-----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, LUDmioV4Sfej0XCw1A+eMiqfMxdfDP+vbRMUrFbxqfKk1WCbOL3g8hb7fKeq1ET8 MnF1twwU49CoNQC+rAUNew== 0000908834-03-000092.txt : 20030305 0000908834-03-000092.hdr.sgml : 20030305 20030305163055 ACCESSION NUMBER: 0000908834-03-000092 CONFORMED SUBMISSION TYPE: ANNLRPT PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20021231 FILED AS OF DATE: 20030305 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: ANNLRPT SEC ACT: 1934 Act SEC FILE NUMBER: 083-00110 FILM NUMBER: 03593434 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 ANNLRPT 1 log_ar03.txt LOGANSPORT FINANCIAL ANNUAL REPORT 2003 TABLE OF CONTENTS Page Directors and Officers 2 President's Message to Shareholders 5 Selected Consolidated Financial Data 6 Management's Discussion and Analysis 8 Report of Independent Certified Public Accountants 21 Consolidated Statements of Financial Condition 22 Consolidated Statements of Earnings 23 Consolidated Statements of Comprehensive Income 24 Consolidated Statements of Changes in Shareholders' Equity 25 Consolidated Statements of Cash Flows 26 Notes to Consolidated Financial Statements 28 Shareholder Information 51 BUSINESS OF LOGANSPORT FINANCIAL CORP. Logansport Financial Corp. ("Logansport Financial" or the "Company"), an Indiana corporation, became a unitary savings and loan holding company upon the conversion of Logansport Savings Bank, FSB (the "Bank") from a federal mutual savings bank to a federal stock savings bank in June 1995. The Company and the Bank conduct business from a single office in Logansport, Cass County, Indiana. During 2002, the Company began to offer full-service banking through the internet at www.logansportsavings.com. The Bank is and historically has been among the top real estate mortgage lenders in Cass County and is the oldest financial institution headquartered in Cass County. The Bank offers a variety of retail deposit and lending services. The Company has no business activity other than being the holding company for the Bank. The Company is the sole shareholder of the Bank. MISSION STATEMENT "The Board of Directors, management and staff of Logansport Savings Bank are dedicated to serving the needs of our customers, providing them with the best possible service in an efficient, friendly, caring atmosphere. As a vital part of this community, Logansport Savings Bank seeks to continue partnering with local business and individuals. The customers, employees, and shareholders are an integral part of Logansport Savings Bank and are best served if the Bank remains an independent, locally controlled and operated, profitable financial institution." Logansport Financial Corp. DIRECTORS AND OFFICERS DIRECTORS Charles J. Evans (age 56) has served as Senior Vice President of Logansport Savings Bank, FSB since January 2000. Prior to that he served as Vice President and Senior Loan Officer of Logansport Savings Bank, FSB since 1980. Brian J. Morrill (age 45) is the founder and President of Cass County Title Company, Inc. The firm provides title insurance policies and real estate searches for lenders, realtors, attorneys, and the general public. Prior to founding Cass County Title Company, Morrill served for ten years as the Executive Director of the Cass County Family YMCA in Logansport, Indiana. Morrill has served on several community boards and in 2000 served as Chairman of the Logansport/Cass County Chamber of Commerce. Susanne S. Ridlen, Ph.D. (age 62) is a faculty member and Director of the Project Success Program for under-prepared students at Indiana University Kokomo. Dr. Ridlen has taught at IUK since 1969. She also serves on the Lilly Scholarship Committee for the Cass County Community Foundation. In addition, she serves on the Board of Directors for the President Benjamin Harrison Foundation, Inc. William Tincher, Jr. (age 63) has served as Plant Manager for the Modine Manufacturing Company ("Modine") since 1977. Modine is located in Logansport, Indiana, and manufactures automotive cooling systems. David G. Wihebrink (age 55) has served as President of Logansport Financial Corp. and Logansport Savings Bank since April 2000. Prior to that, he had served as Vice President and Chief Financial Officer of TM Morris Manufacturing Co., Inc. since 1988. Prior to his employment with Morris, Mr. Wihebrink was a member of the accounting firm Smith, Thompson & Wihebrink (Logansport) for 15 years. Mr. Wihebrink also currently serves as a member of the Board of Directors of the Neal Home retirement home in Logansport, Indiana; as a member of the Board of Directors of the North Central Indiana Workforce Investment Board and as a member of the Board of Directors of the Logansport/Cass County Chamber of Commerce. Thomas G. Williams (age 69) served as President of Logansport Savings Bank, FSB from 1971 until his retirement in April 2000. Dr. Todd S. Weinstein (age 41) is a member of the surgical staff at Logansport Memorial Hospital and has been a member of Logansport Surgical Associates since 1991. He serves on the Board of Trustees of Logansport Memorial Hospital and the Board of Directors of the Cass County Family YMCA. James P. Bauer (age 57) is the Vice President of Finance and Treasurer of Material Processing, Inc., a holding company for Small Parts, Inc. and ABC Metals. He serves on the Board of Directors of the Logansport Economic Development Foundation, Inc. and the United Way of Cass County, Inc. LOGANSPORT FINANCIAL CORP. LOGANSPORT SAVINGS BANK, FSB Officers Officers DAVID G. WIHEBRINK DAVID G. WIHEBRINK - President President and Chief Executive Officer CHARLES J. EVANS - Senior Vice President CHARLES J. EVANS Vice President DOTTYE ROBESON - Chief Financial Officer/ Secretary/Treasurer DOTTYE ROBESON Secretary/Treasurer ALLEN SCHIEBER - Senior Vice President JEFFREY JONES - Vice President SHEILA WILDERMUTH - Vice President MARK DEBARGE - Assistant Vice President KAY GAPSKI - Assistant Vice President TO OUR SHAREHOLDERS: In last year's letter we stated "Logansport Financial Corp. had a simple plan for success consisting of three goals: maximizing the return to our shareholders, enhancing our products and providing the very best services to our customers, and developing our talents to provide greater opportunities for our employees." I am pleased to report that despite a challenging economic environment we have been able to accomplish a significant portion of our plan. Total assets of the Bank grew to an unprecedented total of $150.1 million, an 8.7% increase; net earnings totaled a record $1.5 million, an increase of 8.3%; and basic earnings per share also reflected a record $1.63, representing a 26% increase. This across-the-board record performance represents the exceptional efforts made by our employees and the successful continuation of our strategic focus on enhanced profitability for our shareholders. The operating environment in 2002 was characterized by continued declining interest rates and a weaker than expected economy. The lower interest rate climate and the competitive environment accelerated the unprecedented demand for home mortgage refinancing. As a result, our portfolio of one- to four-family residential loans decreased by $2.1 million, however, strong growth in our commercial loan portfolio of $3.9 million almost overcame the decline in our portfolio due to refinancing. As a result, our balance sheet is in excellent shape and our capital position is very strong as we head into what is expected to be a year of economic recovery. We anticipate that the year 2003 will hold many challenges for us, our country, our economy, and the banking industry in general. We feel the Bank is positioned to withstand the low interest rate environment in the short run and to remain vibrant in the long-term as rates recover from their record low levels. The board of directors, management and employees of Logansport Financial Corp. believe that community banks are an integral part of their communities. They have been, and will continue to be, the backbone of their communities....knowing their customers....their customers knowing them....helping their customers in goods times and bad. We hope you find the enclosed reports helpful in your analysis and we are grateful for the trust you have placed in us. As our Bank moves forward into 2003, we intend to continue "Leading The Way" in community banking. Sincerely, David G. Wihebrink President
Logansport Financial Corp. SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA The following tables set forth certain information concerning Logansport Financial's consolidated financial position, results of operations and other data at the dates and for the periods indicated. At December 31, Statement of Financial Condition Data: 2002 2001 2000 1999 1998 (In thousands) Total assets $150,099 $138,065 $132,612 $117,468 $96,085 Loans receivable, net 110,386 111,696 102,418 90,900 73,073 Mortgage-backed securities 11,009 4,419 5,165 5,898 8,129 Cash and cash equivalents 13,517 8,816 9,210 5,146 4,328 Investment securities 8,060 5,788 8,322 8,539 5,033 Deposits 98,325 83,900 79,454 76,011 70,011 Borrowings 35,629 35,915 35,237 24,307 8,375 Shareholders' equity - net 15,373 17,402 17,013 16,146 16,488 Year ended December 31, Summary of Operating Results: 2002 2001 2000 1999 1998 (In thousands, except share data) Interest income $9,326 $9,831 $9,524 $7,599 $6,579 Interest expense 4,877 5,696 5,597 4,043 3,476 -------- -------- -------- -------- ------- Net interest income 4,449 4,135 3,927 3,556 3,103 Provision for losses on loans 360 392 332 162 63 -------- -------- -------- -------- ------- Net interest income after provision for losses on loans 4,089 3,743 3,595 3,394 3,040 Other income 352 222 122 175 285 General, administrative and other expense 2,318 2,046 1,937 1,667 1,322 -------- -------- -------- -------- ------- Earnings before income taxes 2,123 1,919 1,780 1,902 2,003 Income taxes 609 521 511 678 756 -------- -------- -------- -------- ------- Net earnings $1,514 $1,398 $1,269 $1,224 $1,247 ======== ======== ======== ======== ======= Basic earnings per share $1.63 $1.29 $1.16 $1.03 $1.00 ======== ======== ======== ======== ======= Diluted earnings per share $1.58 $1.27 $1.16 $1.02 $.97 ======== ======== ======== ======== ======= Cash dividends per share $.52 $.48 $.44 $.44 $.43 ======== ======== ======== ======== =======
Logansport Financial Corp. SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA (CONTINUED) At or for the year ended December 31, Supplemental Data: 2002 2001 2000 1999 1998 Return on assets (1) 1.03% 1.03% 1.00% 1.14% 1.37% Return on equity (2) 9.30 7.82 7.76 7.33 7.44 Interest rate spread (3) 2.76 2.55 2.57 2.86 2.70 Net yield on interest-earning assets (4) 3.21 3.23 3.27 3.54 3.61 General, administrative and other expense to average assets 1.58 1.50 1.53 1.55 1.45 Net interest income to general, administrative and other expense 191.93 202.10 202.74 213.32 234.72 Equity-to-assets (5) 10.24 12.60 12.83 13.75 17.16 Average interest-earning assets to average interest-bearing liabilities 113.04 115.21 115.39 117.20 122.72 Non-performing assets to total assets .99 1.41 .25 .57 .33 Non-performing loans to total loans 1.34 1.72 .32 .72 .42 Loan loss allowance to total loans 1.30 1.00 .73 .47 .38 Loan loss allowance to non-performing loans 98.25 58.11 226.19 66.07 90.48 Dividend payout ratio 31.90 37.21 37.93 42.72 43.00 Net charge-offs to average loans .03 .02 * * .03 * Less than .01%
- -------------------------------------- (1) Net earnings divided by average total assets. (2) Net earnings divided by average total equity. (3) Interest rate spread is calculated by subtracting combined weighted-average interest rate cost from combined weighted-average interest rate earned for the period indicated. (4) Net interest income divided by average interest-earning assets. (5) Total equity divided by total assets. Logansport Financial Corp. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS General The Company was formed as part of the conversion of the Bank from a federal mutual savings bank to a federal stock savings bank, which was completed June 13, 1995. The Company has no activity other than being the holding company for the Bank. The principal business of savings associations, including the Bank, has historically consisted of attracting deposits from the general public and making loans secured by residential and other real estate. The Bank and all other savings associations are significantly affected by prevailing economic conditions, as well as government policies and regulations concerning, among other things, monetary and fiscal affairs, housing and financial institutions. Deposit flows are influenced by a number of factors, including interest rates paid on competing investments, account maturities and levels of personal income and savings. In addition, deposit growth is affected by how customers perceive the stability of the financial services industry amid various current events such as regulatory changes, failures of other financial institutions and financing of the deposit insurance fund. Lending activities are influenced by the demand for and supply of housing lenders, the availability and cost of funds and various other items. Sources of funds for lending activities of the Bank include deposits, borrowings, payments on loans and income provided from operations. The Bank's earnings are primarily dependent upon its net interest income, which is the difference between interest income on interest-earning assets and interest expense on interest-bearing liabilities. Interest income is a function of the balances of loans and investments outstanding during a given period and the yield earned on such loans and investments. Interest expense is a function of the amount of deposits and borrowings outstanding during the same period and interest rates paid on such deposits and borrowings. The Bank's earnings are also affected by provisions for losses on loans, service charges, operating expenses and income taxes. Forward-Looking Statements In the following pages, management presents an analysis of the Company's financial condition as of December 31, 2002, and the results of operations for the year ended December 31, 2002, as compared to prior periods. In addition to this historical information, the following discussion contains forward-looking statements that involve risks and uncertainties. Economic circumstances, the Company's operations and the Company's actual results could differ significantly from those discussed in the forward-looking statements. Some of the factors that could cause or contribute to such differences are discussed herein but also include changes in the economy and interest rates in the nation and in the Company's general market area. Without limiting the foregoing, some of the forward-looking statements include the following: 1. Management's establishment of an allowance for loan losses and its statements regarding the adequacy of such allowance for loan losses. 2. Management's opinion as to the financial statement effect of recent accounting pronouncements. 3. Management's opinion as to the effect of changes in interest rates on the Company's results of operations. Logansport Financial Corp. