SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _____________ TO
_____________________.
Commission file number: 0-25910
LOGANSPORT FINANCIAL CORP.
(Exact name of registrant specified in its charter)
Indiana 35-1945736
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
723 East Broadway
P.O. Box 569
Logansport, Indiana 46947
(Address of principal executive offices
including Zip Code)
(219) 722-3855
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such report), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
The number of shares of the Registrant's common stock, without par value, as of
May 1, 1999 was 1,199,091.
Page 1 of 15
Logansport Financial Corp.
Form 10-Q
Index
Page No.
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements 3
Consolidated Statements of Financial
Condition as of March 31, 1999
(Unaudited) and December 31, 1998
Consolidated Statements of Earnings
for the three months ended March 31,
1999 and 1998 (Unaudited)
Consolidated Statements of Shareholders'
Equity for the three months ended
March 31, 1999 and 1998 (Unaudited)
Consolidated Statements of Cash Flows for
the three months ended March 31, 1999
and 1998 (Unaudited)
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk 11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 6. Exhibits and Reports of Form 8-K 14
SIGNATURES 15
2
LOGANSPORT FINANCIAL CORP.
Consolidated Statements of Financial Condition
(Unaudited)
(In thousands, except share data)
March 31, December 31,
1999 1998
ASSETS
Cash and due from banks $ 741 $ 363
Interest-bearing deposits in other financial institutions 3,666 3,965
------ ------
Cash and cash equivalents 4,407 4,328
Investment securities available for sale-at market 5,645 5,033
Mortgage-backed securities available for sale-at market 7,431 8,129
Loans receivable-net 76,425 73,073
Office premises and equipment-at depreciated cost 1,801 1,528
Federal Home Loan Bank stock- at cost 624 568
Investment in real estate partnership 1,587 1,566
Accrued interest receivable on loans 335 337
Accrued interest receivable on mortgage-backed securities 57 66
Accrued interest receivable on investments 92 62
Prepaid expenses and other assets 41 36
Cash surrender value of life insurance 1,146 1,135
Prepaid income tax - 29
Deferred income tax asset 228 195
------ ------
Total assets $99,819 $96,085
====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits $70,833 $70,011
Advances from the Federal Home Loan Bank 10,000 7,000
Notes payable 1,307 1,375
Accrued interest and other liabilities 981 1,211
Accrued income taxes 92 -
------ ------
Total liabilities 83,213 79,597
Shareholders' equity
Common stock 6,670 6,670
Retained earnings-restricted 10,181 10,031
Less shares acquired by stock benefit plan (335) (368)
Unrealized gains on securities designated as
available for sale, net of related tax effects 90 155
------ ------
Total shareholders' equity 16,606 16,488
------ ------
Total liabilities and shareholders' equity $99,819 $96,085
====== ======
3
LOGANSPORT FINANCIAL CORP.
Consolidated Statements of Earnings
(Unaudited)
(In thousands, except share data)
Three months ended
March 31,
1999 1998
Interest income
Loans $1,486 $1,316
Mortgage-backed securities 112 152
Investment securities 73 75
Interest-bearing deposits and other 59 45
----- -----
Total interest income 1,730 1,588
Interest expense
Deposits 773 732
Borrowings 102 94
----- -----
Total interest expense 875 826
----- -----
Net interest income 855 762
Provision for losses on loans 41 9
----- -----
Net interest income after provision for
losses on loans 814 753
Other income
Service charges on deposit accounts 30 19
Other operating 36 33
----- -----
Total other income 66 52
General, administrative and other expense
Employee compensation and benefits 219 175
Occupancy and equipment 32 19
Federal deposit insurance premiums 10 10
Data processing 36 26
Other operating 129 87
----- -----
Total general, administrative and other expense 426 317
----- -----
Earnings before income taxes 454 488
Income tax expense 172 184
----- -----
NET EARNINGS $ 282 $ 304
===== =====
Other comprehensive income, net of tax:
Unrealized gains (losses) on securities available for sale (65) 31
----- -----
COMPREHENSIVE INCOME $ 217 $ 335
===== =====
EARNINGS PER SHARE
Basic (based on net earnings) $.24 $.24
=== ===
Diluted (based on net earnings) $.23 $.23
=== ===
4
LOGANSPORT FINANCIAL CORP.
