TABLE OF CONTENTS
Page
Directors and Officers 2
President's Message to Shareholders 5
Selected Consolidated Financial Data 6
Management's Discussion and Analysis 8
Report of Independent Certified Public Accountants 21
Consolidated Statements of Financial Condition 22
Consolidated Statements of Earnings 23
Consolidated Statements of Comprehensive Income 24
Consolidated Statements of Changes in Shareholders' Equity 25
Consolidated Statements of Cash Flows 26
Notes to Consolidated Financial Statements 28
Shareholder Information 51
BUSINESS OF LOGANSPORT FINANCIAL CORP.
Logansport Financial Corp. ("Logansport Financial" or the "Company"), an Indiana
corporation, 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 in June 1995. The Company and the
Bank conduct business from a single office in Logansport, Cass County, Indiana.
During 2002, the Company began to offer full-service banking through the
internet at www.logansportsavings.com. The Bank is and historically has been
among the top real estate mortgage lenders in Cass County and is the oldest
financial institution headquartered in Cass County. The Bank offers a variety of
retail deposit and lending services. The Company has no business activity other
than being the holding company for the Bank. The Company is the sole shareholder
of the Bank.
MISSION STATEMENT
"The Board of Directors, management and staff of Logansport Savings Bank are
dedicated to serving the needs of our customers, providing them with the best
possible service in an efficient, friendly, caring atmosphere. As a vital part
of this community, Logansport Savings Bank seeks to continue partnering with
local business and individuals. The customers, employees, and shareholders are
an integral part of Logansport Savings Bank and are best served if the Bank
remains an independent, locally controlled and operated, profitable financial
institution."
Logansport Financial Corp.
DIRECTORS AND OFFICERS
DIRECTORS
Charles J. Evans (age 56) has served as Senior Vice President of Logansport
Savings Bank, FSB since January 2000. Prior to that he served as Vice President
and Senior Loan Officer of Logansport Savings Bank, FSB since 1980.
Brian J. Morrill (age 45) is the founder and President of Cass County Title
Company, Inc. The firm provides title insurance policies and real estate
searches for lenders, realtors, attorneys, and the general public. Prior to
founding Cass County Title Company, Morrill served for ten years as the
Executive Director of the Cass County Family YMCA in Logansport, Indiana.
Morrill has served on several community boards and in 2000 served as Chairman of
the Logansport/Cass County Chamber of Commerce.
Susanne S. Ridlen, Ph.D. (age 62) is a faculty member and Director of the
Project Success Program for under-prepared students at Indiana University
Kokomo. Dr. Ridlen has taught at IUK since 1969. She also serves on the Lilly
Scholarship Committee for the Cass County Community Foundation. In addition, she
serves on the Board of Directors for the President Benjamin Harrison Foundation,
Inc.
William Tincher, Jr. (age 63) has served as Plant Manager for the Modine
Manufacturing Company ("Modine") since 1977. Modine is located in Logansport,
Indiana, and manufactures automotive cooling systems.
David G. Wihebrink (age 55) has served as President of Logansport Financial
Corp. and Logansport Savings Bank since April 2000. Prior to that, he had served
as Vice President and Chief Financial Officer of TM Morris Manufacturing Co.,
Inc. since 1988. 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; as a member of the Board of
Directors of the North Central Indiana Workforce Investment Board and as a
member of the Board of Directors of the Logansport/Cass County Chamber of
Commerce.
Thomas G. Williams (age 69) served as President of Logansport Savings Bank,
FSB from 1971 until his retirement in April 2000.
Dr. Todd S. Weinstein (age 41) is a member of the surgical staff at
Logansport Memorial Hospital and has been a member of Logansport Surgical
Associates since 1991. He serves on the Board of Trustees of Logansport Memorial
Hospital and the Board of Directors of the Cass County Family YMCA.
James P. Bauer (age 57) is the Vice President of Finance and Treasurer of
Material Processing, Inc., a holding company for Small Parts, Inc. and ABC
Metals. He serves on the Board of Directors of the Logansport Economic
Development Foundation, Inc. and the United Way of Cass County, Inc.
LOGANSPORT FINANCIAL CORP. LOGANSPORT SAVINGS BANK, FSB
Officers Officers
DAVID G. WIHEBRINK DAVID G. WIHEBRINK - President
President and Chief Executive Officer
CHARLES J. EVANS - Senior Vice President
CHARLES J. EVANS
Vice President DOTTYE ROBESON - Chief Financial Officer/
Secretary/Treasurer
DOTTYE ROBESON
Secretary/Treasurer ALLEN SCHIEBER - Senior Vice President
JEFFREY JONES - Vice President
SHEILA WILDERMUTH - Vice President
MARK DEBARGE - Assistant Vice President
KAY GAPSKI - Assistant Vice President
TO OUR SHAREHOLDERS:
In last year's letter we stated "Logansport Financial Corp. had a simple plan
for success consisting of three goals: maximizing the return to our
shareholders, enhancing our products and providing the very best services to our
customers, and developing our talents to provide greater opportunities for our
employees." I am pleased to report that despite a challenging economic
environment we have been able to accomplish a significant portion of our plan.
Total assets of the Bank grew to an unprecedented total of $150.1 million, an
8.7% increase; net earnings totaled a record $1.5 million, an increase of 8.3%;
and basic earnings per share also reflected a record $1.63, representing a 26%
increase. This across-the-board record performance represents the exceptional
efforts made by our employees and the successful continuation of our strategic
focus on enhanced profitability for our shareholders.
The operating environment in 2002 was characterized by continued declining
interest rates and a weaker than expected economy. The lower interest rate
climate and the competitive environment accelerated the unprecedented demand for
home mortgage refinancing. As a result, our portfolio of one- to four-family
residential loans decreased by $2.1 million, however, strong growth in our
commercial loan portfolio of $3.9 million almost overcame the decline in our
portfolio due to refinancing. As a result, our balance sheet is in excellent
shape and our capital position is very strong as we head into what is expected
to be a year of economic recovery. We anticipate that the year 2003 will hold
many challenges for us, our country, our economy, and the banking industry in
general. We feel the Bank is positioned to withstand the low interest rate
environment in the short run and to remain vibrant in the long-term as rates
recover from their record low levels.
The board of directors, management and employees of Logansport Financial Corp.
believe that community banks are an integral part of their communities. They
have been, and will continue to be, the backbone of their communities....knowing
their customers....their customers knowing them....helping their customers in
goods times and bad. We hope you find the enclosed reports helpful in your
analysis and we are grateful for the trust you have placed in us. As our Bank
moves forward into 2003, we intend to continue "Leading The Way" in community
banking.
Sincerely,
David G. Wihebrink
President
Logansport Financial Corp.
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
The following tables set forth certain information concerning Logansport
Financial's consolidated financial position, results of operations and other
data at the dates and for the periods indicated.
At December 31,
Statement of Financial Condition Data: 2002 2001 2000 1999 1998
(In thousands)
Total assets $150,099 $138,065 $132,612 $117,468 $96,085
Loans receivable, net 110,386 111,696 102,418 90,900 73,073
Mortgage-backed securities 11,009 4,419 5,165 5,898 8,129
Cash and cash equivalents 13,517 8,816 9,210 5,146 4,328
Investment securities 8,060 5,788 8,322 8,539 5,033
Deposits 98,325 83,900 79,454 76,011 70,011
Borrowings 35,629 35,915 35,237 24,307 8,375
Shareholders' equity - net 15,373 17,402 17,013 16,146 16,488
Year ended December 31,
Summary of Operating Results: 2002 2001 2000 1999 1998
(In thousands, except share data)
Interest income $9,326 $9,831 $9,524 $7,599 $6,579
Interest expense 4,877 5,696 5,597 4,043 3,476
-------- -------- -------- -------- -------
Net interest income 4,449 4,135 3,927 3,556 3,103
Provision for losses on loans 360 392 332 162 63
-------- -------- -------- -------- -------
Net interest income after provision for
losses on loans 4,089 3,743 3,595 3,394 3,040
Other income 352 222 122 175 285
General, administrative and other expense 2,318 2,046 1,937 1,667 1,322
-------- -------- -------- -------- -------
Earnings before income taxes 2,123 1,919 1,780 1,902 2,003
Income taxes 609 521 511 678 756
-------- -------- -------- -------- -------
Net earnings $1,514 $1,398 $1,269 $1,224 $1,247
======== ======== ======== ======== =======
Basic earnings per share $1.63 $1.29 $1.16 $1.03 $1.00
======== ======== ======== ======== =======
Diluted earnings per share $1.58 $1.27 $1.16 $1.02 $.97
======== ======== ======== ======== =======
Cash dividends per share $.52 $.48 $.44 $.44 $.43
======== ======== ======== ======== =======
Logansport Financial Corp.
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA (CONTINUED)
At or for the year ended December 31,
Supplemental Data: 2002 2001 2000 1999 1998
Return on assets (1) 1.03% 1.03% 1.00% 1.14% 1.37%
Return on equity (2) 9.30 7.82 7.76 7.33 7.44
Interest rate spread (3) 2.76 2.55 2.57 2.86 2.70
Net yield on interest-earning assets (4) 3.21 3.23 3.27 3.54 3.61
General, administrative and other
expense to average assets 1.58 1.50 1.53 1.55 1.45
Net interest income to general,
administrative and other expense 191.93 202.10 202.74 213.32 234.72
Equity-to-assets (5) 10.24 12.60 12.83 13.75 17.16
Average interest-earning assets to
average interest-bearing liabilities 113.04 115.21 115.39 117.20 122.72
Non-performing assets to total assets .99 1.41 .25 .57 .33
Non-performing loans to total loans 1.34 1.72 .32 .72 .42
Loan loss allowance to total loans 1.30 1.00 .73 .47 .38
Loan loss allowance to non-performing
loans 98.25 58.11 226.19 66.07 90.48
Dividend payout ratio 31.90 37.21 37.93 42.72 43.00
Net charge-offs to average loans .03 .02 * * .03
* Less than .01%
- --------------------------------------
(1) Net earnings divided by average total assets.
(2) Net earnings divided by average total equity.
(3) Interest rate spread is calculated by subtracting combined weighted-average
interest rate cost from combined weighted-average interest rate earned for
the period indicated.
(4) Net interest income divided by average interest-earning assets.
(5) Total equity divided by total assets.
Logansport Financial Corp.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
The Company was formed as part of the conversion of the Bank from a federal
mutual savings bank to a federal stock savings bank, which was completed June
13, 1995. The Company has no activity other than being the holding company for
the Bank.
The principal business of savings associations, including the Bank, has
historically consisted of attracting deposits from the general public and making
loans secured by residential and other real estate. The Bank and all other
savings associations are significantly affected by prevailing economic
conditions, as well as government policies and regulations concerning, among
other things, monetary and fiscal affairs, housing and financial institutions.
Deposit flows are influenced by a number of factors, including interest rates
paid on competing investments, account maturities and levels of personal income
and savings. In addition, deposit growth is affected by how customers perceive
the stability of the financial services industry amid various current events
such as regulatory changes, failures of other financial institutions and
financing of the deposit insurance fund. Lending activities are influenced by
the demand for and supply of housing lenders, the availability and cost of funds
and various other items. Sources of funds for lending activities of the Bank
include deposits, borrowings, payments on loans and income provided from
operations.
The Bank's earnings are primarily dependent upon its net interest income, which
is the difference between interest income on interest-earning assets and
interest expense on interest-bearing liabilities. Interest income is a function
of the balances of loans and investments outstanding during a given period and
the yield earned on such loans and investments. Interest expense is a function
of the amount of deposits and borrowings outstanding during the same period and
interest rates paid on such deposits and borrowings. The Bank's earnings are
also affected by provisions for losses on loans, service charges, operating
expenses and income taxes.
Forward-Looking Statements
In the following pages, management presents an analysis of the Company's
financial condition as of December 31, 2002, and the results of operations for
the year ended December 31, 2002, as compared to prior periods. In addition to
this historical information, the following discussion contains forward-looking
statements that involve risks and uncertainties. Economic circumstances, the
Company's operations and the Company's actual results could differ significantly
from those discussed in the forward-looking statements. Some of the factors that
could cause or contribute to such differences are discussed herein but also
include changes in the economy and interest rates in the nation and in the
Company's general market area.
Without limiting the foregoing, some of the forward-looking statements include
the following:
1. Management's establishment of an allowance for loan losses and its
statements regarding the adequacy of such allowance for loan losses.
2. Management's opinion as to the financial statement effect of recent
accounting pronouncements.
3. Management's opinion as to the effect of changes in interest rates on the
Company's results of operations.
Logansport Financial Corp.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Changes in Financial Condition from December 31, 2001 to December 31, 2002
The Company's total assets were $150.1 million at December 31, 2002, an increase
of $12.0 million, or 8.7%, over the $138.1 million total at December 31, 2001.
The increase in assets was funded primarily through growth in deposits of $14.4
million, partially offset by a $2.0 million decline in shareholders' equity. The
percentage of interest-earning assets to total assets was 96.1% and 95.3% at
December 31, 2002 and 2001, respectively.
At December 31, 2002, investment and mortgage-backed securities totaled $19.1
million, compared to $10.2 million at December 31, 2001, an increase of $8.9
million, or 86.8%. The increase was due to purchases of $17.8 million, which
were partially offset by maturities, sales and repayments totaling $9.4 million.
