-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, B9eDz9JGJFHwZto5fWU60lZYRMSgInXWI/2VE8OG5hZSv5E9v9LIPhBY4OiXA4tE sBb00RUaIcvYLo+cbZlywA== 0000908834-00-000034.txt : 20000309 0000908834-00-000034.hdr.sgml : 20000309 ACCESSION NUMBER: 0000908834-00-000034 CONFORMED SUBMISSION TYPE: DEF 14A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000308 FILED AS OF DATE: 20000308 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LOGANSPORT FINANCIAL CORP CENTRAL INDEX KEY: 0000939928 STANDARD INDUSTRIAL CLASSIFICATION: SAVINGS INSTITUTION, FEDERALLY CHARTERED [6035] IRS NUMBER: 351945736 STATE OF INCORPORATION: IN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: DEF 14A SEC ACT: SEC FILE NUMBER: 000-25910 FILM NUMBER: 563464 BUSINESS ADDRESS: STREET 1: 723 E BROADWAY STREET 2: PO BOX 569 CITY: LOGANSPORT STATE: IN ZIP: 46947 BUSINESS PHONE: 2197223855 MAIL ADDRESS: STREET 1: 723 EAST BROADWAY STREET 2: P O BOX 569 CITY: LOGANSPORT STATE: IN ZIP: 46947 DEF 14A 1 PROXY STATEMENT AND NOTICE OF ANNUAL MEETING SCHEDULE 14A Information Required in Proxy Statement SCHEDULE 14A INFORMATION Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934 Filed by the Registrant: Yes. Filed by a Party other than the Registrant: No. Check the appropriate box: [ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission Only (as Permitted by Rule 14a-6(e)(2)) [X] Definitive Proxy Statement [ ] Definitive Additional Materials [ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12 LOGANSPORT FINANCIAL CORP. (Name Of Registrant As Specified In Its Charter) LOGANSPORT FINANCIAL CORP. (Name of Person(s) Filing Proxy Statement) Payment of Filing Fee (Check the appropriate box): [X] No fee required [ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11 (1) Title of each class of securities to which transaction applies: N/A (2) Aggregate number of securities to which transaction applies: N/A (3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is calculated and state how it was determined): N/A (4) Proposed maximum aggregate value of transaction: N/A (5) Total fee paid: [ ] Fee paid previously with preliminary materials [ ] Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. N/A (1) Amount Previously Paid: (2) Form, Schedule or Registration Statement No.: (3) Filing Party: (4) Date Filed: [LOGO] LOGANSPORT FINANCIAL CORP. 723 East Broadway Logansport, Indiana 46947 (219) 722-3855 ---------------------------------------- NOTICE OF ANNUAL MEETING OF SHAREHOLDERS ---------------------------------------- To Be Held On April 11, 2000 Notice is hereby given that the Annual Meeting of Shareholders of Logansport Financial Corp. (the "Holding Company") will be held at the Holding Company's office at 723 East Broadway, Logansport, Indiana, on Tuesday, April 11, 2000, at 2:00 p.m., Eastern Standard time. The Annual Meeting will be held for the following purposes: 1. Election of Directors. Election of one director of the Holding Company for a term expiring in 2003. 2. Other Business. Such other matters as may properly come before the meeting or any adjournment thereof. Shareholders of record at the close of business on February 10, 2000, are entitled to vote at the meeting or any adjournment thereof. We urge you to read the enclosed Proxy Statement carefully so that you may be informed about the business to come before the meeting, or any adjournment thereof. At your earliest convenience, please sign and return the accompanying proxy in the postage-paid envelope furnished for that purpose. A copy of our Annual Report for the fiscal year ended December 31, 1999, is enclosed. The Annual Report is not a part of the proxy soliciting material enclosed with this letter. By Order of the Board of Directors /s/ Thomas G. Williams Thomas G. Williams, President and Chief Executive Officer Logansport, Indiana March 8, 2000 IT IS IMPORTANT THAT THE PROXIES BE RETURNED PROMPTLY. THEREFORE, WHETHER OR NOT YOU PLAN TO BE PRESENT IN PERSON AT THE ANNUAL MEETING, PLEASE SIGN, DATE AND COMPLETE THE ENCLOSED PROXY AND RETURN IT IN THE ENCLOSED ENVELOPE WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES. LOGANSPORT FINANCIAL CORP. 723 East Broadway Logansport, Indiana 46947 (219) 722-3855 --------------- PROXY STATEMENT --------------- FOR ANNUAL MEETING OF SHAREHOLDERS April 11, 2000 This Proxy Statement is being furnished to the holders of common stock, without par value (the "Common Stock"), of Logansport Financial Corp. (the "Holding Company"), an Indiana corporation, in connection with the solicitation of proxies by the Board of Directors of the Holding Company to be voted at the Annual Meeting of Shareholders to be held at 2:00 p.m., Eastern Standard time, on April 11, 2000, at the Holding Company's office at 723 East Broadway, Logansport, Indiana, and at any adjournment of such meeting. The principal asset of the Holding Company consists of 100% of the issued and outstanding shares of common stock, $.01 par value per share, of Logansport Savings Bank, FSB ("Logansport Savings"). This Proxy Statement is expected to be mailed to the shareholders on or about March 8, 2000. The proxy solicited hereby, if properly signed and returned to the Holding Company and not revoked prior to its use, will be voted in accordance with the instructions contained therein. If no contrary instructions are given, each proxy received will be voted for each of the matters described below and, upon the transaction of such other business as may properly come before the meeting, in accordance with the best judgment of the persons appointed as proxies. Any shareholder giving a proxy has the power to revoke it at any time before it is exercised by (i) filing with the Secretary of the Holding Company written notice thereof (Dottye Robeson, 723 East Broadway, Logansport, Indiana 46947), (ii) submitting a duly executed proxy bearing a later date, or (iii) by appearing at the Annual Meeting and giving the Secretary notice of his or her intention to vote in person. Proxies solicited hereby may be exercised only at the Annual Meeting and any adjournment thereof and will not be used for any other meeting. VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF Only shareholders of record at the close of business on February 10, 2000 ("Voting Record Date"), will be entitled to vote at the Annual Meeting. On the Voting Record Date, there were 1,130,510 shares of the Common Stock issued and outstanding, and the Holding Company had no other class of equity securities outstanding. Each share of Common Stock is entitled to one vote at the Annual Meeting on all matters properly presented at the Annual Meeting. The holders of over 50% of the outstanding shares of Common Stock as of the Voting Record Date must be present in person or by proxy at the Annual Meeting to constitute a quorum. In determining whether a quorum is present, shareholders who abstain, cast broker non-votes, or withhold authority to vote on one or more director nominees will be deemed present at the Annual Meeting. The following table sets forth certain information regarding the beneficial ownership at the Common Stock as of February 10, 2000, by each person who is known by the Holding Company to own beneficially 5% or more of the Common Stock. Unless otherwise indicated, the named beneficial owner has sole voting and dispositive power with respect to the shares.
Number of Shares of Name and Address of Common Stock Percent of Beneficial Owner (1) Beneficially Owned Class (2) -------------------- ------------------- ------------- Friedman, Billings, Ramsey Group, Inc. (3) 61,400 5.43% Eric F. Billings Emanuel J. Friedman W. Russell Ramsey 1001 19th Street North Arlington, Virginia 22209-1710 Bay Pond Partners, L.P. (4) 57,200 5.06% Wellington Management Company, LLP Wellington Hedge Management LLC Wellington Hedge Management, Inc. 75 State Street Boston, Massachusetts 02109 John Hancock Advisers, Inc. (5) 77,500 6.86% John Hancock Mutual Life Insurance Company John Hancock Subsidiaries, Inc. The Berkeley Financial Group 101 Huntington Avenue Boston, Massachusetts 02199
(1) The information in this chart is based on Schedule 13D and 13G Reports filed by the above-listed persons with the Securities and Exchange Commission (the "SEC") containing information concerning shares held by them, and information provided to the Holding Company after such filing was made. It does not reflect any changes in those shareholdings which may have occurred since the date of such information provided to the Holding Company. (2) Based upon 1,130,510 shares of Common Stock outstanding which does not include options for 125,915 shares of Common Stock granted to certain directors, officers and employees of the Holding Company and Logansport Savings. (3) A Schedule 13G was filed by these persons indicating that they share dispositive and voting power with respect to these shares. Friedman, Billings, Ramsey Group, Inc. controls FBR Fund Advisers, Inc., which acts as adviser to the FBR Family of Funds which may beneficially own over 5% of the Holding Company's outstanding shares. (4) In Schedules 13G and 13D filed with the SEC, the entities listed above indicate they may be the beneficial owners of the foregoing shares and that over 5% of the Holding Company's outstanding shares may be deemed to be beneficially owned by the Bay Pond Partners, L.P. ("Bay Pond"), a Delaware limited partnership. Any shares not beneficially owned by Bay Pond may be held by other clients of Wellington Management Company, LLP ("WMC"), a Massachusetts limited partnership and a registered investment adviser. WMC's clients share with WMC investment and voting power with respect to the shares held by those clients. Bay Pond also shares dispositive power with respect to certain shares with Wellington Hedge Management LLC ("WHM"), a Massachusetts limited liability company, which is the sole general partner of Bay Pond, and with Wellington Hedge Management, Inc., a Massachusetts corporation, which is the managing member of WHM. (5) In a Schedule 13G amendment filed with the SEC, the entities listed above indicate they may be the beneficial owners of the foregoing shares, which are held by the John Hancock Regional Bank Fund, a registered investment company. John Hancock Advisers, Inc. ("Advisers") acts as investment adviser to that fund. The other entities listed above are parent company affiliates of Advisers. Advisers has sole power to vote and dispose of the shares. PROPOSAL I -- ELECTION OF DIRECTORS The Board of Directors consists of six members. The By-Laws provide that the Board of Directors is to be divided into three classes as nearly equal in number as possible. The members of each class are to be elected for a term of three years and until their successors are elected and qualified. One class of directors is to be elected annually. The one nominee for election as a director this year is William Tincher, Jr., who currently serves as a director whose term will expire upon the completion of the election at the Annual Meeting. Mr. Tincher has been nominated to serve for a three-year term ending in 2003. Messrs. Donald G. Pollitt and Norbert E. Adrian retired from the Board in April and May, 1999, respectively. Unless otherwise directed, each proxy executed and returned by a shareholder will be voted for the election of the nominees listed below. If any person named as a nominee should be unable or unwilling to stand for election at the time of the Annual Meeting, the proxy holders will nominate and vote for a replacement nominee recommended by the Board of Directors. At this time, the Board of Directors knows of no reason why the nominees listed below may not be able to serve as directors if elected. The following table sets forth certain information regarding the nominees for the position of director of the Holding Company and each director continuing in office after the Annual Meeting, including the number and percent of shares of Common Stock beneficially owned by such persons as of the Voting Record Date. Unless otherwise indicated, each director or nominee has sole investment and/or voting power with respect to the shares shown as beneficially owned by him. No nominee for director or director is related to any other nominee for director, director, or executive officer of the Holding Company by blood, marriage, or adoption, and there are no arrangements or understandings between any nominee and any other person pursuant to which such nominee was selected. The table also sets forth the number of shares of Holding Company Common Stock beneficially owned by all directors and executive officers of the Holding Company as a group.
Director Common Stock Director of of the Beneficially Expiration of Logansport Holding Owned as of Term as Savings Company February 10, Percentage Name Director Since Since 2000 (1) of Class - ------------------------------------------------------------------------------------------------------------------ Director Nominees - ----------------- William Tincher, Jr. 2003 1994 1995 23,794(2) 2.1% Directors Continuing in Office - -------------------- Charles J. Evans 2002 1997 1995 47,380(3) 4.1% Brian Morrill 2001 1998 1998 1,458(4) .1% Susanne S. Ridlen 2001 1982 1995 11,439(5) 1.0% David G. Wihebrink 2002 1991 1995 17,949(6) 1.6% Thomas G. Williams 2002 1962 1995 63,601(7) 5.5% All directors and executive officers as a group (8 persons) 178,397(8) 14.8%
(1) Based upon information furnished by the respective directors or director nominees. Under applicable regulations, shares are deemed to be beneficially owned by a person if he or she directly or indirectly has or shares the power to vote or dispose of the shares, whether or not he or she has any economic power with respect to the shares. Includes shares benefically owned by members of the immediate families of the directors or director nominees residing in their homes. (2) Of these shares, 17,867 are held jointly by Mr. Tincher with his spouse and children, 4,721 shares are subject to a stock option granted under the Logansport Financial Corp. Stock Option Plan (the "Option Plan") and 1,058 shares are held under the Logansport Savings Bank, FSB Recognition and Retention Plan and Trust (the "RRP"). Does not include stock options for 1,575 shares which are not exercisable for a period of 60 days following the Voting Record Date. (3) Includes 9,935 shares held jointly by Mr. Evans and his spouse, 31,476 shares subject to a stock option granted under the Option Plan and 5,290 shares are held under the RRP. Does not include stock options for 7,869 shares which are not exercisable for a period of 60 days following the Voting Record Date. (4) Includes 1,058 shares held under the RRP. (5) Includes 1,587 shares held jointly by Ms. Ridlen and her spouse, 6,294 shares subject to a stock option granted under the Option Plan and 1,058 shares held under the RRP. Does not include stock options for 1,575 shares which are not exercisable for a period of 60 days following the Voting Record Date. (6) Of these shares, 1,935 are held by Mr. Wihebrink as custodian for his minor children, 4,721 shares are subject to a stock option granted under the Option Plan and 1,058 shares are held under the RRP. Does not include stock options for 1,575 shares which are not exercisable for a period of 60 days following the Voting Record Date. (7) Includes 31,476 shares subject to a stock option granted under the Option Plan and 5,290 shares held under the RRP. Does not include stock options for 7,869 shares which are not exercisable for a period of 60 days following the Voting Record Date. (8) The total of such shares includes 79,664 shares subject to stock options granted under the Option Plan and 18,812 shares which are held under the RRP. Does not include stock options for 22,582 shares which are not exercisable within a period of 60 days following the Voting Record Date. Presented below is certain information concerning the director nominees of the Holding Company: Charles J. Evans (age 53) became Senior Vice President of Logansport Savings in January, 2000; theretofore he served as Vice President and Senior Loan Officer of Logansport Savings since 1980. He also has served as Vice President of the Holding Company since 1995. Brian Morrill (age 42) has served as President of Cass County Title Company, Inc., a title insurance company founded by him which is based in Logansport, Indiana, since 1994; prior thereto he served as Executive Director of Cass County Family YMCA in Logansport, Indiana. Susanne S. Ridlen (age 59) has served as Faculty member of Indiana University Kokomo since 1969. Ms. Ridlen also currently serves as a member of the Board of Directors of the Cass County Community Foundation in Logansport, Indiana. William Tincher, Jr. (age 60) 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 52), who will become President and Chief Executive Officer of the Holding Company and Logansport Savings at the conclusion of the Annual Meeting of Shareholders, has served as Vice President and Chief Financial Officer of TM Morris Manufacturing Co., Inc. ("Morris") since 1988. Morris is located in Logansport, Indiana, and manufactures lead wire assemblies and wiring harnesses and stampings. Prior to his employment with Morris, Mr. Wihebrink was a member of the accounting firm Smith, Thompson & Wihebrink (Logansport) for 15 years. Mr. Wihebrink also currently serves as a member of the Board of Directors of the Neal Home retirement home in Logansport, Indiana. Thomas G. Williams (age 66) has served as President of Logansport Savings since 1971 and President and Chief Executive Officer of the Holding Company since 1995. He will retire from those positions at the conclusion of the Annual Meeting of Shareholders. THE DIRECTORS SHALL BE ELECTED UPON RECEIPT OF A PLURALITY OF VOTES CAST AT THE ANNUAL SHAREHOLDERS MEETING. PLURALITY MEANS THAT INDIVIDUALS WHO RECEIVE THE LARGEST NUMBER OF VOTES CAST ARE ELECTED UP TO THE MAXIMUM NUMBER OF DIRECTORS TO BE CHOSEN AT THE MEETING. ABSTENTIONS, BROKER NON-VOTES, AND INSTRUCTIONS ON THE ACCOMPANYING PROXY TO WITHHOLD AUTHORITY TO VOTE FOR ONE OR MORE OF THE NOMINEES WILL RESULT IN THE RESPECTIVE NOMINEE RECEIVING FEWER VOTES. HOWEVER, THE NUMBER OF VOTES OTHERWISE RECEIVED BY THE NOMINEE WILL NOT BE REDUCED BY SUCH ACTION. The Board of Directors and its Committees During the fiscal year ended December 31, 1999, the Board of Directors of the Holding Company met or acted by written consent ten times. No director attended fewer than 75% of the aggregate total number of meetings during the last fiscal year of the Board of Directors of the Holding Company held while he served as director and of meetings of committees which he served during that fiscal year. The Board of Directors of the Holding Company has an Audit Committee, a Stock Compensation Committee and a Nominating Committee, among its other Board Committees. All committee members are appointed by the Board of Directors. The Holding Company's Audit Committee is comprised of all members of the Board of Directors, recommends the appointment of the Holding Company's independent accountants, and meets with them to outline the scope and review the results of audits. The Audit Committee met one time during 1999. The Stock Compensation Committee administers the Option Plan, the RRP, and the Logansport Financial Corporation 1999 Stock Option Plan. The members of that Committee are Susanne Ridlen, William Tincher, Jr., and David G. Wihebrink. It met one time during 1999. The Board of Directors nominated the slate of directors set forth in the Proxy Statement. Although the Board of Directors of the Holding Company will consider nominees recommended by shareholders, it has not actively solicited recommendations for nominees from shareholders nor has it established procedures for this purpose. Article III, Section 12 of the Holding Company's By-Laws provides that shareholders entitled to vote for the election of directors may name nominees for election to the Board of Directors but there are certain requirements that must be satisfied in order to do so. Among other things, written notice of a proposed nomination must be received by the Secretary of the Holding Company not less than 60 days prior to the Annual Meeting; provided, however, that in the event that less than 70 days' notice or public disclosure of the date of the meeting is given or made to shareholders (which notice or public disclosure includes the date of the Annual Meeting specified in the Holding Company's By-Laws if the Annual Meeting is held on such date), notice must be received not later than the close of business on the 10th day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made. Management Remuneration and Related Transactions Remuneration of Named Executive Officer During the fiscal year ended December 31, 1999, no cash compensation was paid directly by the Holding Company to any of its executive officers. Each of such officers was compensated by Logansport Savings. The following table sets forth information as to annual, long-term and other compensation for services in all capacities to the Holding Company and its subsidiaries for each of the three fiscal years ended December 31, 1999, of the person who served as chief executive officer of the Holding Company during the fiscal year ended December 31, 1999 (the "Named Executive Officer"). There were no other executive officers of the Holding Company who earned over $100,000 in salary and bonuses during that fiscal year. Mr. Williams has announced his retirement as of the conclusion of the Annual Meeting of Shareholders. David G. Wihebrink, a director of the Holding Company, will replace Mr. Williams as President and Chief Executive Officer. Summary Compensation Table
Long Term Compensation Annual Compensation Awards Other All Annual Restricted Securities Other Name and Fiscal Compen- Stock Underlying Compen- Principal Position Year Salary ($)(1) Bonus ($) sation($)(2) Awards($) Options(#) sation($) - ------------------------------------------------------------------------------------------------------------------- Thomas G. Williams 1999 $121,250 --- --- --- --- --- President, Chief Executive 1998 $ 79,800 $40,347 --- --- --- --- Officer and Director 1997 $ 76,800 $38,898 --- --- --- ---
(1) Includes fees received for service on the Logansport Savings Board of Directors, including fees deferred pursuant to Mr. Williams' deferred compensation agreement. Does not include commissions received on the sale of credit life and mortgage life insurance or fees for appraisal services. See "Transactions with Certain Related Persons." (2) The Named Executive Officer of the Holding Company receives certain perquisites, but the incremental cost of providing such perquisites does not exceed the lesser of $50,000 or 10% of the officer's salary and bonus. Stock Options The following table includes the number of shares covered by stock options held by the Named Executive Officer as of December 31, 1999. Also reported are the values for "in-the-money" options (options whose exercise price is lower than the market value of the shares at fiscal year end) which represent the spread between the exercise price of any such existing stock options and the fiscal year-end market price of the stock. The Named Executive Officer did not exercise any stock options during the fiscal year.
