-----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, CVEl9hO1y7ZM5JD9DtIMpCRVnIbM3BNxw7b1Yah5SiXMLy2cUzi7thewICVUEKKk 7QzpqgHzrxZHEKUlN0KAhA== 0001046386-99-000161.txt : 19991117 0001046386-99-000161.hdr.sgml : 19991117 ACCESSION NUMBER: 0001046386-99-000161 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991115 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-Q SEC ACT: SEC FILE NUMBER: 000-25910 FILM NUMBER: 99751893 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-Q 1 QUARTERLY FINANCIAL STATEMENTS 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 SEPTEMBER 30, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _____________ TO _____________________. Commission file number: 0-25910 LOGANSPORT FINANCIAL CORP. (Exact name of registrant specified in its charter) Indiana 35-1945736 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 723 East Broadway P.O. Box 569 Logansport, Indiana 46947 (Address of principal executive offices including Zip Code) (219) 722-3855 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such report), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] The number of shares of the Registrant's common stock, without par value, as of November 1, 1999 was 1,199,210. Page 1 of 17 Logansport Financial Corp. Form 10-Q Index Page No. PART 1. FINANCIAL INFORMATION Item 1. Financial Statements 3 Consolidated Statements of Financial Condition as of September 30, 1999 (Unaudited) and December 31, 1998 Consolidated Statements of Earnings for the three and nine months ended September 30, 1999 and 1998 (Unaudited) Consolidated Statements of Shareholders' Equity for the nine months ended September 30, 1999 and 1998 (Unaudited) Consolidated Statements of Cash Flows for the nine months ended September 30, 1999 and 1998 (Unaudited) Notes to Consolidated Financial Statements 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10 Item 3. Quantitative and Qualitative Disclosures About Market Risk 14 PART II. OTHER INFORMATION Item 1. Legal Proceedings 16 Item 6. Exhibits and Reports of Form 8-K 16 SIGNATURES 17 2 LOGANSPORT FINANCIAL CORP.
Consolidated Statements of Financial Condition (Unaudited) (In thousands, except share data) September 30, December 31, ASSETS 1999 1998 Cash and due from banks $ 1,772 $ 363 Interest-bearing deposits in other financial institutions 3,769 3,965 ------- ------ Cash and cash equivalents 5,541 4,328 Investment securities available for sale-at market 8,278 5,033 Mortgage-backed securities available for sale-at market 6,214 8,129 Loans receivable-net 87,042 73,073 Office premises and equipment-at depreciated cost 1,914 1,528 Federal Home Loan Bank stock- at cost 1,024 568 Investment in real estate partnership 1,512 1,566 Accrued interest receivable on loans 417 337 Accrued interest receivable on mortgage-backed securities 52 66 Accrued interest receivable on investments 130 62 Prepaid expenses and other assets 42 36 Cash surrender value of life insurance 1,167 1,135 Prepaid income tax 110 29 Deferred income tax asset 362 195 ------- ------ Total assets $113,805 $96,085 ======= ====== LIABILITIES AND SHAREHOLDERS' EQUITY Deposits $ 76,819 $70,011 Advances from the Federal Home Loan Bank 18,000 7,000 Notes payable 1,307 1,375 Accrued interest and other liabilities 976 1,211 ------- ------ Total liabilities 97,102 79,597 Shareholders' equity Common stock 6,675 6,670 Retained earnings-restricted 10,507 10,031 Less shares acquired by stock benefit plan (272) (368) Unrealized gains (losses) on securities designated as available for sale, net of related tax effects (207) 155 ------- ------ Total shareholders' equity 16,703 16,488 ------- ------ Total liabilities and shareholders' equity $113,805 $96,085 ======= ======