The primary investments added to the portfolio were Federal Home Loan Bank
("FHLB") and Federal National Mortgage Association ("FNMA") fixed rate notes and
mortgage-backed securities. At December 31, 2002, in addition to U.S. Government
agency bonds and mortgage-backed securities, the Company held $983,000 of
corporate debt obligations rated Investment Grade or better by Moody's Investors
Service, Inc. and $500,000 of FNMA preferred stock yielding 3.98% as well as
FHLMC common stock.
Loans receivable totaled $110.4 million at December 31, 2002, a decrease of $1.3
million, or 1.2%, from December 31, 2001. The decrease in loans receivable was
due primarily to principal repayments of $46.7 million, which were partially
offset by loan disbursements totaling $45.6 million. Loan origination volume
during 2002 declined from the record volume levels of 2001 by $15.5 million, a
25.4% decrease. The overall decrease in loans was comprised of a $2.1 million,
or 3.4%, decrease in loans secured by one- to four-family residential real
estate and a $1.9 million, or 14.2%, decrease in consumer loans. Loans secured
by nonresidential real estate, commercial loans and leases increased by $3.9
million, or 12.2%.
During 1997, the Company invested $1.5 million in a limited partnership, which
constructs and manages residential real estate apartments for low and
moderate-income residents. This investment reflects a 49.5% participation in the
partnership. The affordable housing project generates tax credits for the Bank.
This investment initially resulted in an increase to total assets of $1.5
million with a corresponding increase in notes payable. During the three years
ended December 31, 2002, the Bank recorded pretax losses from the housing
project of totaling $558,000, while realizing tax credits of $506,000.
Deposits totaled $98.3 million at December 31, 2002, an increase of $14.4
million, or 17.2%, over December 31, 2001. Non-interest bearing deposits, NOW
accounts, passbook savings and money market savings increased by $9.4 million,
or 29.3%, while certificates of deposit increased by $5.0 million, or 9.6%. At
December 31, 2002, borrowings consisted of $33.8 million in FHLB advances
compared to $34.8 million in FHLB advances at December 31, 2001, a decrease of
$914,000, or 2.6%. Proceeds from deposit growth were generally used to fund the
purchase of investments and mortgage-backed securities and a 10% stock
repurchase program. However, $1.7 million of the deposit increase was comprised
of short-term local governmental deposits which are subject to bids every 60 to
90 days and, therefore, may or may not be retained. Additionally, the Bank has
deposit customers who periodically place large deposits for short time periods.
Such deposits totaled approximately $4.0 million at December 31, 2002. These
funds were withdrawn in January 2003.
Shareholders' equity totaled $15.4 million at December 31, 2002, a decrease of
$2.0 million, or 11.7%, from December 31, 2001. The decrease was due primarily
to dividends totaling $478,000 and common stock repurchases totaling $3.7
million, which were offset by net earnings for the year ended December 31, 2002,
of $1.5 million, an increase in unrealized gains on available for sale
securities of $272,000 and proceeds from the exercise of stock options of
$369,000.
Logansport Financial Corp.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Comparison of Results of Operations for the Years Ended December 31, 2002 and
2001
Net earnings totaled $1.5 million for the year ended December 31, 2002, a
$116,000, or 8.3%, increase over the net earnings reported for 2001. The
increase in net earnings resulted primarily from an increase of $314,000 in net
interest income, an increase of $130,000 in other income and a decrease of
$32,000 in the provision for losses on loans, which were partially offset by an
increase of $272,000 in general, administrative and other expense and an
increase in the provision for income taxes of $88,000.
Interest Income
The Company's total interest income was $9.3 million for the year ended December
31, 2002, compared to $9.8 million during 2001, a decrease of $505,000, or 5.1%.
The $10.7 million, or 8.3%, increase in average interest-earning assets, from
$129.8 million in 2001 to $140.5 million in 2002, was more than offset by a 93
basis point decrease in the average yield on interest-earning assets, to 6.68%
in 2002 compared to 7.61% in 2001. Interest income on loans decreased by
$406,000, or 4.7%, due primarily to a 70 basis point decrease in the average
yield year to year, to 7.30% in 2002, which was partially offset by a $4.8
million, or 4.4%, increase in the average balance of loans outstanding. Interest
income on investment and mortgage-backed securities and other interest-bearing
deposits decreased by $99,000, or 8.9%, due primarily to a 152 basis point
decline in the average yield, to 3.89% in 2002, which was partially offset by a
$5.9 million, or 31.5%, increase in the average balance outstanding.
Interest Expense
Interest expense totaled $4.9 million for the year ended December 31, 2002, a
decrease of $819,000, or 14.4%, compared to 2001. This decrease was the result
of a decrease in the average cost of interest-bearing liabilities of 114 basis
points, from 5.06% in 2001 to 3.92% in 2002, partially offset by an increase in
the average balance of $11.6 million, or 10.3%. Interest expense on deposits
decreased by $715,000, or 19.4%, due primarily to a 137 basis point decline in
the average cost of deposits, to 3.32% in 2002, which was partially offset by a
$10.9 million, or 13.9%, increase in the average balance of deposits outstanding
year to year. Interest expense on borrowings decreased by $104,000, or 5.2%, due
primarily to a 43 basis point decrease in the average cost of borrowings year to
year. The decreases in the level of yields on interest-earning assets and the
cost of interest-bearing liabilities were due primarily to the overall decrease
in interest rates in the economy throughout 2001 and 2002.
Net Interest Income
As a result of the foregoing changes in interest income and interest expense,
net interest income increased by $314,000, or 7.6%, to $4.4 million in 2002,
compared to $4.1 million in 2001. The interest rate spread was 2.76% in 2002
compared to 2.55% in 2001, and the net yield on weighted-average
interest-earning assets declined to 3.21% in 2002 from 3.23% in 2001.
Provision for Losses on Loans
The Company maintains a general allowance for loan losses that reflects an
estimate of inherent losses based upon the types and categories of outstanding
loans, as well as problem loans and current economic conditions in the Company's
market area. The Company's provision for losses on loans was $360,000 and
$392,000, for the years ended December 31, 2002 and 2001, respectively. The 2002
provision was predicated primarily upon the increase in the volume of loans
secured by nonresidential and commercial real estate, an analysis of
nonperforming loans and the current economic climate. At December 31, 2002 and
2001, the allowance amounted to $1.5 million and $1.1 million, respectively, for
a ratio to total loans of 1.30% in 2002 and 1.00% in 2001. Non-performing loans
at December 31, 2002 and 2001 were $1.5 million and $1.9 million, respectively.
The ratio of the allowance for loan losses to non-performing loans increased
from 58.1% at December 31, 2001 to 98.3% at December 31, 2002. Based on
management's review of the loan portfolio, the allowance for loan losses at
December 31, 2002 is considered adequate to cover potential losses inherent in
the loan portfolio. However, there can be no assurance that additions to the
allowance will not be necessary in future periods, which could adversely affect
the Company's results of operations.
Logansport Financial Corp.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Comparison of Results of Operations for the Years Ended December 31, 2002 and
2001 (continued)
Other Income
The Company's other income for the year ended December 31, 2002, excluding the
loss on equity investments, was $459,000, compared to $429,000 in 2001. The
increase was due primarily to a $101,000 gain on sale of investment and
mortgage-backed securities, partially offset by a decrease of $17,000, or 7.1%,
in service charges on deposit accounts and a $54,000, or 28.3%, decrease in
other operating income, mainly income on Bank-owned life insurance and a $14,000
decrease in insurance commissions. The $107,000 loss on equity investments
recorded in 2002 had a positive after-tax effect of approximately $111,000 when
considering the tax benefit and the available tax credits generated by the
project.
General, Administrative and Other Expense
General, administrative and other expense totaled $2.3 million for the year
ended December 31, 2002, compared to $2.0 million in 2001, an increase of
$272,000, or 13.3%. Employee compensation and benefits increased by $182,000, or
16.3%, due primarily to a $40,000 increase in expense related to medical
insurance and a $30,000 increase in pension expense, while the remaining
$112,000 increase was primarily attributable to additional staffing, normal
merit increases and an increase in officer and employee bonus expenses year to
year. Occupancy and equipment expense increased by $10,000, or 4.3%, mainly due
to an increase in property taxes and other related occupancy expenses. Data
processing fees increased by $7,000, or 3.8%, due primarily to increased account
volume and additional commercial loan software maintenance costs. Various other
operating expenses increased by $73,000, or 14.5%. The majority of the increase
was related to costs associated with new internet-banking services, consulting
and attorney fees, costs related to being a public company and pro-rata
increases in costs related to the Company's overall growth year to year.
Income Tax Expense
Income tax expense totaled $609,000 for the year ended December 31, 2002, an
increase of $88,000, or 16.9%, over 2001. Pretax income increased by $204,000,
or 10.6%, in 2002 compared to 2001, while approximately $182,000 of tax credits
were available in both 2002 and 2001. The effective tax rates were 28.7% and
27.1% for the years ended December 31, 2002 and 2001, respectively.
Comparison of Results of Operations for the Years Ended December 31, 2001 and
2000
Net earnings totaled $1.4 million for the year ended December 31, 2001, a
$129,000, or 10.2%, increase over the net earnings reported for 2000. The
increase in net earnings resulted primarily from an increase of $208,000 in net
interest income and an increase of $100,000 in other income, which were
partially offset by an increase of $60,000 in the provision for losses on loans,
an increase of $109,000 in general, administrative and other expense and an
increase in the provision for income taxes of $10,000.
Interest Income
The Company's total interest income was $9.8 million for the year ended December
31, 2001, compared to $9.5 million during 2000, an increase of $307,000, or
3.2%. The $8.3 million, or 6.8%, increase in average interest-earning assets,
from $121.5 million in 2000 to $129.8 million in 2001, was partially offset by a
27 basis point decrease in the average yield on interest-earning assets, to
7.61% in 2001 compared to 7.88% in 2000. Interest income on loans increased by
$680,000, or 8.5%, due primarily to a $10.8 million, or 10.9%, increase in the
average balance of loans outstanding, which was partially offset by an 18 basis
point decrease in the average yield year to year, to 8.00% in 2001. Interest
income on investment and mortgage-backed securities and other interest-bearing
deposits decreased by $373,000, or 25.2%, due primarily to a $2.5 million, or
10.7%, decrease in the average balance outstanding and a 96 basis point decline
in the average yield, to 5.66% in 2001.
Logansport Financial Corp.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Comparison of Results of Operations for the Years Ended December 31, 2001 and
2000 (continued)
Interest Expense
Interest expense totaled $5.7 million for the year ended December 31, 2001, an
increase of $99,000, or 1.8%, compared to 2000. This increase was the result of
an increase in the average balance of interest-bearing liabilities of $7.4
million, or 7.0%, offset by a decrease in the average cost of these liabilities
of 25 basis points, from 5.31% in 2000 to 5.06% in 2001. Interest expense on
deposits decreased by $230,000, or 5.9%, due primarily to a 34 basis point
decline in the average cost of deposits, to 4.69% in 2001, which was partially
offset by a $683,000, or .9%, increase in the average balance of deposits
outstanding year to year. Interest expense on borrowings increased by $329,000,
or 19.5%, due primarily to a $6.7 million, or 24.2%, increase in the average
balance outstanding, which was partially offset by a 23 basis point decrease in
the average cost of borrowings year to year. The decreases in the level of
yields on interest-earning assets and the cost of interest-bearing liabilities
were due primarily to the overall decrease in interest rates in the economy
during 2001.
Net Interest Income
Net interest income increased by $208,000, or 5.3%, to $4.1 million in 2001,
compared to $3.9 million in 2000. The interest rate spread was 2.55% in 2001
compared to 2.57% in 2000, and the net yield on weighted-average
interest-earning assets declined to 3.23% in 2001 from 3.27% in 2000.
Provision for Losses on Loans
The Company maintains a general allowance for loan losses that reflects an
estimate of inherent losses based upon the types and categories of outstanding
loans, as well as problem loans and current economic conditions in the Company's
market area. The Company's provision for losses on loans was $392,000 and
$332,000, for the years ended December 31, 2001 and 2000, respectively. The 2001
provision was predicated primarily upon the increase in the volume of loans
secured by nonresidential and commercial real estate and an increase in
nonperforming loans year to year. At December 31, 2001 and 2000, the allowance
amounted to $1.1 million and $760,000, respectively, for a ratio to total loans
of 1.00% in 2001 and .73% in 2000. Non-performing loans at December 31, 2001 and
2000 were $1.9 million and $336,000, respectively. The ratio of the allowance
for loan losses to non-performing loans decreased from 226.2% at December 31,
2000 to 58.1% at December 31, 2001.
Other Income
The Company's other income for the year ended December 31, 2001, excluding the
loss on equity investments, was $429,000, compared to $366,000 in 2000. The
increase was due primarily to a $78,000, or 48.8%, increase in service charges
on deposit accounts. The $207,000 loss on equity investments recorded in 2001
had a positive after-tax effect of approximately $45,000 when considering the
tax benefit and the available tax credits generated by the project.