Outstanding Stock Option Grants and Value Realized As Of 12/31/99 ----------------------------------------------------------------- Number of Unexercised Value of Unexercised In-the-Money Options at Fiscal Year End Options at Fiscal Year End (1) Name Exercisable Unexercisable(2) Exercisable Unexercisable ------------------------------------------------------------------------------------------------------------ Thomas G. Williams 23,607 15,738 $ --- $---
(1) Since the average between the high and low prices for the shares on December 31, 1999 was $10.125 per share, and this price is below the $10.53 per share exercise price of the options, none of Mr. Williams' options were "in-the-money" on December 31, 1999. (2) The shares represented could not be acquired by the Named Executive Officer as of December 31, 1999. Employment Contracts Logansport Savings has entered into three-year employment contracts with Mr. Williams, the Holding Company's President and Chief Executive Officer, and Charles J. Evans, the Holding Company's Vice President (together, the "Employees"). The contracts with the Employees extend annually for an additional one-year term to maintain their three-year term if the Board of Directors of Logansport Savings determines to so extend them, unless notice not to extend is properly given by either party to the contract. Each Employee receives an initial salary under the contract equal to his current salary, subject to increases approved by the Board of Directors. The contracts also provide, among other things, for participation in other fringe benefits and benefit plans available to Logansport Savings' employees. Each Employee may terminate his employment upon sixty days' written notice to Logansport Savings. Logansport Savings may discharge each Employee for cause (as defined in the contract) or without cause. If Logansport Savings terminates an Employee's employment for other than cause or if the Employee terminates his own employment for cause (as defined in the contract), the Employee will receive his base compensation under the contract for an additional three years if the termination follows a change of control in the Holding Company (as defined below) or through the date of termination if the termination occurs prior to a change of control. In addition, during such period, the employee will continue to participate in Logansport Savings' group insurance plans or receive comparable benefits. Moreover, within a period of three months after such termination following a change of control, the employee will have the right to cause Logansport Savings to purchase any stock options he holds for a price equal to the fair market value (as defined in the contact) of the shares subject to such options minus their option price. If the payments provided for in the contract, together with any other payments made to the employee by Logansport Savings, are deemed to be payments in violation of the "golden parachute" rules of the Code, such payments will be reduced to the largest amount which would not cause Logansport Savings to lose a tax deduction for such payments under those rules. As of the date hereof, the cash compensation which would be paid under the contracts to the Employees if the contracts were terminated after a change of control of the Holding Company (without cause by Logansport Savings or for cause by the Employees) would be $345,750 for Mr. Williams and $251,250 for Mr. Evans. For purposes of these employment contracts, a change of control of the Holding Company is generally an acquisition of control, as defined in regulations issued under the Change in Bank Control Act and the Savings and Loan Holding Company Act. The employment contracts provide Logansport Savings protection of its confidential business information and protection from competition by the Employees should they voluntarily terminate their employment without cause or be terminated by Logansport Savings for cause. Mr. Williams has advised the Board of Directors that he intends to retire at the conclusion of the Annual Meeting of Shareholders. Upon his retirement, his employment contract will terminate. Executive Supplemental Retirement Income Agreements. Logansport Savings has entered into supplemental retirement agreements with Messrs. Williams and Evans (each, an "Executive"). These agreements provide that upon retirement after attaining age 65, assuming continuous service to Logansport Savings until that date, the Executive is entitled to receive annual supplemental retirement benefits in an amount equal to 40% of the highest salary received by the Executive during any 12 month period during his term of service with Logansport Savings, subject to a maximum benefit of $42,000 annually in the case of Mr. Williams and $52,000 annually in the case of Mr. Evans (the "Annual Retirement Benefit"). These benefits are payable in equal monthly installments over a period of 180 months following retirement. The Executives may elect to receive early retirement benefits upon attaining age 62, assuming continuous service to Logansport Savings until that date. Upon an Executive's election to receive such benefits, the Executive is entitled to receive his Annual Retirement Benefit, reduced by 3% in the case of Mr. Williams and 2% in the case of Mr. Evans, for each year or fraction thereof that the Executive's early retirement date precedes his normal retirement date. These early retirement benefit payments begin at the Executive's normal retirement date. However, earlier payment may be requested by the Executive, subject to Board approval. If early payment is approved by the Board of Directors, the Executive's benefit amount is reduced to the present value using a discount rate equal to Logansport Savings' average cost of deposits for the most recent 12 month period. If early payment is not approved by the Board, the Executive is entitled to receive that portion of his Annual Retirement Benefit which is required to be expensed and accrued under generally accepted accounting principles (the "Accrued Benefit") and is vested. Mr. Williams' benefits are fully vested. Mr. Evans' benefits are 80% vested and will continue to vest at the rate of 20% for each additional calendar year of his service through calendar year 2000. If the Executive dies prior to retirement, his beneficiary will receive an annual survivor's benefit in an amount equal to 40% of the Executive's annual salary at death, subject to a maximum $42,000 in the case of Mr. Williams and $52,000 in the case of Mr. Evans. The survivor's benefit is payable in equal monthly installments over a period of 180 months. If the Executive dies after he has begun receiving retirement benefits under his agreement, his beneficiary will continue to receive the balance of the payments otherwise payable to the Executive under his agreement. Upon the Executive's death, his beneficiary also will receive a one-time lump sum death benefit in the amount of $12,500. If the Executive is disabled prior to retirement, the Executive is entitled to receive his Accrued Benefit payable in equal monthly installments over a period of 180 months. If the Executive dies while receiving disability benefit payments, his beneficiary is entitled to receive an annual survivor's benefit in an amount equal to $42,000 in the case of Mr. Williams and $52,000 in the case of Mr. Evans payable in equal monthly installments for the remainder of the Executive's 180 month disability benefit period. In addition, at the Executive's death, if the total disability benefit payments received, or to be received, are less than $250,000, the Executive's beneficiary is entitled to a lump sum payment in an amount sufficient to make the total benefits equal to $250,000. Payments of benefits under the agreements are conditioned upon (1) the Executive not becoming employed by a competitor of Logansport Savings or otherwise competing with Logansport Savings while receiving benefits under the agreements and (2) in the case of Mr. Williams, the Executive rendering reasonable business consulting advisory services to Logansport Savings for a period of five years following his retirement. Mr. Evans' agreement provides that if he is terminated for any reason other than cause, he is entitled to receive that portion of his Accrued Benefit which has vested. No benefits are provided if Mr. Evans voluntarily terminates his employment before he is otherwise entitled to benefits under the agreement. If an Executive's employment is terminated for cause, all benefits under his agreement are forfeited and the agreement is rendered null and void. Logansport Savings expensed $58,161 in connection with these agreements for the year ended December 31, 1999. Logansport Savings has purchased paid-up life insurance on the lives of the Executives to fund the benefits payable under the supplemental retirement agreements. See "-- Insurance to Fund Certain Benefits." Compensation of Directors All directors of Logansport are entitled to receive a monthly director fee of $500. Total fees paid to directors for the year ended December 31, 1999 were $44,872. Logansport Savings' directors may, pursuant to deferred compensation agreements, defer payment of some or all of the directors' fees until after they retire or otherwise no longer serve as directors. Upon their attainment of age 70, directors who participate in the deferred compensation plan receive fixed monthly payments for 180 months, but may also elect to receive their benefits in a lump sum. The amount of each director's monthly payments depends on the amount of fees deferred and the period over which the fees were deferred. The agreements also provide for the payment of disability benefits and death benefits. The beneficiary of a director participating in the deferred compensation plan also receives a $7,500 lump sum death benefit upon the director's death. Logansport Savings has purchased paid-up life insurance on the lives of directors participating in the deferred compensation plans to fund benefits payable thereunder. Logansport Savings expensed $16,661 in connection with these agreements for the year ended December 31, 1999. See "-- Insurance to Fund Certain Benefits." Advisory Director, Forrest H. Montgomery, receives a monthly advisory director fee of $331 pursuant to the terms of an amended death benefit agreement. See "-- Death Benefit Agreement with Advisory Director." Directors of the Holding Company are not currently paid directors' fees. The Holding Company may, if it believes it is necessary to attract qualified directors or otherwise beneficial to the Holding Company, adopt a policy of paying directors' fees. Death Benefit Agreement with Advisory Director Logansport Savings has entered into an amended death benefit agreement with Forrest H. Montgomery, an advisory director to Logansport. This agreement provides for the payment of a monthly benefit in the amount of $331 which commenced on April, 1992 upon Mr. Montgomery's retirement and continues for a 120-month period. If Mr. Montgomery dies while receiving monthly benefits under the Agreement, the unpaid balance of the monthly payments will be paid monthly to his designated beneficiary for the remainder of the period. The payment of these benefits is conditioned upon (i) Mr. Montgomery's continued service as an advisory director to Logansport and (ii) Mr. Montgomery not becoming employed by a competitor of Logansport Savings or otherwise competing with Logansport Savings while receiving benefits under the agreement and for a period of two (2) years thereafter. Logansport Savings has purchased paid-up life insurance on the life of Mr. Montgomery to fund the benefits payable under the amended death benefit agreement. See "-- Insurance to Fund Certain Benefits." Insurance to Fund Certain Benefits Logansport Savings has purchased paid-up life insurance on the lives of the Executives covered under the supplemental retirement income agreements with Mr. Williams and Mr. Evans, and on the lives of the directors and the advisory director covered under the deferred compensation agreements and the amended death benefit agreement to fund the obligations under these agreements. The insurance is provided by Transamerica Life Insurance Company. At December 31, 1999, the cash surrender value of the policies was carried on the books of Logansport at an amount equal to $1,184,069. Transactions With Certain Related Persons Logansport Savings has followed a policy of offering to its directors, officers, and employees real estate mortgage loans secured by their principal residence and other loans. These loans are made in the ordinary course of business with the same collateral, interest rates and underwriting criteria as those of comparable transactions prevailing at the time and do not involve more than the normal risk of collectibility or present other unfavorable features. Loans to directors and executive officers totaled approximately $722,083, or 4.47% of shareholders' equity on a consolidated basis at December 31, 1999. In addition to his compensation from Logansport Savings, Mr. Williams also receives commissions on sales of credit life insurance and mortgage life insurance to Logansport Savings' customers. Mr. Williams is duly licensed to sell such products and retain 50% of the commissions received on credit life and mortgage life insurance sales. Logansport Savings receives the other half of the commissions earned by Mr. Williams from the sales of these products. For the year ended December 31, 1999, Mr. Williams received $6,133 in commissions from the sale of credit life and mortgage life insurance. Logansport Savings currently utilizes Mr. Evans, who is a state licensed appraiser, as a staff appraiser for substantially all residential mortgage loans under $250,000. Mr. Williams serves as a review appraiser for all appraisals performed by Mr. Evans. As part of closing costs, Logansport charges an appraisal fee of approximately $100 for all residential mortgage loans. In connection with their appraisal work, Mr. Evans and Mr. Williams receive 60% and 40%, respectively, of this appraisal fee. For the year ended December 31, 1999, Mr. Evans and Mr. Williams received $2,385 and $5,750, respectively, as compensation for their appraisal work. Logansport Savings currently utilizes Cass County Title Company, Inc. to provide title insurance or to perform real estate searches in connection with its mortgage lending. Brian Morrill, a director of the Holding Company and of Logansport Savings, is President and principal owner of Cass County Title Company, Inc. During 1999, that company received fees for such title insurance and real estate searches from Logansport Savings in the amount of approximately $24,945. SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Section 16(a) of the Securities Exchange Act of 1934, as amended ("1934 Act"), requires that the Holding Company's officers and directors and persons who own more than 10% of the Holding Company's Common Stock file reports of ownership and changes in ownership with the Securities and Exchange Commission (the "SEC"). Officers, directors and greater than 10% shareholders are required by SEC regulations to furnish the Holding Company with copies of all Section 16(a) forms that they file. Based solely on its review of the copies of such forms received by it, and/or written representations from certain reporting persons that no Forms 5 were required for those persons, the Holding Company believes that for the fiscal year ended December 31, 1999, all filing requirements