3 LOGANSPORT FINANCIAL CORP.
Consolidated Statements of Earnings (Unaudited) (In thousands, except share data) Three months ended Nine months ended September 30, September 30, 1999 1998 1999 1998 Interest income Loans $1,658 $1,401 $4,707 $4,102 Mortgage-backed securities 96 130 316 412 Investment securities 122 54 285 190 Interest-bearing deposits and other 69 79 188 187 ----- ----- ----- ----- Total interest income 1,945 1,664 5,496 4,891 Interest expense Deposits 860 799 2,432 2,293 Borrowings 200 95 453 284 ----- ----- ----- ----- Total interest expense 1,060 894 2,885 2,577 ----- ----- ----- ----- Net interest income 885 770 2,611 2,314 Provision for losses on loans 41 13 122 31 ----- ----- ----- ----- Net interest income after provision for losses on loans 844 757 2,489 2,283 Other income Service charges on deposit accounts 40 26 102 69 Loss on sale of investments and mortgage-backed securities - (3) - - Gain on sale of real estate acquired through foreclosure - - - 6 Loss on equity investment (36) - (86) Other operating 40 37 106 107 ----- ----- ----- ----- Total other income 44 60 122 182 General, administrative and other expense Employee compensation and benefits 222 177 666 536 Occupancy and equipment 41 22 117 58 Federal deposit insurance premiums 10 9 30 28 Data processing 38 30 110 81 Other operating 86 82 320 254 ----- ----- ----- ----- Total general, administrative and other expense 397 320 1,243 957 ----- ----- ----- ----- Earnings before income taxes 491 497 1,368 1,508 Income tax expense 173 189 497 571 ----- ----- ----- ----- NET EARNINGS $ 318 $ 308 $ 871 $ 937 ===== ===== ===== ===== Other comprehensive income, net of tax Unrealized gains (losses) on securities, net of tax (132) 47 (362) 59 ----- ----- ----- ----- COMPREHENSIVE INCOME $ 186 $ 355 $ 509 $ 996 ===== ===== ===== ===== EARNINGS PER SHARE Basic (based on net earnings) $.27 $.24 $.73 $.74 === === === === Diluted (based on net earnings) $.27 $.24 $.72 $.72 === === === ===
4 LOGANSPORT FINANCIAL CORP.
Consolidated Statements of Shareholders' Equity (Unaudited) (In thousands, except share data) Nine months ended September 30, 1999 1998 Balance at January 1 $16,488 $16,542 Issuance of shares under stock option plan 5 9 Purchase of shares for stock benefit plan - (93) Amortization of stock benefit plan 96 93 Purchase of shares - (946) Cash dividends of $.33 per share in 1999 and $.32 in 1998 (395) (400) Unrealized gains (losses) on securities designated as available for sale, net of related tax effects (362) 59 Net earnings 871 937 ------ ------ Balance at September 30 $16,703 $16,201 ====== ====== Accumulated other comprehensive income $ (207) $ 119 ====== ======
5 LOGANSPORT FINANCIAL CORP.
Consolidated Statements of Cash Flows (Unaudited) (In thousands) Nine months ended September 30, 1999 1998 Cash flows from operating activities: Net earnings for the period $ 871 $ 937 Adjustments to reconcile net earnings to net cash provided by (used in) operating activities: Depreciation and amortization 59 28 Amortization of premiums on investments and mortgage-backed securities 85 142 Amortization expense of stock benefit plan 96 93 Provision for losses on loans 122 31 Loss of equity investment 86 - Gain on sale of real estate acquired through foreclosure - (6) Increase (decrease) in cash, due to changes in: Accrued interest receivable on loans (80) (24) Accrued interest receivable on mortgage-backed securities 14 14 Accrued interest receivable on investments (68) 81 Prepaid expenses and other assets (6) (9) Accrued interest and other liabilities (235) 58 Federal income taxes Current (81) (89) Deferred 20 22 ------ ------ Net cash provided by operating activities 883 1,278 Cash flows provided by (used in) investing activities: Proceeds from certificates of deposit in other institutions - 100 Purchase of investment securities (4,020) (400) Maturities/calls of investment securities 375 2,655 Purchase of Federal Home Loan Bank stock (456) (74) Proceeds from sale of mortgage-backed securities - 1,177 Purchase of mortgage-backed securities - (3,039) Principal repayments on mortgage-backed securities 1,681 2,673 Loan disbursements (31,653) (18,550) Investment in real estate partnership (32) (20) Principal repayments on loans 17,562 12,763 Purchases and additions to office premises and equipment (445) (278) Proceeds from sale of real estate acquired through foreclosure - 4 Increase in cash surrender value of life insurance policy (32) (31) ------ ------ Net cash used in investing activities (17,020) (3,020) ------ ------
