consumer loans; (ix) NOW accounts; (x)
passbook savings accounts; (xi) certificates of deposit; (xii) consumer and
commercial demand deposit accounts; and (xiii) individual retirement accounts.
In the fourth quarter of 1998, the Bank decided to offer a complete line of
commercial lending to include operating lines of credit secured by receivables
and inventory and term financing for equipment purchases. In 1999, the Bank
began offering agricultural loans and equipment leases. The Holding Company and
the Bank conduct business out of their main office located in Logansport,
Indiana. The Bank is and historically has been a significant real estate
mortgage lender in Cass County, Indiana, originating approximately 36.2% of the
mortgage loan volume recorded in Cass County by Cass County institutions during
the year ended December 31, 1999.
The Bank historically has concentrated its lending activities on the
origination of loans secured by first mortgage liens for the purchase,
construction or refinancing of one- to four-family residential real property.
One- to four-family residential mortgage loans continue to be the major focus of
the Bank's loan origination activities, representing 62.2% of the Company's
total loan portfolio at December 31, 1999. The Bank also offers multi-family
mortgage loans, commercial real estate loans, construction loans, commercial
loans and leases and consumer loans. Mortgage loans secured by multi-family
properties and commercial real estate totaled approximately 2.3% and 12.7%,
respectively, of the Company's total loan portfolio at December 31, 1999.
Commercial loans constituted 4.4% and commercial leases 1.7% of the total loan
portfolio. Residential, multi-family and commercial real estate construction
loans constituted approximately 2.8% of the Company's total loan portfolio at
December 31, 1999. Installment, share, home equity, and home improvement loans
constituted approximately 6.6%, .3%, 1.0%, and 6.0%, respectively, of the
Company's total loan portfolio at December 31, 1999.
- 1 -
Lending Activities
Loan Portfolio Data. The following table sets forth the composition of
the Company's loan portfolio by loan type and security type as of the dates
indicated, including a reconciliation of gross loans receivable after
consideration of the allowance for loan losses and loans in process.
At December 31,
--------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
----------------- ----------------- ---------------- ------------------ ------------------
Percent Percent Percent Percent Percent
Amount of Total Amount of Total Amount of Total Amount of Total Amount of Total
------ -------- ------ -------- ------ -------- ------ -------- ------ --------
(Dollars in thousands)
TYPE OF LOAN
Mortgage loans:
Residential................. $57,889 62.23% $52,205 69.35% $46,419 72.48% $ 41,109 72.05% $36,608 73.15%
Commercial real estate...... 11,825 12.71 3,492 4.64 3,072 4.80 2,701 4.73 1,620 3.24
Multi-family................ 2,111 2.27 1,584 2.10 1,844 2.88 2,370 4.15 1,915 3.83
Construction:
Residential ................ 2,575 2.77 1,742 2.31 1,333 2.08 574 1.01 575 1.15
Commercial
real estate............... --- --- 1,400 1.86 --- --- 194 .34 198 .39
Multi-family................ --- --- 350 .47 --- --- 248 .43 250 .50
Commercial paper .............. --- --- --- --- --- --- --- --- 878 1.75
Commercial loans............... 4,102 4.41 1,486 1.97 --- --- --- --- --- ---
Commercial leases.............. 1,609 1.73 --- --- --- --- --- --- --- ---
Consumer loans:
Installment (2)............. 6,107 6.56 6,021 8.00 5,409 8.44 4,615 8.09 3,729 7.45
Share ...................... 289 .31 314 .42 313 .49 286 .50 219 .44
Home equity................. 974 1.05 1,090 1.45 685 1.07 595 1.04 398 .79
Home improvement............ 5,544 5.96 5,589 7.43 4,972 7.76 4,368 7.66 3,656 7.31
------- ------ ------- ------ ------- ------ --------- ------ ------- ------
Gross loans receivable.... $93,025 100.00% $75,273 100.00% $64,047 100.00% $ 57,060 100.00% $50,046 100.00%
======= ====== ======= ====== ======= ====== ========= ====== ======= ======
TYPE OF SECURITY
Residential (1)............. $66,150 71.11% $61,291 81.42% $53,409 83.39% $ 46,689 81.83% $41,407 82.74%
Commercial real estate...... 12,334 13.26 4,108 5.46 3,212 5.02 2,895 5.07 1,818 3.63
Multi-family................ 2,088 2.25 1,934 2.57 1,844 2.88 2,618 4.59 2,165 4.33
Deposits.................... 289 .31 314 .42 313 .49 286 .50 219 .44
Auto........................ 2,477 2.66 2,210 2.94 2,148 3.35 2,042 3.58 1,288 2.57
Consumer residential (2).... 1,599 1.72 1,918 2.55 1,617 2.52 1,074 1.88 1,232 2.46
Other security.............. 8,088 8.69 3,498 4.64 1,504 2.35 1,456 2.55 1,039 2.08
Unsecured (3)............... --- --- --- --- --- --- --- --- 878 1.75
------- ------ ------- ------ ------- ------ --------- ------ ------- ------
Gross loans receivable.... 93,025 100.00% 75,273 100.00% 64,047 100.00% 57,060 100.00% 50,046 100.00%
Deduct:
Allowance for loan losses...... 440 .47 285 .38 245 .38 236 .41 223 .45
Loans in process............... 1,685 1.81 1,915 2.54 167 .26 22 .04 116 .23
------- ------ ------- ------ ------- ------ --------- ------ ------- ------
Net loans receivable........ $90,900 97.72% $73,073 97.08% $63,635 99.36% $ 56,802 99.55% $49,707 99.32%
======= ====== ======= ====== ======= ====== ========= ====== ======= ======
Mortgage Loans:
Adjustable-rate............. $48,119 64.68% $45,552 74.95% $42,984 81.61% $ 38,729 82.06% $34,715 84.33%
Fixed-rate.................. 26,281 35.32 15,221 25.05 9,684 18.39 8,467 17.94 6,451 15.67
------- ------ ------- ------ ------- ------ --------- ------ ------- ------
Total..................... $74,400 100.00% $60,773 100.00% $52,668 100.00% $ 47,196 100.00% $41,166 100.00%
======= ====== ======= ====== ======= ====== ========= ====== ======= ======
- -------------
(1) Includes home equity, residential construction and home improvement loans.
(2) Includes "one-pay" notes due in less than one year secured by residential
real estate.
(3) Includes commercial paper and bankers' acceptances.
- 2 -
The following table sets forth certain information at December 31,
1999, regarding the dollar amount of loans maturing in the Company's loan
portfolio based on the date that final payment is due under the terms of the
loan. Demand loans having no stated schedule of repayments and no stated
maturity and overdrafts are reported as due in one year or less. This schedule
does not reflect the effects of possible prepayments or enforcement of
due-on-sale clauses. Management expects prepayments will cause actual maturities
to be shorter.
Balance Due during years ending December 31,
Outstanding 2003 2005 2010 2015
at December 31, to to to and
1999 2000 2001 2002 2004 2009 2014 following
-------------- ---- ---- ------ ------- --------- ------ ----------
(In thousands)
Mortgage loans:
Residential .................... $60,464 $ 166 $ 145 $ 139 $ 825 $ 7,276 $13,237 $38,676
Multi-family.................... 2,111 350 --- --- 854 131 776 ---
Commercial real estate.......... 11,825 53 20 316 578 4,359 2,978 3,521
Commercial loans................... 4,102 2,786 604 50 519 143 --- ---
Commercial leases.................. 1,609 --- 122 91 379 1,017 --- ---
Consumer loans:
Home improvement................ 5,544 40 202 212 1,053 2,299 1,424 314
Home equity..................... 974 --- --- --- --- --- 974 ---
Installment..................... 6,107 2,750 427 727 1,438 386 379 ---
Share........................... 289 289 --- --- --- --- --- ---
------- ------ ------ ------ ------ ------- ------- -------
Total........................... $93,025 $6,434 $1,520 $1,535 $5,646 $15,611 $19,768 $42,511
======= ====== ====== ====== ====== ======= ======= =======
The following table sets forth, as of December 31, 1999, the dollar
amount of all loans due after one year which have fixed interest rates and
floating or adjustable rates.
Due After December 31, 2000
-------------------------------------------
Fixed Rates Variable Rates Total
(In thousands)
Mortgage loans:
Residential ............... $20,194 $40,104 $60,298
Multi-family............... 187 1,574 1,761
Commercial real estate..... 5,625 6,147 11,772
Commercial loans.............. 744 572 1,316
Comercial leases.............. 1,609 --- 1,609
Consumer loans:
Home improvement........... 5,504 --- 5,504
Home equity................ --- 974 974
Installment................ 3,357 --- 3,357
------- ------- -------
Total.................... $37,220 $49,371 $86,591
======= ======= =======
Residential Loans. Residential loans consist primarily of one- to
four-family loans. Approximately $57.9 million, or 62.2% of the Company's
portfolio of loans at December 31, 1999, consisted of one- to four-family
residential mortgage loans, of which approximately 64.7% had adjustable rates.
The Bank currently offers adjustable-rate one- to four-family
residential mortgage loans ("ARMs") which adjust annually and are indexed to the
one-year U.S. Treasury securities yields adjusted to a constant maturity. These
ARMs have a current margin above such index of 2.75%, or 3.00% for loans in
which interest is amortized and payments are due bi-weekly. Interest rates
cannot adjust lower than the rate at the time of origination. Many of the
residential ARMs in the Company's portfolio at December 31, 1999 provided for a
maximum rate adjustment per year of 1%, although the Bank began originating
residential ARMs which provide for a maximum rate adjustment of 2% per year in
1995. The Bank's residential ARMs provide for a maximum rate adjustment of 5%
over the life of the loan. These ARMs generally bear terms of between 15 and 25
years.
The Bank also currently offers fixed-rate loans which provide for the
payment of principal and interest over a period that generally does not exceed
15 years. At December 31, 1999, 35.3% of the Company's residential mortgage
loans had fixed rates of interest.
- 3 -
The Bank does not currently originate residential mortgage loans if the
ratio of the loan amount to the lesser of current cost or appraised value of the
property (i.e., the "loan-to-value ratio") exceeds 95% and does not currently
require private mortgage insurance on its residential single-family mortgage
loans.
Substantially all of the residential mortgage loans that the Bank
originates include "due-on-sale" clauses, which give the Bank the right to
declare a loan immediately due and payable in the event that, among other
things, the borrower sells or otherwise disposes of the real property subject to
the mortgage and the loan is not repaid.
The Bank's residential mortgage loans are not originated on terms and
conditions and using documentation that conform to the standard underwriting
criteria required to sell such loans on the secondary market. The Bank generally
retains its loans in its portfolio and does not anticipate the need to sell its
non-conforming loans. See "-- Origination, Purchase and Sale of Loans."
At December 31, 1999, residential loans amounting to $343,000, or .4%
of total loans, were included in non-performing assets. See "Non-Performing and
Problem Assets."
Commercial Real Estate Loans. At December 31, 1999, $11.8 million, or
12.7% of the Company's total loan portfolio, consisted of commercial real estate
loans. Of these loans, $1.1 million constituted participations in loans secured
by commercial real estate which were purchased from other financial
institutions. The commercial real estate loans included in the Company's
portfolio are primarily secured by non-residential real estate such as small
office buildings, nursing homes, churches, light manufacturing facilities,
retail and service outlets, warehouses, professional buildings and farm real
estate. The Bank currently originates commercial real estate loans as
adjustable-rate loans indexed to the one-year U.S. Treasury or the prime with
various margins, or as fixed rate loans. The Bank underwrites these loans on a
case-by-case basis and, in addition to its normal underwriting criteria, the
Bank evaluates the borrower's ability to service the debt from the net operating
income of the property. No single commercial real estate loan at December 31,
1999 exceeded $912,000. No commercial real estate loans were included in
non-performing assets at that date.
