TABLE OF CONTENTS
Page
Directors and Officers 2
President's Message to Shareholders 3
Selected Consolidated Financial Data 4
Management's Discussion and Analysis 6
Report of Independent Certified Public Accountants 20
Consolidated Statements of Financial Condition 21
Consolidated Statements of Earnings 22
Consolidated Statements of Comprehensive Income 23
Consolidated Statements of Changes in Shareholders' Equity 24
Consolidated Statements of Cash Flows 25
Notes to Consolidated Financial Statements 27
Shareholder Information 52
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 banking through the Internet at
www.logansportsavings.com. The Bank 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."
11
Logansport Financial Corp.
DIRECTORS AND OFFICERS
DIRECTORS
James P. Bauer (age 58) is the Vice President of Finance and Treasurer of
Material Processing, Inc., a holding company for Small Parts, Inc., ABC Metals,
Inc. and H.T.I. (Logansport, Indiana). He serves on the Board of Directors of
the Logansport Economic Development Foundation, Inc. and the Logansport/Cass
County Industrial Park.
Charles J. Evans (age 57) 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 46) 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 63) 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. of Indianapolis, Indiana.
William Tincher, Jr. (age 64) has served as Plant Manager for the Modine
Manufacturing Company ("Modine") since 1977. Modine is located in Logansport,
Indiana, and manufactures automotive cooling systems.
Dr. Todd S. Weinstein (age 42) 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.
David G. Wihebrink (age 56) 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 70) served as President of Logansport Savings Bank,
FSB from 1971 until his retirement in April 2000.
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 ALLEN SCHIEBER - Senior Vice President
DOTTYE ROBESON DOTTYE ROBESON - Chief Financial Officer/
Secretary/Treasurer Secretary/Treasurer
MICHAEL THOMPSON - Internal Audit/
Compliance
JEFFREY JONES - Vice President
SHEILA WILDERMUTH - Vice President
KAY GAPSKI - Vice President
JONI LAMBERT - Assistant Vice President
SHARON LANTZ - Assistant Vice
President
TO OUR SHAREHOLDERS:
I am pleased to bring you the financial results for Logansport Financial Corp.
for the year ended December 31, 2003. Our earnings for 2003 amounted to
$1,486,000, which represented a modest 1.8% decrease from our record earnings in
2002. Our diluted earnings per share amounted to $1.68 in 2003 compared to $1.58
in 2002, which represented a 6.3% increase. Historically low interest rates
continued during 2003, which created opportunities for borrowers to obtain
financing or refinance at very attractive interest rate levels. To take
advantage of the refinance boom, but to avoid the inherent long-term interest
rate risks, we began selling loans in the secondary market and this resulted in
an additional $118,000 of income. We retained the servicing on these sold loans
and at year-end that portfolio amounted to approximately $6.1 million. The
continuing compression of our net interest margin caused a decline in our net
interest income; however, we attempted to counter the effects of that
compression with a diligent effort to control expenses and to carefully monitor
the quality of our loan portfolio. In addition, we were successful in managing
our investment portfolio as demonstrated by sales that contributed $286,000 to
our pre-tax earnings for the year.
Even though we saw our one-to-four family residential mortgage loan portfolio
reduced by $10.5 million due to continued refinancings and our sale of mortgage
loans into the secondary market, our commercial and nonresidential loan
portfolios continued to grow with an increase of over $4.0 million. Overall our
assets increased by $6.7 million, representing a 4.5% increase, while deposits
increased by $5.4 million, or 5.5% for the year. In a year when dividends became
more important due to the reduction in tax rates, we were once again able to
increase our annual dividend payments, to $.56 per share for 2003.
Although the economy is recovering, we realize the road ahead is not an easy
one. We are faced with many economic challenges in our community and many
businesses and individuals continue to struggle. The Board, management team, and
employees remain a cohesive group that is focused on "Leading The Way" in
community banking and creating value for our shareholders.
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 years indicated.
At December 31,
Financial Condition Data: 2003 2002 2001 2000 1999
(In thousands)
Total assets $156,824 $150,099 $138,065 $132,612 $117,468
Loans receivable, net 102,353 110,386 111,696 102,418 90,900
Mortgage-backed securities 20,307 11,009 4,419 5,165 5,898
Cash and cash equivalents 14,403 13,517 8,816 9,210 5,146
Investment securities 12,242 8,060 5,788 8,322 8,539
Deposits 103,757 98,325 83,900 79,454 76,011
Borrowings 35,946 35,629 35,915 35,237 24,307
Shareholders' equity 16,356 15,373 17,402 17,013 16,146
Year ended December 31,
Summary of Operating Results: 2003 2002 2001 2000 1999
(In thousands, except share data)
Interest income $8,602 $9,326 $9,831 $9,524 $7,599
Interest expense 4,492 4,877 5,696 5,597 4,043
----- ----- ----- ----- -----
Net interest income 4,110 4,449 4,135 3,927 3,556
Provision for losses on loans 360 360 392 332 162
------ ------ ------ ------ ------
Net interest income after provision for
losses on loans 3,750 4,089 3,743 3,595 3,394
Other income 661 352 222 122 175
General, administrative and other expense 2,373 2,318 2,046 1,937 1,667
----- ----- ----- ----- -----
Earnings before income taxes 2,038 2,123 1,919 1,780 1,902
Income taxes 552 609 521 511 678
------ ------ ------ ------ ------
Net earnings $1,486 $1,514 $1,398 $1,269 $1,224
===== ===== ===== ===== =====
Basic earnings per share $1.72 $1.63 $1.29 $1.16 $1.03
==== ==== ==== ==== ====
Diluted earnings per share $1.68 $1.58 $1.27 $1.16 $1.02
==== ==== ==== ==== ====
Cash dividends per share $.56 $.52 $.48 $.44 $.44
=== === === === ===
Logansport Financial Corp.
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA (CONTINUED)
At or for the year ended December 31,
Supplemental Data: 2003 2002 2001 2000 1999
Return on average assets (1) .96% 1.03% 1.03% 1.00% 1.14%
Return on average equity (2) 9.24 9.30 7.82 7.76 7.33
Interest rate spread (3) 2.43 2.76 2.55 2.57 2.86
Net yield on interest-earning assets (4) 2.81 3.21 3.23 3.27 3.54
General, administrative and other
expense to average assets 1.53 1.58 1.50 1.53 1.55
Net interest income to general,
administrative and other expense 173.20 191.93 202.10 202.74 213.32
Equity-to-assets (5) 10.43 10.24 12.60 12.83 13.75
Average interest-earning assets to
average interest-bearing liabilities 112.53 113.04 115.21 115.39 117.20
Non-performing assets to total assets .97 .99 1.41 .25 .57
Non-performing loans to total loans 1.45 1.34 1.72 .32 .72
Loan loss allowance to total loans 1.68 1.30 1.00 .73 .47
Loan loss allowance to non-performing
loans 115.58 98.25 58.11 226.19 66.07
Dividend payout ratio 32.56 31.90 37.21 37.93 42.72
Net charge-offs to average loans .06 .03 .02 * *
* 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.
(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 the Bank has historically consisted of attracting
deposits from the general public and making loans secured by residential and
other real estate. The Bank is 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, 2003, and the results of operations for
the year ended December 31, 2003, 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)
Critical Accounting Policies
Certain of the Company's accounting policies are important to the portrayal of
the Company's financial condition, since they require management to make
difficult, complex or subjective judgments, some of which may relate to matters
that are inherently uncertain. Estimates associated with these policies are
susceptible to material changes as a result of changes in facts and
circumstances. Facts and circumstances that could affect these judgments
include, but without limitation, changes in interest rates, changes in the
performance of the economy or changes in the financial condition of borrowers.
Management believes that its critical accounting policies include determining
the allowance for loan losses and determining the carrying value of mortgage
servicing rights. If management were to underestimate the allowance for loan
losses, earnings could be reduced in the future as a result of greater than
expected net loan losses. Overestimations of the required allowance could result
in future increases in income, as loan loss recoveries increase or provisions
for losses on loans decrease. Mortgage servicing rights are accounted for
pursuant to the provisions of SFAS No. 140, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities," which requires
that the Company recognize rights to service mortgage loans for others as
separate assets. An institution that acquires mortgage servicing rights through
either the purchase or origination of mortgage loans and sells those loans with
servicing rights retained must allocate some of the cost of the loans to the
mortgage servicing rights.
Capitalized mortgage servicing rights are required to be assessed for
impairment. Impairment is measured based on fair value. The mortgage servicing
rights recorded by the Company, calculated in accordance with the provisions of
SFAS No. 140, were segregated into pools for valuation purposes, using as
pooling criteria the loan term and coupon rate. Once pooled, each grouping of
loans was evaluated on a discounted earnings basis to determine the present
value of future earnings that a purchaser could expect to realize from each
portfolio. Earnings were projected from a variety of sources including loan
servicing fees, interest earned on float, net interest earned on escrows,
miscellaneous income, and costs to service the loans. The present value of
future earnings is the "economic" value of the pool, i.e., the net realizable
present value to an acquiror of the acquired servicing rights. Fluctuations in
the fair value of mortgage servicing rights may affect net earnings, as this
asset is carried at the lower of amortized cost or fair value.
