-----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, PLYNC7Uy04crnPox7qHH9iuFb9UW2SvImohNg5rJoNY8IeAV7Z6A9xykhcbNOdDh ugMxgD7jq2a/jOunojNGmg== 0000908834-03-000137.txt : 20030327 0000908834-03-000137.hdr.sgml : 20030327 20030327150536 ACCESSION NUMBER: 0000908834-03-000137 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20021231 FILED AS OF DATE: 20030327 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: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-25910 FILM NUMBER: 03620713 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 10-K 1 log_10k.txt 10-K FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) [X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended December 31, 2002 or [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from _____________ to _______________ Commission File Number 0-25910 --------------------- LOGANSPORT FINANCIAL CORP. (Exact name of registrant as specified in its charter) INDIANA 35-1945736 --------------------------------- ------------------------------- (State or other Jurisdiction (I.R.S. Employer Identification of Incorporation or Organization) Number) 723 East Broadway, Logansport, Indiana 46947 - --------------------------------------- ------------------------- (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number including area code: (574) 722-3855 Securities Registered Pursuant to Section 12(b) of the Act: NONE Securities Registered Pursuant to Section 12(g) of the Act: Common Stock, without par value (Title of Class) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405, Regulation S-K (ss.229.405 of this chapter) is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). YES [ ] NO [X] The aggregate market value of the issuer's voting stock held by non-affiliates, computed by reference to the the price at which the common equity was last sold on June 28, 2002, was $14,852,163. The number of shares of the Registrant's Common Stock, without par value, outstanding as of March 1, 2003, was 850,958 shares. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Annual Report to Shareholders for the year ended December 31, 2002, are incorporated into Part II. Portions of the Proxy Statement for the 2003 Annual Meeting of Shareholders are incorporated in Part I and Part III. Exhibit Index on Page E-1 Page 1 of 32 Pages
LOGANSPORT FINANCIAL CORP. Form 10-K INDEX Page Forward Looking Statements ........................................................ 1 PART I Item 1. Business .............................................................. 1 Item 2. Properties ............................................................ 24 Item 3. Legal Proceedings ..................................................... 25 Item 4. Submission of Matters to a Vote of Security Holders ................... 25 Item 4.5. Executive Officers of Registrant ...................................... 25 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.. 25 Item 6. Selected Financial Data ............................................... 26 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations ........................................... 26 Item 7A. Quantitative and Qualitative Disclosures About Market Risk ............ 26 Item 8. Financial Statements and Supplementary Data ........................... 26 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ............................................ 27 PART III Item 10. Directors and Executive Officers of Registrant ........................ 27 Item 11. Executive Compensation ................................................ 27 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters ..................................... 27 Item 13. Certain Relationships and Related Transactions ........................ 28 Item 14. Controls and Procedures ............................................... 28 PART IV Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K ...... 29 Signatures ....................................................................... 30 Certifications .................................................................... 31
FORWARD LOOKING STATEMENTS This Annual Report on Form 10-K ("Form 10-K") contains statements which constitute forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements appear in a number of places in this Form 10-K and include statements regarding the intent, belief, outlook, estimate or expectations of the Company (as defined below), its directors or its officers primarily with respect to future events and the future financial performance of the Company. Readers of this Form 10-K are cautioned that any such forward looking statements are not guarantees of future events or performance and involve risks and uncertainties, and that actual results may differ materially from those in the forward looking statements as a result of various factors. The accompanying information contained in this Form 10-K identifies important factors that could cause such differences. These factors include but are not limited to changes in interest rates; loss of deposits and loan demand to other savings and financial institutions; substantial changes in financial markets; changes in real estate values and the real estate market; regulatory changes; or unanticipated results in pending legal proceedings. PART I Item 1. Business. General Logansport Financial Corp. (the "Holding Company" and, together with the Bank (as defined below), the "Company") is an Indiana corporation organized in February 1995, to become a unitary savings and loan holding company. The Holding Company 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 on June 13, 1995. The principal asset of the Holding Company consists of 100% of the issued and outstanding shares of common stock, $.01 par value per share, of the Bank. The Bank began operations in Logansport, Indiana, under the name Logansport Building and Loan Association in 1925. In 1962, the Bank changed its name to Logansport Savings and Loan Association, and in 1992, the Bank converted to a federally chartered savings bank known as Logansport Savings Bank, FSB. The Bank serves the needs of primarily residents of Cass County, Indiana. The Bank is the oldest financial institution headquartered in Logansport, Indiana. Management believes the Bank has developed a solid reputation among its loyal customer base because of its commitment to personal service and its strong support of the local community. The Bank offers a number of consumer and commercial financial services. These services include: (i) residential real estate loans; (ii) home equity loans; (iii) home improvement loans; (iv) construction loans; (v) commercial real estate loans and other commercial loans, including operating lines of credit secured by receivables and inventory and term financing for equipment purchases, and agricultural loans; (vi) commercial leases, including equipment leases; (vii) multi-family loans; (viii) consumer loans; (ix) NOW accounts; (x) passbook savings accounts; (xi) certificates of deposit; (xii) consumer and commercial demand deposit accounts; and (xiii) individual retirement accounts. The Holding Company and the Bank conduct business out of their main office located in Logansport, Indiana. The Bank is and historically has been a significant real estate mortgage lender in Cass County, Indiana. The Bank historically has concentrated its lending activities on the origination of loans secured by first mortgage liens for the purchase, construction or refinancing of one- to four-family residential real property. One- to four-family residential mortgage loans continue to be the major focus of the Bank's loan origination activities, representing 55.0% of the Company's gross loans at December 31, 2002. The Bank also offers multi-family mortgage loans, commercial real estate loans, construction loans, commercial loans and leases and consumer loans. Mortgage loans secured by multi-family properties and commercial real estate totaled approximately 1.4% and 18.3%, respectively, of the Company's gross loans at December 31, 2002. Commercial loans constituted 9.7% and commercial leases 3.9% of the gross loans at December 31, 2002. Residential real estate construction loans constituted approximately 1.2% of the Company's gross loans at December 31, 2002. Installment, share, home equity, and home improvement loans constituted approximately 4.6%, .1%, 1.2%, and 4.6%, respectively, of the Company's total loan portfolio at December 31, 2002. Lending Activities Loan Portfolio Data. The following table sets forth the composition of the Company's loan portfolio by loan type and security type as of the dates indicated, including a reconciliation of gross loans receivable after consideration of the allowance for loan losses and loans in process.
At December 31, -------------------------------------------------------------------------------------------------- 2002 2001 2000 1999 1998 ------------------ ------------------ ------------------ ---------------- ----------------- Percent Percent Percent Percent Percent Amount of Total Amount of Total Amount of Total Amount of Total Amount of Total -------- -------- -------- -------- -------- -------- ------- -------- -------- -------- (Dollars in thousands) TYPE OF LOAN Mortgage loans: Residential ................. $ 61,717 55.02% $ 63,863 56.25% $ 62,277 59.73% $57,889 62.23% $52,205 69.35% Commercial real estate ...... 20,557 18.33 18,435 16.24 13,230 12.69 11,825 12.71 3,492 4.64 Multi-family ................ 1,606 1.43 1,816 1.60 2,050 1.96 2,111 2.27 1,584 2.10 Construction: Residential ................. 1,317 1.17 2,278 2.01 2,814 2.70 2,575 2.77 1,742 2.31 Commercial real estate ...... -- -- -- -- -- -- -- -- 1,400 1.86 Multi-family ................ -- -- -- -- -- -- -- -- 350 .47 Commercial loans .............. 10,924 9.74 9,586 8.44 7,088 6.80 4,102 4.41 1,486 1.97 Commercial leases ............. 4,352 3.88 3,914 3.45 2,228 2.14 1,609 1.73 -- -- Consumer loans: Installment (2) ............. 5,156 4.60 6,473 5.70 7,045 6.75 6,107 6.56 6,021 8.00 Share ....................... 62 .06 144 .13 290 .28 289 .31 314 .42 Home equity ................. 1,358 1.21 1,199 1.06 1,164 1.12 974 1.05 1,090 1.45 Home improvement ............ 5,118 4.56 5,819 5.12 6,076 5.83 5,544 5.96 5,589 7.43 -------- ------ -------- ------ -------- ------ ------- ------ ------- ------ Gross loans receivable .... $112,167 100.00% $113,527 100.00% $104,262 100.00% $93,025 100.00% $75,273 100.00% ======== ====== ======== ====== ======== ====== ======= ====== ======= ====== TYPE OF SECURITY Residential (1) ............. $ 71,320 63.58% $ 74,097 65.27% $ 73,056 70.07% $66,150 71.11% $61,291 81.42% Commercial real estate ...... 20,557 18.33 18,725 16.49 13,606 13.05 12,334 13.26 4,108 5.46 Multi-family ................ 1,606 1.43 1,816 1.60 2,050 1.96 2,088 2.25 1,934 2.57 Deposits .................... 62 .06 144 .13 290 .28 289 .31 314 .42 Auto ........................ 2,382 2.12 2,857 2.52 3,223 3.09 2,477 2.66 2,210 2.94 Consumer (2) ................ 1,646 1.47 2,388 2.10 2,722 2.61 1,599 1.72 1,918 2.55 Other security .............. 14,594 13.01 13,500 11.89 9,315 8.94 8,088 8.69 3,498 4.64 -------- ------ -------- ------ -------- ------ ------- ------ ------- ------ Gross loans receivable..... 112,167 100.00% 113,527 100.00% 104,262 100.00% 93,025 100.00% 75,273 100.00% Deduct: Allowance for loan losses ..... 1,458 1.30 1,132 1.00 760 .73 440 .47 285 .38 Loans in process .............. 323 .29 699 .61 1,084 1.04 1,685 1.81 1,915 2.54 -------- ------ -------- ------ -------- ------ ------- ------ ------- ------ Net loans receivable ........ $110,386 98.41% $111,696 98.39% $102,418 98.23% $90,900 97.72% $73,073 97.08% ======== ====== ======== ====== ======== ====== ======= ====== ======= ====== Mortgage Loans (including construction): Adjustable-rate ............. $ 48,068 56.42% $ 52,365 60.61% $ 51,664 64.28% $48,119 64.68% $45,552 74.95% Fixed-rate .................. 37,129 43.58 34,027 39.39 28,707 35.72 26,281 35.32 15,221 25.05 -------- ------ -------- ------ -------- ------ ------- ------ ------- ------ Total ..................... $ 85,197 100.00% $ 86,392 100.00% $ 80,371 100.00% $74,400 100.00% $60,773 100.00% ======== ====== ======== ====== ======== ====== ======= ====== ======= ====== - -------------------------- (1) Includes home equity, residential construction and home improvement loans. (2) Includes "one-pay" notes due in less than one year.
The following table sets forth certain information at December 31, 2002, regarding the dollar amount of loans maturing in the Company's loan portfolio based on the date that final payment is due under the terms of the loan. Demand loans having no stated schedule of repayments and no stated maturity and overdrafts are reported as due in one year or less. This schedule does not reflect the effects of possible prepayments or enforcement of due-on-sale clauses. Management expects prepayments will cause actual maturities to be shorter.