applicable to its officers, directors and greater than 10% beneficial owners with respect to Section 16(a) of the 1934 Act were satisfied in a timely manner. ACCOUNTANTS Grant Thornton LLP has served as auditors for the Holding Company since 1997. A representative of Grant Thornton LLP is expected to be present at the Annual Meeting with the opportunity to make a statement if he so desires. He will also be available to respond to any appropriate questions shareholders may have. Grant Thornton LLP has been selected as the independent public accounting firm to audit the Holding Company's books, records and accounts for the fiscal year ended December 31, 2000. SHAREHOLDER PROPOSALS Any proposal which a shareholder wishes to have presented at the next Annual Meeting of the Holding Company and included in the Holding Company's proxy statement and form of proxy relating to that meeting, must be received at the main office of the Holding Company no later than 120 days in advance of March 8, 2001. Any such proposal should be sent to the attention of the Secretary of the Holding Company at 723 East Broadway, Logansport, Indiana 46947. A shareholder proposal being submitted outside the processes of Rule 14a-8 promulgated under the 1934 Act will be considered untimely if it is received by the Holding Company later than 60 days in advance of the Annual Meeting. OTHER MATTERS Management is not aware of any business to come before the Annual Meeting other than those matters described in the Proxy Statement. However, if any other matters should properly come before the Annual Meeting, it is intended that the proxies solicited hereby will be voted with respect to those other matters in accordance with the judgment of the persons voting the proxies. The cost of solicitation of proxies will be borne by the Holding Company. The Holding Company will reimburse brokerage firms and other custodians, nominees and fiduciaries for reasonable expenses incurred by them in sending proxy material to the beneficial owners of the Common Stock. In addition to solicitation by mail, directors, officers, and employees of the Holding Company may solicit proxies personally or by telephone without additional compensation. Each shareholder is urged to complete, date and sign the proxy and return it promptly in the enclosed envelope. By Order of the Board of Directors /S/ Thomas G. Williams Thomas G. Williams, President and Chief Executive Officer March 8, 2000 REVOCABLE PROXY LOGANSPORT FINANCIAL CORP. Annual Meeting of Shareholders April 11, 2000 The undersigned hereby appoints Sheila Wildermuth and Dottye Robeson, with full powers of substitution, to act as attorneys and proxies for the undersigned to vote all shares of common stock of Logansport Financial Corp. which the undersigned is entitled to vote at the Annual Meeting of Shareholders to be held at the office of Logansport Financial Corp. at 723 East Broadway, Logansport, Indiana, on Tuesday, April 11, 2000, at 2:00 P.M., and at any and all adjournments thereof, as follows: 1. The election as directors of the nominee listed below, except as marked to the contrary [ ] FOR [ ] VOTE WITHHELD INSTRUCTIONS: To withhold authority to vote for the nominee, strike a line through the nominee's name on the list below: William Tincher, Jr. (for a three-year term) In their discretion, the proxies are authorized to vote on any other business that may properly come before the Meeting or any adjournment thereof. The Board of Directors recommends a vote "FOR" the listed proposition. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS This Proxy may be revoked at any time prior to the voting thereof. The undersigned acknowledges receipt from Logansport Financial Corp., prior to the execution of this Proxy, of Notice of the Meeting, a Proxy Statement and an Annual Report to Shareholders. THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NO INSTRUCTIONS ARE SPECIFIED, THIS PROXY WILL BE VOTED FOR THE DIRECTOR NOMINEE. IF ANY OTHER BUSINESS IS PRESENTED AT SUCH MEETING, THIS PROXY WILL BE VOTED BY THOSE NAMED IN THIS PROXY IN THEIR BEST JUDGMENT. AT THE PRESENT TIME, THE BOARD OF DIRECTORS KNOWS OF NO OTHER BUSINESS TO BE PRESENTED AT THE MEETING. _______________________________, 2000 _________________________ _________________________ Print Name of Shareholder Print Name of Shareholder _________________________ _________________________ Signature of Shareholder Signature of Shareholder Please sign as your name appears on the envelope in which this card was mailed. When signing as attorney, executor, administrator, trustee or guardian, please give your full title. If shares are held jointly, each holder should sign. EX-13 2 SHAREHOLDER ANNUAL REPORT TABLE OF CONTENTS Page Directors and Officers 2 President's Message to Shareholders 3 Selected Consolidated Financial Data 4 Management's Discussion and Analysis 6 Report of Independent Certified Public Accountants 21 Consolidated Statements of Financial Condition 22 Consolidated Statements of Earnings 23 Consolidated Statements of Comprehensive Income 24 Consolidated Statements of Changes in Shareholders' Equity 25 Consolidated Statements of Cash Flows 26 Notes to Consolidated Financial Statements 28 BUSINESS OF LOGANSPORT FINANCIAL CORP. Logansport Financial Corp. ("Logansport Financial" or the "Company"), an Indiana corporation, became a unitary savings and loan holding company upon the conversion of Logansport Savings Bank, FSB (the "Bank") from a federal mutual savings bank to a federal stock savings bank in June, 1995. The Company and the Bank conduct business from a single office in Logansport, Cass County, Indiana. The Bank is and historically has been among the top real estate mortgage lenders in Cass County and is the oldest financial institution headquartered in Cass County. The Bank offers a variety of retail deposit and lending services. The Company has no business activity other than being the holding company for the Bank. The Company is the sole shareholder of the Bank. MISSION STATEMENT "The Board of Directors, management and staff of Logansport Savings Bank are dedicated to serving the needs of our customers, providing them with the best possible service in an efficient, friendly, caring atmosphere. As a vital part of this community, Logansport Savings Bank seeks to continue partnering with local business and individuals. The customers, employees, and shareholders are an integral part of Logansport Savings Bank and are best served if the Bank remains an independent, locally controlled and operated, profitable financial institution." 1 Logansport Financial Corp. DIRECTORS AND OFFICERS DIRECTORS Charles J. Evans (age 54) has served as Vice President and Senior Loan Officer of Logansport Savings Bank, FSB since 1980. Mr. Evans was promoted to Senior Vice President in January 2000. Brian J. Morrill (age 42) is the founder and President of Cass County Title Company, Inc. The firm provides title insurance policies and real estate searches for lenders, realtors, attorneys, and the general public. Prior to founding Cass County Title Company, Morrill served for ten years as the Executive Director of the Cass County Family YMCA in Logansport, Indiana. Morrill has served on several community boards and is currently Chairman of the Logansport/Cass County Chamber of Commerce. Susanne S. Ridlen (age 60) has served as an adjunct faculty member of Indiana University Kokomo ("IUK") since 1969. Ms. Ridlen also currently serves as a member of the Board of Directors of the Logansport Art Association and the Cass County Children's Home in Logansport, Indiana. William Tincher, Jr. (age 60) 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 52) has served as Vice President and Chief Financial Officer of TM Morris Manufacturing Co., Inc. ("Morris") since 1988. Morris is located in Logansport, Indiana, and manufactures lead wire assemblies and wiring harnesses and stampings. Prior to his employment with Morris, Mr. Wihebrink was a member of the accounting firm Smith, Thompson & Wihebrink (Logansport) for 15 years. Mr. Wihebrink also currently serves as a member of the Board of Directors of the Neal House retirement home in Logansport, Indiana. Thomas G. Williams (age 67) has served as President of Logansport Savings Bank, FSB since 1971. LOGANSPORT FINANCIAL CORP. LOGANSPORT SAVINGS BANK, FSB Officers Officers THOMAS G. WILLIAMS THOMAS G. WILLIAMS - President President and Chief Executive Officer CHARLES J. EVANS - Senior Vice President CHARLES J. EVANS DOTTYE ROBESON - Chief Financial Officer/ Vice President Secretary/Treasurer DOTTYE ROBESON ALLEN SCHIEBER - Senior Vice President Secretary/Treasurer JEFFREY JONES - Vice President SHEILA WILDERMUTH - Vice President MARK DEBARGE - Assistant Vice President KAY GAPSKI - Assistant Vice President 2 Dear Shareholder: The year 2000 will mark the 75th anniversary of Logansport Savings Bank, FSB, the subsidiary of Logansport Financial Corp. We look forward to celebrating this anniversary and reviewing the accomplishments of the last seventy-five years, while never taking our eyes off plans for the future. When I joined the Bank nearly 41 years ago there were only two employees and assets totaled $750,000. At year-end 1999, total assets of the consolidated Company were $117.5 million. The year 1999 was a year of excitement and transition for us. Our profitability mirrored our 1998 results but in many respects we were a very different institution. We moved into our new banking facility in March of 1999 and the remodeling of the old building was completed by May. We are extremely proud of the completed project. It is a beautiful building and ideal for our needs now and in the future. We hosted a community open house in May and we have received nothing but compliments on our facility. If you have not visited us, please stop by and look around and meet our very capable staff who is ready to meet your every banking need. In 1998 we added a commercial lender and 1999 reflected the results of that decision. Total loans increased by $17.8 million, a 24.4% increase over 1998. This growth was instrumental in maintaining our income while expanding into a new facility and doubling our staff to meet the needs of our customers. Additionally, in September of 1999 we hired Jeff Jones, a well-known local agricultural lender. We expect this division to further enhance the earnings of the Company and provide a much-needed service to the agricultural sector. We welcome Jeff to the Bank. Our return on average assets was 1.14% and return on equity was 7.33%. During the year a 10% stock repurchase program was authorized. Since our conversion in 1995 we have authorized a total of 20% of our stock to be repurchased. Each repurchase enhances shareholder value and this was reflected in our earnings per share numbers. In 1999, basic earnings per share was $1.03 compared to $1.00 in 1998. These repurchases evidence our commitment to create value for our shareholders over the long term. We have continued to pay quarterly dividends since our conversion to a stock institution and remain committed to this practice. We are pleased with our performance but disappointed by the failure of the market to recognize the value of the Company. We remain optimistic that the market will soon have a renewed recognition of our potential. Logansport Financial Corp. and Logansport Savings Bank look confidently forward to a new century. The changing of the calendar brings new challenges and we must be ready to meet them. We remain committed to providing excellent banking services for the people of this area and we continually look for better ways to serve our customers. I am proud to have served this Bank and this community for so many years and though my role will shift from President to Director in this next year, my commitment to work for the good of this institution will remain the same. We look to the future and we will be ever working to be "Your Bank". Please join us for our annual meeting on April 11th, 2000 to help us celebrate the successes of the past and the potential for the future. Sincerely, /s/Thomas G. Williams Thomas G. Williams, President 3 Logansport Financial Corp. SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA The following tables set forth certain information concerning Logansport Financial's consolidated financial position, results of operations and other data at the dates and for the periods indicated.
At December 31, Statement of Financial Condition Data: 1999 1998 1997 1996 1995 (In thousands) Total assets $117,468 $ 96,085 $ 86,115 $ 77,668 $ 74,647 Loans receivable, net 90,900 73,073 63,635 56,802 49,707 Mortgage-backed securities 5,898 8,129 9,932 6,674 7,468 Cash and cash equivalents 5,146 4,328 2,269 3,759 3,243 Investment securities 8,539 5,033 5,750 7,629 11,285 Certificates of deposit in other financial institutions -- -- 100 100 100 Deposits 76,011 70,011 60,595 57,396 52,461 Borrowings 24,307 8,375 8,025 3,400 1,000 Shareholders' equity - net 16,146 16,488 16,542 15,427 20,454
Year ended December 31, Summary of Operating Results: 1999 1998 1997 1996 1995 (In thousands, except share data) Interest income $7,599 $6,579 $6,101 $5,653 $4,775 Interest expense 4,043 3,476 3,115 2,719 2,468 ------ ------ ------ ------ ------ Net interest income 3,556 3,103 2,986 2,934 2,307 Provision for losses on loans 162 63 26 12 20 ------ ------ ------ ------ ------ Net interest income after provision for losses on loans 3,394 3,040 2,960 2,922 2,287 Other income 175 285 170 82 179 General, administrative and other expense 1,667 1,322 1,170 1,584 1,032 ------ ------ ------ ------ ------ Earnings before income taxes 1,902 2,003 1,960 1,420 1,434 Income taxes 678 756 728 507 526 ------ ------ ------ ------ ------ Net earnings $1,224 $1,247 $1,232 $ 913 $ 908 ====== ====== ====== ====== ====== Basic earnings per share $ 1.03 $ 1.00 $ .98 $ .69 N/A (1) ====== ====== ====== ====== ====== Diluted earnings per share $ 1.02 $ .97 $ .95 $ .69 N/A (1) ====== ====== ====== ====== ====== Cash dividends per share Regular $ .44 $ .43 $ .40 $ .40 $ .20 ====== ====== ====== ====== ====== Special N/A N/A N/A $ 3.00 (2) N/A ====== ====== ====== ====== ======
Footnotes on following page. 4 Logansport Financial Corp. SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA (CONTINUED)
Year ended December 31, Supplemental Data: 1999 1998 1997 1996 1995 Return on assets (3) 1.14% 1.37% 1.50% 1.18% 1.34% Return on equity (4) 7.33 7.44 7.69 4.76 6.33 Interest rate spread (5) 2.86 2.70 2.94 2.80 2.77 Net yield on interest earning assets (6) 3.54 3.61 3.86 3.99 3.64 General, administrative and other expense to average assets 1.55 1.45 1.42 2.04 1.53 Net interest income to general, administrative and other expense 213.32 234.72 255.21 185.23 223.55 Equity-to-assets (7) 13.75 17.16 19.21 19.86 27.40 Average interest-earning assets to average interest-bearing liabilities 117.20 122.72 123.36 132.80 122.90 Non-performing assets to total assets .57 .33 .62 .52 .42 Non-performing loans to total loans .72 .42 .67 .71 .63 Loan loss allowance to total loans .47 .38 .38 .41 .45 Loan loss allowance to non-performing loans 66.07 90.48 56.84 58.12 71.61 Dividend payout ratio 42.72 43.00 40.82 57.97(8) --- (1) Net charge-offs to average loans * .03 .03 * * * Less than .01% - ------------- (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 earnings divided by average total assets. (4) Net earnings 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 total assets. (8) Excludes special one-time $3.00 per share cash distribution.