Changes in Financial Condition from December 31, 2002 to December 31, 2003
The Company's total assets were $156.8 million at December 31, 2003, an increase
of $6.7 million, or 4.5%, over the $150.1 million total at December 31, 2002.
The increase in assets was funded primarily through growth in deposits of $5.4
million and a $1.0 million increase in shareholders' equity. The percentage of
interest-earning assets to total assets was 96.1% at both December 31, 2003 and
2002.
At December 31, 2003, investment and mortgage-backed securities totaled $32.5
million, an increase of $13.5 million, or 70.7%, compared to December 31, 2002.
The increase was due to purchases of $40.7 million, which were partially offset
by maturities, sales and repayments totaling $26.7 million. The primary
investments added to the portfolio were Federal Home Loan Bank ("FHLB") and
Federal National Mortgage Association ("FNMA") fixed-rate notes and
adjustable-rate GNMA mortgage-backed securities.
Loans receivable totaled $102.4 million at December 31, 2003, a decrease of $8.0
million, or 7.3%, from December 31, 2002. The decrease in loans receivable was
due primarily to principal repayments of $57.8 million and loan sales of $6.2
million, which were partially offset by loan disbursements totaling $56.7
million. The volume of loan disbursements in 2003 exceeded that of 2002 by $11.2
million, or 24.6%. The overall decrease in loans was due to an $11.5 million, or
17.7%, decrease in loans secured by one- to four-family and multi-family
residential real estate, including construction loans, and a $400,000 or 3.4%,
decrease in consumer loans, while loans secured by
Logansport Financial Corp.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Changes in Financial Condition from December 31, 2002 to December 31, 2003
(continued)
nonresidential real estate and commercial loans and leases increased by $4.0
million, or 11.2%. During 2003, the Company initiated a program to originate
certain mortgage loans for sale in the secondary market, retaining the servicing
on loans sold. These sales transactions were conducted with the Federal Home
Loan Bank of Indianapolis. Sales of loans during 2003 totaled $6.2 million,
which resulted in realized gains on sale of $118,000.
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, 2003, the Bank recorded pretax losses from the housing
project totaling $410,000, while realizing tax credits of $546,000.
Deposits totaled $103.8 million at December 31, 2003, an increase of $5.4
million, or 5.5%, over December 31, 2002. Non-interest bearing deposits, NOW
accounts, passbook savings and money market savings increased by $4.1 million,
or 10.0%, while certificates of deposit increased by $1.3 million, or 2.2%.
Proceeds from deposit growth were generally used to fund the purchase of
investments and mortgage-backed securities. However, $2.0 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 $8.5
million at December 31, 2003. Approximately $6.0 million of these funds were
withdrawn in January 2004. At December 31, 2003, borrowings consisted of $34.0
million in FHLB advances compared to $33.8 million in FHLB advances at December
31, 2002, an increase of $200,000, or .6%.
Shareholders' equity totaled $16.4 million at December 31, 2003, an increase of
$1.0 million, or 6.4%, over December 31, 2002. The increase was due primarily to
net earnings for the year ended December 31, 2003 of $1.5 million and proceeds
from the exercise of stock options of $378,000, which were partially offset by
dividends totaling $485,000 and a decrease in unrealized gains on available for
sale securities of $417,000.
Comparison of Results of Operations for the Years Ended December 31, 2003 and
2002
Net earnings totaled $1.5 million for the year ended December 31, 2003, a
decrease of $28,000, or 1.8%, compared to net earnings reported for 2002. The
decrease in net earnings resulted primarily from a decrease of $339,000 in net
interest income and an increase of $55,000 in general, administrative and other
expense, which were partially offset by an increase of $309,000 in other income
and a decrease in the provision for income taxes of $57,000.
Interest Income
The Company's total interest income was $8.6 million for the year ended December
31, 2003, a decrease of $724,000, or 7.8%, compared to the $9.3 million recorded
during 2002. The Company's $8.3 million, or 5.9%, increase in average
interest-earning assets, from $140.5 million in 2002 to $148.8 million in 2003,
was more than offset by an 85 basis point decrease in the average yield on
interest-earning assets, to 5.83% in 2003 compared to 6.68% in 2002. Interest
income on loans decreased by $925,000, or 11.1%, due primarily to a 55 basis
point decrease in the average yield year to year, to 6.75% in 2003, and a $4.4
million, or 3.8%, decrease in the average balance of loans outstanding. Interest
income on investment and mortgage-backed securities and other interest-bearing
deposits increased by $201,000, or 19.9%, due primarily to a $12.6 million, or
51.0%, increase in the average balance outstanding, which was partially offset
by a 72 basis point decline in the average yield, to 3.17% in 2003, compared to
3.89% in 2002.
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, 2003 and
2002 (continued)
Interest Expense
Interest expense totaled $4.5 million for the year ended December 31, 2003, a
decrease of $385,000, or 7.9%, compared to 2002. This decrease was the result of
a decrease in the average cost of interest-bearing liabilities of 52 basis
points, from 3.92% in 2002 to 3.40% in 2003, partially offset by a $7.9 million,
or 6.4%, increase in the average balance outstanding year to year. Interest
expense on deposits decreased by $405,000, or 13.7%, due primarily to a 68 basis
point decline in the average cost of deposits, to 2.64% in 2003, which was
partially offset by a $7.7 million, or 8.6%, increase in the average balance of
deposits outstanding year to year. Interest expense on borrowings increased by
$20,000, or 1.0%, due primarily to a 2 basis point increase in the average cost
of borrowings year to year and a $250,000 increase in the average balance of
borrowings. The decreases in the level of yields on interest-earning assets and
the cost of deposits were due primarily to the overall decrease in interest
rates in the economy throughout 2002 and 2003.
Net Interest Income
As a result of the foregoing changes in interest income and interest expense,
net interest income decreased by $339,000, or 7.6%, to $4.1 million in 2003,
compared to $4.4 million in 2002. The interest rate spread was 2.43% in 2003
compared to 2.76% in 2002, and the net yield on weighted-average
interest-earning assets declined to 2.81% in 2003 from 3.21% in 2002.
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 for each
of the years ended December 31, 2003 and 2002. The 2003 provision was predicated
primarily upon the increase in the volume of commercial loans and loans secured
by nonresidential real estate, an analysis of nonperforming loans and the
current economic climate. At December 31, 2003 and 2002, the allowance amounted
to $1.8 million and $1.5 million, respectively, for a ratio to total loans of
1.68% in 2003 and 1.30% in 2002. Non-performing loans totaled $1.5 million at
both December 31, 2003 and 2002. The ratio of the allowance for loan losses to
non-performing loans increased from 98.3% at December 31, 2002 to 115.6% at
December 31, 2003. Based on management's review of the loan portfolio, the
allowance for loan losses at December 31, 2003 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.
Other Income
The Company recorded other income totaling $757,000 for the year ended December
31, 2003, excluding the loss on investment in real estate partnership, compared
to $459,000 in 2002. The $298,000, or 64.9%, increase was due primarily to an
increase of $185,000 in gains on sale of investment and mortgage-backed
securities and a $118,000 gain on the sale of loans. The $96,000 loss on the
investment in real estate partnership recorded in 2003 had a positive after-tax
effect of approximately $127,000 when considering the tax benefit and the
available tax credits generated by the project.
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, 2003 and
2002 (continued)
General, Administrative and Other Expense
General, administrative and other expense totaled $2.4 million for the year
ended December 31, 2003, compared to $2.3 million in 2002, an increase of
$55,000, or 2.4%. Employee compensation and benefits increased by $112,000, or
8.6%, due primarily to an $86,000 increase in pension expense and normal merit
increases. Occupancy and equipment expense decreased by $22,000, or 9.2%, mainly
due to a decrease in property taxes and other related occupancy expenses. Other
operating expenses decreased by $33,000, or 5.6%. The majority of this decrease
was related to costs associated with consulting and attorney fees.
Logansport Financial Corp. is investigating the possibility of de-listing its
stock and de-registering with the Securities and Exchange Commission ("SEC").
This strategy would reduce future expenses associated with SEC reporting
requirements, as well as NASDAQ filing fees, but would also result in the
Company's common stock no longer being quoted on the NASDAQ Small Cap Market. In
order to de-register, the Company must first have fewer than 300 shareholders.
The Company's shares trade infrequently and residents of Indiana hold many
shares. Therefore, it is management's belief that any negative impact on the
liquidity of the shares as a result of a de-registration and de-listing would be
minimal.