Balance due during years ending December 31, -------------------------------------------------------------------- Outstanding 2006 2008 2013 2018 at December 31, to to to and 2002 2003 2004 2005 2007 2012 2017 following ------- ------- ------- ------- ------- ------- ------- --------- (In thousands) Mortgage loans (including construction): Residential .......... $ 63,034 $ 1,678 $ 121 $ 178 $ 1,174 $ 6,022 $14,393 $39,468 Multi-family ......... 1,606 -- 400 -- -- 1,206 -- -- Commercial real estate 20,557 341 736 550 213 5,505 6,087 7,125 Commercial loans ....... 10,924 6,933 236 234 1,848 1,673 -- -- Commercial leases ...... 4,352 1,180 1,147 858 765 402 -- -- Consumer loans: Home improvement ..... 5,118 37 151 206 761 2,292 1,404 267 Home equity .......... 1,358 -- -- -- -- -- 1,358 -- Installment .......... 5,156 1,795 426 1,004 1,204 642 85 -- Share ................ 62 62 -- -- -- -- -- -- -------- ------- ------- ------- ------- ------- ------- ------- Total .............. $112,167 $12,026 $ 3,217 $ 3,030 $ 5,965 $17,742 $23,327 $46,860 ======== ======= ======= ======= ======= ======= ======= =======
The following table sets forth, as of December 31, 2002, the dollar amount of all loans due after one year which have fixed interest rates and floating or adjustable rates. Due After December 31, 2003 --------------------------------------- Fixed Rates Variable Rates Total ----------- -------------- --------- (In thousands) Mortgage loans: Residential .................. $27,483 $33,873 $ 61,356 Multi-family ................. 683 923 1,606 Commercial real estate ....... 7,183 13,033 20,216 Commercial loans ............... 3,046 945 3,991 Commercial leases .............. 3,172 -- 3,172 Consumer loans: Home improvement ............. 5,081 -- 5,081 Home equity .................. -- 1,358 1,358 Installment .................. 3,361 -- 3,361 ------- ------- -------- Total ...................... $50,009 $50,132 $100,141 ======= ======= ======== Residential Loans. Residential loans consist primarily of one- to four-family loans. Approximately $61.7 million, or 55.0% of the Company's portfolio of loans at December 31, 2002, consisted of one- to four-family residential mortgage loans. The Bank currently offers adjustable-rate one- to four-family residential mortgage loans ("ARMs") which adjust annually and are indexed to the one-year U.S. Treasury securities yield adjusted to a constant maturity. These ARMs have a current margin above such index of 2.75%, or 3.00% for loans in which interest is amortized and payments are due monthly or bi-weekly. Many of the residential ARMs in the Company's portfolio at December 31, 2002, provided for a maximum rate adjustment per year of 1%, although the Bank began originating residential ARMs which provide for a maximum rate adjustment of 2% per year in 1995. The Bank's residential ARMs provide for a maximum rate adjustment of 5% over the life of the loan. These ARMs generally bear terms of between 15 and 30 years. The Bank also currently offers fixed-rate loans which provide for the payment of principal and interest over a period that generally does not exceed 15 years. At December 31, 2002, 43.6% of the Company's total mortgage portfolios, which includes residential, commercial real estate, multi-family loans and construction loans, had fixed rates of interest and 56.4% had adjustable rates. The Bank generally does not originate residential mortgage loans if the ratio of the loan amount to the lesser of current cost or appraised value of the property (i.e., the "loan-to-value ratio") exceeds 90% on ARMs or 80% on fixed-rate loans. However, in certain circumstances the Bank may originate loans exceeding the above loan-to-value ratios. In 2002, if the loan-to-value ratio on a residential single-family mortgage loan exceeded 90%, the Bank required private mortgage insurance. Substantially all of the residential mortgage loans that the Bank originates include "due-on-sale" clauses, which give the Bank the right to declare a loan immediately due and payable in the event that, among other things, the borrower sells or otherwise disposes of the real property subject to the mortgage and the loan is not repaid. Historically, the Bank's residential mortgage loans have not been originated on terms and conditions and using documentation that conform to the standard underwriting criteria required to sell such loans on the secondary market. However, the Bank is in the process of conforming its origination process to meet FHLB of Indianapolis and Freddie Mac requirements. The Bank generally retains its loans in its portfolio and does not anticipate the need to sell its non-conforming loans. See "-- Origination, Purchase and Sale of Loans." At December 31, 2002, residential loans amounting to $87,000, or .08% of total loans, were included in non-performing assets. See "Non-Performing and Problem Assets." Commercial Real Estate Loans. At December 31, 2002, $20.6 million, or 18.3% of the Company's total loan portfolio, consisted of commercial real estate loans. Of these loans, $171,000 constituted participations in loans secured by commercial real estate which were purchased from other financial institutions in 2002. The commercial real estate loans included in the Company's portfolio are primarily secured by non-residential real estate such as small office buildings, nursing homes, churches, light manufacturing facilities, retail and service outlets, warehouses, professional buildings and farm real estate. The Bank currently originates commercial real estate loans as adjustable-rate loans indexed to the one-, three- or five-year U.S. Treasury or the prime interest rate with various margins, or as fixed rate loans. The Bank underwrites these loans on a case-by-case basis and, in addition to its normal underwriting criteria, the Bank evaluates the borrower's ability to service the debt from the net operating income of the property. No single commercial real estate loan at December 31, 2002, exceeded $2,000,000. One commercial real estate loan was included in non-performing assets at December 31, 2002, amounting to $605,000. Loans secured by commercial real estate generally are larger than one- to four-family residential loans and involve a greater degree of risk. Commercial real estate loans often involve large loan balances to single borrowers or groups of related borrowers. Payments on these loans depend to a large degree on results of operations and management of the properties and may be affected to a greater extent by adverse conditions in the real estate market or the economy in general. Accordingly, the nature of the loans makes them more difficult for management to monitor and evaluate. Multi-Family Loans. Approximately $1.6 million, or 1.4% of the Company's portfolio of loans at December 31, 2002, consisted of multi-family loans. These loans are generally purchased participations and secured by apartment complexes and other multi-family residential properties. At December 31, 2002, no multi-family loan was included in non-performing assets. Construction Loans. The Bank offers construction loans with respect to owner-occupied residential real estate and, in limited cases, to builders or developers constructing such properties on a speculative investment basis (i.e., before the builder/developer obtains a commitment from a buyer). The Bank may also purchase participations. At December 31, 2002, $1.3 million, or 1.2%, of the Company's total loan portfolio consisted of construction loans. All construction loans at December 31, 2002, were one- to four-family residential loans. The largest construction loan at December 31, 2002, was approximately $185,000. No construction loans were included in non-performing assets on that date. Construction loans originated by the Bank are written such that interest only is payable during the construction phase, which is typically limited to nine months, and following the construction phase, a permanent loan is made. Inspections are made prior to any disbursement under a construction loan. Commercial Loans. At December 31, 2002, $10.9 million, or 9.7% of the Company's total loan portfolio consisted of commercial loans provided to finance receivables, inventory or equipment. These loans were originated by the Bank and provided to existing businesses located primarily in Cass County and its contiguous counties. Loans are underwritten on a case-by-case basis with emphasis placed on cash flow analysis and the borrower's debt service capacity. The majority of the loans are written on a variable rate using the Bank's prime rate as the primary index rate. The weighted average maturity of the variable rate portion of the portfolio was 10 months and the weighted average maturity of the fixed rate portion of the portfolio was 52 months at December 31, 2002. One commercial loan was included in non-performing assets at December 31, 2002, amounting to $763,000. Commercial Leases. At December 31, 2002, $4.4 million, or 3.9% of the Company's total loan portfolio consisted of commercial leases provided to finance equipment. The Bank's lease portfolio consists of a joint marketing effort between the Bank and SCI Leasing Group, a Carmel, Indiana based concern, with all credit decisions made solely by the Bank and following the same underwriting standards as are applied to traditional commercial loan requests. Commercial leases are a fixed rate financing tool with the weighted-average maturity of the Bank's lease portfolio at 50 months as of December 31, 2002. Consumer Loans. Federal laws and regulations permit federally chartered savings associations to make secured and unsecured consumer loans in an aggregate amount up to 35% of the association's total assets. In addition, a federally chartered savings association has lending authority above the 35% limit for certain consumer loans, such as property improvement loans and deposit account secured loans. However, the Qualified Thrift Lender test places additional limitations on a savings association's ability to make consumer loans. See "Regulation -- Qualified Thrift Lender." The Company's consumer loans, consisting primarily of installment, share, home improvement, and home equity loans, aggregated $11.7 million as of December 31, 2002, or 10.2% of the Company's total loan portfolio. The Bank consistently originates consumer loans to meet the needs of its customers and to assist in meeting its asset/liability management goals. All of the consumer loans originated by the Bank, except home equity loans, are fixed-rate loans, and substantially all are secured loans. Installment loans, totaling $5.2 million, or 4.6% of total loans at December 31, 2002, are fixed-rate loans generally secured by collateral, including automobiles, and are made for maximum terms of up to ten years (depending on the collateral). The Bank's installment loans also include "one-pay" notes, some of which are secured by residential real estate and all of which amortize at rates similar to those for home improvement loans and have maximum terms of 6 months to one year. Share loans, totaling $62,000, or .1% of total loans at December 31, 2002, are made up to 80% of the original account balance and accrue at a rate of 2-3% over the underlying certificate of deposit rate. Interest on share loans is paid quarterly. Home improvement loans totaled $5.1 million, or 4.6% of the Company's total loan portfolio at December 31, 2002, and are close-ended fixed-rate loans made for maximum terms up to 15 years. The Bank's home improvement loans are generally made only to those borrowers for whom the Bank holds the primary mortgage on the property, if any. The Bank also offers open-ended lines of credit secured by a lien on the equity in the borrower's home in amounts up to 90% of the appraised value of the real estate (taking into account any other mortgages on the property). The Bank's home equity loans are adjustable-rate loans with interest rates equal to the national prime rate plus 0.5% and payments equal to the greater of 2% of the outstanding loan balance or $50. The Bank's home equity loans are generally made only to those borrowers for whom the Bank holds the primary mortgage on the property, if any, and generally have a maximum term of 15 years. At December 31, 2002, the Bank had approved $2.4 million of home equity loans, of which $1.4 million were outstanding. As a general rule, consumer loans involve a higher level of risk than one- to four-family residential mortgage loans because consumer loans are generally made based upon the borrower's ability to repay the loan, which is subject to change, rather than the value of the underlying collateral, if any. However, the relatively higher yields and shorter terms to maturity of consumer loans are believed to be helpful in reducing interest-rate and credit risks. As of December 31, 2002, consumer loans totaling $29,000 were included in non-performing assets, which indicates the Bank's success in managing consumer loan risk. Letters of Credit Securing Tax-Exempt Bonds. The Bank currently maintains four letters of credit, each in the amount of $253,000, to secure payments required under tax-exempt bonds issued to raise funds for low-income housing projects in Franklin, Kokomo and Michigan City, Indiana and Hamilton, Ohio. The issuer of the tax-exempt bonds is permitted to draw against these letters of credit only in the event it defaults in making payments required under the bonds, and any such draws made against the letters of credit would be secured by a mortgage on the subject housing project. The Bank also has two letters of credit totaling $1.5 million associated with the equity investment owned by the Bank; these also secure payments required for tax-exempt bonds. No draws against any letters of credit had been made as of December 31, 2002. In addition to the above, the Bank held $185,000 in standby letters of credit for one commercial loan customer. Origination, Purchase and Sale of Loans. In an effort to control costs incurred by its mortgage customers, the Bank currently originates its mortgage loans pursuant to its own underwriting standards which are not in conformity with the standard criteria of the Federal Home Loan Mortgage Corporation ("FHLMC") or Federal National Mortgage Association ("FNMA"). If it desired to sell its mortgage loans, the Bank might therefore experience some difficulty selling such loans quickly in the secondary market. The Bank has no intention, however, of attempting to sell such loans but does plan to sell selected loans originated in 2003 through the MPP program of the FHLB of Indianapolis. The Bank confines its loan origination activities primarily to Cass County, Indiana. The Bank's loan originations are generated from referrals from real estate dealers and existing customers, and newspaper and periodical advertising. Business loan originations also arise from an active business development calling program. All loan applications are processed and underwritten at the Bank's main office. Under the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 ("FIRREA"), a savings association generally may not make any loan to a borrower or its related entities if the total of all such loans by the savings association exceeds 15% of its capital (plus up to an additional 10% of capital in the case of loans fully collateralized by readily marketable collateral); provided, however, that loans up to $500,000 regardless of the percentage limitations may be made and certain housing development loans of up to $30 million or 30% of capital, whichever is less, are permitted. The maximum amount which the Bank could have loaned to one borrower and the borrower's related entities under the 15% of capital limitation was $2.5 million at December 31, 2002. The Company's portfolio of loans currently contains no loans that exceed the 15% of capital limitation. The Bank's loan approval process is intended to assess the borrower's ability to repay the loan, the viability of the loan and the adequacy of the value of the property that will secure the loan. To assess the borrower's ability to repay, the Bank studies the employment and credit history and information on the historical and projected income and expenses of its mortgagors. The Bank generally requires appraisals or loan officer evaluations on all property securing its loans and requires title insurance and a valid lien on its mortgaged real estate. Appraisals for residential real property are performed either by an in-house appraiser who is a state-licensed residential appraiser or an independent state-licensed residential appraiser. The Bank also uses the services of certified residential appraisers, who are not in-house, for performance of appraisals related to loans in excess of $250,000. The Bank requires fire and extended coverage insurance in amounts at least equal to the principal amount of the loan. It also requires flood insurance to protect the property securing its interest if the property is in a flood plain. The Bank's underwriting standards for consumer loans are intended to protect against some of the risks inherent in making consumer loans. Borrower character, paying habits and financial strengths are important considerations. The Bank historically has not participated in the secondary market as a seller of its mortgage loans, but does occasionally purchase participations in commercial real estate and multi-family loans from other financial institutions. The following table shows loan origination, purchase and repayment activity for the Bank during the periods indicated.
