LOGANSPORT FINANCIAL CORP.
SHAREHOLDER ANNUAL REPORT
1996
TABLE OF CONTENTS
Page
President's Message to Shareholders............................... 2
Selected Consolidated Financial Data.............................. 3
Management's Discussion and Analysis.............................. 4
Independent Auditor's Report...................................... 15
Consolidated Statement of Financial Condition..................... 16
Consolidated Statement of Income.................................. 17
Consolidated Statement of Changes in Stockholders' Equity......... 18
Consolidated Statement of Cash Flows.............................. 19
Notes to Consolidated Financial Statements........................ 20
Shareholder Information........................................... 36
Directors and Officers............................................ 37
DESCRIPTION OF BUSINESS
Logansport Financial Corp. (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. The Bank is and
historically has been among the top real estate mortgage lenders in Cass County
and is the oldest financial institution headquartered in Cass County. The Bank
offers a variety of retail deposit and lending services. The Company has no
other business activity than being the holding company for the Bank. The Company
is the sole shareholder of the Bank.
Dear Shareholder:
We are pleased to present to you the 1996 Annual Report of Logansport Financial
Corp.
During 1996, the first full year of operations, our goal was to maximize
shareholder value. We took a number of actions to move toward attainment of that
goal. On December 10, 1996, each shareholder received a $3.00 per share one-time
special cash distribution. The Company obtained from the Internal Revenue
Service a Private Letter Ruling allowing this non-taxable return of capital.
This distribution allows shareholders to defer federal and state income taxes
until sale of their stock, provides immediate cash for reinvestment, and
improves the Company's return on equity. On October 28, 1996, we commenced a
stock repurchase program and this was completed by year end. The Company
repurchased 66,125 shares of common stock in the open market. The open market
purchases have the effect of enhancing the book value per share and the
potential for growth in earnings per share of the Company's remaining
outstanding shares. Both of these actions were taken to improve the value of
your investment in Logansport Financial Corp.
The Board of Directors has paid a $.10 per share quarterly dividend since our
conversion to a stock institution and remains committed to regular, quarterly
dividends for our shareholders. In 1996, $.32 of the $.40 per share paid will
qualify as a return of capital. Dividends received in future years are expected
to be fully taxable.
Our growth during 1996 has been excellent. Total assets for the year ended
December 31, 1996 were $77.7 million compared to $74.7 million at December 31,
1995. This growth needs to be considered in conjunction with the fact that we
distributed almost $4.0 million to shareholders in December. Our net loans
totaled $56.8 million at December 31, 1996, an increase of $7.1 million over
1995. This increase in loans is a significant contributing factor to our strong
earnings. Excellent loan service in both our mortgage and consumer loan products
has become our niche in a very competitive marketplace. Our return on assets
continued to be strong at 1.18% and is keeping pace with our growth in assets.
The one-time special assessment to recapitalize the Savings Association
Insurance Fund resulted in a pretax charge to earnings of $335,000 ($202,000
after tax-effected). This, of course, had a significant impact on earnings.
However, Logansport Financial Corp.'s earnings in 1996 still exceeded those in
1995. We are proud of that accomplishment and with this issue now behind us we
look forward to 1997 and lower insurance costs which should translate into
additional earnings.
We are proud of the performance of Logansport Financial Corp. in 1996.
Consistent earnings, strong capital, and excellent asset quality have positioned
us for continued growth in 1997. We are grateful for your support and look
forward to a long and mutually beneficial relationship.
Sincerely,
/s/ Thomas G. Williams
Thomas G. Williams
President
SELECTED CONSOLIDATED FINANCIAL DATA
OF LOGANSPORT FINANCIAL CORP. AND SUBSIDIARY
AT DECEMBER 31,
1996 1995 1994 1993 1992
--------------------------------------------------------------------------
(Dollars in thousands)
Balance Sheet Data:
Total assets ........................... $77,668 $74,647 $59,351 $56,229 $49,164
Loans receivable, net .................. 56,802 49,707 44,020 37,851 34,801
Mortgage- and other asset-backed securities 6,674 7,468 1,229 2,784
3,522
Cash and cash equivalents............... 3,759 3,243 1,645 2,700 2,530
Other investment securities............. 7,629 11,285 10,009 10,718 6,457
Interest-bearing time deposits in other
financial institutions............... 100 100 --- --- ---
Deposits................................ 57,396 52,461 51,202 49,558 43,337
Borrowings.............................. 3,400 1,000 1,000 --- ---
Stockholders' equity.................... 15,427 20,454 6,833 6,397 5,620
YEAR ENDED DECEMBER 31,
1996 1995 1994 1993 1992
--------------------------------------------------------------------------
(Dollars in thousands)
Summary of Operating Results:
Interest income ........................ $5,653 $ 4,775 $ 4,031 $ 4,033 $ 3,967
Interest expense ....................... 2,719 2,468 2,043 1,984 2,141
---------- ---------- --------- --------- ---------
Net interest income.................. 2,934 2,307 1,988 2,049 1,826
Provision for loan losses............... 12 20 6 161 98
---------- ---------- --------- --------- ---------
Net interest income after provision for
loan losses....................... 2,922 2,287 1,982 1,888 1,728
Other income:
Service charges on deposit accounts.. 67 47 35 26 19
Investment securities gains (losses). (47) 3 --- 22 12
Other................................ 62 129 44 37 41
---------- ---------- --------- --------- ---------
Total other income................ 82 179 79 85 72
Other expense:
Salaries and employee benefits....... 619 492 459 410 323
Occupancy and equipment.............. 81 81 84 69 74
Deposit insurance premium............ 449 116 114 83 88
Other................................ 435 343 300 256 322
---------- ---------- --------- --------- ---------
Total other expense............. 1,584 1,032 957 818 807
---------- ---------- --------- --------- ---------
Income before income taxes and cumulative
effect of change in
accounting principle 1,420 1,434 1,104 1,155 993
Income tax expense...................... 507 526 370 422 418
Cumulative effect of change
in accounting principle............ --- --- --- 44 ---
---------- ---------- --------- --------- ---------
Net income........................... $ 913 $ 908 $ 734 $ 777 $ 575
========== ========== ========= ========= =========
Net income per share.................... $ .69 $ --- (1) --- --- ---
Cash dividends per share
Regular.............................. .40 --- (1) --- --- ---
Special (2).......................... 3.00 --- --- --- ---
Supplemental Data:
Return on assets (3) ................... 1.18% 1.34% 1.27% 1.45% 1.22%
Return on equity (4).................... 4.76 6.33 10.78 12.92 10.74
Interest rate spread (5) ............... 2.80 2.77 3.32 3.75 3.70
Net yield on interest-earning assets (6) 3.99 3.64 3.67 4.07
4.11
Other expenses to average assets ....... 2.04 1.53 1.65 1.52 1.71
Net interest income to other expenses... 1.85x 2.24x 2.08x 2.50x 2.26x
Equity-to-assets (7).................... 19.86 27.40 11.51 11.38 11.43
Average interest-earning assets to average
interest-bearing liabilities......... 1.33x 1.23x 1.10x 1.08x 1.09x
Non-performing assets to total assets... .52 .42 .82 1.38 1.27
Non-performing loans to total loans..... .71 .63 .76 1.57 1.22
Loan loss allowance to total loans, net. .41 .45 .47 .53 .25
Loan loss allowance to non-performing loans 58.12 71.61 61.13 33.67 20.28
Dividend payout ratio................... 57.97(8) --- (1) --- --- ---
Net charge-offs to average loans ....... (*) (*) (*) .13 .07
(1) Information prior to 1996 is not meaningful.
(2) Special one-time cash distribution which qualified as a non-taxable return
of capital pursuant to an IRS Private Letter Ruling.
(3) Net income divided by average total assets.
(4) Net income divided by average total equity.
(5) Interest rate spread is calculated by subtracting combined weighted average
interest rate cost from combined weighted average interest rate earned for
the period indicated.
(6) Net interest income divided by average interest-earning assets.
(7) Total equity divided by assets.
(8) Excludes special one-time $3.00 per share cash distribution.
(*) Less than .01%
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. Since the Company only recently began operations, certain of the
financial information presented herein prior to June 13, 1995 relates primarily
to the Bank, a wholly owned subsidiary of the Company. All references to the
Company at or before June 13, 1995 refer to the Bank only. The Company has no
other activity other than being the holding company for the Bank.
The principal business of savings associations, including the Bank, has
historically consisted of attracting deposits from the general public and making
loans secured by residential and other real estate. The Bank and all other
savings associations are significantly affected by prevailing economic
conditions, as well as government policies and regulations concerning, among
other things, monetary and fiscal affairs, housing and financial institutions.
Deposit flows are influenced by a number of factors, including interest rates
paid on competing investments, account maturities and level 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, payments on loans, borrowings and income provided from
operations. The Bank's earnings are primarily dependent upon its net interest
income, the difference between interest income and interest expense.
Interest income is a function of the balances of loans and investments
outstanding during 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
loan losses, service charges, operating expenses and income taxes.
Asset/Liability Management
The Bank, like other savings associations, is subject to interest rate
risk to the degree that its interest-bearing liabilities, primarily deposits
with short- and medium-term maturities, mature or reprice at different rates
than its interest-earning assets. Management of the Bank believes it is critical
to manage the relationship between interest rates and the effect on the Bank's
net portfolio value ("NPV"). This approach calculates the difference between the
present value of expected cash flows from assets and the present value of
expected cash flows from liabilities, as well as cash flows from off-balance
sheet contracts. 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") issued a regulation, effective
January 1, 1994, which uses a net market value methodology to measure the
interest rate risk exposure of thrift institutions. Under OTS regulations, an
institution's "normal" level of interest rate risk in the event of an assumed
change in interest rates is a decrease in the institution's NPV in an amount not
exceeding 2% of the present value of its assets. Beginning September 1, 1994,
thrift institutions with over $300 million in assets or less than a 12%
risk-based capital ratio are required to file OTS Schedule CMR. Data from
Schedule CMR is used by the OTS to calculate changes in NPV (and the related
"normal" level of interest rate risk) based upon certain interest rate changes
(discussed below). Institutions which do not meet either of the filing
requirements are not required to file OTS Schedule CMR, but may do so
voluntarily. The Bank does not currently meet either of these requirements, but
it does voluntarily file Schedule CMR. Presented below, as of September 30,
1996, the latest available, 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, up and down
400 basis points and in accordance with OTS regulations. As illustrated in the
table, 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 declines due
to the rate increase. The value of the Bank's deposits and borrowings change in
approximately the same proportion in rising or falling rate scenarios.