Income Tax Expense
Income tax expense totaled $552,000 for the year ended December 31, 2003, a
decrease of $57,000, or 9.4%, from 2002. Pretax income decreased by $85,000, or
4.0%, in 2003 compared to 2002, while approximately $182,000 of tax credits were
available in both 2003 and 2002. The effective tax rates were 27.1% and 28.7%
for the years ended December 31, 2003 and 2002, respectively.
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, a decrease of $505,000, or 5.1%, compared to $9.8 million during 2001.
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.
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)
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 commercial
loans and loans secured by nonresidential 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
were $1.5 million and $1.9 million at December 31, 2002 and 2001, 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.
Other Income
Other income totaled $459,000 for the year ended December 31, 2002, excluding
the loss on the investment in real estate partnership, compared to $429,000 in
2001. The $30,000, or 7.0%, 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 investment in real estate partnership 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.
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)
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.
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,
2003 2002 2001
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 $ 12,047 $ 103 0.85%$ 9,638 $ 124 1.29%$ 7,271 $ 261 3.59%
Mortgage- and other asset-
backed securities (1) 16,204 611 3.77 7,927 394 4.97 4,791 297 6.20
Other investment securities (1)8,987 466 5.19 7,100 441 6.21 6,694 457 6.83
Loans receivable (2) 109,517 7,390 6.75 113,870 8,315 7.30 109,075 8,721 8.00
Stock in FHLB of
Indianapolis 2,037 99 4.86 1,991 120 6.02 1,973 147 7.45
--------- ------- --------- ------ --------- ------
Total interest-earning
assets 148,792 8,669 5.83 140,526 9,394 6.68 129,804 9,883 7.61
Non-interest-earning assets 6,191 5,947 6,306
--------- --------- ---------
Total assets $154,983 $146,473 $136,110
======= ======= =======
Interest-bearing liabilities:
Savings accounts $ 4,703 44 0.94$ 4,397 55 1.25 $ 3,993 100 2.50
NOW and money market accounts 30,466 302 0.99 28,429 492 1.73 23,023 718 3.12
Certificates of deposit 61,820 2,211 3.58 56,503 2,415 4.27 51,405 2,859 5.56
Borrowings 35,234 1,935 5.49 34,984 1,915 5.47 34,245 2,019 5.90
------- ----- ------- ----- ------- -----
Total interest-bearing
liabilities 132,223 4,492 3.40 124,313 4,877 3.92 112,666 5,696 5.06
-------- ------- ----- ----- ---- ----- ----
Other liabilities 6,684 5,879 5,562
--------- --------- ---------
Total liabilities 138,907 130,192 118,228
Shareholders' equity 16,076 16,281 17,882
-------- -------- --------
Total liabilities and
shareholders' equity $154,983 $146,473 $136,110
======= ======= =======
Net interest-earning assets $ 16,569 $ 16,213 $ 17,138
======== ======== ========
Net interest income $4,177 $4,517 $4,187
===== ===== =====
Interest rate spread (3) 2.43% 2.76% 2.55%
======== ======== ========
Net yield on weighted-average
interest-earning assets (4) 2.81% 3.21% 3.23%
======== ======== ========
Average interest-earning assets
to average interest-bearing
liabilities 112.53% 113.04% 115.21%
====== ====== ======
Adjustment of interest income on
tax-exempt securities to a
tax-equivalent basis $ 67 $ 68 $ 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,
2003 vs. 2002 2002 vs. 2001
Increase Increase
(decrease) (decrease)
due to due to
Volume Rate Total Volume Rate Total
(In thousands)
Interest-earning assets:
Interest-earning deposits $ 27 $ (48) $ (21) $ 67 $ (204) $(137)
Mortgage-backed securities 331 (114) 217 165 (68) 97
Investment securities 105 (80) 25 27 (43) (16)
Loans receivable (342) (583) (925) 372 (778) (406)
Stock in FHLB of Indianapolis 3 (24) (21) 1 (28) (27)
------ ----- ----- ----- ------- -----
Total interest-earning assets 124 (849) (725) 632 (1,121) 489
Interest-bearing liabilities:
Savings accounts 4 (15) (11) 9 (54) (45)
NOW and money market accounts 33 (223) (190) 143 (369) (226)
Certificates of deposit 214 (418) (204) 264 (708) (444)
Borrowings 14 6 20 43 (147) (104)
----- ------ ----- ---- ------ ----
Total interest-bearing liabilities 265 (650) (385) 459 (1,278) (819)
---- ---- ---- --- ----- ----
Change in net interest income
(fully taxable equivalent basis) (141) (199) (340) 173 157 330
Tax equivalent adjustment 1 - 1 (11) (5) (16)
------ --- ------ ---- -------- -----
Change in net interest income $(140) $(199) $(339) $162 $ 152 $ 314
==== ==== ==== === ====== ====
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 as of and for the three years ended December 31, 2003. Average balances
are based on month-end average balances.
At December 31, Year ended December 31,
2003 2003 2002 2001
Weighted-average interest rate earned on:
Interest-earning deposits 0.50% 0.85% 1.29% 3.59%
Mortgage-backed securities 3.46 3.77 4.97 6.20
Investment securities 4.89 5.19 6.21 6.83
Loans receivable 6.66 6.75 7.30 8.00
Stock in FHLB of Indianapolis 5.02 4.86 6.02 7.45
Total interest-earning assets 5.50 5.83 6.68 7.61
Weighted-average interest rate cost of:
Savings accounts 1.02 0.94 1.25 2.50
NOW and money market accounts 0.95 0.99 1.73 3.12
Certificates of deposit 3.52 3.58 4.27 5.56
Borrowings 5.43 5.49 5.47 5.90
Total interest-bearing liabilities 3.22 3.40 3.92 5.06
Interest rate spread (1) 2.28 2.43 2.76 2.55
Net yield on weighted-average
interest-earning assets (2) N/A 2.81 3.21 3.23
(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, 2003, 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 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, 2003 (the
latest available date) and December 31, 2002 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, 2003
Change in
interest rate Net Portfolio Value NPV as % of PV of Assets
(Basis Points) $ Amount $ Change % Change NPV Ratio Change
(In thousands)
+300 $15,299 $(1,086) (7)% 10.16% (28 bp)
+200 16,162 (223) (1) 10.57 13 bp
+100 16,571 186 1 10.68 24 bp
- 16,385 - - 10.44 -
-100 15,517 (868) (5) 9.80 (64 bp)
December 31, 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 $15,152 $(840) (5)% 10.09% (15 bp)
+200 15,921 (71) 0 10.44 20 bp
+100 16,332 340 2 10.57 33 bp
- 15,992 - - 10.24 -
-100 15,036 (956) (6) 9.55 (69 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 that
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 loans and
the purchase of investment securities. During the years ended December 31, 2003,
2002 and 2001, the Company originated mortgage loans and commercial loans
totaling $51.1 million, $40.3 million and $54.3 million, respectively. The
Company originated consumer loans of $5.7 million, $5.3 million and $6.8
million, in 2003, 2002 and 2001, respectively. The Company purchased loans
totaling $1.8 million in 2003, $171,000 in 2002 and $499,000 in 2001. Loan
repayments totaled $57.8 million, $46.7 million and $51.4 million for 2003, 2002
and 2001, respectively.
During the years ended December 31, 2003, 2002 and 2001, the Company purchased
investment and mortgage-backed securities in the amounts of $40.7 million, $17.8
million and $1.6 million, respectively. Sales or maturities of such securities
held by the Company and repayments on mortgage-backed or other asset-backed
securities totaled $26.7 million, $9.4 million and $5.1 million for 2003, 2002
and 2001, respectively.
Deposits grew by $5.4 million from December 31, 2002 to December 31, 2003, and
by $14.4 million from December 31, 2001 to December 31, 2002.
Cash and cash equivalents increased by $886,000 over December 31, 2002 to 2003
and $4.7 million over December 31, 2001 to December 31, 2002.
Logansport Financial Corp.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Liquidity and Capital Resources (continued)
The following table sets forth information regarding the Company's obligations
and commitments to make future payments under contract as of December 31, 2003.
Payments due by period
Less More
than 1-3 3-5 than
1 year years years 5 years Total
(In thousands)
Contractual obligations:
Advances from the Federal Home Loan
Bank and other borrowings $ 3,900 $ 6,450 $ 2,806 $22,790 $35,946
Certificates of deposit 29,261 17,754 10,861 - 57,876
Amount of commitments expiration per period Commitments to originate loans:
One- to four-family residential loans 850 - - - 850
Home equity/commercial lines of credit 9,487 - - - 9,487
Home equity/commercial lines of credit 9,487 - - - 9,487
Letters of credit 2,670 - - - 2,670
------- ------- ------- ------- ---------
Total contractual obligations $48,819 $24,204 $13,667 $22,790 $109,480
====== ====== ====== ====== =======
The Company anticipates that it will have sufficient funds available to meet its
current loan commitments. 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 maturing certificates of deposit will
remain with the Company.