Consolidated Statements of Shareholders' Equity
(Unaudited)
(In thousands, except share data)
Three months ended
March 31,
1999 1998
Balance at January 1 $16,488 $16,542
Issuance of shares under stock option plan - 2
Amortization of stock benefit plan 33 31
Cash dividends of $.10 per share (132) (126)
Unrealized gains (losses) on securities designated as
available for sale, net of related tax effects (65) 31
Net earnings 282 304
------ ------
Balance at March 31 $16,606 $16,784
====== ======
Accumulated other comprehensive income $ 90 $ 91
====== ======
5
LOGANSPORT FINANCIAL CORP.
Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
Three months ended
March 31,
1999 1998
Cash flows from operating activities:
Net earnings for the period $ 282 $ 304
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Depreciation and amortization 14 9
Amortization of premiums on investments and
mortgage-backed securities 34 42
Amortization expense of stock benefit plan 33 31
Provision for losses on loans 41 9
Increase (decrease) in cash, due to changes in:
Accrued interest receivable on loans 2 23
Accrued interest receivable on mortgage-backed securities 9 3
Accrued interest receivable on investments (30) 72
Prepaid expenses and other assets (5) (3)
Accrued interest and other liabilities (230) 12
Federal income taxes
Current 121 (30)
Deferred - 8
----- -----
Net cash provided by operating activities 271 480
Cash flows provided by (used in) investing activities:
Purchase of investment securities (800) (100)
Maturities/calls of investment securities 100 1,255
Purchase of Federal Home Loan Bank stock (56) -
Proceeds from sale of mortgage-backed securities - 297
Purchase of mortgage-backed securities - (1,084)
Principal repayments on mortgage-backed securities 654 725
Loan disbursements (8,744) (6,029)
Investment in real estate partnership (21) (7)
Principal repayments on loans 5,351 4,210
Purchases and additions to office premises and equipment (287) (16)
Increase in cash surrender value of life insurance policy (11) (11)
----- -----
Net cash used in investing activities (3,814) (760)
6
LOGANSPORT FINANCIAL CORP.
Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
Three months ended
March 31,
1999 1998
Cash flows provided by (used in) financing activities:
Net increase in deposit accounts $ 822 $2,735
Proceeds from Federal Home Loan Bank advances 3,000 -
Repayment of note payable (68) (75)
Proceeds from the exercise of stock options - 2
Dividends on common stock (132) (126)
----- -----
Net cash provided by financing activities 3,622 2,536
----- -----
Net increase in cash and cash equivalents 79 2,256
Cash and cash equivalents, beginning of period 4,328 2,269
----- -----
Cash and cash equivalents, end of period $4,407 $4,525
===== =====
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest on deposits and borrowings $ 865 $ 810
===== =====
Income taxes $ 50 $ 214
===== =====
Dividends payable at end of period $ 132 $ 126
===== =====
Foreclosed mortgage loans transferred to
real estate acquired through foreclosure $ - $ 54
===== =====
Unrealized gains (losses) on securities designated as
available for sale, net of related tax effects $ (65) $ 31
===== =====
7
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTE A: Basis of Presentation
The unaudited interim consolidated financial statements include the accounts of
Logansport Financial Corp. (the "Company") and its subsidiary, Logansport
Savings Bank, FSB, (the "Bank").
The unaudited interim consolidated financial statements have been prepared in
accordance with the instructions to Form 10-Q and, therefore, do not include all
information and disclosures required by generally accepted accounting principles
for complete financial statements. Accordingly, these financial statements
should be read in conjunction with the consolidated financial statements and
notes thereto included in the Annual Report on Form 10-K for the year ended
December 31, 1998. In the opinion of management, the financial statements
reflect all adjustments (consisting of only normal recurring accruals) necessary
to present fairly the Company's financial position as of March 31, 1999, results
of operations for the three month periods ended March 31, 1999 and 1998 and cash
flows for the three month periods ended March 31, 1999 and 1998.