Loans secured by commercial real estate generally are larger than one-
to four-family residential loans and involve a greater degree of risk.
Commercial real estate loans often involve large loan balances to single
borrowers or groups of related borrowers. Payments on these loans depend to a
large degree on results of operations and management of the properties and may
be affected to a greater extent by adverse conditions in the real estate market
or the economy in general. Accordingly, the nature of the loans makes them more
difficult for management to monitor and evaluate.
Multi-Family Loans. Approximately $2.1 million, or 2.3% of the
Company's portfolio of loans at December 31, 1999, consisted of multi-family
loans. These loans are generally purchased participations and secured by
apartment complexes and other multi-family residential properties. At December
31, 1999, $233,000 of the multi-family loans included in the Company's portfolio
was included in non-performing assets.
Construction Loans. The Bank offers construction loans with respect to
owner-occupied residential real estate and, in limited cases, to builders or
developers constructing such properties on a speculative investment basis (i.e.,
before the builder/developer obtains a commitment from a buyer). The Bank may
also purchase participations.
At December 31, 1999, $2.6 million, or 2.8%, of the Company's total
loan portfolio consisted of construction loans. All construction loans at
December 31, 1999 were one- to four-family residential loans. The largest
construction loan at December 31, 1999 was approximately $290,000. No
construction loans were included in non-performing assets on that date.
Construction loans originated by the Bank are written such that
interest only is payable during the construction phase, which is typically
limited to nine months, and following the construction phase, a permanent loan
is made. Inspections are made prior to any disbursement under a construction
loan.
- 4 -
Commercial Loans. At December 31, 1999, $4.1 million, or 4.4% of the
Company's total loan portfolio consisted of commercial loans provided to finance
receivables, inventory or equipment. These loans were originated by the Bank and
provided to existing businesses located in Cass County and its contiguous
counties. Loans are underwritten on a case-by-case basis with emphasis placed on
cash flow analysis and the borrower's debt service capacity. The majority of the
loans are written on a variable rate using the national prime rate as the
primary index rate. The weighted average maturity of the variable rate portion
of the portfolio was 14 months and the weighted average maturity of the fixed
rate portion of the portfolio was 45 months at December 31, 1999.
Commercial Leases. At December 31, 1999, $1.6 million, or 1.7% of the
Company's total loan portfolio consisted of commercial leases provided to
finance equipment. The Bank's lease portfolio consists of a joint marketing
effort between the Bank and SCI Leasing Group, a Carmel, Indiana based concern,
with all credit decisions made solely by the Bank and following the same
underwriting standards as are applied to traditional commercial loan requests.
Commercial leases are a fixed rate financing tool with the weighted average
maturity of the Bank's lease portfolio at 68 months as of December 31, 1999.
Consumer Loans. Federal laws and regulations permit federally chartered
savings associations to make secured and unsecured consumer loans in an
aggregate amount up to 35% of the association's total assets. In addition, a
federally chartered savings association has lending authority above the 35%
limit for certain consumer loans, such as property improvement loans and deposit
account secured loans. However, the Qualified Thrift Lender test places
additional limitations on a savings association's ability to make consumer
loans. See "Regulation -- Qualified Thrift Lender."
The Company's consumer loans, consisting primarily of installment,
share, home improvement, and home equity loans, aggregated $12.9 million as of
December 31, 1999, or 13.9% of the Company's total loan portfolio. The Bank
consistently originates consumer loans to meet the needs of its customers and to
assist in meeting its asset/liability management goals. All of the Bank's
consumer loans originated by the Bank, except home equity loans, are fixed-rate
loans, and substantially all are secured loans.
Installment loans, totaling $6.1 million, or 6.6% of total loans at
December 31, 1999, are fixed-rate loans generally secured by collateral,
including automobiles, and are made for maximum terms of up to 10 years
(depending on the collateral). The Bank's installment loans also include
"one-pay" notes, some of which are secured by residential real estate and all of
which amortize at rates similar to those for home improvement loans and have
maximum terms of 6 months to one year.
Share loans, totaling $289,000, or .3% of total loans at December 31,
1999, are made up to 80% of the original account balance and accrue at a rate of
2-3% over the underlying certificate of deposit rate. Interest on share loans is
paid quarterly. Home improvement loans totaled $5.5 million, or 6.0% of the
Company's total loan portfolio at December 31, 1999, and are close-ended
fixed-rate loans made for maximum terms up to 15 years. The Bank's home
improvement loans are generally made only to those borrowers for whom the Bank
holds the primary mortgage on the property, if any.
The Bank also offers open-ended lines of credit secured by a lien on
the equity in the borrower's home in amounts up to 90% of the appraised value of
the real estate (taking into account any other mortgages on the property). The
Bank's home equity loans are adjustable-rate loans with interest rates equal to
the national prime rate plus 2%, and payments equal to the greater of 2% of the
outstanding loan balance or $50. The Bank's home equity loans are generally made
only to those borrowers for whom the Bank holds the primary mortgage on the
property, if any, and generally have a maximum term of 15 years. At December 31,
1999, the Bank had approved $1,685,000 of home equity loans, of which $974,000
were outstanding.
- 5 -
As a general rule, consumer loans involve a higher level of risk than
one- to four-family residential mortgage loans because consumer loans are
generally made based upon the borrower's ability to repay the loan, which is
subject to change, rather than the value of the underlying collateral, if any.
However, the relatively higher yields and shorter terms to maturity of consumer
loans are believed to be helpful in reducing interest-rate risk. The Bank has
thus far been successful in managing consumer loan risk. As of December 31,
1999, consumer loans totaling $90,000 were included in non-performing assets.
Letters of Credit Securing Tax-Exempt Bonds. The Bank currently
maintains four letters of credit, each in the amount of $253,000, to secure
payments required under tax-exempt bonds issued to raise funds for low-income
housing projects in Franklin, Kokomo and Michigan City, Indiana and Hamilton,
Ohio. The issuer of the tax-exempt bonds is permitted to draw against these
letters of credit only in the event it defaults in making payments required
under the bonds, and any such draws made against the letters of credit would be
secured by a mortgage on the subject housing project. No draws against any
letters of credit had been made as of December 31, 1999. In addition to the
above, the Bank held $195,000 in standby letters of credit for two commercial
loan customers.
Origination, Purchase and Sale of Loans. In an effort to control costs
incurred by its mortgage customers, the Bank currently originates its mortgage
loans pursuant to its own underwriting standards which are not in conformity
with the standard criteria of the Federal Home Loan Mortgage Corporation
("FHLMC") or Federal National Mortgage Association ("FNMA"). If it desired to
sell its mortgage loans, the Bank might therefore experience some difficulty
selling such loans quickly in the secondary market. The Bank has no intention,
however, of attempting to sell such loans. The Bank's ARMs vary from secondary
market criteria because, among other things, the Bank does not require current
property surveys in most cases and does not require escrow accounts for taxes
and insurance.
The Bank confines its loan origination activities primarily to Cass
County, Indiana. The Bank's loan originations are generated from referrals from
real estate dealers and existing customers, and newspaper and periodical
advertising. Business loans originations also arise from an active business
development calling program. All loan applications are processed and
underwritten at the Bank's main office.
Under the Financial Institutions Reform, Recovery, and Enforcement Act
of 1989 ("FIRREA"), a savings association generally may not make any loan to a
borrower or its related entities if the total of all such loans by the savings
association exceeds 15% of its capital (plus up to an additional 10% of capital
in the case of loans fully collateralized by readily marketable collateral);
provided, however, that loans up to $500,000 regardless of the percentage
limitations may be made and certain housing development loans of up to $30
million or 30% of capital, whichever is less, are permitted. The maximum amount
which the Bank could have loaned to one borrower and the borrower's related
entities under the 15% of capital limitation was $2.3 million at December 31,
1999. The Company's portfolio of loans currently contains no loans that exceed
the 15% of capital limitation.
The Bank's loan approval process is intended to assess the borrower's
ability to repay the loan, the viability of the loan and the adequacy of the
value of the property that will secure the loan. To assess the borrower's
ability to repay, the Bank studies the employment and credit history and
information on the historical and projected income and expenses of its
mortgagors.
The Bank generally requires appraisals or loan officer evaluations on
all property securing its loans and requires title insurance or an abstract and
a valid lien on its mortgaged real estate. Appraisals for residential real
property are performed either by an in-house appraiser who is a state-licensed
residential appraiser or an independent state-licensed residential appraiser.
From time to time, the Bank also uses the services of certified residential
appraisers, who are not in-house, for performance of appraisals related to loans
in excess of $250,000. The Bank requires fire and extended coverage insurance in
amounts at least equal to the principal amount of the loan. It also requires
flood insurance to protect the property securing its interest if the property is
in a flood plain.
The Bank's underwriting standards for consumer loans are intended to
protect against some of the risks inherent in making consumer loans. Borrower
character, paying habits and financial strengths are important considerations.
The Bank historically has not participated in the secondary market as a
seller of its mortgage loans, but does occasionally purchase participations in
commercial real estate and multi-family loans from other financial institutions.
- 6 -
The following table shows loan origination, purchase and repayment
activity for the Bank during the periods indicated.
Year Ended December 31,
----------------------------------------------
1999 1998 1997
------- ------- -------
(In thousands)
Gross loans receivable
at beginning of period........................ $75,273 $64,047 $57,060
Originations:
Mortgage loans:
Residential................................. 17,229 14,691 13,102
Commercial real estate and lines of credit
and multi-family.......................... 19,368 1,400 417
------- ------- -------
Total mortgage loans and commercial loans... 36,597 16,091 13,519
Consumer loans:
Installment................................. 5,597 7,321 3,476
Share....................................... 169 294 101
Home improvement............................ 1,944 2,333 2,510
Home equity................................. 103 736 163
------- ------- -------
Total consumer loans...................... 7,813 10,684 6,250
------- ------- -------
Total originations................... 44,410 26,775 19,769
Purchases:
Commercial real estate and multi-family..... 981 350 ---
Commercial paper............................ --- --- ---
------- ------- -------
Total originations and purchases.......... 45,391 27,125 19,769
Repayments and deductions..................... 27,639 15,899 12,782
------- ------- -------
Gross loans receivable at end of period....... $93,025 $75,273 $64,047
======= ======= =======
Origination and Other Fees. The Company realizes income from
origination fees, late charges, checking account service charges, credit card
fees, and fees for other miscellaneous services. The Bank currently charges $300
plus closing costs on its adjustable-rate mortgage loans. Points may be charged
on fixed-rate loans. Late charges are generally assessed if payment is not
received within a specified number of days after it is due. The grace period
depends on the individual loan documents.
Non-Performing and Problem Assets
Mortgage loans are reviewed by the Bank on a regular basis and are
placed on a non-accrual status when the loans become contractually past due
ninety days or more. At the end of each month, delinquency notices are sent with
respect to all mortgage loans for which payments have not been received. Contact
by phone or in person is made, if feasible, with respect to all such loans. When
loans are sixty days in default, an additional delinquency notice is sent and
personal contact is made with the borrower to establish an acceptable repayment
schedule. When loans are ninety days in default, contact is made with the
borrower by the Senior Loan Officer who attempts to establish an acceptable
repayment schedule. Management is authorized to commence foreclosure proceedings
for any loan upon making a determination that it is prudent to do so. All loans
for which foreclosure proceedings have been commenced are placed on non-accrual
status. Late notices are sent to commercial loan borrowers at five and fifteen
days after which personal contact by the Account Officer is made.