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, 2003 and 2002, the
Company had outstanding FHLB advances of $34.0 million and $33.8 million,
respectively.
Pursuant to OTS capital regulations, the Bank 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, 2003, the Bank's tangible capital and leverage ratios were
both 10.9%, and its risk-based capital to risk-weighted assets ratio was 19.4%.
Therefore, at December 31, 2003, 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, 2003.
Logansport Financial Corp.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Liquidity and Capital Resources (continued)
OTS Requirement The Bank's Capital Level
% of % of Amount
Assets Amount Assets (1) Amount of excess
(Dollars in thousands)
Tangible capital 1.5% $2,350 10.9% $17,044 $14,694
Core capital (2) 4.0 6,266 10.9 17,044 10,778
Risk-based capital 8.0 7,526 19.4 18,225 10,699
(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 $1.5 million of general valuation
allowances.
As of December 31, 2003, 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.
Off-Balance Sheet Arrangements
As of the date of this Annual Report, the Company does not have any off-balance
sheets arrangements that have or are reasonably likely to have a current or
future effect on the Company's financial condition, change in financial
condition, revenues or expenses, results of operations, liquidity, capital
expenditures or capital resources that are material to investors. The term
"off-balance sheet arrangement" generally means any transaction, agreement, or
other contractual arrangement to which an entity unconsolidated with the Company
is a party under which the Company has (i) any obligation arising under a
guarantee contract, derivative instrument or variable interest; or (ii) a
retained or contingent interest in assets transferred to such entity or similar
arrangement that serves as credit, liquidity or market risk support for such
assets.
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, 2003 and 2002, 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,
2003. 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, 2003 and 2002, 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, 2003, in conformity with accounting
principles generally accepted in the United States of America.
Cincinnati, Ohio
January 30, 2004
LOGANSPORT FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
December 31, 2003 and 2002
(In thousands, except share data)
ASSETS 2003 2002
Cash and due from banks $ 707 $ 778
Interest-bearing deposits in other financial institutions 13,696 12,739
-------- --------
Cash and cash equivalents 14,403 13,517
Investment securities designated as available for sale - at market 12,242 8,060
Mortgage-backed securities designated as available for sale - at market 20,307 11,009
Loans receivable - net 102,353 110,386
Office premises and equipment - at depreciated cost 1,694 1,767
Federal Home Loan Bank stock - at cost 2,080 2,003
Investment in real estate limited partnership 950 1,026
Accrued interest receivable on loans 409 410
Accrued interest receivable on mortgage-backed securities 70 49
Accrued interest receivable on investments and interest-bearing deposits 166 107
Prepaid expenses and other assets 164 80
Cash surrender value of life insurance 1,343 1,317
Deferred income tax asset 619 364
Prepaid income taxes 24 4
----------- ------------
Total assets $156,824 $150,099
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits $103,757 $ 98,325
Advances from the Federal Home Loan Bank 34,027 33,836
Notes payable 1,919 1,793
Accrued interest and other liabilities 765 772
---------- ----------
Total liabilities 140,468 134,726
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; 877,444
and 848,958 shares at aggregate value issued and outstanding at
December 31, 2003 and 2002, respectively 1,824 1,446
Retained earnings - restricted 14,445 13,444
Less shares acquired by stock benefit plan (23) (44)
Accumulated comprehensive income, unrealized gains on securities
designated as available for sale, net of related tax effects 110 527
---------- ----------
Total shareholders' equity 16,356 15,373
-------- --------
Total liabilities and shareholders' equity $156,824 $150,099
======= =======
The accompanying notes are an integral part of these statements.
LOGANSPORT FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF EARNINGS
For the years ended December 31, 2003, 2002 and 2001
(In thousands, except share data)
2003 2002 2001
Interest income
Loans $7,390 $8,315 $8,721
Investment securities 399 373 405
Mortgage-backed securities 611 394 297
Interest-bearing deposits and other 202 244 408
------ ------ ------
Total interest income 8,602 9,326 9,831
Interest expense
Deposits 2,557 2,962 3,677
Borrowings 1,935 1,915 2,019
----- ----- -----
Total interest expense 4,492 4,877 5,696
----- ----- -----
Net interest income 4,110 4,449 4,135
Provision for losses on loans 360 360 392
------ ------ ------
Net interest income after provision for losses on loans 3,750 4,089 3,743
Other income
Service charges on deposit accounts 218 221 238
Gain on sale of investment and mortgage-backed securities 286 101 -
Gain on sale of loans 118 - -
Loss on investment in real estate partnership (96) (107) (207)
Other operating 135 137 191
------ ------ ------
Total other income 661 352 222
General, administrative and other expense
Employee compensation and benefits 1,409 1,297 1,115
Occupancy and equipment 218 240 230
Data processing 188 190 183
Other operating 558 591 518
------ ------ ------
Total general, administrative and other expense 2,373 2,318 2,046
----- ----- -----
Earnings before income taxes 2,038 2,123 1,919
Income taxes
Current 592 661 662
Deferred (40) (52) (141)
------- ------- ------
Total income taxes 552 609 521
------ ------ ------
NET EARNINGS $1,486 $1,514 $1,398
===== ===== =====
EARNINGS PER SHARE
Basic $1.72 $1.63 $1.29
==== ==== ====
Diluted $1.68 $1.58 $1.27
==== ==== ====
The accompanying notes are an integral part of these statements.
LOGANSPORT FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the years ended December 31, 2003, 2002 and 2001
(In thousands)
2003 2002 2001
Net earnings $1,486 $1,514 $1,398
Other comprehensive income (loss), net of tax:
Unrealized holding gains (losses) on securities during the year,
net of taxes (benefits) of $(117), $175 and $93 for the years
ended December 31, 2003, 2002 and 2001, respectively (228) 339 180
Reclassification adjustment for realized gains included
in earnings, net of taxes of $97 and $34 for the years
ended December 31, 2003 and 2002, respectively (189) (67) -
------ ------- -----
Comprehensive income $1,069 $1,786 $1,578
===== ===== =====
Accumulated comprehensive income $ 110 $ 527 $ 255
====== ====== ======
The accompanying notes are an integral part of these statements.
LOGANSPORT FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the years ended December 31, 2003, 2002 and 2001
(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, 2001 $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
Net earnings for the year ended December 31, 2003 - 1,486 - - 1,486
Issuance of shares under stock option plan 378 - - - 378
Unrealized losses (net of realized gains) on securities
designated as available for sale, net of related tax effects - - - (417) (417)
Amortization expense of stock benefit plan - - 21 - 21
Cash dividends of $.56 per share - (485) - - (485)
----- -------- --- -- --------
Balance at December 31, 2003 $1,824 $14,445 $ (23) $110 $16,356
===== ====== ===== === ======
The accompanying notes are an integral part of these statements.