6 LOGANSPORT FINANCIAL CORP.
Consolidated Statements of Cash Flows (Unaudited) (In thousands) Nine months ended September 30, 1999 1998 Cash flows provided by (used in) financing activities: Net increase in deposit accounts $ 6,808 $6,826 Proceeds from Federal Home Loan Bank advances 24,000 5,500 Repayment of Federal Home Loan Bank advances (13,000) (5,500) Repayment of note payable (68) (75) Proceeds from the exercise of stock options 5 9 Purchase of shares for stock benefit plan - (93) Purchase of shares - (946) Dividends on common stock (395) (400) ------ ----- Net cash provided by financing activities 17,350 5,321 ------ ----- Net increase in cash and cash equivalents 1,213 3,579 Cash and cash equivalents, beginning of period 4,328 2,269 ------ ----- Cash and cash equivalents, end of period $ 5,541 $5,848 ====== ===== Supplemental disclosure of cash flow information: Cash paid during the year for: Interest on deposits and borrowings $ 2,872 $2,560 ====== ===== Income taxes $ 559 $ 675 ====== ===== Dividends payable at end of period $ 132 $ 135 ====== ===== Foreclosed mortgage loans transferred to real estate acquired through foreclosure $ - $ 54 ====== ===== Loan originated through sales of real estate owned $ - $ 148 ====== =====
7 NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS NOTE A: Basis of Presentation The unaudited interim consolidated financial statements include the accounts of Logansport Financial Corp. (the "Company") and its subsidiary, Logansport Savings Bank, FSB, (the "Bank"). The unaudited interim consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and, therefore, do not include all information and disclosures required by generally accepted accounting principles for complete financial statements. Accordingly, these financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Annual Report on Form 10-K for the year ended December 31, 1998. In the opinion of management, the financial statements reflect all adjustments (consisting of only normal recurring accruals) necessary to present fairly the Company's financial position as of September 30, 1999, results of operations for the three and nine month periods ended September 30, 1999 and 1998 and cash flows for the three and nine month periods ended September 30, 1999 and 1998. NOTE B: Earnings Per Share and Dividends Per Share Basic earnings per share is computed based upon the weighted-average shares outstanding during the period. Weighted-average common shares outstanding totaled 1,199,005 and 1,259,225 for the nine month periods ended September 30, 1999 and 1998, respectively and 1,199,210 and 1,255,155 for the three month periods ended September 30, 1999 and 1998, respectively. Diluted earnings per share is computed taking into consideration common shares outstanding and dilutive potential common shares to be issued under the Company's stock option plan. Weighted-average common shares deemed outstanding for purposes of computing diluted earnings per share totaled 1,213,148 and 1,305,333 for the nine months ended September 30, 1999 and 1998, respectively, and 1,202,566 and 1,294,506 for the three months ended September 30, 1999 and 1998, respectively. Incremental shares related to the assumed exercise of stock options included in the computation of diluted earnings per share totaled 14,143 and 46,108 for the nine month periods ended September 30, 1999 and 1998, and 3,356 and 39,351 for the three month periods ended September 30, 1999 and 1998, respectively. A cash dividend of $.11 per common share was declared on September 1, 1999, payable on October 8, 1999, to stockholders of record as of September 17, 1999. NOTE C: Recent Accounting Pronouncements In June 1998, the Financial Accounting Standards Board (the "FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities," which requires entities to recognize all derivatives in their financial statements as either assets or liabilities measured at fair value. SFAS No. 133 also specifies new methods of accounting for hedging transactions, prescribes the items and transactions that may be hedged, and specifies detailed criteria to be met to qualify for hedge accounting. 