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, 1996
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
of Incorporation or Organization) Identification Number)
723 East Broadway, Logansport, Indiana 46947
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number including area code:
(219) 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 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.
The aggregate market value of the issuer's voting stock held by non-affiliates,
as of March 1, 1997, was $14,420,497.
The number of shares of the Registrant's Common Stock, without par value,
outstanding as of March 1, 1997, was 1,256,375 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Shareholders for the year ended December 31,
1996, are incorporated into Part II. Portions of the Proxy Statement for the
1997 Annual Meeting of Shareholders are incorporated in Part I and Part III.
Exhibit Index on Page 33
Page 1 of 34 Pages
<PAGE>
LOGANSPORT FINANCIAL CORP.
Form 10-K
INDEX
Page
PART I
Item 1. Business.................................................. 1
Item 2. Properties................................................ 28
Item 3. Legal Proceedings......................................... 28
Item 4. Submission of Matters to a Vote of Security Holders....... 29
Item 4.5. Executive Officers of Registrant.......................... 29
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters..................................... 29
Item 6. Selected Financial Data................................... 30
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations..................... 30
Item 8. Financial Statements and Supplementary Data............... 30
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure..................... 30
PART III
Item 10. Directors and Executive Officers of Registrant............ 30
Item 11. Executive Compensation.................................... 31
Item 12. Security Ownership of Certain Beneficial Owners
and Management.......................................... 31
Item 13. Certain Relationships and Related Transactions............ 31
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K............................................. 31
Signatures................................................ 32
<PAGE>
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 charted
savings bank known as Logansport Savings Bank, FSB. The Bank serves the needs of
residents of primarily 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) share loans; (vi) commercial real estate
loans; (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, originating
approximately 17.6% of the mortgage loan volume recorded in Cass County by Cass
County institutions during the year ended December 31, 1996.
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 72.1% of the Company's
total loan portfolio at December 31, 1996. The Bank also offers multi-family
mortgage loans, commercial real estate loans, construction loans, and consumer
loans. Mortgage loans secured by multi-family properties and commercial real
estate totaled approximately 4.1% and 4.7%, respectively, of the Company's total
loan portfolio at December 31, 1996. Residential, multi-family and commercial
real estate construction loans constituted approximately 1.8% of the Company's
total loan portfolio at December 31, 1996. Installment, share, home equity, and
home improvement loans constituted approximately 8.1%, .5%, 1.0%, and 7.7%,
respectively, of the Company's total loan portfolio at December 31, 1996.
-1-
<PAGE>
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.
<TABLE>
<CAPTION>
At December 31,
1996 1995 1994 1993 1992
--------------- --------------- ---------------- --------------- ----------------
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:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Residential................. $41,109 72.05% $36,608 73.15% $33,402 74.92% $28,942 74.39% $27,153 77.23%
Commercial real estate...... 2,701 4.73 1,620 3.24 2,718 6.10 2,667 6.85 2,204 6.27
Multi-family................ 2,370 4.15 1,915 3.83 722 1.62 549 1.41 120 .34
Construction:
Residential ................ 574 1.01 575 1.15 330 .74 1,170 3.00 209 .59
Commercial
real estate............... 194 .34 198 .39 --- --- --- --- 350 1.00
Multi-family................ 248 .43 250 .50 680 1.52 427 1.10 250 .71
Commercial paper .............. --- --- 878 1.75 500 1.12 --- --- --- ---
Consumer loans:
Installment (2)............. 4,615 8.09 3,729 7.45 2,778 6.23 2,072 5.33 2,181 6.20
Share ...................... 286 .50 219 .44 244 .55 183 .47 174 .49
Home equity................. 595 1.04 398 .79 300 .67 393 1.01 333 .95
Home improvement............ 4,368 7.66 3,656 7.31 2,911 6.53 2,505 6.44 2,186 6.22
------- ------ ------- ------ ------- ------ ------- ------ ------- ------
Gross loans receivable.... 57,060 100.00% $50,046 100.00% $44,585 100.00% $38,908 100.00% $35,160 100.00%
======= ====== ======= ====== ======= ====== ======= ====== ======= ======
TYPE OF SECURITY
Residential (1)............. $46,689 81.83% $41,407 82.74% $36,943 82.86% $33,010 84.84% $29,881 84.99%
Commercial real estate...... 2,895 5.07 1,818 3.63 2,718 6.10 2,667 6.86 2,554 7.26
Multi-family................ 2,618 4.59 2,165 4.33 1,402 3.14 976 2.51 370 1.05
Deposits.................... 286 .50 219 .44 244 .55 183 .47 174 .49
Auto........................ 2,042 3.58 1,288 2.57 1,005 2.26 799 2.05 806 2.29
Consumer residential (2).... 1,074 1.88 1,232 2.46 846 1.90 447 1.15 434 1.23
Other security.............. 1,456 2.55 1,039 2.08 917 2.05 683 1.75 848 2.42
Unsecured (3)............... --- --- 878 1.75 510 1.14 143 .37 93 .27
------- ------ ------- ------ ------- ------ ------- ------ ------- ------
Gross loans receivable.... 57,060 100.00% 50,046 100.00 44,585 100.00 38,908 100.00 35,160 100.00
Deduct:
Allowance for loan losses...... 236 .41 223 .45 206 .46 201 .52 86 .24
Loans in process............... 22 .04 116 .23 359 .81 856 2.20 273 .78
------- ------ ------- ------ ------- ------ ------- ------ ------- ------
Net loans receivable........ $56,802 99.55% $49,707 99.32% $44,020 98.73% $37,851 97.28% $34,801 98.98%
======= ====== ======= ====== ======= ====== ======= ====== ======= ======
Mortgage Loans:
Adjustable-rate............. 38,729 82.06 $34,715 84.33% $31,057 82.05% $27,760 82.24% $24,076 79.50%
Fixed-rate.................. 8,467 17.94 6,451 15.67 6,795 17.95 5,995 17.76 6,210 20.50
------- ------ ------- ------ ------- ------ ------- ------ ------- ------
Total..................... $47,196 100.00% $41,166 100.00% $37,852 100.00% $33,755 100.00% $30,286 100.00%
======= ====== ======= ====== ======= ====== ======= ====== ======= ======
</TABLE>
(1) Includes home equity, residential construction and home improvement loans.
(2) Includes "one-pay" notes due in less than one year secured by residential
real estate.
(3) Includes commercial paper and bankers' acceptances.
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<PAGE>
The following table sets forth certain information at December 31,
1996, 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.
<TABLE>
<CAPTION>
Balance Due during years ending December 31,
Outstanding 2000 2002 2007 2012
at December 31, to to to and
1996 1997 1998 1999 2001 2006 2011 following
------------------------------------------------------------------------------------
(In thousands)
Mortgage loans:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Residential .................... $41,683 $ 559 $ 38 $ 66 $ 812 $5,848 $13,003 $21,357
Multi-family.................... 2,618 --- --- --- --- 727 1,648 243
Commercial real estate.......... 2,895 --- 2 5 53 932 1,467 436
Commercial paper................... --- --- --- --- --- --- --- ---
Consumer loans:
Home improvement................ 4,368 134 163 249 1,184 1,679 638 321
Home equity..................... 595 --- --- --- --- --- 595 ---
Installment..................... 4,615 1,782 302 759 1,306 239 227 ---
Share........................... 286 286 --- --- --- --- --- ---
------- ------ ---- ------ ------ ------ ------- -------
Total......................... $57,060 $2,761 $505 $1,079 $3,355 $9,425 $17,578 $22,357
======= ====== ==== ====== ====== ====== ======= =======
</TABLE>
The following table sets forth, as of December 31, 1996, the dollar
amount of all loans due after one year which have fixed interest rates and
floating or adjustable rates.
<TABLE>
<CAPTION>
Due After December 31, 1997
Fixed Rates Variable Rates Total
----------- -------------- -----
(In thousands)
Mortgage loans:
<S> <C> <C> <C>
Residential .................... $ 6,748 $34,376 $41,124
Multi-family.................... --- 2,618 2,618
Commercial real estate.......... 1,183 1,712 2,895
Consumer loans:
Home improvement................ 4,234 --- 4,234
Home equity..................... --- 595 595
Installment..................... 2,833 --- 2,833
------- ------- -------
Total......................... $14,998 $39,301 $54,299
======= ======= =======
</TABLE>
Residential Loans. Residential loans consist primarily of one- to
four-family loans. Approximately $41.1 million, or 72.1% of the Company's
portfolio of loans at December 31, 1996, consisted of one- to four-family
residential mortgage loans, of which approximately 82.1% had adjustable rates.
Pursuant to federal regulations, such loans must require at least semi-annual
payments and be for a term of not more than 40 years, and, if the interest rate
is adjustable, they must be correlated with changes in a readily verifiable
index.
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 yields adjusted to a constant maturity. These
ARMs have a current margin above such index of 2.75%, or 3.00% if interest is
amortized and payments are due bi-weekly, and interest rate minimums equal to
the rate at the time of origination. Many of the residential ARMs in the
Company's portfolio at December 31, 1996 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 25 years.
The Bank also currently offers fixed-rate loans which provide for the
payment of principal and interest over a period not to exceed 15 years. At
December 31, 1996, 17.9% of the Company's residential mortgage loans had fixed
rates of interest.
-3-
<PAGE>
The Bank does not currently 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% and does not currently
require private mortgage insurance on its residential single-family mortgage
loans.
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.
The Bank's residential mortgage loans are not originated on terms and
conditions and using documentation that conform with the standard underwriting
criteria required to sell such loans on the secondary market. 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, 1996, residential loans amounting to $399,000, or .70%
of total loans, were included in non-performing assets. See "-- Non-Performing
and Problem Assets."
Commercial Real Estate Loans. At December 31, 1996, $2.7 million, or
4.7% of the Company's total loan portfolio, consisted of commercial real estate
loans. Of these loans, $254,000 constituted participations in loans secured by
commercial real estate which were purchased from other financial institutions.
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 and churches. The Bank currently originates commercial real estate
loans as adjustable-rate loans indexed to the one-year U.S. Treasury securities
yields adjusted to a constant maturity with a margin of 4.75% above such index.
Many of the commercial real estate loans in the Company's portfolio at December
31, 1996 provided for a maximum rate adjustment per year of 1%, although the
Bank began originating commercial real estate ARMs which provide for a maximum
rate adjustment of 2% per year in 1995. In addition, the maximum rate adjustment
over the life of the loan is 5%, and these loans have a maximum loan-to-value
ratio of 80%. 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, 1996 exceeded $330,000. No
commercial real estate loans were included in non-performing assets at that
date.
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 $2.4 million, or 4.1% of the
Company's portfolio of loans at December 31, 1996, 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, 1996, none of the multi-family loans included in the Company's portfolio 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, 1996, $1.0 million, or 1.8%, of the Company's total
loan portfolio consisted of construction loans. Included in such loans were
participations in multi-family and commercial real estate construction loans
amounting to $442,000 at December 31, 1996. The largest construction loan on
December 31, 1996, was approximately $250,000. No construction loans were
included in non-performing assets on that date.
-4-
<PAGE>
Construction loans originated by the Bank are written such that
interest only is payable during the construction phase, which is typically
limited to six (6) months, and following the construction phase, a permanent
loan is made. Inspections are made prior to any disbursement under a
construction loan.
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 $9.9 million as of
December 31, 1996, or 17.3% 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 Bank's
consumer loans originated by the Bank, except home equity loans, are fixed-rate
loans, and substantially all are secured loans.
Installment loans, totaling $4.6 million, or 8.1% of total loans at
December 31, 1996, are fixed-rate loans generally secured by collateral,
including automobiles, and are made for maximum terms of up to 10 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 $286,000, or .5% of total loans at December 31,
1996, 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 $4.4 million, or 7.7% of the
Company's total loan portfolio at December 31, 1996, 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 2%, 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,
1996, the Bank had approved $1,033,000 of home equity loans, of which $595,000
were outstanding.
The Bank also offers credit cards to its customers, but does not
underwrite the credit cards or have any other credit risk with respect to the
cards. The Company earns a fee upon the origination of the credit card accounts.
To date, the income earned by the Company from offering these credit cards has
not been significant.
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 risk. The Bank has
thus far been successful in managing consumer loan risk. As of December 31,
1996, consumer loans totaling $7,000 were included in non-performing assets.
Letters of Credit Securing Tax-Exempt Bonds. The Bank currently
maintains three 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. 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. No draws against any letters of credit had been
made as of December 31, 1996.
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<PAGE>
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. The Bank's ARMs vary from secondary
market criteria because, among other things, the Bank does not require current
property surveys in most cases, does not require escrow accounts for taxes and
insurance and does not permit the conversion of those loans to fixed rate loans
in the first three years of their term.
The Bank confines its loan origination activities primarily to Cass
County. At December 31, 1996, no loans were secured by property located outside
of Indiana. The Bank's loan originations are generated from referrals from real
estate dealers and existing customers, and newspaper and periodical advertising.
All loan applications are processed and underwritten at the Bank's main office.
Under Financial Institutions Reform, Recovery, and Enforcement Act
("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,
1996. 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. Secured loans up to $75,000 may be approved by the Senior Loan
Officer, and secured loans up to $150,000 may be approved by the President or
the Executive Committee. Loans up to $250,000 may be approved by the Loan
Committee. All loans for more than $250,000 must be approved in advance by the
Board of Directors.
The Bank generally requires appraisals on all property securing its
loans and requires title insurance or an abstract and a valid lien on its
mortgaged real estate. Appraisals for residential real property are generally
performed by an in-house appraiser who is a state-licensed residential
appraiser. From time to time, the Bank also uses the services of certified
residential appraisers who are not in-house, including for 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 plane.
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.
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<PAGE>
The following table shows loan origination, purchase and repayment
activity for the Bank during the periods indicated.
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------
1996 1995 1994
------ ------- -------
(In thousands)
<S> <C> <C> <C>
Gross loans receivable
at beginning of period........................ $50,046 $44,585 $38,908
Originations:
Mortgage loans:
Residential................................. 11,277 8,323 9,139
Commercial real estate and
multi-family.............................. 1,885 318 105
------ ------- -------
Total mortgage loans........................ 13,162 8,641 9,244
Consumer loans:
Installment................................. 3,757 3,129 2,840
Share....................................... 259 88 190
Home improvement............................ 1,774 1,435 1,663
Home equity................................. 319 104 80
------ ------- -------
Total consumer loans...................... 6,109 4,756 4,773
------ ------- -------
Total originations................... 19,271 13,397 14,017
Purchases:
Commercial real estate and multi-family..... 1,046 1,010 256
Commercial paper............................ --- 3,842 988
------ ------- -------
Total originations and purchases.......... 20,317 18,249 15,261
Repayments:
Commercial paper............................ 878 3,464 488
Other loans and deductions.................. 12,425 9,324 9,096
------ ------- -------
Gross loans receivable at end of period....... 57,060 $50,046 $44,585
====== ======= =======
</TABLE>
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 $200
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
ninety 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.