Change Net Portfolio Value NPV as % of PV of Assets
In Rates $ Amount $ Change % Change NPV Ratio Change
- --------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
+ 400 bp * $13,120 $(4,845) (27%) 18.28% (486bp)
+ 300 bp 14,496 (3,469) (19%) 19.75 (339bp)
+ 200 bp 15,807 (2,158) (12%) 21.09 (205bp)
+ 100 bp 17,000 (965) (5%) 22.25 (89bp)
0 bp 17,965 --- --- 23.14 ---
- 100 bp 18,733 768 4% 23.80 67bp
- 200 bp 19,340 1,375 8% 24.30 116bp
- 300 bp 20,065 2,100 12% 24.89 175bp
- 400 bp 20,951 2,986 17% 25.61 247bp
Interest Rate Risk Measures: 200 Basis Point (bp) Rate Shock
Pre-Shock NPV Ratio: NPV as % of PV of Assets............. 23.14%
Exposure Measure: Post-Shock NPV Ratio.................... 21.09%
Sensitivity Measure: Change in NPV Ratio.................. (205bp)
* Basis points
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 to repricing, they may react in different degrees to
changes in market interest rates. Also, the interest rates on certain types of
assets and liabilities may fluctuate in advance of changes in market interest
rates, while interest rates on other types may lag behind changes in market
rates. Additionally, certain assets, such as adjustable-rate loans, have
features which restrict changes in interest rates on a short-term basis and over
the life of the asset. Further, in the event of a change in interest rates,
expected rates of prepayments on loans and early withdrawals from certificates
could likely deviate significantly from those assumed in calculating the table.
Average Balances and Interest Rates and Yields
The following table presents for the periods indicated the month-end
average balances of each category of the Bank'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,
--------------------------------------------------------------------------------------
1996 1995 1994
--------------------------- ------------------------ -----------------------
Average Yield/ Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost Balance Interest Cost
------- -------- ---- ------- -------- ---- ------- -------- ----
(Dollars in thousands)
Assets:
Interest-earning assets:
Interest-earning deposits.............. $3,192 $160 5.01% $ 2,542 $ 146 5.74% $ 1,215 $ 56 4.61%
Mortgage- and other asset-backed
securities (1)....................... 7,916 510 6.44 3,566 227 6.37 1,898 154 8.11
Other investment securities (1)........ 9,965 587 5.89 11,490 701 6.10 11,156 752 6.74
Loans receivable (2)................... 53,409 4,421 8.28 46,746 3,724 7.97 40,782 3,098 7.60
Stock in FHLB of Indianapolis.......... 376 29 7.71 338 27 7.99 303 17 5.61
------ ----- ------ ----- ------ -----
Total interest-earning assets........ 74,858 5,707 7.62 64,682 4,825 7.46 55,354 4,077 7.37
Non-interest earning assets, net of
allowance for loan losses and
unrealized loss on securities available
for sale ............................ 2,709 2,822 2,599
------- ------- -------
Total assets......................... $77,567 $67,504 $57,953
======= ======= =======
Liabilities and stockholders' equity:
Interest-bearing liabilities:
Savings accounts.......................$ 3,298 100 3.03 $ 3,986 121 3.04 $ 3,465 105 3.03
NOW and money
market accounts...................... 18,751 769 4.10 16,791 698 4.16 16,220 553 3.41
Certificates of deposit................ 32,432 1,744 5.38 31,352 1,617 5.16 30,637 1,379 4.50
Borrowings ........................... 1,889 106 5.61 501 32 6.39 167 6 3.59
------ ----- ------ ----- ------ -----
Total interest-bearing liabilities... 56,370 2,719 4.82 52,630 2,468 4.69 50,489 2,043 4.05
Other liabilities......................... 2,016 529 654
------- ------- -------
Total liabilities.................... 58,386 53,159 51,143
Stockholders' equity
Common stock, retained earnings
and unearned compensation............ 19,350 14,579 6,824
Unrealized loss on securities
available for sale................... (169) (234) (14)
------- ------- -------
Total stockholders' equity........... 19,181 14,345 6,810
------- ------- -------
Total liabilities and stockholders'
equity ............................ $77,567 $67,504 $57,953
Net interest-earning assets............... $18,488 $12,052 $ 4,865
------ ----- ------ ----- ------ -----
Net interest income....................... $2,988 $2,357 $ 2,034
====== ====== ========
Interest rate spread (3) ................. 2.80% 2.77% 3.32%
==== ==== ====
Net yield on weighted average
interest-earning assets (4)............ 3.99% 3.64% 3.67%
==== ==== ====
Average interest-earning assets to
average interest-bearing liabilities... 132.80% 122.90% 109.64%
Adjustment of interest on tax-exempt
securities to a tax-equivalent basis... $54 $50 $46
(1) Includes securities available for sale at amortized cost prior to SFAS
No. 115 adjustments.
(2) Total loans less 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.
Interest Rate Spread
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 Bank on its loan and investment portfolios, the weighted
average effective cost of the Company's deposits and borrowings, the interest
rate spread of the Company, and the net yield on weighted average
interest-earning assets for the periods and as of the date shown. Average
balances are based on month-end average balances.
At December 31, Year Ended December 31,
1996 1996 1995 1994
------------------ -----------------------------------------
Weighted average interest rate earned on:
Interest-earning deposits................... 5.19% 5.01% 5.74% 4.61%
Mortgage- and other asset-backed
securities................................ 7.55 6.44 6.37 8.11
Other investment securities................. 6.06 5.89 6.10 6.74
Loans receivable............................ 8.21 8.28 7.97 7.60
Stock in FHLB of Indianapolis............... 7.89 7.71 7.99 5.61
Total interest-earning assets............. 7.81 7.62 7.46 7.37
Weighted average interest rate cost of:
Savings accounts............................ 3.00 3.03 3.04 3.03
NOW and money market accounts............... 4.09 4.10 4.16 3.41
Certificates of deposit..................... 5.44 5.38 5.16 4.50
Borrowings.................................. 6.56 5.61 6.39 3.59
Total interest-bearing liabilities........ 4.94 4.82 4.69 4.05
Interest rate spread (1)....................... 2.87 2.80 2.77 3.32
Net yield on weighted average
interest-earning assets (2)................. N/A 3.99 3.64 3.67
(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, 1996, because the computation of net yield is applicable only over a
period rather than at a specific date.
The following table describes the extent to which changes in interest
rates and changes in volume of interest-related assets and 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 (1) changes in rate (i.e.,
changes in rate multiplied by old volume) and (2) changes in volume (i.e.,
changes in volume multiplied by old rate). Changes attributable to both rate and
volume have been allocated proportionally to the change due to volume and the
change due to rate.
Increase (Decrease) in Net Interest Income
Total Net Due to Due to
Change Rate Volume
------ ---- ------
(In thousands)
Year ended December 31, 1996
compared to Year ended December 31, 1995
Interest-earning assets:
Interest-earning deposits.............................. $ 14 $ (20) $ 34
Mortgage- and other asset-backed securities............ 283 3 280
Other investment securities............................ (114) (24) (90)
Loans receivable....................................... 697 150 547
Stock in FHLB of Indianapolis.......................... 2 (1) 3
----- ------- -----
Total................................................ 882 108 774
----- ------- -----
Interest-bearing liabilities:
Savings accounts....................................... (21) --- (21)
NOW and money market accounts.......................... 71 (9) 80
Certificates of deposit................................... 127 70 57
Borrowings............................................. 74 (4) 78
----- ------- -----
Total................................................ 251 57 194
----- ------- -----
Change in net interest income
(fully taxable equivalent basis)....................... 631 51 580
Tax equivalent adjustment................................. (4) 1 (5)
----- ------- -----
Change in net interest income............................. $ 627 $ 52 $ 575
===== ======= =====
Year ended December 31, 1995
compared to Year ended December 31, 1994
Interest-earning assets:
Interest-earning deposits.............................. $90 $17 $73
Mortgage- and other asset-backed securities............ 73 (39) 112
Other investment securities............................ (51) (73) 22
Loans receivable....................................... 626 156 470
Stock in FHLB of Indianapolis.......................... 10 8 2
----- ------- -----
Total................................................ 748 69 679
----- ------- -----
Interest-bearing liabilities:
Savings accounts....................................... 16 --- 16
NOW and money market accounts.......................... 145 125 20
Certificates of deposit................................... 238 205 33
FHLB advances.......................................... 26 7 19
----- ------- -----
Total................................................ 425 337 88
----- ------- -----
Change in net interest income
(fully taxable equivalent basis)....................... 323 (268) 591
Tax equivalent adjustment................................. (4) 1 (5)
----- ------- -----
Change in net interest income............................. $ 319 $ (267) $ 586
===== ====== =====
Comparison of Years Ended December 31, 1996 and 1995
General. The Company's total assets were $77.7 million at December 31,
1996, an increase of $3.0 million or 4.0%. In December of 1996, $3.9 million of
capital was distributed to shareholders and resulted in a decrease in total
assets and a reduction in the percentage of increase for the year ended December
31, 1996. The percentage of interest-earning assets to total assets was 96.0% at
December 31, 1996 and 95.3% at December 31, 1995.
At December 31, 1996, the total of securities was $ 14.3 million
compared to $18.8 million at December 31, 1995, a decrease of $4.5 million.
Funds from maturing securities, payments on mortgage and other asset-backed
securities, and security sales were partially used to fund the growth in the
loan portfolio and the special cash distribution to shareholders. At December
31, 1996, the Company held $348,000 of corporate obligations all of which was
debt of domestic corporations rated AA or better by Moody's. The Company has
$3.1 million of structured notes, consisting of FHLB and other federal agency
securities, in its investment portfolio at December 31, 1996.
Total loans increased $7.1 million from December 31, 1995 to December
31, 1996, an increase of 14.2%. Most of the increase occurred in the one-to-four
family mortgages and consumer loans. One-to-four family mortgage loans increased
by $4.5 million and consumer loans by $1.9 million. The increase was funded by
the decrease in investment securities and the increase in deposits.
Deposits increased by $4.9 million to $57.4 million at December 31,
1996 from $52.5 million at December 31, 1995. Non-interest bearing deposits, NOW
accounts, passbook savings and money market savings increased by $1.9 million
while certificates of deposits increased by $3.0 million. Borrowings also
increased by $2.4 million during the year, of which $1.4 million was borrowed
from another bank and repaid in early 1997.
Equity capital decreased by $5.0 million during 1996 with the return of
capital distribution, a 5% stock repurchase program, regular quarterly
dividends, the funding of the Company's RRP plan, and an increase in the
unrealized losses on available for sale securities. The special one-time cash
distribution of $3.9 million on 1,310,000 shares was paid in December, 1996. The
Company received a Private Letter Ruling from the Internal Revenue Service which
qualified most of the 1996 cash distributions to shareholders, including regular
quarterly dividends and the one-time special cash distribution, as a nontaxable
return of capital. Under the stock repurchase program, the Company repurchased
66,125 shares for $.8 million. In 1996, the Bank adopted a Recognition and
Retention Plan for the employees and directors. The Bank contributed $.6 million
to the plan for the purchase of stock awarded. Net income for the year ended
December 31, 1996 was $913,000. This compares to net income of $908,000 for the
year ended December 31, 1995. An increase in net interest income was offset
primarily by an increase in other expenses, including the one-time special SAIF
Assessment.