5 Logansport Financial Corp. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS General The Company was formed as part of the conversion of the Bank from a federal mutual savings bank to a federal stock savings bank, which was completed June 13, 1995. The Company has no activity other than being the holding company for the Bank. The principal business of savings associations, including the Bank, has historically consisted of attracting deposits from the general public and making loans secured by residential and other real estate. The Bank and all other savings associations are significantly affected by prevailing economic conditions, as well as government policies and regulations concerning, among other things, monetary and fiscal affairs, housing and financial institutions. Deposit flows are influenced by a number of factors, including interest rates paid on competing investments, account maturities and levels of personal income and savings. In addition, deposit growth is affected by how customers perceive the stability of the financial services industry amid various current events such as regulatory changes, failures of other financial institutions and financing of the deposit insurance fund. Lending activities are influenced by the demand for and supply of housing lenders, the availability and cost of funds and various other items. Sources of funds for lending activities of the Bank include deposits, borrowings, payments on loans and income provided from operations. The Bank's earnings are primarily dependent upon its net interest income, which is the difference between interest income on interest-earning assets and interest expense on interest-bearing liabilities. Interest income is a function of the balances of loans and investments outstanding during a given period and the yield earned on such loans and investments. Interest expense is a function of the amount of deposits and borrowings outstanding during the same period and interest rates paid on such deposits and borrowings. The Bank's earnings are also affected by provisions for loan losses, service charges, operating expenses and income taxes. Forward-Looking Statements In the following pages, management presents an analysis of the Company's financial condition as of December 31, 1999, and the results of operations for the year ended December 31, 1999, as compared to prior periods. In addition to this historical information, the following discussion contains forward-looking statements that involve risks and uncertainties. Economic circumstances, the Company's operations and the Company's actual results could differ significantly from those discussed in the forward-looking statements. Some of the factors that could cause or contribute to such differences are discussed herein but also include changes in the economy and interest rates in the nation and in the Company's general market area. Without limiting the foregoing, some of the forward-looking statements include the following: 1. Management's establishment of an allowance for loan losses and its statements regarding the adequacy of such allowance for loan losses. 2. Management's opinion as to the financial statement effec of recent accounting pronouncements. 3. Management's opinion as to the effect of changes in interest rates on the Company's results of operations. 6 Logansport Financial Corp. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Changes in Financial Condition from December 31, 1998 to December 31, 1999 General The Company's total assets were $117.5 million at December 31, 1999, an increase of $21.4 million, or 22.3%, over the $96.1 million total at December 31, 1998. The increase in assets was funded through growth in deposits of $6.0 million and increases in borrowings of $16.0 million. The percentage of interest-earning assets to total assets was 94.0% and 94.5% at December 31, 1999 and 1998, respectively. At December 31, 1999, the total of investment and mortgage-backed securities was $14.4 million, compared to $13.2 million at December 31, 1998, an increase of $1.2 million, or 9.7%. The primary investments added to the portfolio were FHLB callable fixed rate notes. At December 31, 1999, the Company held $523,000 of corporate obligations, all of which was debt of domestic corporations rated AA or better by Moody's Investors Service, Inc. The Company had $300,000 of structured FHLB notes in its investment portfolio at December 31, 1999, which will mature in July, 2000. Total loans increased by $17.8 million from December 31, 1998 to December 31, 1999, an increase of 24.4%. Most of the increase occurred in the one- to four-family mortgages and commercial loans. One- to four-family mortgage loans increased by $5.7 million, or 10.9%, and loans secured by nonresidential real estate and commercial loans increased by $10.9 million, or 219.9%. The increase in loans was funded primarily by the increase in deposits and advances. During 1997 the Company invested $1.5 million in a limited partnership, which will construct and manage residential real estate apartments for low and moderate income residents. This investment reflects a 49.5% participation in the partnership. The affordable housing project is expected to generate tax credits for the Bank in future years. This investment resulted in an increase to total assets of $1.5 million with a corresponding increase in notes payable. At December 31, 1998, the project was just beginning to rent apartments; therefore, there was no material income or loss to allocate to the Company. During 1999 the housing project passed through pretax losses of $121,000 due to lower than anticipated occupancy. The project is anticipated to meet its projected occupancy targets during 2000. Deposits increased by $6.0 million to $76.0 million at December 31, 1999, from $70.0 million at December 31, 1998. Non-interest bearing deposits, NOW accounts, passbook savings and money market savings increased by $200,000 while certificates of deposit increased by $5.8 million. Borrowings increased by $16.0 million during the year. At December 31, 1999, borrowings consisted of $23.0 million in FHLB advances and at December 31, 1998 borrowings consisted of $7.0 million in FHLB advances. Shareholders' equity totaled $16.1 million at December 31, 1999, a decrease of $342,000, or 2.1%, from December 31, 1998. The decrease resulted primarily from payment of $521,000 in regular quarterly dividends, common stock repurchases totaling $696,000, and a $483,000 increase in unrealized losses on available for sale securities. Equity was increased by the effects of amortization of the Company's Recognition and Retention Plan and net earnings for the year ended December 31, 1999, of $1.2 million. Comparison of Results of Operations for the Years Ended December 31, 1999 and 1998 Net earnings totaled $1.2 million for the year ended December 31, 1999, a $23,000, or 1.8%, decrease from the net earnings reported for 1998. The decrease in net earnings resulted primarily from an increase of $99,000 in the provision for losses on loans, a decrease of $110,000 in other income and an increase of $345,000 in general, administrative and other expense, which were partially offset by an increase of $453,000 in net interest income and a decrease of $78,000 in the provision for income taxes. 7 Logansport Financial Corp. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Comparison of Results of Operations for the Years Ended December 31, 1999 and 1998 (continued) Interest Income The Company's total interest income was $7.6 million for the year ended December 31, 1999, compared to $6.6 million during 1998, an increase of $1.0 million, or 15.5%. The increase in average interest earning assets from $86.7 million in 1998 to $101.4 million in 1999 helped contribute to the increase. However, falling loan rates contributed to a 9 basis point decrease in the average yield on interest earning assets, to 7.53% in 1999 compared to 7.62% in 1998. Interest Expense Interest expense increased by $567,000, or 16.3%, for the year ended December 31, 1999, compared to 1998. This increase was the result of an increase in the average balance of interest-bearing liabilities of $15.8 million and the decrease in the average cost of these liabilities by 25 basis points, from 4.92% during 1998 to 4.67% in 1999. Local competition resulted in pressure to maintain competitive rates on deposits, while use of FHLB advances lowered the cost of interest bearing liabilities. Net Interest Income Net interest income increased by $453,000, or 14.6%, to approximately $3.6 million in 1999, as compared to $3.1 million in 1998. The net yield on weighted average interest-earning assets declined in 1999 to 3.54% from 3.61% in 1998. Provision for Losses on Loans The Company's provision for losses on loans for the years ended December 31, 1999 and 1998, was $162,000 and $63,000, respectively. A larger provision was recorded in 1999 due to the increase in the volume of loans secured by nonresidential and commercial real estate. Management considered this provision and the related increase in the allowance for loan losses adequate based on the degree of delinquencies in the loan portfolio and the Company's loan loss history. There were no recoveries in 1999 and 1998, while charge-offs totaled $7,000 and $23,000 in 1999 and 1998, respectively. 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, 1999 and 1998, the allowance was $440,000 and $285,000, respectively, for a ratio to total loans of .47% in 1999 and .38% in 1998. Non-performing loans at these dates were $666,000 and $315,000, respectively. The ratio of allowance for loan losses to non-performing loans decreased from 90.5% at December 31, 1998 to 66.1% at December 31, 1999. Based on management's review of the loan portfolio during these years, the allowance for loan losses at December 31, 1999 and 1998, is considered adequate to cover potential losses inherent in the loan portfolio. Other Income The Company's other income for the year ended December 31, 1999, without the loss on equity investments, was $296,000, compared to $285,000 in 1998. The $121,000 loss on equity investments recorded in 1999 had an after tax effect of approximately $40,000, when considering the tax benefit and the available tax credits generated by the project. 8 Logansport Financial Corp. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Comparison of Results of Operations for the Years Ended December 31, 1999 and 1998 (continued) General, Administrative and Other Expense General, administrative and other expense totaled $1.7 million in 1999, compared to $1.3 million in 1998, an increase of $345,000, or 26.1%. Employee compensation and benefits increased by $182,000, or 24.5%, due primarily to additional personnel. Data processing fees increased by $37,000, or 33.6%, due primarily to increased account volume and the additional commercial loan software maintenance costs. Various other operating expenses increased by $50,000, or 14.7%. The majority of the increase was related to additional operating costs associated with increased account volume, new services, consulting fees and office supplies, all of which were primarily related to the new building and additional personnel. Income Tax Expense Income tax expense for the years ended December 31, 1999 and 1998, was $678,000 and $756,000, respectively. Pretax income decreased only slightly in 1999 compared to 1998, but approximately $40,000 of tax credits were available in 1999. This resulted in a corresponding decrease in income tax expense. The effective tax rates were 35.6% and 37.7% for the years ended December 31, 1999 and 1998, respectively. Comparison of Results of Operations for the Years Ended December 31, 1998 and 1997 Net earnings totaled $1.2 million for the year ended December 31, 1998, a $15,000, or 1.2%, increase over the net earnings reported for 1997. The increase in net earnings resulted primarily from a $117,000 increase in net interest income and a $115,000 increase in other income, which were partially offset by a $37,000 increase in the provision for losses on loans, a $152,000 increase in general, administrative and other expense and a $28,000 increase in the provision for federal income taxes. Interest Income The Company's total interest income was $6.6 million for the year ended December 31, 1998, compared to $6.1 million during 1997, an increase of $478,000, or 7.8%. The increase in average interest earning assets from $78.6 million in 1997, to $86.7 million in 1998 helped contribute to the increase. However, falling loan rates contributed to a 21 basis point decrease in the average yield on interest earning assets, to 7.62% in 1998 compared to 7.83% in 1997. Average loan yield, yield on mortgage-backed securities, investment securities and interest-earning deposits all declined during the year. Interest Expense Interest expense increased by $361,000, or 11.6%, for the year ended December 31, 1998 compared to 1997. This increase was the result of an increase in the average balance of interest-bearing liabilities of $7.0 million and the increase in the average cost of these liabilities by 3 basis points, from 4.89% during 1997 to 4.92% in 1998. Local competition resulted in pressure to maintain competitive rates, resulting in a continued decline in the interest rate spread. 9 Logansport Financial Corp. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Comparison of Results of Operations for the Years Ended December 31, 1998 and 1997 (continued) Net Interest Income Net interest income increased by $117,000, or 3.9%, to approximately $3.1 million in 1998, as compared to $3.0 million in 1997. The net yield on weighted average interest-earning assets declined in 1998 to 3.61% from 3.86% in 1997. Provision for Losses on Loans The Company's provision for losses on loans for the years ended December 31, 1998 and 1997, was $63,000 and $26,000, respectively. A larger provision was made in 1998 due primarily to the development of a commercial loan department. Management considered this provision and the related increase in the allowance for loan losses adequate based on the degree of delinquencies in the loan portfolio and the Company's loan loss history. There were no recoveries in 1998, recoveries of $1,100 in 1997, and charge-offs of $23,000 and $18,000 in 1998 and 1997, respectively. The Bank also recorded as a charitable donation an $8,000 property held in real estate acquired through foreclosure during 1997, which the Bank donated to Habitat for Humanity of Cass County, Indiana, Inc. 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, 1998 and 1997, the allowance was $285,000 and $245,000, respectively, for a ratio of .38% of total loans at each date. Non-performing loans at these dates were $315,000 and $431,000, respectively. The ratio of allowance for loan losses to non-performing loans increased from 56.8% at December 31, 1997 to 90.5% at December 31, 1998. Based on management's review of the loan portfolio during these years, the allowance for loan losses at December 31, 1998 and 1997, is considered adequate to cover potential losses inherent in the loan portfolio. Other Income The Company's other income for the years ended December 31, 1998 and 1997 was $285,000 and $170,000, respectively. The year ended December 31, 1997 included a $24,000 recovery on investments previously written off. During 1997, the Company recorded $50,000 of net losses on sales of securities. Structured notes of $2.0 million were sold at a net loss and the proceeds were reinvested in higher yielding securities, primarily mortgage and other asset-backed securities. During 1998, the Company had net gains of $4,000 on security sales. Service charges on deposit accounts increased by $18,000 in 1998 compared to 1997. General, Administrative and Other Expense General, administrative and other expense totaled $1.3 million in 1998, compared to $1.2 million in 1997, an increase of $152,000, or 13.0%. Employee compensation and benefits increased by $95,000, or 14.6%, due primarily to a general compensation increase and additional personnel. Data processing fees increased $14,000, or 14.6%, for the year. Various other operating expenses increased by $30,000, or 9.7%. The majority 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, 1998 and 1997, was $756,000 and $728,000, respectively. Pretax income increased only slightly in 1998 over 1997. This resulted in a corresponding increase in income tax expense. The effective tax rates were 37.7% and 37.1% for the years ended December 31, 1998 and 1997, respectively. 10 AVERAGE BALANCE, YIELD, RATE AND VOLUME DATA The following table presents for the periods indicated the month-end average balances of each category of the Company's interest-earning assets and interest-bearing liabilities, and the average yields earned and interest rates paid on such balances. Such yields and costs are determined by dividing income or expense by the average balance of assets or liabilities, respectively, for the periods presented.
Year ended December 31, 1999 1998 1997 Average Interest Average Interest Average Interest outstanding earned/ Yield/ outstanding earned/ Yield/ outstanding earned/ Yield/ balance paid rate balance paid rate balance paid rate (Dollars in thousands) Interest-earning assets: Interest-earning deposits $ 4,571 $ 205 4.48% $ 4,699 $ 232 4.93% $3,398 $ 179 5.27% Mortgage- and other asset- backed securities (1) 7,032 421 5.99 9,327 522 5.60 8,380 559 6.67 Other investment securities (1) 6,820 453 6.64 4,337 277 6.39 6,715 444 6.61 Loans receivable (2) 82,091 6,484 7.90 67,793 5,535 8.16 59,606 4,932 8.27 Stock in FHLB of Indianapolis 864 69 8.00 549 44 8.01 466 37 7.94 --------- ------- -------- ------- -------- ------- Total interest-earning assets 101,378 7,632 7.53 86,705 6,610 7.62 78,565 6,151 7.83 Non-interest-earning assets 6,446 4,562 3,650 -------- ------- ------- Total assets $107,824 $91,267 $82,215 ======== ======= ======= Interest-bearing liabilities: Savings accounts $ 3,260 98 3.01 $ 3,258 98 3.01 $ 3,347 101 3.02 NOW and money market accounts 25,735 930 3.61 23,185 930 4.01 20,169 823 4.08 Certificates of deposit 43,059 2,291 5.32 37,581 2,069 5.51 35,636 1,940 5.44 Borrowings 14,446 724 5.01 6,628 379 5.72 4,535 251 5.53 ------ ------ ------- ------ ------- ------ Total interest-bearing liabilities 86,500 4,043 4.67 70,652 3,476 4.92 63,687 3,115 4.89 ------ ------- ------ ------- ------ ------ Other liabilities 4,629 3,862 2,506 -------- ------- ------- Total liabilities 91,129 74,514 66,193 Shareholders' equity 16,695 16,753 16,022 ------- ------ ------ Total liabilities and shareholders' equity $107,824 $91,267 $82,215 ======== ======= ======= Net interest-earning assets $ 14,878 $16,053 $14,878 ======== ====== ====== Net interest income $3,589 $3,134 $3,036 ====== ===== ===== Interest rate spread (3) 2.86% 2.70% 2.94% ======== ======== ==== Net yield on weighted average interest-earning assets (4) 3.54% 3.61% 3.86% ======== ======== ==== Average interest-earning assets to average interest-bearing liabilities 117.20% 122.72% 123.36% ======== ======== ====== Adjustment of interest on tax-exempt securities to a tax-equivalent basis $ 33 $ 31 $ 50 ======= ======= =======
- --------------------------- (1) Includes securities available for sale at amortized cost prior to SFAS No. 115 adjustments. (2) Comprised of total loans less undisbursed loans in process. (3) Interest rate spread is calculated by subtracting weighted average interest rate cost from weighted average interest rate yield for the period indicated. (4) The net yield on weighted average interest-earning asset is calculated by dividing net interest income by weighted average interest-earning assets for the period indicated. 11 Logansport Financial Corp. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Rate/Volume Table The table below describes the extent to which changes in interest rates and changes in volume of interest-earning assets and interest-bearing liabilities have affected the Company's interest income and expense during the periods indicated. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to (i) changes in volume (change in volume multiplied by prior year rate), (ii) changes in rate (change in rate multiplied by prior year volume) and (iii) total changes in rate and volume. The combined effects of changes in both volume and rate, which cannot be separately identified, have been allocated proportionately to the change due to volume and the change due to rate.
Year ended December 31, 1999 vs. 1998 1998 vs. 1997 Increase Increase (decrease) (decrease) due to due to Volume Rate Total Volume Rate Total (In thousands) Interest-earning assets: Interest-earning deposits $ (6) $ (21) $ (27) $ 65 $ (12) $ 53 Mortgage-backed securities (135) 34 (101) 59 (96) (37) Investment securities 165 11 176 (152) (15) (167) Loans receivable 1,131 (182) 949 670 (67) 603 Stock in FHLB of Indianapolis 25 -- 25 7 -- 7 ------- ------- ------- ------- ------- ------- Total interest-earning assets 1,180 (158) 1,022 649 (190) 459 Interest-bearing liabilities: Savings accounts -- -- -- (2) (1) (3) NOW and money market accounts 97 (97) -- 121 (14) 107 Certificates of deposit 292 (70) 222 108 21 129 Borrowings 397 (52) 345 119 9 128 ------- ------- ------- ------- ------- ------- Total interest-bearing liabilities 786 (219) 567 346 15 361 ------- ------- ------- ------- ------- ------- Change in net interest income (fully taxable equivalent basis) 394 61 455 303 (205) 98 Tax equivalent adjustment (2) -- (2) 16 3 19 ------- ------- ------- ------- ------- ------- Change in net interest income $ 392 $ 61 $ 453 $ 319 $ (202) $ 117 ======= ======= ======= ======= ======= =======
12 Logansport Financial Corp. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Rate/Volume Table (continued) The Company's results of operations have been determined primarily by net interest income and, to a lesser extent, fee income, miscellaneous income and general and administrative expenses. Net interest income is determined by the interest rate spread between the yields earned on interest-earning assets and the rates paid on interest-bearing liabilities and by the relative amounts of interest-earning assets and interest-bearing liabilities. The following table sets forth the weighted average effective interest rate earned by the Company on its loan and investment portfolio, the weighted average effective costs of the Company's deposits and borrowings, the interest rate spread of the Company, and the net yield on weighted average interest-earning assets for the periods and as of the date shown. Average balances are based on month-end average balances.