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, 1996, $406,000, or .52% 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 $624,000, or 1.3%, of
the Company's total assets at December 31, 1992. At December 31, 1996,
residential loans, multi-family loans, commercial real estate loans, consumer
loans and REO accounted for 98.3%, 0%, 0%, 1.7% and 0%, respectively, of
non-performing assets. There were no non-accruing investments at December 31,
1996.
-7-
<PAGE>
The table below sets forth the amounts and categories of the Company's
non-performing assets (non-accruing investments, non-accruing loans, and real
estate owned). 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.
<TABLE>
<CAPTION>
At December 31,
1996 1995 1994 1993 1992
---------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Non-accruing investments (1)......................... $ --- $ --- $ 150 $ 181 $ 180
Non-accruing loans (2)............................... 406 311 337 597 424
Real estate owned, net............................... --- --- --- --- 20
---- ---- ----- ----- -----
Total non-performing assets....................... $406 $311 $ 487 $ 778 $ 624
==== ==== ===== ===== =====
Non-performing loans to total loans, net (3)......... .71% .63% .76% 1.57% 1.22%
Non-performing assets to total assets................ .52 .42 .82 1.38 1.27
- ---------------
</TABLE>
(1) Non-accruing investments consist of certain corporate obligations at market
value for 1994 since included in securities available for sale and at book
value prior to 1994 since included in securities held to maturity. The book
value at December 31, 1994 corporate obligations was $90,000. Income
collected and recorded on these securities during 1996 was $4,700.
(2) The Company generally places loans on a non-accruing status when the loans
become contractually past due 90 days or more. At December 31, 1996,
$399,000 of non-accruing loans were residential loans and $7,000 were
consumer loans. For the year ended December 31, 1996, the income that would
have been recorded had the non-accruing loans not been in a non-performing
status totaled $33,000 compared to actual income recorded of $11,000.
(3) 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 is required 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.
-8-
<PAGE>
At December 31, 1996, the aggregate amount of the Company's classified
assets, and of the Company's general and specific loss allowances were as
follows:
At December 31, 1996
(In thousands)
Substandard loans......................................... $406
Doubtful loans............................................ ---
Loss loans................................................ ---
----
Total classified loans................................. $406
====
General loss allowances................................... $236
Specific loss allowances.................................. ---
----
Total allowances....................................... $236
====
The Company regularly reviews its loan portfolio to determine whether
any loans require classification in accordance with applicable regulations.
Allowance for Loan Losses
The allowance for loan losses is maintained through the provision for
loan losses, which is charged to earnings. The provision for loan losses 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, 1996. However, there can be
no assurance that regulators, when reviewing the Company's loan portfolio in the
future, will not require increases in its allowances 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, 1996.
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994 1993 1992
----- ---- ----- ----- ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Balance of allowance at beginning
of period................................ $ 223 $ 206 $ 201 $ 86 $ 11
Recoveries.................................. 1 --- --- --- ---
Less charge offs:
Residential real estate loans............ --- --- --- --- ---
Consumer loans........................... --- 3 1 46 23
---- ---- ----- ----- ------
Net charge-offs............................. --- 3 1 46 23
Provisions for losses on loans.............. 12 20 6 161 98
---- ---- ----- ----- ------
Balance of allowance at end of period....... $236 $223 $ 206 $ 201 $ 86
==== ==== ===== ===== ======
Net charge-offs to total average
loans receivable for period............ --- (*) (*) .13% .07%
Allowance at end of period to
net loans receivable at end
of period (1).......................... .41 .45 .47 .53 .25
Allowance to total non-performing
loans at end of period................. 58.12 71.61 61.13 33.67 20.28
- -------------------
</TABLE>
(1) Total loans less loans in process.
(*) Less than .01%.
-9-
<PAGE>
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.
<TABLE>
<CAPTION>
At December 31,
1996 1995 1994 1993 1992
---------------- --------------- --------------- --------------- ---------------
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
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at end of period
applicable to:
Residential.................. $158 72.05% $122 73.15% $103 74.92% $108 74.39% $52 77.23%
Commercial real estate....... 6 4.73 6 3.24 6 6.10 7 6.85 --- 6.27
Multi-family................. 1 4.15 1 3.83 2 1.62 1 1.41 --- .34
Construction loans........... --- 1.78 --- 2.04 --- 2.26 --- 4.10 --- 2.30
Commercial paper and
bankers' acceptances...... --- --- --- 1.75 --- 1.12 --- --- --- ---
Consumer loans............... 71 17.29 86 15.99 80 13.98 72 13.25 34 13.86
Unallocated.................. --- --- 8 --- 15 --- 13 --- --- ---
---- ------ ---- ------ ---- ------ ---- ------ --- ------
Total..................... $236 100.00% $223 100.00% $206 100.00% $201 100.00% $86 100.00%
==== ====== ==== ====== ==== ====== ==== ====== === ======
</TABLE>
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, interest rate risk, and prudent asset/liability management.
The Company's investments consist of U.S. government and other agency
securities, mortgage- and other asset-backed securities, state and municipal
bonds, corporate obligations, marketable equity securities, certificates of
deposit, and FHLB stock. At December 31, 1996, approximately $14.8 million, or
19.0% of the Company's total assets, consisted of such investments.
At December 31, 1996, the Company had $6.7 million of mortgage- and
other asset-backed securities outstanding, all of which were classified as
available for sale. Other-asset backed securities include securities backed by
automobile receivables. These fixed-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."
-10-
<PAGE>
The following table sets forth the carrying value and market value of
the Company's investments and mortgage- and other asset-backed securities at the
dates indicated.
<TABLE>
<CAPTION>
At December 31,
--------------------------------------------------------------------------
1996 1995 1994
-------------------- -------------------- ----------------------
Carrying Market Carrying Market Carrying Market
Value Value Value Value Value Value
----- ----- ----- ----- ----- -----
(In thousands)
Securities available for sale (1):
<S> <C> <C> <C> <C> <C> <C>
Federal agencies................... $ 5,245 $ 4,880 $ 7,424 $ 7,175 $ 4,666 $ 4,255
State and municipal................ 2,194 2,242 2,229 2,294 236 216
Mortgage- and other asset-backed
securities....................... 6,768 6,674 7,422 7,468 1,229 1,203
Corporate obligations.............. 350 348 1,655 1,696 387 426
Marketable equity securities....... 6 159 6 120 6 73
------- ------- ------- ------- ------- -------
Total securities
available for sale............... 14,563 14,303 18,736 18,753 5,295 4,970
------- ------- ------- ------- ------- -------
Securities held to maturity:
Federal agencies................... --- --- --- --- 2,228 2,167
State and municipal................ --- --- --- --- 1,695 1,649
Corporate obligations.............. --- --- --- --- 1,116 1,085
Total securities
held to maturity................. --- --- --- --- 5,039 4,901
------- ------- ------- ------- ------- -------
Certificate of deposit (2)............ 100 100 100 100 --- ---
FHLB stock (2)........................ 387 387 348 348 307 307
------- ------- ------- ------- ------- -------
Total investments................ $15,050 $14,790 $19,184 $19,201 $10,641 $10,178
======= ======= ======= ======= ======= =======
</TABLE>
- ----------------
(1) Upon adoption of SFAS No. 115 as of January 1, 1994, securities
available for sale are recorded at market value in the financial
statements. Prior to the adoption of SFAS No. 115, the marketable
equity securities currently classified as available for sale were
carried at the lower of cost or market. See Notes to the Company's
Financial Statements.
(2) Market value approximates carrying values.
Included in the Company's investment portfolio at December 31, 1996
were approximately $3.1 million (amortized cost) in derivative securities, of
which approximately $2.7 million were structured notes issued by the FHLBs. An
additional $.4 million are structured notes issued by government agencies
including the FNMA and FHLMC. The fair value of these investments was
approximately $2.7 million at December 31, 1996. These structured notes, which
are not obligations of, or guaranteed by, the United States, represent
obligations to repay principal with interest that is either fixed or fluctuates
in accordance with an interest formula tied to various indices. The interest on
the Company's structured notes generally adjusts quarterly or semi-annually
based on certain indices such as the LIBOR and the CMT.
Approximately $2.8 million (amortized cost) of these structured notes
with approximate fair value of $2.4 million had fluctuating interest rates that
adjust in the opposite direction of changes in the index to which it is tied or
that adjust on the basis of a formula tied to two different indices, such as the
CMT and an inverse LIBOR rate. All of these inversely or dually indexed
securities were classified as available for sale at December 31, 1996.
The average yield at December 31, 1996, of these derivative securities,
was 3.77%. In a rising interest rate environment, it is anticipated that the
yield on and market value of these securities will decline, and may decline
substantially.
-11-
<PAGE>
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, 1996.
<TABLE>
<CAPTION>
Amount at December 31, 1996, which matures in
One One to Five to Over
Year or Less Five Years Ten Years Ten Years
------------------- ------------------ ------------------ -------------------
Weighted Weighted Weighted Weighted
Carrying Average Carrying Average Carrying Average Carrying Average
Value Yield Value Yield Value Yield Value Yield
----- ----- ----- ----- ----- ----- ----- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Securities available for sale (1)(3) :
Federal agencies.............. $ 950 5.12% $1,748 3.82% $2,347 5.97% $ 200 7.29%
State and municipal (2)....... 513 9.02 353 8.28 964 7.46 364 8.86
Mortgage- and other
asset-backed securities.... 1,556 5.40 2,299 6.48 1,331 7.29 1,582 7.66
Corporate obligations......... --- --- 250 6.03 100 7.25 --- ---
Marketable equity securities.. --- --- --- --- --- --- 6 34.47
------ ---- ------ ---- ------ ---- ------ ----
Total securities
available for sale....... 3,019 5.93 4,650 5.59 4,742 6.67 2,152 7.90
------ ---- ------ ---- ------ ---- ------ ----
Securities held to maturity (3):
Certificate of deposit........ 100 7.05
FHLB stock....................... 387 7.71
------ ---- ------ ---- ------ ---- ------ ----
Total securities
held to maturity.......... 487 7.57
------ ---- ------ ---- ------ ---- ------ ----
Total investments........... $3,019 5.93% $4,650 5.59% $4,742 6.67% $2,639 7.84%
====== ==== ====== ==== ====== ==== ====== ====
</TABLE>
- --------------
(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.
In 1988 and 1989, the Bank purchased three investments in revenue bonds
with an aggregate par value of $370,000 for an approximate purchase price of
$359,000. The proceeds of the bonds were to be invested in low income housing
projects. Pending investment in the housing projects, the proceeds were invested
in municipal guaranteed investment contracts backed by the former Executive Life
Insurance Company ("ELIC"). ELIC was placed into conservatorship by the
California Commissioner of Insurance on April 11, 1991. Liquidation and
rehabilitation of ELIC has proceeded in an orderly manner which has resulted in
substantial payment of these bonds to date. As of December 31, 1996, the Company
had received principal and interest payments of $342,000 on these bonds, had
recognized losses to date of $78,000 and had ceased carrying the bonds on its
books. The Company anticipates receiving further payments on these bonds,
although the timing of such payments is not known.
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, retained
earnings 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
may be used in the short-term to compensate for reductions in deposits or
deposit inflows at less than projected levels. The Bank rarely borrows on a
longer-term basis, for example, to support expanded activities or to assist in
its asset/liability management.
-12-
<PAGE>
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.
At December 31, 1992, the Bank's deposits totaled $43.3 million.
Deposits totaled $57.4 million at December 31, 1996.
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, 1996, is as follows:
<TABLE>
<CAPTION>
Minimum Balance at Weighted
Opening December 31, % of Average
Type of Account Balance 1996 Deposits Rate
- --------------- ----------------------------------------------------------
(Dollars in thousands)
Withdrawable:
<S> <C> <C> <C> <C>
Passbook savings accounts......................... $ 10 $ 3,119 5.43% 3.00%
Regular money market accounts..................... 2,500 1,158 2.02 3.24
Hi yield money market accounts.................... 10,000 14,488 25.24 4.70
Super NOW accounts................................ 2,500 686 1.20 2.47
NOW and
other transaction accounts........................... 200 3,331 5.80 2.07
Other transaction accounts........................ 100 631 1.10 0
------ -----
Total withdrawable................................... 23,413 40.79 3.83
------ -----
Certificates (original terms):
91 days........................................... 1,000 319 .56 4.41
6 months.......................................... 1,000 4,564 7.95 5.11
12 months......................................... 1,000 4,962 8.65 5.27
18 months......................................... 500 944 1.64 5.53
24 months......................................... 500 11,460 19.97 5.55
30 months......................................... 500 3,330 5.80 5.48
60 months......................................... 1,000 3,757 6.54 5.55
IRA's
18 months......................................... 100 4,647 8.10 5.61
------ -----
Total certificates................................... 33,983 59.21 5.44
------ -----
Total deposits ...................................... $57,396 100.00% 4.78%
======= ====== ====
</TABLE>
-13-
<PAGE>
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,
---------------------------------------------
1996 1995 1994
------- ------- -------
(In thousands)
4.00% and under.......... $ 199 $ 125 $ 7,228
4.01 - 6.00 %............ 32,499 27,648 21,301
6.01 - 8.00%............. 1,285 3,202 2,773
8.01 - 10.00%............ --- --- ---
------- ------- -------
Total .................. $33,983 $30,975 $31,302
======= ======= =======
The following table represents, by various interest rate categories,
the amounts of time deposits maturing during each of the three years following
December 31, 1996, and the total amount maturing thereafter. Matured
certificates which have not been renewed as of December 31, 1996, have been
allocated based upon certain rollover assumptions:
Amounts At
December 31, 1996, Maturing in
---------------------------------------------------------
One Year Two Three Greater Than
or Less Years Years Three Years
---------------------------------------------------------
(In thousands)
4.00% and under...... $ 199 $ --- $ --- $ ---
4.01 - 6.00 %........ 18,664 11,606 1,083 1,146
6.01-8.00%........... 1,076 100 --- 109
------- ------- ------ ------
Total .............. $19,939 $11,706 $1,083 $1,255
======= ======= ====== ======
The following table indicates the amount of the Bank's certificates of
deposit of $100,000 or more by time remaining until maturity as of December 31,
1996.