Interest Income (fully taxable equivalent basis). the Company's total
interest income was $5.7 million for the year ended December 31, 1996 compared
to $4.8 million during 1995, an increase of $.9 million. Interest income for
1996 compared to 1995 increased $108,000 due to higher rates earned on assets,
primarily loans. However, the largest percentage of the increase, or $774,000,
was due to an increase in the volume of average interest earnings assets which
grew by $10.2 million. The increase in average interest earnings assets from
$64.7 million in 1995 to $74.9 million in 1996, combined with improved loan
rates, contributed to an increase in the average yield on interest earning
assets of 7.62% in 1996 compared to 7.46% in 1995. Average loan yield and yield
on asset-backed securities improved while yield on other investment securities
and interest-earning deposits declined.
Interest Expense. Interest expense increased by $251,000 for the year
ended December 31, 1996 compared to 1995. This increase was the result of an
increase in the average balance of the deposit liabilities by $3.7 million and
the increase in the average cost of these liabilities by 13 basis points, from
4.69% during 1995 to 4.82% in 1996. Local competition resulted in pressure to
maintain competitive rates, however, the interest rate spread improved slightly
in 1996.
Net Interest Income (fully taxable equivalent basis). Net interest
income increased by $.6 million for 1996 to approximately $3.0 million as
compared with $2.4 million in 1995. Net yield on weighted average
interest-earning assets increased to 3.99% in 1996 from 3.64% in 1995.The
Company increased its yield on earning assets more than its cost of funds in
1996 and this coupled with the increase in total average earning assets caused
the significant improvement.
Provision for losses on loans. The Company's provision for losses on
loans for the year ended December 31, 1996 and 1995 was $12,000 and $20,000
respectively. This provision and the related increase in the allowance for loan
losses were considered adequate based on the condition of the loan portfolio and
the Company's loan loss history. There were recoveries of $1,270 in 1996, no
chargeoffs in 1996 and chargeoffs of $3,622 in 1995. The Company provides a
general allowance that reflects an estimate of inherent losses based upon the
types and categories of outstanding loans as well as problem loans. At December
31, 1996 and 1995, the allowance was $236,000 and $223,000, respectively, a
ratio of 0.41% and 0.45% of total loans at each date. Non-performing loans at
these dates were $406,000 and $311,000, respectively. The ratio of allowance for
loan losses to non-performing loans decreased from 71.6% at December 31, 1995 to
58.1% at December 31, 1996. Based on management's review of the loan portfolio
during these years, the allowance for loan losses at December 31, 1996 and 1995
is considered to be adequate to cover losses inherent in the loan portfolio.
Other Income. The Company's other income for the year ended December
31, 1996 and 1995 was $82,000 and $179,000, respectively. The year ended
December 31, 1995 included a $90,000 recovery on investments previously written
off while 1996 included only $17,000 of additional recovery. During 1996, the
Company recorded $47,000 of net losses on sales of securities. Structured notes
of $3.0 million were sold at a net loss and the proceeds were reinvested in
higher yielding securities, primarily mortgage and other asset-backed
securities. This strategy resulted in a higher yield in mortgage and other
asset-backed securities for the year and a corresponding increase in interest
income. Service charges on deposit accounts increased by $20,000 in 1996
compared to 1995. Income on the cash surrender value of life insurance was
$34,000 in 1996 and $25,000 in 1995.
Other Expenses. Operating expenses were $1,584,000 in 1996 compared to
$1,032,000 in 1995, an increase of $552,000 or 53.5%. Salaries and payroll taxes
increased by $162,000 as a result of additional personnel, merit pay increases,
implementation of the RRP Plan, and higher costs of other fringe benefits.
Pension plan expense decreased by $36,000 resulting in a net increase in
salaries and employee benefits of $126,000. Deposit insurance costs increased
$335,000 due to the SAIF Assessment. This is a one-time occurrence and should
result in a decline in deposit insurance costs in future years. Data processing
fees decreased $2,000 for the year. Various other operating expenses increased
by $93,000. Expenses related to being a public company such as accounting fees,
legal fees, filing fees, annual report and meeting costs and transfer agent
costs accounted for $57,000 of the increase. The balance of the increase was
related to additional operating costs associated with increased account volume,
new services, and advertising.
Income Tax Expense. Income tax expense for the years ended December 31,
1996 and 1995 was $507,000 and $526,000. Pretax income declined slightly in 1996
over 1995 and this resulted in a corresponding decrease in income tax expense.
Comparison of Years Ended December 31, 1995 and 1994
General. The Company's total assets were $74.6 million at December 31,
1995, an increase of $15.3 million, or 25.8%, from $59.4 million at December 31,
1994. The stock conversion contributed $12.6 million of the increase, deposit
growth $1.3 million, and earnings and recovery of unrealized losses on available
for sale securities generated the balance. The percentage of interest-earnings
assets to total assets was 95.3% at December 31, 1995 and 94.5% at December 31,
1994.
At December 31, 1995, investment securities, all of which were
classified as available for sale, totaled $18.8 million compared to $11.2
million at December 31, 1994, an increase of $7.6 million. There was also
significant growth in the loan portfolio. Net loans increased $5.7 million from
December 31, 1994 to December 31, 1995, an increase of 12.9%. Commercial paper
contributed $0.9 million to total loans at December 31, 1995. At December 31,
1994, the Company's investments included revenue bonds with a remaining book
value of $90,000. These bonds had been written down from $370,000 to $185,000 in
1991 and 1992 due to their credit quality. During 1995, payments of $180,000 in
principal were received. This resulted in recoveries of $90,000 being
recognized. Additional receipts of $18,000 relating to these securities were
recorded as interest income. Additional recoveries are anticipated, but no
estimate of amounts is available. The Company held $1.7 million of corporate
obligations at December 31, 1995. These obligations included $577,000 in revenue
bonds with a Moody's ratings of A or better and debt of domestic corporations in
the amount of $1.1 million, also with ratings of A or better. The Company
believes that there is no significant risk of future losses in this portion of
its investment portfolio at December 31, 1995 based upon credit quality, and
acquires such obligations from time to time to improve the yield on its
investment portfolio.
Deposits increased by $1.3 million to $52.5 million at December 31,
1995 from $51.2 million at December 31, 1994. NOW accounts, passbook savings and
money market savings increased by $1.6 million while certificates of deposits
declined by $0.3 million.
Equity capital increased $13.6 million during 1995 attributable to the
proceeds of the conversion, the addition of earnings, and the market recovery of
available for sale securities. Unrealized gains in state and municipal bonds,
asset-backed securities and marketable equity securities offset unrealized
losses attributable to federal agency securities, including FHLB structured
notes, at December 31, 1995.
Net income for the year ended December 31, 1995 was $908,000. This
compares to net income of $734,000 for the year ended December 31, 1994. Net
interest income increased $319,000. Increases in other expenses and provisions
for loan losses in 1995 were offset by recoveries on previously written-off
securities.
Interest Income (fully taxable equivalent basis). The Company's total
interest income was $4.8 million for the year ended December 31, 1995 compared
to $4.1 million during 1994, an increase of $748,000. Interest income for 1995
compared to 1994 increased $69,000 due to higher rates earned on assets,
primarily loans. However, the largest percentage of the increase, or $679,000,
was due to an increase in the volume of interest-earning assets which grew by
$9.3 million. The increase in interest-earning assets from $55.4 million in 1994
to $64.7 million in 1995, combined with improved loan rates, contributed to an
increase in the average yield on interest-earning assets of 7.46% in 1995
compared to 7.37% in 1994. Average loan yield improved while the yields on
investment securities, including mortgage- and other asset-backed securities,
declined. At December 31, 1995, the Company had $6.2 million of structured notes
in its investment portfolio.
Interest Expense. Interest expense increased by $425,000 for the year
ended December 31, 1995 compared to 1994. This increase was the result of an
increase in the average balance of the interest-bearing liabilities of $2.1
million and the increase in the average cost of these liabilities by 64 basis
points, from 4.05% during 1994 to 4.69% in 1995. Local competition resulted in
pressure to maintain competitive rates and an interest rate spread which
declined in 1995.
Net Interest Income (fully taxable equivalent basis). Net interest
income increased by $323,000 for 1995 to approximately $2.4 million as compared
with $2.0 million in 1994. Net yield on interest-earning assets declined
slightly to 3.64% in 1995 from 3.67% in 1994. The Company's cost of funds
increased more quickly than its yield on earnings assets. This was offset by an
increase in volume as average net interest-earning assets increased $7.2 million
as proceeds of the conversion were invested.
Provision for Losses on Loans. The Company's provision for losses on
loans for the year ended December 31, 1995 was $20,000. This provision and the
related increase in the allowance for loan losses were considered adequate based
on total chargeoffs of $3,000 in 1995. The provision for loan losses in 1994 was
$6,000, and chargeoffs were $1,000. The Company provides a general allowance
that reflects an estimate of inherent losses based upon the types and categories
of outstanding loans as well as problem loans. At December 31, 1995 and 1994 the
allowance was $223,000 and $206,000, respectively, a ratio of 0.45% and 0.47% of
total loans. Nonperforming loans at these dates were $311,000 and $337,000,
respectively. The ratio of allowance for loan losses to nonperforming loans
increased from 61.1% at December 31, 1994 to 71.6% at December 31, 1995. Based
on management's review of the loan portfolio during these years, the allowance
for loan losses at December 31, 1995 and 1994 was considered to be adequate to
cover losses inherent in the loan portfolio.
Other Income. The Company's other income for the years ended December
31, 1995 and 1994 was $179,000 and $79,000, respectively. The overall increase
was primarily due to a $90,000 recovery on investments previously written off
and a $12,000 increase in service charges on deposit accounts. Income on the
cash surrender value of life insurance was $25,000 in 1995 and $27,000 in 1994.
Other Expenses. Operating expenses were $1,032,000 in 1995 compared to
$957,000 in 1994, an increase of $75,000 or 7.8%. Salaries and payroll taxes
increased by $47,000 as a result of additional personnel and merit pay
increases. Pension plan expense decreased by $14,000 resulting in a net increase
in salaries and employee benefits of $33,000. Data processing fees increased
$26,000 for the year. This increase was attributable to price increases,
increases in the volume of accounts, and additional services offered to
customers such as voice response access for account balances. The other expenses
category increased by $16,000. Expenses related to being a public company such
as accounting fees, legal fees, filing fees, and transfer agent costs accounted
for much of the increase.
Income Tax Expense. Income tax expense for the years ended December 31,
1995 and 1994 was $526,000 and $370,000. Pretax income increased $330,000 in
1995 from 1994, and this resulted in a corresponding increase in income tax
expense.