At December 31, Year Ended December 31, 1999 1999 1998 1997 Weighted average interest rate earned on: Interest-earning deposits 4.50% 4.48% 4.93% 5.27% Mortgage-backed securities 6.79 5.99 5.60 6.67 Investment securities 6.71 6.64 6.39 6.61 Loans receivable 7.91 7.90 8.16 8.27 Stock in FHLB of Indianapolis 7.27 8.00 8.01 7.94 Total interest-earning assets 7.63 7.53 7.62 7.83 Weighted average interest rate cost of: Savings accounts 2.97 3.01 3.01 3.02 NOW and money market accounts 3.75 3.61 4.01 4.08 Certificates of deposit 5.43 5.32 5.51 5.44 Borrowings 5.75 5.01 5.72 5.53 Total interest-bearing liabilities 5.00 4.67 4.92 4.89 Interest rate spread (1) 2.63 2.86 2.70 2.94 Net yield on weighted average interest-earning assets (2) N/A 3.54 3.61 3.86
(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 asset 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, 1999, because the computation of net yield is applicable only over a period rather than at a specific date. 13 Logansport Financial Corp. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Asset/Liability Management The Bank, like other savings associations, is subject to interest rate risk to the degree that its interest-bearing liabilities, primarily deposits with short- and medium-term maturities, mature or reprice at different rates than its interest-earning assets. Management of the Bank believes it is critical to manage the relationship between interest rates and the effect on the Bank's net portfolio value ("NPV"). Generally, NPV is the discounted present value of the difference between incoming cash flows on interest-earning and other assets and outgoing cash flows on interest-bearing liabilities. Management of the Bank's assets and liabilities is done within the context of the marketplace, regulatory limitations and within limits established by the Board of Directors on the amount of change in NPV which is acceptable given certain interest rate changes. The Office of Thrift Supervision ("OTS") 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 September 30, 1999 (the latest available date) and December 31, 1998 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 300 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 increases. The value of the Bank's deposits and borrowings change in approximately the same proportion in rising or falling rate scenarios.
September 30, 1999 Change in interest rate Net Portfolio Value NPV as % of PV of Assets (Basis Points) $ Amount $ Change % Change NPV Ratio Change (In thousands) +300 $13,371 $(5,267) (28)% 12.43% (382 bp) +200 15,408 (3,230) (7) 13.99 (226 bp) +100 17,207 (1,431) (8) 15.28 (97 bp) - 18,638 - - 16.25 - -100 19,432 794 4 16.72 47 bp -200 19,895 1,257 7 16.95 70 bp -300 20,538 1,900 10 17.29 104 bp
14 Logansport Financial Corp. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Asset and Liability Management (continued)
December 31, 1998 Change in interest rate Net Portfolio Value NPV as % of PV of Assets (Basis Points) $ Amount $ Change % Change NPV Ratio Change (In thousands) +300 $14,054 $(3,634) (21)% 15.15% (298 bp) +200 15,596 (2,092) (12) 16.47 (166 bp) +100 16,808 (880) (5) 17.46 (67 bp) - 17,688 - - 18.13 - -100 18,471 783 4 18.71 58 bp -200 19,413 1,725 10 19.39 126 bp -300 20,082 2,394 14 20.34 221 bp
As with any method of measuring interest rate risk, certain shortcomings are inherent in the method of analysis presented in the foregoing table. For example, although certain assets and liabilities may have similar maturities or periods of repricing, they may react in different degrees to changes in market interest rates. Also, the interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other types may lag behind changes in market rates. Additionally, certain assets, such a adjustable-rate loans, have features which restrict changes in interest rates on a short-term basis and over the life of the assets. Further, in the event of a change in interest rates, expected rates of prepayment on loans and early withdrawal from certificates could likely deviate significantly from those assumed in calculating the table. Liquidity and Capital Resources The Company's primary sources of funds are deposits, 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. 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, 1999, 1998 and 1997, the Company originated mortgage loans and commercial loans in the amounts of $36.6 million, $16.3 million and $13.6 million, respectively. The Company originated consumer loans of $7.8 million, $10.5 million and $6.2 million, respectively. The Company purchased loans in the amount of $981,000 in 1999 and $350,000 in 1998. The Company purchased no loans, excluding commercial paper, in 1997. Loan repayments, excluding commercial paper, totaled $27.4 million, $17.6 million and $12.8 million for 1999, 1998 and 1997, respectively. 15 Logansport Financial Corp. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Liquidity and Capital Resources (continued) During the years ended December 31, 1999, 1998 and 1997, the Company purchased investment securities in the amounts of $4.9 million, $6.1 million and $7.2 million, respectively. Sales or maturities of such securities held by the Company and payments on mortgage-backed or other asset-backed securities were $2.8 million, $8.6 million and $6.1 million for 1999, 1998 and 1997, respectively. Deposits grew by $9.4 million from December 31, 1997 to December 31, 1998, and by $6.0 million from December 31, 1998 to December 31, 1999. Cash and cash equivalents increased by $818,000 from December 31, 1998 to December 31, 1999. The Company had outstanding loan commitments, including undisbursed loans in process and standby letters of credit, totaling $11.5 million and $5.8 million, at December 31, 1999 and 1998, respectively. The Company anticipates that it will have sufficient funds available to meet its current loan commitments. Certificates of deposit that are scheduled to mature in one year or less from December 31, 1999 and 1998 totaled $19.8 million and $22.3 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, 1999 and 1998, the Company had outstanding FHLB advances of $23.0 million and $7.0 million, respectively. For each calendar month, the Bank is required to maintain an average daily balance of liquid assets (cash, certain time deposits, bankers' acceptances, specified United States Government, state or federal agency obligations, shares of certain mutual funds and certain corporate debt securities and commercial paper) equal to an amount not less than a specified percentage of its net withdrawable deposit accounts plus short-term borrowings. This liquidity requirement may be changed from time to time by the OTS to any amount within the range of 4% to 10% depending upon economic conditions and the savings flows of member institutions. The current OTS required level of liquid assets that must be held by a savings association is equal to 4% of the association's net withdrawable accounts plus short-term borrowings based upon the average daily balance of such liquid assets for each quarter of the association's fiscal year. The OTS may impose monetary penalties upon savings associations that fail to comply with those liquidity requirements. As of December 31, 1999, the Bank had liquid assets of $18.5 million, and a regulatory liquidity ratio of 26.1%. 16 Logansport Financial Corp. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Liquidity and Capital Resources (continued) Pursuant to OTS capital regulations, savings associations must currently meet a 1.5% tangible capital requirement, a 4.0% leverage ratio (or core capital) requirement, and a total risk-based capital to risk-weighted assets ratio of 8.0%. At December 31, 1999, the Bank's tangible capital ratio was 12.9%, its leverage ratio 12.9%, and its risk-based capital to risk-weighted assets ratio 21.7%. Therefore, at December 31, 1999, 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, 1999.
OTS Requirement The Bank's Capital Level % of % of Amount Assets Amount Assets (1) Amount of excess (Dollars in thousands) Tangible capital 1.5% $1,761 12.9% $15,152 $13,391 Core capital (2) 4.0 4,695 12.9 15,152 10,457 Risk-based capital 8.0 5,747 21.7 15,592 (3 9,845
(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) During 1999, the OTS adopted a core capital requirement for savings associations comparable to that recently adopted by the Comptroller of the Currency for national banks. The new regulation requires at least 3% of total adjusted assets for savings associations that received the highest supervisory rating for safety and soundness, and 4% for all other savings associations. (3) The Bank's risk-based capital includes $440,000 of general valuation allowances. As of December 31, 1999, 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. 17 Logansport Financial Corp. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Effects of 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, as amended by SFAS No. 137, is effective for fiscal years beginning after June 15, 2000. 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 position or results of operations. The foregoing discussion of the effects of recent accounting pronouncements contains forward-looking statements that involve risks and uncertainties. Changes in economic circumstances or interest rates could cause the effects of the accounting pronouncement to differ from management's foregoing assessment. Year 2000 Compliance Issues As with all providers of financial services, the Company's operations are heavily dependent on information technology systems. During the three year period ended December 31, 1999, the Bank's management addressed the potential problems associated with the possibility that the computers that control or operate the Bank's information technology systems and infrastructure may not have been programmed to read four-digit date codes and, upon arrival of the year 2000, may have recognized the two-digit code "00" as the year 1900, causing systems to fail to function or to generate erroneous data. 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. Consequently the Company is dependent on these vendors to conduct its business. The Company contacted each vendor to request time tables for Year 2000 compliance and the expected costs, if any, to be passed along to the Company. During 1999, the Company had been informed that its primary service provider's testing related to Year 2000 compliance had been satisfactorily completed. The Company replaced or upgraded all equipment to be Year 2000 compliant at a cost of less than $45,000, which was charged to operations primarily during 1998. The Company realized no technology-related problems upon arrival of January 1, 2000, and had no interruption of services to its customers. 18 Logansport Financial Corp. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Year 2000 Compliance Issues (continued) In addition to possible expense 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, and to date has not experienced, any significant or prolonged difficulties that will affect net earnings or cash flow. 19 MARKET PRICE OF LOGANSPORT FINANCIAL'S COMMON SHARES AND RELATED SECURITY HOLDER MATTERS The common stock of the Company is traded on the National Association of Securities Dealers Automated Quotation System ("Nasdaq") Small Cap Market, under the symbol "LOGN." As of February 10, 2000, there were 865 shareholders of record of the Company's common stock. The table below presents the high and low trade prices for the common shares of the Company, together with dividends declared per share, for each quarter of the years ended December 31, 1999 and 1998. Such price information was obtained from Nasdaq. Per Share Year Ending December 31, High Low dividends 1999 Quarter ending March 31, 1999 $14.000 $12.000 $0.11 Quarter ending June 30, 1999 12.500 11.130 0.11 Quarter ending September 30, 1999 11.560 9.630 0.11 Quarter ending December 31, 1999 10.500 9.030 0.11 1998 Quarter ending March 31, 1998 $18.125 $16.000 $0.10 Quarter ending June 30, 1998 19.625 16.500 0.11 Quarter ending September 30, 1998 17.250 13.000 0.11 Quarter ending December 31, 1998 16.375 13.375 0.11 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. INDEPENDENT AUDITOR. Barnes & Thornburg Grant Thornton LLP 11 South Meridian Street 625 Eden Park Drive, Suite 900 Indianapolis, Indiana 46204 Cincinnati, Ohio 45202 SHAREHOLDER & GENERAL INQUIRIES. The Company is required to file an Annual Report on Form 10-K for its year ended December 31, 1999 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 Fax - (219) 722-3857 Email - logansavings@cqc.com 20 Report of Independent Certified Public Accountants Board of Directors Logansport Financial Corp. We have audited the accompanying consolidated statements of financial condition of Logansport Financial Corp. as of December 31, 1999 and 1998, and the related consolidated statements of earnings, shareholders' equity, comprehensive income and cash flows for each of the years ended December 31, 1999, 1998 and 1997. These consolidated financial statements are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with 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 financial statements referred to above present fairly, in all material respects, the consolidated financial position of Logansport Financial Corp. as of December 31, 1999 and 1998, and the consolidated results of its operations, comprehensive income and cash flows for each of the years ended December 31, 1999, 1998 and 1997, in conformity with generally accepted accounting principles. /s/ Grant Thornton LLP Cincinnati, Ohio February 22, 2000 21 Logansport Financial Corp. CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION December 31, (In thousands, except share data)
ASSETS 1999 1998 Cash and due from banks $ 1,336 $ 363 Interest-bearing deposits in other financial institutions 3,810 3,965 --------- --------- Cash and cash equivalents 5,146 4,328 Investment securities designated as available for sale - at market 8,539 5,033 Mortgage-backed securities designated as available for sale - at market 5,898 8,129 Loans receivable - net 90,900 73,073 Office premises and equipment - at depreciated cost 1,902 1,528 Federal Home Loan Bank stock - at cost 1,273 568 Investment in real estate partnership 1,485 1,566 Accrued interest receivable on loans 416 337 Accrued interest receivable on mortgage-backed securities 47 66 Accrued interest receivable on investments and interest-bearing deposits 115 62 Prepaid expenses and other assets 45 36 Cash surrender value of life insurance 1,184 1,135 Deferred income tax asset 472 195 Prepaid income taxes 46 29 --------- --------- Total assets $ 117,468 $ 96,085 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Deposits $ 76,011 $ 70,011 Advances from the Federal Home Loan Bank 23,000 7,000 Notes payable 1,307 1,375 Accrued interest and other liabilities 1,004 1,211 --------- --------- Total liabilities 101,322 79,597 Commitments -- -- Shareholders' equity Preferred stock - no par value, 2,000,000 shares authorized; none issued -- -- Common stock - no par value, 5,000,000 shares authorized; 1,130,510 and 1,198,710 shares at aggregate value issued and outstanding at December 31, 1999 and 1998, respectively 5,979 6,670 Retained earnings - restricted 10,734 10,031 Less shares acquired by stock benefit plan (239) (368) Accumulated comprehensive income (loss), unrealized gains (losses) on securities designated as available for sale, net of related tax effects (328) 155 --------- --------- Total shareholders' equity 16,146 16,488 --------- --------- Total liabilities and shareholders' equity $ 117,468 $ 96,085 ========= =========
The accompanying notes are an integral part of these statements. 22 Logansport Financial Corp. CONSOLIDATED STATEMENTS OF EARNINGS For the year ended December 31, (In thousands, except share data)
1999 1998 1997 Interest income Loans $ 6,484 $ 5,538 $ 4,932 Mortgage-backed securities 421 522 559 Investment securities 420 243 394 Interest-bearing deposits and other 274 276 216 ------- ------- ------- Total interest income 7,599 6,579 6,101 Interest expense Deposits 3,319 3,097 2,864 Borrowings 724 379 251 ------- ------- ------- Total interest expense 4,043 3,476 3,115 ------- ------- ------- Net interest income 3,556 3,103 2,986 Provision for losses on loans 162 63 26 ------- ------- ------- Net interest income after provision for losses on loans 3,394 3,040 2,960 Other income Service charges on deposit accounts 139 106 88 Gain (loss) on sale of investment and mortgage-backed securities -- 4 (50) Gain on sale of real estate acquired through foreclosure -- 6 1 Loss on investment in real estate partnership (121) -- -- Other operating 157 169 131 ------- ------- ------- Total other income 175 285 170 General, administrative and other expense Employee compensation and benefits 926 744 649 Occupancy and equipment 163 90 78 Federal deposit insurance premiums 41 38 37 Data processing 147 110 96 Other operating 390 340 310 ------- ------- ------- Total general, administrative and other expense 1,667 1,322 1,170 ------- ------- ------- Earnings before income taxes 1,902 2,003 1,960 Income taxes Current 706 789 761 Deferred (28) (33) (33) ------- ------- ------- Total income taxes 678 756 728 ------- ------- ------- NET EARNINGS $ 1,224 $ 1,247 $ 1,232 ======= ======= ======= EARNINGS PER SHARE Basic $ 1.03 $ 1.00 $ .98 ======= ======= ======= Diluted $ 1.02 $ .97 $ .95 ======= ======= =======
The accompanying notes are an integral part of these statements. 23 Logansport Financial Corp. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME For the year ended December 31, (In thousands)
1999 1998 1997 Net earnings $ 1,224 $ 1,247 $ 1,232 Other comprehensive income, net of tax: Unrealized holding gains (losses) on securities during the period, net of tax of $249, $50 and $96 as of December 31, 1999, 1998 and 1997, respectively (483) 98 184 Reclassification adjustment for realized (gains) losses included in earnings, net of tax of $1 and $17 for the years ended December 31, 1998 and 1997, respectively -- (3) 33 ------- ------- ------- Comprehensive income $ 741 $ 1,342 $ 1,449 ======= ======= ======= Accumulated comprehensive income (loss) $ (328) $ 155 $ 60 ======= ======= =======
The accompanying notes are an integral part of these statements. 24 Logansport Financial Corp. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY For the years ended December 31, 1999, 1998 and 1997 (In thousands, except share data)