NOTE B: Earnings Per Share and Dividends Per Share
Basic earnings per share is computed based upon the weighted-average shares
outstanding during the period. Weighted-average common shares outstanding
totaled 1,198,710 and 1,261,072 for the three month periods ended March 31, 1999
and 1998, respectively. Diluted earnings per share is computed taking into
consideration common shares outstanding and dilutive potential common shares to
be issued under the Company's stock option plan. Weighted-average common shares
deemed outstanding for purposes of computing diluted earnings per share totaled
1,223,706 and 1,308,043 for the three months ended March 31, 1999 and 1998,
respectively.
A cash dividend of $.11 per common share was declared on March 9, 1999, payable
on April 9, 1999, to stockholders of record as of March 19, 1999.
NOTE C: Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities," which requires entities to
recognize all derivatives in their financial statements as either assets or
liabilities measured at fair value. SFAS No. 133 also specifies new methods of
accounting for hedging transactions, prescribes the items and transactions that
may be hedged, and specifies detailed criteria to be met to qualify for hedge
accounting.
The definition of a derivative financial instrument is complex, but in general,
it is an instrument with one or more underlyings, such as an interest rate or
foreign exchange rate, that is applied to a notional amount, such as an amount
of currency, to determine the settlement amount(s). It generally requires no
significant initial investment and can be settled net or by delivery of an asset
that is readily convertible to cash. SFAS No. 133 applies to derivatives
embedded in other contracts, unless the underlying of the embedded derivative is
clearly and closely related to the host contract.
SFAS No. 133 is effective for fiscal years beginning after June 15, 1999. On
adoption, entities are permitted to transfer held-to-maturity debt securities to
the available-for-sale or trading category without calling into question their
intent to hold other debt securities to maturity in the future. SFAS No. 133 is
not expected to have a material impact on the Company's financial statements.
8
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operation.
Forward Looking Statements
In addition to historical information contained herein, the following discussion
contains forward-looking statements that involve risks and uncertainties.
Economic circumstances, the Company's operations and the Company's actual
results could differ significantly from those discussed in the forward-looking
statements. Some of the factors that could cause or contribute to such
differences are discussed herein but also include changes in the economy and
interest rates in the nation and the Company's market area generally.
Some of the forward-looking statements included herein are the statements
regarding management's determination of the amount and adequacy of the allowance
for losses on loans, the effect of the year 2000 on information technology
systems and the effect of certain recent accounting pronouncements.
Financial Condition
Total assets were $99.8 million at March 31, 1999 compared to $96.1 million at
December 31, 1998, an increase of $3.7 million or 3.9%. This increase was funded
primarily from additional FHLB borrowings and growth in deposits of $822,000.
Cash and cash equivalents increased by $79,000, from $4.3 million at December
31, 1998 to $4.4 million at March 31, 1999. The growth in assets was reinvested
in new loans. Mortgage-backed securities experienced accelerated pay backs which
resulted in a decrease in the yield in the investment portfolio. Paybacks were
reinvested in investment securities and the total amount of investments remained
comparable to the total at December 31, 1998.
Net loans increased $3.4 million, or 4.6%, to $76.4 million at March 31, 1999.
Loan originations amounted to $8.7 million for the three months ended March 31,
1999, with payoffs equaling $5.4 million. Loan demand continued to be strong.
Deposits were $70.8 million at March 31, 1999 compared to $70.0 million at
December 31, 1998, an increase of $822,000, or 1.2%, in the first three months
of 1999. Borrowings consisted of $10.0 million of FHLB advances and a $1.3
million note payable related to an equity investment in low income housing.
Shareholders' equity was $16.6 million at March 31, 1999 and $16.5 million at
December 31, 1998. The payment of dividends combined with a decrease in the
market value of available for sale securities resulted in a decrease in equity
of $197,000. Equity was increased by $315,000 from net earnings coupled with the
effects of amortization of the stock benefit plan.
Results of Operations
Comparison of the Three Months Ended March 31, 1999 and March 31, 1998
Net earnings for the Company for the three months ended March 31, 1999 were
$282,000 compared with $304,000 for three months ended March 31, 1998, a
decrease of $22,000 or 7.2%. Net interest income increased $93,000 while
general, administrative and other expenses increased $109,000 and taxes
decreased $12,000. The major contributor to the increase in net interest income
was the growth in the loan portfolio during the past twelve months. Loans were
$76.4 million at March 31, 1999 compared to $65.4 million at March 31, 1998.