Maturity (In thousands)
Three months or less....................................... $ 209
Greater than three months
through six months.................................... 1,751
Greater than six months
through twelve months................................. 1,344
Over twelve months......................................... 1,054
-----
Total................................................. $4,358
======
-14-
<PAGE>
The following table sets forth the dollar amount of savings in the
various types of deposits programs offered by the Bank at the dates indicated,
and the amount of increase or decrease in such deposits as compared to the
previous period.
<TABLE>
<CAPTION>
Deposit Activity
-----------------------------------------------------------------------------
Increase Increase
(Decrease) (Decrease)
Balance at from Balance at from
December 31, % of December 31, December 31, % of December 31,
1996 Deposits 1995 1995 Deposits 1994
------------ --------- ------------ ------------- --------- ------------
(Dollars in thousands)
Withdrawable:
<S> <C> <C> <C> <C> <C> <C>
Passbook savings accounts............$ 3,119 5.43% (77) $ 3,196 6.09% $ (50)
Regular money market accounts........ 1,158 2.02 (179) 1,337 2.55 13
Hi yield money market accounts....... 14,488 25.24 1,796 12,692 24.19 1,101
Super NOW accounts................... 686 1.20 124 562 1.07 (213)
NOW accounts......................... 3,331 5.80 101 3,230 6.16 732
Other transaction accounts........... 631 1.10 162 469 .90 3
------- ------ ----- ------- ------ ------
Total withdrawable...................... 23,413 40.79 1,927 21,486 40.96 1,586
------- ------ ----- ------- ------ ------
Certificates (original terms):
91 days.............................. 319 .56 (621) 940 1.79 (126)
6 months............................. 4,564 7.95 1,056 3,508 6.69 (312)
12 months............................ 4,962 8.65 (310) 5,272 10.05 2,657
18 months............................ 944 1.64 (149) 1,093 2.08 461
24 months............................ 11,460 19.97 4,236 7,224 13.77 (1,131)
30 months............................ 3,330 5.80 (1,231) 4,561 8.69 (1,807)
60 months............................ 3,757 6.54 (401) 4,158 7.93 (19)
IRA's
18 months............................ 4,647 8.10 428 4,219 8.04 (50)
------- ------ ----- ------- ------ ------
Total certificates...................... 33,983 59.21 3,008 30,975 59.04 (327)
------- ------ ----- ------- ------ ------
Total deposits.......................... $57,396 100.00% 4,935 $52,461 100.00% $1,259
======= ====== ===== ======= ====== ======
</TABLE>
Deposit Activity
Balance at
December 31, % of
1994 Deposits
(Dollars in thousands)
Withdrawable:
Passbook savings accounts.......... $ 3,246 6.34%
Regular money market accounts...... 1,324 2.59
Hi yield money market accounts..... 11,591 22.64
Super NOW accounts................. 775 1.51
NOW accounts....................... 2,498 4.88
Other transaction.................. 466 .91
------ -----
Total withdrawable.................... 19,900 38.87
------ -----
Certificates (original terms):
91 days............................ 1,066 2.08
6 months........................... 3,820 7.46
12 months.......................... 2,615 5.11
18 months.......................... 632 1.23
24 months.......................... 8,355 16.32
30 months.......................... 6,368 12.44
60 months.......................... 4,177 8.16
IRA's
18 months.......................... 4,269 8.33
------ -----
Total certificates.................... 31,302 61.13
------ -----
Total deposits ....................... $51,202 100.00%
======= ======
-15-
<PAGE>
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,
1996, the Company had $2.0 million in borrowings from the FHLB of Indianapolis
which mature within one year and had a weighted average interest rate of 5.38%.
The Company does not anticipate any difficulty in obtaining advances appropriate
to meet its requirements in the future. The Company also had a $1.4 million note
payable to another bank due on March 5, 1997. It was secured by 100% of the
Bank's common stock, and the interest was at the prime rate. This note was
repaid on January 16, 1997.
Employees
As of December 31, 1996, the Bank employed 10 persons on a full-time
basis and 3 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 Financial Institutions Retirement Fund ("FIRF" or the "Pension
Plan") defined benefit pension 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.
Under current law, bank holding companies may acquire savings
associations. Savings associations may also acquire banks under federal law. To
date, several bank holding company acquisitions of savings associations in
Indiana have been completed. Affiliations between banks and healthy savings
associations based in Indiana may also increase the competition faced by the
Company.
In addition, The Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1994 (the "Riegle-Neal Act") permits bank holding companies to
acquire banks in other states and, with state consent to certain limitations,
allows banks to acquire out-of-state branches either through merger or de novo
expansion. The State of Indiana recently passed a law establishing interstate
branching provisions for Indiana state chartered banks consistent with those
established by the Riegle-Neal Act (the "Indiana Branching Law"). The Indiana
Branching Law authorizes Indiana banks to branch interstate by merger or de novo
expansion and authorizes out-of-state banks meeting certain requirements to
branch into Indiana by merger or de novo expansion. The Indiana Branching Law
became effective March 15, 1996, provided that interstate mergers and de novo
branches are not permitted to out of state banks unless the laws of their home
states permit Indiana banks to merge or establish de novo branches on a
reciprocal basis. This new legislation may also result in increased competition
for the Company.
Because of recent changes in federal law, interstate acquisitions of
banks are less restricted than they were under prior law. Savings associations
have certain powers to acquire savings associations based in other states, and
Indiana law expressly permits reciprocal acquisition of Indiana savings
associations. In addition, Federal savings associations are permitted to branch
on an interstate basis. 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.
-16-
<PAGE>
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 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 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. Currently, the assessment rates range from .0172761% of
assets for associations with assets of $67 million or less to .0045864% for
associations with assets in excess of $35 billion. The Bank's semiannual
assessment for the first six months of 1997 under this assessment scheme, based
upon consolidated assets at December 31, 1996, is approximately $13,000.
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, issuance or retirements of
its 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 anti-trust
laws.
The United States Congress is considering legislation that would
require all federal savings associations, such as the Bank, to either convert to
a national bank or a state-chartered financial institution by a specified date
to be determined. In addition, under the legislation, the Holding Company likely
would not be regulated as a savings and loan holding company, but rather as a
bank holding company. The OTS would also be abolished and its functions
transferred among the other federal banking regulators. Certain aspects of the
legislation remain to be resolved and therefore no assurance can be given as to
whether or in what form the legislation will be enacted or its effect on the
Holding Company and the Bank.
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 savings and loan
associations and savings banks and other member financial institutions. The Bank
is required to hold shares of capital stock in the FHLB of Indianapolis in an
amount at least equal to the greater of 1% of the aggregate principal amount of
its unpaid residential mortgage loans, home purchase contracts and similar
obligations at the end of each calendar year, .3% of its assets or 1/20 (or such
greater fraction established by the FHLB) of outstanding FHLB advances,
commitments, lines of credit and letters of credit. The Bank is currently in
compliance with this requirement. At December 31, 1996, the Company's investment
in stock of the FHLB of Indianapolis was $386,500.
In past years, the Bank received substantial dividends on its FHLB
stock. All 12 FHLBs are required to provide funds for the resolution of troubled
savings associations and 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
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projects, affordable rental housing, and certain other community projects. These
contributions and obligations could adversely affect the FHLBs' ability to pay
dividends and the value of FHLB stock in the future. For the year ending
December 31, 1996, dividends paid to the Company by the FHLB of Indianapolis
totaled $29,000, for an annual rate of 7.71%.
The FHLB of Indianapolis serves as a reserve or central bank for member
institutions within its assigned region. 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 FHFB 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. Current law prescribes eligible collateral as first
mortgage loans less 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, FHLB deposits and,
to a limited extent, real estate with readily ascertainable value in which a
perfected security interest may be obtained. Other forms of collateral may be
accepted as over collateralization or, under certain circumstances, to renew
advances outstanding. 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.
Under current law, savings associations which cease to be Qualified Thrift
Lenders are ineligible to receive advances from their FHLB.
Liquidity
For each calendar month, the Bank is required to maintain an average
daily balance of liquid assets (cash, certain time deposits, bankers'
acceptances, specified United States Government, state or federal agency
obligations, shares of certain mutual funds and certain corporate debt
securities and commercial paper) equal to an amount not less than a specified
percentage of its net withdrawable deposit accounts plus short-term borrowings
during the preceding calendar month. This liquidity requirement may be changed
from time to time by the OTS to any amount within the range of 4% to 10%
depending upon economic conditions and the savings flows of member institutions,
and is currently 5%. OTS regulations also require each member savings
institution to maintain an average daily balance of short-term liquid assets at
a specified percentage (currently 1%) of the total of its net withdrawable
deposit accounts and short-term borrowings during the preceding calendar month.
Monetary penalties may be imposed for failure to meet these liquidity
requirements. The daily average liquidity of the Bank for December, 1996, was
14.2% which exceeded the then applicable 5% liquidity requirement. Its average
short-term liquidity ratio for December, 1996, was 8.02%. The Bank has never
been subject to monetary penalties for failure to meet its liquidity
requirements.
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 BIF for commercial banks and state savings banks
and the SAIF for savings associations and banks that have acquired deposits from
savings associations. The FDIC is required to maintain designated levels of
reserves in each fund. Currently, thrifts may convert from one insurance fund to
the other upon payment of certain exit and entrance fees. Such fees need not be
paid if a SAIF member converts to a bank charter or merges with a bank, as long
as the resulting bank continues to pay the applicable insurance assessments to
the SAIF during such period and as long as certain other conditions are met.
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 such rates if such 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. Such risk level is determined based on the institution's
capital level and the FDIC's level of supervisory concern about the institution.
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For the first six months of 1995, the assessment schedule for BIF
members and SAIF members ranged from .23% to .31% of deposits. As is the case
with the SAIF, the FDIC is authorized to adjust the insurance premium rates for
banks that are insured by the BIF of the FDIC in order to maintain the reserve
ratio of the BIF at 1.25% of BIF-insured deposits. As a result of the BIF
reaching its statutory reserve ratio, the FDIC in 1995 revised the premium
schedule for BIF insured institutions to provide a range of .04% to .31% of
deposits. The revisions became effective in the third quarter of 1995. At that
time, healthy BIF-insured banks paid premiums of approximately $.04 per $100 in
deposits compared to $.23 per $100 in deposits paid by healthy SAIF-insured
institutions. The BIF rates were further revised, effective January 1996, to
provide a range of 0% to .27%, eliminating insurance premiums for healthy
BIF-insured banks. The SAIF rates, however, were not adjusted. At the time the
FDIC revised the BIF premium schedule, it noted that, absent legislative action
(as discussed below), the SAIF would not attain its designated reserve ratio
until the year 2002. As a result, SAIF-insured members would continue to be
generally subject to higher deposit insurance premiums than BIF-insured
institutions until, all things being equal, the SAIF attained its required
reserve ratio of 1.25% of BIF-insured deposits.
In order to eliminate this disparity and any competitive disadvantage
between BIF and SAIF member institutions with respect to deposit insurance
premiums, legislation to recapitalize the SAIF was enacted in September 1996.
The legislation provided for a one time assessment to be imposed on all deposits
assessed at the SAIF rates, as of March 31, 1995, in order to recapitalize the
SAIF. It also provided for the merger of the BIF and the SAIF on January 1,
1999, if no savings associations then exist. The special assessment rate was
established by the FDIC at .657% of deposits, and the resulting assessment of
$335,000 on the Bank was paid in November, 1996. This special assessment
significantly increased noninterest expense and adversely affected the Holding
Company's results of operations for the three months ended September 30, 1996.
As a result of the special assessment, the Bank's deposit insurance premiums
were reduced to .065 basis points based upon its current risk classification and
the new assessment schedule for SAIF-insured institutions. These premiums are
subject to change in future periods.
Prior to the enactment of the legislation, a portion of the SAIF
assessment imposed on savings associations was used to repay obligations issued
by a federally chartered corporation to provide financing ("FICO") for resolving
the thrift crisis in the 1980's. Although the FDIC has equalized the SAIF
assessment schedule with the BIF assessment schedule, SAIF-insured institutions
remain subject to a FICO assessment as a result of this continuing obligation.
Although the legislation also now requires assessments to be made on
BIF-assessable deposits for this purpose, effective January 1, 1997, that
assessment will be limited to 20% of the rate imposed on SAIF assessable
deposits until the earlier of September 30, 1999, or when no savings association
continues to exist, thereby imposing a greater burden on SAIF member
institutions such as the Bank. Thereafter, however, assessments on BIF-member
institutions are expected to be made on the same basis as SAIF-member
institutions.
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 leverage limit
requires that savings associations maintain "core capital" of at least 3% of
total assets. Core capital is generally defined as common stockholders' equity
(including retained income), noncumulative perpetual preferred stock and related
surplus, certain minority equity interests in subsidiaries, qualifying
supervisory goodwill (on a declining basis until 1995), purchased mortgage
servicing rights (which may be included in an amount up to 50% of core capital,
but which are to be reported on an association's balance sheet at the lesser of
90% of their fair market value, 90% of their original purchase price, or 100% of
their unamortized book value), and purchased credit card relationships (which
may be included in an amount up to 25% of core capital) 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
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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%) with a credit risk-free asset such as cash requiring no
risk-based capital and an asset with a significant credit risk such as a
non-accrual loan being assigned a factor of 100%. At December 31, 1996, the Bank
was in compliance with all capital requirements.
The OTS has delayed implementation of a rule which sets forth the
methodology for calculating an interest rate risk component to be incorporated
into the OTS regulatory capital rule. Under the rule, only savings associations
with "above normal" interest rate risk (institutions whose portfolio equity
would decline in value by more than 2% of assets in the event of a hypothetical
200-basis point move in interest rates) will be required to maintain additional
capital for interest rate risk under the risk-based capital framework. An
institution with an "above normal" level of exposure will have to maintain
additional capital equal to one-half the difference between its measured
interest rate risk (the most adverse change in the market value of its portfolio
resulting from a 200-basis point move in interest rates divided by the estimated
market value of its assets) and 2%, multiplied by the market value of its
assets. That dollar amount of capital is in addition to an institution's
existing risk-based capital requirement. Although the OTS has decided to delay
implementation of this rule, it will continue to closely monitor the level of
interest rate risk at individual institutions and it retains the authority, on a
case-by-case basis, to impose additional capital requirements for individual
institutions with significant interest rate risk.