Year Ended December 31, ------------------------------ 2002 2001 2000 -------- -------- -------- (In thousands) Gross loans receivable at beginning of period ............. $113,527 $104,262 $ 93,025 Originations: Mortgage loans: Residential ........................................... 14,737 18,243 17,598 Commercial real estate and lines of credit and multi-family ........................................ 25,554 36,011 25,586 -------- -------- -------- Total mortgage loans and commercial loans ............. 40,291 54,254 43,184 Consumer loans: Installment ........................................... 3,176 4,342 5,692 Share ................................................. -- -- 146 Home improvement ...................................... 1,669 2,260 2,447 Home equity ........................................... 418 226 224 -------- -------- -------- Total consumer loans ................................ 5,263 6,828 8,509 -------- -------- -------- Total originations ................................ 45,554 61,082 51,693 Purchases: Commercial real estate and multi-family ................. 171 499 -- -------- -------- -------- Total purchases ....................................... 171 499 -- -------- -------- -------- Total originations and purchases .................... 45,725 61,581 51,693 Sales ..................................................... -- 416 -- Repayments and deductions ................................. 47,085 51,900 40,456 -------- -------- -------- Gross loans receivable at end of period ................... $112,167 $113,527 $104,262 ======== ======== ========
Origination and Other Fees. The Company realizes income from origination fees, late charges, checking account service charges, credit card fees, and fees for other miscellaneous services. The Bank currently charges $300 plus closing costs on its adjustable-rate mortgage loans. Points may be charged on fixed-rate loans. Late charges are generally assessed if payment is not received within a specified number of days after it is due. The grace period depends on the individual loan documents. Non-Performing and Problem Assets Mortgage loans are reviewed by the Bank on a regular basis and are placed on a non-accrual status when the loans become contractually past due 90 days or more. At the end of each month, delinquency notices are sent with respect to all mortgage loans for which payments have not been received. Contact by phone or in person is made, if feasible, with respect to all such loans. When loans are sixty days in default, an additional delinquency notice is sent and personal contact is made with the borrower to establish an acceptable repayment schedule. When loans are ninety days in default, contact is made with the borrower by the Senior Loan Officer who attempts to establish an acceptable repayment schedule. Management is authorized to commence foreclosure proceedings for any loan upon making a determination that it is prudent to do so. All loans for which foreclosure proceedings have been commenced are placed on non-accrual status. Late notices are sent to commercial loan borrowers at five and fifteen days after which personal contact by the Account Officer is made. Consumer loans are reviewed by the Bank on a daily basis. Notices are sent to borrowers when any consumer loan is 5, 10 and 15 days past due. After consumer loans are 15 days delinquent, a late fee in the amount of 10% of the payment is imposed until the loan is brought current. Non-Performing Assets. At December 31, 2002, $1.5 million, or .99% of the Company's total assets, were non-performing assets (loans delinquent more than 90 days, non-accruing loans, real estate owned ("REO"), troubled debt restructurings and non-accruing investments), compared to $2.0 million, or 1.5%, of the Company's total assets at December 31, 2001. At December 31, 2002, residential loans accounted for 5.9% and consumer loans accounted for 1.9% of non-performing assets. Commercial real estate loans accounted for 40.8% and commercial operating loans accounted for 51.4% of non-performing assets. There were no non-accruing investments at December 31, 2002. The table below sets forth the amounts and categories of the Company's non-performing assets (non-accruing loans and real estate owned) as of the date indicated. It is the policy of the Company that all earned but uncollected interest on all loans be reviewed monthly to determine if any portion thereof should be classified as uncollectible for any loan past due in excess of 90 days.
At December 31, -------------------------------------------------- 2002 2001 2000 1999 1998 ------- ------ ------- ------- ------- (Dollars in thousands) Non-accruing loans (1) ..................... $1,484 $1,948 $ 336 $ 666 $ 315 Real estate owned, net ..................... -- 65 -- -- -- ------ ------ ------- ------- ------- Total non-performing assets ............... $1,484 $2,013 $ 336 $ 666 $ 315 ====== ====== ======= ======= ======= Non-performing loans to total loans, net (2) 1.34% 1.73% .32% .72% .42% Non-performing assets to total assets ...... .99 1.46 .25 .57 .33
- ------------------------------- (1) The Company generally places loans on a non-accruing status when the loans become contractually past due 90 days or more. At December 31, 2002, $87,000 of non-accruing loans were residential loans, $29,000 were consumer loans, $605,000 were commercial real estate loans and $763,000 were commercial operating loans. For the year ended December 31, 2002, the income that would have been recorded had the non-accruing loans not been in a non-performing status totaled $126,000. (2) Total loans less loans in process. Classified Assets. Federal regulations and the Bank's Internal Loan Review policy provide for the classification of loans and other assets such as debt and equity securities considered by the OTS to be of lesser quality as "substandard," "doubtful" or "loss" assets. An asset is considered "substandard" if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. "Substandard" assets include those characterized by the "distinct possibility" that the association will sustain "some loss" if the deficiencies are not corrected. Assets classified as "doubtful" have all of the weaknesses inherent in those classified "substandard," with the added characteristic that the weaknesses present make "collection or liquidation in full," on the basis of currently existing facts, conditions, and values, "highly questionable and improbable." Assets classified as "loss" are those considered "uncollectible" and of such little value that their continuance as assets without the establishment of a specific loss reserve is not warranted. Assets which do not currently expose the insured institution to sufficient risk to warrant classification in one of the aforementioned categories but possess weaknesses are required to be designated "special mention" by management. An insured institution should consider whether to establish general allowances for loan losses, in an amount deemed prudent by management, for loans classified substandard or doubtful, as well as for other problem loans. General allowances represent loss allowances which have been established to recognize the inherent risk associated with lending activities, but which, unlike specific allowances, have not been allocated to particular problem assets. When an insured institution classifies problem assets as "loss," it is required either to establish a specific allowance for losses equal to 100% of the amount of the asset so classified or to charge off such amount. An institution's determination as to the classification of its assets and the amount of its valuation allowances is subject to review by the OTS, which can order the establishment of additional general or specific loss allowances. At December 31, 2002, the aggregate amount of the Company's classified assets and the Company's general and specific loss allowances were as follows: At December 31, 2002 -------------------- (In thousands) Substandard assets ...... $1,726 Doubtful assets ......... 200 Loss assets ............. -- ------ Total classified assets $1,926 ====== General loss allowances . $1,258 Specific loss allowances 200 ------ Total allowances ...... $1,458 ====== The Company regularly reviews its loan portfolio to determine whether any loans require classification in accordance with applicable regulations. The substandard and doubtful loans consist of all nonaccrual loans totaling $1,484,000, and additional purchased participation loans secured by multi-family real estate of $442,000, which are current on payments but considered substandard because of cash flow. Allowance for Loan Losses The allowance for loan losses is maintained through the provision for losses on loans, which is charged to earnings. The provision for losses on loans is determined in conjunction with management's review and evaluation of current economic conditions (including those of the Bank's lending area), changes in the character and size of the loan portfolio, loan delinquencies (current status as well as past and anticipated trends) and adequacy of collateral securing loan delinquencies, historical and estimated net charge-offs, and other pertinent information derived from a review of the loan portfolio. In management's opinion, the Company's allowance for loan losses is adequate to absorb anticipated future losses from loans at December 31, 2002. However, there can be no assurance that regulators, when reviewing the Company's loan portfolio in the future, will not require increases in its allowance for loan losses or that changes in economic conditions will not adversely affect the Company's loan portfolio. Summary of Loan Loss Experience. The following table analyzes changes in the allowance for loan losses during the past five (5) one-year periods ended December 31, 2002.
Year Ended December 31, -------------------------------------------- 2002 2001 2000 1999 1998 ------ ------ ------ ------ ------ (Dollars in thousands) Balance of allowance at beginning of period $1,132 $ 760 $ 440 $ 285 $ 245 Recoveries .............................. 4 -- 1 -- -- Less charge-offs: Residential real estate loans ........... -- -- -- -- 13 Consumer loans .......................... 38 20 13 7 10 ------ ------ ------ ------ ------ Net charge-offs ........................... 34 20 12 7 23 Provisions for losses on loans ............ 360 392 332 162 63 ------ ------ ------ ------ ------ Balance of allowance at end of period ..... $1,458 $1,132 $ 760 $ 440 $ 285 ====== ====== ====== ====== ====== Net charge-offs to total average loans receivable for period ........... .03% .02% (*) (*) .03% Allowance at end of period to net loans receivable at end of period (1) ......................... 1.30 1.00 .73 .47 .38 Allowance to total non-performing loans at end of period ................ 98.25 58.11 226.19 66.07 90.48 - ---------------------- (1) Total loans less loans in process. (*) Less than .01%.
Allocation of Allowance for Loan Losses. The following table presents an analysis of the allocation of the Company's allowance for loan losses at the dates indicated.