However, the impact of such growth was off-set by a decline in the yield on the
loan portfolio.
9
The provision for loan losses was $41,000 for the three months ended March 31,
1999 and $9,000 for the three months ended March 31, 1998. Additional provisions
were made due to growth in the loan portfolio coupled with the development of a
commercial loan portfolio. Non-performing loans increased to $529,000, or .69%
of loans at March 31, 1999 from $315,000, or .42% of loans at December 31, 1998.
Loan loss reserves amounted to $326,000 or .42% of total loans at March 31, 1999
compared to $285,000, or .38% at December 31, 1998.
Although management believes that it uses the best information available in
providing for possible loan losses and believes that the allowance is adequate
at March 31, 1999, future adjustments to the allowance could be necessary and
net earnings could be affected if circumstances and/or economic conditions
differ substantially from the assumptions used in making the initial
determinations.
Total other income increased by $14,000, or 26.9%, during the three months ended
March 31, 1999. Service charges on deposit accounts increased $11,000 and other
operating income increased $3,000.
Total general, administrative and other expenses increased $109,000, or 34.4%,
in the three months ended March 31, 1999 compared to March 31, 1998. Data
processing fees increased $10,000, or 38.5%, due to loan and deposit growth and
occupancy and equipment expense increased $13,000, or 68.4%, mainly because of
increased depreciation related to the purchase of new computer equipment and the
completion of a new banking facility. Other operating expenses increased by
$42,000, or 48.3%, primarily due to a one time non-recurring charge of $35,000
related to deposit operations.
The Company's effective tax rate for the three months ended March 31, 1999 was
37.9% and was 37.7% for the three months ended March
31, 1998.
Capital Resources
Pursuant to OTS capital regulations, savings associations must currently meet a
1.5% tangible capital requirement, a 4% leverage ratio (or core capital)
requirement, and a total risk-based capital to risk-weighted assets ratio of 8%.
At March 31, 1999, the Bank's tangible capital ratio was 16.22%, its leverage
ratio was 16.22%, and its risk-based capital to risk-weighted assets ratio was
28.21%. Therefore, 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 March 31,
1999.
Capital Standard Required Bank's Excess
- ---------------- -------- ------ ------
Tangible (1.5%) $1,488,000 16,091,000 14,603,000
Core (4.0%) 3,969,000 16,091,000 12,122,000
Risk-based (8.0%) 4,655,000 16,416,000 11,761,000
Liquidity
The standard measure of liquidity for savings associations is the ratio of cash
and eligible investments to a certain percentage of net withdrawable savings
accounts and borrowings due within one year. The minimum required ratio is
currently set by the Office of Thrift Supervision at 4%. At March 31, 1999 the
Bank's regulatory liquidity ratio was 34.3%.
10
Year 2000 Compliance Matters
As with all providers of financial services, the Company's operations are
heavily dependent on information technology systems. The Bank is addressing the
potential problems associated with the possibility that the computers that
control or operate the Bank's information technology systems and infrastructure
may not be programmed to read four-digit date codes and, upon arrival of the
year 2000, may recognize the two-digit code "00" as the year 1900, causing
systems to fail to function or to generate erroneous data. The Bank is working
with the companies that supply or service its information technology systems to
identify and remedy any year 2000 related problems.
Management and the Board of Directors recognize and understand year 2000 ("Y2K")
risks, are active in overseeing corrective efforts, and are ensuring that all
necessary resources are available to address the problem. The awareness,
assessment, and testing phases of the Company's year 2000 plan have been
completed. The Company's business and its Y2K readiness are dependent on the
readiness of its vendors. The Company is currently preparing a contingency plan
and continuing testing to validate its readiness. The Company's data processing
is performed primarily by a third party servicer. The Company also uses software
and hardware which are covered under maintenance agreements with third party
vendors. The Company has contacted each vendor to request time tables for such
vendor's year 2000 compliance and the expected costs, if any, to be passed along
to the Company. The Company has been informed that its primary service provider
is on schedule and testing has been completed.