LOGANSPORT FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 2003, 2002 and 2001
(In thousands)
2003 2002 2001
Cash flows from operating activities:
Net earnings for the year $ 1,486 $ 1,514 $ 1,398
Adjustments to reconcile net earnings to net cash provided by
(used in) operating activities:
Depreciation and amortization 112 108 99
Amortization of premiums on investments and mortgage-backed securities 79 41 31
Amortization expense of stock benefit plan 21 19 40
Federal Home Loan Bank stock dividends (77) - -
Loans originated for sale in the secondary market (6,192) - -
Proceeds from the sale of loans in the secondary market 6,257 - -
Gain on sale of loans (65) - -
Gain on sale of investment and mortgage-backed securities (286) (101) -
Provision for losses on loans 360 360 392
Gain on sale of real estate acquired through foreclosure (3) - -
Loss on investment in real estate partnership 96 107 207
Increase (decrease) in cash, due to changes in:
Accrued interest receivable on loans 1 35 103
Accrued interest receivable on mortgage-backed securities (21) (21) 13
Accrued interest receivable on investments (59) (15) 15
Prepaid expenses and other assets (84) 8 (24)
Accrued interest and other liabilities (7) (47) (87)
Federal income taxes
Current (20) (33) 27
Deferred (40) (52) (141)
--------- --------- --------
Net cash provided by operating activities 1,558 1,923 2,073
Cash flows provided by (used in) investing activities:
Proceeds from sale of investment securities designated as available for sale 2,519 269 -
Purchase of investment securities designated as available for sale (10,872) (4,711) (1,053)
Proceeds from maturities of investment securities designated as available
for sale 4,075 2,385 3,775
Purchase of mortgage-backed securities designated as available for sale (29,781) (13,061) (514)
Proceeds from sale of mortgage-backed securities designated as
available for sale 14,819 5,036 -
Principal repayments on mortgage-backed securities designated as
available for sale 5,335 1,692 1,313
Purchase of loans (1,771) (171) (499)
Proceeds from sales of loan participations 2,000 - 416
Loan disbursements (50,555) (45,554) (61,082)
Principal repayments on loans 57,846 46,675 51,430
Investment in real estate partnership (94) (96) (104)
Purchases of office premises and equipment (39) (72) (59)
Proceeds from sale of real estate acquired through foreclosure 156 65 -
Purchase of Federal Home Loan Bank stock - (30) -
Increase in cash surrender value of life insurance policy (26) (26) (57)
--------- --------- ---------
Net cash used in investing activities (6,388) (7,599) (6,434)
------- ------- -------
Net cash used in operating and investing activities
(subtotal carried forward) (4,830) (5,676) (4,361)
------- ------- -------
LOGANSPORT FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
For the years ended December 31, 2003, 2002 and 2001
(In thousands)
2003 2002 2001
Net cash used in operating and investing activities
(subtotal brought forward) $ (4,830) $ (5,676) $ (4,361)
Cash flows provided by (used in) financing activities:
Net increase in deposit accounts 5,432 14,425 4,446
Proceeds from Federal Home Loan Bank advances 4,445 9,950 12,750
Repayment of Federal Home Loan Bank advances (4,254) (10,864) (12,000)
Proceeds from notes payable 200 700 -
Proceeds from the exercise of stock options 378 369 208
Dividends on common stock (485) (478) (516)
Purchase of shares - (3,725) (921)
------- ------- --------
Net cash provided by financing activities 5,716 10,377 3,967
------- ------ -------
Net increase (decrease) in cash and cash equivalents 886 4,701 (394)
Cash and cash equivalents at beginning of year 13,517 8,816 9,210
------ ------- -------
Cash and cash equivalents at end of year $14,403 $13,517 $ 8,816
====== ====== =======
Supplemental disclosure of cash flow information: Cash paid during the year for:
Income taxes $ 540 $ 617 $ 590
======== ======== ========
Interest on deposits and borrowings $ 4,511 $ 4,887 $ 5,719
======= ======= =======
Supplemental disclosure of noncash investing and financing activities:
Recognition of mortgage servicing rights in accordance
with SFAS No. 140 $ 53 $ - $ -
========= ======= =======
Transfers from loans to real estate acquired
through foreclosure $ 153 $ - $ 65
======== ======= =========
Unrealized gains (losses) on securities designated as available
for sale, net of related tax effects $ (228) $ 339 $ 180
========= ======== ========
The accompanying notes are an integral part of these statements.
LOGANSPORT FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2003, 2002 and 2001
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
that 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. Securities designated as
available for sale are carried at fair value with resulting unrealized
gains or losses recorded to shareholders' equity. At December 31, 2003 and
2002, 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, 2003, 2002 and 2001
NOTE A - SUMMARY OF ACCOUNTING POLICIES (continued)
3. Loans Receivable
Loans held in portfolio 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.
During 2003, the Savings Bank initiated a program to originate and sell
certain loans in the secondary market, to the Federal Home Loan Bank. Loans
sold during 2003 totaled $6.2 million, which resulted in realized gains of
$118,000.
Loans held for sale are carried at the lower of cost or market, determined
in the aggregate. In computing cost, deferred loan origination fees are
deducted from the principal balances of the related loans. At December 31,
2003 and 2002, the Savings Bank had not identified any loans as held for
sale.
The Savings Bank accounts for mortgage servicing rights pursuant to the
provisions of SFAS No. 140, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities," which requires that
the Savings Bank recognize as separate assets, rights to service mortgage
loans for others, regardless of how those servicing rights are acquired. An
institution that acquires mortgage servicing rights through either the
purchase or origination of mortgage loans and sells those loans with
servicing rights retained must allocate some of the cost of the loans to
mortgage servicing rights.
SFAS No. 140 requires that capitalized mortgage servicing rights be
assessed for impairment. Impairment is measured based on fair value. The
mortgage servicing rights recorded by the Savings Bank, calculated in
accordance with the provisions of SFAS No. 140, were segregated into pools
for valuation purposes, using as pooling criteria the loan term and coupon
rate. Once pooled, each grouping of loans was evaluated on a discounted
earnings basis to determine the present value of future earnings that a
purchaser could expect to realize from each portfolio. Earnings were
projected from a variety of sources, including loan servicing fees,
interest earned on float, net interest earned on escrows, miscellaneous
income, and costs to service the loans. The present value of future
earnings is the "economic" value for the pool, i.e., the net realizable
present value to an acquirer of the acquired servicing.
The Savings Bank recorded amortization related to mortgage servicing rights
totaling approximately $1,000 for the year ended December 31, 2003. At
December 31, 2003, the fair value and carrying value of the Savings Bank's
mortgage servicing rights totaled approximately $52,000.
LOGANSPORT FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 2003, 2002 and 2001
NOTE A - SUMMARY OF ACCOUNTING POLICIES (continued)
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.
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 commercial 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.
LOGANSPORT FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 2003, 2002 and 2001
5. Allowance for Loan Losses (continued)
The Savings Bank's impaired loan information is as follows at December 31:
2003 2002
(In thousands)
Impaired loans with related allowance $658 $763
Impaired loans with no related allowance - -
----- --
Total impaired loans $658 $763
=== ===
2003 2002 2001
(In thousands)
Allowance on impaired loans
Beginning balance $352 $341 $ 228
Provision - 11 113
Transfer to general loan loss allowance (28) - -
---- -- -----
Ending balance $324 $352 $ 341
=== === ======
Average balance of impaired loans $710 $871 $1,419
Interest income recognized on impaired loans $ - $ - $ 37
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 to operations 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.
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 and five to fifteen years for furniture and equipment. An
accelerated method is used for tax reporting purposes.
LOGANSPORT FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 2003, 2002 and 2001
NOTE A - SUMMARY OF ACCOUNTING POLICIES (continued)
8. Investment in Real Estate Limited Partnership
During 1997, the Corporation invested $1.5 million in a real estate limited
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 $55,000, $62,000 and
$119,000 during the years ended December 31, 2003, 2002 and 2001,
respectively, as well as federal income tax credits of approximately
$182,000 for each of the years ended December 31, 2003, 2002 and 2001. This
affordable housing project is expected to generate tax credits for the
Savings Bank in future years. Of the Savings Bank's total letters of credit
of $2.7 million at December 31, 2003, $1.5 million relate to financial
guarantees of this limited partnership. Each of these letters of credit is
fully collateralized by the partnership's investment in real estate
properties.
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.
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 $116,000 and $31,000 were required to fund the
pension liability during the years ended December 31, 2003 and 2002,
respectively. No contributions were necessary during the year ended
December 31, 2001. 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.
LOGANSPORT FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 2003, 2002 and 2001
NOTE A - SUMMARY OF ACCOUNTING POLICIES (continued)
10. Benefit Plans (continued)
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 at December 31, 2003 and 2002. 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 $70,000, $69,000 and
$63,000 for the years ended December 31, 2003, 2002 and 2001, 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, 2003, 2002 or 2001.
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 $21,000, $19,000 and
$40,000 for the years ended December 31, 2003, 2002 and 2001, 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 $26,000, $23,000 and $19,000 for the
years ended December 31, 2003, 2002 and 2001, respectively.
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:
2003 2002 2001
Weighted-average common shares outstanding (basic) 864,026 929,488 1,084,377
Dilutive effect of assumed exercise of stock options 21,486 28,647 19,946
-------- -------- -----------
Weighted-average common shares outstanding (diluted) 885,512 958,135 1,104,323
======= ======= =========
LOGANSPORT FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 2003, 2002 and 2001
NOTE A - SUMMARY OF ACCOUNTING POLICIES (continued)
11. Earnings Per Share (continued)
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 for 2001
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, 2003 or
2002.
12. Stock Option Plans
Stockholders of the Corporation have approved two stock option plans. The
1996 Plan provided for the issuance of 132,250 shares of common stock at an
exercise price equal to the fair value at the date of grant. The 1999 Plan
provided for the issuance of 115,000 shares of common stock at an exercise
price equal to 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.
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, 2003, 2002 and 2001, and changes during the years ending on
those dates is presented below:
2003 2002 2001
Weighted- Weighted- Weighted-
average average average
exercise exercise exercise
Shares price Shares price Shares price
Outstanding at beginning of year 79,136 $10.63 106,796 $10.61 125,915 $10.59
Granted - - - - - -
Exercised (28,486) 10.76 (27,660) 10.53 (15,463) 10.53
Forfeited - - - - (3,656) 10.53
------- ------ ------- ------ ------- ------
Outstanding at end of year 50,650 $10.56 79,136 $10.63 106,796 $10.61
======= ====== ======= ====== ======= ======
Options exercisable at year-end 50,650 $10.56 78,636 $10.61 105,796 $10.58
======= ====== ======= ====== ======= ======
LOGANSPORT FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 2003, 2002 and 2001
NOTE A - SUMMARY OF ACCOUNTING POLICIES (continued)
12. Stock Option Plans (continued)
The following information applies to options outstanding at December 31,
2003:
Number outstanding 50,650
Range of exercise prices $10.53 - $13.75
Weighted-average exercise price $10.56
Weighted-average remaining contractual life 2.3 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.