At December 31, --------------------------------------------------------------------------------------------- 2002 2001 2000 1999 1998 ---------------- ----------------- ---------------- ---------------- ---------------- Percent Percent Percent Percent Percent of loans of loans of loans of loans of loans in each in each in each in each in each category category category category category of total of total of total of total of total Amount loans Amount loans Amount loans Amount loans Amount loans ------ -------- ------ --------- ------ -------- ------ -------- ------ -------- (Dollars in thousands) Balance at end of period applicable to: Residential $ 11 55.02% $ 16 56.25% $ 12 59.73% $270 62.23% $232 69.35% Commercial real estate 242 18.33 132 16.24 126 12.69 8 12.71 6 4.64 Multi-family 62 1.43 100 1.60 100 1.96 117 2.27 1 2.10 Construction loans -- 1.17 -- 2.01 -- 2.70 -- 2.77 -- 4.64 Commercial loans 352 9.74 316 8.44 180 6.80 -- 4.41 -- 1.97 Commercial leases -- 3.88 -- 3.45 -- 2.14 -- 1.73 -- -- Consumer loans 47 10.43 27 12.01 15 13.98 45 13.88 46 17.30 Unallocated 744 -- 541 -- 327 -- -- -- -- -- ------ ------ ------ ------ ---- ------ ---- ------ ---- ------ Total $1,458 100.00% $1,132 100.00% $760 100.00% $440 100.00% $285 100.00% ====== ====== ====== ====== ==== ======= ==== ====== ==== ======
Investments and Mortgage- and Other Asset-Backed Securities Federally chartered savings associations have the authority to invest in various types of liquid assets, including U.S. Treasury obligations, securities of various federal agencies, certain certificates of deposit of insured banks and savings institutions, repurchase agreements and federal funds sold. Subject to various restrictions, federally chartered savings associations may also invest a portion of their assets in corporate debt securities and asset-backed securities. The investment policy of the Bank, which is established and implemented by the Bank's Investment Committee, is designed primarily to maximize the yield on the investment portfolio subject to minimal liquidity risk, default risk and interest rate risk, and prudent asset/liability management. The Company's investments consist of U.S. government and other agency securities which are primarily callable fixed rate notes, mortgage- and other asset-backed securities, state and municipal bonds, corporate debt obligations, marketable equity securities, and FHLB stock. At December 31, 2002, approximately $21.1 million, or 14.04% of the Company's total assets, consisted of such investments. At December 31, 2002, the Company had $11.0 million of mortgage- and other asset-backed securities outstanding, all of which were classified as available for sale. These fixed-rate and adjustable-rate mortgage- and other asset-backed securities may be used as collateral for borrowings and through repayments, as a source of liquidity. Mortgage- and other asset-backed securities offer yields above those available for investments of comparable credit quality and duration. Mortgage-backed securities are qualifying thrift investments under the Qualified Thrift Lender test. See "Regulation--Qualified Thrift Lender." The following table sets forth the amortized cost and market value of the Company's investments and mortgage- and other asset-backed securities at the dates indicated.
At December 31, ---------------------------------------------------------- 2002 2001 2000 ----------------- ----------------- ------------------ Amortized Market Amortized Market Amortized Market Cost Value Cost Value Cost Value --------- ------ --------- ------ --------- ------ (In thousands) Securities available for sale: Federal agencies ................ $ 3,051 $ 3,120 $ 1,900 $ 1,908 $ 4,746 $ 4,625 State and municipal ............. 3,028 3,232 2,789 2,901 2,800 2,899 Mortgage- and other asset-backed securities .................... 10,779 11,009 4,418 4,419 5,264 5,165 Corporate debt obligations ...... 907 983 710 731 560 539 Marketable equity securities .... 504 725 4 248 4 259 ------- ------- ------- ------- ------- ------- Total securities available for sale ........................ 18,269 19,069 9,821 10,207 13,374 13,487 FHLB stock (1) .................... 2,003 2,003 1,973 1,973 1,973 1,973 ------- ------- ------- ------- ------- ------- Total investments.............. $20,272 $21,072 $11,794 $12,180 $15,347 $15,460 ======= ======= ======= ======= ======= ======= - ------------------------ (1) Market value approximates carrying values.
The following table sets forth investment securities, mortgage- and other asset-backed securities and FHLB stock which mature during each of the periods indicated and the weighted average yields for each range of maturities at December 31, 2002.
Amount at December 31, 2002, which matures in ---------------------------------------------------------------------------------------- One One to Five to Over Year or Less Five Years Ten Years Ten Years(4) -------------------- --------------------- -------------------- -------------------- Weighted Weighted Weighted Weighted Amortized Average Amortized Average Amortized Average Amortized Average Cost Yield Cost Yield Cost Yield Cost Yield --------- -------- --------- -------- --------- -------- --------- -------- (Dollars in thousands) Securities available for sale (1)(3) : Federal agencies .................... $ 550 3.89 $1,252 4.19% $ 499 5.94% $ 750 6.67% State and municipal (2) ............. 25 7.04 1,218 8.17 1,231 7.67 554 8.48 Mortgage- and other asset-backed securities ........................ 1,962 4.29 2,783 4.96 1,754 5.08 4,280 4.95 Corporate obligations ............... -- -- 255 6.06 652 6.45 -- -- Marketable equity securities ........ -- -- -- -- -- -- 504 4.59 ------ ---- ------ ---- ------ ---- ------ Total securities available for sale 2,537 4.23 5,508 5.55 4,136 6.17 6,088 5.45 FHLB stock ............................ -- -- -- -- -- -- 2,003 5.99 ------ ---- ------ ---- ------ ---- ------ ---- Total investments ................. $2,537 4.23% $5,508 5.55% $4,136 6.17% $8,091 5.56% ====== ==== ====== ==== ====== ==== ====== ==== - ------------------------ (1) Securities available for sale are set forth at amortized cost for purposes of this table. (2) Fully taxable equivalent basis. (3) No effect is given for possible prepayments or securities which are callable. (4) Includes perpetual marketable equity securities.
Sources of Funds General. Deposits have traditionally been the Bank's primary source of funds for use in lending and investment activities. In addition to deposits, the Company derives funds from scheduled loan payments, loan prepayments, and income on earning assets. While scheduled loan payments and income on earning assets are relatively stable sources of funds, deposit inflows and outflows can vary widely and are influenced by prevailing interest rates, market conditions and levels of competition. Borrowings from the FHLB of Indianapolis are also used to compensate for reductions in deposits or deposit inflows at less than projected levels. Deposits. Deposits are attracted, principally from within Cass County, through the offering of a broad selection of deposit instruments including NOW and other transaction accounts, fixed-rate certificates of deposit, individual retirement accounts, and savings accounts. The Bank does not actively solicit or advertise for deposits outside of Cass County. Substantially all of the Bank's depositors are residents of that county. Deposit account terms vary, with the principal differences being the minimum balance required, the amount of time the funds remain on deposit and the interest rate. The Bank does not pay a fee for any deposits it receives. Deposits totaled $98.3 million at December 31, 2002. Interest rates paid, maturity terms, service fees and withdrawal penalties are established by the Bank on a periodic basis. Determination of rates and terms are predicated on funds acquisition and liquidity requirements, rates paid by competitors, growth goals, and federal regulations. The Bank relies, in part, on customer service and long-standing relationships with customers to attract and retain its deposits, but also closely prices its deposits in relation to rates offered by its competitors. The flow of deposits is influenced significantly by general economic conditions, changes in money market and prevailing interest rates, and competition. The variety of deposit accounts offered by the Bank has allowed it to be competitive in obtaining funds and to respond with flexibility to changes in consumer demand. The Bank has become more susceptible to short-term fluctuations in deposit flows as customers have become more interest rate conscious. The Bank manages the pricing of its deposits in keeping with its asset/liability management and profitability objectives. Based on its experience, the Bank believes that its passbook, NOW and non-interest-bearing checking accounts are relatively stable sources of deposits. However, the ability of the Bank to attract and maintain certificates of deposit, and the rates paid on these deposits, has been and will continue to be significantly affected by market conditions.
An analysis of the Bank's deposit accounts by type, maturity, and rate at December 31, 2002, is as follows: Minimum Balance at Weighted Opening December 31, % of Average Type of Account Balance 2002 Deposits Rate - --------------- --------- ---------- ---------- ---------- (Dollars in thousands) Withdrawable: Passbook savings accounts .............. $ 25 $ 4,281 4.35% 1.10% Regular money market accounts .......... 2,500 873 .89 .76 Hi yield money market accounts ......... 10,000 17,893 18.20 1.25 Super NOW accounts ..................... 2,500 9,299 9.46 .97 NOW and other transaction accounts...... 200 6,326 6.43 .43 Non-interest bearing accounts .......... 100 3,049 3.10 -- ------- ------ ------ Total withdrawable ....................... 41,721 42.43 .94 Certificates (original terms): 91 days ................................ 1,000 2,571 2.62 1.55 6 months ............................... 1,000 3,995 4.06 1.92 12 months .............................. 1,000 9,056 9.21 2.77 18 months .............................. 500 5,549 5.64 4.44 24 months .............................. 500 3,469 3.53 3.66 30 months .............................. 500 17,205 17.50 4.76 36-60 months ........................... 1,000 7,810 7.94 5.05 IRAs 18 months .............................. 100 6,949 7.07 4.76 ------- ------ ------ Total certificates ....................... 56,604 57.57 4.03 ------- ------ ------ Total deposits ........................... $98,325 100.00% 2.72% ======= ====== ======
The following table sets forth by various interest rate categories the composition of time deposits of the Bank at the dates indicated: At December 31, ------------------------------------ 2002 2001 2000 ---------- ---------- ---------- (In thousands) 4.00% and under... $22,082 $ 8,157 $ 746 4.01 - 6.00 % .... 34,253 42,598 25,112 6.01 - 8.00% ..... 269 888 24,938 ------- ------- ------- Total ........ $56,604 $51,643 $50,796 ======= ======= ======= The following table represents, by various interest rate categories, the amounts of time deposits maturing during each of the three years following December 31, 2002, and the total amount maturing thereafter. Matured certificates which have not been renewed as of December 31, 2002, have been allocated based upon certain rollover assumptions: Amounts At December 31, 2002, Maturing in ----------------------------------------------- One Year Two Three Greater Than or Less Years Years Three Years -------- --------- -------- ------------ (In thousands) 4.00% and under.... $17,130 $ 3,061 $1,891 $ -- 4.01 - 6.00%....... 10,653 10,761 6,249 6,590 6.01 - 8.00%....... 20 221 28 -- ------- -------- ------ ------- Total........... $27,803 $14,043 $8,168 $6,590 ======= ======= ====== ====== The following table indicates the amount of the Bank's certificates of deposit of greater than $100,000 by time remaining until maturity as of December 31, 2002. Maturity (In thousands) -------- -------------- Three months or less.............................. $3,202 Greater than three months through six months...... 1,066 Greater than six months through twelve months..... 1,060 Over twelve months................................ 3,695 ------ Total.......................................... $9,023 ====== The following table sets forth the dollar amount of savings in the various types of deposits programs offered by the Bank at the dates indicated, and the amount of increase or decrease in such deposits as compared to the previous period.