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Changes in Financial Condition from December 31, 2001 to December 31, 2002 The Company's total assets were $150.1 million at December 31, 2002, an increase of $12.0 million, or 8.7%, over the $138.1 million total at December 31, 2001. The increase in assets was funded primarily through growth in deposits of $14.4 million, partially offset by a $2.0 million decline in shareholders' equity. The percentage of interest-earning assets to total assets was 96.1% and 95.3% at December 31, 2002 and 2001, respectively. At December 31, 2002, investment and mortgage-backed securities totaled $19.1 million, compared to $10.2 million at December 31, 2001, an increase of $8.9 million, or 86.8%. The increase was due to purchases of $17.8 million, which were partially offset by maturities, sales and repayments totaling $9.4 million. The primary investments added to the portfolio were Federal Home Loan Bank ("FHLB") and Federal National Mortgage Association ("FNMA") fixed rate notes and mortgage-backed securities. At December 31, 2002, in addition to U.S. Government agency bonds and mortgage-backed securities, the Company held $983,000 of corporate debt obligations rated Investment Grade or better by Moody's Investors Service, Inc. and $500,000 of FNMA preferred stock yielding 3.98% as well as FHLMC common stock. Loans receivable totaled $110.4 million at December 31, 2002, a decrease of $1.3 million, or 1.2%, from December 31, 2001. The decrease in loans receivable was due primarily to principal repayments of $46.7 million, which were partially offset by loan disbursements totaling $45.6 million. Loan origination volume during 2002 declined from the record volume levels of 2001 by $15.5 million, a 25.4% decrease. The overall decrease in loans was comprised of a $2.1 million, or 3.4%, decrease in loans secured by one- to four-family residential real estate and a $1.9 million, or 14.2%, decrease in consumer loans. Loans secured by nonresidential real estate, commercial loans and leases increased by $3.9 million, or 12.2%. During 1997, the Company invested $1.5 million in a limited partnership, which constructs and manages residential real estate apartments for low and moderate-income residents. This investment reflects a 49.5% participation in the partnership. The affordable housing project generates tax credits for the Bank. This investment initially resulted in an increase to total assets of $1.5 million with a corresponding increase in notes payable. During the three years ended December 31, 2002, the Bank recorded pretax losses from the housing project of totaling $558,000, while realizing tax credits of $506,000. Deposits totaled $98.3 million at December 31, 2002, an increase of $14.4 million, or 17.2%, over December 31, 2001. Non-interest bearing deposits, NOW accounts, passbook savings and money market savings increased by $9.4 million, or 29.3%, while certificates of deposit increased by $5.0 million, or 9.6%. At December 31, 2002, borrowings consisted of $33.8 million in FHLB advances compared to $34.8 million in FHLB advances at December 31, 2001, a decrease of $914,000, or 2.6%. Proceeds from deposit growth were generally used to fund the purchase of investments and mortgage-backed securities and a 10% stock repurchase program. However, $1.7 million of the deposit increase was comprised of short-term local governmental deposits which are subject to bids every 60 to 90 days and, therefore, may or may not be retained. Additionally, the Bank has deposit customers who periodically place large deposits for short time periods. Such deposits totaled approximately $4.0 million at December 31, 2002. These funds were withdrawn in January 2003. Shareholders' equity totaled $15.4 million at December 31, 2002, a decrease of $2.0 million, or 11.7%, from December 31, 2001. The decrease was due primarily to dividends totaling $478,000 and common stock repurchases totaling $3.7 million, which were offset by net earnings for the year ended December 31, 2002, of $1.5 million, an increase in unrealized gains on available for sale securities of $272,000 and proceeds from the exercise of stock options of $369,000. Logansport Financial Corp. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Comparison of Results of Operations for the Years Ended December 31, 2002 and 2001 Net earnings totaled $1.5 million for the year ended December 31, 2002, a $116,000, or 8.3%, increase over the net earnings reported for 2001. The increase in net earnings resulted primarily from an increase of $314,000 in net interest income, an increase of $130,000 in other income and a decrease of $32,000 in the provision for losses on loans, which were partially offset by an increase of $272,000 in general, administrative and other expense and an increase in the provision for income taxes of $88,000. Interest Income The Company's total interest income was $9.3 million for the year ended December 31, 2002, compared to $9.8 million during 2001, a decrease of $505,000, or 5.1%. The $10.7 million, or 8.3%, increase in average interest-earning assets, from $129.8 million in 2001 to $140.5 million in 2002, was more than offset by a 93 basis point decrease in the average yield on interest-earning assets, to 6.68% in 2002 compared to 7.61% in 2001. Interest income on loans decreased by $406,000, or 4.7%, due primarily to a 70 basis point decrease in the average yield year to year, to 7.30% in 2002, which was partially offset by a $4.8 million, or 4.4%, increase in the average balance of loans outstanding. Interest income on investment and mortgage-backed securities and other interest-bearing deposits decreased by $99,000, or 8.9%, due primarily to a 152 basis point decline in the average yield, to 3.89% in 2002, which was partially offset by a $5.9 million, or 31.5%, increase in the average balance outstanding. Interest Expense Interest expense totaled $4.9 million for the year ended December 31, 2002, a decrease of $819,000, or 14.4%, compared to 2001. This decrease was the result of a decrease in the average cost of interest-bearing liabilities of 114 basis points, from 5.06% in 2001 to 3.92% in 2002, partially offset by an increase in the average balance of $11.6 million, or 10.3%. Interest expense on deposits decreased by $715,000, or 19.4%, due primarily to a 137 basis point decline in the average cost of deposits, to 3.32% in 2002, which was partially offset by a $10.9 million, or 13.9%, increase in the average balance of deposits outstanding year to year. Interest expense on borrowings decreased by $104,000, or 5.2%, due primarily to a 43 basis point decrease in the average cost of borrowings year to year. The decreases in the level of yields on interest-earning assets and the cost of interest-bearing liabilities were due primarily to the overall decrease in interest rates in the economy throughout 2001 and 2002. Net Interest Income As a result of the foregoing changes in interest income and interest expense, net interest income increased by $314,000, or 7.6%, to $4.4 million in 2002, compared to $4.1 million in 2001. The interest rate spread was 2.76% in 2002 compared to 2.55% in 2001, and the net yield on weighted-average interest-earning assets declined to 3.21% in 2002 from 3.23% in 2001. Provision for Losses on Loans The Company maintains a general allowance for loan losses that reflects an estimate of inherent losses based upon the types and categories of outstanding loans, as well as problem loans and current economic conditions in the Company's market area. The Company's provision for losses on loans was $360,000 and $392,000, for the years ended December 31, 2002 and 2001, respectively. The 2002 provision was predicated primarily upon the increase in the volume of loans secured by nonresidential and commercial real estate, an analysis of nonperforming loans and the current economic climate. At December 31, 2002 and 2001, the allowance amounted to $1.5 million and $1.1 million, respectively, for a ratio to total loans of 1.30% in 2002 and 1.00% in 2001. Non-performing loans at December 31, 2002 and 2001 were $1.5 million and $1.9 million, respectively. The ratio of the allowance for loan losses to non-performing loans increased from 58.1% at December 31, 2001 to 98.3% at December 31, 2002. Based on management's review of the loan portfolio, the allowance for loan losses at December 31, 2002 is considered adequate to cover potential losses inherent in the loan portfolio. However, there can be no assurance that additions to the allowance will not be necessary in future periods, which could adversely affect the Company's results of operations. Logansport Financial Corp. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Comparison of Results of Operations for the Years Ended December 31, 2002 and 2001 (continued) Other Income The Company's other income for the year ended December 31, 2002, excluding the loss on equity investments, was $459,000, compared to $429,000 in 2001. The increase was due primarily to a $101,000 gain on sale of investment and mortgage-backed securities, partially offset by a decrease of $17,000, or 7.1%, in service charges on deposit accounts and a $54,000, or 28.3%, decrease in other operating income, mainly income on Bank-owned life insurance and a $14,000 decrease in insurance commissions. The $107,000 loss on equity investments recorded in 2002 had a positive after-tax effect of approximately $111,000 when considering the tax benefit and the available tax credits generated by the project. General, Administrative and Other Expense General, administrative and other expense totaled $2.3 million for the year ended December 31, 2002, compared to $2.0 million in 2001, an increase of $272,000, or 13.3%. Employee compensation and benefits increased by $182,000, or 16.3%, due primarily to a $40,000 increase in expense related to medical insurance and a $30,000 increase in pension expense, while the remaining $112,000 increase was primarily attributable to additional staffing, normal merit increases and an increase in officer and employee bonus expenses year to year. Occupancy and equipment expense increased by $10,000, or 4.3%, mainly due to an increase in property taxes and other related occupancy expenses. Data processing fees increased by $7,000, or 3.8%, due primarily to increased account volume and additional commercial loan software maintenance costs. Various other operating expenses increased by $73,000, or 14.5%. The majority of the increase was related to costs associated with new internet-banking services, consulting and attorney fees, costs related to being a public company and pro-rata increases in costs related to the Company's overall growth year to year. Income Tax Expense Income tax expense totaled $609,000 for the year ended December 31, 2002, an increase of $88,000, or 16.9%, over 2001. Pretax income increased by $204,000, or 10.6%, in 2002 compared to 2001, while approximately $182,000 of tax credits were available in both 2002 and 2001. The effective tax rates were 28.7% and 27.1% for the years ended December 31, 2002 and 2001, respectively. Comparison of Results of Operations for the Years Ended December 31, 2001 and 2000 Net earnings totaled $1.4 million for the year ended December 31, 2001, a $129,000, or 10.2%, increase over the net earnings reported for 2000. The increase in net earnings resulted primarily from an increase of $208,000 in net interest income and an increase of $100,000 in other income, which were partially offset by an increase of $60,000 in the provision for losses on loans, an increase of $109,000 in general, administrative and other expense and an increase in the provision for income taxes of $10,000. Interest Income The Company's total interest income was $9.8 million for the year ended December 31, 2001, compared to $9.5 million during 2000, an increase of $307,000, or 3.2%. The $8.3 million, or 6.8%, increase in average interest-earning assets, from $121.5 million in 2000 to $129.8 million in 2001, was partially offset by a 27 basis point decrease in the average yield on interest-earning assets, to 7.61% in 2001 compared to 7.88% in 2000. Interest income on loans increased by $680,000, or 8.5%, due primarily to a $10.8 million, or 10.9%, increase in the average balance of loans outstanding, which was partially offset by an 18 basis point decrease in the average yield year to year, to 8.00% in 2001. Interest income on investment and mortgage-backed securities and other interest-bearing deposits decreased by $373,000, or 25.2%, due primarily to a $2.5 million, or 10.7%, decrease in the average balance outstanding and a 96 basis point decline in the average yield, to 5.66% in 2001. Logansport Financial Corp. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Comparison of Results of Operations for the Years Ended December 31, 2001 and 2000 (continued) Interest Expense Interest expense totaled $5.7 million for the year ended December 31, 2001, an increase of $99,000, or 1.8%, compared to 2000. This increase was the result of an increase in the average balance of interest-bearing liabilities of $7.4 million, or 7.0%, offset by a decrease in the average cost of these liabilities of 25 basis points, from 5.31% in 2000 to 5.06% in 2001. Interest expense on deposits decreased by $230,000, or 5.9%, due primarily to a 34 basis point decline in the average cost of deposits, to 4.69% in 2001, which was partially offset by a $683,000, or .9%, increase in the average balance of deposits outstanding year to year. Interest expense on borrowings increased by $329,000, or 19.5%, due primarily to a $6.7 million, or 24.2%, increase in the average balance outstanding, which was partially offset by a 23 basis point decrease in the average cost of borrowings year to year. The decreases in the level of yields on interest-earning assets and the cost of interest-bearing liabilities were due primarily to the overall decrease in interest rates in the economy during 2001. Net Interest Income Net interest income increased by $208,000, or 5.3%, to $4.1 million in 2001, compared to $3.9 million in 2000. The interest rate spread was 2.55% in 2001 compared to 2.57% in 2000, and the net yield on weighted-average interest-earning assets declined to 3.23% in 2001 from 3.27% in 2000. Provision for Losses on Loans The Company maintains a general allowance for loan losses that reflects an estimate of inherent losses based upon the types and categories of outstanding loans, as well as problem loans and current economic conditions in the Company's market area. The Company's provision for losses on loans was $392,000 and $332,000, for the years ended December 31, 2001 and 2000, respectively. The 2001 provision was predicated primarily upon the increase in the volume of loans secured by nonresidential and commercial real estate and an increase in nonperforming loans year to year. At December 31, 2001 and 2000, the allowance amounted to $1.1 million and $760,000, respectively, for a ratio to total loans of 1.00% in 2001 and .73% in 2000. Non-performing loans at December 31, 2001 and 2000 were $1.9 million and $336,000, respectively. The ratio of the allowance for loan losses to non-performing loans decreased from 226.2% at December 31, 2000 to 58.1% at December 31, 2001. Other Income The Company's other income for the year ended December 31, 2001, excluding the loss on equity investments, was $429,000, compared to $366,000 in 2000. The increase was due primarily to a $78,000, or 48.8%, increase in service charges on deposit accounts. The $207,000 loss on equity investments recorded in 2001 had a positive after-tax effect of approximately $45,000 when considering the tax benefit and the available tax credits generated by the project. General, Administrative and Other Expense General, administrative and other expense totaled $2.0 million for the year ended December 31, 2001, compared to $1.9 million in 2000, an increase of $109,000, or 5.6%. Employee compensation and benefits decreased by $14,000, or 1.2%, due primarily to a $96,000 reduction in expense related to the stock-based RRP plan, which expired in April 2001. This decrease was partially offset by normal merit increases and an increase in officer and employee bonus expenses year to year. Occupancy and equipment expense increased by $34,000, or 17.3%, mainly because of an increase in property taxes and an increase in depreciation of new equipment required for the new building. Data processing fees increased by $20,000, or 12.3%, due primarily to increased account volume and additional commercial loan software maintenance costs. Various other operating expenses increased by $69,000, or 15.4%. The majority of the increase was related to additional operating costs associated with increased account volume, new services, consulting fees and office supplies, all of which were primarily related to the new building. Income Tax Expense Income tax expense totaled $521,000 and $511,000 for the years ended December 31, 2001 and 2000, respectively. Pretax income increased by $139,000, or 7.8%, in 2001 compared to 2000, while approximately $182,000 of tax credits were available in 2001, compared to $142,000 in tax credits recorded in 2000. The effective tax rates were 27.1% and 28.7% for the years ended December 31, 2001 and 2000, respectively. AVERAGE BALANCE, YIELD, RATE AND VOLUME DATA The following table presents for the periods indicated the month-end average balances of each category of the Company's interest-earning assets and interest-bearing liabilities, and the average yields earned and interest rates paid on such balances. Such yields and costs are determined by dividing income or expense by the average balance of assets or liabilities, respectively, for the periods presented.