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, 2003 and 2002:
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,
commercial 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.
LOGANSPORT FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 2003, 2002 and 2001
NOTE A - SUMMARY OF ACCOUNTING POLICIES (continued)
14. Fair Value of Financial Instruments (continued)
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, 2003 and 2002. 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,
2003 and 2002, the difference between the fair value and notional
amount of loan commitments was not material.
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:
2003 2002
Carrying Fair Carrying Fair
value value value value
(In thousands)
Financial assets
Cash and cash equivalents $ 14,403 $ 14,403 $ 13,517 $ 13,517
Investment securities 12,242 12,242 8,060 8,060
Mortgage-backed securities 20,307 20,307 11,009 11,009
Loans receivable 102,353 102,874 110,386 111,830
Federal Home Loan Bank stock 2,080 2,080 2,003 2,003
--------- --------- --------- ---------
$151,385 $151,906 $144,975 $146,419
======= ======= ======= =======
Financial liabilities
Deposits $103,757 $105,333 $ 98,325 $ 99,510
Advances from the Federal Home Loan Bank 34,027 34,219 33,836 34,084
Notes payable 1,919 1,919 1,793 1,793
--------- --------- --------- ---------
$139,703 $141,471 $133,954 $135,387
======= ======= ======= =======
15. Advertising
Advertising costs are expensed when incurred. The Corporation's advertising
expense totaled $64,000, $68,000 and $56,000 for the years ended December
31, 2003, 2002 and 2001, respectively.
LOGANSPORT FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 2003, 2002 and 2001
NOTE A - SUMMARY OF ACCOUNTING POLICIES (continued)
16. Reclassifications
Certain prior year amounts have been reclassified to conform to the 2003
consolidated financial statement presentation.
17. Effects of Recent Accounting Pronouncements
In June 2002, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards ("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. Management
adopted SFAS No. 146 effective January 1, 2003, as required, without
material effect on the Corporation'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 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. Management adopted SFAS No.
148 effective January 1, 2003, as required, without material effect on the
Corporation's financial position or results of operations.
In November 2002, the FASB issued FASB Interpretation No. 45 ("FIN 45"),
"Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others." FIN 45 requires a
guarantor entity, at the inception of a guarantee covered by the
measurement provisions of the interpretation, to record a liability for the
fair value of the obligation undertaken in issuing the guarantee. The
Corporation has financial letters of credit which require the Corporation
to make payment if the customer's financial condition deteriorates, as
defined in the agreements. FIN 45 requires the Corporation to record an
initial liability, generally equal to the fees received for these letters
of credit when guaranteeing obligations. FIN 45 applies prospectively to
letters of credit the Corporation issues or modifies subsequent to December
31, 2002. Management adopted FIN 45 effective January 1, 2003, as required,
without material effect on the Corporation's financial position or results
of operations.
In January 2003, the FASB issued FASB Interpretation No. 46 ("FIN 46"),
"Consolidation of Variable Interest Entities." FIN 46 requires a variable
interest entity to be consolidated by a company if that company is subject
to a majority of the risk of loss from the variable interest entity's
activities or entitled to receive a majority of the entity's residual
returns, or both. FIN 46 also requires disclosures about variable interest
entities that a company is not required to consolidate, but in which it has
a significant variable interest. The consolidation requirements of FIN 46
apply immediately to variable interest entities created after January 31,
2003. The consolidation
LOGANSPORT FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 2003, 2002 and 2001
17. Effects of Recent Accounting Pronouncements (continued)
requirements apply to existing entities in the first fiscal year or interim
period beginning after June 15, 2003. Certain of the disclosure
requirements apply in all financial statements issued after January 31,
2003, regardless of when the variable interest entity was established.
Management adopted FIN 46 effective July 1, 2003, as required, without
material effect on the Corporation's financial position or results of
operations.
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities," which clarifies certain
implementation issues raised by constituents and amends SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," to include
the conclusions reached by the FASB on certain FASB Staff Implementation
Issues that, while inconsistent with Statement 133's conclusions, were
considered by the Board to be preferable; amends SFAS No. 133's discussion
of financial guarantee contracts and the application of the shortcut method
to an interest-rate swap agreement that includes an embedded option and
amends other pronouncements.
The guidance in Statement 149 is effective for new contracts entered into
or modified after June 30, 2003 and for hedging relationships designated
after that date. Management adopted SFAS No. 149 effective July 1, 2003, as
required, without material effect on the Corporation's financial position
or results of operations.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity,"
which changes the classification in the statement of financial position of
certain common financial instruments from either equity or mezzanine
presentation to liabilities and requires an issuer of those financial
statements to recognize changes in fair value or redemption amount, as
applicable, in earnings. SFAS No. 150 requires an issuer to classify
certain financial instruments as liabilities, including mandatorily
redeemable preferred and common stocks.
SFAS No. 150 is effective for financial instruments entered into or
modified after May 31, 2003 and, with one exception, is effective at the
beginning of the first interim period beginning after June 15, 2003 (July
1, 2003 as to the Corporation). The effect of adopting SFAS No. 150 must be
recognized as a cumulative effect of an accounting change as of the
beginning of the period of adoption. Restatement of prior periods is not
permitted. Management adopted SFAS No. 150 effective July 1, 2003, as
required, without material effect on the Corporation's financial position
or results of operations.
LOGANSPORT FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 2003, 2002 and 2001
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, 2003 and 2002, are as follows:
2003
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gains losses value
(In thousands)
U.S. Government agency obligations $ 8,867 $ 40 $ 95 $ 8,812
State and municipal obligations 3,074 141 3 3,212
FHLMC stock 4 214 - 218
---------- --- -- --------
Total investment securities $11,945 $395 $ 98 $12,242
====== === ==== ======
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
===== === ===== =====
The amortized cost and estimated fair value of investment securities by
term to maturity at December 31 are shown below.
2003 2002
Estimated Estimated
Amortized fair Amortized fair
cost value cost value
(In thousands)
Due in one year or less $ 3,057 $ 3,080 $ 575 $ 582
Due after one year through three years 102 110 2,068 2,149
Due after three years through five years 3,039 3,030 657 688
Due after five years through ten years 4,538 4,530 2,382 2,545
Due after ten years 1,205 1,274 1,304 1,371
------- ------- ----- -----
11,941 12,024 6,986 7,335
Preferred stock - - 500 503
FHLMC stock 4 218 4 222
---------- -------- -------- ------
$11,945 $12,242 $7,490 $8,060
====== ====== ===== =====
LOGANSPORT FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 2003, 2002 and 2001
NOTE B - INVESTMENT AND MORTGAGE-BACKED SECURITIES (continued)
Proceeds from sales of investment securities available for sale during the
year ended December 31, 2003, totaled $2.5 million, resulting in gross
realized gains of $165,000. 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.
The amortized cost, gross unrealized gains, gross unrealized losses and
estimated fair values of mortgage-backed securities at December 31, 2003
and 2002 are presented below.
2003
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gains losses value
(In thousands)
Federal Home Loan Mortgage
Corporation participation certificates $ 588 $ 7 $ 5 $ 590
Government National Mortgage
Association participation certificates 15,702 24 164 15,562
Federal National Mortgage
Association participation certificates 3,960 41 30 3,971
Small Business Administration
participation certificates 187 - 3 184
-------- -- ----- --------
Total mortgage-backed securities $20,437 $ 72 $202 $20,307
====== ==== === ======
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
====== === ====== ======
LOGANSPORT FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 2003, 2002 and 2001
NOTE B - INVESTMENT AND MORTGAGE-BACKED SECURITIES (continued)
The amortized cost and estimated fair value of mortgage-backed securities
at December 31, 2003 and 2002, by contractual terms to maturity, are shown
below. Expected maturities will differ from contractual maturities because
borrowers may generally prepay obligations without prepayment penalties.
2003 2002
Estimated Estimated
Amortized fair Amortized fair
cost value cost value
(In thousands)
Due within one year $ 3,857 $ 3,840 $ 1,962 $ 2,000
Due after one year to three years 4,806 4,772 1,748 1,790
Due after three years to five years 2,990 2,968 1,035 1,060
Due after five years to ten years 4,070 4,042 1,754 1,793
Due after ten years 4,714 4,685 4,280 4,366
------- ------- ------- -------
Total mortgage-backed securities $20,437 $20,307 $10,779 $11,009
====== ====== ====== ======
Proceeds from sales of mortgage-backed securities available for sale during
the year ended December 31, 2003, totaled $14.8 million, resulting in gross
realized gains of $121,000. Proceeds from sales 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.