8 NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED) NOTE C: Recent Accounting Pronouncements (continued) The definition of a derivative financial instrument is complex, but in general, it is an instrument with one or more underlyings, such as an interest rate or foreign exchange rate, that is applied to a notional amount, such as an amount of currency, to determine the settlement amount(s). It generally requires no significant initial investment and can be settled net or by delivery of an asset that is readily convertible to cash. SFAS No. 133 applies to derivatives embedded in other contracts, unless the underlying of the embedded derivative is clearly and closely related to the host contract. SFAS No. 133, as amended by SFAS No. 137, is effective for fiscal years beginning after June 15, 2000. On adoption, entities are permitted to transfer held-to-maturity debt securities to the available-for-sale or trading category without calling into question their intent to hold other debt securities to maturity in the future. SFAS No. 133 is not expected to have a material impact on the Company's financial statements. 9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operation. Forward Looking Statements In addition to historical information contained herein, the following discussion contains forward-looking statements that involve risks and uncertainties. Economic circumstances, the Company's operations and the Company's actual results could differ significantly from those discussed in the forward-looking statements. Some of the factors that could cause or contribute to such differences are discussed herein but also include changes in the economy and interest rates in the nation and the Company's market area generally. Some of the forward-looking statements included herein are the statements regarding management's determination of the amount and adequacy of the allowance for losses on loans, the effect of the year 2000 on information technology systems and the effect of certain recent accounting pronouncements. Financial Condition Total assets were $113.8 million at September 30, 1999 compared to $96.1 million at December 31, 1998, an increase of $17.7 million or 18.4 %. This increase was funded primarily from $11.0 million of additional FHLB borrowings and growth in deposits of $6.8 million. Cash and cash equivalents increased by $1.2 million, from $4.3 million at December 31, 1998 to $5.5 million at September 30, 1999. The growth in assets was reinvested in new loans. Paybacks of mortgage-backed securities were reinvested in investment securities and the total amount of investments increased by $1.3 million from $13.2 million at December 31, 1998 to $14.5 million at September 30, 1999. Net loans increased $14.0 million, or 19.1%, to $87.0 million at September 30, 1999. Loan originations amounted to $31.7 million for the nine months ended September 30, 1999, with payoffs equaling $17.6 million. Loan demand continued to be strong, as origination volume in 1999 exceeded that of 1998 by $13.1 million, or 70.6%. Deposits were $76.8 million at September 30, 1999 compared to $70.0 million at December 31, 1998, an increase of $6.8 million, or 9.7 %, in the first nine months of 1999. Borrowings consisted of $18.0 million of FHLB advances and a $1.3 million note payable related to an equity investment in low-income housing. Shareholders' equity was $16.7 million at September 30, 1999 and $16.5 million at December 31, 1998. The payment of dividends combined with a decrease in the market value of available for sale securities resulted in a decrease in equity of $757,000. Equity was increased by $972,000 from net earnings coupled with the effects of amortization of the stock benefit plan and the exercise of stock options. 10 Results of Operations Comparison of the Nine Months Ended September 30, 1999 and September 30, 1998 Net earnings for the Company for the nine months ended September 30, 1999 were $871,000 compared with $937,000 for nine months ended September 30, 1998, a decrease of $66,000 , or 7.0%. Net interest income increased $297,000 while general, administrative and other expenses increased $286,000 and taxes decreased $74,000. The major contributor to the increase in net interest income was the growth in the loan portfolio during the past twelve months. Loans were $87.0 million at September 30, 1999 compared to $69.5 million at September 30, 1998. The impact of such growth was offset by a decline in the yield on the mortgage and consumer loan portfolio by 32 basis points from an average yield of 8.09% at September 30, 1998 to 7.77% at September 30, 1999; however, the addition of $11.4 million of commercial loans in the past year with an average interest rate of 8.32% at September 30, 1999 contributed significantly to the increase in interest income. The provision for loan losses was $122,000 for the nine months ended September 30, 1999 and $31,000 for the nine months ended September 30, 1998. Additional provisions were made due to growth in the loan portfolio coupled with the development of a commercial loan