Year ended December 31, 2002 2001 2000 Average Interest Average Interest Average Interest outstanding earned/ Yield/ outstanding earned/ Yield/ outstanding earned/ Yield/ balance paid rate balance paid rate balance paid rate (Dollars in thousands) Interest-earning assets: Interest-earning deposits $ 9,638 $ 124 1.29% $ 7,271 $ 261 3.59% $ 5,656 $ 301 5.32% Mortgage- and other asset- backed securities (1) 7,927 394 4.97 4,791 297 6.20 5,697 383 6.72 Other investment securities (1) 7,100 441 6.21 6,694 457 6.83 10,283 721 7.01 Loans receivable (2) 113,870 8,315 7.30 109,075 8,721 8.00 98,320 8,041 8.18 Stock in FHLB of Indianapolis 1,991 120 6.02 1,973 147 7.45 1,571 130 8.27 -------- ------ -------- ------ -------- ------ Total interest-earning assets 140,526 9,394 6.68 129,804 9,883 7.61 121,527 9,576 7.88 Non-interest-earning assets 5,947 6,306 5,442 -------- -------- -------- Total assets $146,473 $136,110 $126,969 ======== ======== ======== Interest-bearing liabilities: Savings accounts $ 4,397 55 1.25$ 3,993 100 2.50 $ 3,417 103 3.01 NOW and money market accounts 28,429 492 1.73 23,023 718 3.12 23,814 886 3.72 Certificates of deposit 56,503 2,415 4.27 51,405 2,859 5.56 50,507 2,918 5.78 Borrowings 34,984 1,915 5.47 34,245 2,019 5.90 27,577 1,690 6.13 -------- ------ -------- ------ -------- ------ Total interest-bearing liabilities 124,313 4,877 3.92 112,666 5,696 5.06 105,315 5,597 5.31 ------ ---- ------ ---- ------ ---- Other liabilities 5,879 5,562 5,304 -------- -------- -------- Total liabilities 130,192 118,228 110,619 Shareholders' equity 16,281 17,882 16,350 -------- -------- -------- Total liabilities and shareholders' equity $146,473 $136,110 $126,969 ======== ======== ======== Net interest-earning assets $ 16,213 $ 17,138 $ 16,212 ======== ======== ======== Net interest income $4,517 $4,187 $3,979 ======= ====== ====== Interest rate spread (3) 2.76% 2.55% 2.57% ==== ==== ==== Net yield on weighted-average interest-earning assets (4) 3.21% 3.23% 3.27% ==== ==== ==== Average interest-earning assets to average interest-bearing liabilities 113.04% 115.21% 115.39% ======= ======= ======= Adjustment of interest on tax-exempt securities to a tax-equivalent basis $ 68 $ 52 $ 52 ====== ===== ======
___________________________ (1) Includes securities available for sale at amortized cost prior to SFAS No. 115 adjustments. (2) Comprised of total loans less undisbursed loans in process. (3) Interest rate spread is calculated by subtracting weighted-average interest rate cost from weighted-average interest rate yield for the period indicated. (4) The net yield on weighted-average interest-earning assets is calculated by dividing net interest income by weighted-average interest-earning assets for the period indicated. Logansport Financial Corp. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Rate/Volume Table The table below describes the extent to which changes in interest rates and changes in volume of interest-earning assets and interest-bearing liabilities have affected the Company's interest income and expense during the periods indicated. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to (i) changes in volume (change in volume multiplied by prior year rate), (ii) changes in rate (change in rate multiplied by prior year volume) and (iii) total changes in rate and volume. The combined effects of changes in both volume and rate, which cannot be separately identified, have been allocated proportionately to the change due to volume and the change due to rate.
Year ended December 31, 2002 vs. 2001 2001 vs. 2000 Increase Increase (decrease) (decrease) due to due to Volume Rate Total Volume Rate Total (In thousands) Interest-earning assets: Interest-earning deposits $ 67 $ (204) $(137) $ 298 $ (338) $ (40) Mortgage-backed securities 165 (68) 97 (52) (34) (86) Investment securities 27 (43) (16) (260) (4) (264) Loans receivable 372 (778) (406) 864 (184) 680 Stock in FHLB of Indianapolis 1 (28) (27) 28 (11) 17 ----- ------- ----- ------- ------- ----- Total interest-earning assets 632 (1,121) 489 878 (571) 307 Interest-bearing liabilities: Savings accounts 9 (54) (45) 831 (834) (3) NOW and money market accounts 143 (369) (226) (31) (137) (168) Certificates of deposit 264 (708) (444) 54 (113) (59) Borrowings 43 (147) (104) 390 (61) 329 ----- ------- ----- ------- ------- ----- Total interest-bearing liabilities 459 (1,278) (819) 1,244 (1,145) 99 ----- ------- ----- ------- ------- ----- Change in net interest income (fully taxable equivalent basis) 173 157 330 (367) 575 208 Tax equivalent adjustment (11) (5) (16) - - - ----- ------- ----- ------- ------- ----- Change in net interest income $ 162 $ 152 $ 314 $ (367) $ 575 $ 208 ===== ======= ===== ======= ======= ======
Logansport Financial Corp. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Rate/Volume Table (continued) The Company's results of operations have been determined primarily by net interest income and, to a lesser extent, fee income, miscellaneous income and general and administrative expenses. Net interest income is determined by the interest rate spread between the yields earned on interest-earning assets and the rates paid on interest-bearing liabilities and by the relative amounts of interest-earning assets and interest-bearing liabilities. The following table sets forth the weighted-average effective interest rate earned by the Company on its loan and investment portfolio, the weighted-average effective costs of the Company's deposits and borrowings, the interest rate spread of the Company, and the net yield on weighted-average interest-earning assets for the periods and as of the date shown. Average balances are based on month-end average balances.
At December 31, Year Ended December 31, 2002 2002 2001 2000 Weighted-average interest rate earned on: Interest-earning deposits 0.98% 1.29% 3.59% 5.32% Mortgage-backed securities 4.88 4.97 6.20 6.72 Investment securities 6.07 6.21 6.83 7.01 Loans receivable 7.09 7.30 8.00 8.18 Stock in FHLB of Indianapolis 5.80 6.02 7.45 8.27 Total interest-earning assets 6.31 6.68 7.61 7.88 Weighted-average interest rate cost of: Savings accounts 1.08 1.25 2.50 3.01 NOW and money market accounts 1.01 1.73 3.12 3.72 Certificates of deposit 4.03 4.27 5.56 5.78 Borrowings 5.49 5.47 5.90 6.13 Total interest-bearing liabilities 3.52 3.92 5.06 5.31 Interest rate spread (1) 2.79 2.76 2.55 2.57 Net yield on weighted-average interest-earning assets (2) N/A 3.21 3.23 3.27
- ---------------------------------- (1) Interest rate spread is calculated by subtracting weighted-average interest rate cost from weighted-average interest rate earned for the period indicated. Interest rate spread figures must be considered in light of the relationship between the amounts of interest-earning assets and interest-bearing liabilities. Since the Company's interest-earning assets exceeded its interest-bearing liabilities for each of the three years shown above, a positive interest rate spread resulted in net interest income. (2) The net yield on weighted-average interest-earning assets is calculated by dividing net interest income by weighted-average interest-earning assets for the period indicated. No net yield percentage is presented at December 31, 2002, because the computation of net yield is applicable only over a period rather than at a specific date. Logansport Financial Corp. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Asset/Liability Management The Bank, like other savings associations, is subject to interest rate risk to the degree that its interest-bearing liabilities, primarily deposits with short- and medium-term maturities, mature or reprice at different rates than its interest-earning assets. Management of the Bank believes it is critical to manage the relationship between interest rates and the effect on the Bank's net portfolio value ("NPV"). Generally, NPV is the discounted present value of the difference between incoming cash flows on interest-earning and other assets and outgoing cash flows on interest-bearing liabilities. Management of the Bank's assets and liabilities is done within the context of the marketplace, regulatory limitations and within limits established by the Board of Directors on the amount of change in NPV, which is acceptable given certain interest rate changes. The Office of Thrift Supervision ("OTS") uses a net market value methodology to measure the interest rate risk exposure of thrift institutions. As a part of its efforts to monitor its interest rate risk, the Bank utilizes the "net portfolio value" ("NPV") methodology to assess its exposure to interest rate risk. Generally, NPV is the discounted present value of the difference between incoming cash flows on interest-earning and other assets and outgoing cash flows on interest-bearing liabilities. Presented below, as of September 30, 2002 (the latest available date) and December 31, 2001 is an analysis performed by the OTS of the Bank's interest rate risk as measured by changes in NPV for instantaneous and sustained parallel shifts in the yield curve, in 100 basis point increments in accordance with OTS regulations. As illustrated in the tables, the Bank's NPV is more sensitive to rising rates than declining rates. This occurs principally because, as rates rise, the market value of the Bank's investments, adjustable-rate mortgage loans (many of which have maximum per year adjustments of 1%), fixed-rate loans and mortgage-backed securities decline due to the rate increases. The value of the Bank's deposits and borrowings change in approximately the same proportion in rising or falling rate scenarios.
