10-Q 1 log_10q05.txt 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED March 31, 2003 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _____________ TO _____________________. Commission file number: 0-25910 LOGANSPORT FINANCIAL CORP. (Exact name of registrant specified in its charter) Indiana 35-1945736 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 723 East Broadway P.O. Box 569 Logansport, Indiana 46947 (Address of principal executive offices including Zip Code) (574) 722-3855 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such report), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X] The number of shares outstanding of the Registrant's common stock, without par value, as of May 1, 2003 was 851,672. Logansport Financial Corp. Form 10-Q Index Page No. PART 1. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Statements of Financial Condition as of March 31, 2003 and December 31, 2002 3 Consolidated Statements of Earnings for the three months ended March 31, 2003 and 2002 4 Consolidated Statements of Shareholders' Equity for the three months ended March 31, 2003 and 2002 5 Consolidated Statements of Cash Flows for the three months ended March 31, 2003 and 2002 6 Notes to Consolidated Condensed Financial Statements 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11 Item 3. Quantitative and Qualitative Disclosures About Market Risk 14 Item 4. Controls and Procedures 15 PART II. OTHER INFORMATION Item 1. Legal Proceedings 16 Item 6. Exhibits and Reports on Form 8-K 16 SIGNATURES 17 CERTIFICATION 18
LOGANSPORT FINANCIAL CORP. Consolidated Statements of Financial Condition (In thousands, except share data) March 31, December 31, ASSETS 2003 2002 Cash and due from banks $ 1,019 $ 778 Interest-bearing deposits in other financial institutions 8,627 12,739 -------- -------- Cash and cash equivalents 9,646 13,517 Investment securities designated as available for sale - at market 9,381 8,060 Mortgage-backed securities designated as available for sale - at market 10,066 11,009 Loans receivable - net 109,586 110,386 Office premises and equipment - at depreciated cost 1,742 1,767 Real estate acquired through foreclosure 153 - Federal Home Loan Bank stock - at cost 2,003 2,003 Investment in real estate partnership 1,015 1,026 Accrued interest receivable on loans 443 410 Accrued interest receivable on mortgage-backed securities 42 49 Accrued interest receivable on investments and interest-bearing deposits 109 107 Prepaid expenses and other assets 79 80 Cash surrender value of life insurance 1,317 1,317 Deferred income tax asset 380 364 Prepaid income taxes - 4 -------- -------- Total assets $145,962 $150,099 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Deposits $ 93,690 $ 98,325 Advances from the Federal Home Loan Bank 33,836 33,836 Notes payable 1,843 1,793 Accrued interest and other liabilities 850 772 Accrued income taxes 134 - -------- -------- Total liabilities 130,353 134,726 Shareholders' equity Preferred stock - no par value, 2,000,000 shares authorized; none issued - - Common stock - no par value, 5,000,000 shares authorized; 851,672 and 848,958 shares at aggregate value issued and outstanding at March 31, 2003 and December 31, 2002, respectively 1,475 1,446 Retained earnings - restricted 13,688 13,444 Less shares acquired by stock benefit plan (38) (44) Accumulated comprehensive income, unrealized gains on securities designated as available for sale, net of related tax effects 484 527 -------- -------- Total shareholders' equity 15,609 15,373 -------- -------- Total liabilities and shareholders' equity $145,962 $150,099 ======== ========
LOGANSPORT FINANCIAL CORP. Consolidated Statements of Earnings (In thousands, except share data) Three months ended March 31, 2003 2002 Interest income Loans $1,921 $2,075 Mortgage-backed securities 131 72 Investment securities 96 92 Interest-bearing deposits and other 47 63 ------ ------ Total interest income 2,195 2,302 Interest expense Deposits 640 772 Borrowings 477 475 ------ ------ Total interest expense 1,117 1,247 ------ ------ Net interest income 1,078 1,055 Provision for losses on loans 90 90 ------ ------ Net interest income after provision for losses on loans 988 965 Other income Service charges on deposit accounts 54 55 Gain on sale of mortgage-backed securities 81 - Gain on sale of loans 5 - Loss on equity investment (24) (36) Other operating 25 32 ------ ------ Total other income 141 51 General, administrative and other expense Employee compensation and benefits 353 294 Occupancy and equipment 61 65 Data processing 49 49 Other operating 157 167 ------ ------ Total general, administrative and other expense 620 575 ------ ------ Earnings before income taxes 509 441 Income tax expense 141 121 ------ ------ NET EARNINGS $ 364 $ 320 ====== ====== Other comprehensive loss, net of tax - unrealized losses on securities (43) (53) ------ ------ COMPREHENSIVE INCOME $ 321 $ 267 ====== ====== EARNINGS PER SHARE Basic (based on net earnings) $ 0.43 $ 0.32 ====== ====== Diluted (based on net earnings) $ 0.41 $ 0.31 ====== ======