Consumer loans are reviewed by the Bank on a daily basis. Notices are
sent to borrowers when any consumer loan is 5, 10 and 15 days past due. After
consumer loans are 15 days delinquent, a late fee in the amount of 10% of the
payment is imposed until the loan is brought current.
Non-Performing Assets. At December 31, 1999, $666,000, or .57% of the
Company's total assets, were non-performing assets (loans delinquent more than
90 days, non-accruing loans, real estate owned ("REO"), troubled debt
restructurings and non-accruing investments), compared to $315,000, or .33%, of
the Company's total assets at December 31, 1998. At December 31, 1999,
residential loans, multi-family loans and consumer loans accounted for 51.5%,
35.0%, and 13.5%, respectively, of non-performing assets. There were no
non-accruing investments at December 31, 1999.
- 7 -
The table below sets forth the amounts and categories of the Company's
non-performing assets (non-accruing loans and real estate owned) as of the date
indicated. It is the policy of the Company that all earned but uncollected
interest on all loans be reviewed monthly to determine if any portion thereof
should be classified as uncollectible for any loan past due in excess of 90
days.
At December 31,
---------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(Dollars in thousands)
Non-accruing loans (1)......................... $666 $315 $431 $406 $311
Real estate owned, net......................... --- --- 106 --- ---
Total non-performing assets................. $666 $315 $537 $406 $311
==== ==== ==== ==== ====
Non-performing loans to total loans, net (2)... .72% .42% .67% .71% .63%
Non-performing assets to total assets.......... .57 .33 .62 .52 .42
- ---------------
(1) The Company generally places loans on a non-accruing status when the loans
become contractually past due 90 days or more. At December 31, 1999,
$343,000 of non-accruing loans were residential loans, $233,000 was a
multi-family housing purchased participation loan, and $90,000 were
consumer loans. For the year ended December 31, 1999, the income that would
have been recorded had the non-accruing loans not been in a non-performing
status totaled $36,000.
(2) Total loans less loans in process.
Classified Assets. Federal regulations and the Bank's Internal Loan
Review policy provide for the classification of loans and other assets such as
debt and equity securities considered by the OTS to be of lesser quality as
"substandard," "doubtful" or "loss" assets. 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 association 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. Assets which do not currently expose the insured institution
to sufficient risk to warrant classification in one of the aforementioned
categories but possess weaknesses are required to be designated "special
mention" by management.
An insured institution is required to establish general allowances for
loan losses in an amount deemed prudent by management for loans classified
substandard or doubtful, as well as for other problem loans. 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 the amount 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 OTS, which can order the establishment of
additional general or specific loss allowances.
- 8 -
At December 31, 1999, the aggregate amount of the Company's classified
assets and the Company's general and specific loss allowances were as follows:
At December 31, 1999
--------------------
(In thousands)
Substandard loans................................... $918
Doubtful loans...................................... ---
Loss loans.......................................... ---
----
Total classified loans........................... $918
====
General loss allowances............................. $440
Specific loss allowances............................ ---
----
Total allowances................................. $440
====
The Company regularly reviews its loan portfolio to determine whether
any loans require classification in accordance with applicable regulations. The
substandard loans consist of all nonaccrual loans and one additional purchased
participation multi-family real estate loan of $252,000, which is current on
payments but considered substandard because of cash flow.
Allowance for Loan Losses
The allowance for loan losses is maintained through the provision for
loan losses, which is charged to earnings. The provision for loan losses is
determined in conjunction with management's review and evaluation of current
economic conditions (including those of the Bank's lending area), changes in the
character and size of the loan portfolio, loan delinquencies (current status as
well as past and anticipated trends) and adequacy of collateral securing loan
delinquencies, historical and estimated net charge-offs, and other pertinent
information derived from a review of the loan portfolio. In management's
opinion, the Company's allowance for loan losses is adequate to absorb
anticipated future losses from loans at December 31, 1999. However, there can be
no assurance that regulators, when reviewing the Company's loan portfolio in the
future, will not require increases in its allowances for loan losses or that
changes in economic conditions will not adversely affect the Company's loan
portfolio.
Summary of Loan Loss Experience. The following table analyzes changes
in the allowance for loan losses during the past five (5) one-year periods ended
December 31, 1999.
Year Ended December 31,
---------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(Dollars in thousands)
Balance of allowance at beginning
of period............................. $285 $245 $ 236 $ 223 $ 206
Recoveries............................... --- --- 1 1 ---
Less charge-offs:
Residential real estate loans......... --- 13 10 --- ---
Consumer loans........................ 7 10 8 --- 3
---- ---- ---- ---- ----
Net charge-offs.......................... 7 23 17 (1) 3
Provisions for losses on loans........... 162 63 26 12 20
---- ---- ---- ---- ----
Balance of allowance at end of period.... $440 $285 $245 $236 $223
==== ==== ==== ==== ====
Net charge-offs to total average
loans receivable for period......... (*) .03 .03 (*) (*)
Allowance at end of period to
net loans receivable at end
of period (1)....................... .47 .38 .38 .41 .45
Allowance to total non-performing
loans at end of period.............. 66.07 90.48 56.84 58.12 71.61
- -------------------
(1) Total loans less loans in process.
(*) Less than .01%.
- 9 -
Allocation of Allowance for Loan Losses. The following table presents
an analysis of the allocation of the Company's allowance for loan losses at the
dates indicated.
At December 31,
--------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
---------------- --------------- --------------- ---------------- ----------------
Percent Percent Percent Percent Percent
of loans of loans of loans of loans of loans
in each in each in each in each in each
category category category category category
of total of total of total of total of total
Amount loans Amount loans Amount loans Amount loans Amount loans
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
(Dollars in thousands)
Balance at end of period
applicable to:
Residential.................. $270 62.23% $232 69.35% $193 72.48% $158 72.05% $122 73.15%
Commercial real estate....... 8 12.71 6 4.64 6 4.80 6 4.73 6 3.24
Multi-family................. 117 2.27 1 2.10 1 2.88 1 4.15 1 3.83
Construction loans........... --- 2.77 --- 4.64 --- 2.08 --- 1.78 --- 2.04
Commercial paper and
bankers' acceptances...... --- --- --- --- --- --- --- --- --- 1.75
Commercial loans............. --- 4.41 --- 1.97 --- --- --- --- --- ---
Commercial leases............ --- 1.73 --- --- --- --- --- --- --- ---
Consumer loans............... 45 13.88 46 17.30 45 17.76 71 17.29 86 15.99
Unallocated.................. --- --- --- --- --- --- --- --- 8 ---
---- ------ ---- ------ ---- ------ ---- ------ ---- ------
Total..................... $440 100.00% $285 100.00% $245 100.00% $236 100.00% $223 100.00%
==== ====== ==== ====== ==== ====== ==== ====== ==== ======
Investments and Mortgage- and Other Asset-Backed Securities
Federally chartered savings associations have the authority to invest
in various types of liquid assets, including U.S. Treasury obligations,
securities of various federal agencies, certain certificates of deposit of
insured banks and savings institutions, repurchase agreements and federal funds
sold. Subject to various restrictions, federally chartered savings associations
may also invest a portion of their assets in corporate debt securities and
asset-backed securities. The investment policy of the Bank, which is established
and implemented by the Bank's Investment Committee, is designed primarily to
maximize the yield on the investment portfolio subject to minimal liquidity
risk, default risk and interest rate risk, and prudent asset/liability
management.
The Company's investments consist of U.S. government and other agency
securities, mortgage- and other asset-backed securities, state and municipal
bonds, corporate obligations, marketable equity securities, and FHLB stock. At
December 31, 1999, approximately $15.7 million, or 13.4% of the Company's total
assets, consisted of such investments.
At December 31, 1999, the Company had $5.9 million of mortgage- and
other asset-backed securities outstanding, all of which were classified as
available for sale. These fixed-rate mortgage- and other asset-backed securities
may be used as collateral for borrowings and through repayments, as a source of
liquidity. Mortgage- and other asset-backed securities offer yields above those
available for investments of comparable credit quality and duration.
Mortgage-backed securities are qualifying thrift investments under the Qualified
Thrift Lender test. See "Regulation--Qualified Thrift Lender."
- 10 -
The following table sets forth the amortized cost and market value of
the Company's investments and mortgage- and other asset-backed securities at the
dates indicated.
At December 31,
---------------------------------------------------------------------------
1999 1998 1997
--------------------- --------------------- -----------------------
Amortized Market Amortized Market Amortized Market
Cost Value Cost Value Cost Value
--------- ------ --------- ------ --------- ------
(In thousands)
Securities available for sale:
Federal agencies................... $ 6,295 $5,901 $ 2,845 $ 2,825 $3,598 $3,451
State and municipal................ 1,931 1,939 1,323 1,393 1,780 1,847
Mortgage- and other asset-backed
securities....................... 6,145 5,898 8,193 8,129 9,998 9,932
Corporate obligations.............. 560 523 561 571 200 209
Marketable equity securities....... 4 176 4 244 6 243
Total securities
available for sale............... 14,935 14,437 12,926 13,162 15,582 15,682
Certificate of deposit (1)............ --- --- --- --- 100 100
FHLB stock (1)........................ 1,273 1,273 568 568 494 494
------- ------- ------- ------- ------- -------
Total investments................ $16,208 $15,710 $13,494 $13,730 $16,176 $16,276
======= ======= ======= ======= ======= =======
(1) Market value approximates carrying values.
Included in the Company's investment portfolio at December 31, 1999
were approximately $300,000 (amortized cost) in derivative securities, which
were structured notes issued by the FHLBs. The fair value of these security
investments was approximately $294,000 at December 31, 1999. These structured
notes, which are not obligations of, or guaranteed by, the United States,
represent obligations to repay principal with interest that is either fixed or
fluctuates in accordance with an interest formula tied to various indices. The
interest on the Company's structured notes generally adjusts quarterly or
semi-annually based on certain indices such as the LIBOR and the CMT. This
structured note had fluctuating interest rates that adjust on the basis of a
formula tied to two different indices, such as the CMT and an inverse LIBOR
rate. This dually indexed security was classified as available for sale at
December 31, 1999 and will mature in July, 2000.
The average yield of these derivative securities at December 31, 1999,
was 2.98%. In a rising interest rate environment, it is anticipated that the
yield on and market value of these securities will decline, and may decline
substantially.
- 11 -
The following table sets forth investment securities, mortgage- and
other asset-backed securities and FHLB stock which mature during each of the
periods indicated and the weighted average yields for each range of maturities
at December 31, 1999.
Amount at December 31, 1999, which matures in
-------------------------------------------------------------------------------------
One One to Five to Over
Year or Less Five Years Ten Years Ten Years(4)
------------------- ------------------- ------------------- --------------------
Weighted Weighted Weighted Weighted
Amortized Average Amortized Average Amortized Average Amortized Average
Cost Yield Cost Yield Cost Yield Cost Yield
--------- -------- --------- -------- --------- -------- --------- --------
(Dollars in thousands)
Securities available for sale (1)(3) :
Federal agencies.............. $ 300 2.98% $ 500 6.02% $2,795 6.31% $2,700 7.38%
State and municipal (2)....... --- --- 854 8.02 774 7.89 303 8.49
Mortgage- and other
asset-backed securities.... 863 6.11 1,955 6.52 1,291 7.04 2,036 7.05
Corporate obligations......... --- --- --- --- 460 6.12 100 7.40
Marketable equity securities.. --- --- --- --- --- --- 4 58.23
------ ---- ------ ---- ------ ---- ------ ----
Total securities
available for sale....... 1,163 5.30 3,309 6.83 5,320 6.70 5,143 7.35
FHLB stock....................... --- --- --- --- --- --- 1,273 8.00
------ ---- ------ ---- ------ ---- ------ ----
Total investments........... $1,163 5.30% $3,309 6.83% $5,320 6.70% $6,416 7.48%
====== ==== ====== ==== ====== ==== ====== ====
(1) Securities available for sale are set forth at amortized cost for
purposes of this table.