September 30, 2002 Change in interest rate Net Portfolio Value NPV as % of PV of Assets (Basis Points) $ Amount $ Change % Change NPV Ratio Change (In thousands) +300 $14,561 $(1,945) (12)% 9.67% (82 bp) +200 15,687 (819) (5) 10.25 (24 bp) +100 16,430 (76) - 10.57 8 bp - 16,506 - - 10.49 - -100 15,852 (654) (4) 9.97 (51 bp) December 30, 2001 Change in interest rate Net Portfolio Value NPV as % of PV of Assets (Basis Points) $ Amount $ Change % Change NPV Ratio Change (In thousands) +300 $14,781 $(3,942) (21)% 10.86% (219 bp) +200 16,290 (2,433) (13) 11.76 (130 bp) +100 17,638 (1,085) (6) 12.51 (55 bp) - 18,723 - - 13.06 - -100 18,990 267 1 13.07 2 bp
Logansport Financial Corp. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Asset and Liability Management (continued) As with any method of measuring interest rate risk, certain shortcomings are inherent in the method of analysis presented in the foregoing table. For example, although certain assets and liabilities may have similar maturities or periods of repricing, they may react in different degrees to changes in market interest rates. Also, the interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other types may lag behind changes in market rates. Additionally, certain assets, such as adjustable-rate loans, have features which restrict changes in interest rates on a short-term basis and over the life of the assets. Further, in the event of a change in interest rates, expected rates of prepayment on loans and early withdrawal from certificates could likely deviate significantly from those assumed in calculating the table. Liquidity and Capital Resources The Company's primary sources of funds are deposits and borrowings, proceeds from principal and interest payments on loans, and proceeds from maturing securities. While maturities and scheduled amortization of loans are a relatively predictable source of funds, deposit flows and mortgage prepayments are generally influenced by general interest rates, economic conditions and competition. The primary investing activity of the Company is the origination of mortgage loans and the purchase of investment securities. During the years ended December 31, 2002, 2001 and 2000, the Company originated mortgage loans and commercial loans in the amounts of $40.3 million, $54.3 million and $43.2 million, respectively. The Company originated consumer loans of $5.3 million, $6.8 million and $8.5 million, in 2002, 2001 and 2000, respectively. The Company purchased loans in the amount of $171,000 in 2002 and $499,000 in 2001. No loans were purchased in 2000. Loan repayments totaled $46.7 million, $51.4 million and $39.8 million for 2002, 2001 and 2000, respectively. During the years ended December 31, 2002, 2001 and 2000, the Company purchased investment and mortgage-backed securities in the amounts of $17.8 million, $1.6 million and $4.1 million, respectively. Sales or maturities of such securities held by the Company and payments on mortgage-backed or other asset-backed securities totaled $9.4 million, $5.1 million and $5.6 million for 2002, 2001 and 2000, respectively. Deposits grew by $14.4 million from December 31, 2001 to December 31, 2002, and by $4.4 million from December 31, 2000 to December 31, 2001. Cash and cash equivalents increased by $4.7 million over December 31, 2001 to December 31, 2002, and decreased by $394,000 from December 31, 2000 to December 31, 2001. The Company had outstanding loan commitments, including undisbursed loans in process and standby letters of credit, totaling $13.2 million and $13.9 million, at December 31, 2002 and 2001, respectively. In addition, the Company had a $5.0 million commitment to purchase GNMA adjustable rate securities at December 31, 2002. The Company anticipates that it will have sufficient funds available to meet its current loan commitments. Certificates of deposit that are scheduled to mature in one year or less from December 31, 2002 and 2001 totaled $27.8 million and $31.6 million, respectively. Based upon historical deposit flow data, the Company's competitive pricing in its market and management's experience, management believes that a significant portion of such deposits will remain with the Company. Logansport Financial Corp. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Liquidity and Capital Resources (continued) Liquidity management is both a daily and long-term function of the Company's management strategy. In the event that the Company should require funds beyond its ability to generate them internally, additional funds are available through the use of FHLB advances, and also may be available through sales of securities, although no sales of securities are planned. At December 31, 2002 and 2001, the Company had outstanding FHLB advances of $33.8 million and $34.8 million, respectively. Pursuant to OTS capital regulations, savings associations must currently meet a 1.5% tangible capital requirement, a 4.0% leverage ratio (or core capital) requirement, and a total risk-based capital to risk-weighted assets ratio of 8.0%. At December 31, 2002, the Bank's tangible capital and leverage ratios were both 10.34%, and its risk-based capital to risk-weighted assets ratio was 17.40%. Therefore, at December 31, 2002, the Bank's capital significantly exceeded all of the capital requirements currently in effect. The following table provides the minimum regulatory capital requirements and the Bank's capital ratios as of December 31, 2002.
OTS Requirement The Bank's Capital Level % of % of Amount Assets Amount Assets (1) Amount of excess (Dollars in thousands) Tangible capital 1.5% $2,244 10.34% $15,466 $13,222 Core capital (2) 4.0 5,984 10.34 15,466 9,482 Risk-based capital 8.0 7,664 17.40 16,664 (3) 9,000
(1) Tangible and core capital levels are shown as a percentage of total assets; risk-based capital levels are shown as a percentage of risk-weighted assets. (2) OTS regulations require at least 3% of total adjusted assets for savings associations that received the highest supervisory rating for safety and soundness, and 4% for all other savings associations. (3) The Bank's risk-based capital includes $1.2 million of general valuation allowances. As of December 31, 2002, management is not aware of any current recommendations by regulatory authorities which, if they were to be implemented, would have, or are reasonably likely to have, a material adverse effect on the Bank's liquidity, capital resources or results of operations. Effects of Recent Accounting Pronouncements In August 2001, the Financial Accounting Standards Board (the "FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No. 144 carries over the recognition and measurement provisions in SFAS No. 121. Accordingly, an entity must recognize an impairment loss if the carrying value of a long-lived asset or asset group (a) is not recoverable and (b) exceeds its fair value. Similar to SFAS No. 121, SFAS No. 144 requires an entity to test an asset or asset group for impairment whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. SFAS No. 144 differs from SFAS No. 121 in that it provides guidance on estimating future cash flows to test recoverability. An entity may use either a probability-weighted approach or best-estimate approach in developing estimates of cash flows to test recoverability. SFAS No. 144 is effective for financial statements issued for fiscal years beginning after December 15, 2001 and interim periods within those fiscal years. Management adopted SFAS No. 144 effective January 1, 2002, without material effect on the Company's financial condition or results of operations. Logansport Financial Corp. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Effects of Recent Accounting Pronouncements (continued) In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." SFAS No. 146 provides financial accounting and reporting guidance for costs associated with exit or disposal activities, including one-time termination benefits, contract termination costs other than for a capital lease, and costs to consolidate facilities or relocate employees. SFAS No. 146 is effective for exit or disposal activities initiated after December 31, 2002. SFAS No. 146 is not expected to have a material effect on the Company's financial condition or results of operations. In October 2002, the FASB issued SFAS No. 147, "Accounting for Certain Financial Institutions: An Amendment of FASB Statements No. 72 and 144 and FASB Interpretation No. 9," which removes acquisitions of financial institutions from the scope of SFAS No. 72, "Accounting for Certain Acquisitions of Banking and Thrift Institutions," except for transactions between mutual enterprises. Accordingly, the excess of the fair value of liabilities assumed over the fair value of tangible and intangible assets acquired in a business combination should be recognized and accounted for as goodwill in accordance with SFAS No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 147 also requires that the acquisition of a less-than-whole financial institution, such as a branch, be accounted for as a business combination if the transferred assets and activities constitute a business. Otherwise, the acquisition should be accounted for as the acquisition of net assets. SFAS No. 147 also amends the scope of SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," to include long-term customer relationship assets of financial institutions (including mutual enterprises) such as depositor- and borrower-relationship intangible assets and credit cardholder intangible assets. The provisions of SFAS No. 147 related to unidentifiable intangible assets and the acquisition of a less-than-whole financial institution are effective for acquisitions for which the date of acquisition is on or after October 1, 2002. The provisions related to impairment of long-term customer relationship assets are effective October 1, 2002. Transition provisions for previously recognized unidentifiable intangible assets are effective on October 1, 2002, with earlier application permitted. SFAS No. 147 is not expected to have a material effect on the Company's financial condition or results of operations. In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure." SFAS No. 148 amends SFAS No. 123, "Accounting for Stock-Based Compensation," to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting used for stock-based employee compensation and the effect of the method used on reported results. SFAS No. 148 is effective for fiscal years beginning after December 15, 2002. The expanded annual disclosure requirements and the transition provisions are effective for fiscal years ending after December 15, 2002. The interim disclosure provisions are effective for financial reports containing financial statements for interim periods beginning after December 15, 2002. SFAS No. 148 is not expected to have a material effect on the Company's financial condition or results of operations. REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Board of Directors Logansport Financial Corp. We have audited the accompanying consolidated statements of financial condition of Logansport Financial Corp. as of December 31, 2002 and 2001, and the related consolidated statements of earnings, shareholders' equity, comprehensive income and cash flows for each of the years in the three year period ended December 31, 2002. These consolidated financial statements are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Logansport Financial Corp. as of December 31, 2002 and 2001, and the consolidated results of its operations, comprehensive income and cash flows for each of the years in the three year period ended December 31, 2002, in conformity with accounting principles generally accepted in the United States of America. Cincinnati, Ohio January 24, 2003
LOGANSPORT FINANCIAL CORP. CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION December 31, 2002 and 2001 (In thousands, except share data) ASSETS 2002 2001 Cash and due from banks $ 778 $ 1,081 Interest-bearing deposits in other financial institutions 12,739 7,735 ----------- ---------- Cash and cash equivalents 13,517 8,816 Investment securities designated as available for sale - at market 8,060 5,788 Mortgage-backed securities designated as available for sale - at market 11,009 4,419 Loans receivable - net 110,386 111,696 Office premises and equipment - at depreciated cost 1,767 1,803 Real estate acquired through foreclosure - 65 Federal Home Loan Bank stock - at cost 2,003 1,973 Investment in real estate partnership 1,026 1,109 Accrued interest receivable on loans 410 445 Accrued interest receivable on mortgage-backed securities 49 28 Accrued interest receivable on investments and interest-bearing deposits 107 92 Prepaid expenses and other assets 80 88 Cash surrender value of life insurance 1,317 1,291 Deferred income tax asset 364 452 Prepaid income taxes 4 - ----------- ---------- Total assets $150,099 $138,065 =========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Deposits $ 98,325 $ 83,900 Advances from the Federal Home Loan Bank 33,836 34,750 Notes payable 1,793 1,165 Accrued interest and other liabilities 772 819 Accrued income taxes - 29 ----------- ---------- Total liabilities 134,726 120,663 Commitments - - Shareholders' equity Preferred stock - no par value, 2,000,000 shares authorized; none issued - - Common stock - no par value, 5,000,000 shares authorized; 848,958 and 1,034,545 shares at aggregate value issued and outstanding at December 31, 2002 and 2001, respectively 1,446 4,802 Retained earnings - restricted 13,444 12,408 Less shares acquired by stock benefit plan (44) (63) Accumulated comprehensive income, unrealized gains on securities designated as available for sale, net of related tax effects 527 255 ----------- ---------- Total shareholders' equity 15,373 17,402 ----------- ---------- Total liabilities and shareholders' equity $150,099 $138,065 =========== ==========
The accompanying notes are an integral part of these statements.
LOGANSPORT FINANCIAL CORP. CONSOLIDATED STATEMENTS OF EARNINGS For the years ended December 31, 2002, 2001 and 2000 (In thousands, except share data) 2002 2001 2000 Interest income Loans $8,315 $8,721 $8,041 Investment securities 373 405 667 Mortgage-backed securities 394 297 383 Interest-bearing deposits and other 244 408 433 ------ ------ ------ Total interest income 9,326 9,831 9,524 Interest expense Deposits 2,962 3,677 3,907 Borrowings 1,915 2,019 1,690 ------ ------ ------ Total interest expense 4,877 5,696 5,597 ------ ------ ------ Net interest income 4,449 4,135 3,927 Provision for losses on loans 360 392 332 ------ ------ ------ Net interest income after provision for losses on loans 4,089 3,743 3,595 Other income Service charges on deposit accounts 221 238 160 Gain (loss) on sale of investment and mortgage-backed securities 101 - (17) Loss on investment in real estate partnership (107) (207) (244) Other operating 137 191 223 ------ ------ ------ Total other income 352 222 122 General, administrative and other expense Employee compensation and benefits 1,297 1,115 1,129 Occupancy and equipment 240 230 196 Data processing 190 183 163 Other operating 591 518 449 ------ ------ ------ Total general, administrative and other expense 2,318 2,046 1,937 ------ ------ ------ Earnings before income taxes 2,123 1,919 1,780 Income taxes Current 661 662 649 Deferred (52) (141) (138) ------ ------ ------ Total income taxes 609 521 511 ------ ------ ------ NET EARNINGS $1,514 $1,398 $1,269 ====== ====== ====== EARNINGS PER SHARE Basic $1.63 $1.29 $1.16 ====== ====== ====== Diluted $1.58 $1.27 $1.16 ====== ====== ======
The accompanying notes are an integral part of these statements.
LOGANSPORT FINANCIAL CORP. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME For the years ended December 31, 2002, 2001 and 2000 (In thousands) 2002 2001 2000 Net earnings $1,514 $1,398 $1,269 Other comprehensive income, net of tax: Unrealized holding gains on securities during the year, net of taxes of $175, $93 and $202 for the years ended December 31, 2002, 2001 and 2000, respectively 339 180 392 Reclassification adjustment for realized (gains) losses included in earnings, net of taxes (benefits) of $34 and $(6) for the years ended December 31, 2002 and 2000, respectively (67) - 11 ------ ------ ------ Comprehensive income $1,670 $1,578 $1,672 ====== ====== ====== Accumulated comprehensive income $ 527 $ 255 $ 75 ====== ====== ======
The accompanying notes are an integral part of these statements.
LOGANSPORT FINANCIAL CORP. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY For the years ended December 31, 2002, 2001 and 2000 (In thousands, except share data) Unrealized Shares gains (losses) acquired on securities by stock designated as Common Retained benefit available stock earnings plan for sale Total Balance at January 1, 2000 $5,979 $10,734 $(239) $(328) $16,146 Net earnings for the year ended December 31, 2000 - 1,269 - - 1,269 Purchase of shares (464) - - - (464) Unrealized gains on securities designated as available for sale, net of related tax effects - - - 403 403 Amortization expense of stock benefit plan - - 136 - 136 Cash dividends of $.44 per share - (477) - - (477) ------ ------- ------- ------ ------- Balance at December 31, 2000 5,515 11,526 (103) 75 17,013 Net earnings for the year ended December 31, 2001 - 1,398 - - 1,398 Purchase of shares (921) - - - (921) Issuance of shares under stock option plan 208 - - - 208 Unrealized gains on securities designated as available for sale, net of related tax effects - - - 180 180 Amortization expense of stock benefit plan - - 40 - 40 Cash dividends of $.48 per share - (516) - - (516) ------ ------- ------- ------ ------- Balance at December 31, 2001 4,802 12,408 (63) 255 17,402 Net earnings for the year ended December 31, 2002 - 1,514 - - 1,514 Purchase of shares (3,725) - - - (3,725) Issuance of shares under stock option plan 369 - - - 369 Unrealized gains on securities designated as available for sale, net of related tax effects - - - 272 272 Amortization expense of stock benefit plan - - 19 - 19 Cash dividends of $.52 per share - (478) - - (478) ------ ------- ------- ------ ------- Balance at December 31, 2002 $1,446 $13,444 $ (44) $ 527 $15,373 ====== ======= ======= ===== ========
The accompanying notes are an integral part of these statements.