Liquidity and Capital Resources
The Company's primary sources of funds are deposits, proceeds from
principal and interest payments of loans, and proceeds from maturing securities.
While maturities and scheduled amortization of loans are a predictable source of
funds, deposit flows and mortgage prepayments are generally influenced by
general interest rates, economic conditions, and competition.
As a result of the conversion in 1995, the Company received net
proceeds of $12.7 million, which were primarily invested in loans and investment
securities. There was an outflow of funds during 1996 for the capital
distribution of $3.9 million to shareholders and the repurchase of the Company's
common stock for approximately $.8 million, in addition to regular cash
dividends.
The primary investing activity of the Company is the origination of
mortgage loans and the purchase of investment securities. During the years ended
December 31, 1996, 1995, and 1994, the Company originated mortgage loans in the
amounts of $13.2 million, $8.6 million, and $9.2 million, respectively. The
Company originated consumer loans of $6.1 million, $4.8 million and $4.8
million, respectively. The Company also purchased loans, excluding commercial
paper, of $1.0 million in 1996 and 1995 and $.3 million in 1994. Loan
repayments, excluding commercial paper, totaled $12.4 million, $9.3 million, and
$9.1 million for 1996, 1995, and 1994, respectively.
During the years ended December 31, 1996, 1995, and 1994, the Company
purchased investment securities in the amounts of $8.7 million, $13.6 million,
and $2.6 million, respectively. Sales or maturities of such securities held by
the Company and payments on mortgage-backed or other asset-backed securities
were $12.8 million, $6.6 million, and $4.3 million for 1996, 1995, and 1994,
respectively.
Deposits grew by $1.3 million from December 31, 1994 to December 31,
1995, and by $4.9 million from December 31, 1995 to December 31, 1996.
The Company experienced an increase in cash and cash equivalents to
$3.2 million at December 31, 1995 from $1.6 million at December 31, 1994. From
December 31, 1995 to December 31, 1996, cash and cash equivalents increased by
$.5 million.
At December 31, 1996 and 1995, the Company had outstanding loan
commitments and standby letters of credit totaling $2.3 million and $2.0
million, respectively. The Company anticipates that it will have sufficient
funds available to meet its current loan commitments. Certificates of deposit
which are scheduled to mature in one year or less from December 31, 1996 and
1995 totaled $19.9 million and $18.9 million, respectively. Based upon
historical deposit flow data, the Company's competitive pricing in its market
and management's experience, management believes that a significant portion of
such deposits will remain with the Company.
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, 1996 and 1995, the Company had outstanding FHLB advances of $ 2 million and
$1 million, respectively.
Federal regulations require FHLB-member savings associations to
maintain an average daily balance of liquid assets equal to a monthly average of
not less than a specified percentage of its net withdrawable savings deposits
plus short-term borrowings. Liquid assets include cash, certain time deposits,
certain bankers' acceptances, specified U.S. government, state or federal agency
obligations, certain corporate debt securities, commercial paper, certain mutual
funds, certain mortgage-related securities, and certain first lien residential
mortgage loans. This liquidity requirement may be changed from time-to-time by
the OTS to any amount within the range of 4% to 10%, and is currently 5%. Also,
a savings association currently must maintain short-term liquid assets
constituting at least 1% of its average daily balance of net withdrawable
deposit accounts and current borrowings. Monetary penalties may be imposed for
failure to meet these liquidity requirements. As of December 31, 1996, the Bank
had liquid assets of $7.9 million, and a regulatory liquidity ratio of 14.2%, of
which 56.5% constituted short-term investments.
Pursuant to OTS capital regulations, savings associations must
currently meet a 1.5% tangible capital requirement, a 3% leverage ratio (or core
capital) requirement, and a total risk-based capital to risk-weighted assets
ratio of 8%. At December 31, 1996, the Bank's tangible capital ratio was 21.9%,
its leverage ratio was 21.9%, and its risk-based capital to risk-weighted assets
ratio was 41.1%. Therefore, at December 31, 1996, 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, 1996:
At December 31, 1996
-------------------------------------------------------------------------------
OTS Requirement The Bank's Capital Level
-------------------------- --------------------------------------------
% of % of Amount
Capital Standard Assets Amount Assets(1) Amount of Excess
- ---------------- ------ ------ --------- ------ ---------
(Dollars in thousands)
Tangible capital............................ 1.5% $1,166 21.9% $17,018 $15,852
Core capital (2)............................ 3.0 2,332 21.9 17,018 14,686
Risk-based capital.......................... 8.0 3,356 41.1 17,254 (3) 13,898
- --------------
(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) The OTS has proposed and is expected to adopt a core capital
requirement for savings associations comparable to that recently
adopted by the Comptroller of the Currency for national banks. The new
regulation, as proposed, would require at least 3% of total adjusted
assets for savings associations that received the highest supervisory
rating for safety and soundness, and 4% to 5% for all other savings
associations. The final form of such new OTS core capital requirement
may differ from that which has been proposed. The Bank expects to be in
compliance with such new requirements.
(3) The Bank's risk-based capital includes $236,000 of general valuation
allowances.
As of December 31, 1996, 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.
Impact of Inflation
The audited financial statements presented elsewhere herein have been
prepared in accordance with generally accepted accounting principles. These
principles require the measurement of financial position and operating results
in terms of historical dollars, without considering changes in the relative
purchasing power of money over time due to inflation.
Current Accounting Issues
Mortgage Servicing Rights. During 1995, the Financial Accounting
Standards Board ("FASB") issued SFAS No. 122, Accounting for Mortgage Servicing
Rights. SFAS No. 122 pertains to mortgage banking enterprises and financial
institutions that conduct operations that are substantially similar to the
primary operations of mortgage banking enterprises. SFAS No. 122 eliminates the
accounting distinction between mortgage servicing rights that are acquired
through loan origination activities and those acquired through purchase
transactions. Under SFAS No. 122, if a mortgage banking enterprise sells or
securitizes loans and retains the mortgage servicing rights, the enterprise must
allocate the total cost of the mortgage loans to the mortgage servicing rights
and the loans (without the rights) based on their relative fair values if it is
practicable to estimate those fair values. If it is not practicable, the entire
cost should be allocated to the mortgage loans and no cost should be allocated
to the mortgage service rights. An entity would measure impairment of mortgage
servicing rights and loans based on the excess of the carrying amount of the
mortgage servicing rights portfolio over the fair value of that portfolio.
SFAS No. 122 is to be applied prospectively in fiscal years beginning
after December 15, 1995, to transactions in which an entity acquires mortgage
servicing rights and to impairment evaluations of all capitalized mortgage
servicing rights. The adoption of SFAS No. 122 had no impact in 1996 on the
Company's financial condition and results of operations.
Stock-Based Compensation. The FASB has issued No. SFAS 123, Accounting
for Stock-based Compensation. SFAS No. 123 establishes a fair value based method
of accounting for stock-based compensation plans. The FASB encourages all
entities to adopt this method for accounting for all arrangements under which
employees receive shares of stock or other equity instruments of the employer,
or the employer incurs liabilities to employees in amounts based on the price of
its stock.
Due the extremely controversial nature of this project, SFAS No. 123
permits a company to continue the accounting for stock-based compensation
prescribed in Accounting Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees. If a company elects that option, pro forma disclosures of
net income (and EPS, if presented) are required in the notes to the financial
statements as if the provisions of SFAS No. 123 had been used to measure
stock-based compensation. The disclosure requirements of Opinion No. 25 have
been superseded by the disclosure requirements of this Statement. Once an entity
adopts the fair value based method for accounting for these transactions, that
election cannot be reversed.
Equity instruments granted or otherwise transferred directly to an
employee by a principal stockholder are stock-based employee compensation to be
accounted for in accordance with either Opinion 25 or SFAS No. 123 unless the
transfer clearly is for a purpose other than compensation. The accounting
requirements of SFAS No. 123 became effective for transactions entered into in
fiscal years beginning after December 15, 1995, and the disclosure requirements
became effective for financial statements for fiscal years beginning after
December 15, 1995. Pro forma disclosures required for entities that elect to
continue to measure compensation cost using Opinion 25 must include the effects
of all awards granted in fiscal years beginning after December 15, 1994. During
the initial phase-in period, the effects of applying this Statement are not
likely to be representative of the effects on reported net income for future
years because options vest over several years and additional awards generally
are made each year.
The Company adopted SFAS No. 123 for 1996, and elected to report the
pro forma disclosures of net income and earnings per share in the notes to
financial statements.
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities. SFAS No. 125, Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities, breaks new ground in resolving
long-standing questions about whether transactions should be accounted for as
secured borrowings or as sales. The Statement provides consistent standards for
distinguishing transfers of financial assets that are sales from transfers that
are considered secured borrowings.
A transfer of financial assets in which the transferor surrenders
control over those assets is accounted for as a sale to the extent that
consideration other than beneficial interests in the transferred assets is
received in exchange. The transferor has surrendered control over transferred
assets only if all of the following conditions are met:
o The transferred assets have been isolated from the
transferor--put presumptively beyond the reach of the
transferor and its creditors, even in bankruptcy or other
receivership.
o Each transferee obtains the right--free of conditions that
constrain it from taking advantage of that right--to pledge or
exchange the transferred assets, or the transferee is a
qualifying special-purpose entity and the holders of
beneficial interest in that entity have the right--free of
conditions that constrain them from taking advantage of that
right--to pledge or exchange those interests.
o The transferor does not maintain effective control over the
transferred assets through an agreement that both entitles and
obligates the transferor to repurchase or redeem them before
their maturity, or an agreement that entitles the transferor
to repurchase or redeem transferred assets are not readily
obtainable.
This Statement provides detailed measurement standards for assets and
liabilities included in these transactions. It also includes implementation
guidance for assessing isolation of transferred assets and for accounting for
transfers of partial interest, servicing of financial assets, securitization,
transfers or sales type and direct financing lease receivables, securities
lending transactions, repurchase agreements, "wash sales," loan syndications and
participation, risk participation in banker's acceptances, factoring
arrangements, transfers of receivables with recourse and extinguishment of
liabilities.
The Statements supersede FASB Statements No. 76, Extinguishment of
Debt, and No. 77, Reporting by Transferors for Transfers of Receivables with
Recourse, and No. 122, Accounting for Mortgage Servicing Rights, and amends FASB
Statement No. 115, Accounting for Certain Investments in Debt and Equity
Securities, in addition to clarifying or amending a number of other statements
and technical bulletins.
Except as amended by Statement No. 127, this Statement is effective for
transfers and servicing of financial assets and extinguishments of liabilities
occurring after December 31, 1996 and is to be applied prospectively. Earlier or
retroactive application is not permitted.