(2) Fully taxable equivalent basis.
(3) No effect is given for possible prepayments.
(4) Includes perpetual marketable equity securities.
Sources of Funds
General. Deposits have traditionally been the Bank's primary source of
funds for use in lending and investment activities. In addition to deposits, the
Company derives funds from scheduled loan payments, loan prepayments, and income
on earning assets. While scheduled loan payments and income on earning assets
are relatively stable sources of funds, deposit inflows and outflows can vary
widely and are influenced by prevailing interest rates, market conditions and
levels of competition. Borrowings from the FHLB of Indianapolis are also used to
compensate for reductions in deposits or deposit inflows at less than projected
levels.
Deposits. Deposits are attracted, principally from within Cass County,
through the offering of a broad selection of deposit instruments including NOW
and other transaction accounts, fixed-rate certificates of deposit, individual
retirement accounts, and savings accounts. The Bank does not actively solicit or
advertise for deposits outside of Cass County. Substantially all of the Bank's
depositors are residents of that county. Deposit account terms vary, with the
principal differences being the minimum balance required, the amount of time the
funds remain on deposit and the interest rate. The Bank does not pay a fee for
any deposits it receives.
Deposits totaled $76.0 million at December 31, 1999.
Interest rates paid, maturity terms, service fees and withdrawal
penalties are established by the Bank on a periodic basis. Determination of
rates and terms are predicated on funds acquisition and liquidity requirements,
rates paid by competitors, growth goals, and federal regulations. The Bank
relies, in part, on customer service and long-standing relationships with
customers to attract and retain its deposits, but also closely prices its
deposits in relation to rates offered by its competitors.
The flow of deposits is influenced significantly by general economic
conditions, changes in money market and prevailing interest rates, and
competition. The variety of deposit accounts offered by the Bank has allowed it
to be competitive in obtaining funds and to respond with flexibility to changes
in consumer demand. The Bank has become more susceptible to short-term
fluctuations in deposit flows as customers have become more interest rate
conscious. The Bank manages the pricing of its deposits in keeping with its
asset/liability management and profitability objectives. Based on its
experience, the Bank believes that its passbook, NOW and non-interest-bearing
checking accounts are relatively stable sources of deposits. However, the
ability of the Bank to attract and maintain certificates of deposit, and the
rates paid on these deposits, has been and will continue to be significantly
affected by market conditions.
- 12 -
An analysis of the Bank's deposit accounts by type, maturity, and rate
at December 31, 1999, is as follows:
Minimum Balance at Weighted
Opening December 31, % of Average
Type of Account Balance 1999 Deposits Rate
- --------------- ------- ---- -------- ----
(Dollars in thousands)
Withdrawable:
Passbook savings accounts.............. $ 25 $ 2,869 3.77% 3.02%
Regular money market accounts.......... 2,500 1,166 1.53 3.24
Hi yield money market accounts......... 10,000 18,121 23.84 4.32
Super NOW accounts..................... 2,500 327 .43 2.41
NOW and other transaction accounts..... 200 5,350 7.04 2.02
Non-interest bearing accounts.......... 100 2,681 3.53 ---
------- ------ ----
Total withdrawable........................ 30,514 40.14 3.35
Certificates (original terms):
91 days................................ 1,000 522 .69 4.59
6 months............................... 1,000 3,238 4.26 4.60
12 months.............................. 1,000 12,169 16.01 5.43
18 months.............................. 500 1,132 1.49 5.28
24 months.............................. 500 11,769 15.48 5.38
30 months.............................. 500 8,143 10.71 5.78
60 months.............................. 1,000 3,395 4.47 5.71
IRAs
18 months.............................. 100 5,129 6.75 5.25
------- ------ ----
Total certificates........................ 45,497 59.86 5.43
------- ------ ----
Total deposits ........................... $76,011 100.00% 4.59%
======= ====== ====
The following table sets forth by various interest rate categories the
composition of time deposits of the Bank at the dates indicated:
At December 31,
------------------------------------
1999 1998 1997
------- ------- -------
(In thousands)
4.00% and under....................... $ 175 $ 234 $ 136
4.01 - 6.00 %......................... 44,496 39,027 35,087
6.01 - 8.00%.......................... 826 416 508
------- ------- -------
Total ............................... $45,497 $39,677 $35,731
======= ======= =======
The following table represents, by various interest rate categories,
the amounts of time deposits maturing during each of the three years following
December 31, 1999, and the total amount maturing thereafter. Matured
certificates which have not been renewed as of December 31, 1999, have been
allocated based upon certain rollover assumptions:
Amounts At
December 31, 1999, Maturing in
--------------------------------------------------
One Year Two Three Greater Than
or Less Years Years Three Years
------- ------ ------ ------
(In thousands)
4.00% and under........ $ 175 $ --- $ --- $ ---
4.01 - 6.00 %.......... 30,180 8,947 2,151 3,218
6.01-8.00%............. 354 202 72 198
------- ------ ------ ------
Total ................ $30,709 $9,149 $2,223 $3,416
======= ====== ====== ======
- 13 -
The following table indicates the amount of the Bank's certificates of
deposit of greater than $100,000 by time remaining until maturity as of December
31, 1999.
Maturity (In thousands)
-------- --------------
Three months or less................................. $ 326
Greater than three months
through six months.............................. 1,568
Greater than six months
through twelve months........................... 1,838
Over twelve months................................... 357
------
Total........................................... $4,089
======
- 14 -
The following table sets forth the dollar amount of savings in the
various types of deposits programs offered by the Bank at the dates indicated,
and the amount of increase or decrease in such deposits as compared to the
previous period.
Deposit Activity
------------------------------------------------------------------------------
Increase Increase
(Decrease) (Decrease)
Balance at from Balance at from
December 31, % of December 31, December 31, % of December 31,
1999 Deposits 1998 1998 Deposits 1997
------------ -------- ----------- ------------ -------- ------------
(Dollars in thousands)
Withdrawable:
Passbook savings accounts............ $2,869 3.77% (302) $3,171 4.53% $ 101
Regular money market accounts........ 1,166 1.53 13 1,153 1.65 103
Hi yield money market accounts....... 18,121 23.84 (1,241) 19,362 27.66 3,676
Super NOW accounts................... 327 .43 (39) 366 .52 (98)
NOW accounts......................... 5,350 7.04 560 4,790 6.84 1,058
Non-interest bearing accounts........ 2,681 3.53 1,189 1,492 2.13 630
------- ------ ------ ------- ------ ------
Total withdrawable...................... 30,514 40.14 180 30,334 43.33 5,470
Certificates (original terms):
91 days.............................. 522 .69 (705) 1,227 1.75 865
6 months............................. 3,238 4.26 (353) 3,591 5.13 50
12 months............................ 12,169 16.01 6,198 5,971 8.53 220
18 months............................ 1,132 1.49 (700) 1,832 2.62 813
24 months............................ 11,769 15.48 636 11,133 15.90 603
30 months............................ 8,143 10.71 574 7,569 10.81 1,287
60 months............................ 3,395 4.47 (224) 3,619 5.17 67
IRAs
18 months............................ 5,129 6.75 394 4,735 6.76 41
------- ------ ------ ------- ------ ------
Total certificates...................... 45,497 59.86 5,820 39,677 56.67 3,946
------- ------ ------ ------- ------ ------
Total deposits.......................... $76,011 100.00% $6,000 $70,011 100.00% $9,416
======= ====== ====== ======= ====== ======
Deposit Activity
------------------------------------------
Increase
(Decrease)
Balance at from
December 31, % of December 31,
1997 Deposits 1996
------------ ---------- ------------
(Dollars in thousands)
Withdrawable:
Passbook savings accounts........ $3,070 5.07% $ (49)
Regular money market accounts.... 1,050 1.73 (108)
Hi yield money market accounts... 15,686 25.89 1,198
Super NOW accounts............... 464 .76 (222)
NOW accounts..................... 3,732 6.16 401
Non-interest bearing accounts.... 862 1.42 231
------- ------ ------
Total withdrawable.................. 24,864 41.03 1,451
Certificates (original terms):
91 days.......................... 362 .60 43
6 months......................... 3,541 5.84 (1,023)
12 months........................ 5,751 9.49 789
18 months........................ 1,019 1.68 75
24 months........................ 10,530 17.38 (930)
30 months........................ 6,282 10.37 2,952
60 months........................ 3,552 5.86 (205)
IRAs
18 months........................ 4,694 7.75 47
------- ------ ------
Total certificates.................. 35,731 58.97 1,748
------- ------ ------
Total deposits ..................... $60,595 100.00% $3,199
======= ====== ======
- 15 -
Borrowings. The Bank focuses on generating high quality loans and then
seeks the best source of funding from deposits, investments or borrowings. There
are regulatory restrictions on advances from the FHLBs. See "Regulation --
Federal Home Loan Bank System" and "-- Qualified Thrift Lender." At December 31,
1999, the Company had $12.0 million in borrowings from the FHLB of Indianapolis
which mature within one year and $11.0 million which mature in greater than one
year. The weighted average interest rate related to these borrowings was 5.70%
at December 31, 1999. The Company does not anticipate any difficulty in
obtaining advances appropriate to meet its requirements in the future. At
December 31, 1999, notes payable consisted of construction borrowings secured by
the Bank's investment in a real estate partnership. The Bank pays only interest
until completion of the project at which time repayment terms will convert to a
ten year amortization. The interest rate on the variable rate borrowing was
3.76% at December 31, 1999.
Employees
As of December 31, 1999, the Bank employed 17 persons on a full-time
basis and seven persons on a part-time basis. None of the Bank's employees are
represented by a collective bargaining group. Management considers its employee
relations to be excellent.
The Bank's employee benefits for full-time employees include, among
other things, a Financial Institutions Retirement Fund, which is a defined
benefit pension plan ("FIRF" or the "Pension Plan"), a 401(k) plan and major
medical and long-term disability insurance.
Employee benefits are considered by management to be competitive with
those offered by other financial institutions and major employers in the Bank's
market area. See "Executive Compensation and Related Transactions."
Competition
The Bank operates in North Central Indiana and makes almost all of its
loans to and accepts most of its deposits from residents of Cass County in
Indiana.
The Bank is subject to competition from various financial institutions,
including state and national banks, state and federal savings institutions,
credit unions, certain non-banking consumer lenders, and other companies or
firms, including brokerage houses and mortgage brokers, that provide similar
services in Cass County. The Bank must also compete with money market funds and
with insurance companies with respect to its individual retirement accounts. See
"Regulation--Acquisitions or Dispositions and Branching."
The primary factors in competing for deposits are interest rates and
convenience of office locations. The Bank competes for loan originations
primarily through the efficiency and quality of services it provides borrowers
and through interest rates and loan fees it charges. Competition is affected by,
among other things, the general availability of lendable funds, general and
local economic conditions, current interest rate levels, and other factors which
are not readily predictable.
REGULATION
General
The Bank, as a federally chartered savings bank, is a member of the
Federal Home Loan Bank System ("FHLB System") and its deposits are insured by
the Federal Deposit Insurance Corporation ("FDIC") and it is a member of the
Savings Association Insurance Fund (the "SAIF"), which is administered by the
FDIC. The Bank is subject to extensive regulation by the OTS. Federal
associations may not enter into certain transactions unless certain regulatory
tests are met or they obtain prior governmental approval and the associations
must file reports with the OTS about their activities and their financial
condition. Periodic compliance examinations of the Bank are conducted by the OTS
which has, in conjunction with the FDIC in certain situations, examination and
enforcement powers. This supervision and regulation are intended primarily for
the protection of depositors and federal deposit insurance funds. The Bank is
also subject to certain reserve requirements under regulations of the Board of
Governors of the Federal Reserve System ("FRB").