LOGANSPORT FINANCIAL CORP. CONSOLIDATED STATEMENTS OF CASH FLOWS For the years ended December 31, 2002, 2001 and 2000 (In thousands) 2002 2001 2000 Cash flows from operating activities: Net earnings for the year $ 1,514 $ 1,398 $ 1,269 Adjustments to reconcile net earnings to net cash provided by (used in) operating activities: Depreciation and amortization 108 99 110 Amortization of premiums on investments and mortgage-backed securities 41 31 26 Amortization expense of stock benefit plan 19 40 136 (Gain) loss on sale of investment and mortgage-backed securities (101) - 17 Provision for losses on loans 360 392 332 Loss on investment in real estate partnership 107 207 244 Increase (decrease) in cash, due to changes in: Accrued interest receivable on loans 35 103 (132) Accrued interest receivable on mortgage-backed securities (21) 13 6 Accrued interest receivable on investments (15) 15 8 Prepaid expenses and other assets 8 (24) (19) Accrued interest and other liabilities (47) (87) (98) Federal income taxes Current (33) 27 48 Deferred (52) (141) (138) ------ ------ ------ Net cash provided by operating activities 1,923 2,073 1,809 Cash flows provided by (used in) investing activities: Proceeds from sale of investment securities designated as available for sale 269 - 3,965 Purchase of investment securities designated as available for sale (4,711) (1,053) (4,082) Maturities of investment securities designated as available for sale 2,385 3,775 800 Purchase of mortgage-backed securities designated as available for sale (13,061) (514) - Proceeds from sale of mortgage-backed securities designated as available for sale 5,036 - - Principal repayments on mortgage-backed securities designated as available for sale 1,692 1,313 834 Purchase of loans (171) (499) - Sales of loan participations - 416 - Loan disbursements (45,554) (61,082) (51,693) Principal repayments on loans 46,675 51,430 39,843 Investment in real estate partnership (96) (104) (113) Purchases of office premises and equipment (72) (59) (51) Proceeds from sale of real estate acquired through foreclosure 65 - - Purchase of Federal Home Loan Bank stock (30) - (700) Increase in cash surrender value of life insurance policy (26) (57) (50) ------ ------ ------ Net cash used in investing activities (7,599) (6,434) (11,247) ------ ------ ------ Net cash used in operating and investing activities (subtotal carried forward) (5,676) (4,361) (9,438) ------ ------ ------
LOGANSPORT FINANCIAL CORP. CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) For the years ended December 31, 2002, 2001 and 2000 (In thousands) 2002 2001 2000 Net cash used in operating and investing activities (subtotal brought forward) $ (5,676) $ (4,361) $ (9,438) Cash flows provided by (used in) financing activities: Net increase in deposit accounts 14,425 4,446 3,443 Proceeds from Federal Home Loan Bank advances 9,950 12,750 33,000 Repayment of Federal Home Loan Bank advances (10,864) (12,000) (22,000) Proceeds from notes payable 700 - - Proceeds from the exercise of stock options 369 208 - Dividends on common stock (478) (516) (477) Purchase of shares (3,725) (921) (464) ------ ------ ------ Net cash provided by financing activities 10,377 3,967 13,502 ------ ------ ------ Net increase (decrease) in cash and cash equivalents 4,701 (394) 4,064 Cash and cash equivalents at beginning of year 8,816 9,210 5,146 ------ ------ ------ Cash and cash equivalents at end of year $13,517 $ 8,816 $ 9,210 ====== ====== ====== Supplemental disclosure of cash flow information: Cash paid during the year for: Income taxes $ 617 $ 590 $ 629 ====== ====== ====== Interest on deposits and borrowings $ 4,887 $ 5,719 $ 5,449 ====== ====== ====== Supplemental disclosure of noncash investing and financing activities: Transfers from loans to real estate acquired through foreclosure $ - $ 65 $ - ====== ====== ====== Unrealized gains on securities designated as available for sale, net of related tax effects $ 272 $ 180 $ 403 ====== ====== ======
The accompanying notes are an integral part of these statements. LOGANSPORT FINANCIAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2002, 2001 and 2000 NOTE A - SUMMARY OF ACCOUNTING POLICIES Logansport Financial Corp. (the "Corporation") is a savings and loan holding company whose activities are primarily limited to holding the common stock of Logansport Savings Bank, FSB (the "Savings Bank"). The Savings Bank conducts a general banking business in north-central Indiana which consists of attracting deposits from the general public and applying those funds to the origination of loans for residential, consumer and nonresidential purposes. The Savings Bank's profitability is significantly dependent on its net interest income, which is the difference between interest income generated from interest-earning assets (i.e. loans and investments) and the interest expense paid on interest-bearing liabilities (i.e. customer deposits and borrowed funds). Net interest income is affected by the relative amount of interest-earning assets and interest-bearing liabilities and the interest received or paid on these balances. The level of interest rates paid or received by the Savings Bank can be significantly influenced by a number of environmental factors, such as governmental monetary policy, that are outside of management's control. The financial information presented herein has been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") and general accounting practices within the financial services industry. In preparing consolidated financial statements in accordance with U.S. GAAP, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and revenues and expenses during the reporting period. Actual results could differ from such estimates. The following is a summary of the Corporation's significant accounting policies which have been consistently applied in the preparation of the accompanying consolidated financial statements. 1. Principles of Consolidation The consolidated financial statements include the accounts of the Corporation and its subsidiary, the Savings Bank. All significant intercompany balances and transactions have been eliminated. 2. Investment and Mortgage-backed Securities The Corporation accounts for investments and mortgage-backed securities in accordance with Statement of Financial Accounting Standards ("SFAS") No. 115 "Accounting for Certain Investments in Debt and Equity Securities." SFAS No. 115 requires that investments be categorized as held-to-maturity, trading, or available for sale. Securities classified as held to maturity are carried at cost only if the Corporation has the positive intent and ability to hold these securities to maturity. Trading securities and securities available for sale are carried at fair value with resulting unrealized gains or losses recorded to operations or shareholders' equity, respectively. At December 31, 2002 and 2001, the Corporation had designated all investment and mortgage-backed securities as available for sale. Realized gains and losses on sales of securities are recognized using the specific identification method. LOGANSPORT FINANCIAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 2002, 2001 and 2000 NOTE A - SUMMARY OF ACCOUNTING POLICIES (continued) 3. Loans Receivable Loans receivable are stated at the principal amount outstanding, adjusted for the allowance for loan losses. Interest is accrued as earned, unless the collectibility of the loan is in doubt. Uncollectible interest on loans that are contractually past due is charged off, or an allowance is established based on management's periodic evaluation. The allowance is established by a charge to interest income equal to all interest previously accrued, and income is subsequently recognized only to the extent that cash payments are received until, in management's judgment, the borrower's ability to make periodic interest and principal payments has returned to normal, in which case the loan is returned to accrual status. If the ultimate collectibility of the loan is in doubt, in whole or in part, all payments received on nonaccrual loans are applied to reduce principal until such doubt is eliminated. 4. Loan Origination Fees The Savings Bank accounts for loan origination fees in accordance with SFAS No. 91, "Accounting for Nonrefundable Fees and Costs Associated with Originating or Acquiring Loans and Initial Direct Costs of Leases." Pursuant to the provisions of SFAS No. 91, origination fees received from loans, net of certain direct origination costs, are deferred and amortized to interest income using the interest method, giving effect to actual loan prepayments. Additionally, SFAS No. 91 generally limits the definition of loan origination costs to the direct costs attributable to originating a loan, i.e. principally actual personnel costs. Fees received for loan commitments that are expected to be drawn upon, based on the Savings Bank's experience with similar commitments, are deferred and amortized over the life of the loan using the level-yield method. Fees for other loan commitments are deferred and amortized over the loan commitment period on a straight-line basis. 5. Allowance for Loan Losses It is the Savings Bank's policy to provide valuation allowances for estimated losses on loans based on past loss experience, trends in the level of delinquent and problem loans, adverse situations that may affect the borrower's ability to repay, the estimated value of any underlying collateral and current economic conditions in the primary lending area. When the collection of a loan becomes doubtful, or otherwise troubled, the Savings Bank records a loan loss provision equal to the difference between the fair value of the property securing the loan and the loan's carrying value. Major loans and major lending areas are reviewed periodically to determine potential problems at an early date. The allowance for loan losses is increased by charges to earnings and decreased by charge-offs (net of recoveries). The Savings Bank accounts for impaired loans in accordance with SFAS No. 114, "Accounting by Creditors for Impairment of a Loan." SFAS No. 114 requires that impaired loans be measured based upon the present value of expected future cash flows discounted at the loan's effective interest rate or, as an alternative, at the loan's observable market price or fair value of the collateral. The Savings Bank's current procedures for evaluating impaired loans result in carrying such loans at the lower of cost or fair value. LOGANSPORT FINANCIAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 2002, 2001 and 2000 NOTE A - SUMMARY OF ACCOUNTING POLICIES (continued) 5. Allowance for Loan Losses (continued) A loan is defined under SFAS No. 114 as impaired when, based on current information and events, it is probable that a creditor will be unable to collect all amounts due according to the contractual terms of the loan agreement. In applying the provisions of SFAS No. 114, the Savings Bank considers its investment in one- to four-family residential loans and consumer installment loans to be homogeneous and therefore excluded from separate identification for evaluation of impairment. With respect to the Savings Bank's investment in nonresidential and multi-family residential real estate loans, and its evaluation of impairment thereof, such loans are generally collateral dependent and, as a result, are carried as a practical expedient at the lower of cost or fair value. Collateral dependent loans which are more than ninety days delinquent are considered to constitute more than a minimum delay in repayment and are evaluated for impairment under SFAS No. 114 at that time. The Savings Bank's impaired loan information is as follows at December 31:
2002 2001 (In thousands) Impaired loans with related allowance $763 $1,460 Impaired loans with no related allowance - - ---- ------ Total impaired loans $763 $1,460 ==== ====== 2002 2001 2000 (In thousands) Allowance on impaired loans Beginning balance $341 $ 228 $ 48 Provision 11 113 180 ---- ------- ----- Ending balance $352 $ 341 $228 ==== ======= ===== Average balance of impaired loans $871 $ 1,419 $632 Interest income recognized on impaired loans $ 69 $ 37 $ 59
The allowance for impaired loans is included in the Savings Bank's overall allowance for credit losses. The provision necessary to increase this allowance is included in the Savings Bank's overall provision for losses on loans. 6. Real Estate Acquired Through Foreclosure Real estate acquired through foreclosure is carried at the lower of the loan's unpaid principal balance (cost) or fair value less estimated selling expenses at the date of acquisition. Real estate loss provisions are recorded if the properties' fair value subsequently declines below the value determined at the recording date. In determining the lower of cost or fair value at acquisition, costs relating to development and improvement of property are capitalized. Costs relating to holding real estate acquired through foreclosure, net of rental income, are charged against earnings as incurred. LOGANSPORT FINANCIAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 2002, 2001 and 2000 NOTE A - SUMMARY OF ACCOUNTING POLICIES (continued) 7. Office Premises and Equipment Office premises and equipment are carried at cost and include expenditures which extend the useful lives of existing assets. Maintenance, repairs and minor renewals are expensed as incurred. For financial reporting, depreciation and amortization are provided on the straight-line and accelerated methods over the useful lives of the assets, estimated to be thirty to forty years for buildings, five to twenty years for building improvements, five to fifteen years for furniture and equipment and five years for automobiles. An accelerated method is used for tax reporting purposes. 8. Investment in Real Estate Partnership During 1997, the Corporation invested $1.5 million in a real estate partnership for the purpose of constructing and managing residential real estate apartments for low and moderate income residents. The investment reflects a 49.5% participation in the partnership and is accounted for by the Savings Bank using the equity method. The Savings Bank realized after-tax losses from the investment of approximately $62,000, $119,000 and $140,000 during the years ended December 31, 2002, 2001 and 2000, respectively, as well as federal income tax credits of approximately $182,000, $182,000 and $142,000 in 2002, 2001 and 2000, respectively. This affordable housing project is expected to generate tax credits for the Savings Bank in future years. 