LOGANSPORT FINANCIAL CORP. Consolidated Statements of Shareholders' Equity (In thousands, except share data) Three months ended March 31, 2003 2002 Balance at January 1 $15,373 $17,402 Purchase of shares - (679) Issuance of shares under stock option plan 29 70 Amortization expense of stock benefit plan 6 2 Cash dividends of $.14 and $.12 per share in 2003 and 2002 (120) (120) Unrealized losses on securities designated as available for sale, net of related tax effects (43) (53) Net earnings 364 320 ------- ------- Balance at March 31 $15,609 $16,942 ======= ======= Accumulated other comprehensive income $ 484 $ 202 ======= =======
LOGANSPORT FINANCIAL CORP. Consolidated Statements of Cash Flows (In thousands) Three months ended March 31, 2003 2002 Cash flows from operating activities: Net earnings for the period $ 364 $ 320 Adjustments to reconcile net earnings to net cash provided by (used in) operating activities: Depreciation and amortization 27 27 Amortization of premiums on investments and mortgage-backed securities 7 15 Amortization expense of stock benefit plan 6 2 Gain on sale of mortgage-backed securities (81) - Loans originated for sale in the secondary market (190) - Proceeds from sale of loans in the secondary market 193 - Gain on sale of loans (3) - Provision for losses on loans 90 90 Loss on equity investment 24 36 Increase (decrease) in cash, due to changes in: Accrued interest receivable on loans (33) (28) Accrued interest receivable on mortgage-backed securities 7 (6) Accrued interest receivable on investments (2) (2) Prepaid expenses and other assets 1 25 Accrued interest and other liabilities 78 13 Federal income taxes Current 138 72 Deferred 7 8 -------- ------- Net cash provided by operating activities 633 572 Cash flows provided by (used in) investing activities: Purchase of investment securities (2,159) (2,314) Maturities/calls of investment securities 825 30 Purchases of mortgage-backed securities (5,073) (2,019) Proceeds from sale of mortgage-backed securities 5,025 - Principal repayments on mortgage-backed securities 1,012 324 Loan disbursements (11,459) (8,287) Principal repayments on loans 12,016 8,998 Investment in real estate partnership (13) (15) Proceeds from sale of real estate acquired through foreclosure - 65 Purchases and additions to office premises and equipment (2) (31) -------- ------- Net cash provided by (used in) investing activities 172 (3,249) -------- ------- Net cash provided by (used in) operating and investing activities (subtotal carried forward) 805 (2,677) -------- -------
LOGANSPORT FINANCIAL CORP. Consolidated Statements of Cash Flows (Continued) (In thousands) Three months ended March 31, 2003 2002 Net cash provided by (used in) operating and investing activities (subtotal brought forward) $ 805 $(2,677) Cash flows provided by (used in) financing activities: Net increase (decrease) in deposit accounts (4,635) 5,018 Proceeds from Federal Home Loan Bank advances 3,000 1,100 Repayment of Federal Home Loan Bank advances (3,000) (2,000) Proceeds from note payable 125 - Repayment of note payable (75) (72) Proceeds from exercise of stock options 29 70 Purchase of shares - (679) Dividends on common stock (120) (120) -------- ------- Net cash provided by (used in) financing activities (4,676) 3,317 -------- ------- Net increase (decrease) in cash and cash equivalents (3,871) 640 Cash and cash equivalents, beginning of period 13,517 8,816 -------- ------- Cash and cash equivalents, end of period $ 9,646 $ 9,456 ======== ======= Supplemental disclosure of cash flow information: Cash paid during the period for: Interest on deposits and borrowings $ 1,110 $ 1,234 ======== ======= Income taxes $ - $ 60 ======== ======= Dividends payable at end of period $ 120 $ 120 ======== ======= Supplemental disclosure of noncash investing activities: Recognition of mortgage servicing rights in accordance with SFAS No. 140 $ 2 $ - ======== ======= Transfers from loans to real estate acquired through foreclosure $ 153 $ - ======== ======= Supplemental disclosure of noncash financing activities: Unrealized losses on securities designated as available for sale, net of related tax effects $ (43) $ (53) ======== =======
Logansport Financial Corp. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS For the three month periods ended March 31, 2003 and 2002 NOTE A: Basis of Presentation The unaudited interim consolidated condensed financial statements have been prepared in accordance with the instructions to Form 10-Q and, therefore, do not include all information and disclosures required by accounting principles generally accepted in the United States of America for complete financial statements. Accordingly, these financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Annual Report on Form 10-K for the year ended December 31, 2002. In the opinion of management, the financial statements reflect all adjustments (consisting of only normal recurring accruals) necessary to present fairly the Logansport Financial Corp.'s (the "Company") financial position as of March 31, 2003, and its results of operations and cash flows for