An OTS regulation establishes a schedule for the assessment of fees
upon all savings associations to fund the operations of the OTS. The regulation
also establishes a schedule of fees for the various types of applications and
- 16 -
filings made by savings associations with the OTS. The general assessment, to be
paid on a semiannual basis, is based upon the savings association's total
assets, including consolidated subsidiaries, as reported in a recent quarterly
thrift financial report. Currently, the quarterly assessment rates range from
.01164% of assets for associations with assets of $67 million or less to .00308%
for associations with assets in excess of $35 billion. The Bank's semiannual
assessment under this assessment scheme, based upon its total assets at December
31, 1999, was approximately $16,000.
The Bank is also subject to federal and state regulation as to such
matters as loans to officers, directors, or principal shareholders, required
reserves, limitations as to the nature and amount of its loans and investments,
regulatory approval of any merger or consolidation, issuances or retirements of
their own securities, and limitations upon other aspects of banking operations.
In addition, the activities and operations of the Bank are subject to a number
of additional detailed, complex and sometimes overlapping federal and state laws
and regulations. These include state usury and consumer credit laws, state laws
relating to fiduciaries, the Federal Truth-In-Lending Act and Regulation Z, the
Federal Equal Credit Opportunity Act and Regulation B, the Fair Credit Reporting
Act, the Community Reinvestment Act, anti-redlining legislation and antitrust
laws.
Holding Company Regulation
The Holding Company is regulated as a "non-diversified unitary savings
and loan holding company" within the meaning of the Home Owners' Loan Act, as
amended ("HOLA"), and subject to regulatory oversight of the Director of the
OTS. As such, the Holding Company is registered with the OTS and thereby subject
to OTS regulations, examinations, supervision and reporting requirements. As a
subsidiary of a savings and loan holding company, the Bank is subject to certain
restrictions in its dealings with the Holding Company and with other companies
affiliated with the Holding Company.
The HOLA generally prohibits a savings and loan holding company,
without obtaining the prior approval of the Director of the OTS, from (i)
acquiring control of any other savings association or savings and loan holding
company or controlling the assets thereof or (ii) acquiring or retaining more
than 5 percent of the voting shares of a savings association or holding company
thereof which is not a subsidiary. Except with the prior approval of the
Director of the OTS, no director or officer of a savings and loan holding
company or person owning or controlling by proxy or otherwise more than 25% of
such company's stock may also acquire control of any savings institution, other
than a subsidiary institution, or any other savings and loan holding company.
The Holding Company's Board of Directors presently intends to continue
to operate the Holding Company as a unitary savings and loan holding company.
Under current OTS regulations, there are generally no restrictions on the
permissible business activities of a unitary savings and loan holding company.
The Holding Company currently operates as a unitary savings and loan
holding company. Prior to the enactment of the Gramm-Leach-Bliley Act (the "GLB
Act") on November 12, 1999, there were no restrictions on the permissible
business activities of a unitary savings and loan holding company. The GLB Act
included a provision that prohibits any new unitary savings and loan holding
company, defined as a company that acquires a thrift after May 4, 1999, from
engaging in commercial activities. This provision also includes a grandfather
clause, however, that permits a company that was a savings and loan holding
company as of May 4, 1999, or had an application to become a savings and loan
holding company on file with the OTS as of that date, to acquire and continue to
control a thrift and to continue to engage in commercial activities. Because the
Holding Company qualifies under this grandfather provision, the GLB Act did not
affect the Holding Company's authority to engage in diversified business
activities.
Notwithstanding the above rules as to permissible business activities
of unitary savings and loan holding companies, if the savings association
subsidiary of such a holding company fails to meet the Qualified Thrift Lender
("QTL") test, then such unitary holding company would be deemed to be a bank
holding company subject to all of the provisions of the Bank Holding Company Act
of 1956 and other statutes applicable to bank holding companies, to the same
extent as if the Holding Company were a bank holding company and the Bank were a
bank. See "-Qualified Thrift Lender." At December 31, 1999, the Bank's asset
composition was in excess of that required to qualify us as a Qualified Thrift
Lender.
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If the Holding Company were to acquire control of another savings
institution other than through a merger or other business combination with the
Bank, the Holding Company would thereupon become a multiple savings and loan
holding company. Except where such acquisition is pursuant to the authority to
approve emergency thrift acquisitions and where each subsidiary savings
association meets the QTL test, the activities of the Holding Company and any of
its subsidiaries (other than the Bank or other subsidiary savings associations)
would thereafter be subject to further restrictions. The HOLA provides that,
among other things, no multiple savings and loan holding company or subsidiary
thereof which is not a savings association shall commence or continue for a
limited period of time after becoming a multiple savings and loan holding
company or subsidiary thereof, any business activity other than (i) furnishing
or performing management services for a subsidiary savings association, (ii)
conducting an insurance agency or escrow business, (iii) holding, managing, or
liquidating assets owned by or acquired from a subsidiary savings institution,
(iv) holding or managing properties used or occupied by a subsidiary savings
institution, (v) acting as trustee under deeds of trust, (vi) those activities
previously directly authorized by the FSLIC by regulation as of March 5, 1987,
to be engaged in by multiple holding companies or (vii) those activities
authorized by the FRB as permissible for bank holding companies, unless the
Director of the OTS by regulation prohibits or limits such activities for
savings and loan holding companies. Those activities described in (vii) above
must also be approved by the Director of the OTS prior to being engaged in by a
multiple holding company.
The Director of the OTS may also approve acquisitions resulting in the
formation of a multiple savings and loan holding company which controls savings
associations in more than one state, if the multiple savings and loan holding
company involved controls a savings association which operated a home or branch
office in the state of the association to be acquired as of March 5,1987, or if
the laws of the state in which the institution to be acquired is located
specifically permit institutions to be acquired by state-chartered institutions
or savings and loan holding companies located in the state where the acquiring
entity is located (or by a holding company that controls such state-chartered
savings institutions). Also, the Director of the OTS may approve an acquisition
resulting in a multiple savings and loan holding company controlling savings
associations in more than one state in the case of certain emergency thrift
acquisitions.
Indiana law permits federal and state savings association holding
companies with their home offices located outside of Indiana to acquire savings
associations whose home offices are located in Indiana and savings association
holding companies with their principal place of business in Indiana ("Indiana
Savings Association Holding Companies") upon receipt of approval by the Indiana
Department of Financial Institutions. Moreover, Indiana Savings Association
Holding Companies may acquire savings associations with their home offices
located outside of Indiana and savings associations holding companies with their
principal place of business located outside of Indiana upon receipt of approval
by the Indiana Department of Financial Institutions.
Federal Home Loan Bank System
The Bank is a member of the FHLB of Indianapolis, which is one of
twelve regional FHLBs. Each FHLB serves as a reserve or central bank for its
member savings associations and other financial institutions within its assigned
region. The FHLB is funded primarily from funds deposited by banks and savings
associations and proceeds derived from the sale of consolidated obligations of
the FHLB System. It makes loans to members (i.e., advances) in accordance with
policies and procedures established by the Board of Directors of the FHLB. All
FHLB advances must be fully secured by sufficient collateral as determined by
the FHLB. The Federal Housing Finance Board ("FHFB"), an independent agency,
controls the FHLB System, including the FHLB of Indianapolis.
Prior to the enactment of the GLB Act, a federal savings association
was required to become a member of the FHLB for the district in which the thrift
is located. The GLB Act abolished this requirement, effective six months
following the enactment of the statute. At that time, membership with the FHLB
will become voluntary. Any savings association that chooses to become (or
remain) a member of the FHLB following the expiration of this six-month period
will have to qualify for membership under the criteria that existed prior to the
enactment of the GLB Act. The Bank currently intends to remain a member of the
FHLB of Indianapolis.
As a member of the FHLB, the Bank is required to purchase and maintain
stock in the FHLB of Indianapolis in an amount equal to at least 1% of its
aggregate unpaid residential mortgage loans, home purchase contracts, or similar
- 18 -
obligations at the beginning of each year. The Bank is currently in compliance
with this requirement. At December 31, 1999, the Bank's investment in stock of
the FHLB of Indianapolis was $1,273,000. The FHLB imposes various limitations on
advances such as limiting the amount of certain types of real estate-related
collateral to 30% of a member's capital and limiting total advances to a member.
Interest rates charged for advances vary depending upon maturity, the cost of
funds to the FHLB of Indianapolis and the purpose of the borrowing.
All twelve FHLBs are required by law to provide funds for the resolution
of troubled savings associations and to establish affordable housing programs
through direct loans or interest subsidies on advances to members to be used for
lending at subsidized interest rates for low- and moderate-income,
owner-occupied housing projects, affordable rental housing, and certain other
community projects. These contributions and obligations have adversely affected
the level of FHLB dividends paid and could continue to do so in the future. For
the fiscal year ended December 31, 1999, dividends paid by FHLB to the Bank
totaled $69,000, for an annual rate of 8.0%.
Liquidity
Federal regulations require the Bank to maintain minimum levels of
liquid assets (cash, certain time deposits, bankers' acceptances, specified
United States Government, state or federal agency obligations, shares of mutual
funds and certain corporate debt securities and commercial paper) equal to an
amount not less than a specified percentage of its net withdrawable deposit
accounts plus short-term borrowings. This liquidity requirement may be changed
from time to time by the OTS to an amount within the range of 4% to 10%
depending upon economic conditions and savings flows of member institutions. The
OTS recently lowered the level of liquid assets that must be held by a savings
association from 5% to 4% of the association's net withdrawable accounts plus
short-term borrowings based upon the average daily balance of such liquid assets
for each quarter of the association's fiscal year. The Bank has historically
maintained its liquidity ratio at a level in excess of that required. At
December 31, 1999, the Bank's liquidity ratio was 26.1%. The Bank has never been
subject to monetary penalties for failure to meet its liquidity requirements.
Insurance of Deposits
The FDIC is an independent federal agency that insures the deposits, up
to prescribed statutory limits, of banks and thrifts and safeguards the safety
and soundness of the banking and thrift industries. The FDIC administers two
separate insurance funds, the Bank Insurance Fund (the "BIF") for commercial
banks and state savings banks and the SAIF for savings associations such as the
Bank and banks that have acquired deposits from savings associations. The FDIC
is required to maintain designated levels of reserves in each fund. During 1996,
the reserves of the SAIF were below the level required by law, primarily because
a significant portion of the assessments paid into the SAIF have been used to
pay the cost of prior thrift failures, while the reserves of the BIF met the
level required by law. In 1996, however, legislation was enacted to recapitalize
the SAIF and eliminate the premium disparity between the BIF and SAIF, as
further described below.
The FDIC is authorized to establish separate annual assessment rates
for deposit insurance for members of the BIF and members of the SAIF. The FDIC
may increase assessment rates for either fund if necessary to restore the fund's
ratio of reserves to insured deposits to the target level within a reasonable
time and may decrease these rates if the target level has been met. The FDIC has
established a risk-based assessment system for both SAIF and BIF members. Under
this system, assessments vary depending on the risk the institution poses to its
deposit insurance fund. An institution's risk level is determined based on its
capital level and the FDIC's level of supervisory concern about the institution.