The FASB was made aware that the volume of certain transactions and the
related changes to information systems and accounting processes that are
necessary to comply with the requirements of Statement No. 125 would make it
extremely difficult, if not impossible, for some affected enterprises to apply
the transfer and collateral provisions of Statement No. 125 to those
transactions as soon as January 1, 1997. As a result, SFAS No. 127 defers for
one year the effective date (a) of paragraph 15 of Statement No. 125 and (b) for
repurchase agreement, dollar-roll, securities lending, and similar transactions,
of paragraphs 9-12 and 237(b) of Statement No. 125.
Statement No. 127 provides additional guidance on the types of
transactions for which the effective date of Statement No. 125 has been
deferred. It also requires that if it is not possible to determine whether a
transfer occurring during calendar-year 1997 is part of a repurchase agreement,
dollar-roll, securities lending, or similar transaction, then paragraphs 9-12 of
Statement No. 125 should be applied to that transfer.
All provisions of Statement No. 125 should continue to be applied
prospectively, and earlier or retroactive application is not permitted.
Independent Auditor's Report
To the Board of Directors
Logansport Financial Corp.
Logansport, Indiana
We have audited the consolidated statement of financial condition of Logansport
Financial Corp. and subsidiary as of December 31, 1996 and 1995, and the related
consolidated statements of income, changes in stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1996. These
consolidated financial statements are the responsibility of the Company'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 generally accepted auditing
standards. 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 consolidated financial statements described above present
fairly, in all material respects, the consolidated financial position of
Logansport Financial Corp. and subsidiary as of December 31, 1996 and 1995, and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 1996, in conformity with generally accepted
accounting principles.
As discussed in the notes to the consolidated financial statements, the Company
changed its method of accounting for investments in securities in 1994.
GEO. S. OLIVE & CO. LLC
Indianapolis, Indiana
January 23, 1997
LOGANSPORT FINANCIAL CORP. AND SUBSIDIARY
Consolidated Statement of Financial Condition
December 31 1996 1995
- ------------------------------------------------------------------------------------------------------
Assets
Cash $ 997,552 $ 1,267,791
Short-term interest-bearing deposits 2,761,126 1,974,788
----------- -----------
Total cash and cash equivalents 3,758,678 3,242,579
Interest-bearing deposits 100,000 100,000
Investment securities--available for sale 14,303,105 18,753,096
Loans 57,038,066 49,930,050
Allowance for loan losses (235,970) (222,700)
----------- -----------
Net loans 56,802,096 49,707,350
Premises and equipment 476,325 432,176
Federal Home Loan Bank of Indianapolis stock, at cost 386,500 348,200
Cash value of life insurance 1,040,242 1,005,686
Interest receivable 447,085 466,466
Deferred income tax benefit 312,197 117,213
Other assets 42,265 474,542
----------- -----------
Total assets $77,668,493 $74,647,308
=========== ===========
Liabilities
Deposits
Noninterest-bearing $ 631,122 $ 469,024
Interest-bearing 56,765,078 51,991,956
----------- -----------
Total deposits 57,396,200 52,460,980
Short-term borrowings 3,400,000 1,000,000
Interest payable 84,490 64,163
Other liabilities 1,360,915 667,895
----------- -----------
Total liabilities 62,241,605 54,193,038
----------- -----------
Commitments and Contingencies
Stockholders' Equity
Preferred stock, no-par value
Authorized and unissued--2,000,000 shares
Common stock, no-par value
Authorized--5,000,000 shares
Issued and outstanding--1,256,375 and 1,322,500 shares 7,518,062 12,670,006
Retained earnings--substantially restricted 8,587,979 7,774,213
Unearned compensation (522,382)
Net unrealized gain (loss) on securities available for sale (156,771) 10,051
----------- -----------
Total stockholders' equity 15,426,888 20,454,270
----------- -----------
Total liabilities and stockholders' equity $77,668,493 $74,647,308
=========== ===========
See notes to consolidated financial statements.
LOGANSPORT FINANCIAL CORP. AND SUBSIDIARY
Consolidated Statement of Income
Year Ended December 31 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------
Interest Income
Loans receivable $4,420,668 $3,724,129 $3,098,456
Investment securities
Taxable 917,529 760,351 756,506
Tax-exempt 125,765 117,422 103,038
Other interest and dividend income 189,293 172,763 73,562
---------- ---------- ----------
Total interest income 5,653,255 4,774,665 4,031,562
---------- ---------- ----------
Interest Expense
Deposits 2,613,552 2,435,953 2,037,337
Short-term borrowings 106,037 31,900 6,063
---------- ---------- ----------
Total interest expense 2,719,589 2,467,853 2,043,400
---------- ---------- ----------
Net Interest Income 2,933,666 2,306,812 1,988,162
Provision for losses on loans 12,000 20,000 5,964
---------- ---------- ----------
Net Interest Income After Provision for Losses on Loans 2,921,666 2,286,812 1,982,198
Other Income
Service charges on deposit accounts 67,208 47,088 35,015
Net realized gains (losses) on sales of securities (47,238) 3,095
Recoveries on previously written-off securities 17,291 89,683
Other income 45,247 39,405 43,801
---------- ---------- ----------
Total other income 82,508 179,271 78,816
---------- ---------- ----------
Other Expenses
Salaries and employee benefits 618,793 492,322 459,086
Net occupancy expenses 39,115 34,341 29,111
Equipment expenses 42,221 46,450 54,811
Deposit insurance expense 449,429 116,224 113,616
Computer processing fees 91,076 92,910 66,836
Other expenses 343,224 249,840 233,997
---------- ---------- ----------
Total other expenses 1,583,858 1,032,087 957,457
---------- ---------- ----------
Income Before Income Tax 1,420,316 1,433,996 1,103,557
Income tax expense 507,363 526,142 369,634
---------- ---------- ----------
Net Income $ 912,953 $ 907,854 $ 733,923
========== ========== ==========
Earnings Per Share $.69
Weighted Average Shares Outstanding 1,316,372
See notes to consolidated financial statements.
LOGANSPORT FINANCIAL CORP. AND SUBSIDIARY
Consolidated Statement of Changes in Stockholders' Equity
Net Unrealized
Gain (Loss) on
Common Stock Securities
Shares Retained Unearned Available
Outstanding Amount Earnings Compensation For Sale Total
- -------------------------------------------------------------------------------------------------------------------
Balances, January 1, 1994 $6,396,936 $ 6,396,936
Net income for 1994 733,923 733,923
Cumulative effect of change
in method of accounting
for securities $123,354 123,354
Net change in unrealized gain
(loss) on securities
available for sale (420,719) (420,719)
--------- ----------- ---------- -------- --------- -----------
Balances, December 31, 1994 7,130,859 (297,365) 6,833,494
Net income for 1995 907,854 907,854
Common stock issued in
conversion, net of costs 1,322,500 $12,670,006 12,670,006
Cash dividends ($.20 per share) (264,500) (264,500)
Net change in unrealized gain
(loss) on securities available
for sale 307,416 307,416
--------- ----------- ---------- -------- --------- -----------
Balances, December 31, 1995 1,322,500 12,670,006 7,774,213 10,051 20,454,270
Net income for 1996 912,953 912,953
Regular cash dividends
($.40 per share) (423,200) (99,187) (522,387)
Special cash distribution
($3.00 per share) (3,930,000) (3,930,000)
Contribution for unearned
compensation $(614,567) (614,567)
Amortization of unearned
compensation 92,185 92,185
Purchase of stock (66,125) (798,744) (798,744)
Net change in unrealized
gain (loss) on securities
available for sale (166,822) (166,822)
--------- ----------- ---------- -------- --------- -----------
Balances, December 31, 1996 1,256,375 $ 7,518,062 $8,587,979 (522,382) $(156,771) $15,426,888
========= =========== ========== ======== ========= ===========
See notes to consolidated financial statements.
LOGANSPORT FINANCIAL CORP. AND SUBSIDIARY
Consolidated Statement of Cash Flows
Year Ended December 31 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------
Operating Activities
Net income $ 912,953 $ 907,854 $ 733,923
Adjustments to reconcile net income to net cash
provided by operating activities
Provision for loan losses 12,000 20,000 5,964
Securities (gains) losses 47,238 (3,095)
Gain on sale of foreclosed real estate (869) (12,144)
Investment securities (accretion) amortization, net 54,374 (21,422) 23,556
Depreciation 38,432 45,543 51,048
Amortization of unearned compensation 92,185
Deferred income tax (85,564) 7,174 (34,651)
Change in
Interest receivable 19,381 (109,842) 22,708
Interest payable 20,327 17,837 5,027
Cash surrender value life insurance (34,556) (25,006) (27,260)
Other adjustments 29,613 254,722 (1,696)
---------- ---------- ----------
Net cash provided by operating activities 1,105,514 1,081,621 778,619
---------- ---------- ----------
Investing Activities
Net change in interest-bearing deposits (100,000)
Purchases of securities available for sale (8,011,623) (8,056,729) (1,513,625)
Proceeds from maturities of securities available for sale 5,847,904 3,939,484 92,980
Purchases of securities held to maturity (5,530,959) (1,088,056)
Proceeds from maturities of securities held to maturity 1,558,611 4,256,619
Proceeds from sales of securities 7,338,154 708,095
Purchase of Federal Home Loan Bank stock (38,300) (40,900) (18,200)
Net change in loans (7,105,635) (5,688,663) (6,175,045)
Proceeds from foreclosed real estate sales 8,500
Purchase of premises and equipment (82,582) (62,578) (32,371)
Other investing activities (242) (15,393)
Net cash used by investing activities (2,052,324) (13,280,532) (4,477,698)
---------- ----------- ----------
Financing Activities
Net change in
Noninterest-bearing, interest-bearing demand
and savings deposits 1,927,086 1,585,557 (10,985)
Certificates of deposit 3,008,134 (326,703) 1,654,764
Short-term borrowings 1,400,000
Proceeds from Federal Home Loan Bank advances 6,000,000 1,000,000 1,000,000
Payment of Federal Home Loan Bank advances (5,000,000) (1,000,000)
Dividends (4,459,000) (132,250)
Purchase of stock (798,744)
Contribution for unearned compensation (614,567)
Sale of stock, net of costs 12,670,006
---------- ---------- ----------
Net cash provided by financing activities 1,462,909 13,796,610 2,643,779
---------- ---------- ----------
Net Change in Cash and Cash Equivalents 516,099 1,597,699 (1,055,300)
Cash and Cash Equivalents, Beginning of Year 3,242,579 1,644,880 2,700,180
---------- ---------- ----------
Cash and Cash Equivalents, End of Year $3,758,678 $3,242,579 $1,644,880
========== ========== ==========
Additional Cash Flows and Supplementary Information
Interest paid $2,699,262 $2,450,016 $2,038,374
Income tax paid 628,968 411,900 492,628
Dividends payable at end of year 125,637 132,250
Due from broker for called securities 400,000
Due to broker for purchased securities 706,000
See notes to consolidated financial statements.