Unrealized Shares gains (losses) acquired on securities by stock designated as Common Retained benefit available stock earnings plan for sale Total Balance at January 1, 1997 $7,518 $8,588 $(522) $(157) $15,427 Net earnings for the year ended December 31, 1997 - 1,232 - - 1,232 Issuance of shares under stock option plan 48 - - - 48 Unrealized gains on securities designated as available for sale, net of related tax effects - - - 217 217 Amortization expense of stock benefit plan - - 122 - 122 Cash dividends of $.40 per share - (504) - - (504) ------- ------ --- --- -------- Balance at December 31, 1997 7,566 9,316 (400) 60 16,542 Net earnings for the year ended December 31, 1998 - 1,247 - - 1,247 Purchase of shares for stock benefit plan - - (93) - (93) Purchase of shares (945) - - - (945) Issuance of shares under stock option plan 9 - - - 9 Unrealized gains on securities designated as available for sale, net of related tax effects - - - 95 95 Amortization expense of stock benefit plan 40 - 125 - 165 Cash dividends of $.43 per share - (532) - - (532) ----- -------- --- -- -------- Balance at December 31, 1998 6,670 10,031 (368) 155 16,488 Net earnings for the year ended December 31, 1999 - 1,224 - - 1,224 Purchase of shares (696) - - - (696) Issuance of shares under stock option plan 5 - - - 5 Unrealized losses on securities designated as available for sale, net of related tax effects - - - (483) (483) Amortization expense of stock benefit plan - - 129 - 129 Cash dividends of $.44 per share - (521) - - (521) -------- ------- ---- ---- -------- Balance at December 31, 1999 $5,979 $10,734 $(239) $(328) $16,146 ===== ====== ==== ==== ======
The accompanying notes are an integral part of these statements. 25 Logansport Financial Corp. CONSOLIDATED STATEMENTS OF CASH FLOWS For the year ended December 31, (In thousands)
1999 1998 1997 Cash flows from operating activities: Net earnings for the year $ 1,224 $ 1,247 $ 1,232 Adjustments to reconcile net earnings to net cash provided by (used in) operating activities: Depreciation and amortization 81 39 37 Amortization of premiums on investments and mortgage-backed securities 95 200 104 Amortization expense of stock benefit plan 129 165 122 (Gain) loss on sale of investment and mortgage-backed securities -- (4) 50 Provision for losses on loans 162 63 26 Gain on sale of real estate acquired through foreclosure -- (6) (1) Loss on investment in real estate partnership 121 -- -- Increase (decrease) in cash, due to changes in: Accrued interest receivable on loans (79) (38) (33) Accrued interest receivable on mortgage-backed securities 19 17 (29) Accrued interest receivable on investments (53) 59 6 Prepaid expenses and other assets (9) (3) 9 Accrued interest and other liabilities (207) 350 (530) Federal income taxes Current (17) (121) 38 Deferred (28) (33) (33) -------- -------- -------- Net cash provided by operating activities 1,438 1,935 998 Cash flows provided by (used in) investing activities: Decrease in certificates of deposit in other financial institutions -- 100 -- Proceeds from sale of investment securities designated as available for sale -- 806 2,495 Purchase of investment securities designated as available for sale (4,925) (3,057) (2,100) Maturities of investment securities designated as available for sale 875 3,104 1,471 Proceeds from sale of mortgage-backed securities designated as available for sale -- 1,174 421 Purchase of mortgage-backed securities designated as available for sale -- (3,039) (5,126) Principal repayments on mortgage-backed securities designated as available for sale 1,948 3,472 1,665 Purchase of loans (981) (350) -- Loan disbursements (44,410) (26,775) (19,769) Principal repayments on loans 27,402 17,585 12,791 Investment in real estate partnership (108) (176) (15) Purchases and additions to office premises and equipment (455) (1,102) (26) Purchase of Federal Home Loan Bank stock (705) (74) (107) Proceeds from sale of real estate acquired through foreclosure -- 151 14 Increase in cash surrender value of life insurance policy (49) (50) (45) -------- -------- -------- Net cash used in investing activities (21,408) (8,231) (8,331) -------- -------- -------- Net cash used in operating and investing activities (subtotal carried forward) (19,970) (6,296) (7,333) -------- -------- --------
26 Logansport Financial Corp. CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) For the year ended December 31, (In thousands)
1999 1998 1997 Net cash used in operating and investing activities (subtotal brought forward) $(19,970) $ (6,296) $ (7,333) Cash provided by (used in) financing activities: Net increase in deposit accounts 6,000 9,416 3,199 Proceeds from Federal Home Loan Bank advances 31,000 8,000 10,500 Proceeds from note payable -- -- 100 Repayment of Federal Home Loan Bank advances (15,000) (7,500) (6,000) Repayment of note payable -- -- (1,500) Proceeds from the exercise of stock options 5 9 48 Purchase of shares for stock benefit plan -- (93) -- Dividends on common stock (521) (532) (504) Purchase of shares (696) (945) -- -------- -------- -------- Net cash provided by financing activities 20,788 8,355 5,843 -------- -------- -------- Net increase (decrease) in cash and cash equivalents 818 2,059 (1,490) Cash and cash equivalents at beginning of year 4,328 2,269 3,759 -------- -------- -------- Cash and cash equivalents at end of year $ 5,146 $ 4,328 $ 2,269 ======== ======== ======== Supplemental disclosure of cash flow information: Cash paid during the year for: Income taxes $ 724 $ 689 $ 680 ======== ======== ======== Interest on deposits and borrowings $ 4,054 $ 3,465 $ 3,129 ======== ======== ======== Supplemental disclosure of noncash investing and financing activities: Foreclosed mortgage loans transferred to real estate acquired through foreclosure $ -- $ 40 $ 136 ======== ======== ======== Investment in real estate partnership via financing from notes payable $ -- $ -- $ 1,525 ======== ======== ======== Unrealized gains (losses) on securities designated as available for sale, net of related tax effects $ (483) $ 95 $ 217 ======== ======== ========
The accompanying notes are an integral part of these statements. 27 Logansport Financial Corp. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1999, 1998 and 1997 NOTE A - SUMMARY OF ACCOUNTING POLICIES Logansport Financial Corp. (the "Corporation") is a savings and loan holding company whose activities are primarily limited to holding the common stock of Logansport Savings Bank, FSB (the "Savings Bank"). The Savings Bank conducts a general banking business in north-central Indiana which consists of attracting deposits from the general public and applying those funds to the origination of loans for residential, consumer and nonresidential purposes. The Savings Bank's profitability is significantly dependent on its net interest income, which is the difference between interest income generated from interest-earning assets (i.e. loans and investments) and the interest expense paid on interest-bearing liabilities (i.e. customer deposits and borrowed funds). Net interest income is affected by the relative amount of interest-earning assets and interest-bearing liabilities and the interest received or paid on these balances. The level of interest rates paid or received by the Savings Bank can be significantly influenced by a number of environmental factors, such as governmental monetary policy, that are outside of management's control. The financial information presented herein has been prepared in accordance with generally accepted accounting principles ("GAAP") and general accounting practices within the financial services industry. In preparing consolidated financial statements in accordance with GAAP, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and revenues and expenses during the reporting period. Actual results could differ from such estimates. The following is a summary of the Corporation's significant accounting policies which have been consistently applied in the preparation of the accompanying consolidated financial statements. 1. Principles of Consolidation The consolidated financial statements include the accounts of the Corporation and its subsidiary, the Savings Bank. All significant intercompany balances and transactions have been eliminated. 2. Investment and Mortgage-backed Securities The Corporation accounts for investments and mortgage-backed securities in accordance with Statement of Financial Accounting Standards ("SFAS") No. 115 "Accounting for Certain Investments in Debt and Equity Securities". SFAS No. 115 requires that investments be categorized as held-to-maturity, trading, or available for sale. Securities classified as held to maturity are carried at cost only if the Corporation has the positive intent and ability to hold these securities to maturity. Trading securities and securities available for sale are carried at fair value with resulting unrealized gains or losses recorded to operations or shareholders' equity, respectively. At December 31, 1999, the Corporation's shareholders' equity accounts reflected a net unrealized loss on available for sale securities of $328,000. At December 31, 1998, the Corporation's shareholders' equity accounts reflected a net unrealized gain on available for sale securities of $155,000. Realized gains and losses on sales of securities are recognized using the specific identification method. 28 Logansport Financial Corp. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1999, 1998 and 1997 NOTE A - SUMMARY OF ACCOUNTING POLICIES (continued) 3. Loans Receivable Loans receivable are stated at the principal amount outstanding, adjusted for the allowance for loan losses. Interest is accrued as earned, unless the collectibility of the loan is in doubt. Uncollectible interest on loans that are contractually past due is charged off, or an allowance is established based on management's periodic evaluation. The allowance is established by a charge to interest income equal to all interest previously accrued, and income is subsequently recognized only to the extent that cash payments are received until, in management's judgment, the borrower's ability to make periodic interest and principal payments has returned to normal, in which case the loan is returned to accrual status. If the ultimate collectibility of the loan is in doubt, in whole or in part, all payments received on nonaccrual loans are applied to reduce principal until such doubt is eliminated. 4. Loan Origination Fees The Savings Bank accounts for loan origination fees in accordance with SFAS No. 91, "Accounting for Nonrefundable Fees and Costs Associated with Originating or Acquiring Loans and Initial Direct Costs of Leases". Pursuant to the provisions of SFAS No. 91, origination fees received from loans, net of certain direct origination costs, are deferred and amortized to interest income using the interest method, giving effect to actual loan prepayments. Additionally, SFAS No. 91 generally limits the definition of loan origination costs to the direct costs attributable to originating a loan, i.e. principally actual personnel costs. Fees received for loan commitments that are expected to be drawn upon, based on the Savings Bank's experience with similar commitments, are deferred and amortized over the life of the loan using the level-yield method. Fees for other loan commitments are deferred and amortized over the loan commitment period on a straight-line basis. 5. Allowance for Losses on Loans It is the Savings Bank's policy to provide valuation allowances for estimated losses on loans based on past loss experience, trends in the level of delinquent and problem loans, adverse situations that may affect the borrower's ability to repay, the estimated value of any underlying collateral and current and anticipated economic conditions in the primary lending area. When the collection of a loan becomes doubtful, or otherwise troubled, the Savings Bank records a loan loss provision equal to the difference between the fair value of the property securing the loan and the loan's carrying value. Major loans and major lending areas are reviewed periodically to determine potential problems at an early date. The allowance for loan losses is increased by charges to earnings and decreased by charge-offs (net of recoveries). The Savings Bank accounts for impaired loans in accordance with SFAS No. 114, "Accounting by Creditors for Impairment of a Loan". SFAS No. 114 requires that impaired loans be measured based upon the present value of expected future cash flows discounted at the loan's effective interest rate or, as an alternative, at the loan's observable market price or fair value of the collateral. The Savings Bank's current procedures for evaluating impaired loans result in carrying such loans at the lower of cost or fair value. 29 Logansport Financial Corp. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1999, 1998 and 1997 NOTE A - SUMMARY OF ACCOUNTING POLICIES (continued) 5. Allowance for Losses on Loans (continued) A loan is defined under SFAS No. 114 as impaired when, based on current information and events, it is probable that a creditor will be unable to collect all amounts due according to the contractual terms of the loan agreement. In applying the provisions of SFAS No. 114, the Savings Bank considers its investment in one- to four-family residential loans and consumer installment loans to be homogeneous and therefore excluded from separate identification for evaluation of impairment. With respect to the Savings Bank's investment in nonresidential and multi-family residential real estate loans, and its evaluation of impairment thereof, such loans are generally collateral dependent and, as a result, are carried as a practical expedient at the lower of cost or fair value. Collateral dependent loans which are more than ninety days delinquent are considered to constitute more than a minimum delay in repayment and are evaluated for impairment under SFAS No. 114 at that time. At December 31, 1999, the Savings Bank had two loans totaling approximately $485,000 that would be defined as impaired under SFAS No. 114. At December 31, 1998, the Savings Bank had no loans that would be defined as impaired under SFAS No. 114. 6. Real Estate Acquired Through Foreclosure Real estate acquired through foreclosure is carried at the lower of the loan's unpaid principal balance (cost) or fair value less estimated selling expenses at the date of acquisition. Real estate loss provisions are recorded if the properties' fair value subsequently declines below the value determined at the recording date. In determining the lower of cost or fair value at acquisition, costs relating to development and improvement of property are capitalized. Costs relating to holding real estate acquired through foreclosure, net of rental income, are charged against earnings as incurred. 7. Office Premises and Equipment Office premises and equipment are carried at cost and include expenditures which extend the useful lives of existing assets. Maintenance, repairs and minor renewals are expensed as incurred. For financial reporting, depreciation and amortization are provided on the straight-line and accelerated methods over the useful lives of the assets, estimated to be thirty to forty years for buildings, five to twenty years for building improvements, five to fifteen years for furniture and equipment and five years for automobiles. An accelerated method is used for tax reporting purposes. 8. Investment in Real Estate Partnership During 1997, the Corporation invested $1.5 million in a real estate partnership which will construct and manage residential real estate apartments for low and moderate income residents. The investment reflects a 49.5% participation in the partnership and is accounted for by the Savings Bank using the equity method. The Savings Bank realized an after tax loss from the investment of approximately $70,000 during the year ended December 31, 1999, in addition to federal income tax credits of approximately $40,000. This affordable housing project is expected to generate significant tax credits for the Savings Bank in future years. 30 Logansport Financial Corp. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1999, 1998 and 1997 NOTE A - SUMMARY OF ACCOUNTING POLICIES (continued) 9. Income Taxes The Corporation accounts for income taxes pursuant to SFAS No. 109, "Accounting for Income Taxes". In accordance with SFAS No. 109, a deferred tax liability or deferred tax asset is computed by applying the current statutory tax rates to net taxable or deductible temporary differences between the tax basis of an asset or liability and its reported amount in the consolidated financial statements that will result in net taxable or deductible amounts in future periods. Deferred tax assets are recorded only to the extent that the amount of net deductible temporary differences or carryforward attributes may be utilized against current period earnings, carried back against prior years' earnings, offset against taxable temporary differences reversing in future periods, or utilized to the extent of management's estimate of future taxable income. A valuation allowance is provided for deferred tax assets to the extent that the value of net deductible temporary differences and carryforward attributes exceeds management's estimates of taxes payable on future taxable income. Deferred tax liabilities are provided on the total amount of net temporary differences taxable in the future. Deferral of income taxes results primarily from the different methods of accounting for certain retirement plans, general loan loss allowances and percentage of earnings bad debt deductions. Additional temporary differences result from depreciation computed using accelerated methods for tax purposes. 