General, Administrative and Other Expense
General, administrative and other expense totaled $2.0 million for the year
ended December 31, 2001, compared to $1.9 million in 2000, an increase of
$109,000, or 5.6%. Employee compensation and benefits decreased by $14,000, or
1.2%, due primarily to a $96,000 reduction in expense related to the stock-based
RRP plan, which expired in April 2001. This decrease was partially offset by
normal merit increases and an increase in officer and employee bonus expenses
year to year. Occupancy and equipment expense increased by $34,000, or 17.3%,
mainly because of an increase in property taxes and an increase in depreciation
of new equipment required for the new building. Data processing fees increased
by $20,000, or 12.3%, due primarily to increased account volume and additional
commercial loan software maintenance costs. Various other operating expenses
increased by $69,000, or 15.4%. The majority of the increase was related to
additional operating costs associated with increased account volume, new
services, consulting fees and office supplies, all of which were primarily
related to the new building.
Income Tax Expense
Income tax expense totaled $521,000 and $511,000 for the years ended December
31, 2001 and 2000, respectively. Pretax income increased by $139,000, or 7.8%,
in 2001 compared to 2000, while approximately $182,000 of tax credits were
available in 2001, compared to $142,000 in tax credits recorded in 2000. The
effective tax rates were 27.1% and 28.7% for the years ended December 31, 2001
and 2000, respectively.
AVERAGE BALANCE, YIELD, RATE AND VOLUME DATA
The following table presents for the periods indicated the month-end average
balances of each category of the Company's interest-earning assets and
interest-bearing liabilities, and the average yields earned and interest rates
paid on such balances. Such yields and costs are determined by dividing income
or expense by the average balance of assets or liabilities, respectively, for
the periods presented.
Year ended December 31,
2002 2001 2000
Average Interest Average Interest Average Interest
outstanding earned/ Yield/ outstanding earned/ Yield/ outstanding earned/ Yield/
balance paid rate balance paid rate balance paid rate
(Dollars in thousands)
Interest-earning assets:
Interest-earning deposits $ 9,638 $ 124 1.29% $ 7,271 $ 261 3.59% $ 5,656 $ 301 5.32%
Mortgage- and other asset-
backed securities (1) 7,927 394 4.97 4,791 297 6.20 5,697 383 6.72
Other investment
securities (1) 7,100 441 6.21 6,694 457 6.83 10,283 721 7.01
Loans receivable (2) 113,870 8,315 7.30 109,075 8,721 8.00 98,320 8,041 8.18
Stock in FHLB of
Indianapolis 1,991 120 6.02 1,973 147 7.45 1,571 130 8.27
-------- ------ -------- ------ -------- ------
Total interest-earning
assets 140,526 9,394 6.68 129,804 9,883 7.61 121,527 9,576 7.88
Non-interest-earning assets 5,947 6,306 5,442
-------- -------- --------
Total assets $146,473 $136,110 $126,969
======== ======== ========
Interest-bearing liabilities:
Savings accounts $ 4,397 55 1.25$ 3,993 100 2.50 $ 3,417 103 3.01
NOW and money market accounts 28,429 492 1.73 23,023 718 3.12 23,814 886 3.72
Certificates of deposit 56,503 2,415 4.27 51,405 2,859 5.56 50,507 2,918 5.78
Borrowings 34,984 1,915 5.47 34,245 2,019 5.90 27,577 1,690 6.13
-------- ------ -------- ------ -------- ------
Total interest-bearing
liabilities 124,313 4,877 3.92 112,666 5,696 5.06 105,315 5,597 5.31
------ ---- ------ ---- ------ ----
Other liabilities 5,879 5,562 5,304
-------- -------- --------
Total liabilities 130,192 118,228 110,619
Shareholders' equity 16,281 17,882 16,350
-------- -------- --------
Total liabilities and
shareholders' equity $146,473 $136,110 $126,969
======== ======== ========
Net interest-earning assets $ 16,213 $ 17,138 $ 16,212
======== ======== ========
Net interest income $4,517 $4,187 $3,979
======= ====== ======
Interest rate spread (3) 2.76% 2.55% 2.57%
==== ==== ====
Net yield on weighted-average
interest-earning assets (4) 3.21% 3.23% 3.27%
==== ==== ====
Average interest-earning
assets to average
interest-bearing liabilities 113.04% 115.21% 115.39%
======= ======= =======
Adjustment of interest
on tax-exempt securities
to a tax-equivalent basis $ 68 $ 52 $ 52
====== ===== ======
___________________________
(1) Includes securities available for sale at amortized cost prior to SFAS No.
115 adjustments.
(2) Comprised of total loans less undisbursed loans in process.
(3) Interest rate spread is calculated by subtracting weighted-average interest
rate cost from weighted-average interest rate yield for the period
indicated.
(4) The net yield on weighted-average interest-earning assets is calculated by
dividing net interest income by weighted-average interest-earning assets
for the period indicated.
Logansport Financial Corp.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Rate/Volume Table
The table below describes the extent to which changes in interest rates and
changes in volume of interest-earning assets and interest-bearing liabilities
have affected the Company's interest income and expense during the periods
indicated. For each category of interest-earning assets and interest-bearing
liabilities, information is provided on changes attributable to (i) changes in
volume (change in volume multiplied by prior year rate), (ii) changes in rate
(change in rate multiplied by prior year volume) and (iii) total changes in rate
and volume. The combined effects of changes in both volume and rate, which
cannot be separately identified, have been allocated proportionately to the
change due to volume and the change due to rate.
Year ended December 31,
2002 vs. 2001 2001 vs. 2000
Increase Increase
(decrease) (decrease)
due to due to
Volume Rate Total Volume Rate Total
(In thousands)
Interest-earning assets:
Interest-earning deposits $ 67 $ (204) $(137) $ 298 $ (338) $ (40)
Mortgage-backed securities 165 (68) 97 (52) (34) (86)
Investment securities 27 (43) (16) (260) (4) (264)
Loans receivable 372 (778) (406) 864 (184) 680
Stock in FHLB of Indianapolis 1 (28) (27) 28 (11) 17
----- ------- ----- ------- ------- -----
Total interest-earning assets 632 (1,121) 489 878 (571) 307
Interest-bearing liabilities:
Savings accounts 9 (54) (45) 831 (834) (3)
NOW and money market accounts 143 (369) (226) (31) (137) (168)
Certificates of deposit 264 (708) (444) 54 (113) (59)
Borrowings 43 (147) (104) 390 (61) 329
----- ------- ----- ------- ------- -----
Total interest-bearing liabilities 459 (1,278) (819) 1,244 (1,145) 99
----- ------- ----- ------- ------- -----
Change in net interest income
(fully taxable equivalent basis) 173 157 330 (367) 575 208
Tax equivalent adjustment (11) (5) (16) - - -
----- ------- ----- ------- ------- -----
Change in net interest income $ 162 $ 152 $ 314 $ (367) $ 575 $ 208
===== ======= ===== ======= ======= ======
Logansport Financial Corp.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Rate/Volume Table (continued)
The Company's results of operations have been determined primarily by net
interest income and, to a lesser extent, fee income, miscellaneous income and
general and administrative expenses. Net interest income is determined by the
interest rate spread between the yields earned on interest-earning assets and
the rates paid on interest-bearing liabilities and by the relative amounts of
interest-earning assets and interest-bearing liabilities.
The following table sets forth the weighted-average effective interest rate
earned by the Company on its loan and investment portfolio, the weighted-average
effective costs of the Company's deposits and borrowings, the interest rate
spread of the Company, and the net yield on weighted-average interest-earning
assets for the periods and as of the date shown. Average balances are based on
month-end average balances.
At December 31, Year Ended December 31,
2002 2002 2001 2000
Weighted-average interest rate earned on:
Interest-earning deposits 0.98% 1.29% 3.59% 5.32%
Mortgage-backed securities 4.88 4.97 6.20 6.72
Investment securities 6.07 6.21 6.83 7.01
Loans receivable 7.09 7.30 8.00 8.18
Stock in FHLB of Indianapolis 5.80 6.02 7.45 8.27
Total interest-earning assets 6.31 6.68 7.61 7.88
Weighted-average interest rate cost of:
Savings accounts 1.08 1.25 2.50 3.01
NOW and money market accounts 1.01 1.73 3.12 3.72
Certificates of deposit 4.03 4.27 5.56 5.78
Borrowings 5.49 5.47 5.90 6.13
Total interest-bearing liabilities 3.52 3.92 5.06 5.31
Interest rate spread (1) 2.79 2.76 2.55 2.57
Net yield on weighted-average
interest-earning assets (2) N/A 3.21 3.23 3.27
- ----------------------------------
(1) Interest rate spread is calculated by subtracting weighted-average interest
rate cost from weighted-average interest rate earned for the period
indicated. Interest rate spread figures must be considered in light of the
relationship between the amounts of interest-earning assets and
interest-bearing liabilities. Since the Company's interest-earning assets
exceeded its interest-bearing liabilities for each of the three years shown
above, a positive interest rate spread resulted in net interest income.
(2) The net yield on weighted-average interest-earning assets is calculated by
dividing net interest income by weighted-average interest-earning assets
for the period indicated. No net yield percentage is presented at December
31, 2002, because the computation of net yield is applicable only over a
period rather than at a specific date.
Logansport Financial Corp.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Asset/Liability Management
The Bank, like other savings associations, is subject to interest rate risk to
the degree that its interest-bearing liabilities, primarily deposits with short-
and medium-term maturities, mature or reprice at different rates than its
interest-earning assets. Management of the Bank believes it is critical to
manage the relationship between interest rates and the effect on the Bank's net
portfolio value ("NPV"). Generally, NPV is the discounted present value of the
difference between incoming cash flows on interest-earning and other assets and
outgoing cash flows on interest-bearing liabilities. Management of the Bank's
assets and liabilities is done within the context of the marketplace, regulatory
limitations and within limits established by the Board of Directors on the
amount of change in NPV, which is acceptable given certain interest rate
changes.
The Office of Thrift Supervision ("OTS") uses a net market value methodology to
measure the interest rate risk exposure of thrift institutions. As a part of its
efforts to monitor its interest rate risk, the Bank utilizes the "net portfolio
value" ("NPV") methodology to assess its exposure to interest rate risk.
Generally, NPV is the discounted present value of the difference between
incoming cash flows on interest-earning and other assets and outgoing cash flows
on interest-bearing liabilities. Presented below, as of September 30, 2002 (the
latest available date) and December 31, 2001 is an analysis performed by the OTS
of the Bank's interest rate risk as measured by changes in NPV for instantaneous
and sustained parallel shifts in the yield curve, in 100 basis point increments
in accordance with OTS regulations. As illustrated in the tables, the Bank's NPV
is more sensitive to rising rates than declining rates. This occurs principally
because, as rates rise, the market value of the Bank's investments,
adjustable-rate mortgage loans (many of which have maximum per year adjustments
of 1%), fixed-rate loans and mortgage-backed securities decline due to the rate
increases. The value of the Bank's deposits and borrowings change in
approximately the same proportion in rising or falling rate scenarios.
September 30, 2002
Change in
interest rate Net Portfolio Value NPV as % of PV of Assets
(Basis Points) $ Amount $ Change % Change NPV Ratio Change
(In thousands)
+300 $14,561 $(1,945) (12)% 9.67% (82 bp)
+200 15,687 (819) (5) 10.25 (24 bp)
+100 16,430 (76) - 10.57 8 bp
- 16,506 - - 10.49 -
-100 15,852 (654) (4) 9.97 (51 bp)
December 30, 2001
Change in
interest rate Net Portfolio Value NPV as % of PV of Assets
(Basis Points) $ Amount $ Change % Change NPV Ratio Change
(In thousands)
+300 $14,781 $(3,942) (21)% 10.86% (219 bp)
+200 16,290 (2,433) (13) 11.76 (130 bp)
+100 17,638 (1,085) (6) 12.51 (55 bp)
- 18,723 - - 13.06 -
-100 18,990 267 1 13.07 2 bp
Logansport Financial Corp.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Asset and Liability Management (continued)
As with any method of measuring interest rate risk, certain shortcomings are
inherent in the method of analysis presented in the foregoing table. For
example, although certain assets and liabilities may have similar maturities or
periods of repricing, they may react in different degrees to changes in market
interest rates. Also, the interest rates on certain types of assets and
liabilities may fluctuate in advance of changes in market interest rates, while
interest rates on other types may lag behind changes in market rates.
Additionally, certain assets, such as adjustable-rate loans, have features which
restrict changes in interest rates on a short-term basis and over the life of
the assets. Further, in the event of a change in interest rates, expected rates
of prepayment on loans and early withdrawal from certificates could likely
deviate significantly from those assumed in calculating the table.
Liquidity and Capital Resources
The Company's primary sources of funds are deposits and borrowings, proceeds
from principal and interest payments on loans, and proceeds from maturing
securities. While maturities and scheduled amortization of loans are a
relatively predictable source of funds, deposit flows and mortgage prepayments
are generally influenced by general interest rates, economic conditions and
competition.
The primary investing activity of the Company is the origination of mortgage
loans and the purchase of investment securities. During the years ended December
31, 2002, 2001 and 2000, the Company originated mortgage loans and commercial
loans in the amounts of $40.3 million, $54.3 million and $43.2 million,
respectively. The Company originated consumer loans of $5.3 million, $6.8
million and $8.5 million, in 2002, 2001 and 2000, respectively. The Company
purchased loans in the amount of $171,000 in 2002 and $499,000 in 2001. No loans
were purchased in 2000. Loan repayments totaled $46.7 million, $51.4 million and
$39.8 million for 2002, 2001 and 2000, respectively.