LOGANSPORT FINANCIAL CORP. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of Logansport Financial Corp. ("Company"),
and its wholly owned subsidiary, Logansport Savings Bank, FSB ("Bank"), conform
to generally accepted accounting principles and reporting practices followed by
the thrift industry. The more significant of the policies are described below.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
The Company is a thrift holding company whose principal activity is the
ownership and management of the Bank. The Bank operates under a federal thrift
charter and provides full banking services. As a federally-chartered thrift, the
Bank is subject to the regulation of the Office of Thrift Supervision and the
Federal Deposit Insurance Corporation.
The Bank generates mortgage and consumer loans and receives deposits from
customers located primarily in Cass County, Indiana. The Bank's loans are
generally secured by specific items of collateral including real property and
consumer assets.
Consolidation--The consolidated financial statements include the accounts of the
Company and the Bank after elimination of all material intercompany transactions
and accounts.
Investment Securities--The Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 115, Accounting For Certain Investments in Debt and
Equity Securities, on January 1, 1994.
Debt securities are classified as held to maturity when the Company has the
positive intent and ability to hold the securities to maturity. Securities held
to maturity are carried at amortized cost.
Debt securities not classified as held to maturity and marketable equity
securities are classified as available for sale. Securities available for sale
are carried at fair value with unrealized gains and losses reported separately
in stockholders' equity, net of tax.
Amortization of premiums and accretion of discounts are recorded as interest
income from securities. Realized gains and losses are recorded as net security
gains (losses). Gains and losses on sales of securities are determined on the
specific-identification method.
At January 1, 1994, investment securities with an approximate carrying value of
$5,816,700 were reclassified as available for sale. This reclassification
resulted in an increase in total stockholders' equity, net of taxes, of
$123,354.
LOGANSPORT FINANCIAL CORP. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
Loans are carried at the principal amount outstanding. Interest income is
accrued on the principal balances of loans. The accrual of interest on impaired
loans is discontinued when, in management's opinion, the borrower may be unable
to meet payments as they become due. When interest accrual is discontinued, all
unpaid accrued interest is reversed. Interest income is subsequently recognized
only to the extent cash payments are received. Loan origination fees are
generally charged in amounts that do not materially exceed the direct costs of
underwriting and closing loans, and therefore, no deferred loan fees are
recorded.
Allowance for loan losses is maintained to absorb potential loan losses based on
management's continuing review and evaluation of the loan portfolio and its
judgment as to the impact of economic conditions on the portfolio. The
evaluation by management includes consideration of past loss experience, changes
in the composition of the portfolio, the current condition and amount of loans
outstanding, and the probability of collecting all amounts due. Impaired loans
are measured by the present value of expected future cash flows, or the fair
value of the collateral of the loan, if collateral dependent.
The determination of the adequacy of the allowance for loan losses is based on
estimates that are particularly susceptible to significant changes in the
economic environment and market conditions. Management believes that as of
December 31, 1996, the allowance for loan losses is adequate based on
information currently available. A worsening or protracted economic decline in
the area within which the Company operates would increase the likelihood of
additional losses due to credit and market risks and could create the need for
additional loss reserves.
Premises and equipment are carried at cost net of accumulated depreciation.
Depreciation is computed using the straight-line and accelerated methods based
principally on the estimated useful lives of the assets. Maintenance and repairs
are expensed as incurred while major additions and improvements are capitalized.
Gains and losses on dispositions are included in current operations.
Federal Home Loan Bank stock is a required investment for institutions that are
members of the Federal Home Loan Bank system. The required investment in the
common stock is based on a predetermined formula.
Foreclosed real estate is carried at the lower of cost or fair value less
estimated selling costs. When foreclosed real estate is acquired, any required
adjustment is charged to the allowance for loan losses. All subsequent activity
is included in current operations.
Income tax in the consolidated statement of income includes deferred income tax
provisions or benefits for all significant temporary differences in recognizing
income and expenses for financial reporting and income tax purposes.
Earnings per share for 1996 was computed based upon the weighted average common
shares outstanding during the period subsequent to the Bank's conversion to a
stock savings bank on June 13, 1995. Net income per share for the year ended
December 31, 1995, is not meaningful.
LOGANSPORT FINANCIAL CORP. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
INVESTMENT SECURITIES
1996
------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
December 31 Cost Gains Losses Value
- --------------------------------------------------------------------------------------------------------------
Available for sale
Federal agencies $ 5,245 $ 1 $366 $ 4,880
State and municipal 2,194 48 2,242
Mortgage and other asset-backed
securities 6,768 8 102 6,674
Marketable equity securities 6 153 159
Corporate obligations 350 2 348
------- ---- ---- -------
Total investment securities $14,563 $210 $470 $14,303
======= ==== ==== =======
1995
------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
December 31 Cost Gains Losses Value
- ---------------------------------------------------------------------------------------------------------------
Available for sale
Federal agencies $ 7,424 $ 23 $272 $ 7,175
State and municipal 2,229 67 2 2,294
Mortgage and other asset-backed
securities 7,422 49 3 7,468
Marketable equity securities 6 114 120
Corporate obligations 1,655 45 4 1,696
------- ---- ---- -------
Total investment securities $18,736 $298 $281 $18,753
======= ==== ==== =======
The amortized cost and fair value of securities available for sale at December
31, 1996, by contractual maturity, are shown below. Expected maturities will
differ from contractual maturities because issuers may have the right to call or
prepay obligations with or without call or prepayment penalties.
LOGANSPORT FINANCIAL CORP. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
1996
Amortized Fair
Maturity Distribution at December 31 Cost Value
- ---------------------------------------------------------------------------
Within one year $ 1,463 $ 1,462
One to five years 2,351 2,281
Five to ten years 3,411 3,152
After ten years 564 575
------- -------
7,789 7,470
Marketable equity securities 6 159
Mortgage-backed and
other asset-backed securities 6,768 6,674
------- -------
Totals $14,563 $14,303
======= =======
Securities with a carrying value of $11,268,000 and $11,642,000 were pledged at
December 31, 1996 and 1995 to secure FHLB advances.
Proceeds from sales of securities available for sale during 1996 and 1995 were
$7,338,154 and $708,095. Gross gains of $19,553 and $3,095 in 1996 and 1995 and
gross losses of $66,791 in 1996 were realized on those sales.
On November 30, 1995, the Company transferred certain securities from held to
maturity to available for sale in accordance with a transition reclassification
allowed by the Financial Accounting Standards Board. Such securities had a
carrying value of $10,267,223 and a fair value of $10,391,280.
During the fourth quarter of 1994, the Company transferred investments with a
carrying value of $1,774,000 from the available-for-sale category to the
held-to-maturity category. Accordingly, the difference between the carrying
value and par value will be amortized to maturity. The net unrealized loss on
these investments of $101,262 at December 31, 1994, included in the unrealized
loss on securities available for sale on the statement of financial condition as
part of stockholders' equity, was also to be amortized to maturity in an equal
offsetting amount. During 1995, these investments were included in the transfer
of certain securities from the held-to-maturity category to the
available-for-sale category as allowed by the Financial Accounting Standards
Board.
Certain corporate obligations previously included in securities available for
sale were written down in prior years by a total of $185,000 due to their
deteriorated credit quality. Recoveries of approximately $17,000 and $90,000
were recorded in 1996 and 1995 for principal payments received in excess of the
carrying value.
The tax expense (benefit) for securities gains (losses) was $(18,771) for 1996
and $1,226 for 1995.
LOGANSPORT FINANCIAL CORP. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
LOANS AND ALLOWANCE
December 31 1996 1995
- -------------------------------------------------------------------------
Real estate mortgage loans
One-to-four family $41,109 $36,608
Multi-family 2,370 1,915
Commercial 2,701 1,620
Construction loans 994 907
Consumer loans 9,864 8,002
Commercial paper 878
----- -----
$57,038 $49,930
======= =======
Year Ended December 31 1996 1995 1994
- ------------------------------------------------------------------------------
Allowance for loan losses
Balances, January 1 $223 $206 $201
Provision for loan losses 12 20 6
Loans recovered (charged off) 1 (3) (1)
---- ---- ----
Balances, December 31 $236 $223 $206
==== ==== ====
PREMISES AND EQUIPMENT
December 31 1996 1995
- ------------------------------------------------------------------------------
Land $203 $148
Buildings and land improvements 443 423
Furniture and equipment 264 258
---- ----
Total cost 910 829
Accumulated depreciation (434) (397)
---- ----
Net $476 $432
==== ====
LOGANSPORT FINANCIAL CORP. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
DEPOSITS
December 31 1996 1995
- --------------------------------------------------------------------------
Demand deposits $20,294 $18,290
Savings deposits 3,119 3,196
Certificates of $100,000 or more 4,358 3,643
Other certificates 29,625 27,332
------ ------
Total deposits $57,396 $52,461
======= =======
Certificates maturing in
years ending after December 31, 1996:
1997 $19,939
1998 11,706
1999 1,083
2000 708
2001 519
Thereafter 28
-------
$33,983
=======
SHORT-TERM BORROWINGS
December 31 1996 1995
- -------------------------------------------------------------------------------
Federal Home Loan Bank advances $2,000 $1,000
Note payable 1,400
------ ------
Total short-term borrowings $3,400 $1,000
====== ======
The weighted average interest rate on the advances was 5.38% and 6.02% at
December 31, 1996 and 1995. The advances at December 31, 1996 are due in
January, 1997.
The Federal Home Loan Bank advances are secured by first-mortgage loans and
investment securities totaling $49,412,000. Advances are subject to restrictions
or penalties in the event of prepayment.
The note payable to another bank was due on March 5, 1997. It was secured by
100% of the Bank's common stock, and interest was at the prime rate. The note
was repaid on January 16, 1997, from the proceeds of a Bank dividend to the
Company.
LOGANSPORT FINANCIAL CORP. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
INCOME TAX
Year Ended December 31 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------
Income tax expense
Currently payable
Federal $457 $395 $299
State 136 124 106
Deferred
Federal (69) 7 (25)
State (17) (10)
---- ---- ----
Total income tax expense $507 $526 $370
==== ==== ====
Reconciliation of federal statutory to actual tax expense
Federal statutory income tax at 34% $483 $488 $375
Tax exempt interest (37) (35) (31)
Nontaxable income (12) (9) (9)
Effect of state income taxes 79 82 63
Other (6) (28)
---- ---- ----
Actual tax expense $507 $526 $370
---- ---- ----
Effective income tax rate 35.7% 36.7% 33.5%
==== ==== ====
A cumulative deferred tax asset is included in other assets at December 31, 1996
and 1995. The components of the asset are as follows at:
December 31 1996 1995
- ------------------------------------------------------------------------------------------------------
Differences in depreciation methods $ (9) $ (10)
Differences in accounting for investment writedown 33 40
Differences in accounting for loan losses 27 12
Compensation 72 23
Differences in accounting for supplemental retirement plan 101 74
State income tax (21) (15)
Other 7
Unrealized (gain) loss on securities available for sale 102 (7)
$312 $117
==== ====
Assets $342 $149
Liabilities (30) (32)
---- ----
$312 $117
==== ====
No valuation allowance was necessary during any time in 1996, 1995 or 1994.