The following is a summary of the Bank's regulatory capital and capital
requirements at December 31, 1996:
Tangible Core Risk-based
capital capital capital
--------- ---------- ----------
(Dollars in thousands)
Regulatory capital $17,018 $17,018 $17,254
Minimum capital requirement 1,166 2,332 3,356
------- ------- -------
Excess capital $15,852 $14,686 $13,898
======= ======= =======
Regulatory capital ratio 21.9% 21.9% 41.1%
Fully phased-in requirement 1.5% 3.0% 8.0%
======= ======= =======
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 to the specific sanctions provided in FIRREA for
failing to meet captial requirements, the OTS and the FDIC generally are
authorized to take enforcement actions against a savings association that fails
to meet its capital requirements, which actions may include restrictions on
operations and banking activities, the imposition of a capital directive, a
cease and desist order, civil money penalties or harsher measures such as the
appointment of a receiver or conservator or a forced merger into another
institution.
Prompt Corrective Action
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FedICIA") requires, among other things, federal bank regulatory authorities to
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,
1996, the Bank was categorized as "well capitalized."
An institution is deemed to be "well capitalized" if it has a total
risk-based capital ratio of 10% or greater, a Tier I risk-based capital ratio of
6% or greater, and a leverage ratio of 5% or greater, and is not subject to a
regulatory order, agreement or directive to meet and maintain a specific capital
level for any capital measure. An institution is deemed to be "adequately
capitalized" if it has a total risk-based capital ratio of 8% or greater, a Tier
I risk-based capital of 4% or greater, and generally a leverage ratio of 4%
greater. An institution is deemed to be "undercapitalized" if it has a total
risk-based capital ratio of less than 8%, a Tier I risk-based capital ratio of
less than 4%, or generally a leverage ratio of less than 4%; and (d)
"significantly undercapitalized" if it has a total risk-based capital ratio of
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less than 6%, a Tier I risk-based capital ratio of less than 3%, or a leverage
ratio of less than 3%. An institution is deemed to be "critically
undercapitalized" if it has a ratio of tangible equity (as defined in the
regulations) to total assets that is equal to or less than 2%.
"Undercapitalized" institutions are subject to growth limitations and
are required to submit a capital restoration plan. If an "undercapitalized"
institution fails to submit, or fails to implement in a material respect, an
acceptable plan, it is treated as if it is "significantly undercapitalized."
"Significantly undercapitalized" institutions are subject to one or more of a
number of requirements and restrictions, including an order by the FDIC to sell
sufficient voting stock to become adequately capitalized, requirements to reduce
total assets and cease receipt of deposits from correspondent banks, and
restrictions on compensation of executive officers. "Critically
undercapitalized" institutions may not, beginning 60 days after becoming
"critically undercapitalized," make any payment of principal or interest on
certain subordinated debt or extend credit for a highly leveraged transaction or
enter into any transaction outside the ordinary course of business. In addition,
"critically undercapitalized" institutions are subject to appointment of a
receiver or conservator.
Capital Distributions Regulation
An OTS regulation imposes restrictions upon all "capital distributions"
by savings associations, including cash dividends, payments by an institution to
repurchase or otherwise acquire its shares, payments to shareholders of another
institution in a cash-out merger and other distributions charged against
capital. The regulation establishes a three-tiered system of regulation, with
the greatest flexibility being afforded to well-capitalized institutions. A
savings association which has total capital (immediately prior to and after
giving effect to the capital distribution) that is at least equal to its fully
phased-in capital requirements would be a Tier 1 institution ("Tier 1
Institution"). An institution that has total capital at least equal to its
minimum capital requirements, but less than its fully phased-in capital
requirements, would be a Tier 2 institution ("Tier 2 Institution"). An
institution having total capital that is less than its minimum capital
requirements would be a Tier 3 institution ("Tier 3 Institution"). However, an
institution which otherwise qualifies as a Tier 1 Institution may be designated
by the OTS as a Tier 2 or Tier 3 institution if the OTS determines that the
institution is "in need of more than normal supervision." The Bank is currently
a Tier 1 Institution.
A Tier 1 Institution could, after prior notice but without the approval
of the OTS, make capital distributions during a calendar year equal to the
greater of (a) 100% of its net income to date during the calendar year plus an
amount that would reduce by one-half its "surplus capital ratio" (the excess
over its capital requirements) at the beginning of the calendar year, or (b) 75%
of its net income for the most recent four quarter period. Any additional amount
of capital distributions would require prior regulatory approval.
The OTS has proposed revisions to these regulations which would permit
savings associations to declare dividends in amounts which would assure that
they remain adequately capitalized following the dividend declaration. Savings
associations in a holding company system which are rated Camel 1 or 2 and which
are not in troubled condition would simply file a prior notice with the OTS
concerning such dividend declaration.
Safety and Soundness Standards
On February 2, 1995, the federal banking agencies adopted final safety
and soundness standards for all insured depository institutions. The standards,
which were issued in the form of guidelines rather than regulations, relate to
internal controls, information systems, internal audit systems, loan
underwriting and documentation, compensation and interest rate exposure. In
general, the standards are designed to assist the federal banking agencies in
identifying and addressing problems at insured depository institutions before
capital becomes impaired. If an institution fails to meet these standards, the
appropriate federal banking agency may require the institution to submit a
compliance plan. Failure to submit a compliance plan may result in enforcement
proceedings. Additional standards on earnings and classified assets are expected
to be issued in the near future.
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Real Estate Lending Standards
OTS regulations require savings associations to establish and maintain
written internal real estate lending policies. Each association's lending
policies must be consistent with safe and sound banking practices and
appropriate to the size of the association and the nature and scope of its
operations. The policies must establish loan portfolio diversification
standards; establish prudent underwriting standards, including loan-to-value
limits, that are clear and measurable; establish loan administration procedures
for the association's real estate portfolio; and establish documentation,
approval, and reporting requirements to monitor compliance with the
association's real estate lending policies.
The association's written real estate lending policies must be reviewed
and approved by the association's Board of Directors at least annually. Further,
each association is expected to monitor conditions in its real estate market to
ensure that its lending policies continue to be appropriate for current market
conditions.
Federal Reserve System
Under FRB regulations, the Bank is required to maintain reserves
against its transaction accounts (primarily checking and NOW accounts) and
non-personal money market deposit accounts. The effect of these reserve
requirements is to increase the Bank's cost of funds. The Bank is in compliance
with its reserve requirements. A federal savings association, like other
depository institutions maintaining reservable accounts, may borrow from the
Federal Reserve Bank "discount window," but the FRB's regulations require the
savings association to exhaust other reasonable alternative sources, including
borrowing from its regional FHLB, before borrowing from the Federal Reserve
Bank. Current law imposes certain limitations on the ability of undercapitalized
depository institutions to borrow from Federal Reserve Banks.
Transactions with Affiliates
The Bank and the 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.
Holding Company Regulation
The Holding Company is regulated as a "non-diversified 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.
HOLA generally prohibits a savings and loan company, without 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. Additionally, under certain circumstances a savings and loan holding
company is permitted to acquire, with the approval of the Director of the OTS,
up to 15% of previously unissued voting shares of an under-capitalized savings
association for cash without that savings association being deemed controlled by
the holding company. 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 operate
the Holding Company as a unitary savings and loan holding company. There are
generally no restrictions on the permissible business activities of a unitary
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savings and loan holding company. However, if the Director of the OTS determines
that there is reasonable cause to believe that the continuation by a savings and
loan holding company of an activity constitutes a serious risk to the financial
safety, soundness, or stability of its subsidiary savings association, the
Director of the OTS may impose such restrictions as deemed necessary to address
such risk and limiting (i) payment of dividends by the savings association, (ii)
transactions between the savings association and its affiliates, and (iii) any
activities of the savings association that might create a serious risk that the
liabilities of the holding company and its affiliates may be imposed on the
savings association.
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 become subject to the
activities restrictions applicable to multiple holding companies. (Additional
restrictions on securing advances from the FHLB also apply). See "-- Qualified
Thrift Lender." At December 31, 1996, the Bank's asset composition was in excess
of that required to qualify the Bank 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. 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
previously directly authorized by the FSLIC by regulation as of 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 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 5, 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.
No subsidiary savings association of a savings and loan holding company
may declare or pay a dividend on its permanent or nonwithdrawable stock unless
it first gives the Director of the OTS 30 days advance notice of such
declaration and payment. Any dividend declared during such period, or without
the giving of such notice, shall be invalid.
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Federal Securities Law
The shares of Common Stock of the Holding Company are registered with
the SEC under the Securities Exchange Act of 1934 (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
under the 1934 Act and the rules of the SEC thereunder.
Shares of Common Stock held by persons who are affiliates of the
Holding Company may not be resold without registration unless sold in accordance
with the resale restrictions of Rule 144 under 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) will 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.
Qualified Thrift Lender
Under current OTS regulations, the QTL test requires that a savings
association have at least 65% of its portfolio assets invested in "qualified
thrift investments" on a monthly average basis in 9 out of every 12 months.
Qualified thrift investments under the QTL test consist primarily of housing
related loans and investments.
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; (iii) it shall not be eligible for any new FHLB
advances; and (iv) it shall be bound by regulations applicable to national banks
respecting payment of dividends. Three years after failing the QTL test the
association must (i) dispose of any investment or activity not permissible for a
national bank and a savings association and (ii) repay all outstanding FHLB
advances. 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, 1996, 85.98% 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. 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
Bank holding companies, upon receipt of appropriate approvals from the
FRB and the Director of the OTS, may acquire control of any savings association
or holding company thereof wherever located. Similarly, a savings and loan
holding company may now acquire control of a bank. Moreover, federal savings
associations may acquire or be acquired by any insured depository institution.
Pursuant to rules promulgated by the FRB, a savings association acquired by a
bank holding company (i) may, so long as the savings association continues to
meet the QTL test, continue to branch to the same extent as permitted to other
non-affiliated savings associations similarly chartered in the state, and (ii)
cannot continue any non-banking activities not authorized for bank holding
companies. Saving associations acquired by a bank holding company may, if
located in a state where the bank holding company is legally authorized to
acquire a bank, be converted to the status of a bank but deposit insurance
assessments and payments continue to be paid by the association to the SAIF. A
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<PAGE>
savings association so converted to a bank becomes subject to the branching
restrictions applicable to banks. Also any insured depository institution may
merge with, acquire the assets of, or assume the liabilities of any other
insured depository institution with the appropriate regularity approvals if (i)
continued payments of deposit insurance are made on the acquired depository
institution's deposits (including an assumed rate of growth in such deposits) to
SAIF (if the acquired institution was a SAIF member) or to BIF (if the acquired
institution was a BIF member), and (ii) the acquiring institution and any
holding company in control thereof meet all applicable capital requirements at
the time of the transaction.
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.
In addition, The Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1994 (the "Riegle-Neal Act") permits bank holding companies to
acquire banks in other states and, with state consent and subject to certain
limitations, allows banks to acquire out-of-state branches either through merger
or de novo expansion. The State of Indiana recently passed a law establishing
interstate branching provisions for Indiana state-chartered banks consistent
with those established by the Riegle-Neal Act (the "Indiana Branching Law"). The
Indiana Branching Law authorizes Indiana banks to branch interstate by merger or
de novo expansion. The Indiana Branching Law became effective March 15, 1996,
provided that interstate mergers and de novo branches are not permitted to
out-of-state banks unless the laws of their home states permit Indiana banks to
merge or establish de novo branches on a reciprocal basis.
Limitations on Repurchase of Common Stock of Holding Company
OTS regulations currently provide that the Holding Company is
prohibited from repurchasing any of its shares within one year of the
Conversion, which occured on June 13, 1995. So long as the Bank continues to
meet certain capitalization requirements, the Holding Company may repurchase
shares in an open-market repurchase program (which cannot exceed 5% of its
outstanding shares in a twelve-month period) during the second and third years
following its Conversion by giving appropriate prior notice to the OTS. The OTS
has the authority to waive these restrictions under certain circumstances.
Unless repurchases are permitted under the foregoing regulations, the Holding
Company may not, for a period of three years from the date of the Conversion,
repurchase any of its capital stock from any person, except in the event of an
offer to purchase by the Holding Company on a pro rata basis from all of its
shareholders which is approved in advance by the OTS or except in exceptional
circumstances established to the satisfaction of the OTS.
Under Indiana law, the Holding Company will be precluded from
repurchasing its equity securities if, after giving effect to such repurchase,
the Holding Company would be unable to pay its debts as they become due or the
Holding Company's assets would be less than its liabilities and obligations to
preferential shareholders.
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
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<PAGE>
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 Community Reinvestment Act and its record of lending to
first-time home buyers. The FHLBs have established an "Affordable Housing
Program" to subsidize the interest rate of advances to member associations
engaged in lending for long-term, low- and moderate-income, owner-occupied and
affordable rental housing at subsidized rates. The Bank is participating in this
program. The examiners have determined that the Bank has a satisfactory record
of meeting community credit needs.
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 will no longer be able to use the percentage of
taxable income method of computing its allocable tax bad debt deduction. The
Bank will be 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 may be permitted for institutions meeting a
residential mortgage loan origination test. In addition, the pre-1988 reserve,
in 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.
Current Accounting Issues
Mortgage Servicing Rights. During 1995, the Financial Accounting
Standards Board ("FASB") issued SFAS No. 122, Accounting for Mortgage Servicing
Rights. SFAS No. 122 pertains to mortgage banking enterprises and financial
institutions that conduct operations that are substantially similar to the
primary operations of mortgage banking enterprises. SFAS No. 122 eliminates the
accounting distinction between mortgage servicing rights that are acquired
through loan origination activities and those acquired through purchase
-26-
<PAGE>
transactions. Under SFAS No. 122, if a mortgage banking enterprise sells or
securitizes loans and retains the mortgage servicing rights, the enterprise must
allocate the total cost of the mortgage loans to the mortgage servicing rights
and the loans (without the rights) based on their relative fair values if it is
practicable to estimate those fair values. If it is not practicable, the entire
cost should be allocated to the mortgage loans and no cost should be allocated
to the mortgage service rights. An entity would measure impairment of mortgage
servicing rights and loans based on the excess of the carrying amount of the
mortgage servicing rights portfolio over the fair value of that portfolio.