During the years ended December 31, 2002, 2001 and 2000, the Company purchased
investment and mortgage-backed securities in the amounts of $17.8 million, $1.6
million and $4.1 million, respectively. Sales or maturities of such securities
held by the Company and payments on mortgage-backed or other asset-backed
securities totaled $9.4 million, $5.1 million and $5.6 million for 2002, 2001
and 2000, respectively.
Deposits grew by $14.4 million from December 31, 2001 to December 31, 2002, and
by $4.4 million from December 31, 2000 to December 31, 2001.
Cash and cash equivalents increased by $4.7 million over December 31, 2001 to
December 31, 2002, and decreased by $394,000 from December 31, 2000 to December
31, 2001.
The Company had outstanding loan commitments, including undisbursed loans in
process and standby letters of credit, totaling $13.2 million and $13.9 million,
at December 31, 2002 and 2001, respectively. In addition, the Company had a $5.0
million commitment to purchase GNMA adjustable rate securities at December 31,
2002. The Company anticipates that it will have sufficient funds available to
meet its current loan commitments. Certificates of deposit that are scheduled to
mature in one year or less from December 31, 2002 and 2001 totaled $27.8 million
and $31.6 million, respectively. Based upon historical deposit flow data, the
Company's competitive pricing in its market and management's experience,
management believes that a significant portion of such deposits will remain with
the Company.
Logansport Financial Corp.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Liquidity and Capital Resources (continued)
Liquidity management is both a daily and long-term function of the Company's
management strategy. In the event that the Company should require funds beyond
its ability to generate them internally, additional funds are available through
the use of FHLB advances, and also may be available through sales of securities,
although no sales of securities are planned. At December 31, 2002 and 2001, the
Company had outstanding FHLB advances of $33.8 million and $34.8 million,
respectively.
Pursuant to OTS capital regulations, savings associations must currently meet a
1.5% tangible capital requirement, a 4.0% leverage ratio (or core capital)
requirement, and a total risk-based capital to risk-weighted assets ratio of
8.0%. At December 31, 2002, the Bank's tangible capital and leverage ratios were
both 10.34%, and its risk-based capital to risk-weighted assets ratio was
17.40%. Therefore, at December 31, 2002, the Bank's capital significantly
exceeded all of the capital requirements currently in effect. The following
table provides the minimum regulatory capital requirements and the Bank's
capital ratios as of December 31, 2002.
OTS Requirement The Bank's Capital Level
% of % of Amount
Assets Amount Assets (1) Amount of excess
(Dollars in thousands)
Tangible capital 1.5% $2,244 10.34% $15,466 $13,222
Core capital (2) 4.0 5,984 10.34 15,466 9,482
Risk-based capital 8.0 7,664 17.40 16,664 (3) 9,000
(1) Tangible and core capital levels are shown as a percentage of total assets;
risk-based capital levels are shown as a percentage of risk-weighted
assets.
(2) OTS regulations require at least 3% of total adjusted assets for savings
associations that received the highest supervisory rating for safety and
soundness, and 4% for all other savings associations.
(3) The Bank's risk-based capital includes $1.2 million of general valuation
allowances.
As of December 31, 2002, management is not aware of any current recommendations
by regulatory authorities which, if they were to be implemented, would have, or
are reasonably likely to have, a material adverse effect on the Bank's
liquidity, capital resources or results of operations.
Effects of Recent Accounting Pronouncements
In August 2001, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 144, "Accounting for
the Impairment or Disposal of Long-Lived Assets." SFAS No. 144 carries over the
recognition and measurement provisions in SFAS No. 121. Accordingly, an entity
must recognize an impairment loss if the carrying value of a long-lived asset or
asset group (a) is not recoverable and (b) exceeds its fair value. Similar to
SFAS No. 121, SFAS No. 144 requires an entity to test an asset or asset group
for impairment whenever events or changes in circumstances indicate that its
carrying amount may not be recoverable. SFAS No. 144 differs from SFAS No. 121
in that it provides guidance on estimating future cash flows to test
recoverability. An entity may use either a probability-weighted approach or
best-estimate approach in developing estimates of cash flows to test
recoverability. SFAS No. 144 is effective for financial statements issued for
fiscal years beginning after December 15, 2001 and interim periods within those
fiscal years. Management adopted SFAS No. 144 effective January 1, 2002, without
material effect on the Company's financial condition or results of operations.
Logansport Financial Corp.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Effects of Recent Accounting Pronouncements (continued)
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities." SFAS No. 146 provides financial accounting
and reporting guidance for costs associated with exit or disposal activities,
including one-time termination benefits, contract termination costs other than
for a capital lease, and costs to consolidate facilities or relocate employees.
SFAS No. 146 is effective for exit or disposal activities initiated after
December 31, 2002. SFAS No. 146 is not expected to have a material effect on the
Company's financial condition or results of operations.
In October 2002, the FASB issued SFAS No. 147, "Accounting for Certain Financial
Institutions: An Amendment of FASB Statements No. 72 and 144 and FASB
Interpretation No. 9," which removes acquisitions of financial institutions from
the scope of SFAS No. 72, "Accounting for Certain Acquisitions of Banking and
Thrift Institutions," except for transactions between mutual enterprises.
Accordingly, the excess of the fair value of liabilities assumed over the fair
value of tangible and intangible assets acquired in a business combination
should be recognized and accounted for as goodwill in accordance with SFAS No.
141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible
Assets."
SFAS No. 147 also requires that the acquisition of a less-than-whole financial
institution, such as a branch, be accounted for as a business combination if the
transferred assets and activities constitute a business. Otherwise, the
acquisition should be accounted for as the acquisition of net assets.
SFAS No. 147 also amends the scope of SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets," to include long-term customer
relationship assets of financial institutions (including mutual enterprises)
such as depositor- and borrower-relationship intangible assets and credit
cardholder intangible assets.
The provisions of SFAS No. 147 related to unidentifiable intangible assets and
the acquisition of a less-than-whole financial institution are effective for
acquisitions for which the date of acquisition is on or after October 1, 2002.
The provisions related to impairment of long-term customer relationship assets
are effective October 1, 2002. Transition provisions for previously recognized
unidentifiable intangible assets are effective on October 1, 2002, with earlier
application permitted.
SFAS No. 147 is not expected to have a material effect on the Company's
financial condition or results of operations.
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure." SFAS No. 148 amends SFAS No. 123,
"Accounting for Stock-Based Compensation," to provide alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock-based employee compensation. In addition, SFAS No. 148 amends the
disclosure requirements of SFAS No. 123 to require prominent disclosures in both
annual and interim financial statements about the method of accounting used for
stock-based employee compensation and the effect of the method used on reported
results. SFAS No. 148 is effective for fiscal years beginning after December 15,
2002. The expanded annual disclosure requirements and the transition provisions
are effective for fiscal years ending after December 15, 2002. The interim
disclosure provisions are effective for financial reports containing financial
statements for interim periods beginning after December 15, 2002. SFAS No. 148
is not expected to have a material effect on the Company's financial condition
or results of operations.
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Logansport Financial Corp.
We have audited the accompanying consolidated statements of financial condition
of Logansport Financial Corp. as of December 31, 2002 and 2001, and the related
consolidated statements of earnings, shareholders' equity, comprehensive income
and cash flows for each of the years in the three year period ended December 31,
2002. These consolidated financial statements are the responsibility of the
Corporation's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Logansport
Financial Corp. as of December 31, 2002 and 2001, and the consolidated results
of its operations, comprehensive income and cash flows for each of the years in
the three year period ended December 31, 2002, in conformity with accounting
principles generally accepted in the United States of America.
Cincinnati, Ohio
January 24, 2003
LOGANSPORT FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
December 31, 2002 and 2001
(In thousands, except share data)
ASSETS 2002 2001
Cash and due from banks $ 778 $ 1,081
Interest-bearing deposits in other financial institutions 12,739 7,735
----------- ----------
Cash and cash equivalents 13,517 8,816
Investment securities designated as available for sale - at market 8,060 5,788
Mortgage-backed securities designated as available for sale - at market 11,009 4,419
Loans receivable - net 110,386 111,696
Office premises and equipment - at depreciated cost 1,767 1,803
Real estate acquired through foreclosure - 65
Federal Home Loan Bank stock - at cost 2,003 1,973
Investment in real estate partnership 1,026 1,109
Accrued interest receivable on loans 410 445
Accrued interest receivable on mortgage-backed securities 49 28
Accrued interest receivable on investments and interest-bearing deposits 107 92
Prepaid expenses and other assets 80 88
Cash surrender value of life insurance 1,317 1,291
Deferred income tax asset 364 452
Prepaid income taxes 4 -
----------- ----------
Total assets $150,099 $138,065
=========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits $ 98,325 $ 83,900
Advances from the Federal Home Loan Bank 33,836 34,750
Notes payable 1,793 1,165
Accrued interest and other liabilities 772 819
Accrued income taxes - 29
----------- ----------
Total liabilities 134,726 120,663
Commitments - -
Shareholders' equity
Preferred stock - no par value, 2,000,000 shares authorized; none issued - -
Common stock - no par value, 5,000,000 shares authorized; 848,958
and 1,034,545 shares at aggregate value issued and outstanding at
December 31, 2002 and 2001, respectively 1,446 4,802
Retained earnings - restricted 13,444 12,408
Less shares acquired by stock benefit plan (44) (63)
Accumulated comprehensive income, unrealized gains on securities
designated as available for sale, net of related tax effects 527 255
----------- ----------
Total shareholders' equity 15,373 17,402
----------- ----------
Total liabilities and shareholders' equity $150,099 $138,065
=========== ==========
The accompanying notes are an integral part of these statements.
LOGANSPORT FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF EARNINGS
For the years ended December 31, 2002, 2001 and 2000
(In thousands, except share data)
2002 2001 2000
Interest income
Loans $8,315 $8,721 $8,041
Investment securities 373 405 667
Mortgage-backed securities 394 297 383
Interest-bearing deposits and other 244 408 433
------ ------ ------
Total interest income 9,326 9,831 9,524
Interest expense
Deposits 2,962 3,677 3,907
Borrowings 1,915 2,019 1,690
------ ------ ------
Total interest expense 4,877 5,696 5,597
------ ------ ------
Net interest income 4,449 4,135 3,927
Provision for losses on loans 360 392 332
------ ------ ------
Net interest income after provision for losses on loans 4,089 3,743 3,595
Other income
Service charges on deposit accounts 221 238 160
Gain (loss) on sale of investment and mortgage-backed securities 101 - (17)
Loss on investment in real estate partnership (107) (207) (244)
Other operating 137 191 223
------ ------ ------
Total other income 352 222 122
General, administrative and other expense
Employee compensation and benefits 1,297 1,115 1,129
Occupancy and equipment 240 230 196
Data processing 190 183 163
Other operating 591 518 449
------ ------ ------
Total general, administrative and other expense 2,318 2,046 1,937
------ ------ ------
Earnings before income taxes 2,123 1,919 1,780
Income taxes
Current 661 662 649
Deferred (52) (141) (138)
------ ------ ------
Total income taxes 609 521 511
------ ------ ------
NET EARNINGS $1,514 $1,398 $1,269
====== ====== ======
EARNINGS PER SHARE
Basic $1.63 $1.29 $1.16
====== ====== ======
Diluted $1.58 $1.27 $1.16
====== ====== ======
The accompanying notes are an integral part of these statements.
LOGANSPORT FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the years ended December 31, 2002, 2001 and 2000
(In thousands)
2002 2001 2000
Net earnings $1,514 $1,398 $1,269
Other comprehensive income, net of tax:
Unrealized holding gains on securities during the
year, net of taxes of $175, $93 and $202 for the years
ended December 31, 2002, 2001 and 2000, respectively 339 180 392
Reclassification adjustment for realized (gains) losses included
in earnings, net of taxes (benefits) of $34 and $(6) for the years
ended December 31, 2002 and 2000, respectively (67) - 11
------ ------ ------
Comprehensive income $1,670 $1,578 $1,672
====== ====== ======
Accumulated comprehensive income $ 527 $ 255 $ 75
====== ====== ======
The accompanying notes are an integral part of these statements.
LOGANSPORT FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the years ended December 31, 2002, 2001 and 2000
(In thousands, except share data)
Unrealized
Shares gains (losses)
acquired on securities
by stock designated as
Common Retained benefit available
stock earnings plan for sale Total
Balance at January 1, 2000 $5,979 $10,734 $(239) $(328) $16,146
Net earnings for the year ended
December 31, 2000 - 1,269 - - 1,269
Purchase of shares (464) - - - (464)
Unrealized gains on securities designated
as available for sale, net of related tax effects - - - 403 403
Amortization expense of stock benefit plan - - 136 - 136
Cash dividends of $.44 per share - (477) - - (477)
------ ------- ------- ------ -------
Balance at December 31, 2000 5,515 11,526 (103) 75 17,013
Net earnings for the year ended
December 31, 2001 - 1,398 - - 1,398
Purchase of shares (921) - - - (921)
Issuance of shares under stock option plan 208 - - - 208
Unrealized gains on securities designated
as available for sale, net of related tax effects - - - 180 180
Amortization expense of stock benefit plan - - 40 - 40
Cash dividends of $.48 per share - (516) - - (516)
------ ------- ------- ------ -------
Balance at December 31, 2001 4,802 12,408 (63) 255 17,402
Net earnings for the year ended
December 31, 2002 - 1,514 - - 1,514
Purchase of shares (3,725) - - - (3,725)
Issuance of shares under stock option plan 369 - - - 369
Unrealized gains on securities designated
as available for sale, net of related tax effects - - - 272 272
Amortization expense of stock benefit plan - - 19 - 19
Cash dividends of $.52 per share - (478) - - (478)
------ ------- ------- ------ -------
Balance at December 31, 2002 $1,446 $13,444 $ (44) $ 527 $15,373
====== ======= ======= ===== ========
The accompanying notes are an integral part of these statements.