9. Income Taxes The Corporation accounts for income taxes pursuant to SFAS No. 109, "Accounting for Income Taxes." In accordance with SFAS No. 109, a deferred tax liability or deferred tax asset is computed by applying the current statutory tax rates to net taxable or deductible temporary differences between the tax basis of an asset or liability and its reported amount in the consolidated financial statements that will result in net taxable or deductible amounts in future periods. Deferred tax assets are recorded only to the extent that the amount of net deductible temporary differences or carryforward attributes may be utilized against current period earnings, carried back against prior years' earnings, offset against taxable temporary differences reversing in future periods, or utilized to the extent of management's estimate of future taxable income. A valuation allowance is provided for deferred tax assets to the extent that the value of net deductible temporary differences and carryforward attributes exceeds management's estimates of taxes payable on future taxable income. Deferred tax liabilities are provided on the total amount of net temporary differences taxable in the future. Deferral of income taxes results primarily from the different methods of accounting for certain benefit plans, the real estate partnership investment, general loan loss allowances and percentage of earnings bad debt deductions. Additional temporary differences result from depreciation computed using accelerated methods for tax purposes. 10. Benefit Plans Employees of the Savings Bank participate in a defined benefit pension plan (the "Plan") to which contributions are made for the benefit of the employees. Contributions are determined to cover the normal cost of pension benefits, the one-year cost of the pre-retirement death and disability benefits and the amortization of any unfunded accrued liabilities. LOGANSPORT FINANCIAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 2002, 2001 and 2000 NOTE A - SUMMARY OF ACCOUNTING POLICIES (continued) 10. Benefit Plans (continued) The Plan sponsor has advised the Savings Bank that the pension plan meets the criteria of a multi-employer pension plan as defined in SFAS No. 87, "Employers' Accounting for Pensions." In accordance with SFAS No. 87, net pension cost is recognized for any required contribution for the period. A liability is recognized for any contributions due and unpaid. Contributions totaling approximately $31,000 were required to fund the pension liability during the year ended December 31, 2002. No contributions were necessary during the years ended December 31, 2001 and 2000. The provision for pension expense was computed by the Plan's actuaries by utilizing the projected unit credit cost method and assuming a 7.5% return on Plan assets. The Savings Bank has purchased life insurance policies on certain officers and directors. The insurance policies had an approximate cash surrender value of $1.3 million, $1.3 million and $1.2 million at December 31, 2002, 2001 and 2000, respectively. The Savings Bank has approved compensation arrangements that provide retirement benefits to certain officers and deferral of fees for directors covered by the policies. The benefit arrangement for one individual requires that the individual provide consulting services to the Savings Bank during the five-year period following retirement. The benefits to be paid, excluding amounts attributable to consulting, are being accrued from the date of approval of the arrangements to the date that full eligibility is attained. Expense related to the above described plans totaled $69,000, $63,000 and $108,000 for the years ended December 31, 2002, 2001 and 2000, respectively. The Savings Bank adopted the Logansport Savings Bank, FSB Employee Stock Ownership Plan and Trust Agreement ("ESOP") in 1995, for eligible employees of the Savings Bank. The ESOP will be funded by discretionary employer contributions made in cash, which will be invested in shares of the Corporation's common stock. No contributions were made to the ESOP during the years ended December 31, 2002, 2001 or 2000. In April 1996, the Corporation's shareholders approved the Logansport Savings Bank, FSB Recognition and Retention Plan and Trust ("RRP"), which provided for the acquisition of up to 52,900 shares of the Corporation's common stock for awards to management. Shares awarded to management under the RRP generally vest at a rate of 20% at the end of each full twelve months of service with the Savings Bank after the date of the award. During 1996, the Savings Bank contributed $615,000 to the RRP for the purchase of 46,675 shares of the Corporation's common stock awarded to management and recorded the amount as unearned compensation. During 1998, the Savings Bank contributed $93,000 for the purchase of the 6,225 remaining allowable shares. Amortization expense under the RRP totaled $19,000, $40,000 and $136,000 for the years ended December 31, 2002, 2001 and 2000, respectively. In April 1999, the Savings Bank implemented a contributory 401(k) plan covering all employees who have attained the age of 21 and have completed one year of service. Contributions to the plan are voluntary and are subject to matching by the Savings Bank. The Savings Bank's expense related to the plan totaled approximately $23,000, $19,000 and $14,000 for the years ended December 31, 2002, 2001 and 2000, respectively. LOGANSPORT FINANCIAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 2002, 2001 and 2000 NOTE A - SUMMARY OF ACCOUNTING POLICIES (continued) 11. Earnings Per Share Basic earnings per common share is computed based upon the weighted-average number of common shares outstanding during the year. Diluted earnings per common share is computed including the dilutive effect of additional potential common shares issuable under stock option. The computations were as follows for the years ended December 31: 2002 2001 2000 Weighted-average common shares outstanding (basic) 929,488 1,084,377 1,090,800 Dilutive effect of assumed exercise of stock options 28,647 19,946 - ------- --------- --------- Weighted-average common shares outstanding (diluted) 958,135 1,104,323 1,090,800 ======= ========= ========= Options to purchase 2,500 shares of common stock with a weighted-average exercise price of $13.75, were outstanding at December 31, 2001, but were excluded from the computation of diluted earnings per share because their exercise prices were greater than the average market price of the common shares. Options to purchase 125,915 shares of common stock with a weighted-average exercise price of $10.59, were outstanding at December 31, 2000, but were excluded from the computation of diluted earnings per share because their exercise prices were greater than the average market price of the common shares. The Corporation had no anti-dilutive securities at December 31, 2002. 12. Stock Option Plans During 1996, the Board of Directors adopted a Stock Option Plan that provided for the issuance of 132,250 shares of common stock at the fair value at the date of grant. During 1999, the Board of Directors adopted a second Stock Option Plan that provided for the issuance of 115,000 shares of common stock at the fair value at the date of grant. The Corporation accounts for its stock option plans in accordance with SFAS No. 123, "Accounting for Stock-Based Compensation," which contains a fair value-based method for valuing stock-based compensation that entities may use, which measures compensation cost at the grant date based on the fair value of the award. Compensation is then recognized over the service period, which is usually the vesting period. Alternatively, SFAS No. 123 permits entities to continue to account for stock options and similar equity instruments under Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees." Entities that continue to account for stock options using APB Opinion No. 25 are required to make pro forma disclosures of net earnings and earnings per share, as if the fair value-based method of accounting defined in SFAS No. 123 had been applied. LOGANSPORT FINANCIAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 2002, 2001 and 2000 NOTE A - SUMMARY OF ACCOUNTING POLICIES (continued) 12. Stock Option Plans (continued) The Corporation applies APB Opinion No. 25 and related Interpretations in accounting for its stock option plans. Accordingly, no compensation cost has been recognized for the plans. Had compensation cost for the Corporation's stock option plans been determined based on the fair value at the grant dates for awards under the plans consistent with the accounting method utilized in SFAS No. 123, there would have been no material effect on the Corporation's net earnings and earnings per share. A summary of the status of the Corporation's stock option plans as of December 31, 2002, 2001 and 2000, and changes during the years ending on those dates is presented below:
2002 2001 2000 Weighted- Weighted- Weighted- average average average exercise exercise exercise Shares price Shares price Shares price Outstanding at beginning of year 106,796 $10.61 125,915 $10.59 125,915 $10.59 Granted - - - - - - Exercised (27,660) 10.53 (15,463) 10.53 - - Forfeited - - (3,656) 10.53 - - ------- ------- ------- ------ ------- ----- Outstanding at end of year 79,136 $10.63 106,796 $10.61 125,915 $10.59 ======= ====== ======= ====== ======= ====== Options exercisable at year-end 78,636 $10.61 105,796 $10.58 98,547 $10.56 ======= ====== ======= ====== ======= ======
The following information applies to options outstanding at December 31, 2002: Number outstanding 79,136 Range of exercise prices $10.53 - $13.75 Weighted-average exercise price $10.63 Weighted-average remaining contractual life 3.37 years 13. Cash and Cash Equivalents For purposes of reporting cash flows, cash and cash equivalents includes cash and due from banks and interest-bearing deposits in other financial institutions with original maturities of less than 90 days. 14. Fair Value of Financial Instruments SFAS No. 107, "Disclosures about Fair Value of Financial Instruments," requires disclosure of fair value of financial instruments, both assets and liabilities, whether or not recognized in the consolidated statement of financial condition, for which it is practicable to estimate that value. For financial instruments where quoted market prices are not available, fair values are based on estimates using present value and other valuation methods. LOGANSPORT FINANCIAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 2002, 2001 and 2000 NOTE A - SUMMARY OF ACCOUNTING POLICIES (continued) 14. Fair Value of Financial Instruments (continued) The methods used are greatly affected by the assumptions applied, including the discount rate and estimates of future cash flows. Therefore, the fair values presented may not represent amounts that could be realized in an exchange for certain financial instruments. The following methods and assumptions were used by the Corporation in estimating its fair value disclosures for financial instruments at December 31, 2002 and 2001: Cash and cash equivalents: The carrying amounts presented in the consolidated statements of financial condition for cash and cash equivalents are deemed to approximate fair value. Investment and mortgage-backed securities: For investment and mortgage-backed securities, fair value is deemed to equal the quoted market price. Loans receivable: The loan portfolio has been segregated into categories with similar characteristics, such as one- to four-family residential, multi-family residential, nonresidential real estate and consumer. These loan categories were further delineated into fixed-rate and adjustable-rate loans. The fair values for the resultant loan categories were computed via discounted cash flow analysis, using current interest rates offered for loans with similar terms to borrowers of similar credit quality. Federal Home Loan Bank stock: The carrying amount presented in the consolidated statements of financial condition is deemed to approximate fair value. Deposits: The fair value of NOW accounts, passbook and club accounts, and money market deposits is deemed to approximate the amount payable on demand at December 31, 2002 and 2001. Fair values for fixed-rate certificates of deposit have been estimated using a discounted cash flow calculation using the interest rates currently offered for deposits of similar remaining maturities. Federal Home Loan Bank advances: The fair value of Federal Home Loan Bank advances has been estimated using discounted cash flow analysis, based on the interest rates currently offered for advances of similar remaining maturities. Notes Payable: The fair value of notes payable is deemed to approximate the carrying value. Commitments to extend credit: For fixed-rate and adjustable-rate loan commitments, the fair value estimate considers the difference between current levels of interest rates and committed rates. At December 31, 2002 and 2001, the difference between the fair value and notional amount of loan commitments was not material. LOGANSPORT FINANCIAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 2002, 2001 and 2000 NOTE A - SUMMARY OF ACCOUNTING POLICIES (continued) 14. Fair Value of Financial Instruments (continued) Based on the foregoing methods and assumptions, the carrying value and fair value of the Corporation's financial instruments are as follows at December 31:
2002 2001 Carrying Fair Carrying Fair value value value value (In thousands) Financial assets Cash and cash equivalents $ 13,517 $ 13,517 $ 8,816 $ 8,816 Investment securities 8,060 8,060 5,788 5,788 Mortgage-backed securities 11,009 11,009 4,419 4,419 Loans receivable 110,386 111,830 111,696 112,990 Federal Home Loan Bank stock 2,003 2,003 1,973 1,973 --------- --------- ---------- --------- $ 144,975 $ 146,419 $ 132,692 $ 133,986 ========= ========= ========== ========= Financial liabilities Deposits $ 98,325 $ 99,510 $ 83,900 $ 85,098 Advances from the Federal Home Loan Bank 33,836 34,084 34,750 34,777 Notes payable 1,793 1,793 1,165 1,165 --------- --------- ---------- --------- $133,954 $135,387 $119,815 $121,040 ========= ========= ========== =========
15. Advertising Advertising costs are expensed when incurred. The Corporation's advertising expense totaled $68,000, $56,000 and $41,000 for the years ended December 31, 2002, 2001 and 2000, respectively. 16. Reclassifications Certain prior year amounts have been reclassified to conform to the 2002 consolidated financial statement presentation. LOGANSPORT FINANCIAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 2002, 2001 and 2000 NOTE B - INVESTMENT AND MORTGAGE-BACKED SECURITIES The amortized cost, gross unrealized gains, gross unrealized losses and estimated fair value of investment securities designated as available for sale at December 31, 2002 and 2001, are as follows:
2002 Gross Gross Estimated Amortized unrealized unrealized fair cost gains losses value (In thousands) U.S. Government agency obligations $3,051 $ 71 $ 2 $3,120 State and municipal obligations 3,028 204 - 3,232 Corporate debt obligations 907 76 - 983 Preferred stock 500 3 - 503 FHLMC stock 4 218 - 222 ------ ---- ------ ------ Total investment securities $7,490 $572 $ 2 $8,060 ====== ==== ====== ====== 2001 Gross Gross Estimated Amortized unrealized unrealized fair cost gains losses value (In thousands) U.S. Government agency obligations $1,900 $ 13 $ 5 $1,908 State and municipal obligations 2,789 113 1 2,901 Corporate debt obligations 710 22 1 731 FHLMC stock 4 244 - 248 ------ ---- ------ ------ Total investment securities $5,403 $392 $ 7 $5,788 ====== ==== ====== ======
The amortized cost and estimated fair value of investment securities by term to maturity at December 31 are shown below.