In 1996, legislation was enacted that included provisions designed to
recapitalize the SAIF and eliminate the significant premium disparity between
the BIF and the SAIF. Under the new law, the Bank was charged a one-time special
assessment equal to $.657 per $100 in assessable deposits at March 31, 1996. The
Bank recognized this one-time assessment as a non-recurring operating expense of
$335,000 during the three-month period ended September 30, 1996. The assessment
was fully deductible for both federal and state income tax purposes. Beginning
January 1, 1997, the Bank's annual deposit insurance premium was reduced from
.23% to .06% of total assessable deposits. BIF institutions pay lower
assessments than comparable SAIF institutions because BIF institutions pay only
20% of the rate being paid by SAIF institutions on their deposits with respect
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to obligations issued by the federally-chartered corporation which provided some
of the financing to resolve the thrift crisis in the 1980's ("FICO"). Although
Congress has considered merging the SAIF and the BIF, until then, savings
associations with SAIF deposits may not transfer deposits into the BIF system
without paying various exit and entrance fees, and SAIF institutions will
continue to pay higher FICO assessments. Such exit and entrance fees need not be
paid if a SAIF institution converts to a bank charter or merges with a bank, as
long as the resulting bank continues to pay applicable insurance assessments to
the SAIF, and as long as certain other conditions are met.
Regulatory Capital
Currently, savings associations are subject to three separate minimum
capital-to-assets requirements: (i) a leverage limit, (ii) a tangible capital
requirement, and (iii) a risk-based capital requirement. The OTS recently
adopted a regulation, which became effective April 1, 1999, that requires
savings associations that receive the highest supervisory rating for safety and
soundness to maintain "core capital" of at least 3% of total assets. All other
savings associations must maintain core capital of at least 4% of total assets.
Core capital is generally defined as common shareholders' equity (including
retained income), noncumulative perpetual preferred stock and related surplus,
certain minority equity interests in subsidiaries, qualifying supervisory
goodwill, purchased mortgage servicing rights and purchased credit card
relationships (subject to certain limits) less nonqualifying intangibles. Under
the tangible capital requirement, a savings association must maintain tangible
capital (core capital less all intangible assets except purchased mortgage
servicing rights which may be included after making the above-noted adjustment
in an amount up to 100% of tangible capital) of at least 1.5% of total assets.
Under the risk-based capital requirements, a minimum amount of capital must be
maintained by a savings association to account for the relative risks inherent
in the type and amount of assets held by the savings association. The risk-based
capital requirement requires a savings association to maintain capital (defined
generally for these purposes as core capital plus general valuation allowances
and permanent or maturing capital instruments such as preferred stock and
subordinated debt less assets required to be deducted) equal to 8.0% of
risk-weighted assets. Assets are ranked as to risk in one of four categories
(0-100%). A credit risk-free asset, such as cash, requires no risk-based
capital, while an asset with a significant credit risk, such as a non-accrual
loan, requires a risk factor of 100%. Moreover, a savings association must
deduct from capital, for purposes of meeting the core capital, tangible capital
and risk-based capital requirements, its entire investment in and loans to a
subsidiary engaged in activities not permissible for a national bank (other than
exclusively agency activities for its customers or mortgage banking
subsidiaries). At December 31, 1999, the Bank was in compliance with all capital
requirements imposed by law.
The OTS has promulgated a rule which sets forth the methodology for
calculating an interest rate risk component to be used by savings associations
in calculating regulatory capital. The OTS has delayed the implementation of
this rule, however. The rule requires savings associations with "above normal"
interest rate risk (institutions whose portfolio equity would decline in value
by more than 2% of assets in the event of a hypothetical 200-basis-point move in
interest rates) to maintain additional capital for interest rate risk under the
risk-based capital framework. If the OTS were to implement this regulation, the
Bank would not be required to maintain additional capital at December 31, 1999
under the terms of the OTS proposed interest rate risk rule.
If an association is not in compliance with the capital requirements,
the OTS is required to prohibit asset growth and to impose a capital directive
that may restrict, among other things, the payment of dividends and officers'
compensation. In addition, the OTS and the FDIC generally are authorized to take
enforcement actions against a savings association that fails to meet its capital
requirements. These actions may include restricting the operating activities of
the association, imposing a capital directive, cease and desist order, or civil
money penalties, or imposing harsher measures such as appointing a receiver or
conservator or forcing the association to merge into another institution.
Prompt Corrective Action
The Federal Deposit Insurance Corporation Improvement Act of 1991, as
amended ("FedICIA") requires, among other things, that federal bank regulatory
authorities take "prompt corrective action" with respect to institutions that do
not meet minimum capital requirements. For these purposes, FedICIA establishes
- 20 -
five capital tiers: well capitalized, adequately capitalized, undercapitalized,
significantly undercapitalized, and critically undercapitalized. At December 31,
1999, the Bank was categorized as "well capitalized," meaning that its total
risk-based capital ratio exceeded 10%, its Tier I risk-based capital ratio
exceeded 6%, its leverage ratio exceeded 5%, and it was not subject to a
regulatory order, agreement or directive to meet and maintain a specific capital
level for any capital measure.
The FDIC may order savings associations which have insufficient capital to
take corrective actions. For example, a savings association which is categorized
as "undercapitalized" would be subject to growth limitations and would be
required to submit a capital restoration plan, and a holding company that
controls such a savings association would be required to guarantee that the
savings association complies with the restoration plan. "Significantly
undercapitalized" savings associations would be subject to additional
restrictions. Savings associations deemed by the FDIC to be "critically
undercapitalized" would be subject to the appointment of a receiver or
conservator.
Capital Distributions Regulation
The OTS adopted a regulation, which became effective on April 1, 1999,
that revised the restrictions that apply to "capital distributions" by savings
associations. The amended regulation defines a capital distribution as a
distribution of cash or other property to a savings association's owners, made
on account of their ownership. This definition includes a savings association's
payment of cash dividends to shareholders, or any payment by a savings
association to repurchase, redeem, retire, or otherwise acquire any of its
shares or debt instruments that are included in total capital, and any extension
of credit to finance an affiliate's acquisition of those shares or interests.
The amended regulation does not apply to dividends consisting only of a savings
association's shares or rights to purchase such shares.
The amended regulation exempts certain savings associations from the
requirement under the prior version of the regulation that all savings
associations file either a notice or an application with the OTS before making
any capital distribution. As revised, the regulation requires a savings
association to file an application for approval of a proposed capital
distribution with the OTS if the association is not eligible for expedited
treatment under OTS's application processing rules, or the total amount of all
capital distributions, including the proposed capital distribution, for the
applicable calendar year would exceed an amount equal to the savings
association's net income for that year to date plus the savings association's
retained net income for the preceding two years (the "retained net income
standard"). Based on the Bank's retained net income standard, the Bank would be
required to file a notice or application with the OTS before making any capital
distribution. A savings association must also file an application for approval
of a proposed capital distribution if, following the proposed distribution, the
association would not be at least adequately capitalized under the OTS prompt
corrective action regulations, or if the proposed distribution would violate a
prohibition contained in any applicable statute, regulation, or agreement
between the association and the OTS or the FDIC.
The amended regulation requires a savings association to file a notice
of a proposed capital distribution in lieu of an application if the association
or the proposed capital distribution do not meet the conditions described above,
and: (1) the savings association will not be at least well capitalized (as
defined under the OTS prompt corrective action regulations) following the
capital distribution; (2) the capital distribution would reduce the amount of,
or retire any part of the savings association's common or preferred stock, or
retire any part of debt instruments such as notes or debentures included in the
association's capital under the OTS capital regulation; or (3) the savings
association is a subsidiary of a savings and loan holding company. Because the
Bank is a subsidiary of a savings and loan holding company, this latter
provision requires that, at a minimum, the Bank must file a notice with the OTS
thirty days before making any capital distributions to the Holding Company.
In addition to these regulatory restrictions, the Bank's Plan of
Conversion imposes additional limitations on the amount of capital distributions
it may make to the Holding Company. The Plan of Conversion by which the Bank
converted from the mutual to the stock form of ownership (the "Plan of
Conversion") requires the Bank to establish and maintain a liquidation account
for the benefit of Eligible Account Holders and Supplemental Eligible Account
Holders (as those terms are defined in the Plan of Conversion) and prohibits the
Bank from making capital distributions to the Holding Company if its net worth
would be reduced below the amount required for the liquidation account.
- 21 -
Limitations on Rates Paid for Deposits
Regulations promulgated by the FDIC pursuant to FedICIA place limitations
on the ability of insured depository institutions to accept, renew or roll over
deposits by offering rates of interest which are significantly higher than the
prevailing rates of interest on deposits offered by other insured depository
institutions having the same type of charter in the institution's normal market
area. Under these regulations, "well-capitalized" depository institutions may
accept, renew or roll such deposits over without restriction, "adequately
capitalized" depository institutions may accept, renew or roll such deposits
over with a waiver from the FDIC (subject to certain restrictions on payments of
rates) and "undercapitalized" depository institutions may not accept, renew or
roll such deposits over. The regulations contemplate that the definitions of
"well capitalized," "adequately capitalized" and "undercapitalized" will be the
same as the definition adopted by the agencies to implement the corrective
action provisions of FedICIA. The Bank does not believe that these regulations
will have a materially adverse effect on its current operations.
Safety and Soundness Standards
In 1995, the federal banking agencies adopted final safety and
soundness standards for all insured depository institutions. The standards,
which were issued in the form of guidelines rather than regulations, relate to
internal controls, information systems, internal audit systems, loan
underwriting and documentation, compensation and interest rate exposure. In
general, the standards are designed to assist the federal banking agencies in
identifying and addressing problems at insured depository institutions before
capital becomes impaired. If an institution fails to meet these standards, the
appropriate federal banking agency may require the institution to submit a
compliance plan. Failure to submit a compliance plan may result in enforcement
proceedings. During 1996, the federal banking agencies added asset quality and
earning standards to the safety and soundness guidelines.
Real Estate Lending Standards
OTS regulations require savings associations to establish and maintain
written internal real estate lending policies. Each association's lending
policies must be consistent with safe and sound banking practices and
appropriate to the size of the association and the nature and scope of its
operations. The policies must establish loan portfolio diversification
standards; establish prudent underwriting standards, including loan-to-value
limits, that are clear and measurable; establish loan administration procedures
for the association's real estate portfolio; and establish documentation,
approval, and reporting requirements to monitor compliance with the
association's real estate lending policies. The association's written real
estate lending policies must be reviewed and approved by the association's board
of directors at least annually. Further, each association is expected to monitor
conditions in its real estate market to ensure that its lending policies
continue to be appropriate for current market conditions.
Loans to One Borrower
Under OTS regulations, the Bank may not make a loan or extend credit to
a single or related group of borrowers in excess of 15% of its unimpaired
capital and surplus. Additional amounts may be lent, not in excess of 10% of
unimpaired capital and surplus, if such loans or extensions of credit are fully
secured by readily marketable collateral, including certain debt and equity
securities but not including real estate. In some cases, a savings association
may lend up to 30 percent of unimpaired capital and surplus to one borrower for
purposes of developing domestic residential housing, provided that the
association meets its regulatory capital requirements and the OTS authorizes the
association to use this expanded lending authority. At December 31, 1999, the
Bank did not have any loans or extensions of credit to a single or related group
of borrowers in excess of its lending limits. The Bank does not believe that the
loans-to-one-borrower limits will have a significant impact on its business
operations or earnings.
Qualified Thrift Lender
Savings associations must meet a QTL test that requires the association
to maintain an appropriate level of qualified thrift investments ("QTIs")
(primarily residential mortgages and related investments, including certain
mortgage-related securities) and otherwise to qualify as a QTL. The required
percentage of QTIs is 65% of portfolio assets (defined as all assets minus
intangible assets, property used by the association in conducting its business
and liquid assets equal to 10% of total assets). Certain assets are subject to a
percentage limitation of 20% of portfolio assets. In addition, savings
- 22 -
associations may include shares of stock of the FHLBs, FNMA, and FHLMC as QTIs.