LOGANSPORT FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 2002, 2001 and 2000
(In thousands)
2002 2001 2000
Cash flows from operating activities:
Net earnings for the year $ 1,514 $ 1,398 $ 1,269
Adjustments to reconcile net earnings to net cash provided by
(used in) operating activities:
Depreciation and amortization 108 99 110
Amortization of premiums on investments and mortgage-backed securities 41 31 26
Amortization expense of stock benefit plan 19 40 136
(Gain) loss on sale of investment and mortgage-backed securities (101) - 17
Provision for losses on loans 360 392 332
Loss on investment in real estate partnership 107 207 244
Increase (decrease) in cash, due to changes in:
Accrued interest receivable on loans 35 103 (132)
Accrued interest receivable on mortgage-backed securities (21) 13 6
Accrued interest receivable on investments (15) 15 8
Prepaid expenses and other assets 8 (24) (19)
Accrued interest and other liabilities (47) (87) (98)
Federal income taxes
Current (33) 27 48
Deferred (52) (141) (138)
------ ------ ------
Net cash provided by operating activities 1,923 2,073 1,809
Cash flows provided by (used in) investing activities:
Proceeds from sale of investment securities designated as available for sale 269 - 3,965
Purchase of investment securities designated as available for sale (4,711) (1,053) (4,082)
Maturities of investment securities designated as available for sale 2,385 3,775 800
Purchase of mortgage-backed securities designated as available for sale (13,061) (514) -
Proceeds from sale of mortgage-backed securities designated as
available for sale 5,036 - -
Principal repayments on mortgage-backed securities designated as
available for sale 1,692 1,313 834
Purchase of loans (171) (499) -
Sales of loan participations - 416 -
Loan disbursements (45,554) (61,082) (51,693)
Principal repayments on loans 46,675 51,430 39,843
Investment in real estate partnership (96) (104) (113)
Purchases of office premises and equipment (72) (59) (51)
Proceeds from sale of real estate acquired through foreclosure 65 - -
Purchase of Federal Home Loan Bank stock (30) - (700)
Increase in cash surrender value of life insurance policy (26) (57) (50)
------ ------ ------
Net cash used in investing activities (7,599) (6,434) (11,247)
------ ------ ------
Net cash used in operating and investing activities
(subtotal carried forward) (5,676) (4,361) (9,438)
------ ------ ------
LOGANSPORT FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
For the years ended December 31, 2002, 2001 and 2000
(In thousands)
2002 2001 2000
Net cash used in operating and investing activities
(subtotal brought forward) $ (5,676) $ (4,361) $ (9,438)
Cash flows provided by (used in) financing activities:
Net increase in deposit accounts 14,425 4,446 3,443
Proceeds from Federal Home Loan Bank advances 9,950 12,750 33,000
Repayment of Federal Home Loan Bank advances (10,864) (12,000) (22,000)
Proceeds from notes payable 700 - -
Proceeds from the exercise of stock options 369 208 -
Dividends on common stock (478) (516) (477)
Purchase of shares (3,725) (921) (464)
------ ------ ------
Net cash provided by financing activities 10,377 3,967 13,502
------ ------ ------
Net increase (decrease) in cash and cash equivalents 4,701 (394) 4,064
Cash and cash equivalents at beginning of year 8,816 9,210 5,146
------ ------ ------
Cash and cash equivalents at end of year $13,517 $ 8,816 $ 9,210
====== ====== ======
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Income taxes $ 617 $ 590 $ 629
====== ====== ======
Interest on deposits and borrowings $ 4,887 $ 5,719 $ 5,449
====== ====== ======
Supplemental disclosure of noncash investing and financing activities:
Transfers from loans to real estate acquired
through foreclosure $ - $ 65 $ -
====== ====== ======
Unrealized gains on securities designated as available
for sale, net of related tax effects $ 272 $ 180 $ 403
====== ====== ======
The accompanying notes are an integral part of these statements.
LOGANSPORT FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2002, 2001 and 2000
NOTE A - SUMMARY OF ACCOUNTING POLICIES
Logansport Financial Corp. (the "Corporation") is a savings and loan holding
company whose activities are primarily limited to holding the common stock of
Logansport Savings Bank, FSB (the "Savings Bank"). The Savings Bank conducts a
general banking business in north-central Indiana which consists of attracting
deposits from the general public and applying those funds to the origination of
loans for residential, consumer and nonresidential purposes. The Savings Bank's
profitability is significantly dependent on its net interest income, which is
the difference between interest income generated from interest-earning assets
(i.e. loans and investments) and the interest expense paid on interest-bearing
liabilities (i.e. customer deposits and borrowed funds). Net interest income is
affected by the relative amount of interest-earning assets and interest-bearing
liabilities and the interest received or paid on these balances. The level of
interest rates paid or received by the Savings Bank can be significantly
influenced by a number of environmental factors, such as governmental monetary
policy, that are outside of management's control.
The financial information presented herein has been prepared in accordance with
accounting principles generally accepted in the United States of America ("U.S.
GAAP") and general accounting practices within the financial services industry.
In preparing consolidated financial statements in accordance with U.S. GAAP,
management is required to make estimates and assumptions that affect the
reported amounts of assets and liabilities and the disclosure of contingent
assets and liabilities at the date of the consolidated financial statements and
revenues and expenses during the reporting period. Actual results could differ
from such estimates.
The following is a summary of the Corporation's significant accounting policies
which have been consistently applied in the preparation of the accompanying
consolidated financial statements.
1. Principles of Consolidation
The consolidated financial statements include the accounts of the Corporation
and its subsidiary, the Savings Bank. All significant intercompany balances and
transactions have been eliminated.
2. Investment and Mortgage-backed Securities
The Corporation accounts for investments and mortgage-backed securities in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 115
"Accounting for Certain Investments in Debt and Equity Securities." SFAS No. 115
requires that investments be categorized as held-to-maturity, trading, or
available for sale. Securities classified as held to maturity are carried at
cost only if the Corporation has the positive intent and ability to hold these
securities to maturity. Trading securities and securities available for sale are
carried at fair value with resulting unrealized gains or losses recorded to
operations or shareholders' equity, respectively. At December 31, 2002 and 2001,
the Corporation had designated all investment and mortgage-backed securities as
available for sale.
Realized gains and losses on sales of securities are recognized using the
specific identification method.
LOGANSPORT FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 2002, 2001 and 2000
NOTE A - SUMMARY OF ACCOUNTING POLICIES (continued)
3. Loans Receivable
Loans receivable are stated at the principal amount outstanding, adjusted for
the allowance for loan losses. Interest is accrued as earned, unless the
collectibility of the loan is in doubt. Uncollectible interest on loans that are
contractually past due is charged off, or an allowance is established based on
management's periodic evaluation. The allowance is established by a charge to
interest income equal to all interest previously accrued, and income is
subsequently recognized only to the extent that cash payments are received
until, in management's judgment, the borrower's ability to make periodic
interest and principal payments has returned to normal, in which case the loan
is returned to accrual status. If the ultimate collectibility of the loan is in
doubt, in whole or in part, all payments received on nonaccrual loans are
applied to reduce principal until such doubt is eliminated.
4. Loan Origination Fees
The Savings Bank accounts for loan origination fees in accordance with SFAS No.
91, "Accounting for Nonrefundable Fees and Costs Associated with Originating or
Acquiring Loans and Initial Direct Costs of Leases." Pursuant to the provisions
of SFAS No. 91, origination fees received from loans, net of certain direct
origination costs, are deferred and amortized to interest income using the
interest method, giving effect to actual loan prepayments. Additionally, SFAS
No. 91 generally limits the definition of loan origination costs to the direct
costs attributable to originating a loan, i.e. principally actual personnel
costs. Fees received for loan commitments that are expected to be drawn upon,
based on the Savings Bank's experience with similar commitments, are deferred
and amortized over the life of the loan using the level-yield method. Fees for
other loan commitments are deferred and amortized over the loan commitment
period on a straight-line basis.
5. Allowance for Loan Losses
It is the Savings Bank's policy to provide valuation allowances for estimated
losses on loans based on past loss experience, trends in the level of delinquent
and problem loans, adverse situations that may affect the borrower's ability to
repay, the estimated value of any underlying collateral and current economic
conditions in the primary lending area. When the collection of a loan becomes
doubtful, or otherwise troubled, the Savings Bank records a loan loss provision
equal to the difference between the fair value of the property securing the loan
and the loan's carrying value. Major loans and major lending areas are reviewed
periodically to determine potential problems at an early date. The allowance for
loan losses is increased by charges to earnings and decreased by charge-offs
(net of recoveries).
The Savings Bank accounts for impaired loans in accordance with SFAS No. 114,
"Accounting by Creditors for Impairment of a Loan." SFAS No. 114 requires that
impaired loans be measured based upon the present value of expected future cash
flows discounted at the loan's effective interest rate or, as an alternative, at
the loan's observable market price or fair value of the collateral. The Savings
Bank's current procedures for evaluating impaired loans result in carrying such
loans at the lower of cost or fair value.
LOGANSPORT FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 2002, 2001 and 2000
NOTE A - SUMMARY OF ACCOUNTING POLICIES (continued)
5. Allowance for Loan Losses (continued)
A loan is defined under SFAS No. 114 as impaired when, based on current
information and events, it is probable that a creditor will be unable to collect
all amounts due according to the contractual terms of the loan agreement. In
applying the provisions of SFAS No. 114, the Savings Bank considers its
investment in one- to four-family residential loans and consumer installment
loans to be homogeneous and therefore excluded from separate identification for
evaluation of impairment. With respect to the Savings Bank's investment in
nonresidential and multi-family residential real estate loans, and its
evaluation of impairment thereof, such loans are generally collateral dependent
and, as a result, are carried as a practical expedient at the lower of cost or
fair value.
Collateral dependent loans which are more than ninety days delinquent are
considered to constitute more than a minimum delay in repayment and are
evaluated for impairment under SFAS No. 114 at that time.
The Savings Bank's impaired loan information is as follows at December 31:
2002 2001
(In thousands)
Impaired loans with related allowance $763 $1,460
Impaired loans with no related allowance - -
---- ------
Total impaired loans $763 $1,460
==== ======
2002 2001 2000
(In thousands)
Allowance on impaired loans
Beginning balance $341 $ 228 $ 48
Provision 11 113 180
---- ------- -----
Ending balance $352 $ 341 $228
==== ======= =====
Average balance of impaired loans $871 $ 1,419 $632
Interest income recognized on impaired loans $ 69 $ 37 $ 59
The allowance for impaired loans is included in the Savings Bank's overall
allowance for credit losses. The provision necessary to increase this allowance
is included in the Savings Bank's overall provision for losses on loans.
6. Real Estate Acquired Through Foreclosure
Real estate acquired through foreclosure is carried at the lower of the loan's
unpaid principal balance (cost) or fair value less estimated selling expenses at
the date of acquisition. Real estate loss provisions are recorded if the
properties' fair value subsequently declines below the value determined at the
recording date. In determining the lower of cost or fair value at acquisition,
costs relating to development and improvement of property are capitalized. Costs
relating to holding real estate acquired through foreclosure, net of rental
income, are charged against earnings as incurred.
LOGANSPORT FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 2002, 2001 and 2000
NOTE A - SUMMARY OF ACCOUNTING POLICIES (continued)
7. Office Premises and Equipment
Office premises and equipment are carried at cost and include expenditures which
extend the useful lives of existing assets. Maintenance, repairs and minor
renewals are expensed as incurred. For financial reporting, depreciation and
amortization are provided on the straight-line and accelerated methods over the
useful lives of the assets, estimated to be thirty to forty years for buildings,
five to twenty years for building improvements, five to fifteen years for
furniture and equipment and five years for automobiles. An accelerated method is
used for tax reporting purposes.
8. Investment in Real Estate Partnership
During 1997, the Corporation invested $1.5 million in a real estate partnership
for the purpose of constructing and managing residential real estate apartments
for low and moderate income residents. The investment reflects a 49.5%
participation in the partnership and is accounted for by the Savings Bank using
the equity method. The Savings Bank realized after-tax losses from the
investment of approximately $62,000, $119,000 and $140,000 during the years
ended December 31, 2002, 2001 and 2000, respectively, as well as federal income
tax credits of approximately $182,000, $182,000 and $142,000 in 2002, 2001 and
2000, respectively. This affordable housing project is expected to generate tax
credits for the Savings Bank in future years.