the three month periods ended March 31, 2003 and 2002. The results of operations for the three month period ended March 31, 2003 are not necessarily indicative of the results which may be expected for the entire year. NOTE B: Principles of Consolidation The unaudited interim consolidated condensed financial statements include the accounts of the Company and its subsidiary, Logansport Savings Bank, FSB (the "Bank"). All significant intercompany items have been eliminated. NOTE C: Earnings Per Share and Dividends Per Share Basic earnings per share is computed based upon the weighted-average shares outstanding during the period. Diluted earnings per share is computed taking into consideration common shares outstanding and dilutive potential common shares issuable under the Company's stock option plan. The computations are as follows: For the three months ended March 31, 2003 2002 Weighted-average common shares outstanding (basic) 850,333 1,013,176 Dilutive effect of assumed exercise of stock options 27,723 34,712 ------- --------- Weighted-average common shares outstanding (diluted) 878,056 1,047,888 ======= ========= A cash dividend of $.14 per common share was declared on February 27, 2003, payable on April 10, 2003, to stockholders of record as of March 14, 2003. NOTE D: Critical Accounting Policies Certain of the Company's accounting policies are important to the portrayal of the Company's financial condition, since they require management to make difficult, complex or subjective judgments, some of which may relate to matters that are inherently uncertain. Estimates associated with these policies are susceptible to material changes as a result of changes in facts and circumstances. Facts and circumstances which could affect these judgments include, but without limitation, changes in interest rates, in the performance of the economy or in the financial condition of borrowers. Management believes that its critical accounting policies include determining the allowance for loan losses and determining the fair value NOTE D: Critical Accounting Policies (continued) of securities and other financial instruments. The Company's critical accounting policies are discussed in detail in its Shareholder Annual Report for the year ended December 31, 2002 (incorporated by reference into the Company's 10K filing) in Note A of the Notes to the Consolidated Financial Statements under "Allowance for Loan Losses" and "Investment and Mortgage-Backed Securities." If Management were to underestimate the allowance for loan losses, earnings could be reduced in the future as a result of greater than expected net loan losses. Overestimations of the required allowance could result in future increases in income, as loan loss recoveries increase or provisions for loan losses decrease. Fluctuations in the fair value of securities will affect the level of capital in the case of securities available for sale or earnings directly in the case of trading securities. NOTE E: 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. 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 for the three-month periods ended March 31, 2003 and 2002. A summary of the status of the Corporation's stock option plans as of March 31, 2003 and December 31, 2002 and 2001, and changes during the periods ending on those dates is presented below:
March 31, December 31, 2003 2002 2001 Weighted- Weighted- Weighted- average average average exercise exercise exercise Shares price Shares price Shares price Outstanding at beginning of period 79,136 $10.63 106,796 $10.61 125,915 $10.59 Granted - - - - - - Exercised (2,714) 10.53 (27,660) 10.53 (15,463) 10.53 Forfeited - - - - (3,656) 10.53 ------ ------ ------- ------ ------- ------ Outstanding at end of period 76,422 $10.63 79,136 $10.63 106,796 $10.61 ====== ====== ======= ====== ======= ====== Options exercisable at period-end 75,922 $10.61 78,636 $10.61 105,796 $10.58 ====== ====== ======= ====== ======= ======
NOTE E: Stock Option Plans (continued) The following information applies to options outstanding at March 31, 2003: Number outstanding 76,422 Range of exercise prices $10.53 - $13.75 Weighted-average exercise price $10.63 Weighted-average remaining contractual life 2.7 years NOTE F: Recent Accounting Pronouncements In December 2002, the Financial Accounting Standards Board (the "FASB") issued Statement of Financial Accounting Standards ("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 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. Management adopted the disclosure provisions of SFAS No. 148 effective December 31, 2002, without material effect on the Corporation's financial position or results of operations. In November 2002, the FASB issued FASB Interpretation No. 45 ("FIN 45"), "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others." FIN 45 requires a guarantor entity, at the inception of a guarantee covered by the measurement provisions of the interpretation, to record a liability for the fair value of the obligation undertaken in issuing the guarantee. The Corporation has financial letters of credit which