SFAS No. 122 is to be applied prospectively in fiscal years beginning
after December 15, 1995, to transactions in which an entity acquires mortgage
servicing rights and to impairment evaluations of all capitalized mortgage
servicing rights. The adoption of SFAS No. 122 had no impact in 1996 on the
Company's financial condition and results of operations.
Stock-Based Compensation. The FASB has issued No. SFAS 123, Accounting
for Stock-based Compensation. SFAS No. 123 establishes a fair value based method
of accounting for stock-based compensation plans. The FASB encourages all
entities to adopt this method for accounting for all arrangements under which
employees receive shares of stock or other equity instruments of the employer,
or the employer incurs liabilities to employees in amounts based on the price of
its stock.
Due the extremely controversial nature of this project, SFAS No. 123
permits a company to continue the accounting for stock-based compensation
prescribed in Accounting Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees. If a company elects that option, pro forma disclosures of
net income (and EPS, if presented) are required in the notes to the financial
statements as if the provisions of SFAS No. 123 had been used to measure
stock-based compensation. The disclosure requirements of Opinion No. 25 have
been superseded by the disclosure requirements of this Statement. Once an entity
adopts the fair value based method for accounting for these transactions, that
election cannot be reversed.
Equity instruments granted or otherwise transferred directly to an
employee by a principal stockholder are stock-based employee compensation to be
accounted for in accordance with either Opinion 25 or SFAS No. 123 unless the
transfer clearly is for a purpose other than compensation. The accounting
requirements of SFAS No. 123 became effective for transactions entered into in
fiscal years beginning after December 15, 1995, and the disclosure requirements
became effective for financial statements for fiscal years beginning after
December 15, 1995. Pro forma disclosures required for entities that elect to
continue to measure compensation cost using Opinion 25 must include the effects
of all awards granted in fiscal years beginning after December 15, 1994. During
the initial phase-in period, the effects of applying this Statement are not
likely to be representative of the effects on reported net income for future
years because options vest over several years and additional awards generally
are made each year.
The Company adopted SFAS No. 123 for 1996, and elected to report the
pro forma disclosures of net income and earnings per share in the notes to
financial statements.
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities. SFAS No. 125, Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities, breaks new ground in resolving
long-standing questions about whether transactions should be accounted for as
secured borrowings or as sales. The Statement provides consistent standards for
distinguishing transfers of financial assets that are sales from transfers that
are considered secured borrowings.
A transfer of financial assets in which the transferor surrenders
control over those assets is accounted for as a sale to the extent that
consideration other than beneficial interests in the transferred assets is
received in exchange. The transferor has surrendered control over transferred
assets only if all of the following conditions are met:
o The transferred assets have been isolated from the
transferor--put presumptively beyond the reach of the
transferor and its creditors, even in bankruptcy or other
receivership.
o Each transferee obtains the right--free of conditions that
constrain it from taking advantage of that right--to pledge or
exchange the transferred assets, or the transferee is a
qualifying special-purpose entity and the holders of
beneficial interest in that entity have the right--free of
conditions that constrain them from taking advantage of that
right--to pledge or exchange those interests.
o The transferor does not maintain effective control over the
transferred assets through an agreement that both entitles and
obligates the transferor to repurchase or redeem them before
their maturity, or an agreement that entitles the transferor
to repurchase or redeem transferred assets are not readily
obtainable.
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<PAGE>
This Statement provides detailed measurement standards for assets and
liabilities included in these transactions. It also includes implementation
guidance for assessing isolation of transferred assets and for accounting for
transfers of partial interest, servicing of financial assets, securitization,
transfers or sales type and direct financing lease receivables, securities
lending transactions, repurchase agreements, "wash sales," loan syndications and
participation, risk participation in banker's acceptances, factoring
arrangements, transfers of receivables with recourse and extinguishment of
liabilities.
The Statement supersedes FASB Statements No. 76, Extinguishment of
Debt, and No. 77, Reporting by Transferors for Transfers of Receivables with
Recourse, and No. 122, Accounting for Mortgage Servicing Rights, and amends FASB
Statement No. 115, Accounting for Certain Investments in Debt and Equity
Securities, in addition to clarifying or amending a number of other statements
and technical bulletins.
Except as amended by Statement No. 127, this Statement is effective for
transfers and servicing of financial assets and extinguishments of liabilities
occurring after December 31, 1996 and is to be applied prospectively. Earlier or
retroactive application is not permitted.
The FASB was made aware that the volume of certain transactions and the
related changes to information systems and accounting processes that are
necessary to comply with the requirements of Statement No. 125 would make it
extremely difficult, if not impossible, for some affected enterprises to apply
the transfer and collateral provisions of Statement No. 125 to those
transactions as soon as January 1, 1997. As a result, Statement No. 127 defers
for one year the effective date (a) of paragraph 15 of Statement No. 125 and (b)
for repurchase agreement, dollar-roll, securities lending, and similar
transactions, of paragraphs 9-12 and 237(b) of Statement No. 125.
Statement No. 127 provides additional guidance on the types of
transactions for which the effective date of Statement No. 125 has been
deferred. It also requires that if it is not possible to determine whether a
transfer occurring during calendar-year 1997 is part of a repurchase agreement,
dollar-roll, securities lending, or similar transaction, then paragraphs 9-12 of
Statement No. 125 should be applied to that transfer.
All provisions of Statement No. 125 should continue to be applied
prospectively, and earlier or retroactive application is not permitted.
Item 2. Properties.
At December 31, 1996, 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, 1996:
<TABLE>
<CAPTION>
Total Deposits Net Book Value
at of Property,
Owned or Year December 31, Furniture & Approximate
Description and Address Leased Opened 1996 Fixtures Square Footage
---------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
723 East Broadway Owned 1962 $57,396 $476 4,200
Logansport, Indiana 46947
</TABLE>
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 $17,250 at December 31, 1996.
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 $8,500 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.
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<PAGE>
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, 1996.
Item 4.5. Executive Officers of the Registrant.
Presented below is certain information regarding the executive officers
of the Holding Company:
Name Position
Thomas G. Williams President and Chief Executive Officer
Charles J. Evans Vice President
Dottye Robeson Secretary/Treasurer
Thomas G. Williams (age 64) has served as President of the Bank since
1971 and as President and Chief Executive Officer of the Holding Company since
its organization.
Charles J. Evans (age 51) has served as Vice President and Senior Loan
Officer of the Bank since 1980 and as Vice President of the Holding Company
since its organization.
Dottye Robeson (age 47) has served as Chief Financial Officer of the
Bank since 1994 and as Secretary/Treasurer of the Holding Company since its
organization. From 1990 to 1994, she served as Cashier, Vice President and Chief
Financial Officer of Bright National Bank in Flora, Indiana. From 1984 to 1990
she was employed by Smith, Thompson & Wihebrink (Logansport). She has been a
certified public accountant since 1987.
PART II
Item 5. Market for Registrant's Common Equity and Related Shareholder Matters.
Logansport Savings Bank, FSB converted from a mutual savings bank to a
stock form federal savings bank effective June 13, 1995 (the "Conversion") and
simultaneously formed a savings and loan holding company, Logansport Financial
Corp. The Holding Company's common stock, without par value ("Common Stock"), is
quoted on the National Association of Securities Dealers Automated Quotation
System ("NASDAQ"), Small Cap Market, under the symbol "LOGN." The following
table sets forth the high and low bid prices and dividends paid per share of
Common Stock for the quarters indicated. Such over-the-counter quotations
reflect inter-dealer prices, without retail mark-up, mark-down or commission,
and may not necessarily represent actual transactions.
Quarter Ended High Bid Low Bid Dividends Declared
---------------------------------------------------------------------------
September 30, 1995 12 1/2 11 1/4 $.10
December 31,1995 13 1/4 12 .10
March 31, 1996 13 1/4 12 3/8 .10
June 30, 1996 13 3/4 12 3/8 .10
September 30, 1996 14 3/4 12 1/2 .10
December 31, 1996 14 3/4 11 1/4 3.10
As of February 14, 1997, there were 893 recordholders of the Holding
Company's Common Stock. 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
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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, 1996, approximately $1.5
million 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.
Item 6. Selected Financial Data.
The information required by this item is incorporated by reference to
the material under the heading "Selected Consolidated Financial Data of
Logansport Financial Corp. and Subsidiary" on page 3 of the Holding Company's
1996 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 4 through 14 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 15 through 34 in the Shareholder Annual Report are
incorporated herein by reference. The Company's unaudited quarterly results of
operations contained on page 35 in the Shareholder Annual Report are
incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.
There were no such changes and disagreements during the applicable
period.
PART III
Item 10. Directors and Executive Officers of the Registrant.
The information required by this item with respect to directors is
incorporated by reference to pages 2 through 8 of the Holding Company's Proxy
Statement for its 1997 Annual Shareholder Meeting (the "1997 Proxy Statement").
Information concerning the Holding Company's executive officers is included in
Item 4.5 in Part I of this report.
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<PAGE>
Item 11. Executive Compensation.
The information required by this item with respect to executive
compensation is incorporated by reference to pages 5 to 8 of the Holding
Company's 1997 Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information required by this item is incorporated by reference to
page 3 of the 1997 Proxy Statement.
Item 13. Certain Relationships and Related Transactions.
The information required by this item is incorporated by reference to
page 8 of the 1997 Proxy Statement.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) List the following documents filed as part of the report:
Annual Report
Financial Statements Page No.
Independent Auditor's Report 15
Consolidated Statement of
Financial Condition at
December 31, 1996, and 1995 16
Consolidated Statement of Income for
the Years Ended
December 31, 1996, 1995, and 1994 17
Consolidated Statement of Change
in Shareholders' Equity
for the Years Ended December 31, 1996,
1995 and 1994 18
Consolidated Statement of
Cash Flows for the Years Ended
December 31, 1996, 1995, and 1994 19
Notes to Consolidated Financial Statements 20
(b) Reports on Form 8-K.
The Holding Company filed one report on Form 8-K on October
22, 1996, reporting the Holding Company's stock repurchase
program.
(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(12).
(d) All schedules are omitted as the required information either
is not applicable or is included in the Consolidated Financial
Statements or related notes.
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<PAGE>
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 15, 1997 By: /s/ Thomas G. Williams
----------------------------------
Thomas G. Williams, 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 15th day of March, 1997.
/s/ Thomas G. Williams
- ----------------------------------
Thomas G. Williams
President, Chief Executive Officer and Director
(Principal Executive Officer)
/s/ Dottye Robeson
- ----------------------------------
Dottye Robeson,
Secretary/Treasurer (Principal Financial and
Accounting Officer)
/s/ Norbert E. Adrian
- ----------------------------------
Norbert E. Adrian, Director
/s/ Charles J. Evans
- ----------------------------------
Charles J. Evans, Vice President and Director
/s/ Donald G. Pollitt
- ----------------------------------
Donald G. Pollitt, Director
/s/ Susanne S. Ridlen
- ----------------------------------
Susanne S. Ridlen, Director
/s/ William Tincher, Jr.
- ----------------------------------
William Tincher, Jr., Director
/s/ David Wihebrink
- ----------------------------------
David Wihebrink, Director
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<PAGE>
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(2) to the
Registration Statement on Form S-1 (Registration No.
33-89788).
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.
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.
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) Employment Agreement between Logansport Savings
Bank, FSB and Thomas G. Williams is incorporated by
reference to Exhibit 10(5) to the Registration
Statement on Form S-1 (Registration No. 33-89788).
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 4/1/92 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 4/1/92 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 4/1/92 is incorporated by reference to
Exhibit 10(9) to the Registration Statement on Form
S-1 (Registration No. 33-89788).
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<PAGE>
10(9) Director Deferred Compensation Agreement between
Logansport Savings Bank, FSB and Susanne Ridlen,
effective 4/1/92 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 4/1/92 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).
11 Statement of Computation of Per Share Earnings ______
13 1996 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 ______
27 Financial Data Schedule
______
-34-
Computation of Earnings Per Share on Primary and Fully Diluted Basis
Year Ended
December 31,
1996
--------------------
Average Shares Outstanding
Net income $ 912,953.00
Average number of common shares outstanding 1,316,372.00
Earnings per average shares outstanding (1) $ .69
Primary
Net income $ 912,953.00
Average number of common shares outstanding 1,316,372.00
Add incremental shares for stock options 12,672.00
--------------------
Adjusted average shares 1,329,044.00
Primary earnings per share (1) $ .69
Fully Diluted
Net income $ 912,953.00
Average number of common shares outstanding 1,316,372.00
Add incremental shares for stock options 7,280.00
------------------
Adjusted average shares 1,323,652.00
Fully diluted earnings per share (1) $ .69
(1) Due to the immaterial differences, computed before rounding, between
primary and fully diluted earnings per share and earnings per average
shares outstanding, earnings per average shares outstanding only is
reported.
LOGANSPORT FINANCIAL CORP.
SHAREHOLDER ANNUAL REPORT
1996
<PAGE>
TABLE OF CONTENTS
Page
President's Message to Shareholders............................... 2
Selected Consolidated Financial Data.............................. 3
Management's Discussion and Analysis.............................. 4
Independent Auditor's Report...................................... 15
Consolidated Statement of Financial Condition..................... 16
Consolidated Statement of Income.................................. 17
Consolidated Statement of Changes in Stockholders' Equity......... 18
Consolidated Statement of Cash Flows.............................. 19
Notes to Consolidated Financial Statements........................ 20
Shareholder Information........................................... 36
Directors and Officers............................................ 37
DESCRIPTION OF BUSINESS
Logansport Financial Corp. (the "Company"), an Indiana corporation, became
a unitary savings and loan holding company upon the conversion of Logansport
Savings Bank, FSB (the "Bank") from a federal mutual savings bank to a federal
stock savings bank in June, 1995. The Company and the Bank conduct business from
a single office in Logansport, Cass County, Indiana. The Bank is and
historically has been among the top real estate mortgage lenders in Cass County
and is the oldest financial institution headquartered in Cass County. The Bank
offers a variety of retail deposit and lending services. The Company has no
other business activity than being the holding company for the Bank. The Company
is the sole shareholder of the Bank.
<PAGE>
Dear Shareholder:
We are pleased to present to you the 1996 Annual Report of Logansport Financial
Corp.
During 1996, the first full year of operations, our goal was to maximize
shareholder value. We took a number of actions to move toward attainment of that
goal. On December 10, 1996, each shareholder received a $3.00 per share one-time
special cash distribution. The Company obtained from the Internal Revenue
Service a Private Letter Ruling allowing this non-taxable return of capital.