Deposit Activity ----------------------------------------------------------------------- Increase Increase (Decrease) (Decrease) Balance at from Balance at from December 31, % of December 31, December 31, % of December 31, 2002 Deposits 2001 2001 Deposits 2000 ------------ -------- ------------ ------------ -------- ------------ (Dollars in thousands) Withdrawable: Passbook savings accounts $ 4,281 4.35% $ 145 $ 4,136 4.93% $ 658 Regular money market accounts 873 .89 (69) 942 1.12 (99) Hi yield money market accounts 17,893 18.20 1,076 16,817 20.04 2,035 Super NOW accounts 9,299 9.46 8,337 962 1.15 348 NOW accounts 6,326 6.43 269 6,057 7.22 591 Non-interest bearing accounts 3,049 3.10 (294) 3,343 3.99 66 ------- ------ ------- ------- ------ ------- Total withdrawable 41,721 42.43 9,464 32,257 38.45 3,599 Certificates (original terms): 91 days 2,571 2.62 1,677 894 1.06 226 6 months 3,995 4.06 256 3,739 4.46 (4,200) 12 months 9,056 9.21 (4,335) 13,391 15.96 (6,439) 18 months 5,549 5.64 (2,015) 7,564 9.01 6,301 24 months 3,469 3.53 (1,506) 4,975 5.93 (2,280) 30 months 17,205 17.50 5,526 11,679 13.92 6,254 More than 30 months 7,810 7.94 4,440 3,370 4.02 144 IRAs 18 months 6,949 7.07 918 6,031 7.19 841 ------- ------ ------- ------- ------ ------- Total certificates 56,604 57.57 4,961 51,643 61.55 847 ------- ------ ------- ------- ------ ------- Total deposits $98,325 100.00% $14,425 $83,900 100.00% $ 4,446 ======= ====== ======= ======= ====== =======
Deposit Activity ---------------------------------- Increase (Decrease) Balance at from December 31, % of December 31, 2000 Deposits 1999 ------------ -------- ------------ (Dollars in thousands) Withdrawable: Passbook savings accounts $ 3,478 4.38% $ 609 Regular money market accounts 1,041 1.31 (125) Hi yield money market accounts 14,782 18.61 (3,339) Super NOW accounts 614 .77 287 NOW accounts 5,466 6.88 116 Non-interest bearing accounts 3,277 4.12 596 ------- ------ ------- Total withdrawable 28,658 36.07 (1,856) Certificates (original terms): 91 days 668 .84 146 6 months 7,939 9.99 4,701 12 months 19,830 24.96 7,661 18 months 1,263 1.59 131 24 months 7,255 9.13 (4,514) 30 months 5,425 6.83 (2,718) 60 months 3,226 4.06 (169) IRAs 18 months 5,190 6.53 61 ------- ------ ------- Total certificates 50,796 63.93 5,299 ------- ------ ------- Total deposits $79,454 100.00% $ 3,443 ======= ====== ======= Borrowings. The Bank focuses on generating high quality loans and then seeks the best source of funding from deposits, investments or borrowings. There are regulatory restrictions on advances from the FHLBs. See "Regulation -- Federal Home Loan Bank System" and "-- Qualified Thrift Lender." At December 31, 2002, the Company had $1.0 million in borrowings from the FHLB of Indianapolis which mature within one year and $32.8 million which mature in greater than one year. The weighted average interest rate related to these borrowings was 5.53% at December 31, 2002. The Company does not anticipate any difficulty in obtaining advances appropriate to meet its requirements in the future. At December 31, 2002, notes payable consisted of borrowings secured by the Bank's investment in a real estate partnership which will mature in 2009. The interest rate on the variable rate borrowing was 1.88% at December 31, 2002. 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%. Employees As of December 31, 2002, the Bank employed 23 persons on a full-time basis and three persons on a part-time basis. None of the Bank's employees are represented by a collective bargaining group. Management considers its employee relations to be excellent. The Bank's employee benefits for full-time employees include, among other things, a defined benefit pension plan, a 401(k) plan and major medical and long-term disability insurance. Employee benefits are considered by management to be competitive with those offered by other financial institutions and major employers in the Bank's market area. See "Executive Compensation and Related Transactions." Competition The Bank operates in North Central Indiana and makes almost all of its loans to and accepts most of its deposits from residents of Cass County in Indiana. The Bank is subject to competition from various financial institutions, including state and national banks, state and federal savings institutions, credit unions, certain non-banking consumer lenders, and other companies or firms, including brokerage houses and mortgage brokers, that provide similar services in Cass County. The Bank must also compete with money market funds and with insurance companies with respect to its individual retirement accounts. See "Regulation--Acquisitions or Dispositions and Branching." The primary factors in competing for deposits are interest rates and convenience of office locations. The Bank competes for loan originations primarily through the efficiency and quality of services it provides borrowers and through interest rates and loan fees it charges. Competition is affected by, among other things, the general availability of lendable funds, general and local economic conditions, current interest rate levels, and other factors which are not readily predictable. REGULATION General The Bank, as a federally chartered savings bank, is a member of the Federal Home Loan Bank System ("FHLB System") and its deposits are insured by the Federal Deposit Insurance Corporation ("FDIC") and it is a member of the Savings Association Insurance Fund (the "SAIF"), which is administered by the FDIC. The Bank is subject to extensive regulation by the OTS. Federal associations may not enter into certain transactions unless certain regulatory tests are met or they obtain prior governmental approval and the associations must file reports with the OTS about their activities and their financial condition. Periodic compliance examinations of the Bank are conducted by the OTS which has, in conjunction with the FDIC in certain situations, examination and enforcement powers. This supervision and regulation are intended primarily for the protection of depositors and federal deposit insurance funds. The Bank is also subject to certain reserve requirements under regulations of the Board of Governors of the Federal Reserve System ("FRB"). An OTS regulation establishes a schedule for the assessment of fees upon all savings associations to fund the operations of the OTS. The regulation also establishes a schedule of fees for the various types of applications and filings made by savings associations with the OTS. The general assessment, to be paid on a semiannual basis, is based upon the savings association's total assets, including consolidated subsidiaries, as reported in a recent quarterly thrift financial report. The Bank's semiannual assessment under this assessment scheme, based upon its total assets at December 31, 2002, was approximately $22,000. The Bank is also subject to federal and state regulation as to such matters as loans to officers, directors, or principal shareholders, required reserves, limitations as to the nature and amount of its loans and investments, regulatory approval of any merger or consolidation, issuances or retirements of their own securities, and limitations upon other aspects of banking operations. In addition, the activities and operations of the Bank are subject to a number of additional detailed, complex and sometimes overlapping federal and state laws and regulations. These include state usury and consumer credit laws, state laws relating to fiduciaries, the Federal Truth-In-Lending Act and Regulation Z, the Federal Equal Credit Opportunity Act and Regulation B, the Fair Credit Reporting Act, the Community Reinvestment Act, anti-redlining legislation and antitrust laws. Holding Company Regulation The Holding Company is regulated as a "non-diversified unitary savings and loan holding company" within the meaning of the Home Owners' Loan Act, as amended ("HOLA"), and subject to regulatory oversight of the Director of the OTS. As such, the Holding Company is registered with the OTS and thereby subject to OTS regulations, examinations, supervision and reporting requirements. As a subsidiary of a savings and loan holding company, the Bank is subject to certain restrictions in its dealings with the Holding Company and with other companies affiliated with the Holding Company. The HOLA generally prohibits a savings and loan holding company, without obtaining the prior approval of the Director of the OTS, from (i) acquiring control of any other savings association or savings and loan holding company or controlling the assets thereof or (ii) acquiring or retaining more than 5 percent of the voting shares of a savings association or holding company thereof which is not a subsidiary. Except with the prior approval of the Director of the OTS, no director or officer of a savings and loan holding company or person owning or controlling by proxy or otherwise more than 25% of such company's stock may also acquire control of any savings institution, other than a subsidiary institution, or any other savings and loan holding company. The Holding Company's Board of Directors presently intends to continue to operate the Holding Company as a unitary savings and loan holding company. Under current OTS regulations, there are generally no restrictions on the permissible business activities of a unitary savings and loan holding company. The Holding Company currently operates as a unitary savings and loan holding company. Prior to the enactment of the Gramm-Leach-Bliley Act (the "GLB Act") on November 12, 1999, there were no restrictions on the permissible business activities of a unitary savings and loan holding company. The GLB Act included a provision that prohibits any new unitary savings and loan holding company, defined as a company that acquires a thrift after May 4, 1999, from engaging in commercial activities. This provision also includes a grandfather clause, however, that permits a company that was a savings and loan holding company as of May 4, 1999, or had an application to become a savings and loan holding company on file with the OTS as of that date, to acquire and continue to control a thrift and to continue to engage in commercial activities. Because the Holding Company qualifies under this grandfather provision, the GLB Act did not affect the Holding Company's authority to engage in diversified business activities. Notwithstanding the above rules as to permissible business activities of unitary savings and loan holding companies, if the savings association subsidiary of such a holding company fails to meet the Qualified Thrift Lender ("QTL") test, then such unitary holding company would be deemed to be a bank holding company subject to all of the provisions of the Bank Holding Company Act of 1956 and other statutes applicable to bank holding companies, to the same extent as if the Holding Company were a bank holding company and the Bank were a bank. See "-Qualified Thrift Lender." At December 31, 2002, the Bank's asset composition was in excess of that required to qualify as a Qualified Thrift Lender. If the Holding Company were to acquire control of another savings institution other than through a merger or other business combination with the Bank, the Holding Company would thereupon become a multiple savings and loan holding company. Except where such acquisition is pursuant to the authority to approve emergency thrift acquisitions and where each subsidiary savings association meets the QTL test, the activities of the Holding Company and any of its subsidiaries (other than the Bank or other subsidiary savings associations) would thereafter be subject to further restrictions. The HOLA provides that, among other things, no multiple savings and loan holding company or subsidiary thereof which is not a savings association shall commence or continue for a limited period of time after becoming a multiple savings and loan holding company or subsidiary thereof, any business activity other than (i) furnishing or performing management services for a subsidiary savings association, (ii) conducting an insurance agency or escrow business, (iii) holding, managing, or liquidating assets owned by or acquired from a subsidiary savings institution, (iv) holding or managing properties used or occupied by a subsidiary savings institution, (v) acting as trustee under deeds of trust, (vi) those activities in which multiple savings and loan holding companies were authorized (by regulation) to directly engage on March 5, 1987, to be engaged in by multiple holding companies or (vii) those activities authorized by the FRB as permissible for bank holding companies, unless the Director of the OTS by regulation prohibits or limits such activities for savings and loan holding companies. Those activities described in (vii) above must also be approved by the Director of the OTS prior to being engaged in by a multiple savings and loan holding company. The Director of the OTS may also approve acquisitions resulting in the formation of a multiple savings and loan holding company which controls savings associations in more than one state, if the multiple savings and loan holding company involved controls a savings association which operated a home or branch office in the state of the association to be acquired as of March 1987, or if the laws of the state in which the institution to be acquired is located specifically permit institutions to be acquired by state-chartered institutions or savings and loan holding companies located in the state where the acquiring entity is located (or by a holding company that controls such state-chartered savings institutions). Also, the Director of the OTS may approve an acquisition resulting in a multiple savings and loan holding company controlling savings associations in more than one state in the case of certain emergency thrift acquisitions. Indiana law permits federal and state savings association holding companies with their home offices located outside of Indiana to acquire savings associations whose home offices are located in Indiana and savings association holding companies with their principal place of business in Indiana ("Indiana Savings Association Holding Companies") upon receipt of approval by the Indiana Department of Financial Institutions. Moreover, Indiana Savings Association Holding Companies may acquire savings associations with their home offices located outside of Indiana and savings associations holding companies with their principal place of business located outside of Indiana upon receipt of approval by the Indiana Department of Financial Institutions. Federal Home Loan Bank System The Bank is a member of the FHLB system, which consists of 12 regional banks. The Federal Housing Finance Board ("FHFB"), an independent agency, controls the FHLB System, including the FHLB of Indianapolis. The FHLB System provides a central credit facility primarily for member financial institutions. At December 31, 2002, the Bank's investment in stock of the FHLB of Indianapolis was $2,002,700. For the fiscal year ended December 31, 2002, the FHLB of Indianapolis paid approximately $121,000 in dividends to the Bank. All 12 FHLB's are required to provide funds to establish affordable housing programs through direct loans or interest subsidies on advances to members to be used for lending at subsidized interest rates for low-and moderate-income, owner-occupied housing projects, affordable rental housing, and certain other community projects. These contributions and obligations could adversely affect the value of FHLB stock in the future. A reduction in the value of such stock may result in a corresponding reduction in the Bank's capital. The FHLB of Indianapolis serves as a reserve or central bank for its member institutions. It is funded primarily from proceeds derived from the sale of consolidated obligations of the FHLB System. It makes advances to members in accordance with policies and procedures established by the FHLB and the Board of Directors of the FHLB of Indianapolis. All FHLB advances must be fully secured by sufficient collateral as determined by the FHLB. Eligible collateral includes first mortgage loans not more than 90 days delinquent or securities evidencing interests therein, securities (including mortgage-backed securities) issued, insured or guaranteed by the federal government or any agency thereof, cash or FHLB deposits, certain small business and agricultural loans of smaller institutions and real estate with readily ascertainable value