9. Income Taxes
The Corporation accounts for income taxes pursuant to SFAS No. 109, "Accounting
for Income Taxes." In accordance with SFAS No. 109, a deferred tax liability or
deferred tax asset is computed by applying the current statutory tax rates to
net taxable or deductible temporary differences between the tax basis of an
asset or liability and its reported amount in the consolidated financial
statements that will result in net taxable or deductible amounts in future
periods. Deferred tax assets are recorded only to the extent that the amount of
net deductible temporary differences or carryforward attributes may be utilized
against current period earnings, carried back against prior years' earnings,
offset against taxable temporary differences reversing in future periods, or
utilized to the extent of management's estimate of future taxable income. A
valuation allowance is provided for deferred tax assets to the extent that the
value of net deductible temporary differences and carryforward attributes
exceeds management's estimates of taxes payable on future taxable income.
Deferred tax liabilities are provided on the total amount of net temporary
differences taxable in the future.
Deferral of income taxes results primarily from the different methods of
accounting for certain benefit plans, the real estate partnership investment,
general loan loss allowances and percentage of earnings bad debt deductions.
Additional temporary differences result from depreciation computed using
accelerated methods for tax purposes.
10. Benefit Plans
Employees of the Savings Bank participate in a defined benefit pension plan (the
"Plan") to which contributions are made for the benefit of the employees.
Contributions are determined to cover the normal cost of pension benefits, the
one-year cost of the pre-retirement death and disability benefits and the
amortization of any unfunded accrued liabilities.
LOGANSPORT FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 2002, 2001 and 2000
NOTE A - SUMMARY OF ACCOUNTING POLICIES (continued)
10. Benefit Plans (continued)
The Plan sponsor has advised the Savings Bank that the pension plan meets the
criteria of a multi-employer pension plan as defined in SFAS No. 87, "Employers'
Accounting for Pensions." In accordance with SFAS No. 87, net pension cost is
recognized for any required contribution for the period. A liability is
recognized for any contributions due and unpaid. Contributions totaling
approximately $31,000 were required to fund the pension liability during the
year ended December 31, 2002. No contributions were necessary during the years
ended December 31, 2001 and 2000. The provision for pension expense was computed
by the Plan's actuaries by utilizing the projected unit credit cost method and
assuming a 7.5% return on Plan assets.
The Savings Bank has purchased life insurance policies on certain officers and
directors. The insurance policies had an approximate cash surrender value of
$1.3 million, $1.3 million and $1.2 million at December 31, 2002, 2001 and 2000,
respectively. The Savings Bank has approved compensation arrangements that
provide retirement benefits to certain officers and deferral of fees for
directors covered by the policies. The benefit arrangement for one individual
requires that the individual provide consulting services to the Savings Bank
during the five-year period following retirement. The benefits to be paid,
excluding amounts attributable to consulting, are being accrued from the date of
approval of the arrangements to the date that full eligibility is attained.
Expense related to the above described plans totaled $69,000, $63,000 and
$108,000 for the years ended December 31, 2002, 2001 and 2000, respectively.
The Savings Bank adopted the Logansport Savings Bank, FSB Employee Stock
Ownership Plan and Trust Agreement ("ESOP") in 1995, for eligible employees of
the Savings Bank. The ESOP will be funded by discretionary employer
contributions made in cash, which will be invested in shares of the
Corporation's common stock. No contributions were made to the ESOP during the
years ended December 31, 2002, 2001 or 2000.
In April 1996, the Corporation's shareholders approved the Logansport Savings
Bank, FSB Recognition and Retention Plan and Trust ("RRP"), which provided for
the acquisition of up to 52,900 shares of the Corporation's common stock for
awards to management. Shares awarded to management under the RRP generally vest
at a rate of 20% at the end of each full twelve months of service with the
Savings Bank after the date of the award. During 1996, the Savings Bank
contributed $615,000 to the RRP for the purchase of 46,675 shares of the
Corporation's common stock awarded to management and recorded the amount as
unearned compensation. During 1998, the Savings Bank contributed $93,000 for the
purchase of the 6,225 remaining allowable shares. Amortization expense under the
RRP totaled $19,000, $40,000 and $136,000 for the years ended December 31, 2002,
2001 and 2000, respectively.
In April 1999, the Savings Bank implemented a contributory 401(k) plan covering
all employees who have attained the age of 21 and have completed one year of
service. Contributions to the plan are voluntary and are subject to matching by
the Savings Bank. The Savings Bank's expense related to the plan totaled
approximately $23,000, $19,000 and $14,000 for the years ended December 31,
2002, 2001 and 2000, respectively.
LOGANSPORT FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 2002, 2001 and 2000
NOTE A - SUMMARY OF ACCOUNTING POLICIES (continued)
11. Earnings Per Share
Basic earnings per common share is computed based upon the weighted-average
number of common shares outstanding during the year. Diluted earnings per common
share is computed including the dilutive effect of additional potential common
shares issuable under stock option. The computations were as follows for the
years ended December 31:
2002 2001 2000
Weighted-average common shares
outstanding (basic) 929,488 1,084,377 1,090,800
Dilutive effect of assumed exercise
of stock options 28,647 19,946 -
------- --------- ---------
Weighted-average common shares
outstanding (diluted) 958,135 1,104,323 1,090,800
======= ========= =========
Options to purchase 2,500 shares of common stock with a weighted-average
exercise price of $13.75, were outstanding at December 31, 2001, but were
excluded from the computation of diluted earnings per share because their
exercise prices were greater than the average market price of the common shares.
Options to purchase 125,915 shares of common stock with a weighted-average
exercise price of $10.59, were outstanding at December 31, 2000, but were
excluded from the computation of diluted earnings per share because their
exercise prices were greater than the average market price of the common shares.
The Corporation had no anti-dilutive securities at December 31, 2002.
12. Stock Option Plans
During 1996, the Board of Directors adopted a Stock Option Plan that provided
for the issuance of 132,250 shares of common stock at the fair value at the date
of grant. During 1999, the Board of Directors adopted a second Stock Option Plan
that provided for the issuance of 115,000 shares of common stock at the fair
value at the date of grant.
The Corporation accounts for its stock option plans in accordance with SFAS No.
123, "Accounting for Stock-Based Compensation," which contains a fair
value-based method for valuing stock-based compensation that entities may use,
which measures compensation cost at the grant date based on the fair value of
the award. Compensation is then recognized over the service period, which is
usually the vesting period. Alternatively, SFAS No. 123 permits entities to
continue to account for stock options and similar equity instruments under
Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued
to Employees." Entities that continue to account for stock options using APB
Opinion No. 25 are required to make pro forma disclosures of net earnings and
earnings per share, as if the fair value-based method of accounting defined in
SFAS No. 123 had been applied.
LOGANSPORT FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 2002, 2001 and 2000
NOTE A - SUMMARY OF ACCOUNTING POLICIES (continued)
12. Stock Option Plans (continued)
The Corporation applies APB Opinion No. 25 and related Interpretations in
accounting for its stock option plans. Accordingly, no compensation cost has
been recognized for the plans. Had compensation cost for the Corporation's stock
option plans been determined based on the fair value at the grant dates for
awards under the plans consistent with the accounting method utilized in SFAS
No. 123, there would have been no material effect on the Corporation's net
earnings and earnings per share.
A summary of the status of the Corporation's stock option plans as of December
31, 2002, 2001 and 2000, and changes during the years ending on those dates is
presented below:
2002 2001 2000
Weighted- Weighted- Weighted-
average average average
exercise exercise exercise
Shares price Shares price Shares price
Outstanding at beginning of year 106,796 $10.61 125,915 $10.59 125,915 $10.59
Granted - - - - - -
Exercised (27,660) 10.53 (15,463) 10.53 - -
Forfeited - - (3,656) 10.53 - -
------- ------- ------- ------ ------- -----
Outstanding at end of year 79,136 $10.63 106,796 $10.61 125,915 $10.59
======= ====== ======= ====== ======= ======
Options exercisable at year-end 78,636 $10.61 105,796 $10.58 98,547 $10.56
======= ====== ======= ====== ======= ======
The following information applies to options outstanding at December 31, 2002:
Number outstanding 79,136
Range of exercise prices $10.53 - $13.75
Weighted-average exercise price $10.63
Weighted-average remaining contractual life 3.37 years
13. Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents includes cash
and due from banks and interest-bearing deposits in other financial institutions
with original maturities of less than 90 days.
14. Fair Value of Financial Instruments
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments," requires
disclosure of fair value of financial instruments, both assets and liabilities,
whether or not recognized in the consolidated statement of financial condition,
for which it is practicable to estimate that value. For financial instruments
where quoted market prices are not available, fair values are based on estimates
using present value and other valuation methods.
LOGANSPORT FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 2002, 2001 and 2000
NOTE A - SUMMARY OF ACCOUNTING POLICIES (continued)
14. Fair Value of Financial Instruments (continued)
The methods used are greatly affected by the assumptions applied, including the
discount rate and estimates of future cash flows. Therefore, the fair values
presented may not represent amounts that could be realized in an exchange for
certain financial instruments.
The following methods and assumptions were used by the Corporation in estimating
its fair value disclosures for financial instruments at December 31, 2002 and
2001:
Cash and cash equivalents: The carrying amounts presented in the
consolidated statements of financial condition for cash and cash
equivalents are deemed to approximate fair value.
Investment and mortgage-backed securities: For investment and
mortgage-backed securities, fair value is deemed to equal the quoted market
price.
Loans receivable: The loan portfolio has been segregated into categories
with similar characteristics, such as one- to four-family residential,
multi-family residential, nonresidential real estate and consumer. These
loan categories were further delineated into fixed-rate and adjustable-rate
loans. The fair values for the resultant loan categories were computed via
discounted cash flow analysis, using current interest rates offered for
loans with similar terms to borrowers of similar credit quality.
Federal Home Loan Bank stock: The carrying amount presented in the
consolidated statements of financial condition is deemed to approximate
fair value.
Deposits: The fair value of NOW accounts, passbook and club accounts, and
money market deposits is deemed to approximate the amount payable on demand
at December 31, 2002 and 2001. Fair values for fixed-rate certificates of
deposit have been estimated using a discounted cash flow calculation using
the interest rates currently offered for deposits of similar remaining
maturities.
Federal Home Loan Bank advances: The fair value of Federal Home Loan Bank
advances has been estimated using discounted cash flow analysis, based on
the interest rates currently offered for advances of similar remaining
maturities.
Notes Payable: The fair value of notes payable is deemed to approximate the
carrying value.
Commitments to extend credit: For fixed-rate and adjustable-rate loan
commitments, the fair value estimate considers the difference between
current levels of interest rates and committed rates. At December 31, 2002
and 2001, the difference between the fair value and notional amount of loan
commitments was not material.
LOGANSPORT FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 2002, 2001 and 2000
NOTE A - SUMMARY OF ACCOUNTING POLICIES (continued)
14. Fair Value of Financial Instruments (continued)
Based on the foregoing methods and assumptions, the carrying value and fair
value of the Corporation's financial instruments are as follows at December 31:
2002 2001
Carrying Fair Carrying Fair
value value value value
(In thousands)
Financial assets
Cash and cash equivalents $ 13,517 $ 13,517 $ 8,816 $ 8,816
Investment securities 8,060 8,060 5,788 5,788
Mortgage-backed securities 11,009 11,009 4,419 4,419
Loans receivable 110,386 111,830 111,696 112,990
Federal Home Loan Bank stock 2,003 2,003 1,973 1,973
--------- --------- ---------- ---------
$ 144,975 $ 146,419 $ 132,692 $ 133,986
========= ========= ========== =========
Financial liabilities
Deposits $ 98,325 $ 99,510 $ 83,900 $ 85,098
Advances from the Federal Home Loan Bank 33,836 34,084 34,750 34,777
Notes payable 1,793 1,793 1,165 1,165
--------- --------- ---------- ---------
$133,954 $135,387 $119,815 $121,040
========= ========= ========== =========
15. Advertising
Advertising costs are expensed when incurred. The Corporation's advertising
expense totaled $68,000, $56,000 and $41,000 for the years ended December 31,
2002, 2001 and 2000, respectively.
16. Reclassifications
Certain prior year amounts have been reclassified to conform to the 2002
consolidated financial statement presentation.
LOGANSPORT FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 2002, 2001 and 2000
NOTE B - INVESTMENT AND MORTGAGE-BACKED SECURITIES
The amortized cost, gross unrealized gains, gross unrealized losses and
estimated fair value of investment securities designated as available for sale
at December 31, 2002 and 2001, are as follows:
2002
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gains losses value
(In thousands)
U.S. Government agency obligations $3,051 $ 71 $ 2 $3,120
State and municipal obligations 3,028 204 - 3,232
Corporate debt obligations 907 76 - 983
Preferred stock 500 3 - 503
FHLMC stock 4 218 - 222
------ ---- ------ ------
Total investment securities $7,490 $572 $ 2 $8,060
====== ==== ====== ======
2001
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gains losses value
(In thousands)
U.S. Government agency obligations $1,900 $ 13 $ 5 $1,908
State and municipal obligations 2,789 113 1 2,901
Corporate debt obligations 710 22 1 731
FHLMC stock 4 244 - 248
------ ---- ------ ------
Total investment securities $5,403 $392 $ 7 $5,788
====== ==== ====== ======
The amortized cost and estimated fair value of investment securities by term to
maturity at December 31 are shown below.