Compliance with the QTL test is determined on a monthly basis in nine out of
every twelve months.
A savings association which fails to meet the QTL test must either
convert to a bank (but its deposit insurance assessments and payments will be
those of and paid to SAIF) or be subject to the following penalties: (i) it may
not enter into any new activity except for those permissible for a national bank
and for a savings association; (ii) its branching activities shall be limited to
those of a national bank; and (iii) it shall be bound by regulations applicable
to national banks respecting payment of dividends. Three years after failing the
QTL test the association must dispose of any investment or activity not
permissible for a national bank and a savings association. If such a savings
association is controlled by a savings and loan holding company, then such
holding company must, within a prescribed time period, become registered as a
bank holding company and become subject to all rules and regulations applicable
to bank holding companies (including restrictions as to the scope of permissible
business activities).
A savings association failing to meet the QTL test may requalify as a
QTL if it thereafter meets the QTL test. In the event of such requalification it
shall not be subject to the penalties described above. A savings association
which subsequently again fails to qualify under the QTL test shall become
subject to all of the described penalties without application of any waiting
period.
At December 31, 1999, 85.5% of the Bank's portfolio assets (as defined
on that date) were invested in qualified thrift investments (as defined on that
date), and therefore the Bank's asset composition was in excess of that required
to qualify the Bank as a QTL. Also, the Bank does not expect to significantly
change its lending or investment activities in the near future. The Bank expects
to continue to qualify as a QTL, although there can be no such assurance.
Acquisitions or Dispositions and Branching
The Bank Holding Company Act specifically authorizes a bank holding
company, upon receipt of appropriate regulatory approvals, to acquire control of
any savings association or holding company thereof wherever located. Similarly,
a savings and loan holding company may acquire control of a bank. Moreover,
federal savings associations may acquire or be acquired by any insured
depository institution. Regulations promulgated by the FRB restrict the
branching authority of savings associations acquired by bank holding companies.
Savings associations acquired by bank holding companies may be converted to
banks if they continue to pay SAIF premiums, but as such they become subject to
branching and activity restrictions applicable to banks.
Subject to certain exceptions, commonly controlled banks and savings
associations must reimburse the FDIC for any losses suffered in connection with
a failed bank or savings association affiliate. Institutions are commonly
controlled if one is owned by another or if both are owned by the same holding
company. Such claims by the FDIC under this provision are subordinate to claims
of depositors, secured creditors, and holders of subordinated debt, other than
affiliates.
The OTS has adopted regulations which permit nationwide branching to
the extent permitted by federal statute. Federal statutes permit federal savings
associations to branch outside of their home state if the association meets the
domestic building and loan test in ss.7701(a)(19) of the Code or the asset
composition test of ss.7701(c) of the Code. Branching that would result in the
formation of a multiple savings and loan holding company controlling savings
associations in more than one state is permitted if the law of the state in
which the savings association to be acquired is located specifically authorizes
acquisitions of its state-chartered associations by state- chartered
associations or their holding companies in the state where the acquiring
association or holding company is located. Moreover, Indiana banks and savings
associations are permitted to acquire other Indiana banks and savings
associations and to establish branches throughout Indiana.
Finally, the Riegle-Neal Interstate Banking and Branching Efficiency
Act of 1994 (the "Riegle-Neal Act") permits bank holding companies to acquire
banks in other states and, with state consent and subject to certain
limitations, allows banks to acquire out-of-state branches either through merger
or de novo expansion. The State of Indiana enacted legislation establishing
interstate branching provisions for Indiana state-chartered banks consistent
with those established by the Riegle-Neal Act (the "Indiana Branching Law"). The
Indiana Branching Law, which became effective in 1996, authorizes Indiana banks
to branch interstate by merger or de novo expansion, provided that such
- 23 -
transactions are not permitted to out-of-state banks unless the laws of their
home states permit Indiana banks to merge or establish de novo banks on a
reciprocal basis.
Transactions with Affiliates
The Bank and Holding Company are subject to Sections 22(h), 23A and 23B
of the Federal Reserve Act, which restrict financial transactions between banks
and affiliated companies. The statute limits credit transactions between a bank
and its executive officers and its affiliates, prescribes terms and conditions
for bank affiliate transactions deemed to be consistent with safe and sound
banking practices, and restricts the types of collateral security permitted in
connection with a bank's extension of credit to an affiliate.
Federal Securities Law
The shares of Common Stock of the Holding Company are registered with
the Securities and Exchange Commission (the "Commission") under the Securities
and Exchange Act of 1934, as amended (the "1934 Act"). The Holding Company is
subject to the information, proxy solicitation, insider trading restrictions and
other requirements of the 1934 Act and the rules of the SEC thereunder. If the
Holding Company has fewer than 300 shareholders, it may deregister the shares
under the 1934 Act and cease to be subject to the foregoing requirements.
Shares of Common Stock held by persons who are affiliates of the
Holding Company may not be resold without registration or unless sold in
accordance with the resale restrictions of Rule 144 under the Securities and
Exchange Act of 1933 (the "1933 Act"). If the Holding Company meets the current
public information requirements under Rule 144, each affiliate of the Holding
Company who complies with the other conditions of Rule 144 (including conditions
that require the affiliate's sale to be aggregated with those of certain other
persons) would be able to sell in the public market, without registration, a
number of shares not to exceed, in any three-month period, the greater of (i) 1%
of the outstanding shares of the Holding Company or (ii) the average weekly
volume of trading in such shares during the preceding four calendar weeks.
Community Reinvestment Act Matters
Federal law requires that ratings of depository institutions under the
Community Reinvestment Act of 1977 ("CRA") be disclosed. The disclosure includes
both a four-unit descriptive rating -- outstanding, satisfactory, unsatisfactory
and needs improvement -- and a written evaluation of each institution's
performance. Each FHLB is required to establish standards of community
investment or service that its members must maintain for continued access to
long-term advances from the FHLBs. The standards take into account a member's
performance under the CRA and its record of lending to first-time home buyers.
The OTS examiners have determined that the Bank has a satisfactory record of
meeting community credit needs.
TAXATION
Federal Taxation
Historically, savings associations, such as the Bank, have been
permitted to compute bad debt deductions using either the bank experience method
or the percentage of taxable income method. However, for years beginning after
December 31, 1995, the Bank is no longer able to use the percentage of taxable
income method of computing its allocable tax bad debt deduction. The Bank is
required to compute its allocable deduction using the experience method. As a
result of the repeal of the percentage of taxable income method, reserves taken
after 1987 using the percentage of taxable income method generally must be
included in future taxable income over a six-year period, although a two-year
delay may be permitted for institutions meeting a residential mortgage loan
origination test. In addition, the pre-1988 reserve, in which no deferred taxes
have been recorded, will not have to be recaptured into income unless (i) the
Bank no longer qualifies as a bank under the Code, or (ii) excess dividends are
paid out by the Bank.
Depending on the composition of its items of income and expense, a
savings institution may be subject to the alternative minimum tax. A savings
institution must pay an alternative minimum tax equal to the amount (if any) by
which 20% of alternative minimum taxable income ("AMTI"), as reduced by an
- 24 -
exemption varying with AMTI, exceeds the regular tax due. AMTI equals regular
taxable income increased or decreased by certain tax preferences and
adjustments, including depreciation deductions in excess of that allowable for
alternative minimum tax purposes, tax-exempt interest on most private activity
bonds issued after August 7, 1986 (reduced by any related interest expense
disallowed for regular tax purposes), the amount of the bad debt reserve
deduction claimed in excess of the deduction based on the experience method and
75% of the excess of adjusted current earnings over AMTI (before this adjustment
and before any alternative tax net operating loss). AMTI may be reduced only up
to 90% by net operating loss carryovers, but alternative minimum tax paid that
is attributable to most preferences (although not to post-August 7, 1986
tax-exempt interest) can be credited against regular tax due in later years.
State Taxation
The Bank is subject to Indiana's Financial Institutions Tax ("FIT"),
which is imposed at a flat rate of 8.5% on "adjusted gross income." "Adjusted
gross income," for purposes of FIT, begins with taxable income as defined by
Section 63 of the Code and, thus, incorporates federal tax law to the extent
that it affects the computation of taxable income. Federal taxable income is
then adjusted by several Indiana modifications, the most notable of which is the
required addback of interest that is tax-free for federal income tax purposes.
Other applicable state taxes include generally applicable sales and use taxes
plus real and personal property taxes.
Item 2. Properties.
At December 31, 1999, the Bank and the Holding Company conducted
business from a single office at 723 East Broadway, Logansport, Indiana. The
following table provides certain information with respect to the Company's
office as of December 31, 1999:
Total Deposits Net Book Value
at of Property,
Owned or Year December 31, Furniture & Approximate
Description and Address Leased Opened 1999 Fixtures Square Footage
- ----------------------- ------ ------ ---- -------- --------------
(Dollars in thousands)
723 East Broadway Owned 1962 $76,011 $1,902 11,000
Logansport, Indiana 46947
The Company owns computer and data processing equipment which is used
for transaction processing and accounting. The net book value of electronic data
processing equipment owned by the Company was $72,000 at December 31, 1999.
The Bank also has contracted for the data processing and reporting
services of the Intrieve Data Center in Cincinnati, Ohio. The cost of these data
processing services is approximately $12,000 per month.
Item 3. Legal Proceedings.
Neither the Holding Company nor the Bank is a party to any pending
legal proceedings, other than routine litigation incidental to its business.
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted to a vote of the Holding Company's shareholders
during the quarter ended December 31, 1999.
- 25 -
Item 4.5. Executive Officers of the Registrant.
Presented below is certain information regarding the executive officers
of the Holding Company:
Name Position
------------------ -------------------------------------
Thomas G. Williams President and Chief Executive Officer
Charles J. Evans Senior Vice President
Dottye Robeson Secretary/Treasurer
Thomas G. Williams (age 67) has served as President of the Bank since
1971 and as President and Chief Executive Officer of the Holding Company since
its organization. He will retire from those positions at the conclusion of the
Annual Meeting of Shareholders to be held on April 11, 2000.
Charles J. Evans (age 54) has served as Senior Vice President of the
Bank since January, 2000 and as Vice President of the Holding Company since its
organization. Prior to becoming Senior Vice President, Mr. Evans had served as
Vice President and Senior Loan Officer of the Bank since 1980.
Dottye Robeson (age 50) has served as Chief Financial Officer of the
Bank since 1994 and as Secretary/Treasurer of the Holding Company since its
organization. She has been a certified public accountant since 1987.
Presented below is certain information regarding David G. Wihebrink,
who will become President and Chief Executive Officer of the Holding Company and
the Bank at the conclusion of the Annual Meeting of Shareholders to be held on
April 11, 2000.
David G. Wihebrink (age 52) has served as Vice President and Chief
Financial Officer of TM Morris Manufacturing Co., Inc. ("Morris") since 1988.
Morris is located in Logansport, Indiana, and manufactures lead wire assemblies
and wiring harnesses and stampings. Prior to his employment with Morris, Mr.
Wihebrink was a member of the accounting firm Smith, Thompson & Wihebrink
(Logansport) for 15 years. Mr. Wihebrink also currently serves as a member of
the Board of Directors of the Neal Home retirement home in Logansport, Indiana.
PART II
Item 5. Market for Registrant's Common Equity and Related Shareholder Matters.