in which a perfected security interest may be obtained. Other forms of collateral may be accepted as additional security or, under certain circumstances, to renew outstanding advances. All long-term advances are required to provide funds for residential home financing and the FHLB has established standards of community service that members must meet to maintain access to long-term advances. Interest rates charged for advances vary depending upon maturity, the cost of funds to the FHLB of Indianapolis and the purpose of the borrowing. Insurance of Deposits The FDIC is an independent federal agency that insures the deposits, up to prescribed statutory limits, of banks and thrifts and safeguards the safety and soundness of the banking and thrift industries. The FDIC administers two separate insurance funds, the Bank Insurance Fund (the "BIF") for commercial banks and state savings banks and the SAIF for savings associations such as the Bank and banks that have acquired deposits from savings associations. The FDIC is required to maintain designated levels of reserves in each fund. The FDIC is authorized to establish separate annual assessment rates for deposit insurance for members of the BIF and members of the SAIF. The FDIC may increase assessment rates for either fund if necessary to restore the fund's ratio of reserves to insured deposits to the target level within a reasonable time and may decrease these rates if the target level has been met. The FDIC has established a risk-based assessment system for both SAIF and BIF members. Under this system, assessments vary depending on the risk the institution poses to its deposit insurance fund. An institution's risk level is determined based on its capital level and the FDIC's level of supervisory concern about the institution. The Bank's annual deposit insurance premium is .06% of total assessable deposits. In addition to the assessment for deposit insurance, savings institutions are required to pay on bonds issued in the late 1980s by the Financing Corporation ("FICO"), which is a federally-chartered corporation that was organized to provide some of the financing to resolve the thrift crisis in the 1980s. Although Congress has considered merging the SAIF and the BIF, until then, savings associations with SAIF deposits may not transfer deposits into the BIF system without paying various exit and entrance fees. Such exit and entrance fees need not be paid if a SAIF institution converts to a bank charter or merges with a bank, as long as the resulting bank continues to pay applicable insurance assessments to the SAIF, and as long as certain other conditions are met. Regulatory Capital Currently, savings associations are subject to three separate minimum capital-to-assets requirements: (i) a leverage limit, (ii) a tangible capital requirement, and (iii) a risk-based capital requirement. The OTS requires savings associations that receive the highest supervisory rating for safety and soundness to maintain "core capital" of at least 3% of total assets. All other savings associations must maintain core capital of at least 4% of total assets. Core capital is generally defined as common shareholders' equity (including retained income), noncumulative perpetual preferred stock and related surplus, certain minority equity interests in subsidiaries, qualifying supervisory goodwill, purchased mortgage servicing rights and purchased credit card relationships (subject to certain limits) less nonqualifying intangibles. Under the tangible capital requirement, a savings association must maintain tangible capital (core capital less all intangible assets except purchased mortgage servicing rights which may be included after making the above-noted adjustment in an amount up to 100% of tangible capital) of at least 1.5% of total assets. Under the risk-based capital requirements, a minimum amount of capital must be maintained by a savings association to account for the relative risks inherent in the type and amount of assets held by the savings association. The risk-based capital requirement requires a savings association to maintain capital (defined generally for these purposes as core capital plus general valuation allowances and permanent or maturing capital instruments such as preferred stock and subordinated debt less assets required to be deducted) equal to 8.0% of risk-weighted assets. Assets are ranked as to risk in one of four categories (0-100%). A credit risk-free asset, such as cash, requires no risk-based capital, while an asset with a significant credit risk, such as a non-accrual loan, requires a risk factor of 100%. Moreover, a savings association must deduct from capital, for purposes of meeting the core capital, tangible capital and risk-based capital requirements, its entire investment in and loans to a subsidiary engaged in activities not permissible for a national bank (other than exclusively agency activities for its customers or mortgage banking subsidiaries). At December 31, 2002, the Bank was in compliance with all capital requirements imposed by law. If an association is not in compliance with its capital requirements, the OTS is required to prohibit asset growth and to impose a capital directive that may restrict, among other things, the payment of dividends and officers' compensation. In addition, the OTS and the FDIC generally are authorized to take enforcement actions against a savings association that fails to meet its capital requirements. These actions may include restricting the operating activities of the association, imposing a capital directive, cease and desist order, or civil money penalties, or imposing harsher measures such as appointing a receiver or conservator or forcing the association to merge into another institution. Prompt Corrective Action The Federal Deposit Insurance Corporation Improvement Act of 1991, as amended ("FedICIA") requires, among other things, that federal bank regulatory authorities take "prompt corrective action" with respect to institutions that do not meet minimum capital requirements. For these purposes, FedICIA establishes five capital tiers: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized. At December 31, 2002, the Bank was categorized as "well capitalized," meaning that its total risk-based capital ratio exceeded 10%, its Tier I risk-based capital ratio exceeded 6%, its leverage ratio exceeded 5%, and it was not subject to a regulatory order, agreement or directive to meet and maintain a specific capital level for any capital measure. The FDIC may order savings associations which have insufficient capital to take corrective actions. For example, a savings association which is categorized as "undercapitalized" would be subject to growth limitations and would be required to submit a capital restoration plan, and a holding company that controls such a savings association would be required to guarantee that the savings association complies with the restoration plan. "Significantly undercapitalized" savings associations would be subject to additional restrictions. Savings associations deemed by the FDIC to be "critically undercapitalized" would be subject to the appointment of a receiver or conservator. Capital Distributions Regulation The OTS also restricts the amount of "capital distributions" that may be made by savings associations. The regulation defines a capital distribution as a distribution of cash or other property to a savings association's owners, made on account of their ownership. This definition includes a savings association's payment of cash dividends to shareholders, or any payment by a savings association to repurchase, redeem, retire, or otherwise acquire any of its shares or debt instruments that are included in total capital, and any extension of credit to finance an affiliate's acquisition of those shares or interests. The amended regulation does not apply to dividends consisting only of a savings association's shares or rights to purchase such shares. The regulation requires a savings association to file an application for approval of a proposed capital distribution with the OTS if the association is not eligible for expedited treatment under OTS's application processing rules, or if the total amount of all capital distributions, including the proposed capital distribution, for the applicable calendar year would exceed an amount equal to the savings association's net income for that year to date plus the savings association's retained net income for the preceding two years (the "retained net income standard"). A savings association must also file an application for approval of a proposed capital distribution if, following the proposed distribution, the association would not be at least adequately capitalized under the OTS prompt corrective action regulations, or if the proposed distribution would violate a prohibition contained in any applicable statute, regulation, or agreement between the association and the OTS or the FDIC. Because the Bank is a subsidiary of a savings and loan holding company, at a minimum, the Bank must file a notice with the OTS 30 days before making any capital distributions to the Holding Company. In addition to these regulatory restrictions, the Bank's Plan of Conversion imposed additional limitations on the amount of capital distributions it may make to the Holding Company. The Plan of Conversion by which the Bank converted from the mutual to the stock form of ownership (the "Plan of Conversion") required the Bank to establish and maintain a liquidation account for the benefit of Eligible Account Holders and Supplemental Eligible Account Holders (as those terms are defined in the Plan of Conversion) and prohibits the Bank from making capital distributions to the Holding Company if its net worth would be reduced below the amount required for the liquidation account. Limitations on Rates Paid for Deposits Regulations promulgated by the FDIC pursuant to FedICIA place limitations on the ability of insured depository institutions to accept, renew or roll over deposits by offering rates of interest which are significantly higher than the prevailing rates of interest on deposits offered by other insured depository institutions having the same type of charter in the institution's normal market area. Under these regulations, "well-capitalized" depository institutions may accept, renew or roll such deposits over without restriction, "adequately capitalized" depository institutions may accept, renew or roll such deposits over with a waiver from the FDIC (subject to certain restrictions on payments of rates) and "undercapitalized" depository institutions may not accept, renew or roll such deposits over. The regulations contemplate that the definitions of "well capitalized," "adequately capitalized" and "undercapitalized" will be the same as the definition adopted by the agencies to implement the corrective action provisions of FedICIA. The Bank does not believe that these regulations will have a materially adverse effect on its current operations. Loans to One Borrower Under OTS regulations, the Bank may not make a loan or extend credit to a single or related group of borrowers in excess of 15% of its unimpaired capital and surplus. Additional amounts may be lent, not in excess of 10% of unimpaired capital and surplus, if such loans or extensions of credit are fully secured by readily marketable collateral, including certain debt and equity securities but not including real estate. In some cases, a savings association may lend up to 30 percent of unimpaired capital and surplus to one borrower for purposes of developing domestic residential housing, provided that the association meets its regulatory capital requirements and the OTS authorizes the association to use this expanded lending authority. At December 31, 2002, the Bank did not have any loans or extensions of credit to a single or related group of borrowers in excess of its lending limits. The Bank does not believe that the loans-to-one-borrower limits will have a significant impact on its business operations or earnings. Qualified Thrift Lender Savings associations must meet a QTL test that requires the association to maintain an appropriate level of qualified thrift investments ("QTIs") (primarily residential mortgages and related investments, including certain mortgage-related securities) and otherwise to qualify as a QTL. The required percentage of QTIs is 65% of portfolio assets (defined as all assets minus intangible assets, property used by the association in conducting its business and liquid assets equal to 10% of total assets). Certain assets are subject to a percentage limitation of 20% of portfolio assets. In addition, savings associations may include shares of stock of the FHLBs, FNMA, and FHLMC as QTIs. Compliance with the QTL test is determined on a monthly basis in nine out of every twelve months. A savings association which fails to meet the QTL test must either convert to a bank (but its deposit insurance assessments and payments will be those of and paid to SAIF) or be subject to the following penalties: (i) it may not enter into any new activity except for those permissible for a national bank and for a savings association; (ii) its branching activities shall be limited to those of a national bank; and (iii) it shall be bound by regulations applicable to national banks respecting payment of dividends. Three years after failing the QTL test the association must dispose of any investment or activity not permissible for a national bank and a savings association. If such a savings association is controlled by a savings and loan holding company, then such holding company must, within a prescribed time period, become registered as a bank holding company and become subject to all rules and regulations applicable to bank holding companies (including restrictions as to the scope of permissible business activities). A savings association failing to meet the QTL test may requalify as a QTL if it thereafter meets the QTL test. In the event of such requalification it shall not be subject to the penalties described above. A savings association which subsequently again fails to qualify under the QTL test shall become subject to all of the described penalties without application of any waiting period. At December 31, 2002, 88.5% of the Bank's portfolio assets (as defined on that date) were invested in qualified thrift investments (as defined on that date), and therefore the Bank's asset composition was in excess of that required to qualify the Bank as a QTL. Also, the Bank does not expect to significantly change its lending or investment activities in the near future. The Bank expects to continue to qualify as a QTL, although there can be no such assurance. Acquisitions or Dispositions and Branching The Bank Holding Company Act specifically authorizes a bank holding company, upon receipt of appropriate regulatory approvals, to acquire control of any savings association or holding company thereof wherever located. Similarly, a savings and loan holding company may acquire control of a bank. Moreover, federal savings associations may acquire or be acquired by any insured depository institution. Regulations promulgated by the FRB restrict the branching authority of savings associations acquired by bank holding companies. Savings associations acquired by bank holding companies may be converted to banks if they continue to pay SAIF premiums, but as such they become subject to branching and activity restrictions applicable to banks. Subject to certain exceptions, commonly controlled banks and savings associations must reimburse the FDIC for any losses suffered in connection with a failed bank or savings association affiliate. Institutions are commonly controlled if one is owned by another or if both are owned by the same holding company. Such claims by the FDIC under this provision are subordinate to claims of depositors, secured creditors, and holders of subordinated debt, other than affiliates. The OTS has adopted regulations which permit nationwide branching to the extent permitted by federal statute. Federal statutes permit federal savings associations to branch outside of their home state if the association meets the domestic building and loan test in ss.7701(a)(19) of the Code or the asset composition test of ss.7701(c) of the Code. Branching that would result in the formation of a multiple savings and loan holding company controlling savings associations in more than one state is permitted if the law