2002 2001
Estimated Estimated
Amortized fair Amortized fair
cost value cost value
(In thousands)
Due in one year or less $ 575 $ 582 $ 25 $ 25
Due after one year through three years 2,068 2,149 1,004 1,035
Due after three years through five years 657 688 937 959
Due after five years through ten years 2,382 2,545 2,379 2,436
Due after ten years 1,304 1,371 1,054 1,085
------ ------ ------ ------
6,986 7,335 5,399 5,540
Preferred stock 500 503 - -
FHLMC stock 4 222 4 248
------ ------ ------ ------
$7,490 $8,060 $5,403 $5,788
====== ====== ====== ======
LOGANSPORT FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 2002, 2001 and 2000
NOTE B - INVESTMENT AND MORTGAGE-BACKED SECURITIES (continued)
Proceeds from sales of investment securities available for sale during the year
ended December 31, 2002, totaled $269,000, resulting in gross realized gains of
$17,000.
Proceeds from sales and calls of investment securities available for sale during
the year ended December 31, 2000, totaled $4.8 million, resulting in gross
realized gains of $17,000 and gross realized losses of $34,000.
The amortized cost, gross unrealized gains, gross unrealized losses and
estimated fair values of mortgage-backed securities at December 31, 2002 and
2001 are presented below.
2002
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gains losses value
(In thousands)
Federal Home Loan Mortgage
Corporation participation certificates $ 548 $ 30 $ - $ 578
Government National Mortgage
Association participation certificates 6,919 148 - 7,067
Federal National Mortgage
Association participation certificates 2,357 51 - 2,408
Federal Housing Authority participation
certificates 641 5 - 646
Small Business Administration
participation certificates 314 - 4 310
------- ---- ----- -------
Total mortgage-backed securities $10,779 $234 $ 4 $11,009
======= ==== ===== ========
2001
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gains losses value
(In thousands)
Federal Home Loan Mortgage
Corporation participation certificates $ 675 $ 7 $ - $ 682
Government National Mortgage
Association participation certificates 1,489 3 13 1,479
Federal National Mortgage
Association participation certificates 1,210 14 1 1,223
Federal Housing Authority participation
certificates 653 - 2 651
Small Business Administration
participation certificates 391 - 7 384
------- ---- ----- -------
Total mortgage-backed securities $4,418 $ 24 $ 23 $ 4,419
======= ==== ===== ========
LOGANSPORT FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 2002, 2001 and 2000
NOTE B - INVESTMENT AND MORTGAGE-BACKED SECURITIES (continued)
The amortized cost and estimated fair value of mortgage-backed securities at
December 31, 2002 and 2001, by contractual terms to maturity, are shown below.
Expected maturities will differ from contractual maturities because borrowers
may generally prepay obligations without prepayment penalties.
2002 2001
Estimated Estimated
Amortized fair Amortized fair
cost value cost value
(In thousands)
Due within one year $ 1,962 $ 2,000 $ 805 $ 805
Due after one year to three years 1,748 1,790 989 991
Due after three years to five years 1,035 1,060 531 531
Due after five years to ten years 1,754 1,793 786 785
Due after ten years 4,280 4,366 1,307 1,307
------- ------- ------ -------
Total mortgage-backed securities $10,779 $11,009 $4,418 $ 4,419
======= ======== ====== =======
Proceeds from sale of mortgage-backed securities available for sale during the
year ended December 31, 2002, totaled $5.0 million, resulting in gross realized
gains of $84,000.
NOTE C - LOANS RECEIVABLE
The composition of the loan portfolio at December 31 is as follows:
2002 2001
(In thousands)
Residential real estate
One- to four-family residential $ 61,717 $ 63,863
Multi-family residential 1,606 1,816
Construction 1,317 2,278
Nonresidential real estate and land 20,557 18,435
Commercial 10,924 9,586
Commercial leases 4,352 3,914
Consumer and other 11,694 13,635
-------- --------
112,167 113,527
Less:
Undisbursed portion of loans in process 323 699
Allowance for loan losses 1,458 1,132
-------- --------
$110,386 $111,696
======== ========
LOGANSPORT FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 2002, 2001 and 2000
NOTE C - LOANS RECEIVABLE (continued)
The Savings Bank's lending efforts have historically focused on one- to
four-family residential and multi-family residential real estate loans, which
comprised approximately $64.3 million, or 58%, of the total loan portfolio at
December 31, 2002, and $67.3 million, or 60%, of the total loan portfolio at
December 31, 2001. Approximately 78% of these loans have been underwritten on
the basis of no more than an 80% loan-to-value ratio, which has historically
provided the Savings Bank with adequate collateral coverage in the event of
default. The remaining 22% of these loans have been underwritten with original
loan-to-value ratios of greater than 80%. The Savings Bank, as with any lending
institution, is subject to the risk that real estate values could deteriorate in
its primary lending area of north-central Indiana, thereby impairing collateral
values. However, management is of the belief that real estate values in the
Savings Bank's primary lending area are presently stable.
In the normal course of business, the Savings Bank has made loans to its
directors, officers and their related business interests. In the opinion of
management, such loans are consistent with sound lending practices and are
within applicable regulatory lending limitations. Loans to officers and
directors totaled approximately $1.7 million and $1.1 million at December 31,
2002 and 2001, respectively.
NOTE D - ALLOWANCE FOR LOAN LOSSES
The activity in the allowance for loan losses for the year ended December 31 is
as follows:
2002 2001 2000
(In thousands)
Beginning balance $1,132 $ 760 $440
Provision for losses on loans 360 392 332
Charge-offs of loans - net (34) (20) (12)
------ ------ ----
Ending balance $1,458 $1,132 $760
====== ====== ====
At December 31, 2002, the Savings Bank's allowance for loan losses included a
specific allowance of $200,000, related to impaired and nonaccrual loans, and a
general loan loss allowance of $1.3 million, which is includible as a component
of regulatory risk-based capital.
At December 31, 2002, 2001 and 2000, the Savings Bank had loans of $1.5 million,
$1.9 million and $336,000, respectively, which had been placed on nonaccrual
status due to concerns as to borrowers' ability to pay. At December 31, 2002 and
2001, nonaccrual loans include certain loans that had been identified as
impaired under SFAS No. 114. Interest income that would have been recognized had
nonaccrual loans performed pursuant to contractual terms totaled approximately
$126,000, $41,000 and $12,000 for the years ended December 31, 2002, 2001 and
2000, respectively.
NOTE E - OFFICE PREMISES AND EQUIPMENT
Office premises and equipment is comprised of the following at December 31:
2002 2001
(In thousands)
Land $ 203 $ 203
Buildings and improvements 1,766 1,766
Furniture and equipment 500 435
------ ------
2,469 2,404
Less accumulated depreciation and amortization (702) (601)
------ ------
$1,767 $1,803
====== ======
LOGANSPORT FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 2002, 2001 and 2000
NOTE F - DEPOSITS
Deposits consist of the following major classifications at December 31:
Deposit type and weighted-average
interest rate 2002 2001
(In thousands)
NOW accounts
December 31, 2002 - 0.80% $15,625
December 31, 2001 - 1.58% $ 7,019
Passbook and club accounts
December 31, 2002 - 1.10% 4,281
December 31, 2001 - 2.47% 4,136
Money market deposit accounts
December 31, 2002 - 1.23% 18,766
December 31, 2001 - 2.48% 17,759
Non-interest bearing accounts 3,049 3,343
------- -------
Total demand, transaction
and passbook deposits 41,721 32,257
Certificates of deposit
Original maturities of:
Less than 12 months
December 31, 2002 - 1.78% 6,566
December 31, 2001 - 3.08% 4,633
12 months to 18 months
December 31, 2002 - 3.40% 14,605
December 31, 2001 - 4.80% 20,955
24 months to 30 months
December 31, 2002 - 4.58% 20,674
December 31, 2001 - 5.32% 16,654
More than 30 months
December 31, 2002 - 5.05% 7,810
December 31, 2001 - 5.63% 3,370
Individual retirement accounts
December 31, 2002 - 4.76% 6,949
December 31, 2001 - 5.16% 6,031
------- -------
Total certificates of deposit 56,604 51,643
------- -------
Total deposits $98,325 $83,900
======= =======
At December 31, 2002 and 2001, the Savings Bank had certificate of deposit
accounts with balances greater than $100,000 totaling $9.0 million and $6.5
million, respectively.
Interest expense on deposits for the year ended December 31 is summarized as
follows:
2002 2001 2000
(In thousands)
Passbook accounts $ 55 $ 100 $ 103
NOW and money market deposit accounts 492 718 886
Certificates of deposit 2,415 2,859 2,918
------ ------ ------
$2,962 $3,677 $3,907
====== ====== ======
Maturities of outstanding certificates of deposit at December 31 are summarized
as follows:
2002 2001
(In thousands)
Less than one year $27,803 $31,551
One year to three years 22,211 19,026
Over three years 6,590 1,066
------- -------
$56,604 $51,643
======= =======
LOGANSPORT FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 2002, 2001 and 2000
NOTE G - ADVANCES FROM THE FEDERAL HOME LOAN BANK
Advances from the Federal Home Loan Bank, collateralized at December 31, 2002 by
a blanket pledge of residential mortgage loans totaling $57.9 million and
pledges of certain securities totaling $17.8 million are summarized as follows:
Maturing year December 31,
Interest rate ending December 31, 2002 2001
(Dollars in thousands)
2.76% - 4.06% 2002 $ - 6,000
3.02% 2003 1,000 -
5.94% 2004 3,000 3,000
5.10% - 6.75% 2005 4,200 4,200
5.04% - 5.30% 2006 1,500 1,500
4.38% - 5.72% 2007 2,536 1,050
3.57% - 5.32% 2009 1,600 -
5.60% - 5.99% 2010 17,000 17,000
4.75% 2011 2,000 2,000
4.90% 2012 1,000 -
------- -------
$33,836 $34,750
======= =======
Weighted-average interest rate 5.53% 5.39%
======= =======
Advances totaling approximately $26.0 million became subject to interest rate
increases at the discretion of the FHLB beginning in 2002. Such advances can be
repaid by the Savings Bank upon the enactment of such interest rate adjustments.
NOTE H - NOTES PAYABLE
At December 31, 2002 and 2001, notes payable included borrowings totaling $1.1
million and $1.2 million, respectively, that were secured by the Savings Bank's
investment in a real estate partnership. The interest rate on the variable-rate
borrowing was 1.88% and 1.92% at December 31, 2002 and 2001, respectively. The
borrowings will mature in 2009.
During the year ended December 31, 2002, the Corporation borrowed $700,000 on a
line of credit with another financial institution to partially finance share
repurchases. The Corporation can borrow up to $1.5 million on the line of
credit, which is payable at October 2, 2003. Interest is payable quarterly at a
rate of 3.75%, which represents national prime less .50%.
LOGANSPORT FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 2002, 2001 and 2000
NOTE I - INCOME TAXES
The provision for income taxes differs from that computed at the statutory
corporate tax rate for the year ended December 31 as follows:
2002 2001 2000
(In thousands)
Federal income taxes computed at the statutory rate $722 $652 $605
Increase (decrease) in taxes resulting from:
Tax exempt interest (46) (42) (37)
Increase in cash surrender value of life insurance (9) (19) (17)
Real estate partnership tax credits (182) (182) (142)
State income tax provision 124 113 103
Other - (1) (1)
---- ---- ----
Income tax provision per consolidated financial statements $609 $521 $511
==== ==== ====
The composition of the Corporation's net deferred tax asset at December 31 is as
follows:
Taxes (payable) refundable on temporary 2002 2001
differences at statutory rate: (In thousands)
Deferred tax assets:
Other than temporary declines in investment securities $ 23 $ 23
Retirement expense 235 231
General loan loss allowance 535 481
Benefit plan expense 85 69
Other 40 33
----- -----
Total deferred tax assets 918 837
Deferred tax liabilities:
State income taxes (57) (56)
Percentage of earnings bad debt deduction (12) (24)
Unrealized gains on securities designated as available for sale (273) (131)
Loss on investment in real estate partnership (163) (136)
Book versus tax depreciation (49) (38)
----- -----
Total deferred tax liabilities (554) (385)
----- -----
Net deferred tax asset $ 364 $ 452
===== =====
Prior to 1997, the Savings Bank was allowed a special bad debt deduction based
on a percentage of earnings, generally limited to 8% of otherwise taxable
income, or the amount of qualifying and nonqualifying loans outstanding and
subject to certain limitations based on aggregate loans and savings account
balances at the end of the year. This percentage of earnings bad debt deduction
had accumulated to approximately $1.7 million as of December 31, 2002. If the
amounts that qualified as deductions for federal income taxes are later used for
purposes other than bad debt losses, including distributions in liquidation,
such distributions will be subject to federal income taxes at the then current
corporate income tax rate. The amount of unrecognized deferred tax liability
relating to the cumulative bad debt deduction is approximately $500,000 at
December 31, 2002.
The Savings Bank is required to recapture as taxable income approximately
$220,000, representing its post-1987 percentage of earnings bad debt deductions.
The Savings Bank has provided deferred taxes for this amount and is permitted by
such legislation to recapture such income over a six year period, which
commenced in 1998.
LOGANSPORT FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 2002, 2001 and 2000
NOTE J - COMMITMENTS
The Savings Bank is a party to financial instruments with off-balance-sheet risk
in the normal course of business to meet the financing needs of its customers,
including commitments to extend credit. Such commitments involve, to varying
degrees, elements of credit and interest-rate risk in excess of the amount
recognized in the consolidated statement of financial condition. The contract or
notional amounts of the commitments reflect the extent of the Savings Bank's
involvement in such financial instruments.