This distribution allows shareholders to defer federal and state income taxes
until sale of their stock, provides immediate cash for reinvestment, and
improves the Company's return on equity. On October 28, 1996, we commenced a
stock repurchase program and this was completed by year end. The Company
repurchased 66,125 shares of common stock in the open market. The open market
purchases have the effect of enhancing the book value per share and the
potential for growth in earnings per share of the Company's remaining
outstanding shares. Both of these actions were taken to improve the value of
your investment in Logansport Financial Corp.
The Board of Directors has paid a $.10 per share quarterly dividend since our
conversion to a stock institution and remains committed to regular, quarterly
dividends for our shareholders. In 1996, $.32 of the $.40 per share paid will
qualify as a return of capital. Dividends received in future years are expected
to be fully taxable.
Our growth during 1996 has been excellent. Total assets for the year ended
December 31, 1996 were $77.7 million compared to $74.7 million at December 31,
1995. This growth needs to be considered in conjunction with the fact that we
distributed almost $4.0 million to shareholders in December. Our net loans
totaled $56.8 million at December 31, 1996, an increase of $7.1 million over
1995. This increase in loans is a significant contributing factor to our strong
earnings. Excellent loan service in both our mortgage and consumer loan products
has become our niche in a very competitive marketplace. Our return on assets
continued to be strong at 1.18% and is keeping pace with our growth in assets.
The one-time special assessment to recapitalize the Savings Association
Insurance Fund resulted in a pretax charge to earnings of $335,000 ($202,000
after tax-effected). This, of course, had a significant impact on earnings.
However, Logansport Financial Corp.'s earnings in 1996 still exceeded those in
1995. We are proud of that accomplishment and with this issue now behind us we
look forward to 1997 and lower insurance costs which should translate into
additional earnings.
We are proud of the performance of Logansport Financial Corp. in 1996.
Consistent earnings, strong capital, and excellent asset quality have positioned
us for continued growth in 1997. We are grateful for your support and look
forward to a long and mutually beneficial relationship.
Sincerely,
/s/ Thomas G. Williams
Thomas G. Williams
President
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
OF LOGANSPORT FINANCIAL CORP. AND SUBSIDIARY
<TABLE>
<CAPTION>
AT DECEMBER 31,
1996 1995 1994 1993 1992
--------------------------------------------------------------------------
(Dollars in thousands)
Balance Sheet Data:
<S> <C> <C> <C> <C> <C>
Total assets ........................... $77,668 $74,647 $59,351 $56,229 $49,164
Loans receivable, net .................. 56,802 49,707 44,020 37,851 34,801
Mortgage- and other asset-backed securities 6,674 7,468 1,229 2,784
3,522
Cash and cash equivalents............... 3,759 3,243 1,645 2,700 2,530
Other investment securities............. 7,629 11,285 10,009 10,718 6,457
Interest-bearing time deposits in other
financial institutions............... 100 100 --- --- ---
Deposits................................ 57,396 52,461 51,202 49,558 43,337
Borrowings.............................. 3,400 1,000 1,000 --- ---
Stockholders' equity.................... 15,427 20,454 6,833 6,397 5,620
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1996 1995 1994 1993 1992
--------------------------------------------------------------------------
(Dollars in thousands)
Summary of Operating Results:
<S> <C> <C> <C> <C> <C>
Interest income ........................ $5,653 $ 4,775 $ 4,031 $ 4,033 $ 3,967
Interest expense ....................... 2,719 2,468 2,043 1,984 2,141
---------- ---------- --------- --------- ---------
Net interest income.................. 2,934 2,307 1,988 2,049 1,826
Provision for loan losses............... 12 20 6 161 98
---------- ---------- --------- --------- ---------
Net interest income after provision for
loan losses....................... 2,922 2,287 1,982 1,888 1,728
Other income:
Service charges on deposit accounts.. 67 47 35 26 19
Investment securities gains (losses). (47) 3 --- 22 12
Other................................ 62 129 44 37 41
---------- ---------- --------- --------- ---------
Total other income................ 82 179 79 85 72
Other expense:
Salaries and employee benefits....... 619 492 459 410 323
Occupancy and equipment.............. 81 81 84 69 74
Deposit insurance premium............ 449 116 114 83 88
Other................................ 435 343 300 256 322
---------- ---------- --------- --------- ---------
Total other expense............. 1,584 1,032 957 818 807
---------- ---------- --------- --------- ---------
Income before income taxes and cumulative
effect of change in
accounting principle 1,420 1,434 1,104 1,155 993
Income tax expense...................... 507 526 370 422 418
Cumulative effect of change
in accounting principle............ --- --- --- 44 ---
---------- ---------- --------- --------- ---------
Net income........................... $ 913 $ 908 $ 734 $ 777 $ 575
========== ========== ========= ========= =========
Net income per share.................... $ .69 $ --- (1) --- --- ---
Cash dividends per share
Regular.............................. .40 --- (1) --- --- ---
Special (2).......................... 3.00 --- --- --- ---
Supplemental Data:
Return on assets (3) ................... 1.18% 1.34% 1.27% 1.45% 1.22%
Return on equity (4).................... 4.76 6.33 10.78 12.92 10.74
Interest rate spread (5) ............... 2.80 2.77 3.32 3.75 3.70
Net yield on interest-earning assets (6) 3.99 3.64 3.67 4.07
4.11
Other expenses to average assets ....... 2.04 1.53 1.65 1.52 1.71
Net interest income to other expenses... 1.85x 2.24x 2.08x 2.50x 2.26x
Equity-to-assets (7).................... 19.86 27.40 11.51 11.38 11.43
Average interest-earning assets to average
interest-bearing liabilities......... 1.33x 1.23x 1.10x 1.08x 1.09x
Non-performing assets to total assets... .52 .42 .82 1.38 1.27
Non-performing loans to total loans..... .71 .63 .76 1.57 1.22
Loan loss allowance to total loans, net. .41 .45 .47 .53 .25
Loan loss allowance to non-performing loans 58.12 71.61 61.13 33.67 20.28
Dividend payout ratio................... 57.97(8) --- (1) --- --- ---
Net charge-offs to average loans ....... (*) (*) (*) .13 .07
</TABLE>
(1) Information prior to 1996 is not meaningful.
(2) Special one-time cash distribution which qualified as a non-taxable return
of capital pursuant to an IRS Private Letter Ruling.
(3) Net income divided by average total assets.
(4) Net income divided by average total equity.
(5) Interest rate spread is calculated by subtracting combined weighted average
interest rate cost from combined weighted average interest rate earned for
the period indicated.
(6) Net interest income divided by average interest-earning assets.
(7) Total equity divided by assets.
(8) Excludes special one-time $3.00 per share cash distribution.
(*) Less than .01%
<PAGE>
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. Since the Company only recently began operations, certain of the
financial information presented herein prior to June 13, 1995 relates primarily
to the Bank, a wholly owned subsidiary of the Company. All references to the
Company at or before June 13, 1995 refer to the Bank only. The Company has no
other 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 level 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, payments on loans, borrowings and income provided from
operations. The Bank's earnings are primarily dependent upon its net interest
income, the difference between interest income and interest expense.
Interest income is a function of the balances of loans and investments
outstanding during a given period and the yield earned on such loans and
investments. Interest expense is a function of the amount of deposits and
borrowings outstanding during the same period and interest rates paid on such
deposits and borrowings. The Bank's earnings are also affected by provisions for
loan losses, service charges, operating expenses and income taxes.
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"). This approach calculates the difference between the
present value of expected cash flows from assets and the present value of
expected cash flows from liabilities, as well as cash flows from off-balance
sheet contracts. 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. Beginning September 1, 1994,
thrift institutions with over $300 million in assets or less than a 12%
risk-based capital ratio are required to file OTS Schedule CMR. Data from
Schedule CMR is used by the OTS to calculate changes in NPV (and the related
"normal" level of interest rate risk) based upon certain interest rate changes
(discussed below). Institutions which do not meet either of the filing
requirements are not required to file OTS Schedule CMR, but may do so
voluntarily. The Bank does not currently meet either of these requirements, but
it does voluntarily file Schedule CMR. Presented below, as of September 30,
1996, the latest available, 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
400 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 or falling rate scenarios.
<PAGE>
<TABLE>
<CAPTION>
Change Net Portfolio Value NPV as % of PV of Assets
In Rates $ Amount $ Change % Change NPV Ratio Change
- --------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
+ 400 bp * $13,120 $(4,845) (27%) 18.28% (486bp)
+ 300 bp 14,496 (3,469) (19%) 19.75 (339bp)
+ 200 bp 15,807 (2,158) (12%) 21.09 (205bp)
+ 100 bp 17,000 (965) (5%) 22.25 (89bp)
0 bp 17,965 --- --- 23.14 ---
- 100 bp 18,733 768 4% 23.80 67bp
- 200 bp 19,340 1,375 8% 24.30 116bp
- 300 bp 20,065 2,100 12% 24.89 175bp
- 400 bp 20,951 2,986 17% 25.61 247bp
</TABLE>
Interest Rate Risk Measures: 200 Basis Point (bp) Rate Shock
Pre-Shock NPV Ratio: NPV as % of PV of Assets............. 23.14%
Exposure Measure: Post-Shock NPV Ratio.................... 21.09%
Sensitivity Measure: Change in NPV Ratio.................. (205bp)
* Basis points
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.
<PAGE>
Average Balances and Interest Rates and Yields
The following table presents for the periods indicated the month-end
average balances of each category of the Bank'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.
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------------------------------------
1996 1995 1994
--------------------------- ------------------------ -----------------------
Average Yield/ Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost Balance Interest Cost
------- -------- ---- ------- -------- ---- ------- -------- ----
(Dollars in thousands)
Assets:
Interest-earning assets:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning deposits.............. $3,192 $160 5.01% $ 2,542 $ 146 5.74% $ 1,215 $ 56 4.61%
Mortgage- and other asset-backed
securities (1)....................... 7,916 510 6.44 3,566 227 6.37 1,898 154 8.11
Other investment securities (1)........ 9,965 587 5.89 11,490 701 6.10 11,156 752 6.74
Loans receivable (2)................... 53,409 4,421 8.28 46,746 3,724 7.97 40,782 3,098 7.60
Stock in FHLB of Indianapolis.......... 376 29 7.71 338 27 7.99 303 17 5.61
------ ----- ------ ----- ------ -----
Total interest-earning assets........ 74,858 5,707 7.62 64,682 4,825 7.46 55,354 4,077 7.37
Non-interest earning assets, net of
allowance for loan losses and
unrealized loss on securities available
for sale ............................ 2,709 2,822 2,599
------- ------- -------
Total assets......................... $77,567 $67,504 $57,953
======= ======= =======
Liabilities and stockholders' equity:
Interest-bearing liabilities:
Savings accounts.......................$ 3,298 100 3.03 $ 3,986 121 3.04 $ 3,465 105 3.03
NOW and money
market accounts...................... 18,751 769 4.10 16,791 698 4.16 16,220 553 3.41
Certificates of deposit................ 32,432 1,744 5.38 31,352 1,617 5.16 30,637 1,379 4.50
Borrowings ........................... 1,889 106 5.61 501 32 6.39 167 6 3.59
------ ----- ------ ----- ------ -----
Total interest-bearing liabilities... 56,370 2,719 4.82 52,630 2,468 4.69 50,489 2,043 4.05
Other liabilities......................... 2,016 529 654
------- ------- -------
Total liabilities.................... 58,386 53,159 51,143
Stockholders' equity
Common stock, retained earnings
and unearned compensation............ 19,350 14,579 6,824
Unrealized loss on securities
available for sale................... (169) (234) (14)
------- ------- -------
Total stockholders' equity........... 19,181 14,345 6,810
------- ------- -------
Total liabilities and stockholders'
equity ............................ $77,567 $67,504 $57,953
Net interest-earning assets............... $18,488 $12,052 $ 4,865
------ ----- ------ ----- ------ -----
Net interest income....................... $2,988 $2,357 $ 2,034
====== ====== ========
Interest rate spread (3) ................. 2.80% 2.77% 3.32%
==== ==== ====
Net yield on weighted average
interest-earning assets (4)............ 3.99% 3.64% 3.67%
==== ==== ====
Average interest-earning assets to
average interest-bearing liabilities... 132.80% 122.90% 109.64%
Adjustment of interest on tax-exempt
securities to a tax-equivalent basis... $54 $50 $46
</TABLE>
(1) Includes securities available for sale at amortized cost prior to SFAS
No. 115 adjustments.
(2) Total loans less 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.
<PAGE>
Interest Rate Spread
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 Bank on its loan and investment portfolios, the weighted
average effective cost 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.
<TABLE>
<CAPTION>
At December 31, Year Ended December 31,
1996 1996 1995 1994
------------------ -----------------------------------------
Weighted average interest rate earned on:
<S> <C> <C> <C> <C>
Interest-earning deposits................... 5.19% 5.01% 5.74% 4.61%
Mortgage- and other asset-backed
securities................................ 7.55 6.44 6.37 8.11
Other investment securities................. 6.06 5.89 6.10 6.74
Loans receivable............................ 8.21 8.28 7.97 7.60
Stock in FHLB of Indianapolis............... 7.89 7.71 7.99 5.61
Total interest-earning assets............. 7.81 7.62 7.46 7.37
Weighted average interest rate cost of:
Savings accounts............................ 3.00 3.03 3.04 3.03
NOW and money market accounts............... 4.09 4.10 4.16 3.41
Certificates of deposit..................... 5.44 5.38 5.16 4.50
Borrowings.................................. 6.56 5.61 6.39 3.59
Total interest-bearing liabilities........ 4.94 4.82 4.69 4.05
Interest rate spread (1)....................... 2.87 2.80 2.77 3.32
Net yield on weighted average
interest-earning assets (2)................. N/A 3.99 3.64 3.67
</TABLE>
(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, 1996, because the computation of net yield is applicable only over a
period rather than at a specific date.
The following table describes the extent to which changes in interest
rates and changes in volume of interest-related assets and 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 (1) changes in rate (i.e.,
changes in rate multiplied by old volume) and (2) changes in volume (i.e.,
changes in volume multiplied by old rate). Changes attributable to both rate and
volume have been allocated proportionally to the change due to volume and the
change due to rate.