portfolio, which totaled $11.4 million at September 30, 1999. Non-performing loans increased to $472,000, or .54% of loans at September 30, 1999 from $315,000, or .42% of loans at December 31, 1998, substantially all of which were comprised of one- to four-family residential properties or consumer loans. Loan loss reserves amounted to $405,000 or .46 % of total loans at September 30, 1999 compared to $285,000, or .38% at December 31, 1998. Although management believes that it uses the best information available in providing for possible loan losses and believes that the allowance is adequate at September 30, 1999, future adjustments to the allowance could be necessary and net earnings could be affected if circumstances and/or economic conditions differ substantially from the assumptions used in making the initial determinations. Total other income increased by $26,000, or 14.3%, during the nine months ended September 30, 1999, excluding the effect of an $86,000 pre-tax loss from an equity investment in a low income housing tax credit investment which is renting slower than projected. Service charges on deposit accounts increased by $33,000. Total general, administrative and other expenses increased $286,000, or 29.9%, in the nine months ended September 30, 1999 compared to September 30, 1998. Employee compensation and benefits increased $130,000 or 24.3% because of additional personnel needed in the new facility and the addition of a commercial lending department. Data processing fees increased $29,000, or 35.8%, partially due to loan and deposit growth, and occupancy and equipment expense increased $59,000, or 101.7%, mainly because of increased depreciation related to the purchase of new computer equipment and the completion of a new banking facility. Other operating expenses increased by $66,000, or 26.0%, primarily due to a one time non-recurring charge of $35,000 related to deposit operations. The Company's effective tax rate for the nine months ended September 30, 1999 was 36.3% and was 37.9% for the nine months ended September 30, 1998. 11 Results of Operations Comparison of the Three Months Ended September 30, 1999 and September 30, 1998 Net earnings for the Company for the three months ended September 30, 1999 were $318,000 compared with $308,000 for three months ended September 30, 1998, a increase of $10,000 or 3.2%. Net interest income increased $115,000 while general, administrative and other expenses increased $77,000 and taxes decreased $16,000. The major contributor to the increase in net interest income was the growth in the loan portfolio during the past twelve months. The provision for loan losses was $41,000 for the three months ended September 30, 1999 and $13,000 for the three months ended September 30, 1998. Additional provisions were made due to growth in the loan portfolio coupled with the development of a commercial loan portfolio. Although management believes that it uses the best information available in providing for possible loan losses and believes that the allowance is adequate at September 30, 1999, future adjustments to the allowance could be necessary and net earnings could be affected if circumstances and/or economic conditions differ substantially from the assumptions used in making the initial determinations. Total other income was impacted negatively by the pass-through of a loss on an equity investment as noted above; however, service charges increased $14,000, or 53.8%. Total general, administrative and other expenses increased $77,000, or 24.1%, in the three months ended September 30, 1999 compared to September 30, 1998. Employee compensation and benefits increased by $45,000, or 25.4% due to additional personnel. Data processing fees increased $8,000, or 26.7%, due to loan and deposit growth. Occupancy and equipment expense increased $19,000, or 86.4%, mainly because of increased depreciation related to the purchase of new computer equipment and the completion of a new banking facility, along with increased property tax accruals and increases in various utility expenses. Other operating expenses increased by only $4,000, or 4.9%. The Company's effective tax rate for the three months ended September 30, 1999 was 35.2% and was 38.0% for the three months ended September 30, 1998. The Company's effective tax rate is decreasing slightly due to tax credits available from the equity investment. Capital Resources Pursuant to OTS capital regulations, savings associations must currently meet a 1.5% tangible capital requirement, a 4% leverage ratio (or core capital) requirement, and a total risk-based capital to risk-weighted