2002 2001 Estimated Estimated Amortized fair Amortized fair cost value cost value (In thousands) Due in one year or less $ 575 $ 582 $ 25 $ 25 Due after one year through three years 2,068 2,149 1,004 1,035 Due after three years through five years 657 688 937 959 Due after five years through ten years 2,382 2,545 2,379 2,436 Due after ten years 1,304 1,371 1,054 1,085 ------ ------ ------ ------ 6,986 7,335 5,399 5,540 Preferred stock 500 503 - - FHLMC stock 4 222 4 248 ------ ------ ------ ------ $7,490 $8,060 $5,403 $5,788 ====== ====== ====== ======
LOGANSPORT FINANCIAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 2002, 2001 and 2000 NOTE B - INVESTMENT AND MORTGAGE-BACKED SECURITIES (continued) Proceeds from sales of investment securities available for sale during the year ended December 31, 2002, totaled $269,000, resulting in gross realized gains of $17,000. Proceeds from sales and calls of investment securities available for sale during the year ended December 31, 2000, totaled $4.8 million, resulting in gross realized gains of $17,000 and gross realized losses of $34,000. The amortized cost, gross unrealized gains, gross unrealized losses and estimated fair values of mortgage-backed securities at December 31, 2002 and 2001 are presented below.
2002 Gross Gross Estimated Amortized unrealized unrealized fair cost gains losses value (In thousands) Federal Home Loan Mortgage Corporation participation certificates $ 548 $ 30 $ - $ 578 Government National Mortgage Association participation certificates 6,919 148 - 7,067 Federal National Mortgage Association participation certificates 2,357 51 - 2,408 Federal Housing Authority participation certificates 641 5 - 646 Small Business Administration participation certificates 314 - 4 310 ------- ---- ----- ------- Total mortgage-backed securities $10,779 $234 $ 4 $11,009 ======= ==== ===== ======== 2001 Gross Gross Estimated Amortized unrealized unrealized fair cost gains losses value (In thousands) Federal Home Loan Mortgage Corporation participation certificates $ 675 $ 7 $ - $ 682 Government National Mortgage Association participation certificates 1,489 3 13 1,479 Federal National Mortgage Association participation certificates 1,210 14 1 1,223 Federal Housing Authority participation certificates 653 - 2 651 Small Business Administration participation certificates 391 - 7 384 ------- ---- ----- ------- Total mortgage-backed securities $4,418 $ 24 $ 23 $ 4,419 ======= ==== ===== ========
LOGANSPORT FINANCIAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 2002, 2001 and 2000 NOTE B - INVESTMENT AND MORTGAGE-BACKED SECURITIES (continued) The amortized cost and estimated fair value of mortgage-backed securities at December 31, 2002 and 2001, by contractual terms to maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may generally prepay obligations without prepayment penalties.
2002 2001 Estimated Estimated Amortized fair Amortized fair cost value cost value (In thousands) Due within one year $ 1,962 $ 2,000 $ 805 $ 805 Due after one year to three years 1,748 1,790 989 991 Due after three years to five years 1,035 1,060 531 531 Due after five years to ten years 1,754 1,793 786 785 Due after ten years 4,280 4,366 1,307 1,307 ------- ------- ------ ------- Total mortgage-backed securities $10,779 $11,009 $4,418 $ 4,419 ======= ======== ====== =======
Proceeds from sale of mortgage-backed securities available for sale during the year ended December 31, 2002, totaled $5.0 million, resulting in gross realized gains of $84,000. NOTE C - LOANS RECEIVABLE The composition of the loan portfolio at December 31 is as follows: 2002 2001 (In thousands) Residential real estate One- to four-family residential $ 61,717 $ 63,863 Multi-family residential 1,606 1,816 Construction 1,317 2,278 Nonresidential real estate and land 20,557 18,435 Commercial 10,924 9,586 Commercial leases 4,352 3,914 Consumer and other 11,694 13,635 -------- -------- 112,167 113,527 Less: Undisbursed portion of loans in process 323 699 Allowance for loan losses 1,458 1,132 -------- -------- $110,386 $111,696 ======== ======== LOGANSPORT FINANCIAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 2002, 2001 and 2000 NOTE C - LOANS RECEIVABLE (continued) The Savings Bank's lending efforts have historically focused on one- to four-family residential and multi-family residential real estate loans, which comprised approximately $64.3 million, or 58%, of the total loan portfolio at December 31, 2002, and $67.3 million, or 60%, of the total loan portfolio at December 31, 2001. Approximately 78% of these loans have been underwritten on the basis of no more than an 80% loan-to-value ratio, which has historically provided the Savings Bank with adequate collateral coverage in the event of default. The remaining 22% of these loans have been underwritten with original loan-to-value ratios of greater than 80%. The Savings Bank, as with any lending institution, is subject to the risk that real estate values could deteriorate in its primary lending area of north-central Indiana, thereby impairing collateral values. However, management is of the belief that real estate values in the Savings Bank's primary lending area are presently stable. In the normal course of business, the Savings Bank has made loans to its directors, officers and their related business interests. In the opinion of management, such loans are consistent with sound lending practices and are within applicable regulatory lending limitations. Loans to officers and directors totaled approximately $1.7 million and $1.1 million at December 31, 2002 and 2001, respectively. NOTE D - ALLOWANCE FOR LOAN LOSSES The activity in the allowance for loan losses for the year ended December 31 is as follows: 2002 2001 2000 (In thousands) Beginning balance $1,132 $ 760 $440 Provision for losses on loans 360 392 332 Charge-offs of loans - net (34) (20) (12) ------ ------ ---- Ending balance $1,458 $1,132 $760 ====== ====== ==== At December 31, 2002, the Savings Bank's allowance for loan losses included a specific allowance of $200,000, related to impaired and nonaccrual loans, and a general loan loss allowance of $1.3 million, which is includible as a component of regulatory risk-based capital. At December 31, 2002, 2001 and 2000, the Savings Bank had loans of $1.5 million, $1.9 million and $336,000, respectively, which had been placed on nonaccrual status due to concerns as to borrowers' ability to pay. At December 31, 2002 and 2001, nonaccrual loans include certain loans that had been identified as impaired under SFAS No. 114. Interest income that would have been recognized had nonaccrual loans performed pursuant to contractual terms totaled approximately $126,000, $41,000 and $12,000 for the years ended December 31, 2002, 2001 and 2000, respectively. NOTE E - OFFICE PREMISES AND EQUIPMENT Office premises and equipment is comprised of the following at December 31: 2002 2001 (In thousands) Land $ 203 $ 203 Buildings and improvements 1,766 1,766 Furniture and equipment 500 435 ------ ------ 2,469 2,404 Less accumulated depreciation and amortization (702) (601) ------ ------ $1,767 $1,803 ====== ====== LOGANSPORT FINANCIAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 2002, 2001 and 2000 NOTE F - DEPOSITS Deposits consist of the following major classifications at December 31: Deposit type and weighted-average interest rate 2002 2001 (In thousands) NOW accounts December 31, 2002 - 0.80% $15,625 December 31, 2001 - 1.58% $ 7,019 Passbook and club accounts December 31, 2002 - 1.10% 4,281 December 31, 2001 - 2.47% 4,136 Money market deposit accounts December 31, 2002 - 1.23% 18,766 December 31, 2001 - 2.48% 17,759 Non-interest bearing accounts 3,049 3,343 ------- ------- Total demand, transaction and passbook deposits 41,721 32,257 Certificates of deposit Original maturities of: Less than 12 months December 31, 2002 - 1.78% 6,566 December 31, 2001 - 3.08% 4,633 12 months to 18 months December 31, 2002 - 3.40% 14,605 December 31, 2001 - 4.80% 20,955 24 months to 30 months December 31, 2002 - 4.58% 20,674 December 31, 2001 - 5.32% 16,654 More than 30 months December 31, 2002 - 5.05% 7,810 December 31, 2001 - 5.63% 3,370 Individual retirement accounts December 31, 2002 - 4.76% 6,949 December 31, 2001 - 5.16% 6,031 ------- ------- Total certificates of deposit 56,604 51,643 ------- ------- Total deposits $98,325 $83,900 ======= ======= At December 31, 2002 and 2001, the Savings Bank had certificate of deposit accounts with balances greater than $100,000 totaling $9.0 million and $6.5 million, respectively. Interest expense on deposits for the year ended December 31 is summarized as follows:
2002 2001 2000 (In thousands) Passbook accounts $ 55 $ 100 $ 103 NOW and money market deposit accounts 492 718 886 Certificates of deposit 2,415 2,859 2,918 ------ ------ ------ $2,962 $3,677 $3,907 ====== ====== ======
Maturities of outstanding certificates of deposit at December 31 are summarized as follows: 2002 2001 (In thousands) Less than one year $27,803 $31,551 One year to three years 22,211 19,026 Over three years 6,590 1,066 ------- ------- $56,604 $51,643 ======= ======= LOGANSPORT FINANCIAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 2002, 2001 and 2000 NOTE G - ADVANCES FROM THE FEDERAL HOME LOAN BANK Advances from the Federal Home Loan Bank, collateralized at December 31, 2002 by a blanket pledge of residential mortgage loans totaling $57.9 million and pledges of certain securities totaling $17.8 million are summarized as follows:
Maturing year December 31, Interest rate ending December 31, 2002 2001 (Dollars in thousands) 2.76% - 4.06% 2002 $ - 6,000 3.02% 2003 1,000 - 5.94% 2004 3,000 3,000 5.10% - 6.75% 2005 4,200 4,200 5.04% - 5.30% 2006 1,500 1,500 4.38% - 5.72% 2007 2,536 1,050 3.57% - 5.32% 2009 1,600 - 5.60% - 5.99% 2010 17,000 17,000 4.75% 2011 2,000 2,000 4.90% 2012 1,000 - ------- ------- $33,836 $34,750 ======= ======= Weighted-average interest rate 5.53% 5.39% ======= =======
Advances totaling approximately $26.0 million became subject to interest rate increases at the discretion of the FHLB beginning in 2002. Such advances can be repaid by the Savings Bank upon the enactment of such interest rate adjustments. NOTE H - NOTES PAYABLE At December 31, 2002 and 2001, notes payable included borrowings totaling $1.1 million and $1.2 million, respectively, that were secured by the Savings Bank's investment in a real estate partnership. The interest rate on the variable-rate borrowing was 1.88% and 1.92% at December 31, 2002 and 2001, respectively. The borrowings will mature in 2009. During the year ended December 31, 2002, the Corporation borrowed $700,000 on a line of credit with another financial institution to partially finance share repurchases. The Corporation can borrow up to $1.5 million on the line of credit, which is payable at October 2, 2003. Interest is payable quarterly at a rate of 3.75%, which represents national prime less .50%. LOGANSPORT FINANCIAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 2002, 2001 and 2000 NOTE I - INCOME TAXES The provision for income taxes differs from that computed at the statutory corporate tax rate for the year ended December 31 as follows:
2002 2001 2000 (In thousands) Federal income taxes computed at the statutory rate $722 $652 $605 Increase (decrease) in taxes resulting from: Tax exempt interest (46) (42) (37) Increase in cash surrender value of life insurance (9) (19) (17) Real estate partnership tax credits (182) (182) (142) State income tax provision 124 113 103 Other - (1) (1) ---- ---- ---- Income tax provision per consolidated financial statements $609 $521 $511 ==== ==== ====
The composition of the Corporation's net deferred tax asset at December 31 is as follows:
Taxes (payable) refundable on temporary 2002 2001 differences at statutory rate: (In thousands) Deferred tax assets: Other than temporary declines in investment securities $ 23 $ 23 Retirement expense 235 231 General loan loss allowance 535 481 Benefit plan expense 85 69 Other 40 33 ----- ----- Total deferred tax assets 918 837 Deferred tax liabilities: State income taxes (57) (56) Percentage of earnings bad debt deduction (12) (24) Unrealized gains on securities designated as available for sale (273) (131) Loss on investment in real estate partnership (163) (136) Book versus tax depreciation (49) (38) ----- ----- Total deferred tax liabilities (554) (385) ----- ----- Net deferred tax asset $ 364 $ 452 ===== =====
Prior to 1997, the Savings Bank was allowed a special bad debt deduction based on a percentage of earnings, generally limited to 8% of otherwise taxable income, or the amount of qualifying and nonqualifying loans outstanding and subject to certain limitations based on aggregate loans and savings account balances at the end of the year. This percentage of earnings bad debt deduction had accumulated to approximately $1.7 million as of December 31, 2002. If the amounts that qualified as deductions for federal income taxes are later used for purposes other than bad debt losses, including distributions in liquidation, such distributions will be subject to federal income taxes at the then current corporate income tax rate. The amount of unrecognized deferred tax liability relating to the cumulative bad debt deduction is approximately $500,000 at December 31, 2002. The Savings Bank is required to recapture as taxable income approximately $220,000, representing its post-1987 percentage of earnings bad debt deductions. The Savings Bank has provided deferred taxes for this amount and is permitted by such legislation to recapture such income over a six year period, which commenced in 1998. LOGANSPORT FINANCIAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 2002, 2001 and 2000 NOTE J - COMMITMENTS The Savings Bank is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers, including commitments to extend credit. Such commitments involve, to varying degrees, elements of credit and interest-rate risk in excess of the amount recognized in the consolidated statement of financial condition. The contract or notional amounts of the commitments reflect the extent of the Savings Bank's involvement in such financial instruments. The Savings Bank's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit is represented by the contractual notional amount of those instruments. The Savings Bank uses the same credit policies in making commitments and conditional obligations as those utilized for on-balance-sheet instruments. At December 31, 2002, the Savings Bank had outstanding commitments of approximately $310,000 to originate residential one- to four-family loans. The Savings Bank also had outstanding commitments of approximately $40,000 to originate non-residential real estate loans and approximately $1.1 million to originate other commercial loans at December 31, 2002. Additionally, the Savings Bank had unused lines of credit under home equity loans and commercial loans of approximately $997,000 and $7.9 million, respectively, at December 31, 2002. Finally, the Savings Bank had commitments under standby letters of credit totaling $2.7 million at December 31, 2002. Standby letters of credit are conditional commitments issued by the Savings Bank to guarantee the performance of a customer to a third party. In the opinion of management, all loan commitments equaled or exceeded prevalent market interest rates as of December 31, 2002, and will be funded from normal cash flow from operations. At December 31, 2002, the Savings Bank had additional commitments to purchase $5.0 million in GNMA adjustable-rate mortgage-backed securities. Such investments were to be purchased in January 2003 from the Bank's available cash. NOTE K - REGULATORY CAPITAL The Savings Bank is subject to minimum capital requirements promulgated by the Office of Thrift Supervision ("OTS"). Failure to meet minimum capital requirements can initiate certain mandatory - and possibly additional discretionary - actions by regulators that, if undertaken, could have a direct material effect on the Corporation's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Savings Bank must meet specific capital guidelines that involve quantitative measures of the Savings Bank's assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Savings Bank's capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Such minimum capital standards generally require the maintenance of regulatory capital sufficient to meet each of three tests, hereinafter described as the tangible capital requirement, the core capital requirement and the risk-based capital requirement. The tangible capital requirement provides for minimum tangible capital (defined as shareholders' equity less all intangible assets) equal to 1.5% of adjusted total assets. The core capital requirement provides for minimum core capital (tangible capital plus certain forms of supervisory goodwill and other qualifying intangible assets) generally equal to 4.0% of adjusted total assets, except for those associations with the highest examination rating and acceptable levels of risk. The risk-based capital requirement currently provides for the maintenance of core capital plus general loan loss allowances equal to 8.0% of risk-weighted assets. In computing risk-weighted assets, the Savings Bank multiplies the value of each asset on its statement of financial condition by a defined risk-weighting factor, e.g., one- to four-family residential loans carry a risk-weighted factor of 50%. LOGANSPORT FINANCIAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 2002, 2001 and 2000 NOTE K - REGULATORY CAPITAL (continued) During 2002, the Savings Bank was notified by the OTS that it was categorized as "well-capitalized" under the regulatory framework for prompt corrective action. To be categorized as "well-capitalized", the Savings Bank must maintain minimum capital ratios as set forth in the following table. As of December 31, 2002 and 2001, management believes that the Savings Bank met all capital adequacy requirements to which it was subject.