LOGANSPORT FINANCIAL CORP. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
Retained earnings include approximately $1,531,000 for which no deferred income
tax liability has been recognized. This amount represents an allocation of
income to bad debt deductions as of December 31, 1987 for tax purposes only.
Reduction of amounts so allocated for purposes other than tax bad debt losses
including redemption of bank stock or excess dividends, or loss of "bank"
status, would create income for tax purposes only, which income would be subject
to the then-current corporate income tax rate. The unrecorded deferred income
tax liability on the above amount at December 31, 1996 was approximately
$521,000.
EQUITY CHANGES
The Bank converted from a mutual federal savings bank to a stock federal savings
bank (the "Conversion") on June 13, 1995 and issued all of its common stock to
the Company. Concurrently with the Conversion, the Company issued 1,322,500
shares of Company common stock, with no par value. Net proceeds of the Company's
stock issuance, after costs, were $12,670,006.
In September, 1996, the Board of Directors declared a one-time special cash
distribution of $3.00 per share to the holders of the Company's common stock.
The special one-time cash distribution of $3,930,000 on 1,310,000 outstanding
shares was paid on December 10, 1996 to stockholders of record on November 25,
1996. The Company received a Private Letter Ruling from the Internal Revenue
Service which qualified most of the 1996 cash distributions to stockholders,
including regular quarterly dividends and the one-time special cash
distribution, as a nontaxable return of capital. Accordingly, $3.32 per share,
or $4,353,200, has been charged to common stock, and the remaining amount of
distributions of $99,187 has been charged to retained earnings.
In October, 1996, the Company announced its intention to repurchase, from time
to time, on the open market up to 5% of the Company's common stock, or 66,125
shares. During the remainder of 1996, the Company purchased the 66,125 shares
pursuant to this program for $798,744.
DEPOSIT INSURANCE EXPENSE
The Bank's deposits are presently insured by the Savings Association Insurance
Fund (the "SAIF"). A recapitalization plan for the SAIF was signed into law on
September 30, 1996, which provided for a special assessment on all SAIF-insured
institutions to enable the SAIF to achieve its required level of reserves. The
assessment of .065% was effected based on deposits as of March 31, 1995. The
Company's special assessment totaled $334,660 before taxes, and was charged
against current year income and included with deposit insurance expense.
LOGANSPORT FINANCIAL CORP. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
COMMITMENTS AND CONTINGENT LIABILITIES
In the normal course of business there are outstanding commitments and
contingent liabilities, such as commitments to extend credit and standby letters
of credit, which are not included in the accompanying financial statements. The
Bank's exposure to credit loss in the event of nonperformance by the other party
to the financial instruments for commitments to extend credit and standby
letters of credit is represented by the contractual or notional amount of those
instruments. The Bank uses the same credit policies in making such commitments
as it does for instruments that are included in the statement of financial
condition.
Financial instruments whose contract amount represents credit risk were as
follows:
December 31 1996 1995
- ---------------------------------------------------------------------------
Mortgage loan commitments $1,126 $947
Consumer loan commitments,
principally home equity lines of credit 438 272
Standby letters of credit 759 759
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Bank evaluates each customer's credit
worthiness on a case-by-case basis. The amount of collateral obtained, if deemed
necessary by the Bank upon extension of credit, is based on management's credit
evaluation. Collateral held varies, but may include residential real estate,
income-producing commercial properties, or other assets of the borrower. Standby
letters of credit are conditional commitments issued by the Bank to guarantee
the performance of a customer to a third party.
In June, 1995, the Company entered into three-year agreements (with provisions
for extensions) with two of its key employees which provide for salary
continuation for a three-year period under certain circumstances following a
change of control of the Company, as defined. Under the terms of the agreements,
these payments could occur if, following a change of control, such officers are
terminated other than for cause or unreasonable changes are made in their
employment relationships.
In November, 1996, the Bank agreed, subject to certain conditions under the
agreement, to invest approximately $1,525,000 in 1997 in a limited partnership
organized to build and operate an affordable housing project.
The Company and Bank are also subject to claims and lawsuits which arise
primarily in the ordinary course of business. It is the opinion of management
that the disposition or ultimate determination of such possible claims or
lawsuits will not have a material adverse effect on the financial position of
the Company.
LOGANSPORT FINANCIAL CORP. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
RESTRICTION ON DIVIDENDS
The Company is not subject to any regulatory restrictions on the payment of
dividends to its stockholders. The Office of Thrift Supervision ("OTS")
regulations provide that a savings association which meets fully phased-in
capital requirements (those in effect on December 31, 1994) and is subject only
to "normal supervision" may pay out, as a dividend, 100 percent of net income to
date over the calendar year and 50 percent of surplus capital existing at the
beginning of the calendar year without supervisory approval, but with 30 days
prior notice to the OTS. Any additional amount of capital distributions would
require prior regulatory approval. A savings association failing to meet current
capital standards may only pay dividends with supervisory approval.
At December 31, 1996, total stockholders' equity of the Bank was $16,861,000, of
which approximately $7,320,000 was available for the payment of dividends.
At the time of Conversion, a liquidation account was established in an amount
equal to the Bank's net worth as reflected in the latest statement of condition
used in its final conversion offering circular. The liquidation account is
maintained for the benefit of eligible deposit account holders who maintain
their deposit account in the Bank after Conversion. In the event of a complete
liquidation (and only in such event), each eligible deposit account holder will
be entitled to receive a liquidation distribution from the liquidation account
in the amount of the then current adjusted subaccount balance for deposit
accounts then held, before any liquidation distribution may be made to
stockholders. Except for the repurchase of stock and payment of dividends, the
existence of the liquidation account will not restrict the use or application of
net worth. The initial balance of the liquidation account was $7,025,000.
REGULATORY CAPITAL
The Bank is subject to various regulatory capital requirements administered by
the federal banking agencies. Failure to meet minimum capital requirements can
initiate actions by the regulatory agencies that, if undertaken, could have a
material effect on the Company's financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the Bank
must meet specific capital guidelines that involve quantitative measures of the
Bank's assets, liabilities, and certain off-balance-sheet items as calculated
under regulatory accounting practices. The Bank's capital amounts and
classification are also subject to qualitative judgments by the regulators about
components, risk weightings, and other factors.
At December 31, 1996, the Bank meets all capital adequacy requirements to which
it is subject, and the most recent notification from the regulatory agency
categorized the Bank as well capitalized under the regulatory framework for
prompt corrective action. There have been no conditions or events since that
notification that management believes have changed this categorization.
LOGANSPORT FINANCIAL CORP. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
The actual and required capital amounts and ratios are as follows:
1996
Required for Adequate To Be Well
Actual Capital 1 Capitalized 1
------------------ ----------------- -----------------
December 31 Amount Ratio Amount Ratio Amount Ratio
- ----------- ------ ----- ------ ----- ------ -----
Total risk-based capital1
(to risk-weighted assets) $ 17,254 41.1% $3,356 8.0% $4,195 10.0%
Core capital1
(to adjusted tangible assets) 17,018 21.9% 2,332 3.0% 4,664 6.0%
Core capital1
(to adjusted total assets) 17,018 21.9% 2,332 3.0% 3,886 5.0%
1As defined by regulatory agencies
The Bank's tangible capital at December 31, 1996 was $17,018,000 which amount
was 21.9% of tangible assets and exceeded the required ratio of 1.5%.
BENEFITS PLANS
The Company is a participant in a pension fund known as the Financial
Institutions Retirement Fund ("FIRF"). This plan is a multi-employer plan. There
was no pension expense for 1996. Pension expense was $35,787 and $48,627 for
1995 and 1994. This plan provides pension benefits for substantially all of the
Company's eligible employees.
The Bank has purchased life insurance on certain officers and directors. The
insurance has an approximate cash value of $1,040,242 and $1,005,686 at December
31, 1996 and 1995. The Bank has approved compensation arrangements that provide
retirement benefits to certain officers and deferral of fees for directors
covered by the keyman policies. The benefit arrangement for one individual
provides that the individual provide consulting services to the 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. The accrual
of benefits totaled $87,077, $76,054 and $66,246 for 1996, 1995, and 1994.
The Bank adopted the Logansport Savings Bank, FSB Employee Stock Ownership Plan
and Trust Agreement ("ESOP") effective July 1, 1995, for eligible employees of
the Bank. The ESOP will be funded by discretionary employer contributions made
in cash, which will be invested in shares of the Company's common stock. No
contributions were made to the ESOP in 1996 or 1995.
In April, 1996, the Company's stockholders approved the Logansport Savings Bank,
FSB Recognition and Retention Plan and Trust (RRP). The RRP may acquire up to
52,900 shares of the Company's common stock, an amount equal to 4.0% of the
number of shares issued in the Conversion, for awards to management. Shares
awarded to management under the RRP vest at a rate of 20% at the end of each
full twelve months of service with the Bank after the date of grant. During the
quarter ended June 30, 1996, the Bank contributed $614,567 to the RRP for the
purchase of 46,675 shares of the Company's common stock awarded to management
and recorded the amount as unearned compensation. Amortization expense of
unearned compensation under the RRP was $92,185 for 1996.
LOGANSPORT FINANCIAL CORP. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
STOCK OPTION PLAN
In April, 1996, the Company's stockholders approved the Logansport Financial
Corp. Stock Option Plan (Stock Option Plan), which reserved for issuance 132,250
shares, an amount equal to 10% of the shares issued in the Conversion. Under the
Stock Option Plan, which is accounted for in accordance with Accounting
Principles Board Opinion (APB) No. 25, Accounting for Stock Issued to Employees,
and related interpretations, the Company granted directors, officers and other
key employees stock option awards which vest and become fully exercisable at the
end of five years of continued employment. The exercise price of each option,
which has a ten-year life, was equal to the market price of the Company's stock
on the date of grant; therefore, no compensation expense was recognized.
In April, 1996, the Company granted stock option awards for 108,691 shares with
an exercise price of $12.50. As a result of the one-time special cash
distribution of $3.00 per share in late 1996, the number of shares awarded and
exercise price were adjusted to 129,340 shares and $10.53 to ensure equivalent
economic consequences to option holders following the distribution.
No options were exercisable or forfeited at December 31, 1996. The
weighted-average fair value of options granted during 1996 was $1.81, and the
options outstanding have a weighted-average remaining contractual life of 9.25
years. There were 2,910 shares available for grant at December 31, 1996.