10. Benefit Plans Employees of the Savings Bank are covered by the Pentegra Group, previously the Financial Institutions Retirement Fund (the "Fund"), which is a defined benefit pension plan to which contributions are made for the benefit of the employees. Contributions are determined to cover the normal cost of pension benefits, the one-year cost of the pre-retirement death and disability benefits and the amortization of any unfunded accrued liabilities. The Fund had previously advised the Savings Bank that the pension plan meets the criteria of a multi-employer pension plan as defined in SFAS No. 87, "Employers' Accounting for Pensions". In accordance with SFAS No. 87, net pension cost is recognized for any required contribution for the period. A liability is recognized for any contributions due and unpaid. During 1993, the Savings Bank acquired additional benefits for all qualified employees covered by the Fund which were paid for by reducing the overfunded amount. Due to a continuation of the funds overfunded status, no contributions were made to the pension plan during the years ended December 31, 1999, 1998 and 1997. The provision for pension expense was computed by the Fund's actuaries utilizing the projected unit credit cost method and assuming a 7.5% return on Fund assets. The Savings Bank has purchased life insurance policies on certain officers and directors. The insurance policies had an approximate cash surrender value of $1.2 million and $1.1 million at December 31, 1999 and 1998, respectively. The Savings Bank has approved compensation arrangements that provide retirement benefits to certain officers and deferral of fees for directors covered by the policies. The benefit arrangement for one individual requires that the individual provide consulting services to the Savings Bank during the five-year period following retirement. The benefits to be paid, excluding amounts attributable to consulting, are being accrued from the date of approval of the arrangements to the date that full eligibility is attained. Expense related to the above described plans totaled $81,000, $85,000 and $99,000 for the years ended December 31, 1999, 1998 and 1997, respectively. 31 Logansport Financial Corp. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1999, 1998 and 1997 NOTE A - SUMMARY OF ACCOUNTING POLICIES (continued) 10. Benefit Plans (continued) The Savings Bank adopted the Logansport Savings Bank, FSB Employee Stock Ownership Plan and Trust Agreement ("ESOP") in 1995, for eligible employees of the Savings Bank. The ESOP will be funded by discretionary employer contributions made in cash, which will be invested in shares of the Corporation's common stock. No contributions were made to the ESOP during the years ended December 31, 1999, 1998 or 1997. In April 1996, the Corporation's shareholders approved the Logansport Savings Bank, FSB Recognition and Retention Plan and Trust ("RRP"), which provided for the acquisition of up to 52,900 shares of the Corporation's common stock for awards to management. Shares awarded to management under the RRP generally vest at a rate of 20% at the end of each full twelve months of service with the Savings Bank after the date of the award. During 1996, the Savings Bank contributed $615,000 to the RRP for the purchase of 46,675 shares of the Corporation's common stock awarded to management and recorded the amount as unearned compensation. During 1998, the Savings Bank contributed $93,000 for the purchase of the 6,225 remaining allowable shares. Amortization expense under the RRP totaled $129,000, $125,000 and $123,000 for the years ended December 31, 1999, 1998 and 1997, respectively. In April, 1999, the Corporation implemented a contributory 401(K) plan covering all employees who have attained the age of 21 and have completed one year of service. Contributions to the plan are voluntary and are subject to matching by the employer. The Savings Bank's contributions to the plan totaled approximately $11,000 for the year ended December 31, 1999. 11. Earnings Per Share Basic earnings per share is computed based upon the weighted-average shares outstanding during the year. Weighted-average common shares outstanding totaled 1,194,070, 1,243,972 and 1,259,162 for the years ended December 31, 1999, 1998 and 1997, respectively. Diluted earnings per share is computed taking into consideration common shares outstanding and dilutive potential common shares to be issued under the Corporation's stock option plan. Weighted-average common shares deemed outstanding for purposes of computing diluted earnings per share, which gives effect to 9,254, 43,879 and 32,384 incremental shares from the assumed exercise of stock options, totaled 1,203,324, 1,287,851 and 1,291,546 for the years ended December 31, 1999, 1998 and 1997, respectively. 12. Cash and Cash Equivalents For purposes of reporting cash flows, cash and cash equivalents includes cash and due from banks and interest-bearing deposits in other financial institutions with original maturities of less than 90 days. 13. Fair Value of Financial Instruments SFAS No. 107, "Disclosures about Fair Value of Financial Instruments", requires disclosure of fair value of financial instruments, both assets and liabilities, whether or not recognized in the consolidated statement of financial condition, for which it is practicable to estimate that value. For financial instruments where quoted market prices are not available, fair values are based on estimates using present value and other valuation methods. 32 Logansport Financial Corp. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1999, 1998 and 1997 NOTE A - SUMMARY OF ACCOUNTING POLICIES (continued) 13. Fair Value of Financial Instruments (continued) The methods used are greatly affected by the assumptions applied, including the discount rate and estimates of future cash flows. Therefore, the fair values presented may not represent amounts that could be realized in an exchange for certain financial instruments. The following methods and assumptions were used by the Corporation in estimating its fair value disclosures for financial instruments at December 31, 1999 and 1998: Cash and cash equivalents: The carrying amounts presented in the consolidated statements of financial condition for cash and cash equivalents are deemed to approximate fair value. Investment and mortgage-backed securities: For investment and mortgage-backed securities, fair value is deemed to equal the quoted market price. Loans receivable: The loan portfolio has been segregate into categories with similar characteristics, such as one- to four-family residential, multi-family residential, nonresidential real estate and consumer. These loan categories were further delineated into fixed-rate and adjustable-rate loans. The fair values for the resultant loan categories were computed via discounted cash flow analysis, using current interest rates offered for loans with similar terms to borrowers of similar credit quality. Federal Home Loan Bank stock: The carrying amount presented in the consolidated statements of financial condition is deemed to approximate fair value. Deposits: The fair value of NOW accounts, passbook and club accounts, and money market deposits is deemed to approximate the amount payable on demand at December 31, 1999 and 1998. Fair values for fixed-rate certificates of deposit have been estimated using a discounted cash flow calculation using the interest rates currently offered for deposits of similar remaining maturities. Federal Home Loan Bank advances: The fair value of Federal Home Loan Bank advances has been estimated using discounted cash flow analysis, based on the interest rates currently offered for advances of similar remaining maturities. Notes Payable: The fair value of notes payable is deemed to approximate the carrying value. Commitments to extend credit: For fixed-rate and adjustable-rate loan commitments, the fair value estimate considers the difference between current levels of interest rates and committed rates. At December 31, 1999 and 1998, the difference between the fair value and notional amount of loan commitments was not material. 33 Logansport Financial Corp. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1999, 1998 and 1997 NOTE A - SUMMARY OF ACCOUNTING POLICIES (continued) 13. Fair Value of Financial Instruments (continued) Based on the foregoing methods and assumptions, the carrying value and fair value of the Corporation's financial instruments are as follows at December 31:
1999 1998 Carrying Fair Carrying Fair value value value value (In thousands) Financial assets Cash and cash equivalents $ 5,146 $ 5,146 $ 4,328 $ 4,328 Investment securities 8,539 8,539 5,033 5,033 Mortgage-backed securities 5,898 5,898 8,129 8,129 Loans receivable 90,900 89,169 73,073 74,668 Federal Home Loan Bank stock 1,273 1,273 568 568 ------- ------- -------- -------- $111,756 $110,025 $91,131 $92,726 ======= ======= ====== ====== Financial liabilities Deposits $ 76,011 $ 76,047 $70,011 $70,406 Advances from Federal Home Loan Bank 23,000 22,870 7,000 6,999 Notes payable 1,307 1,307 1,375 1,375 -------- ------- ------- ------- $100,318 $100,224 $78,386 $78,780 ======= ======= ====== ======
14. Advertising Advertising costs are expensed when incurred. 15. Reclassifications Certain prior year amounts have been reclassified to conform to the 1999 consolidated financial statement presentation. 34 Logansport Financial Corp. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1999, 1998 and 1997 NOTE B - INVESTMENT AND MORTGAGE-BACKED SECURITIES The amortized cost, gross unrealized gains, gross unrealized losses, and estimated fair value of investment securities designated as available for sale at December 31, 1999 and 1998, are as follows:
1999 Gross Gross Estimated Amortized unrealized unrealized fair cost gains losses value (In thousands) U.S. Government agency obligations $6,295 $ - $394 $5,901 State and municipal obligations 1,931 20 12 1,939 FHLMC stock 4 172 - 176 Corporate debt obligations 560 - 37 523 ------ ----- ---- ----- Total investment securities $8,790 $192 $443 $8,539 ===== === === ===== 1998 Gross Gross Estimated Amortized unrealized unrealized fair cost gains losses value (In thousands) U.S. Government agency obligations $2,845 $ 3 $ 23 $2,825 State and municipal obligations 1,323 70 - 1,393 FHLMC stock 4 240 - 244 Corporate debt obligations 561 10 - 571 ------ ---- --- ------ Total investment securities $4,733 $323 $ 23 $5,033 ===== === ==== =====
35 Logansport Financial Corp. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1999, 1998 and 1997 NOTE B - INVESTMENT AND MORTGAGE-BACKED SECURITIES (continued) The amortized cost and estimated fair value of investment securities by term to maturity at December 31, 1999, are shown below. Estimated Amortized fair cost value (In thousands) Due in one year or less $ 300 $ 294 Due after one year through three years 150 150 Due after three through five years 1,204 1,203 Due after five through ten years 4,029 3,815 Due after ten years 3,103 2,901 ----- ----- 8,786 8,363 FHLMC stock 4 176 ------- ------ $8,790 $8,539 ===== ===== Proceeds from maturities and calls of investment securities available for sale during the year ended December 31, 1999, totaled $875,000, resulting in no realized gains or losses. Proceeds from sales and calls of investment securities available for sale during the year ended December 31, 1998, totaled $3.9 million, resulting in gross realized gains of $96,000 and gross realized losses of $92,000. Proceeds from sales and calls of investment securities available for sale during the year ended December 31, 1997, totaled $3.7 million, resulting in gross realized gains of $2,000 and gross realized losses of $54,000. The amortized cost, gross unrealized gains, gross unrealized losses and estimated fair values of mortgage-backed securities at December 31, 1999 and 1998 are presented below.
1999 Gross Gross Estimated Amortized unrealized unrealized fair cost gains losses value (In thousands) Federal Home Loan Mortgage Corporation participation certificates $ 822 $ - $ 52 $ 770 Government National Mortgage Association participation certificates 2,602 - 125 2,477 Federal National Mortgage Association participation certificates 1,144 - 29 1,115 Federal Housing Authority participation certificates 863 - 25 838 Small Business Administration participation certificates 714 - 16 698 ----- -- ---- ------ Total mortgage-backed securities $6,145 $ - $ 247 $5,898 ===== == ==== =====
36 Logansport Financial Corp. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1999, 1998 and 1997 NOTE B - INVESTMENT AND MORTGAGE-BACKED SECURITIES (continued)
1998 Gross Gross Estimated Amortized unrealized unrealized fair cost gains losses value (In thousands) Federal Home Loan Mortgage Corporation participation certificates $ 994 $ 1 $ 4 $ 991 Government National Mortgage Association participation certificates 3,701 1 60 3,642 Federal National Mortgage Association participation certificates 1,584 7 10 1,581 Federal Housing Authority participation certificates 874 10 - 884 Small Business Administration participation certificates 1,040 1 10 1,031 ----- ----- ---- ----- Total mortgage-backed securities $8,193 $ 20 $ 84 $8,129 ===== ==== ==== =====
The amortized cost and estimated fair value of mortgage-backed securities at December 31, 1999 and 1998, by contractual terms to maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may generally prepay obligations without prepayment penalties.
1999 1998 Estimated Estimated Amortized fair Amortized fair cost value cost value (In thousands) Due within one year $ 863 $ 834 $2,337 $2,309 Due after one year to three years 1,174 1,132 1,859 1,838 Due after three years to five years 781 751 864 861 Due after five years to ten years 1,291 1,236 875 868 Due after ten years 2,036 1,945 2,258 2,253 ----- ----- ----- ----- Total mortgage-backed securities $6,145 $5,898 $8,193 $8,129 ===== ===== ===== =====
Proceeds from sales of mortgage-backed securities during the year ended December 31, 1998, totaled $1.2 million, resulting in gross realized gains of $3,000 and gross realized losses of $3,000. Proceeds from sales of mortgage-backed securities during the year ended December 31, 1997, totaled $421,000, resulting in gross realized gains of $2,000 and no gross realized losses. 37 Logansport Financial Corp. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1999, 1998 and 1997 NOTE C - LOANS RECEIVABLE The composition of the loan portfolio at December 31 is as follows: 1999 1998 (In thousands) Residential real estate One- to four-family residential $57,889 $52,205 Multi-family residential 2,111 1,584 Construction 2,575 3,492 Nonresidential real estate and land 11,825 3,492 Commercial 4,102 1,486 Commercial leases 1,609 - Consumer and other 12,914 13,014 ------ ------ 93,025 75,273 Less: Undisbursed portion of loans in process 1,685 1,915 Allowance for loan losses 440 285 ------- -------- $90,900 $73,073 ====== ====== The Savings Bank's lending efforts have historically focused on one- to four-family residential and multi-family residential real estate loans, which comprised approximately $61.2 million, or 67%, of the total loan portfolio at December 31, 1999, and $55.4 million, or 76%, of the total portfolio at December 31, 1998. Generally, such loans have been underwritten on the basis of no more than an 80% loan-to-value ratio, which has historically provided the Savings Bank with adequate collateral coverage in the event of default. Nevertheless, the Savings Bank, as with any lending institution, is subject to the risk that real estate values could deteriorate in its primary lending area of north-central Indiana, thereby impairing collateral values. However, management is of the belief that real estate values in the Savings Bank's primary lending area are presently stable. In the normal course of business, the Savings Bank has made loans to its directors, officers and their related business interests. In the opinion of management, such loans are consistent with sound lending practices and are within applicable regulatory lending limitations. Loans to officers and directors totaled approximately $977,000 and $721,000 at December 31, 1999 and 1998, respectively. 38 Logansport Financial Corp. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1999, 1998 and 1997 NOTE D - ALLOWANCE FOR LOAN LOSSES The activity in the allowance for loan losses for the year ended December 31 is as follows: 1999 1998 1997 (In thousands) Beginning balance $285 $245 $236 Provision for loan losses 162 63 26 Charge-offs of loans - net (7) (23) (17) ----- ---- ---- Ending balance $440 $285 $245 === === === At December 31, 1999, the Savings Bank's allowance for loan losses was comprised entirely of a general loan loss allowance which is includible as a component of regulatory risk-based capital. At December 31, 1999, 1998 and 1997, the Savings Bank had loans of $666,000, $315,000 and $431,000, respectively, which had been placed on nonaccrual status due to concerns as to borrowers' ability to pay. Interest income that would have been recognized had nonaccrual loans performed pursuant to contractual terms totaled approximately $36,000, $26,000 and $24,000 for the years ended December 31, 1999, 1998 and 1997, respectively. NOTE E - OFFICE PREMISES AND EQUIPMENT Office premises and equipment is comprised of the following at December 31: 1999 1998 (In thousands) Land $ 203 $ 203 Buildings and improvements 1,742 1,459 Furniture and equipment 510 367 ----- ------ 2,455 2,029 Less accumulated depreciation and amortization (553) (501) ------ ------ $1,902 $1,528 ===== ===== 39 Logansport Financial Corp. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1999, 1998 and 1997
NOTE F - DEPOSITS Deposits consist of the following major classifications at December 31: Deposit type and weighted average interest rate 1999 1998 (In thousands) NOW accounts December 31, 1999 - 2.29% $ 5,677 December 31, 1998 - 2.04% $ 5,156 Passbook and club accounts December 31, 1999 - 3.02% 2,869 December 31, 1998 - 2.98% 3,171 Money market deposit accounts December 31, 1999 - 4.35% 19,287 December 31, 1998 - 4.02% 20,515 Non-interest bearing accounts 2,681 1,492 ------- ------- Total demand, transaction and passbook deposits 30,514 30,334 Certificates of deposit Original maturities of: Less than 12 months December 31, 1999 - 5.41% 3,760 December 31, 1998 - 4.69% 4,818 12 months to 18 months December 31, 1999 - 5.42% 13,301 December 31, 1998 - 5.33% 7,803 24 months to 30 months December 31, 1999 - 5.38% 19,912 December 31, 1998 - 5.62% 18,702 More than 30 months December 31, 1999 - 5.71% 3,395 December 31, 1998 - 5.65% 3,619 Individual retirement accounts December 31, 1999 - 5.44% 5,129 December 31, 1998 - 5.11% 4,735 ------- ------- Total certificates of deposit 45,497 39,677 ------ ------ Total deposits $76,011 $70,011 ====== ======
At December 31, 1999 and 1998, the Savings Bank had certificate of deposit accounts with balances greater than $100,000 totaling $4.1 million and $3.5 million, respectively. 40 Logansport Financial Corp. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1999, 1998 and 1997 NOTE F - DEPOSITS (continued) Interest expense on deposits for the year ended December 31 is summarized as follows:
1999 1998 1997 (In thousands) Passbook and money market deposit accounts $ 903 $ 923 $ 837 NOW accounts 125 105 87 Certificates of deposit 2,291 2,069 1,940 ----- ----- ----- $3,319 $3,097 $2,864 ===== ===== =====