The table below indicates the length of time individual securities have
been in a continuous unrealized loss position at December 31, 2003:
Less than 12 months 12 months or longer Total
Description of Number of Fair Unrealized Number of Fair Unrealized Number of Fair Unrealized
securities investments value losses investments value losses investments value losses
(Dollars in thousands)
U.S. Government
agency obligations 13 $ 4,281 $ 95 - $- $- 13 $ 4,281 $ 95
State and municipal
obligations 2 237 3 - - - 2 237 3
Mortgage-backed
securities 9 16,986 200 2 151 2 11 17,137 202
--- ------ --- - --- ----- -- ------ ---
Total temporarily
impaired securities 24 $21,504 $298 2 $151 $ 2 26 $21,655 $300
== ====== === = === ===== == ====== ===
Management has the intent and ability to hold these securities for the
foreseeable future and the decline in the fair value is primarily due to an
increase in market interest rates. The fair values are expected to recover
as securities approach maturity dates.
LOGANSPORT FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 2003, 2002 and 2001
NOTE C - LOANS RECEIVABLE
The composition of the loan portfolio at December 31 is as follows:
2003 2002
(In thousands)
Residential real estate
One- to four-family residential $ 51,208 $ 61,717
Multi-family residential 1,094 1,606
Construction 870 1,317
Nonresidential real estate and land 22,910 20,557
Commercial 12,931 10,924
Commercial leases 4,000 4,352
Consumer and other 11,291 11,694
-------- --------
104,304 112,167
Less:
Undisbursed portion of loans in process 200 323
Allowance for loan losses 1,751 1,458
--------- ---------
$102,353 $110,386
======= =======
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 $53.0 million, or 52%, of the total loan
portfolio at December 31, 2003, and $64.3 million, or 58%, of the total
loan portfolio at December 31, 2002. Approximately 75% 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 25% 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.
The Savings Bank has sold whole loans and participating interests in loans
in the secondary market, retaining servicing on the loans sold. Loans sold
and serviced for others totaled approximately $6.1 million at December 31,
2003. The Savings Bank had no loans serviced for others at December 31,
2002.
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 directors,
officers and their related interests totaled approximately $2.0 million and
$1.7 million at December 31, 2003 and 2002, respectively.
LOGANSPORT FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 2003, 2002 and 2001
NOTE D - ALLOWANCE FOR LOAN LOSSES
The activity in the allowance for loan losses for the year ended December
31 is as follows:
2003 2002 2001
(In thousands)
Beginning balance $1,458 $1,132 $ 760
Provision for losses on loans 360 360 392
Charge-offs of loans - net (67) (34) (20)
------- ------- -------
Ending balance $1,751 $1,458 $1,132
===== ===== =====
At December 31, 2003, 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 $1.6 million, which is includible as a
component of regulatory risk-based capital.
At December 31, 2003, 2002 and 2001, the Savings Bank had loans of $1.5
million, $1.5 million and $1.9 million, respectively, which had been placed
on nonaccrual status due to concerns as to borrowers' ability to pay. At
December 31, 2003 and 2002, 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 $115,000, $126,000 and $41,000 for the years
ended December 31, 2003, 2002 and 2001, respectively.
NOTE E - OFFICE PREMISES AND EQUIPMENT
Office premises and equipment is comprised of the following at December 31:
2003 2002
(In thousands)
Land $ 203 $ 203
Buildings and improvements 1,766 1,766
Furniture and equipment 523 500
------ ------
2,492 2,469
Less accumulated depreciation and amortization (798) (702)
------ ------
$1,694 $1,767
LOGANSPORT FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 2003, 2002 and 2001
NOTE F - DEPOSITS
Deposits consist of the following major classifications at December 31:
Deposit type and weighted-average
interest rate 2003 2002
(In thousands)
NOW accounts
2003 - 0.77% $ 17,021
2002 - 0.80% $15,625
Passbook and club accounts
2003 - 1.02% 4,635
2002 - 1.10% 4,281
Money market deposit accounts
2003 - 1.11% 20,187
2002 - 1.23% 18,766
Non-interest bearing accounts 4,038 3,049
------- -------
Total demand, transaction and passbook deposits 45,881 41,721
Certificates of deposit
Original maturities of:
Less than 12 months
2003 - 1.11% 5,866
2002 - 1.78% 6,566
12 months to 18 months
2003 - 1.78% 8,662
2002 - 3.40% 14,605
24 months to 30 months
2003 - 4.26% 19,762
2002 - 4.58% 20,674
More than 30 months
2003 - 4.48% 15,555
2002 - 5.05% 7,810
Individual retirement accounts
2003 - 3.51% 8,031
2002 - 4.76% 6,949
------------- -------
Total certificates of deposit 57,876 56,604
-------- ------
Total deposits $103,757 $98,325
======= ======
At December 31, 2003 and 2002, the Savings Bank had certificate of deposit
accounts with balances greater than $100,000 totaling $9.9 million and $9.0
million, respectively.
LOGANSPORT FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 2003, 2002 and 2001
NOTE F - DEPOSITS (continued)
Interest expense on deposits for the year ended December 31 is summarized
as follows:
2003 2002 2001
(In thousands)
Passbook accounts $ 44 $ 55 $ 100
NOW and money market deposit accounts 303 492 718
Certificates of deposit 2,210 2,415 2,859
----- ----- -----
$2,557 $2,962 $3,677
===== ===== =====
Maturities of outstanding certificates of deposit at December 31 are
summarized as follows:
2003 2002
(In thousands)
Less than one year $29,261 $27,803
One year to three years 17,754 22,211
Over three years 10,861 6,590
------ -------
$57,876 $56,604
====== ======
NOTE G - ADVANCES FROM THE FEDERAL HOME LOAN BANK
Advances from the Federal Home Loan Bank, collateralized at December 31,
2003 by a blanket pledge of residential mortgage loans totaling $47.2
million and pledges of certain securities totaling $7.0 million are
summarized as follows:
Maturing year December 31,
Interest rate range ending December 31, 2003 2002
(Dollars in thousands)
3.02% 2003 $ - $ 1,000
5.94% 2004 3,000 3,000
5.10% - 6.75% 2005 4,200 4,200
1.89% - 5.30% 2006 2,250 1,500
2.36% - 5.72% 2007 2,581 2,536
2.71% 2008 225 -
3.57% - 5.32% 2009 1,471 1,600
3.30% - 5.99% 2010 17,300 17,000
4.75% 2011 2,000 2,000
4.90% 2012 1,000 1,000
------- -------
$34,027 $33,836
====== ======
Weighted-average interest rate 5.47% 5.53%
==== ====
LOGANSPORT FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 2003, 2002 and 2001
NOTE G - ADVANCES FROM THE FEDERAL HOME LOAN BANK (continued)
Advances totaling approximately $26.0 million are subject to interest rate
increases at the discretion of the Federal Home Loan Bank. Such advances
can be repaid by the Savings Bank upon the enactment of such interest rate
adjustments.
NOTE H - NOTES PAYABLE
At December 31, 2003 and 2002, notes payable included borrowings totaling
$1.0 million and $1.1 million, respectively, which were secured by the
Savings Bank's investment in a real estate limited partnership. The average
interest rate on the borrowing was 1.66% and 1.88% at December 31, 2003 and
2002, respectively. The borrowings will mature in 2009.
During 2002, the Corporation established 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
matures October 3, 2004. The Corporation had an outstanding balance of
$900,000 and $700,000 at December 31, 2003 and 2002, respectively. Interest
is payable quarterly at national prime less .50%, which amounted to 3.50%
and 3.75% at December 31, 2003 and 2002, respectively. The line of credit
is secured by a pledge of the Corporation's investment in the stock of the
Savings Bank.
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:
2003 2002 2001
(In thousands)
Federal income taxes computed at the statutory rate $693 $722 $652
Increase (decrease) in taxes resulting from:
Tax exempt interest (54) (46) (42)
Increase in cash surrender value of life insurance (9) (9) (19)
Real estate partnership tax credits (182) (182) (182)
State income tax provision 107 124 113
Other (3) - (1)
----- -- -----
Income tax provision per consolidated financial statements $552 $609 $521
=== === ===
LOGANSPORT FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 2003, 2002 and 2001
NOTE I - INCOME TAXES (continued)
The composition of the Corporation's net deferred tax asset at December 31
is as follows:
Taxes (payable) refundable on temporary 2003 2002
differences at statutory rate: (In thousands)
Deferred tax assets:
Other than temporary declines in investment securities $ 23 $ 23
Retirement expense 260 235
General loan loss allowance 659 535
Benefit plan expense 77 85
Deferred loan fees 30 40
------- ----
Total deferred tax assets 1,049 918
Deferred tax liabilities:
State income taxes (60) (57)
Percentage of earnings bad debt deduction - (12)
Unrealized gains on securities designated as available for sale (57) (273)
Loss on investment in real estate partnership (199) (163)
Book versus tax depreciation (53) (49)
Mortgage servicing rights (22) -
FHLB stock dividends (39) -
------- --
Total deferred tax liabilities (430) (554)
------ ---
Net deferred tax asset $ 619 $364
====== ===
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, 2003. 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 $580,000 at December 31,
2003.