SFAS No. 123, Stock-Based Compensation, is effective for the Company in 1996.
This Statement establishes a fair value based method of accounting for
stock-based compensation plans. Although the Company has elected to follow APB
No. 25, SFAS No. 123 requires pro forma disclosures of net income and earnings
per share as if the Company had accounted for its stock options under that
Statement. The fair value of each option grant was estimated on the grant date
using an option-pricing model with the following assumptions:
Risk-free interest rate 6.50%
Dividend yield 3.67%
Expected volatility factor of market price of common stock 11.50%
Weighted-average expected life of the options 7 years
Under SFAS No. 123, compensation cost is recognized in the amount of the
estimated fair value of the options and amortized to expense over the options'
vesting period. The pro forma effect on net income and earnings per share of
this Statement are as follows:
Net income As reported $913
Pro forma 883
Earnings per share As reported .69
Pro forma .67
LOGANSPORT FINANCIAL CORP. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
each class of financial instrument:
Cash and Cash Equivalents--The fair value of cash and cash equivalents
approximates carrying value.
Interest-Bearing Deposits--The fair value of interest-bearing deposits
approximates carrying value.
Securities and Mortgage-backed Securities--Fair values are based on quoted
market prices.
Loans--For both short-term loans and variable-rate loans that reprice frequently
and with no significant change in credit risk, fair values are based on carrying
values. The fair values for other loans are estimated using discounted cash flow
analyses and interest rates currently being offered for loans with similar terms
to borrowers of similar credit quality.
Interest Receivable/Payable--The fair value of interest receivable/payable
approximates carrying values.
FHLB Stock--Fair value of FHLB stock is based on the price at which it may be
resold to the FHLB.
Due From Broker--Fair value approximates carrying value.
Deposits--The fair values of noninterest-bearing, interest-bearing demand and
savings accounts are equal to the amount payable on demand at the balance sheet
date. The carrying amounts for variable rate, fixed-term certificates of deposit
approximate their fair values at the balance sheet date. Fair values for
fixed-rate certificates of deposit are estimated using a discounted cash flow
calculation that applies interest rates currently being offered on certificates
to a schedule of aggregated expected monthly maturities on such time deposits.
Federal Home Loan Bank Advances--Fair value approximates carrying value.
Due to Broker--Fair value approximates carrying value.
LOGANSPORT FINANCIAL CORP. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
The estimated fair values of the Company's financial instruments are as follows:
1996 1995
------------------------- --------------------------
Carrying Fair Carrying Fair
December 31 Amount Value Amount Value
- ----------------------------------------------------------------------------------------------------------
Assets
Cash and cash equivalents $3,759 $3,759 $3,243 $3,243
Interest-bearing deposits 100 100 100 100
Securities available for sale 14,303 14,303 18,753 18,753
Loans, net 56,802 57,310 49,707 50,453
Interest receivable 447 447 466 466
Stock in FHLB 387 387 348 348
Due from broker 400 400
Liabilities
Deposits 57,396 57,257 52,461 52,602
Short-term borrowings 3,400 3,398 1,000 1,000
Interest payable 84 84 64 64
Due to broker 706 706
CONDENSED FINANCIAL INFORMATION (PARENT COMPANY ONLY)
Presented below is condensed financial information as to financial position,
results of operations and cash flows of the Company:
Condensed Balance Sheet
December 31 1996 1995
- ----------------------------------------------------------------------------------------------------------
Assets
Cash and cash equivalents $ 89 $ 591
Investment securities available for sale 2,454
Loans--commercial paper 878
Investment in subsidiary 16,861 16,671
Other assets 5 15
------- -------
Total assets $16,955 $20,609
======= =======
Liabilities
Short-term borrowings $ 1,400
Other 128 $ 155
Total liabilities 1,528 155
------- -------
Stockholders' Equity
Common stock 7,518 12,670
Retained earnings 8,588 7,774
Unearned compensation (522)
Net unrealized gain (loss) on securities available for sale (157) 10
------- -------
Total stockholders' equity 15,427 20,454
------- -------
Total liabilities and stockholders' equity $16,955 $20,609
======= =======
LOGANSPORT FINANCIAL CORP. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
Condensed Statement of Income
Year Ended December 31 1996 1995
- ----------------------------------------------------------------------------------------------------------
Income $174 $120
Expenses 100 28
---- ----
Income before income tax and equity
in undistributed income of subsidiary 74 92
Income tax expense 30 36
---- ----
Income before equity in undistributed
income of subsidiary 44 56
Equity in undistributed income of subsidiary 869 852
---- ----
Net Income $913 $908
==== ====
Condensed Statement of Cash Flows
Year Ended December 31 1996 1995
- ------------------------------------------------------------------------------------------------------------
Operating Activities
Net income $913 $908
Adjustments to reconcile net income to net
cash provided by operating activities (866) (852)
----- -----
Net cash provided by operating activities 47 56
----- -----
Investing Activities
Purchases of securities available for sale (1,638) (2,431)
Proceeds from maturities of securities available for sale 2,245 246
Proceeds from sales of securities available for sale 1,824
Purchases of securities held to maturity (253)
Net change in loans 878 (878)
----- -----
Net cash provided (used) by investing activities 3,309 (3,316)
----- -----
Financing Activities
Net change in short-term borrowings 1,400
Sale of stock, net of costs 12,670
Dividends (4,459) (132)
Purchase of stock (799)
Capital contribution to subsidiary (8,687)
----- -----
Net cash provided (used) by financing activities (3,858) 3,851
----- -----
Net Change in Cash and Cash Equivalents (502) 591
Cash and Cash Equivalents at Beginning of Year 591
----- -----
Cash and Cash Equivalents at End of Year $ 89 $591
==== ====
LOGANSPORT FINANCIAL CORP. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
QUARTERLY DATA (UNAUDITED)
Summarized quarterly financial data for 1996 and 1995 is as follows
(dollars in thousands, except for per share data):
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
1996
Total interest income $1,339 $1,403 $1,453 $1,458
Total interest expense 641 653 684 741
Net interest income 698 750 769 717
Provision for loan losses 3 3 3 3
Net income 274 283 81 275
Earnings per share .21 .21 .06 .21
Dividends declared per share .10 .10 .10 .10
Special cash distribution declared per share 3.00
1995
Total interest income $1,051 $1,132 $1,265 $1,327
Total interest expense 586 635 614 633
Net interest income 465 497 651 694
Provision for loan losses 3 3 3 11
Net income 179 165 262 302
Earnings per share .20 .23
Dividends declared per share .10 .10
SHAREHOLDER INFORMATION
Market Information
The common stock of the Company is traded on the National Association of
Securities Dealers Automated Quotation System, Small Cap Market, under the
symbol "LOGN." As of February 14, 1997, there were 893 shareholders of record of
the Company's Common Stock.
Stock Price Per Share
Quarter Ended High Low Dividends
- ------------------------------------------------------------------------------
September 30, 1995 $ 12 1/2 $11 1/4 $0.10
December 31, 1995 13 1/4 12 $0.10
March 31, 1996 13 1/4 12 3/8 $0.10
June 30, 1996 13 3/4 12 3/8 $0.10
September 30, 1996 14 3/4 12 1/2 $0.10
December 31, 1996 14 3/4 11 1/4 $3.10*
* This includes a $3.00 per share one-time special cash distribution which
qualified as a non-taxable return of capital pursuant to an IRS Private
Letter Ruling.
Transfer Agent and Registrar
The Fifth Third Bank of Cincinnati, Ohio ("Fifth Third") is the Company's
stock transfer agent and registrar. Fifth Third maintains the Company's
shareholder records. To change name, address or ownership of stock, to report
lost certificates, or to consolidate accounts, contact:
Fifth Third Bank
Corporate Trust Operations
Mail Drop 1090D2
38 Fountain Square
Cincinnati, Ohio 45263
(800) 837-2755
General Counsel
Barnes & Thornburg
1313 Merchants Bank Building
11 South Meridian Street
Indianapolis, Indiana 46204
Independent Auditor
Geo. S. Olive & Co. LLC
201 North Illinois Street
Indianapolis, Indiana 46204
Shareholder & General Inquiries
The Company is required to file an Annual Report on Form 10-K for its
fiscal year ended December 31, 1996 with the Securities and Exchange Commission.
Copies of this annual report may be obtained without charge upon written request
to:
Dottye Robeson
Logansport Financial Corp.
723 East Broadway, Box 569
Logansport, Indiana 46947
(219) 722-3855
Office Location
723 East Broadway
Logansport, Indiana 46947
(219) 722-3855
DIRECTORS AND OFFICERS
Directors
Norbert E. Adrian (age 67) retired as the General Manager of Rockwell
International ("Rockwell") in 1984 after 12 years of service. Rockwell is
located in Logansport, Indiana, and manufactures custom automotive parts. Prior
to his employment with Rockwell, Mr. Adrian was employed by the accounting firm
of Bailey, Cord and Williams.
Donald G. Pollitt (age 69) is the former Business and Promotion Manager of
the Logansport Pharos-Tribune and a former President of the Rolling Hills Golf
Course in Logansport, Indiana.
Susanne S. Ridlen (age 57) has served as an adjunct faculty member of
Indiana University Kokomo ("IUK") since 1969. Ms. Ridlen also currently serves
as a member of the Boards of Directors of the Logansport Art Association and the
Cass County Children's Home in Logansport, Indiana.
William Tincher, Jr. (age 57) has served as Plant Manager for the Modine
Manufacturing Company ("Modine") since 1977. Modine is located in Logansport,
Indiana, and manufactures automotive cooling systems.
David G. Wihebrink (age 49) has served as Vice President and Chief
Financial Officer of TM Morris Manufacturing Co., Inc. ("Morris"), since 1988.
Morris is located in Logansport, Indiana, and manufactures lead wire assemblies
and wiring harnesses and stampings. Prior to his employment with Morris, Mr.
Wihebrink was a member of the accounting firm Smith, Thompson & Wihebrink
(Logansport) for 15 years. Mr. Wihebrink also currently serves as a member of
the Board of Directors of the Neal House retirement home in Logansport, Indiana.
Thomas G. Williams (age 64) has served as President of Logansport Savings
Bank, FSB since 1971.
Charles J. Evans (age 51) has served as Vice President and Senior Loan
Officer of Logansport Savings Bank, FSB since 1980.
LOGANSPORT FINANCIAL CORP. LOGANSPORT SAVINGS BANK, FSB
Officers Officers
THOMAS G. WILLIAMS THOMAS G. WILLIAMS
President and Chief President
Executive Officer
CHARLES J. EVANS CHARLES J. EVANS
Vice President Vice President
DOTTYE ROBESON DIANNE HOFFMAN
Secretary/Treasurer Secretary/Treasurer
DOTTYE ROBESON
Chief Financial Officer