assets ratio of 8%. At September 30, 1999, the Bank's tangible capital ratio was 14.74%, its leverage ratio was14.74%, and its risk-based capital to risk-weighted assets ratio was 25.06%. Therefore, the Bank's capital significantly exceeded all of the capital requirements currently in effect. The following table provides the minimum regulatory capital requirements and the Bank's capital ratios as of September 30, 1999. Capital Standard Required Bank's Excess (In thousands) Tangible (1.5%) $1,705 $16,756 $15,051 Core (4.0%) 4,548 16,756 12,208 Risk-based (8.0%) 5,479 17,161 11,682 12 Liquidity The standard measure of liquidity for savings associations is the ratio of cash and eligible investments to a certain percentage of net withdrawable savings accounts and borrowings due within one year. The minimum required ratio is currently set by the Office of Thrift Supervision at 4%. At September 30, 1999 the Bank's regulatory liquidity ratio was 25.65%. Year 2000 Compliance Matters As with all providers of financial services, the Company's operations are heavily dependent on information technology systems. The Bank is addressing the potential problems associated with the possibility that the computers that control or operate the Bank's information technology systems and infrastructure may not be programmed to read four-digit date codes and, upon arrival of the year 2000, may recognize the two-digit code "00" as the year 1900, causing systems to fail to function or to generate erroneous data. The Bank is working with the companies that supply or service its information technology systems to identify and remedy any year 2000 related problems. Management and the Board of Directors recognize and understand year 2000 ("Y2K") risks, are active in overseeing corrective efforts, and are ensuring that all necessary resources are available to address the problem. The awareness, assessment, and testing phases of the Company's year 2000 plan have been completed. The Company's business and its Y2K readiness are dependent on the readiness of its vendors. The Company has prepared a contingency plan and continuing testing to validate its readiness. The Company's data processing is performed primarily by a third party servicer. The Company also uses software and hardware which are covered under maintenance agreements with third party vendors. The Company has contacted each vendor to request time tables for such vendor's year 2000 compliance and the expected costs, if any, to be passed along to the Company. The Company has been informed that its primary service provider is on schedule and testing has been completed. The Company has replaced or upgraded all equipment to be year 2000 compliant at a cost of less than $45,000. As of September 30, 1999, management has developed an estimate of expenses that are reasonably likely to be incurred by the Bank in connection with the Y2K issue; however, the Company does not expect to incur any significant additional expenses to implement necessary corrective measures, and additional costs related to the Y2K issues are not expected to have a material impact on the Company's 1999 financial statements. Should the Company's data center become unable to provide the necessary services upon arrival of the year 2000, the Company has developed a contingency plan and will have the capability to account for transactions on a manual basis until the data center returns to normal operations. Additional testing of this plan will continue in the third quarter of 1999. In addition to possible expenses related to its own systems, the Bank could incur losses if loan payments are delayed due to year 2000 problems affecting any major borrowers in the Bank's primary market area. Because the Bank's loan portfolio is highly diversified with regard to individual borrowers and types of businesses, and the Bank's primary market areas are not significantly dependent upon any one employer or industry, the Bank does not expect any significant or prolonged difficulties that will affect net earnings or cash flow. 13 Item 3. Quantitative and Qualitative Disclosures About Market Risk The Bank, like other savings associations, is subject to interest rate risk to the degree that its interest-bearing liabilities, primarily deposits with short and medium-term maturities, mature or reprice at different rates than its interest-earning assets. Management of the Bank believes it is critical to manage the relationship between interest rates and the effect on the Bank's net portfolio value ("NPV"). Generally, NPV is the discounted present value of the difference between incoming cash