Maturities of outstanding certificates of deposit at December 31 are summarized as follows: 1999 1998 (In thousands) Less than one year $19,777 $22,342 One to three years 22,304 15,368 Over three years 3,416 1,967 ------- ------- $45,497 $39,677 ====== ====== NOTE G - ADVANCES FROM THE FEDERAL HOME LOAN BANK Advances from the Federal Home Loan Bank, collateralized at December 31, 1999 by a blanket pledge of residential mortgage loans totaling $55.7 million, and the Savings Bank's investment in certain U.S. Government agency securities and mortgage-backed securities totaling $11.8 million, are summarized as follows:
Maturing year December 31, Interest rate ending December 31, 1999 1998 (In thousands) 5.19% - 6.09% 1999 $ - $5,000 4.87% - 6.22% 2000 12,000 2,000 5.65% - 5.94% 2004 8,000 - 4.53% 2009 3,000 - ------- ------ $23,000 $7,000 ====== ===== Weighted-average interest rate 5.70% 5.24% ====== ====
41 Logansport Financial Corp. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1999, 1998 and 1997 NOTE H - NOTES PAYABLE At December 31, 1999 and 1998, notes payable consists of construction borrowings secured by the Savings Bank's investment in a real estate partnership. The Savings Bank pays only interest until completion of the project at which time repayment terms will convert to a ten year amortization. The interest rate on the variable rate borrowing was 3.76% and 3.02% at December 31, 1999 and 1998, respectively. NOTE I - INCOME TAXES The provision for income taxes differs from that computed at the statutory corporate tax rate for the year ended December 31 as follows:
1999 1998 1997 (In thousands) Federal income taxes computed at the statutory rate $647 $681 $666 Increase (decrease) in taxes resulting from: Tax exempt interest (22) (23) (34) Increase in cash surrender value of life insurance (17) (17) (15) Real estate partnership tax credits (40) - - State income taxes 111 116 112 Other (1) (1) (1) ----- ----- ----- Income tax provision per consolidated financial statements $678 $756 $728 === === ===
42 Logansport Financial Corp. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1999, 1998 and 1997 NOTE I - INCOME TAXES (continued) The composition of the Corporation's net deferred tax asset at December 31 is as follows:
Taxes (payable) refundable on temporary 1999 1998 differences at statutory rate: (In thousands) Deferred tax assets: Other than temporary declines in investment securities $ 23 $ 23 Retirement expense 183 134 General loan loss allowance 187 115 Stock benefit plan expense 53 91 Unrealized losses on securities designated as available for sale 170 - Other 17 10 ---- ---- Total deferred tax assets 633 373 Deferred tax liabilities: State income taxes (27) (27) Percentage of earnings bad debt deduction (49) (61) Unrealized gains on securities designated as available for sale - (81) Loss on investment in real estate partnership (41) - Book vs. tax depreciation (19) (9) Other (25) - ----- ----- Total deferred tax liabilities (161) (178) ---- --- Net deferred tax asset $472 $195 === ===
The Savings Bank was allowed a special bad debt deduction based on a percentage of earnings, generally limited to 8% of otherwise taxable income, or the amount of qualifying and nonqualifying loans outstanding and subject to certain limitations based on aggregate loans and savings account balances at the end of the year. This percentage of earnings bad debt deduction had accumulated to approximately $1.7 million as of December 31, 1999. If the amounts that qualify as deductions for federal income taxes are later used for purposes other than bad debt losses, including distributions in liquidation, such distributions will be subject to federal income taxes at the then current corporate income tax rate. The approximate amount of unrecognized deferred tax liability relating to the cumulative bad debt deduction is approximately $500,000 at December 31, 1999. The Savings Bank is required to recapture as taxable income approximately $220,000, representing its post-1987 percentage of earnings bad debt deductions. The Savings Bank has provided deferred taxes for this amount and is permitted by such legislation to recapture such income over a six year period, which commenced in 1998. 43 Logansport Financial Corp. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1999, 1998 and 1997 NOTE J - COMMITMENTS The Savings Bank is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers including commitments to extend credit. Such commitments involve, to varying degrees, elements of credit and interest-rate risk in excess of the amount recognized in the consolidated statement of financial condition. The contract or notional amounts of the commitments reflect the extent of the Savings Bank's involvement in such financial instruments. The Savings Bank's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit is represented by the contractual notional amount of those instruments. The Savings Bank uses the same credit policies in making commitments and conditional obligations as those utilized for on-balance-sheet instruments. At December 31, 1999, the Savings Bank had outstanding commitments of approximately $358,000 to originate residential one-to-four family loans. The Savings Bank also had outstanding commitments of approximately $700,000 to originate non-residential real estate loans and approximately $2.3 million to originate other commercial loans at December 31, 1999. Additionally, the Savings Bank had unused lines of credit under home equity loans and commercial loans of approximately $700,000 and $4.8 million at December 31, 1999, respectively. Finally, the Savings Bank had a commitment under a standby letter of credit totaling $1.0 million at December 31, 1999. Standby letters of credit are conditional commitments issued by the Savings Bank to guarantee the performance of a customer to a third party. In the opinion of management, all loan commitments equaled or exceeded prevalent market interest rates as of December 31, 1999, and will be funded from normal cash flow from operations. NOTE K - REGULATORY CAPITAL The Savings Bank is subject to minimum capital requirements promulgated by the Office of Thrift Supervision ("OTS"). Failure to meet minimum capital requirements can initiate certain mandatory - and possibly additional discretionary - actions by regulators that, if undertaken, could have a direct material effect on the Corporation's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Savings Bank must meet specific capital guidelines that involve quantitative measures of the Savings Bank's assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Savings Bank's capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Such minimum capital standards generally require the maintenance of regulatory capital sufficient to meet each of three tests, hereinafter described as the tangible capital requirement, the core capital requirement and the risk-based capital requirement. The tangible capital requirement provides for minimum tangible capital (defined as shareholders' equity less all intangible assets) equal to 1.5% of adjusted total assets. The core capital requirement provides for minimum core capital (tangible capital plus certain forms of supervisory goodwill and other qualifying intangible assets) generally equal to 4.0% of adjusted total assets except for those associations with the highest examination rating and acceptable levels of risk. 44 Logansport Financial Corp. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1999, 1998 and 1997 NOTE K - REGULATORY CAPITAL (continued) The risk-based capital requirement currently provides for the maintenance of core capital plus general loan loss allowances equal to 8.0% of risk-weighted assets. In computing risk-weighted assets, the Savings Bank multiplies the value of each asset on its statement of financial condition by a defined risk-weighting factor, e.g., one- to four-family residential loans carry a risk-weighted factor of 50%. During the calendar year, the Savings Bank was notified by its regulator that it was categorized as "well-capitalized" under the regulatory framework for prompt corrective action. To be categorized as "well-capitalized", the Savings Bank must maintain minimum capital ratios as set forth in the following table. As of December 31, 1999 and 1998, management believes that the Savings Bank met all capital adequacy requirements to which it was subject.
1999: To be "well- capitalized" under For capital prompt corrective Actual adequacy purposes action provisions Amount Ratio Amount Ratio Amount Ratio (Dollars in thousands) Tangible capital $15,152 12.9% *$1,761 *1.5% *$5,869 *5.0% Core capital $15,152 12.9% *$4,695 *4.0% *$7,042 *6.0% Risk-based capital $15,592 21.7% *$5,747 *8.0% *$7,184 *10.0% 1998: To be "well- capitalized" under For capital prompt corrective Actual adequacy purposes action provisions Amount Ratio Amount Ratio Amount Ratio (Dollars in thousands) Tangible capital $16,263 17.0% *$1,436 *1.5% *$4,787 *5.0% Core capital $16,263 17.0% *$3,831 *4.0% *$5,745 *6.0% Risk-based capital $16,548 30.1% *$4,398 *8.0% *$5,498 *10.0%
The Savings Bank's management believes that, under the current regulatory capital regulations, the Savings Bank will continue to meet its minimum capital requirements in the foreseeable future. However, events beyond the control of the Savings Bank, such as increased interest rates or a downturn in the economy in the primary market area, could adversely affect future earnings and, consequently, the ability to meet future minimum regulatory capital requirements. 45 Logansport Financial Corp. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1999, 1998 and 1997 NOTE K - REGULATORY CAPITAL (continued) The Savings Bank is subject to regulations imposed by the OTS regarding the amount of capital distributions payable to the Corporation. Generally, the Savings Bank's payment of dividends is limited, without prior OTS approval, to net earnings for the current calendar year plus the two preceding calendar years, less capital distributions paid over the comparable time period. Insured institutions are required to file an application with the OTS for capital distributions in excess of this limitation. During October 1999, the Savings Bank received OTS approval to make up to $2.0 million in capital distributions to the Corporation. Of this amount, $1.0 million was paid in 1999, leaving $1.0 million available to be paid during the year ended December 31, 2000. NOTE L - STOCK OPTION PLANS During 1996, the Board of Directors adopted a Stock Option Plan that provided for the issuance of 132,250 shares of authorized, but unissued shares of common stock at the fair value at the date of grant. During 1999, the Board of Directors adopted a second Stock Option Plan that provided for the issuance of 115,000 shares of authorized, but unissued shares of common stock at the fair value at the date of grant. The Corporation accounts for its stock option plans in accordance with SFAS No. 123, "Accounting for Stock-Based Compensation," which contains a fair value-based method for valuing stock-based compensation that entities may use, which measures compensation cost at the grant date based on the fair value of the award. Compensation is then recognized over the service period, which is usually the vesting period. Alternatively, SFAS No. 123 permits entities to continue to account for stock options and similar equity instruments under Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees." Entities that continue to account for stock options using APB Opinion No. 25 are required to make pro forma disclosures of net earnings and earnings per share, as if the fair value-based method of accounting defined in SFAS No. 123 had been applied. The Corporation applies APB Opinion No. 25 and related Interpretations in accounting for its stock option plans. Accordingly, no compensation cost has been recognized for the plans. Had compensation cost for the Corporation's stock option plans been determined based on the fair value at the grant dates for awards under the plans consistent with the accounting method utilized in SFAS No. 123, there would have been no material effect on the Corporation's net earnings and earnings per share. 46 Logansport Financial Corp. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1999, 1998 and 1997 NOTE L - STOCK OPTION PLANS (continued) A summary of the status of the Corporation's stock option plans as of December 31, 1999, 1998 and 1997, and changes during the years ending on those dates is presented below:
1999 1998 1997 Weighted- Weighted- Weighted- average average average exercise exercise exercise Shares price Shares price Shares price Outstanding at beginning of year 126,415 $10.59 124,795 $ 10.53 129,340 $10.53 Granted - - 2,500 13.75 - - Exercised (500) 10.53 (880) 10.53 (4,545) 10.53 Forfeited - - - - - - ------- ------ ------- -------- --------- ------- Outstanding at end of year 125,915 $10.59 126,415 $10.59 124,795 $10.53 ======= ===== ======= ===== ======= ===== Options exercisable at year-end 72,179 $10.55 46,311 $10.53 21,323 $10.53 ====== ===== ====== ===== ======== ===== Weighted-average fair value of options granted during the year N/A $2.77 N/A === ==== ===
The following information applies to options outstanding at December 31, 1999: Number outstanding 125,915 Range of exercise prices $10.53-$13.75 Weighted-average exercise price $10.59 Weighted-average remaining contractual life 6.33 years 47 Logansport Financial Corp. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1999, 1998 and 1997 NOTE M - CONDENSED FINANCIAL STATEMENTS OF LOGANSPORT FINANCIAL CORP. The following condensed financial statements summarize the financial position of Logansport Financial Corp. as of December 31, 1999 and 1998, and the results of its operations and cash flows for the years ended December 31, 1999, 1998 and 1997. Logansport Financial Corp. STATEMENTS OF FINANCIAL CONDITION December 31, (In thousands) ASSETS 1999 1998 Cash and cash equivalents $ 374 $ 152 Investment in subsidiary 14,824 16,418 Dividend receivable from subsidiary 1,001 -- Prepaid expenses and other 75 52 -------- -------- Total assets $ 16,274 $ 16,622 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Accrued expenses and other liabilities $ 128 $ 134 Shareholders' equity Common stock 5,979 6,670 Retained earnings 10,734 10,031 Shares acquired by stock benefit plan (239) (368) Unrealized gains (losses) on securities designated as available for sale, net (328) 155 -------- -------- Total shareholders' equity 16,146 16,488 -------- -------- Total liabilities and shareholders' equity $ 16,274 $ 16,622 ======== ======== 48 Logansport Financial Corp. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1999, 1998 and 1997 NOTE M - CONDENSED FINANCIAL STATEMENTS OF LOGANSPORT FINANCIAL CORP. (continued) Logansport Financial Corp. STATEMENTS OF EARNINGS Year ended December 31, (In thousands) 1999 1998 1997 Revenue Interest income $ 12 $ 13 $ 12 Equity in earnings of subsidiary 1,260 1,279 1,270 ------- ------- ------- Total revenue 1,272 1,292 1,282 Interest expense -- -- 5 General and administrative expenses 72 66 70 ------- ------- ------- Earnings before income tax credits 1,200 1,226 1,207 Income tax credits (24) (21) (25) ------- ------- ------- NET EARNINGS $ 1,224 $ 1,247 $ 1,232 ======= ======= ======= 49 Logansport Financial Corp. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1999, 1998 and 1997 NOTE M - CONDENSED FINANCIAL STATEMENTS OF LOGANSPORT FINANCIAL CORP. (continued) Logansport Financial Corp. STATEMENTS OF CASH FLOWS Year ended December 31, (In thousands)
1999 1998 1997 Cash flows provided by (used in) operating activities: Net earnings for the year $ 1,224 $ 1,247 $ 1,232 Adjustments to reconcile net earnings to net cash provided by (used in) operating activities: Excess distributions from consolidated subsidiary 239 221 730 Increase (decrease) in cash due to changes in: Other liabilities (6) 40 (34) Other (23) (48) (1) ------- ------- ------- Net cash provided by operating activities 1,434 1,460 1,927 Cash flows provided by (used in) financing activities: Proceeds from exercise of stock options 5 9 48 Proceeds from note payable -- -- 100 Repayment of note payable -- -- (1,500) Dividends on common stock (521) (532) (504) Purchase of shares (696) (945) -- ------- ------- ------- Net cash used in financing activities (1,212) (1,468) (1,856) ------- ------- ------- Net increase (decrease) in cash and cash equivalents 222 (8) 71 Cash and cash equivalents at beginning of year 152 160 89 ------- ------- ------- Cash and cash equivalents at end of year $ 374 $ 152 $ 160 ======= ======= =======
50 Logansport Financial Corp. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1999, 1998 and 1997 NOTE N - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) The following table summarizes the Corporation's quarterly results for the years ended December 31, 1999 and 1998. Certain amounts, as previously reported, have been reclassified to conform to the 1999 presentation.
Three Months Ended March 31, June 30, September 30, December 31, 1999: (In thousands, except per share data) Total interest income $1,730 $1,821 $1,945 $2,103 Total interest expense 875 950 1,060 1,158 ------ ------ ----- ----- Net interest income 855 871 885 945 Provision for losses on loans 41 40 41 40 Other income 66 12 44 53 General, administrative and other expense 426 420 397 424 ------ ------ ------ ------ Earnings before income taxes 454 423 491 534 Income taxes 172 152 173 181 ------ ------ ------ ------ Net earnings $ 282 $ 271 $ 318 $ 353 ====== ====== ====== ====== Earnings per share: Basic $.24 $.22 $.27 $.30 === === === === Diluted $.23 $.22 $.27 $.30 === === === === Three Months Ended March 31, June 30, September 30, December 31, 1998: (In thousands, except per share data) Total interest income $1,588 $1,639 $1,664 $1,688 Total interest expense 826 857 894 899 ------ ------ ------ ------ Net interest income 762 782 770 789 Provision for losses on loans 9 9 13 32 Other income 52 70 60 103 General, administrative and other expense 317 320 320 365 ----- ------ ------ ------ Earnings before income taxes 488 523 497 495 Income taxes 184 198 189 185 ------ ------ ------ ------ Net earnings $ 304 $ 325 $ 308 $ 310 ====== ====== ===== ====== Earnings per share: Basic $.24 $.26 $.24 $.26 === === === === Diluted $.23 $.25 $.24 $.25 === === === ===
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