The Savings Bank's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit is
represented by the contractual notional amount of those instruments. The Savings
Bank uses the same credit policies in making commitments and conditional
obligations as those utilized for on-balance-sheet instruments.
At December 31, 2002, the Savings Bank had outstanding commitments of
approximately $310,000 to originate residential one- to four-family loans. The
Savings Bank also had outstanding commitments of approximately $40,000 to
originate non-residential real estate loans and approximately $1.1 million to
originate other commercial loans at December 31, 2002. Additionally, the Savings
Bank had unused lines of credit under home equity loans and commercial loans of
approximately $997,000 and $7.9 million, respectively, at December 31, 2002.
Finally, the Savings Bank had commitments under standby letters of credit
totaling $2.7 million at December 31, 2002. Standby letters of credit are
conditional commitments issued by the Savings Bank to guarantee the performance
of a customer to a third party. In the opinion of management, all loan
commitments equaled or exceeded prevalent market interest rates as of December
31, 2002, and will be funded from normal cash flow from operations.
At December 31, 2002, the Savings Bank had additional commitments to purchase
$5.0 million in GNMA adjustable-rate mortgage-backed securities. Such
investments were to be purchased in January 2003 from the Bank's available cash.
NOTE K - REGULATORY CAPITAL
The Savings Bank is subject to minimum capital requirements promulgated by the
Office of Thrift Supervision ("OTS"). Failure to meet minimum capital
requirements can initiate certain mandatory - and possibly additional
discretionary - actions by regulators that, if undertaken, could have a direct
material effect on the Corporation's financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action,
the Savings Bank must meet specific capital guidelines that involve quantitative
measures of the Savings Bank's assets, liabilities, and certain
off-balance-sheet items as calculated under regulatory accounting practices. The
Savings Bank's capital amounts and classifications are also subject to
qualitative judgments by the regulators about components, risk weightings, and
other factors. Such minimum capital standards generally require the maintenance
of regulatory capital sufficient to meet each of three tests, hereinafter
described as the tangible capital requirement, the core capital requirement and
the risk-based capital requirement. The tangible capital requirement provides
for minimum tangible capital (defined as shareholders' equity less all
intangible assets) equal to 1.5% of adjusted total assets. The core capital
requirement provides for minimum core capital (tangible capital plus certain
forms of supervisory goodwill and other qualifying intangible assets) generally
equal to 4.0% of adjusted total assets, except for those associations with the
highest examination rating and acceptable levels of risk. The risk-based capital
requirement currently provides for the maintenance of core capital plus general
loan loss allowances equal to 8.0% of risk-weighted assets. In computing
risk-weighted assets, the Savings Bank multiplies the value of each asset on its
statement of financial condition by a defined risk-weighting factor, e.g., one-
to four-family residential loans carry a risk-weighted factor of 50%.
LOGANSPORT FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 2002, 2001 and 2000
NOTE K - REGULATORY CAPITAL (continued)
During 2002, the Savings Bank was notified by the OTS that it was categorized as
"well-capitalized" under the regulatory framework for prompt corrective action.
To be categorized as "well-capitalized", the Savings Bank must maintain minimum
capital ratios as set forth in the following table.
As of December 31, 2002 and 2001, management believes that the Savings Bank met
all capital adequacy requirements to which it was subject.
2002: To be "well-
capitalized" under
For capital prompt corrective
Actual adequacy purposes action provisions
----------------- ----------------- -------------------
Amount Ratio Amount Ratio Amount Ratio
(Dollars in thousands)
Tangible capital $15,466 10.3% >=$2,244 >=1.5% >=$7,480 >= 5.0%
Core capital $15,466 10.3% >=$5,984 >=4.0% >=$8,975 >= 6.0%
Risk-based capital $16,664 17.4% >=$7,664 >=8.0% >=$9,580 >= 10.0%
2001: To be "well-
capitalized" under
For capital prompt corrective
Actual adequacy purposes action provisions
----------------- ----------------- -------------------
Amount Ratio Amount Ratio Amount Ratio
(Dollars in thousands)
Tangible capital $16,109 11.7% >=$2,066 >=1.5% >=$ 6,885 >= 5.0%
Core capital $16,109 11.7% >=$5,508 >=4.0% >=$ 8,262 >= 6.0%
Risk-based capital $17,241 16.9% >=$8,166 >=8.0% >=$10,207 >= 10.0%
The Savings Bank's management believes that, under the current regulatory
capital regulations, the Savings Bank will continue to meet its minimum capital
requirements in the foreseeable future. However, events beyond the control of
the Savings Bank, such as increased interest rates or a downturn in the economy
in the primary market area, could adversely affect future earnings and,
consequently, the ability to meet future minimum regulatory capital
requirements.
The Savings Bank is subject to regulations imposed by the OTS regarding the
amount of capital distributions payable to the Corporation. Generally, the
Savings Bank's payment of dividends is limited, without prior OTS approval, to
net earnings for the current calendar year plus the two preceding calendar
years, less capital distributions paid over the comparable time period. Insured
institutions are required to file an application with the OTS for capital
distributions in excess of this limitation. During October 1999, the Savings
Bank received OTS approval to make up to $2.0 million in capital distributions
to the Corporation. Of this amount, dividend payments of $300,000 and $700,000
were paid in 2001 and 2000, respectively. During 2001, the Savings Bank received
OTS approval to make up to $2.0 million in capital distributions to the
Corporation. Of this amount, dividend payments of $950,000 and $1,050,000 were
paid in 2002 and 2001, respectively. During 2002, the Savings Bank received OTS
approval to make up to $2.25 million in capital distributions to the
Corporation, all of which was paid in 2002.
LOGANSPORT FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 2002, 2001 and 2000
NOTE L - CONDENSED FINANCIAL STATEMENTS OF LOGANSPORT FINANCIAL CORP.
The following condensed financial statements summarize the financial position of
Logansport Financial Corp. as of December 31, 2002 and 2001, and the results of
its operations and cash flows for the years ended December 31, 2002, 2001 and
2000.
LOGANSPORT FINANCIAL CORP.
STATEMENTS OF FINANCIAL CONDITION
December 31, 2002 and 2001
(In thousands)
ASSETS 2002 2001
Cash and cash equivalents $ 77 $ 121
Investment in subsidiary 15,994 16,363
Dividend receivable from subsidiary - 950
Prepaid expenses and other 123 94
--------- --------
Total assets $ 16,194 $ 17,528
========= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Notes payable $ 700 $ -
Accrued expenses and other liabilities 121 126
--------- --------
Total liabilities 821 126
Shareholders' equity
Common stock 1,446 4,802
Retained earnings 13,444 12,408
Shares acquired by stock benefit plan (44) (63)
Unrealized gains on securities designated
as available for sale, net 527 255
--------- --------
Total shareholders' equity 15,373 17,402
--------- --------
Total liabilities and shareholders' equity $ 16,194 $ 17,528
========= ========
LOGANSPORT FINANCIAL CORP.
STATEMENTS OF EARNINGS
Years ended December 31, 2002, 2001 and 2000
(In thousands)
2002 2001 2000
Revenue
Interest income $ - $ 14 $ 6
Equity in earnings of subsidiary 1,589 1,436 1,300
------ ------- ------
Total revenue 1,589 1,450 1,306
General and administrative expenses 115 77 57
------ ------- ------
Earnings before income tax credits 1,474 1,373 1,249
Income tax credits (40) (25) (20)
------ ------- ------
NET EARNINGS $1,514 $1,398 $1,269
====== ======= ======
LOGANSPORT FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 2002, 2001 and 2000
NOTE L - CONDENSED FINANCIAL STATEMENTS OF LOGANSPORT FINANCIAL CORP.
(continued)
LOGANSPORT FINANCIAL CORP.
STATEMENTS OF CASH FLOWS
Years ended December 31, 2002, 2001 and 2000
(In thousands)
2000 2001 2000
Cash flows provided by (used in) operating activities:
Net earnings for the year $1,514 $1,398 $1,269
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Excess distributions from (undistributed earnings of)
consolidated subsidiary 1,611 (86) (598)
Increase (decrease) in cash due to changes in:
Accrued expenses and other liabilities (5) 5 (70)
Other (29) (70) 69
------ ------- ------
Net cash provided by operating activities 3,091 1,247 670
Cash flows provided by (used in) financing activities:
Proceeds from notes payable 700 - -
Proceeds from exercise of stock options 368 208 -
Dividends on common stock (478) (516) (477)
Purchase of shares (3,725) (921) (464)
------ ------- ------
Net cash used in financing activities (3,135) (1,229) (941)
------ ------- ------
Net increase (decrease) in cash and cash equivalents (44) 18 (271)
Cash and cash equivalents at beginning of year 121 103 374
------ ------- ------
Cash and cash equivalents at end of year $ 77 $ 121 $ 103
======= ======== =======
LOGANSPORT FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 2002, 2001 and 2000
NOTE M - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following table summarizes the Corporation's quarterly results for the years
ended December 31, 2002 and 2001. Certain amounts, as previously reported, may
have been reclassified to conform to the 2002 presentation.
Three Months Ended
March 31, June 30, September 30, December 31,
2002: (In thousands, except per share data)
Total interest income $2,302 $2,346 $2,352 $2,326
Total interest expense 1,247 1,219 1,215 1,196
------ ------ ------ ------
Net interest income 1,055 1,127 1,137 1,130
Provision for losses on loans 90 90 90 90
Other income 51 82 58 161
General, administrative and other expense 575 603 579 561
------ ------ ------ ------
Earnings before income taxes 441 516 526 640
Income taxes 121 145 151 192
------ ------ ------ ------
Net earnings $ 320 $ 371 $ 375 $ 448
====== ====== ====== ======
Earnings per share:
Basic $ .32 $ .39 $ .41 $ .51
====== ====== ====== ======
Diluted $ .31 $ .38 $ .39 $ .50
====== ====== ====== ======
Three Months Ended
March 31, June 30, September 30, December 31,
2001: (In thousands, except per share data)
Total interest income $2,501 $2,498 $2,462 $2,370
Total interest expense 1,529 1,470 1,376 1,321
------ ------ ------ ------
Net interest income 972 1,028 1,086 1,049
Provision for losses on loans 86 85 86 135
Other income 52 45 47 78
General, administrative and other expense 535 513 476 522
------ ------ ------ ------
Earnings before income taxes 403 475 571 470
Income taxes 102 129 167 123
------ ------ ------ ------
Net earnings $ 301 $ 346 $ 404 $ 347
====== ====== ====== ======
Earnings per share:
Basic $ .28 $ .32 $ .37 $ .32
====== ====== ====== ======
Diluted $ .27 $ .32 $ .36 $ .32
====== ====== ====== ======
MARKET PRICE OF LOGANSPORT FINANCIAL CORP.
COMMON SHARES AND RELATED SECURITY HOLDER MATTERS
The common stock of the Company is traded on the National Association of
Securities Dealers Automated Quotation System ("Nasdaq") Small Cap Market, under
the symbol "LOGN." As of February 7, 2003, there were 799 shareholders of record
of the Company's common stock. The table below presents the high and low trade
prices for the common shares of the Company, together with dividends declared
per share, for each quarter of the years ended December 31, 2002 and 2001. Such
price information was obtained from Nasdaq.
Per Share
Year Ending December 31, High Low dividends
2002
Quarter ending:
December 31, 2002 $17.13 $14.40 $0.14
September 30, 2002 17.85 16.90 0.13
June 30, 2002 18.15 17.01 0.13
March 31, 2002 17.59 15.00 0.12
2001
Quarter ending:
December 31, 2001 $15.25 $13.00 $0.12
September 30, 2001 14.05 12.77 0.12
June 30, 2001 13.34 11.44 0.12
March 31, 2001 12.25 11.25 0.12
TRANSFER AGENT AND REGISTRAR. The Fifth Third Bank of Cincinnati, Ohio ("Fifth
Third") is the Company's stock transfer agent and registrar. Fifth Third
maintains the Company's shareholder records. Shareholders requiring a change of
name, address or ownership of stock, as well as information about shareholder
records, lost or stolen certificates, dividend checks, or dividend direct
deposit should contact:
Fifth Third Bank
Corporate Trust Services
Mail Drop 10AT66
38 Fountain Square Plaza
Cincinnati, Ohio 45202
(800) 837-2755 or 513-579-5320
http://investordirect.53.com
GENERAL COUNSEL. INDEPENDENT AUDITORS.
Barnes & Thornburg Grant Thornton LLP
11 South Meridian Street 625 Eden Park Drive, Suite 900
Indianapolis, Indiana 46204 Cincinnati, Ohio 45202
SHAREHOLDER & GENERAL INQUIRIES. The Company is required to file an Annual
Report on Form 10-K for its year ended December 31, 2002 with the Securities and
Exchange Commission. Copies of this annual report may be obtained without charge
upon written request to or on our website:
Dottye Robeson, Secretary/Treasurer
Logansport Financial Corp.
723 East Broadway, Box 569
Logansport, Indiana 46947
(574) 722-3855 extension 313
www.logansportsavings.com
OFFICE LOCATION.
723 East Broadway
Logansport, Indiana 46947
(574) 722-3855
Fax - (574) 722-3857
Email - dottyer@logansportsavings.com