require the Corporation to make payment if the customer's financial condition deteriorates, as defined in the agreements. FIN 45 requires the Corporation to record an initial liability, generally equal to the fees received for these letters of credit when guaranteeing obligations. FIN 45 applies prospectively to letters of credit the Corporation issues or modifies subsequent to December 31, 2002. The Corporation defines the initial fair value of these letters of credit as the fee received from the customer. The maximum potential undiscounted amount of future payments of these letters of credit as of March 31, 2003 is $3.0 million and they expire through 2008. Amounts due under these letters of credit would be reduced by any proceeds that the Corporation would be able to obtain in liquidating the collateral for the loans, which varies depending on the customer. In January 2003, the FASB issued FASB Interpretation No. 46 ("FIN 46"), "Consolidation of Variable Interest Entities." FIN 46 requires a variable interest entity to be consolidated by a company if that company is subject to a majority of the risk of loss from the variable interest entity's activities or entitled to receive a majority of the entity's residual returns, or both. FIN 46 also requires disclosures about variable interest entities that a company is not required to consolidate, but in which it has a significant variable interest. The consolidation requirements of FIN 46 apply immediately to variable interest entities created after January 31, 2003. The consolidation requirements apply to existing entities in the first fiscal year or interim period beginning after June 15, 2003. Certain of the disclosure requirements apply in all financial statements issued after January 31, 2003, regardless of when the variable interest entity was established. The Corporation has not established any variable interest entities subsequent to January 31, 2003. Management is continuing to evaluate the effect of the provisions of FIN 46 on its financial statements. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operation. Forward Looking Statements In addition to historical information contained herein, the following discussion contains forward-looking statements that involve risks and uncertainties. Economic circumstances, the Company's operations and the Company's actual results could differ significantly from those discussed in the forward-looking statements. Some of the factors that could cause or contribute to such differences are discussed herein but also include changes in the economy and interest rates in the nation and the Company's market area generally. Some of the forward-looking statements included herein are the statements regarding management's determination of the amount and adequacy of the allowance for loan losses, management's assessment of the Company's interest rate risk and the effect of recent accounting pronouncements. Discussion of Financial Condition Changes from December 31, 2002 to March 31, 2003 The Company reported total assets of $146.0 million at March 31, 2003, a decrease of $4.1 million, or 2.8%, compared to December 31, 2002. This decrease was primarily a result of the withdrawal of $4.0 million in short-term local government deposits which are subject to bid every 60 to 90 days. The Company bids to retain the funds when it has a use for the proceeds but local market competition for the funds varies and the outcome of bidding is frequently unpredictable. Cash and cash equivalents decreased by $3.9 million, from $13.5 million at December 31, 2002, to $9.6 million at March 31, 2003. Investment and mortgage-backed securities totaled $19.4 million at March 31, 2003, an increase of $378,000 over December 31, 2002. Purchases of securities totaling $7.2 million were partially offset by repayments, calls and maturities of $1.8 million and sales of $5.0 million. Net loans decreased from $110.4 million at December 31, 2002 to $109.6 million at March 31, 2003. Loan originations amounted to $11.6 million for the three months ended March 31, 2003, while principal repayments amounted to $12.0 million and sales amounted to $190,000. Loan originations during 2003 were comprised primarily of loans secured by nonresidential and commercial real estate, other commercial property and commercial leases. The commercial and nonresidential loan portfolios totaled $37.2 million at March 31, 2003, compared to $35.8 million at December 31, 2002. Loans secured by one- to four-family residential real estate totaled $59.7 million at March 31, 2003, compared to $61.7 million at December 31, 2002. In the first quarter of 2003, the Company initiated a program to sell certain 1-4 family loans in the secondary market, dealing with the Federal Home Loan Bank of Indianapolis. Deposits totaled $93.7 million at March 31, 2003, a decrease of $4.6 million, or 4.7%, from the balance at December 31, 2002. Borrowings increased slightly over the three month period, and at March 31, 2003, were comprised of $33.8 million of FHLB advances, a $1.0 million note payable related to an equity