of the state in which the savings association to be acquired is located specifically authorizes acquisitions of its state-chartered associations by state- chartered associations or their holding companies in the state where the acquiring association or holding company is located. Moreover, Indiana banks and savings associations are permitted to acquire other Indiana banks and savings associations and to establish branches throughout Indiana. Transactions with Affiliates The Bank and Holding Company are subject to Sections 22(h), 23A and 23B of the Federal Reserve Act, which restrict financial transactions between banks and affiliated companies. The statute limits credit transactions between a bank and its executive officers and its affiliates, prescribes terms and conditions for bank affiliate transactions deemed to be consistent with safe and sound banking practices, and restricts the types of collateral security permitted in connection with a bank's extension of credit to an affiliate. Federal Securities Law The shares of Common Stock of the Holding Company are registered with the Securities and Exchange Commission (the "Commission") under the Securities and Exchange Act of 1934, as amended (the "1934 Act"). The Holding Company is subject to the information, proxy solicitation, insider trading restrictions and other requirements of the 1934 Act and the rules of the SEC thereunder. If the Holding Company has fewer than 300 shareholders of record, it may deregister the shares under the 1934 Act and cease to be subject to the foregoing requirements. Shares of Common Stock held by persons who are affiliates of the Holding Company may not be resold without registration or unless sold in accordance with the resale restrictions of Rule 144 under the Securities Act of 1933 (the "1933 Act"). If the Holding Company meets the current public information requirements under Rule 144, each affiliate of the Holding Company who complies with the other conditions of Rule 144 (including conditions that require the affiliate's sale to be aggregated with those of certain other persons) would be able to sell in the public market, without registration, a number of shares not to exceed, in any three-month period, the greater of (i) 1% of the outstanding shares of the Holding Company or (ii) the average weekly volume of trading in such shares during the preceding four calendar weeks. Community Reinvestment Act Matters Federal law requires that ratings of depository institutions under the Community Reinvestment Act of 1977 ("CRA") be disclosed. The disclosure includes both a four-unit descriptive rating -- outstanding, satisfactory, unsatisfactory and needs improvement -- and a written evaluation of each institution's performance. Each FHLB is required to establish standards of community investment or service that its members must maintain for continued access to long-term advances from the FHLBs. The standards take into account a member's performance under the CRA and its record of lending to first-time home buyers. The OTS examiners have determined that the Bank has a satisfactory record of meeting community credit needs. Recent Legislative Developments On October 26, 2001, President Bush signed the USA Patriot Act of 2001 (the "Patriot Act"). The Patriot Act is intended to strengthen the ability of U.S. Law Enforcement to combat terrorism on a variety of fronts. The potential impact of the Patriot Act on financial institutions is significant and wide-ranging. The Patriot Act contains sweeping anti-money laundering and financial transparency laws and requires financial institutions to implement additional policies and procedures with respect to, or additional measures designed to address, any or all the following matters, among others: money laundering, suspicious activities and currency transaction reporting, and currency crimes. On July 30, 2002, President Bush signed into law the Sarbanes-Oxley Act of 2002 (the "Sarbanes-Oxley Act"). The Sarbanes-Oxley Act represents a comprehensive revision of laws affecting corporate governance, accounting obligations and corporate reporting. The Sarbanes-Oxley Act is applicable to all companies with equity or debt securities registered under the Securities Exchange Act of 1934. In particular, the Sarbanes-Oxley Act establishes: (i) new requirements for audit committees, including independence, expertise, and responsibilities; (ii) additional responsibilities regarding financial statements for the Chief Executive Officer and Chief Financial Officer of the reporting company; (iii) new standards for auditors and regulation of audits; (iv) increased disclosure and reporting obligations for the reporting company and their directors and executive officers; and (v) new and increased civil and criminal penalties for violation of the securities laws. Many of the provisions became effective immediately while other provisions become effective over a period of 30 to 270 days and are subject to rulemaking by the Securities and Exchange Commission. Although we anticipate that we will incur additional expense in complying with the provisions of the Sarbanes-Oxley Act and the resulting regulations, management does not expect that such compliance will have a material impact on our results of operations or financial condition. TAXATION Federal Taxation Historically, savings associations, such as the Bank, have been permitted to compute bad debt deductions using either the bank experience method or the percentage of taxable income method. However, for years beginning after December 31, 1995, the Bank is no longer able to use the percentage of taxable income method of computing its allocable tax bad debt deduction. The Bank is required to compute its allocable deduction using the experience method. As a result of the repeal of the percentage of taxable income method, reserves taken after 1987 using the percentage of taxable income method generally must be included in future taxable income over a six-year period, although a two-year delay was permitted for institutions meeting a residential mortgage loan origination test. In addition, the pre-1988 reserve, for which no deferred taxes have been recorded, will not have to be recaptured into income unless (i) the Bank no longer qualifies as a bank under the Code, or (ii) excess dividends are paid out by the Bank. Depending on the composition of its items of income and expense, a savings institution may be subject to the alternative minimum tax. A savings institution must pay an alternative minimum tax equal to the amount (if any) by which 20% of alternative minimum taxable income ("AMTI"), as reduced by an exemption varying with AMTI, exceeds the regular tax due. AMTI equals regular taxable income increased or decreased by certain tax preferences and adjustments, including depreciation deductions in excess of that allowable for alternative minimum tax purposes, tax-exempt interest on most private activity bonds issued after August 7, 1986 (reduced by any related interest expense disallowed for regular tax purposes), the amount of the bad debt reserve deduction claimed in excess of the deduction based on the experience method and 75% of the excess of adjusted current earnings over AMTI (before this adjustment and before any alternative tax net operating loss). AMTI may be reduced only up to 90% by net operating loss carryovers, but alternative minimum tax paid that is attributable to most preferences (although not to post-August 7, 1986, tax-exempt interest) can be credited against regular tax due in later years. State Taxation The Bank is subject to Indiana's Financial Institutions Tax ("FIT"), which is imposed at a flat rate of 8.5% on "adjusted gross income." "Adjusted gross income," for purposes of FIT, begins with taxable income as defined by Section 63 of the Code and, thus, incorporates federal tax law to the extent that it affects the computation of taxable income. Federal taxable income is then adjusted by several Indiana modifications, the most notable of which is the required addback of interest that is tax-free for federal income tax purposes. Other applicable state taxes include generally applicable sales and use taxes plus real and personal property taxes. Item 2. Properties. At December 31, 2002, the Bank and the Holding Company conducted business from a single office at 723 East Broadway, Logansport, Indiana. The following table provides certain information with respect to the Company's office as of December 31, 2002:
Total Deposits Net Book Value at of Property, Owned or Year December 31, Furniture Approximate Description and Address Leased Opened 2002 and Fixtures Square Footage - ----------------------- ---------- ------ --------------- -------------- -------------- (Dollars in thousands) 723 East Broadway Owned 1962 $98,325 $1,767 11,000 Logansport, Indiana 46947
The Company owns computer and data processing equipment which is used for transaction processing and accounting. The net book value of electronic data processing equipment owned by the Company was $88,000 at December 31, 2002. The Bank also has contracted for the data processing and reporting services of the Intrieve Data Center in Cincinnati, Ohio. The cost of these data processing services is approximately $16,000 per month. Item 3. Legal Proceedings. Neither the Holding Company nor the Bank is a party to any pending legal proceedings, other than routine litigation incidental to its business. Item 4. Submission of Matters to a Vote of Security Holders. No matter was submitted to a vote of the Holding Company's shareholders during the quarter ended December 31, 2002. Item 4.5. Executive Officers of the Registrant. Presented below is certain information regarding the executive officers of the Holding Company: Name Position ---- -------- David G. Wihebrink President and Chief Executive Officer Charles J. Evans Senior Vice President Dottye Robeson Secretary/Treasurer David G. Wihebrink (age 55) has served as President and Chief Executive Officer of the Bank and the Holding Company since April 2000. Prior to that, he had served as Vice President and Chief Financial Officer of TM Morris Manufacturing Co., Inc. ("Morris") since 1988. Morris is located in Logansport, Indiana, and manufactures lead wire assemblies and wiring harnesses and stampings. Prior to his employment with Morris, Mr. Wihebrink was a member of the accounting firm Smith, Thompson & Wihebrink (Logansport) for 15 years. Mr. Wihebrink also currently serves as a member of the Board of Directors of the Neal Home retirement home in Logansport, Indiana; 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. Charles J. Evans (age 56) has served as Senior Vice President of the Bank since January 2000 and as Vice President of the Holding Company since its organization. Prior to becoming Senior Vice President, Mr. Evans had served as Vice President and Senior Loan Officer of the Bank since 1980. Dottye Robeson (age 52) has served as Chief Financial Officer of the Bank since 1994 and as Secretary/Treasurer of the Holding Company since its organization. She has been a certified public accountant since 1987. PART II Item 5. Market for Registrant's Common Equity and Related Shareholder Matters. Page 51 of the 2002 Shareholder Annual Report (the "Shareholder Report") is herein incorporated by reference. The Holding Company has established a policy of paying regular periodic cash dividends, and the Board of Directors intends to continue this policy, subject to the Holding Company's operating results, financial condition, capital, income tax considerations, regulatory restrictions, and other relevant factors. Since the Holding Company has no independent operations other than investment-related activities or other subsidiaries to generate income, its ability to accumulate earnings for the payment of cash dividends to its shareholders will be directly dependent upon the ability of the Bank to pay dividends to the Holding Company. Under OTS regulations, a converted savings institution may not declare or pay a cash dividend if the effect would be to reduce its net worth below the amount required for the liquidation account created at the time it converted. In addition, under OTS regulations, the extent to which a savings institution may make a "capital distribution," which includes, among other things, cash dividends, will depend upon in which one of three categories, based upon levels of capital, that savings institution is classified. The Bank is now and expects to continue to be a "tier one institution" and therefore would be able to pay cash dividends to the Holding Company during any calendar year up to 100% of its net income during that calendar year plus the amount that would reduce by one half its "surplus capital ratio" (the excess over its fully phased-in capital requirements) at the beginning of the calendar year. See "Regulation -- Capital Distributions Regulation." Prior notice of any dividend to be paid by the Bank to the Holding Company will have to be given to the OTS. Income of the Bank appropriated to bad debt reserves and deducted for federal income tax purposes is not available for payment of cash dividends or other distributions to the Holding Company without the payment of federal income taxes by the Bank on the amount of such income deemed removed from the reserves at the then-current income tax rate. At December 31, 2002, approximately $500,000 of the Bank's retained income represented bad debt deductions for which no federal income tax provision had been made. See "Taxation--Federal Taxation." Unlike the Bank, generally there is no regulatory restriction on the payment of dividends by the Holding Company. Indiana law, however, would prohibit the Holding Company from paying a dividend if, after giving effect to the payment of that dividend, the Holding Company would not be able to pay its debts as they become due in the usual course of business or the Holding Company's total assets would be less than the sum of its total liabilities plus preferential rights of holders of preferred stock, if any. The Company sold no equity securities during the period covered by this report that were not registered under the Securities Act of 1933. The disclosures regarding equity compensation plans required by Reg. ss. 229.201(d) is set forth in Item 12 hereof. Item 6. Selected Financial Data. The information required by this item is incorporated by reference to the material under the heading "Selected Consolidated Financial and Other Data" on pages 6 and 7 of the Holding Company's 2002 Shareholder Annual Report (the "Shareholder Annual Report"). Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operation. The information required by this item is incorporated by reference to pages 8 through 20 of the Shareholder Annual Report. Item 7A. Quantitative and Qualitative Disclosures About Market Risk The information required by this item is incorporated by reference to pages 17 through 19 of the Shareholder Annual Report. Item 8. Financial Statements and Supplementary Data. The Holding Company's Consolidated Financial Statements and Notes thereto contained on pages 21 through 50 in the Shareholder Annual Report are incorporated herein by reference. The Company's unaudited quarterly results of operations contained on page 50 in the Shareholder Annual Report are incorporated herein by reference. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. Not applicable. PART III Item 10. Directors and Executive Officers of the Registrant. The information required by this item with respect to directors and compliance with Section 16(a) of the Securities Exchange Act of 1934 is incorporated by reference to pages 3 through 5 and pages 10 and 11 of the Holding Company's Proxy Statement for its 2003 Annual Shareholder Meeting (the "2003 Proxy Statement"). Information concerning the Holding Company's executive officers is included in Item 4.5 in Part I of this report. Item 11. Executive Compensation. The information required by this item with respect to executive compensation is incorporated by reference to pages 5 through 8 of the Holding Company's 2003 Proxy Statement. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. The information required by this item is incorporated by reference to pages 1 through 3 of the 2003 Proxy Statement. The following table provides the information about the Corporation's common stock that may be issued upon the exercise of options and rights under all existing equity compensation plans as of December 31, 2002.