<TABLE>
<CAPTION>
Increase (Decrease) in Net Interest Income
Total Net Due to Due to
Change Rate Volume
------ ---- ------
(In thousands)
Year ended December 31, 1996
compared to Year ended December 31, 1995
Interest-earning assets:
<S> <C> <C> <C>
Interest-earning deposits.............................. $ 14 $ (20) $ 34
Mortgage- and other asset-backed securities............ 283 3 280
Other investment securities............................ (114) (24) (90)
Loans receivable....................................... 697 150 547
Stock in FHLB of Indianapolis.......................... 2 (1) 3
----- ------- -----
Total................................................ 882 108 774
----- ------- -----
Interest-bearing liabilities:
Savings accounts....................................... (21) --- (21)
NOW and money market accounts.......................... 71 (9) 80
Certificates of deposit................................... 127 70 57
Borrowings............................................. 74 (4) 78
----- ------- -----
Total................................................ 251 57 194
----- ------- -----
Change in net interest income
(fully taxable equivalent basis)....................... 631 51 580
Tax equivalent adjustment................................. (4) 1 (5)
----- ------- -----
Change in net interest income............................. $ 627 $ 52 $ 575
===== ======= =====
Year ended December 31, 1995
compared to Year ended December 31, 1994
Interest-earning assets:
Interest-earning deposits.............................. $90 $17 $73
Mortgage- and other asset-backed securities............ 73 (39) 112
Other investment securities............................ (51) (73) 22
Loans receivable....................................... 626 156 470
Stock in FHLB of Indianapolis.......................... 10 8 2
----- ------- -----
Total................................................ 748 69 679
----- ------- -----
Interest-bearing liabilities:
Savings accounts....................................... 16 --- 16
NOW and money market accounts.......................... 145 125 20
Certificates of deposit................................... 238 205 33
FHLB advances.......................................... 26 7 19
----- ------- -----
Total................................................ 425 337 88
----- ------- -----
Change in net interest income
(fully taxable equivalent basis)....................... 323 (268) 591
Tax equivalent adjustment................................. (4) 1 (5)
----- ------- -----
Change in net interest income............................. $ 319 $ (267) $ 586
===== ====== =====
</TABLE>
<PAGE>
Comparison of Years Ended December 31, 1996 and 1995
General. The Company's total assets were $77.7 million at December 31,
1996, an increase of $3.0 million or 4.0%. In December of 1996, $3.9 million of
capital was distributed to shareholders and resulted in a decrease in total
assets and a reduction in the percentage of increase for the year ended December
31, 1996. The percentage of interest-earning assets to total assets was 96.0% at
December 31, 1996 and 95.3% at December 31, 1995.
At December 31, 1996, the total of securities was $ 14.3 million
compared to $18.8 million at December 31, 1995, a decrease of $4.5 million.
Funds from maturing securities, payments on mortgage and other asset-backed
securities, and security sales were partially used to fund the growth in the
loan portfolio and the special cash distribution to shareholders. At December
31, 1996, the Company held $348,000 of corporate obligations all of which was
debt of domestic corporations rated AA or better by Moody's. The Company has
$3.1 million of structured notes, consisting of FHLB and other federal agency
securities, in its investment portfolio at December 31, 1996.
Total loans increased $7.1 million from December 31, 1995 to December
31, 1996, an increase of 14.2%. Most of the increase occurred in the one-to-four
family mortgages and consumer loans. One-to-four family mortgage loans increased
by $4.5 million and consumer loans by $1.9 million. The increase was funded by
the decrease in investment securities and the increase in deposits.
Deposits increased by $4.9 million to $57.4 million at December 31,
1996 from $52.5 million at December 31, 1995. Non-interest bearing deposits, NOW
accounts, passbook savings and money market savings increased by $1.9 million
while certificates of deposits increased by $3.0 million. Borrowings also
increased by $2.4 million during the year, of which $1.4 million was borrowed
from another bank and repaid in early 1997.
Equity capital decreased by $5.0 million during 1996 with the return of
capital distribution, a 5% stock repurchase program, regular quarterly
dividends, the funding of the Company's RRP plan, and an increase in the
unrealized losses on available for sale securities. The special one-time cash
distribution of $3.9 million on 1,310,000 shares was paid in December, 1996. The
Company received a Private Letter Ruling from the Internal Revenue Service which
qualified most of the 1996 cash distributions to shareholders, including regular
quarterly dividends and the one-time special cash distribution, as a nontaxable
return of capital. Under the stock repurchase program, the Company repurchased
66,125 shares for $.8 million. In 1996, the Bank adopted a Recognition and
Retention Plan for the employees and directors. The Bank contributed $.6 million
to the plan for the purchase of stock awarded. Net income for the year ended
December 31, 1996 was $913,000. This compares to net income of $908,000 for the
year ended December 31, 1995. An increase in net interest income was offset
primarily by an increase in other expenses, including the one-time special SAIF
Assessment.
Interest Income (fully taxable equivalent basis). the Company's total
interest income was $5.7 million for the year ended December 31, 1996 compared
to $4.8 million during 1995, an increase of $.9 million. Interest income for
1996 compared to 1995 increased $108,000 due to higher rates earned on assets,
primarily loans. However, the largest percentage of the increase, or $774,000,
was due to an increase in the volume of average interest earnings assets which
grew by $10.2 million. The increase in average interest earnings assets from
$64.7 million in 1995 to $74.9 million in 1996, combined with improved loan
rates, contributed to an increase in the average yield on interest earning
assets of 7.62% in 1996 compared to 7.46% in 1995. Average loan yield and yield
on asset-backed securities improved while yield on other investment securities
and interest-earning deposits declined.
Interest Expense. Interest expense increased by $251,000 for the year
ended December 31, 1996 compared to 1995. This increase was the result of an
increase in the average balance of the deposit liabilities by $3.7 million and
the increase in the average cost of these liabilities by 13 basis points, from
4.69% during 1995 to 4.82% in 1996. Local competition resulted in pressure to
maintain competitive rates, however, the interest rate spread improved slightly
in 1996.
Net Interest Income (fully taxable equivalent basis). Net interest
income increased by $.6 million for 1996 to approximately $3.0 million as
compared with $2.4 million in 1995. Net yield on weighted average
interest-earning assets increased to 3.99% in 1996 from 3.64% in 1995.The
Company increased its yield on earning assets more than its cost of funds in
1996 and this coupled with the increase in total average earning assets caused
the significant improvement.
Provision for losses on loans. The Company's provision for losses on
loans for the year ended December 31, 1996 and 1995 was $12,000 and $20,000
respectively. This provision and the related increase in the allowance for loan
losses were considered adequate based on the condition of the loan portfolio and
the Company's loan loss history. There were recoveries of $1,270 in 1996, no
chargeoffs in 1996 and chargeoffs of $3,622 in 1995. The Company provides a
general allowance that reflects an estimate of inherent losses based upon the
types and categories of outstanding loans as well as problem loans. At December
<PAGE>
31, 1996 and 1995, the allowance was $236,000 and $223,000, respectively, a
ratio of 0.41% and 0.45% of total loans at each date. Non-performing loans at
these dates were $406,000 and $311,000, respectively. The ratio of allowance for
loan losses to non-performing loans decreased from 71.6% at December 31, 1995 to
58.1% at December 31, 1996. Based on management's review of the loan portfolio
during these years, the allowance for loan losses at December 31, 1996 and 1995
is considered to be adequate to cover losses inherent in the loan portfolio.
Other Income. The Company's other income for the year ended December
31, 1996 and 1995 was $82,000 and $179,000, respectively. The year ended
December 31, 1995 included a $90,000 recovery on investments previously written
off while 1996 included only $17,000 of additional recovery. During 1996, the
Company recorded $47,000 of net losses on sales of securities. Structured notes
of $3.0 million were sold at a net loss and the proceeds were reinvested in
higher yielding securities, primarily mortgage and other asset-backed
securities. This strategy resulted in a higher yield in mortgage and other
asset-backed securities for the year and a corresponding increase in interest
income. Service charges on deposit accounts increased by $20,000 in 1996
compared to 1995. Income on the cash surrender value of life insurance was
$34,000 in 1996 and $25,000 in 1995.
Other Expenses. Operating expenses were $1,584,000 in 1996 compared to
$1,032,000 in 1995, an increase of $552,000 or 53.5%. Salaries and payroll taxes
increased by $162,000 as a result of additional personnel, merit pay increases,
implementation of the RRP Plan, and higher costs of other fringe benefits.
Pension plan expense decreased by $36,000 resulting in a net increase in
salaries and employee benefits of $126,000. Deposit insurance costs increased
$335,000 due to the SAIF Assessment. This is a one-time occurrence and should
result in a decline in deposit insurance costs in future years. Data processing
fees decreased $2,000 for the year. Various other operating expenses increased
by $93,000. Expenses related to being a public company such as accounting fees,
legal fees, filing fees, annual report and meeting costs and transfer agent
costs accounted for $57,000 of the increase. The balance of the increase was
related to additional operating costs associated with increased account volume,
new services, and advertising.
Income Tax Expense. Income tax expense for the years ended December 31,
1996 and 1995 was $507,000 and $526,000. Pretax income declined slightly in 1996
over 1995 and this resulted in a corresponding decrease in income tax expense.
Comparison of Years Ended December 31, 1995 and 1994
General. The Company's total assets were $74.6 million at December 31,
1995, an increase of $15.3 million, or 25.8%, from $59.4 million at December 31,
1994. The stock conversion contributed $12.6 million of the increase, deposit
growth $1.3 million, and earnings and recovery of unrealized losses on available
for sale securities generated the balance. The percentage of interest-earnings
assets to total assets was 95.3% at December 31, 1995 and 94.5% at December 31,
1994.
At December 31, 1995, investment securities, all of which were
classified as available for sale, totaled $18.8 million compared to $11.2
million at December 31, 1994, an increase of $7.6 million. There was also
significant growth in the loan portfolio. Net loans increased $5.7 million from
December 31, 1994 to December 31, 1995, an increase of 12.9%. Commercial paper
contributed $0.9 million to total loans at December 31, 1995. At December 31,
1994, the Company's investments included revenue bonds with a remaining book
value of $90,000. These bonds had been written down from $370,000 to $185,000 in
1991 and 1992 due to their credit quality. During 1995, payments of $180,000 in
principal were received. This resulted in recoveries of $90,000 being
recognized. Additional receipts of $18,000 relating to these securities were
recorded as interest income. Additional recoveries are anticipated, but no
estimate of amounts is available. The Company held $1.7 million of corporate
obligations at December 31, 1995. These obligations included $577,000 in revenue
bonds with a Moody's ratings of A or better and debt of domestic corporations in
the amount of $1.1 million, also with ratings of A or better. The Company
believes that there is no significant risk of future losses in this portion of
its investment portfolio at December 31, 1995 based upon credit quality, and
acquires such obligations from time to time to improve the yield on its
investment portfolio.
Deposits increased by $1.3 million to $52.5 million at December 31,
1995 from $51.2 million at December 31, 1994. NOW accounts, passbook savings and
money market savings increased by $1.6 million while certificates of deposits
declined by $0.3 million.
Equity capital increased $13.6 million during 1995 attributable to the
proceeds of the conversion, the addition of earnings, and the market recovery of
available for sale securities. Unrealized gains in state and municipal bonds,
asset-backed securities and marketable equity securities offset unrealized
losses attributable to federal agency securities, including FHLB structured
notes, at December 31, 1995.
<PAGE>
Net income for the year ended December 31, 1995 was $908,000. This
compares to net income of $734,000 for the year ended December 31, 1994. Net
interest income increased $319,000. Increases in other expenses and provisions
for loan losses in 1995 were offset by recoveries on previously written-off
securities.
Interest Income (fully taxable equivalent basis). The Company's total
interest income was $4.8 million for the year ended December 31, 1995 compared
to $4.1 million during 1994, an increase of $748,000. Interest income for 1995
compared to 1994 increased $69,000 due to higher rates earned on assets,
primarily loans. However, the largest percentage of the increase, or $679,000,
was due to an increase in the volume of interest-earning assets which grew by
$9.3 million. The increase in interest-earning assets from $55.4 million in 1994
to $64.7 million in 1995, combined with improved loan rates, contributed to an
increase in the average yield on interest-earning assets of 7.46% in 1995
compared to 7.37% in 1994. Average loan yield improved while the yields on
investment securities, including mortgage- and other asset-backed securities,
declined. At December 31, 1995, the Company had $6.2 million of structured notes
in its investment portfolio.
Interest Expense. Interest expense increased by $425,000 for the year
ended December 31, 1995 compared to 1994. This increase was the result of an
increase in the average balance of the interest-bearing liabilities of $2.1
million and the increase in the average cost of these liabilities by 64 basis
points, from 4.05% during 1994 to 4.69% in 1995. Local competition resulted in
pressure to maintain competitive rates and an interest rate spread which
declined in 1995.
Net Interest Income (fully taxable equivalent basis). Net interest
income increased by $323,000 for 1995 to approximately $2.4 million as compared
with $2.0 million in 1994. Net yield on interest-earning assets declined
slightly to 3.64% in 1995 from 3.67% in 1994. The Company's cost of funds
increased more quickly than its yield on earnings assets. This was offset by an
increase in volume as average net interest-earning assets increased $7.2 million
as proceeds of the conversion were invested.
Provision for Losses on Loans. The Company's provision for losses on
loans for the year ended December 31, 1995 was $20,000. This provision and the
related increase in the allowance for loan losses were considered adequate based
on total chargeoffs of $3,000 in 1995. The provision for loan losses in 1994 was
$6,000, and chargeoffs were $1,000. The Company provides a general allowance
that reflects an estimate of inherent losses based upon the types and categories
of outstanding loans as well as problem loans. At December 31, 1995 and 1994 the
allowance was $223,000 and $206,000, respectively, a ratio of 0.45% and 0.47% of
total loans. Nonperforming loans at these dates were $311,000 and $337,000,
respectively. The ratio of allowance for loan losses to nonperforming loans
increased from 61.1% at December 31, 1994 to 71.6% at December 31, 1995. Based
on management's review of the loan portfolio during these years, the allowance
for loan losses at December 31, 1995 and 1994 was considered to be adequate to
cover losses inherent in the loan portfolio.
Other Income. The Company's other income for the years ended December
31, 1995 and 1994 was $179,000 and $79,000, respectively. The overall increase
was primarily due to a $90,000 recovery on investments previously written off
and a $12,000 increase in service charges on deposit accounts. Income on the
cash surrender value of life insurance was $25,000 in 1995 and $27,000 in 1994.