2002: To be "well- capitalized" under For capital prompt corrective Actual adequacy purposes action provisions ----------------- ----------------- ------------------- Amount Ratio Amount Ratio Amount Ratio (Dollars in thousands) Tangible capital $15,466 10.3% >=$2,244 >=1.5% >=$7,480 >= 5.0% Core capital $15,466 10.3% >=$5,984 >=4.0% >=$8,975 >= 6.0% Risk-based capital $16,664 17.4% >=$7,664 >=8.0% >=$9,580 >= 10.0%
2001: To be "well- capitalized" under For capital prompt corrective Actual adequacy purposes action provisions ----------------- ----------------- ------------------- Amount Ratio Amount Ratio Amount Ratio (Dollars in thousands) Tangible capital $16,109 11.7% >=$2,066 >=1.5% >=$ 6,885 >= 5.0% Core capital $16,109 11.7% >=$5,508 >=4.0% >=$ 8,262 >= 6.0% Risk-based capital $17,241 16.9% >=$8,166 >=8.0% >=$10,207 >= 10.0%
The Savings Bank's management believes that, under the current regulatory capital regulations, the Savings Bank will continue to meet its minimum capital requirements in the foreseeable future. However, events beyond the control of the Savings Bank, such as increased interest rates or a downturn in the economy in the primary market area, could adversely affect future earnings and, consequently, the ability to meet future minimum regulatory capital requirements. The Savings Bank is subject to regulations imposed by the OTS regarding the amount of capital distributions payable to the Corporation. Generally, the Savings Bank's payment of dividends is limited, without prior OTS approval, to net earnings for the current calendar year plus the two preceding calendar years, less capital distributions paid over the comparable time period. Insured institutions are required to file an application with the OTS for capital distributions in excess of this limitation. During October 1999, the Savings Bank received OTS approval to make up to $2.0 million in capital distributions to the Corporation. Of this amount, dividend payments of $300,000 and $700,000 were paid in 2001 and 2000, respectively. During 2001, the Savings Bank received OTS approval to make up to $2.0 million in capital distributions to the Corporation. Of this amount, dividend payments of $950,000 and $1,050,000 were paid in 2002 and 2001, respectively. During 2002, the Savings Bank received OTS approval to make up to $2.25 million in capital distributions to the Corporation, all of which was paid in 2002. LOGANSPORT FINANCIAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 2002, 2001 and 2000 NOTE L - CONDENSED FINANCIAL STATEMENTS OF LOGANSPORT FINANCIAL CORP. The following condensed financial statements summarize the financial position of Logansport Financial Corp. as of December 31, 2002 and 2001, and the results of its operations and cash flows for the years ended December 31, 2002, 2001 and 2000.
LOGANSPORT FINANCIAL CORP. STATEMENTS OF FINANCIAL CONDITION December 31, 2002 and 2001 (In thousands) ASSETS 2002 2001 Cash and cash equivalents $ 77 $ 121 Investment in subsidiary 15,994 16,363 Dividend receivable from subsidiary - 950 Prepaid expenses and other 123 94 --------- -------- Total assets $ 16,194 $ 17,528 ========= ======== LIABILITIES AND SHAREHOLDERS' EQUITY Notes payable $ 700 $ - Accrued expenses and other liabilities 121 126 --------- -------- Total liabilities 821 126 Shareholders' equity Common stock 1,446 4,802 Retained earnings 13,444 12,408 Shares acquired by stock benefit plan (44) (63) Unrealized gains on securities designated as available for sale, net 527 255 --------- -------- Total shareholders' equity 15,373 17,402 --------- -------- Total liabilities and shareholders' equity $ 16,194 $ 17,528 ========= ========
LOGANSPORT FINANCIAL CORP. STATEMENTS OF EARNINGS Years ended December 31, 2002, 2001 and 2000 (In thousands) 2002 2001 2000 Revenue Interest income $ - $ 14 $ 6 Equity in earnings of subsidiary 1,589 1,436 1,300 ------ ------- ------ Total revenue 1,589 1,450 1,306 General and administrative expenses 115 77 57 ------ ------- ------ Earnings before income tax credits 1,474 1,373 1,249 Income tax credits (40) (25) (20) ------ ------- ------ NET EARNINGS $1,514 $1,398 $1,269 ====== ======= ======
LOGANSPORT FINANCIAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 2002, 2001 and 2000 NOTE L - CONDENSED FINANCIAL STATEMENTS OF LOGANSPORT FINANCIAL CORP. (continued)
LOGANSPORT FINANCIAL CORP. STATEMENTS OF CASH FLOWS Years ended December 31, 2002, 2001 and 2000 (In thousands) 2000 2001 2000 Cash flows provided by (used in) operating activities: Net earnings for the year $1,514 $1,398 $1,269 Adjustments to reconcile net earnings to net cash provided by (used in) operating activities: Excess distributions from (undistributed earnings of) consolidated subsidiary 1,611 (86) (598) Increase (decrease) in cash due to changes in: Accrued expenses and other liabilities (5) 5 (70) Other (29) (70) 69 ------ ------- ------ Net cash provided by operating activities 3,091 1,247 670 Cash flows provided by (used in) financing activities: Proceeds from notes payable 700 - - Proceeds from exercise of stock options 368 208 - Dividends on common stock (478) (516) (477) Purchase of shares (3,725) (921) (464) ------ ------- ------ Net cash used in financing activities (3,135) (1,229) (941) ------ ------- ------ Net increase (decrease) in cash and cash equivalents (44) 18 (271) Cash and cash equivalents at beginning of year 121 103 374 ------ ------- ------ Cash and cash equivalents at end of year $ 77 $ 121 $ 103 ======= ======== =======
LOGANSPORT FINANCIAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 2002, 2001 and 2000 NOTE M - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) The following table summarizes the Corporation's quarterly results for the years ended December 31, 2002 and 2001. Certain amounts, as previously reported, may have been reclassified to conform to the 2002 presentation.
Three Months Ended March 31, June 30, September 30, December 31, 2002: (In thousands, except per share data) Total interest income $2,302 $2,346 $2,352 $2,326 Total interest expense 1,247 1,219 1,215 1,196 ------ ------ ------ ------ Net interest income 1,055 1,127 1,137 1,130 Provision for losses on loans 90 90 90 90 Other income 51 82 58 161 General, administrative and other expense 575 603 579 561 ------ ------ ------ ------ Earnings before income taxes 441 516 526 640 Income taxes 121 145 151 192 ------ ------ ------ ------ Net earnings $ 320 $ 371 $ 375 $ 448 ====== ====== ====== ====== Earnings per share: Basic $ .32 $ .39 $ .41 $ .51 ====== ====== ====== ====== Diluted $ .31 $ .38 $ .39 $ .50 ====== ====== ====== ======
Three Months Ended March 31, June 30, September 30, December 31, 2001: (In thousands, except per share data) Total interest income $2,501 $2,498 $2,462 $2,370 Total interest expense 1,529 1,470 1,376 1,321 ------ ------ ------ ------ Net interest income 972 1,028 1,086 1,049 Provision for losses on loans 86 85 86 135 Other income 52 45 47 78 General, administrative and other expense 535 513 476 522 ------ ------ ------ ------ Earnings before income taxes 403 475 571 470 Income taxes 102 129 167 123 ------ ------ ------ ------ Net earnings $ 301 $ 346 $ 404 $ 347 ====== ====== ====== ====== Earnings per share: Basic $ .28 $ .32 $ .37 $ .32 ====== ====== ====== ====== Diluted $ .27 $ .32 $ .36 $ .32 ====== ====== ====== ======
MARKET PRICE OF LOGANSPORT FINANCIAL CORP. COMMON SHARES AND RELATED SECURITY HOLDER MATTERS The common stock of the Company is traded on the National Association of Securities Dealers Automated Quotation System ("Nasdaq") Small Cap Market, under the symbol "LOGN." As of February 7, 2003, there were 799 shareholders of record of the Company's common stock. The table below presents the high and low trade prices for the common shares of the Company, together with dividends declared per share, for each quarter of the years ended December 31, 2002 and 2001. Such price information was obtained from Nasdaq. Per Share Year Ending December 31, High Low dividends 2002 Quarter ending: December 31, 2002 $17.13 $14.40 $0.14 September 30, 2002 17.85 16.90 0.13 June 30, 2002 18.15 17.01 0.13 March 31, 2002 17.59 15.00 0.12 2001 Quarter ending: December 31, 2001 $15.25 $13.00 $0.12 September 30, 2001 14.05 12.77 0.12 June 30, 2001 13.34 11.44 0.12 March 31, 2001 12.25 11.25 0.12 TRANSFER AGENT AND REGISTRAR. The Fifth Third Bank of Cincinnati, Ohio ("Fifth Third") is the Company's stock transfer agent and registrar. Fifth Third maintains the Company's shareholder records. Shareholders requiring a change of name, address or ownership of stock, as well as information about shareholder records, lost or stolen certificates, dividend checks, or dividend direct deposit should contact: Fifth Third Bank Corporate Trust Services Mail Drop 10AT66 38 Fountain Square Plaza Cincinnati, Ohio 45202 (800) 837-2755 or 513-579-5320 http://investordirect.53.com GENERAL COUNSEL. INDEPENDENT AUDITORS. Barnes & Thornburg Grant Thornton LLP 11 South Meridian Street 625 Eden Park Drive, Suite 900 Indianapolis, Indiana 46204 Cincinnati, Ohio 45202 SHAREHOLDER & GENERAL INQUIRIES. The Company is required to file an Annual Report on Form 10-K for its year ended December 31, 2002 with the Securities and Exchange Commission. Copies of this annual report may be obtained without charge upon written request to or on our website: Dottye Robeson, Secretary/Treasurer Logansport Financial Corp. 723 East Broadway, Box 569 Logansport, Indiana 46947 (574) 722-3855 extension 313 www.logansportsavings.com OFFICE LOCATION. 723 East Broadway Logansport, Indiana 46947 (574) 722-3855 Fax - (574) 722-3857 Email - dottyer@logansportsavings.com -----END PRIVACY-ENHANCED MESSAGE-----