Equity Compensation Plan Information Number of securities Number of remaining available for securities to be future issuance under issued upon exercise Weighted-average equity compensation plans of outstanding options, exercise price of as of December 31, 2002 warrants and rights outstanding options, (excluding securities as of December 31, 2002 warrants and rights reflected in column (a)) (a) (b) (c) ----------------------- -------------------- --------------------------- Equity compensation plans approved by security holders.................. 79,136(1) $10.63(1) 115,000(1) Equity compensation plans not approved by security holders .............. -- -- -- Total.......................... 79,136 $10.63 115,000 - --------------------- (1) Includes the following plans: the Company's stock option plan and 1999 stock option plan.
Item 13. Certain Relationships and Related Transactions. The information required by this item is incorporated by reference to pages 8 and 9 of the 2003 Proxy Statement. Item 14. Controls and Procedures. Within the 90-day period prior to the filing date of this report, an evaluation was carried out under the supervision and with the participation of the Company's management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934). Based on their evaluation our Chief Executive Officer and Chief Financial Officer have concluded that the Company's disclosure controls and procedures are, to the best of their knowledge, effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. Our Chief Executive Officer and Chief Financial Officer have concluded that, subsequent to the date of their evaluation, there have been no significant changes in the Company's internal controls or in other factors that could significantly affect its internal controls, including any corrective actions with regard to significant deficiencies and material weaknesses.
PART IV Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. (a) List the following documents filed as part of the report: Financial Statements Independent Auditor's Report (Grant Thornton LLP) ................... See Shareholder Annual Report Page 21 Consolidated Statements of Financial Condition at December 31, 2002 and 2001 ........................................................... See Shareholder Annual Report Page 22 Consolidated Statements of Earnings for the Years Ended December 31, 2002, 2001 and 2000 ................................................ See Shareholder Annual Report Page 23 Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2002, 2001 and 2000 ................................... See Shareholder Annual Report Page 24 Consolidated Statements of Changes in Shareholders' Equity for the Years Ended December 31, 2002, 2001 and 2000 ................... See Shareholder Annual Report Page 25 Consolidated Statements of Cash Flows for the Years Ended December 31, 2002, 2001 and 2000 ................................................ See Shareholder Annual Report Page 26 Notes to Consolidated Financial Statements .............................. See Shareholder Annual Report Page 28 (b) Reports on Form 8-K. (1) The Holding Company filed a Form 8-K dated March 27, 2002, concerning the Company's stock repurchase program. (2) The Company filed a Form 8-K dated October 3, 2002, concerning the Company's repurchase of 73,000 of its shares of common stock from two of its shareholders. (c) The exhibits filed herewith or incorporated by reference herein are set forth on the Exhibit Index on page E-1. Included in those exhibits are Executive Compensation Plans and Arrangements which are identified as Exhibits 10(1) through 10(16). (d) All schedules are omitted as the required information either is not applicable or is included in the Consolidated Financial Statements or related notes.
SIGNATURES Pursuant to the requirement of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on behalf of the undersigned, thereto duly authorized. LOGANSPORT FINANCIAL CORP. Date: March 27, 2003 By: /s/ David G. Wihebrink ------------------------------------- David G. Wihebrink, President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on this 27th day of March, 2003. /s/ David G. Wihebrink - ---------------------------------------------- David G. Wihebrink, President, Chief Executive Officer and Director (Principal Executive Officer) /s/ Dottye Robeson - ---------------------------------------------- Dottye Robeson, Secretary/Treasurer (Principal Financial and Accounting Officer) /s/ Charles J. Evans - ---------------------------------------------- Charles J. Evans, Vice President and Director /s/ Susanne S. Ridlen - ---------------------------------------------- Susanne S. Ridlen, Director /s/ William Tincher, Jr. - ---------------------------------------------- William Tincher, Jr., Director /s/ Brian J. Morrill - ---------------------------------------------- Brian J. Morrill, Director /s/ Thomas G. Williams - ---------------------------------------------- Thomas G. Williams, Director /s/ Todd S. Weinstein - ---------------------------------------------- Todd S. Weinstein, Director /s/ James P. Bauer - ---------------------------------------------- James P. Bauer, Director CERTIFICATION I, David G. Wihebrink, certify that: 1. I have reviewed this annual report on Form 10-K of Logansport Financial Corp; 2. Based on my knowledge, this annual report does not contain any untrue statements of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; and 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report. Date: March 27, 2003 /s/ David G. Wihebrink -------------------------------------------- David G. Wihebrink President and Chief Executive Officer CERTIFICATION I, Dottye Robeson, certify that: 1. I have reviewed this annual report on Form 10-K of Logansport Financial Corp; 2. Based on my knowledge, this annual report does not contain any untrue statements of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; and 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report. Date: March 27, 2003 /s/ Dottye Robeson ------------------------------------------- Dottye Robeson Secretary/Treasurer By signing below, each of the undersigned officers hereby certifies pursuant to 18 U.S.C. ss.1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to his or her knowledge, (i) this report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and (ii) the information contained in this report fairly presents, in all material respects, the financial condition and results of operations of Logansport Financial Corp. Signed this 27th day of March 2003. /s/ Dottye Robeson /s/ David G. Wihebrink - ------------------------------------ --------------------------------------- (Signature of Authorized Officer) (Signature ofAuthorized Officer) Dottye Robeson David G. Wihebrink - ------------------------------------ --------------------------------------- (Typed Name) (Typed Name) Secretary/Treasurer President and Chief Executive Officer - ------------------------------------ --------------------------------------- (Title) (Title)
EXHIBIT INDEX Exhibit Page ------- ---- 3(1) The Articles of Incorporation of the Registrant are incorporated by reference to Exhibit 3(1) to the Registration Statement on Form S-1 (Registration No. 33-89788). 3(2) The Code of By-Laws of the Registrant are incorporated by reference to Exhibit 3.1 to the Form 10-Q for the fiscal quarter ended June 30, 2002. 10(1) The Registrant's Stock Option Plan is incorporated by reference to Exhibit A to the Registrant's Proxy Statement for its Annual Shareholder Meeting held on April 9, 1996 and resolutions dated July 14, 1998, amending the Registrant's Stock Option Plan are incorporated by reference to Exhibit 10.1 to the Form 10-Q for the period ended September 30, 1998, filed with the Commission on November 12, 1998. 10(2) Logansport Savings Bank, FSB Recognition and Retention Plan and Trust is incorporated by reference to Exhibit B to the Registrant's Proxy Statement for its Annual Shareholder Meeting held on April 9, 1996, and resolutions dated July 14, 1998, amending the Logansport Savings Bank, FSB Recognition and Retention Plan and Trust are incorporated by reference to Exhibit 10.2 to the Form 10-Q for the period ended September 30, 1998, filed with the Commission on November 12, 1998. 10(3) Logansport Savings Bank, FSB Employee Stock Ownership Plan and Trust Agreement is incorporated by reference to Exhibit 10(4) to the Registration Statement on Form S-1 (Registration No. 33-89788). 10(4) Deferred Compensation Agreement between Logansport Savings Bank, FSB and David G. Wihebrink, dated and effective as of April 12, 2000, is incorporated by reference to Exhibit 10.4 of Registrant's Form 10-K for its fiscal year ended December 31, 2000. 10(5) Employment Agreement between Logansport Savings Bank, FSB and Charles J. Evans is incorporated by reference to Exhibit 10(6) to the Registration Statement on Form S-1 (Registration No. 33-89788). 10(6) Director Deferred Compensation Agreement between Logansport Savings Bank, FSB and Thomas G. Williams, effective April 1, 1992 is incorporated by reference to Exhibit 10(7) to the Registration Statement on Form S-1 (Registration No. 33-89788). 10(7) Director Deferred Compensation Agreement between Logansport Savings Bank, FSB and Don Pollitt, effective April 1, 1992 is incorporated by reference to Exhibit 10(8) to the Registration Statement on Form S-1 (Registration No. 33-89788). 10(8) Director Deferred Compensation Agreement between Logansport Savings Bank, FSB and Norbert Adrian, effective April 1, 1992 is incorporated by reference to Exhibit 10(9) to the Registration Statement on Form S-1 (Registration No. 33-89788). 10(9) Director Deferred Compensation Agreement between Logansport Savings Bank, FSB and Susanne Ridlen, effective April 1, 1992 is incorporated by reference to Exhibit 10(10) to the Registration Statement on Form S-1 (Registration No. 33-89788). 10(10) Director Deferred Compensation Agreement between Logansport Savings Bank, FSB and David Wihebrink, effective April 1, 1992 is incorporated by reference to Exhibit 10(11) to the Registration Statement on Form S-1 (Registration No. 33-89788). 10(11) Executive Supplemental Retirement Income Agreement between Logansport Savings Bank, FSB and Thomas G. Williams, executed May 7, 1992 is incorporated by reference to Exhibit 10(12) to the Registration Statement on Form S-1 (Registration No. 33-89788). 10(12) Executive Supplemental Retirement Income Agreement between Logansport Savings Bank, FSB and Charles J. Evans, executed May 7, 1992 is incorporated by reference to Exhibit 10(13) to the Registration Statement on Form S-1 (Registration No. 33-89788). 10(13) Employment Agreement dated as of February 11, 2002, between the Bank and Dottye Robeson is incorporated by reference to Exhibit 10(13) of Registrant's Form 10-K for the fiscal year ended December 31, 2001. 10(14) Employment Agreement dated as of February 11, 2002, between the Bank and Allen D. Schieber is incorporated by reference to Exhibit 10(14) of Registrant's Form 10-K for the fiscal year ended December 31, 2001. 10(15) Employment Agreement dated as of April 10, 2001, between the Bank and David G. Wihebrink is incorporated by reference to Exhibit 10(1) of Registrant's Form 10-Q for the fiscal quarter ended March 31, 2001. 10(16) The Registrant's 1999 Stock Option Plan is incorporated by reference to Exhibit A to Registrant' Proxy Statement for its Annual Shareholder Meeting held on April 13, 1999. 13 2002 Shareholder Annual Report 21 Subsidiaries of the Registrant are incorporated by reference to Exhibit 21 to the Registration Statement on Form S-1 (Registration No. 33-89788). 23 Independent Auditor's Consent (Grant Thornton LLP)
EX-13 3 log_ex13.txt 2002 ANNUAL REPORT TO SHAREHOLDERS 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 EX-23 4 log_ex23.txt GRANT THORNTON LETTER Exhibit 23 ---------- ACCOUNTANT'S CONSENT We consent to the incorporation by reference in the Registration Statements on Form S-8, File Nos. 333-88125 and 333-12897, of our report dated January 24, 2003 contained in the 2002 Annual Report to Shareholders of Logansport Financial Corporation, which is incorporated by reference in this Form 10-K. GRANT THORNTON LLP /s/ GRANT THORNTON LLP Cincinnati, Ohio March 25, 2003 -----END PRIVACY-ENHANCED MESSAGE-----