investment in low income housing, and an $825,000 line of credit. Shareholders' equity totaled $15.6 million at March 31, 2003, an increase of $236,000, or 1.5%, over the $15.4 million total at December 31, 2002. The increase resulted from net earnings of $364,000 and proceeds from exercise of stock options of $29,000, which were partially offset by dividends paid of $120,000 and a decrease of $43,000 in the unrealized gains on securities available for sale. Results of Operations Comparison of the Three Months Ended March 31, 2003 and March 31, 2002 Net earnings for the three months ended March 31, 2003 totaled $364,000, compared with $320,000 for the three months ended March 31, 2002, an increase of $44,000, or 13.8%. Net interest income increased by $23,000, total other income increased by $90,000 and general, administrative and other expense increased by $45,000, while the provision for losses on loans remained constant and income taxes increased by $20,000. Interest income on loans decreased by $154,000, or 7.4%, for the three months ended March 31, 2003, compared to the same quarter in 2002, due primarily to a decrease in the yield on loans. Interest income on mortgage-backed securities, investments and other interest-earning assets totaled $274,000 for the three months ended March 31, 2003, a $47,000, or 20.7%, increase over the 2002 quarter. The increase was due primarily to an increase in the average balance outstanding year to year. Interest expense on deposits decreased by $132,000, or 17.1%, as the average cost of deposits decreased. Interest expense on borrowings increased by $2,000 due primarily to the addition of a line of credit. The decreases in the level of yields on interest-earning assets and the average cost of interest-bearing liabilities were due primarily to the overall decrease in interest rates in the economy. As a result of the foregoing changes in interest income and interest expense, net interest income increased by $23,000, or 2.4%. 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 provision for losses on loans totaled $90,000 for each of the three month periods ended March 31, 2003 and 2002. The provision for losses on loans was primarily attributable to the increasing percentage of commercial loans in the portfolio and in the level of nonperforming loans year to year. At March 31, 2003 and December 31, 2002, the allowance amounted to $1.498 million and $1.458 million, respectively. In both periods, $200,000 of the total allowance was allocated for a specific reserve. The ratio of the total allowance to total loans was 1.37% at March 31, 2003 and 1.32% at December 31, 2002. Non-performing loans totaled $1.4 million and $1.5 million at March 31, 2003 and December 31, 2002, respectively. The ratio of the allowance for loan losses to non-performing loans amounted to 105.5% at March 31, 2003 and 98.3% at December 31, 2002. During the quarter ending March 31, 2003 the Company took three properties into real estate owned and wrote off $51,000 against the allowance to record them at a net realizable value of $153,000. Based on management's review of the loan portfolio, the allowance for loan losses at March 31, 2003 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. Other income totaled $141,000 for the three months ended March 31, 2003, a $90,000, or 176.5%, increase over the 2002 quarter. The increase was due primarily to an $81,000 gain on the sale of mortgage-backed securities and a $5,000 gain on the sale of loans. The increase in other income was also impacted by a decrease in the pre-tax loss on the equity investment of $12,000. Other operating income decreased by $7,000, or 21.9%, due primarily to a decrease in loan service charges and fees. General, administrative and other expense totaled $620,000 for the three-month period ended March 31, 2003, an increase of $45,000, or 7.8%, compared to the three month period ended March 31, 2002. Employee compensation and benefits expense increased by $59,000, or 20.1%, due primarily to an increase in management staff, an increase in the cost of medical insurance compared to the prior period, normal merit increases, as well as the resumption of the accrual for pension expense. Other operating expenses decreased by $10,000, or 6.0%, compared to the quarter ended March 31, 2002, due primarily to decreases in advertising and professional fees. Comparison of the Three Months Ended March 31, 2003 and March 31, 2002 (continued) The provision for income taxes totaled $141,000 for the three months ended March 31, 2003, an increase of $20,000, or 16.5%, over the same period in 2002. The increase was due to a $68,000, or 15.4%, increase in pre-tax earnings. The Company's effective tax rates for the three-month periods ended March 31, 2003 and 2002, were 27.7% and 27.4%, respectively. The effective tax rate remains low due to the tax credits available from the Company's investment in a low income housing partnership. Capital Resources Pursuant to Office of Thrift Supervision ("OTS") capital regulations, savings associations must currently meet a 1.5% tangible