Logansport Savings Bank, FSB converted from a mutual savings bank to a
stock form federal savings bank effective June 13, 1995 (the "Conversion") and
simultaneously formed a savings and loan holding company, Logansport Financial
Corp. The Holding Company's common stock, without par value ("Common Stock"), is
quoted on the National Association of Securities Dealers Automated Quotation
System ("NASDAQ"), Small Cap Market, under the symbol "LOGN." The following
table sets forth the high and low bid prices and dividends paid per share of
Common Stock for the quarters indicated. Such over-the-counter quotations
reflect inter-dealer prices, without retail mark-up, mark-down or commission,
and may not necessarily represent actual transactions.
Quarter Ended High Bid Low Bid Dividends Declared
------------- -------- ------- ------------------
March 31, 1999 $ 14 $12 $ .11
June 30, 1999 12 1/2 11 2/16 .11
September 30, 1999 11 9/16 9 10/16 .11
December 31, 1999 10 1/2 9 1/32 .11
March 31, 1998 18 1/8 16 .10
June 30, 1998 19 5/8 16 1/2 .11
September 30, 1998 17 1/4 13 .11
December 31, 1998 16 3/8 13 3/8 .11
- 26 -
As of February 10, 2000, there were 865 record holders of the Holding
Company's Common Stock. The Holding Company has established a policy of paying
regular periodic cash dividends, and the Board of Directors intends to continue
this policy, subject to the Holding Company's operating results, financial
condition, capital, income tax considerations, regulatory restrictions, and
other relevant factors.
Since the Holding Company has no independent operations other than
investment-related activities or other subsidiaries to generate income, its
ability to accumulate earnings for the payment of cash dividends to its
shareholders will be directly dependent upon the ability of the Bank to pay
dividends to the Holding Company.
Under OTS regulations, a converted savings institution may not declare
or pay a cash dividend if the effect would be to reduce its net worth below the
amount required for the liquidation account created at the time it converted. In
addition, under OTS regulations, the extent to which a savings institution may
make a "capital distribution," which includes, among other things, cash
dividends, will depend upon in which one of three categories, based upon levels
of capital, that savings institution is classified. The Bank is now and expects
to continue to be a "tier one institution" and therefore would be able to pay
cash dividends to the Holding Company during any calendar year up to 100% of its
net income during that calendar year plus the amount that would reduce by one
half its "surplus capital ratio" (the excess over its fully phased-in capital
requirements) at the beginning of the calendar year. See "Regulation -- Capital
Distributions Regulation." Prior notice of any dividend to be paid by the Bank
to the Holding Company will have to be given to the OTS.
Income of the Bank appropriated to bad debt reserves and deducted for
federal income tax purposes is not available for payment of cash dividends or
other distributions to the Holding Company without the payment of federal income
taxes by the Bank on the amount of such income deemed removed from the reserves
at the then-current income tax rate. At December 31, 1999, approximately $1.7
million of the Bank's retained income represented bad debt deductions for which
no federal income tax provision had been made. See "Taxation--Federal Taxation."
Unlike the Bank, generally there is no regulatory restriction on the
payment of dividends by the Holding Company. Indiana law, however, would
prohibit the Holding Company from paying a dividend if, after giving effect to
the payment of that dividend, the Holding Company would not be able to pay its
debts as they become due in the usual course of business or the Holding
Company's total assets would be less than the sum of its total liabilities plus
preferential rights of holders of preferred stock, if any.
Item 6. Selected Financial Data.
The information required by this item is incorporated by reference to
the material under the heading "Selected Consolidated Financial Data of
Logansport Financial Corp. and Subsidiary" on pages 4 and 5 of the Holding
Company's 1999 Shareholder Annual Report (the "Shareholder Annual Report").
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operation.
The information required by this item is incorporated by reference to
pages 6 through 19 of the Shareholder Annual Report.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The information required by this item is incorporated by reference to
pages 14 through 15 of the Shareholder Annual Report.
Item 8. Financial Statements and Supplementary Data.
The Holding Company's Consolidated Financial Statements and Notes
thereto contained on pages 21 through 50 in the Shareholder Annual Report are
incorporated herein by reference. The Company's unaudited quarterly results of
operations contained on page 51 in the Shareholder Annual Report are
incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
Not applicable.
- 27 -
PART III
Item 10. Directors and Executive Officers of the Registrant.
The information required by this item with respect to directors is
incorporated by reference to pages 2 through 4 and page 8 of the Holding
Company's Proxy Statement for its 2000 Annual Shareholder Meeting (the "2000
Proxy Statement"). Information concerning the Holding Company's executive
officers is included in Item 4.5 in Part I of this report.
Item 11. Executive Compensation.
The information required by this item with respect to executive
compensation is incorporated by reference to pages 5 to 8 of the Holding
Company's 2000 Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information required by this item is incorporated by reference to
pages 2 and 3 of the 2000 Proxy Statement.
Item 13. Certain Relationships and Related Transactions.
The information required by this item is incorporated by reference to
page 8 of the 2000 Proxy Statement.
- 28 -
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) List the following documents filed as part of the report:
Financial Statements
Independent Auditor's Report (Grant Thornton LLP).................... See Shareholder Annual Report
Page 21
Consolidated Statements of Financial Condition
at December 31, 1999, and 1998................................... See Shareholder Annual Report
Page 22
Consolidated Statements of Earnings for the Years Ended
December 31, 1999, 1998, and 1997................................ See Shareholder Annual Report
Page 23
Consolidated Statements of Comprehensive Income
for the Years Ended December 31, 1999, 1998 and 1997............. See Shareholder Annual Report
Page 24
Consolidated Statements of Changes in Shareholders' Equity
for the Years Ended December 31, 1999, 1998 and 1997............. See Shareholder Annual Report
Page 25
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1999, 1998, and 1997................................ See Shareholder Annual Report
Page 26
Notes to Consolidated Financial Statements........................... See Shareholder Annual Report
Page 28
(b) Reports on Form 8-K.
The Holding Company filed the following reports on Form 8-K
during the fourth quarter of its 1999 fiscal year:
A Form 8-K was filed with the Commission on November 15, 1999
concerning the Corporation's stock repurchase program.
A Form 8-K was filed with the Commission on December 8, 1999
concerning the Corporation's stock repurchase program.
(c) The exhibits filed herewith or incorporated by reference
herein are set forth on the Exhibit Index on page E-1.
Included in those exhibits are Executive Compensation Plans
and Arrangements which are identified as Exhibits 10(1)
through 10(12).
(d) All schedules are omitted as the required information either
is not applicable or is included in the Consolidated Financial
Statements or related notes.
- 29 -
SIGNATURES
Pursuant to the requirement of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on behalf of the undersigned, thereto duly authorized.
LOGANSPORT FINANCIAL CORP.
Date: March 24, 2000 By: /s/ Thomas G. Williams
---------------------------------
Thomas G. Williams, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the Registrant and in the capacities indicated on this 24th day of March, 2000.
/s/ Thomas G. Williams
- ---------------------------------------
Thomas G. Williams
President, Chief Executive Officer and Director
(Principal Executive Officer)
/s/ Dottye Robeson
- ---------------------------------------
Dottye Robeson,
Secretary/Treasurer (Principal Financial and
Accounting Officer)
/s/ Charles J. Evans
- ---------------------------------------
Charles J. Evans, Vice President and Director
/s/ Donald G. Pollitt
- ---------------------------------------
Susanne S. Ridlen, Director
/s/ William Tincher, Jr.
- ---------------------------------------
William Tincher, Jr., Director
/s/ David Wihebrink
- ---------------------------------------
David Wihebrink, Director
/s/ Brian Morrill
- ---------------------------------------
Brian Morrill, Director
EXHIBIT INDEX
Exhibit Page
3(1) The Articles of Incorporation of the Registrant are
incorporated by reference to Exhibit 3(1) to the
Registration Statement on Form S-1 (Registration No.
33-89788).
3(2) The Code of By-Laws of the Registrant are incorporated
by reference to Exhibit 3.2 to the Form 10-Q for the
period ended June 30, 1997, filed with the Commission
on August 13, 1997 and resolutions dated October 13,
1998, filed herewith.
10(1) The Registrant's Stock Option Plan is incorporated by
reference to Exhibit A to the Registrant's Proxy
Statement for its Annual Shareholder Meeting held on
April 9, 1996 and resolutions dated July 14, 1998,
amending the Registrant's Stock Option Plan are
incorporated by reference to Exhibit 10.1 to the Form
10-Q for the period ended September 30, 1998, filed
with the Commission on November 12, 1998.
10(2) Logansport Savings Bank, FSB Recognition and Retention
Plan and Trust is incorporated by reference to Exhibit
B to the Registrant's Proxy Statement for its Annual
Shareholder Meeting held on April 9, 1996, and
resolutions dated July 14, 1998, amending the
Logansport Savings Bank, FSB Recognition and Retention
Plan and Trust are incorporated by reference to Exhibit
10.2 to the Form 10-Q for the period ended September
30, 1998, filed with the Commission on November 12,
1998.
10(3) Logansport Savings Bank, FSB Employee Stock Ownership
Plan and Trust Agreement is incorporated by reference
to Exhibit 10(4) to the Registration Statement on Form
S-1 (Registration No. 33-89788).
10(4) Employment Agreement between Logansport Savings Bank,
FSB and Thomas G. Williams is incorporated by reference
to Exhibit 10(5) to the Registration Statement on Form
S-1 (Registration No. 33-89788).
10(5) Employment Agreement between Logansport Savings Bank,
FSB and Charles J. Evans is incorporated by reference
to Exhibit 10(6) to the Registration Statement on Form
S-1 (Registration No. 33-89788).
10(6) Director Deferred Compensation Agreement between
Logansport Savings Bank, FSB and Thomas G. Williams,
effective April 1, 1992 is incorporated by reference to
Exhibit 10(7) to the Registration Statement on Form S-1
(Registration No. 33-89788).
10(7) Director Deferred Compensation Agreement between
Logansport Savings Bank, FSB and Don Pollitt, effective
April 1, 1992 is incorporated by reference to Exhibit
10(8) to the Registration Statement on Form S-1
(Registration No. 33-89788).
10(8) Director Deferred Compensation Agreement between
Logansport Savings Bank, FSB and Norbert Adrian,
effective April 1, 1992 is incorporated by reference to
Exhibit 10(9) to the Registration Statement on Form S-1
(Registration No. 33-89788).
10(9) Director Deferred Compensation Agreement between
Logansport Savings Bank, FSB and Susanne Ridlen,
effective April 1, 1992 is incorporated by reference to
Exhibit 10(10) to the Registration Statement on Form
S-1 (Registration No. 33-89788).
10(10) Director Deferred Compensation Agreement between
Logansport Savings Bank, FSB and David Wihebrink,
effective April 1, 1992 is incorporated by reference to
Exhibit 10(11) to the Registration Statement on Form
S-1 (Registration No. 33-89788).
10(11) Executive Supplemental Retirement Income Agreement
between Logansport Savings Bank, FSB and Thomas G.
Williams, executed May 7, 1992 is incorporated by
reference to Exhibit 10(12) to the Registration
Statement on Form S-1 (Registration No. 33-89788).
10(12) Executive Supplemental Retirement Income Agreement
between Logansport Savings Bank, FSB and Charles J.
Evans, executed May 7, 1992 is incorporated by
reference to Exhibit 10(13) to the Registration
Statement on Form S-1 (Registration No. 33-89788).
13 1999 Shareholder Annual Report ______
21 Subsidiaries of the Registrant are incorporated by
reference to Exhibit 21 to the Registration Statement
on Form S-1 (Registration No. 33-89788).
23 Independent Auditor's Consent (Grant Thornton LLP) ______
27 Financial Data Schedule for the twelve month period
ended December 31, 1999 ______