flows on interest-earning and other assets and outgoing cash flows on interest-bearing liabilities. Management of the Bank's assets and liabilities is done within the context of the marketplace, regulatory limitations and within limits established by the Board of Directors on the amount of change in NPV which is acceptable given certain interest rate changes. The Office of Thrift Supervision ("OTS") issued a regulation, effective January 1, 1994, which uses a net market value methodology to measure the interest rate risk exposure of thrift institutions. Under OTS regulations, an institution's "normal" level of interest rate risk in the event of an assumed change in interest rates, is a decrease in the institution's NPV in an amount not exceeding 2% of the present value of its assets. Thrift institutions with over $300 million in assets or less than a 12% risk-based capital ratio are required to file OTS Schedule CMR. Data from schedule CMR is used by the OTS to calculate changes in NPV and the related "normal" level of interest rate risk based upon certain interest rate changes (discussed below). Institutions which do not meet either of the filing requirements are not required to file OTS Schedule CMR, but may do so voluntarily. The Bank does not currently meet either of these requirements, but it does voluntarily file Schedule CMR. Presented below, as of June 30, 1999, the latest available date, is an analysis performed by the OTS of the Bank's interest rate risk as measured by changes in NPV for instantaneous and sustained parallel shifts in the yield curve, in 100 basis point increments, up and down 300 basis points and in accordance with OTS regulations. As illustrated in the table, the Bank's NPV is more sensitive to rising rates than declining rates. This occurs principally because, as rates rise, the market value of the Bank's investments, adjustable-rate mortgage loans (many of which have maximum per year adjustments of 1%), fixed-rate loans and mortgage-backed securities declines due to the rate increase. The value of the Bank's deposits and borrowings change in approximately the same proportion in rising and falling rate scenarios.
Change Net Portfolio Value NPV as % of PV of Assets In Rates $ Amount $ Change % Change NPV Ratio Change - -------- -------- -------- -------- --------- ------ (Dollars in thousands) +300bp 13,090 -4,922 -27% 12.84% -380bp +200bp 15,064 -2,948 -16% 14.43% -220bp +100bp 16,761 -1,251 -7% 15.74% -90bp 0bp 18,012 16.64% - -100bp 18,738 726 +4% 17.10% +47bp - -200bp 19,232 1,219 +7% 17.38% +74bp - -300bp 19,947 1,935 +11% 17.81% +117bp
Interest Rate Risk Measures: 200 Basis Point (bp) Rate Shock Pre-shock NPV Ratio: NPV as % of PV of Assets 16.64% Exposure Measure: Post-Shock NPV Ratio 14.43% Sensitivity Measure: Change in NPV Ratio 220bp 14 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. 15 Part II. OTHER INFORMATION Item 1. Legal Proceedings Neither the Bank nor the Company were, during the three-month period ended September 30, 1999, or are as of the date hereof involved in any legal proceeding of a material nature. From time to time, the Bank is a party to legal proceedings wherein it enforces its security interests in connection with its mortgage and other loans. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits. The following exhibits are attached to this report on Form 10-Q: 3.1 The Articles of Incorporation of the Registrant are incorporated by reference to Exhibit 3.1 to the Registration Statement on Form S-1 (Registration No. 33-89788). 3.2 The Code of By-Laws of the Registrant is incorporated by reference to Exhibit 3.2 to the Form 10-Q for the period ended June 30, 1997, filed with the Commission on August 13, 1997. 27 Financial Data Schedule for the nine month period ended September 30, 1999. (b) Reports on Form 8-K The Registrant filed no reports on Form 8-K during the fiscal quarter ended September 30, 1999. 16 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: November 12, 1999 By:/s/ Thomas G. Williams ---------------------- --------------------------------- Thomas G. Williams, President and Chief Executive Officer Date: November 12, 1999 By:/s/ Dottye Robeson ---------------------- --------------------------------- Dottye Robeson, Secretary and Treasurer 17 EX-27 2 FINANCIAL DATA SCHEDULE
9 1,000 9-MOS DEC-31-1999 JAN-01-1999 SEP-30-1999 1,772 3,769 0 0 14,492 0 0 87,042 405 113,805 76,819 0 2,283 18,000 0 0 6,675 10,028 113,805 4,707 601 188 5,496 2,432 2,885 2,611 122 0 1,243 1,368 871 0 0 871 .73 .72 3.52 0 472 0 0 285 2 0 405 0 0 405
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