The Company has replaced or upgraded all equipment to be year 2000 compliant at
a cost of less than $40,000. As of March 31, 1999, management has developed an
estimate of expenses that are reasonably likely to be incurred by the Bank in
connection with the Y2K issue; however, the Company does not expect to incur any
significant additional expenses to implement necessary corrective measures, and
additional costs related to the Y2K issues are not expected to have a material
impact on the Company's 1999 financial statements.
Should the Company's data center become unable to provide the necessary services
upon arrival of the year 2000, the Company will have the capability to account
for transactions on a manual basis until the data center returns to normal
operations, or the Company will consider the need to contract with an alternate
service provider.
In addition to possible expenses related to its own systems, the Bank could
incur losses if loan payments are delayed due to year 2000 problems affecting
any major borrowers in the Bank's primary market area. Because the Bank's loan
portfolio is highly diversified with regard to individual borrowers and types of
businesses, and the Bank's primary market areas are not significantly dependent
upon any one employer or industry, the Bank does not expect any significant or
prolonged difficulties that will affect net earnings or cash flow.
11
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Bank, like other savings associations, is subject to interest rate risk to
the degree that its interest-bearing liabilities, primarily deposits with short
and medium-term maturities, mature or reprice at different rates than its
interest-earning assets. Management of the Bank believes it is critical to
manage the relationship between interest rates and the effect on the Bank's net
portfolio value ("NPV"). Generally, NPV is the discounted present value of the
difference between incoming cash flows on interest-earning and other assets and
outgoing cash flows on interest-bearing liabilities. Management of the Bank's
assets and liabilities is done within the context of the marketplace, regulatory
limitations and within limits established by the Board of Directors on the
amount of change in NPV which is acceptable given certain interest rate changes.
The Office of Thrift Supervision ("OTS") 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. 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
December 31, 1998, the latest available date, 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 and falling rate scenarios.
Change Net Portfolio Value NPV as % of PV of Assets
In Rates $ Amount $ Change % Change NPV Ratio Change
- -------- -------- -------- -------- --------- ------
(Dollars in thousands)
+400bp 12,294 -5,394 -30% 13.56% -457bp
+300bp 14,054 -3,633 -21% 15.15% -298bp
+200bp 15,596 -2,092 -12% 16.47% -166bp
+100bp 16,808 -880 -5% 17.46% -67bp
0bp 17,688 - - 18.13% -
- - 100bp 18,471 784 +4% 18.71% +57bp
- - 200bp 19,413 1,725 +10% 19.39% +126bp
- - 300bp 20,713 3,026 +17% 20.34% +221bp
- - 400bp 22,082 4,394 +25% 21.31% +317bp
Interest Rate Risk Measures: 200 Basis Point (bp) Rate Shock
Pre-shock NPV Ratio: NPV as % of PV of Assets 18.13%
Exposure Measure: Post-Shock NPV Ratio 16.47%
Sensitivity Measure: Change in NPV Ratio 166bp
12
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.
13
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
Neither the Bank nor the Company were, during the three-month period ended March
31, 1999, or are as of the date hereof involved in any legal proceeding of a
material nature. From time to time, the Bank is a party to legal proceedings
wherein it enforces its security interests in connection with its mortgage and
other loans.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
The following exhibits are attached to this report on Form 10-Q:
3.1 The Articles of Incorporation of the Registrant are
incorporated by reference to Exhibit 3.1 to the Registration
Statement on Form S-1 (Registration No. 33-89788).
3.2 The Code of By-Laws of the Registrant is incorporated by
reference to Exhibit 3.2 to the Form 10-Q for the period
ended June 30, 1997, filed with the Commission on August 13,
1997.
27 Financial Data Schedule for the three month period ended
March 31, 1999.
(b) Reports on Form 8-K
The Registrant filed no reports on Form 8-K during the
fiscal quarter ended March 31, 1999.
14
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the Registrant has duly caused this report to be signed on behalf of the
undersigned thereto duly authorized.
Logansport Financial Corp.
Date: May 12, 1999 By:/s/ Thomas G. Williams
----------------- ---------------------------------
Thomas G. Williams, President and
Chief Executive Officer
Date: May 12, 1999 By:/s/ Dottye Robeson
----------------- ---------------------------------
Dottye Robeson, Secretary and
Treasurer
15