capital requirement, a 4% leverage ratio (or core capital) requirement, and total risk-based capital to risk-weighted assets ratio of 8%. At March 31, 2003, the Bank's tangible and leverage capital ratios were each 10.9%, and its risk-based capital to risk-weighted assets ratio was 17.9%. Therefore, the Bank's capital significantly exceeded all of the capital requirements currently in effect. The following table provides the minimum regulatory capital requirements and the Bank's capital levels as of March 31, 2003. Capital Standard Required Bank's Excess ---------------- -------- ------ ------ (In thousands) Tangible (1.5%) $2,181 $15,862 $13,681 Core (4.0%) 5,816 15,862 10,046 Risk-based (8.0%) 7,625 17,055 9,430 Item 3. Quantitative and Qualitative Disclosures About Market Risk The Bank, like other financial institutions, 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 December 31, 2002 (the latest available date) is an analysis performed by the OTS of the Bank's interest rate risk as measured by changes in NPV for instantaneous and sustained parallel shifts in the yield curve, in 100 basis point increments 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. Change Net Portfolio Value NPV as % of PV of Assets In Rates $ Amount $ Change % Change NPV Ratio Change (Dollars in thousands) +300bp $15,152 $(840) (5)% 10.09% (15)bp +200bp 15,921 (71) 0% 10.44% 20 bp +100bp 16,332 340 2% 10.57% 33 bp - 15,992 10.24% -100bp 15,036 (956) (6)% 9.55% (69)bp Interest Rate Risk Measures: 200 Basis Point (bp) Rate Shock Pre-shock NPV Ratio: NPV as % of PV of Assets 10.24% Exposure Measure: Post-Shock NPV Ratio 9.55% Sensitivity Measure: Change in NPV Ratio 69bp As with any method of measuring interest rate risk, certain shortcomings are inherent in the method of analysis presented in the foregoing table. For example, although certain assets and liabilities may have similar maturities or periods to repricing, they may react in different degrees to changes in market interest rates. Also, the interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other types may lag behind changes in market rates. Additionally, certain assets, such as adjustable-rate loans, have features which restrict changes in interest rates on a short-term basis and over the life of the asset. Further, in the event of a change in interest rates, expected rates of prepayments on loans and early withdrawals from certificates could likely deviate significantly from those assumed in calculating the table. Item 4. 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 President and Treasurer, 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 President and Treasurer 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 President and Treasurer 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 II. OTHER INFORMATION Item 1. Legal Proceedings Neither the Bank nor the Company were, during the three-month period ended March 31, 2003, or are as of the date hereof, involved in any legal proceeding of a material nature. From time to time, the Bank is a party to legal proceedings wherein it enforces its security interests in connection with its mortgage and other loans. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits. The following exhibits are attached to this report on Form 10-Q: 99.1 Certification of Chief Executive Officer and Treasurer (b) Reports on Form 8-K. The Registrant filed no reports on Form 8-K during the quarter. Signatures Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on behalf of the undersigned thereto duly authorized. Logansport Financial Corp. Date: May 13, 2003 By: /s/ David G. Wihebrink --------------------- -------------------------------------- David G. Wihebrink, President and Chief Executive Officer Date: May 13, 2003 By: /s/ Dottye Robeson --------------------- -------------------------------------- Dottye Robeson, Secretary and Treasurer CERTIFICATION I, David G. Wihebrink, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Logansport Financial Corp.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement 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 quarterly report; and 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly 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 quarterly report. 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: May 13, 2003 ------------------ /s/ David G. Wihebrink ----------------------------------------- David G. Wihebrink President and Chief Executive Officer CERTIFICATION I, Dottye Robeson, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Logansport Financial Corp.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement 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 quarterly report; and 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly 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 quarterly report. 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date ; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: May 13, 2003 ------------------ /s/Dottye Robeson ----------------------------------------- Dottye Robeson Secretary and Treasurer