The Savings Bank was required to recapture as taxable income approximately
$220,000, representing its post-1987 percentage of earnings bad debt
deductions. The Savings Bank had provided deferred taxes for this amount
and was permitted by such legislation to recapture such income over a
six-year period, which commenced in 1998. At December 31, 2003, the amount
was fully recaptured and, as a result, deferred taxes relating to this item
were eliminated.
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.
LOGANSPORT FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 2003, 2002 and 2001
NOTE J - COMMITMENTS (continued)
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, 2003, the Savings Bank had outstanding commitments of
approximately $650,000 to originate residential one- to four-family loans
and $393,000 to sell one-to-four family loans. The Savings Bank also had
outstanding commitments of approximately $1.4 million to originate
non-residential real estate loans and approximately $1.3 million to
originate commercial loans at December 31, 2003. Additionally, the Savings
Bank had unused lines of credit under home equity loans and commercial
loans of approximately $1.2 million and $8.3 million, respectively, at
December 31, 2003. Finally, the Savings Bank had commitments under standby
letters of credit totaling $2.7 million at December 31, 2003. 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, 2003, and will be funded from normal cash
flow from operations.
The Corporation adopted FASB Interpretation No. 45, "Guarantor's Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees
of Indebtedness of Others" ("FIN 45"), on January 1, 2003. FIN 45 requires
a guarantor entity, at the inception of a guarantee covered by the
measurement provisions of the Interpretation, to record a liability for the
fair value of the obligation undertaken in issuing the guarantee. The
Corporation issues financial and performance letters of credit. Financial
letters of credit require the Corporation to make payment if the customer's
financial condition deteriorates, as defined in the agreements. Performance
letters of credit require the Corporation to make payments if the customer
fails to perform certain non-financial contractual obligations. The
approximate terms of these letters of credit are seven years to ten years
for financial letters of credit and one year to five years for performance
letters of credit. Prior to the adoption of FIN 45, the Corporation did not
record a liability, other than for deferred fees received, when
guaranteeing obligations unless it became probable that the Corporation
would have to perform under the guarantee. The Corporation defines the fair
value of these letters of credit as the fees received from the customer.
The maximum potential undiscounted amount of future payments of these
letters of credit as of December 31, 2003 is $2.7 million, of which
approximately $716,000, $506,000, $623,000 and $835,000 expires in the
years ended December 31, 2004, 2005, 2007 and 2008, respectively. The
Corporation obtains collateral, such as real estate or liens on their
customers' assets, for these letters of credit. The Corporation expects
that the estimated proceeds obtained on liquidation of collateral would
cover approximately 100 percent of the maximum potential amount of future
payments under a guarantee.
LOGANSPORT FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 2003, 2002 and 2001
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%.
During 2003, the OTS notified the Savings Bank 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, 2003 and 2002, management believes that the Savings Bank
met all capital adequacy requirements to which it was subject.
2003: 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 $17,044 10.9% ->$2,350 ->1.5% ->$7,833 -> 5.0%
Core capital $17,044 10.9% ->$6,266 ->4.0% ->$9,399 -> 6.0%
Risk-based capital $18,225 19.4% ->$7,526 ->8.0% ->$9,408 ->10.0%
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%
Logansport Financial Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 2003, 2002 and 2001
NOTE K - REGULATORY CAPITAL (continued)
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 its 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 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.
The Savings Bank did not request OTS approval for payment of dividends or
capital distributions to the Corporation in 2003 and no dividends were paid
during the year ended December 31, 2003.
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, 2003 and 2002,
and the results of its operations and cash flows for the years ended
December 31, 2003, 2002 and 2001.
LOGANSPORT FINANCIAL CORP.
STATEMENTS OF FINANCIAL CONDITION
December 31, 2003 and 2002
(In thousands)
ASSETS 2003 2002
Cash and cash equivalents $ 111 $ 77
Investment in subsidiary 17,159 15,994
Prepaid expenses and other 122 123
-------- --------
Total assets $17,392 $16,194
====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
Notes payable $ 900 $ 700
Accrued expenses and other liabilities 136 121
-------- --------
Total liabilities 1,036 821
Shareholders' equity
Common stock 1,824 1,446
Retained earnings 14,445 13,444
Shares acquired by stock benefit plan (23) (44)
Unrealized gains on securities designated
as available for sale, net 110 527
-------- --------
Total shareholders' equity 16,356 15,373
------ ------
Total liabilities and shareholders' equity $17,392 $16,194
====== ======
LOGANSPORT FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 2003, 2002 and 2001
NOTE L - CONDENSED FINANCIAL STATEMENTS OF LOGANSPORT FINANCIAL CORP. (continued)
LOGANSPORT FINANCIAL CORP.
STATEMENTS OF EARNINGS
Years ended December 31, 2003, 2002 and 2001
(In thousands)
2003 2002 2001
Revenue
Interest income $ - $ - $ 14
Equity in earnings of subsidiary 1,562 1,589 1,436
----- ----- -----
Total revenue 1,562 1,589 1,450
General and administrative expenses 126 115 77
------ ------ -------
Earnings before income tax credits 1,436 1,474 1,373
Income tax credits (50) (40) (25)
------- ------- -------
NET EARNINGS $1,486 $1,514 $1,398
===== ===== =====
LOGANSPORT FINANCIAL CORP.
STATEMENTS OF CASH FLOWS
Years ended December 31, 2003, 2002 and 2001
(In thousands)
2003 2002 2001
Cash flows provided by (used in) operating activities:
Net earnings for the year $1,486 $1,514 $1,398
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Excess distributions from (undistributed earnings of)
consolidated subsidiary (1,562) 1,610 (86)
Increase (decrease) in cash due to changes in:
Accrued expenses and other liabilities 16 (5) 5
Other 1 (29) (70)
-------- ------- -------
Net cash provided by (used in) operating activities (59) 3,090 1,247
Cash flows provided by (used in) financing activities:
Proceeds from notes payable 200 700 -
Proceeds from exercise of stock options 378 369 208
Dividends on common stock (485) (478) (516)
Purchase of shares - (3,725) (921)
----- ----- ------
Net cash provided by (used in) financing activities 93 (3,134) (1,229)
------- ----- -----
Net increase (decrease) in cash and cash equivalents 34 (44) 18
Cash and cash equivalents at beginning of year 77 121 103
------- ------ ------
Cash and cash equivalents at end of year $ 111 $ 77 $ 121
====== ======= ======
LOGANSPORT FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 2003, 2002 and 2001
NOTE M - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following table summarizes the Corporation's quarterly results for the
years ended December 31, 2003 and 2002. Certain amounts, as previously
reported, may have been reclassified to conform to the 2003 presentation.
Three Months Ended
March 31, June 30, September 30, December 31,
2003: (In thousands, except per share data)
Total interest income $2,195 $2,172 $2,148 $2,087
Total interest expense 1,117 1,136 1,140 1,099
----- ----- ----- -----
Net interest income 1,078 1,036 1,008 988
Provision for losses on loans 90 90 90 90
Other income 141 272 86 162
General, administrative and other expense 620 590 572 591
------ ------ ------ ------
Earnings before income taxes 509 628 432 469
Income taxes 145 191 112 104
------ ------ ------ ------
Net earnings $ 364 $ 437 $ 320 $ 365
====== ====== ====== ======
Earnings per share:
Basic $.43 $.51 $.36 $.42
=== === === ===
Diluted $.41 $.50 $.36 $.41
=== === === ===
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
=== === === ===
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 11, 2004, there were 809
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, 2003 and 2002. Such price information was
obtained from Nasdaq.
Per share
Year ending December 31, High Low dividends
2003
Quarter ending:
December 31, 2003 $22.45 $18.85 $0.14
September 30, 2003 20.50 17.53 0.14
June 30, 2003 18.52 17.00 0.14
March 31, 2003 18.00 15.78 0.14
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
TRANSFER AGENT AND REGISTRAR. Registrar and Transfer Company is the
Company's stock transfer agent and registrar and 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:
Registrar and Transfer Company
10 Commerce Drive
Cranford, New Jersey 07016
(800) 368-5948
http://www.rtco.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, 2003 with the Securities and
Exchange Commission. Copies of this annual report may be obtained on our website
or without charge upon written request to:
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