Other Expenses. Operating expenses were $1,032,000 in 1995 compared to
$957,000 in 1994, an increase of $75,000 or 7.8%. Salaries and payroll taxes
increased by $47,000 as a result of additional personnel and merit pay
increases. Pension plan expense decreased by $14,000 resulting in a net increase
in salaries and employee benefits of $33,000. Data processing fees increased
$26,000 for the year. This increase was attributable to price increases,
increases in the volume of accounts, and additional services offered to
customers such as voice response access for account balances. The other expenses
category increased by $16,000. Expenses related to being a public company such
as accounting fees, legal fees, filing fees, and transfer agent costs accounted
for much of the increase.
Income Tax Expense. Income tax expense for the years ended December 31,
1995 and 1994 was $526,000 and $370,000. Pretax income increased $330,000 in
1995 from 1994, and this resulted in a corresponding increase in income tax
expense.
Liquidity and Capital Resources
The Company's primary sources of funds are deposits, proceeds from
principal and interest payments of loans, and proceeds from maturing securities.
While maturities and scheduled amortization of loans are a predictable source of
funds, deposit flows and mortgage prepayments are generally influenced by
general interest rates, economic conditions, and competition.
As a result of the conversion in 1995, the Company received net
proceeds of $12.7 million, which were primarily invested in loans and investment
securities. There was an outflow of funds during 1996 for the capital
distribution of $3.9 million to shareholders and the repurchase of the Company's
common stock for approximately $.8 million, in addition to regular cash
dividends.
<PAGE>
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, 1996, 1995, and 1994, the Company originated mortgage loans in the
amounts of $13.2 million, $8.6 million, and $9.2 million, respectively. The
Company originated consumer loans of $6.1 million, $4.8 million and $4.8
million, respectively. The Company also purchased loans, excluding commercial
paper, of $1.0 million in 1996 and 1995 and $.3 million in 1994. Loan
repayments, excluding commercial paper, totaled $12.4 million, $9.3 million, and
$9.1 million for 1996, 1995, and 1994, respectively.
During the years ended December 31, 1996, 1995, and 1994, the Company
purchased investment securities in the amounts of $8.7 million, $13.6 million,
and $2.6 million, respectively. Sales or maturities of such securities held by
the Company and payments on mortgage-backed or other asset-backed securities
were $12.8 million, $6.6 million, and $4.3 million for 1996, 1995, and 1994,
respectively.
Deposits grew by $1.3 million from December 31, 1994 to December 31,
1995, and by $4.9 million from December 31, 1995 to December 31, 1996.
The Company experienced an increase in cash and cash equivalents to
$3.2 million at December 31, 1995 from $1.6 million at December 31, 1994. From
December 31, 1995 to December 31, 1996, cash and cash equivalents increased by
$.5 million.
At December 31, 1996 and 1995, the Company had outstanding loan
commitments and standby letters of credit totaling $2.3 million and $2.0
million, respectively. The Company anticipates that it will have sufficient
funds available to meet its current loan commitments. Certificates of deposit
which are scheduled to mature in one year or less from December 31, 1996 and
1995 totaled $19.9 million and $18.9 million, respectively. Based upon
historical deposit flow data, the Company's competitive pricing in its market
and management's experience, management believes that a significant portion of
such deposits will remain with the Company.
Liquidity management is both a daily and long-term function of the
Company's management strategy. In the event that the Company should require
funds beyond its ability to generate them internally, additional funds are
available through the use of FHLB advances, and also may be available through
sales of securities, although no sales of securities are planned. At December
31, 1996 and 1995, the Company had outstanding FHLB advances of $ 2 million and
$1 million, respectively.
Federal regulations require FHLB-member savings associations to
maintain an average daily balance of liquid assets equal to a monthly average of
not less than a specified percentage of its net withdrawable savings deposits
plus short-term borrowings. Liquid assets include cash, certain time deposits,
certain bankers' acceptances, specified U.S. government, state or federal agency
obligations, certain corporate debt securities, commercial paper, certain mutual
funds, certain mortgage-related securities, and certain first lien residential
mortgage loans. This liquidity requirement may be changed from time-to-time by
the OTS to any amount within the range of 4% to 10%, and is currently 5%. Also,
a savings association currently must maintain short-term liquid assets
constituting at least 1% of its average daily balance of net withdrawable
deposit accounts and current borrowings. Monetary penalties may be imposed for
failure to meet these liquidity requirements. As of December 31, 1996, the Bank
had liquid assets of $7.9 million, and a regulatory liquidity ratio of 14.2%, of
which 56.5% constituted short-term investments.
Pursuant to OTS capital regulations, savings associations must
currently meet a 1.5% tangible capital requirement, a 3% leverage ratio (or core
capital) requirement, and a total risk-based capital to risk-weighted assets
ratio of 8%. At December 31, 1996, the Bank's tangible capital ratio was 21.9%,
its leverage ratio was 21.9%, and its risk-based capital to risk-weighted assets
<PAGE>
ratio was 41.1%. Therefore, at December 31, 1996, 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, 1996:
<TABLE>
<CAPTION>
At December 31, 1996
-------------------------------------------------------------------------------
OTS Requirement The Bank's Capital Level
-------------------------- --------------------------------------------
% of % of Amount
Capital Standard Assets Amount Assets(1) Amount of Excess
- ---------------- ------ ------ --------- ------ ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Tangible capital............................ 1.5% $1,166 21.9% $17,018 $15,852
Core capital (2)............................ 3.0 2,332 21.9 17,018 14,686
Risk-based capital.......................... 8.0 3,356 41.1 17,254 (3) 13,898
</TABLE>
- --------------
(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) The OTS has proposed and is expected to adopt a core capital
requirement for savings associations comparable to that recently
adopted by the Comptroller of the Currency for national banks. The new
regulation, as proposed, would require at least 3% of total adjusted
assets for savings associations that received the highest supervisory
rating for safety and soundness, and 4% to 5% for all other savings
associations. The final form of such new OTS core capital requirement
may differ from that which has been proposed. The Bank expects to be in
compliance with such new requirements.
(3) The Bank's risk-based capital includes $236,000 of general valuation
allowances.
As of December 31, 1996, 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.
Impact of Inflation
The audited financial statements presented elsewhere herein have been
prepared in accordance with generally accepted accounting principles. These
principles require the measurement of financial position and operating results
in terms of historical dollars, without considering changes in the relative
purchasing power of money over time due to inflation.
Current Accounting Issues
Mortgage Servicing Rights. During 1995, the Financial Accounting
Standards Board ("FASB") issued SFAS No. 122, Accounting for Mortgage Servicing
Rights. SFAS No. 122 pertains to mortgage banking enterprises and financial
institutions that conduct operations that are substantially similar to the
primary operations of mortgage banking enterprises. SFAS No. 122 eliminates the
accounting distinction between mortgage servicing rights that are acquired
through loan origination activities and those acquired through purchase
transactions. Under SFAS No. 122, if a mortgage banking enterprise sells or
securitizes loans and retains the mortgage servicing rights, the enterprise must
allocate the total cost of the mortgage loans to the mortgage servicing rights
and the loans (without the rights) based on their relative fair values if it is
practicable to estimate those fair values. If it is not practicable, the entire
cost should be allocated to the mortgage loans and no cost should be allocated
to the mortgage service rights. An entity would measure impairment of mortgage
servicing rights and loans based on the excess of the carrying amount of the
mortgage servicing rights portfolio over the fair value of that portfolio.
SFAS No. 122 is to be applied prospectively in fiscal years beginning
after December 15, 1995, to transactions in which an entity acquires mortgage
servicing rights and to impairment evaluations of all capitalized mortgage
servicing rights. The adoption of SFAS No. 122 had no impact in 1996 on the
Company's financial condition and results of operations.
Stock-Based Compensation. The FASB has issued No. SFAS 123, Accounting
for Stock-based Compensation. SFAS No. 123 establishes a fair value based method
of accounting for stock-based compensation plans. The FASB encourages all
entities to adopt this method for accounting for all arrangements under which
employees receive shares of stock or other equity instruments of the employer,
or the employer incurs liabilities to employees in amounts based on the price of
its stock.
Due the extremely controversial nature of this project, SFAS No. 123
permits a company to continue the accounting for stock-based compensation
prescribed in Accounting Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees. If a company elects that option, pro forma disclosures of
net income (and EPS, if presented) are required in the notes to the financial
statements as if the provisions of SFAS No. 123 had been used to measure
stock-based compensation. The disclosure requirements of Opinion No. 25 have
been superseded by the disclosure requirements of this Statement. Once an entity
adopts the fair value based method for accounting for these transactions, that
election cannot be reversed.
Equity instruments granted or otherwise transferred directly to an
employee by a principal stockholder are stock-based employee compensation to be
accounted for in accordance with either Opinion 25 or SFAS No. 123 unless the
transfer clearly is for a purpose other than compensation. The accounting
requirements of SFAS No. 123 became effective for transactions entered into in
fiscal years beginning after December 15, 1995, and the disclosure requirements
became effective for financial statements for fiscal years beginning after
<PAGE>
December 15, 1995. Pro forma disclosures required for entities that elect to
continue to measure compensation cost using Opinion 25 must include the effects
of all awards granted in fiscal years beginning after December 15, 1994. During
the initial phase-in period, the effects of applying this Statement are not
likely to be representative of the effects on reported net income for future
years because options vest over several years and additional awards generally
are made each year.
The Company adopted SFAS No. 123 for 1996, and elected to report the
pro forma disclosures of net income and earnings per share in the notes to
financial statements.
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities. SFAS No. 125, Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities, breaks new ground in resolving
long-standing questions about whether transactions should be accounted for as
secured borrowings or as sales. The Statement provides consistent standards for
distinguishing transfers of financial assets that are sales from transfers that
are considered secured borrowings.
A transfer of financial assets in which the transferor surrenders
control over those assets is accounted for as a sale to the extent that
consideration other than beneficial interests in the transferred assets is
received in exchange. The transferor has surrendered control over transferred
assets only if all of the following conditions are met:
o The transferred assets have been isolated from the
transferor--put presumptively beyond the reach of the
transferor and its creditors, even in bankruptcy or other
receivership.
o Each transferee obtains the right--free of conditions that
constrain it from taking advantage of that right--to pledge or
exchange the transferred assets, or the transferee is a
qualifying special-purpose entity and the holders of
beneficial interest in that entity have the right--free of
conditions that constrain them from taking advantage of that
right--to pledge or exchange those interests.
o The transferor does not maintain effective control over the
transferred assets through an agreement that both entitles and
obligates the transferor to repurchase or redeem them before
their maturity, or an agreement that entitles the transferor
to repurchase or redeem transferred assets are not readily
obtainable.
This Statement provides detailed measurement standards for assets and
liabilities included in these transactions. It also includes implementation
guidance for assessing isolation of transferred assets and for accounting for
transfers of partial interest, servicing of financial assets, securitization,
transfers or sales type and direct financing lease receivables, securities
lending transactions, repurchase agreements, "wash sales," loan syndications and
participation, risk participation in banker's acceptances, factoring
arrangements, transfers of receivables with recourse and extinguishment of
liabilities.
The Statements supersede FASB Statements No. 76, Extinguishment of
Debt, and No. 77, Reporting by Transferors for Transfers of Receivables with
Recourse, and No. 122, Accounting for Mortgage Servicing Rights, and amends FASB
Statement No. 115, Accounting for Certain Investments in Debt and Equity
Securities, in addition to clarifying or amending a number of other statements
and technical bulletins.
Except as amended by Statement No. 127, this Statement is effective for
transfers and servicing of financial assets and extinguishments of liabilities
occurring after December 31, 1996 and is to be applied prospectively. Earlier or
retroactive application is not permitted.
The FASB was made aware that the volume of certain transactions and the
related changes to information systems and accounting processes that are
necessary to comply with the requirements of Statement No. 125 would make it
extremely difficult, if not impossible, for some affected enterprises to apply
the transfer and collateral provisions of Statement No. 125 to those
transactions as soon as January 1, 1997. As a result, SFAS No. 127 defers for
one year the effective date (a) of paragraph 15 of Statement No. 125 and (b) for
repurchase agreement, dollar-roll, securities lending, and similar transactions,
of paragraphs 9-12 and 237(b) of Statement No. 125.
Statement No. 127 provides additional guidance on the types of
transactions for which the effective date of Statement No. 125 has been
deferred. It also requires that if it is not possible to determine whether a
transfer occurring during calendar-year 1997 is part of a repurchase agreement,
dollar-roll, securities lending, or similar transaction, then paragraphs 9-12 of
Statement No. 125 should be applied to that transfer.
All provisions of Statement No. 125 should continue to be applied
prospectively, and earlier or retroactive application is not permitted.
<PAGE>
Independent Auditor's Report
To the Board of Directors
Logansport Financial Corp.
Logansport, Indiana
We have audited the consolidated statement of financial condition of Logansport
Financial Corp. and subsidiary as of December 31, 1996 and 1995, and the related
consolidated statements of income, changes in stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1996. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements described above present
fairly, in all material respects, the consolidated financial position of
Logansport Financial Corp. and subsidiary as of December 31, 1996 and 1995, and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 1996, in conformity with generally accepted
accounting principles.
As discussed in the notes to the consolidated financial statements, the Company
changed its method of accounting for investments in securities in 1994.
GEO. S. OLIVE & CO. LLC
Indianapolis, Indiana
January 23, 1997
<PAGE>
LOGANSPORT FINANCIAL CORP. AND SUBSIDIARY
Consolidated Statement of Financial Condition
<TABLE>
<CAPTION>
December 31 1996 1995
- ------------------------------------------------------------------------------------------------------
Assets
<S> <C> <C>
Cash $ 997,552 $ 1,267,791
Short-term interest-bearing deposits 2,761,126 1,974,788
----------- -----------
Total cash and cash equivalents 3,758,678 3,242,579
Interest-bearing deposits 100,000 100,000
Investment securities--available for sale 14,303,105 18,753,096
Loans 57,038,066 49,930,050
Allowance for loan losses (235,970) (222,700)
----------- -----------
Net loans 56,802,096 49,707,350
Premises and equipment 476,325 432,176
Federal Home Loan Bank of Indianapolis stock, at cost 386,500 348,200
Cash value of life insurance 1,040,242 1,005,686
Interest receivable 447,085 466,466
Deferred income tax benefit 312,197 117,213
Other assets 42,265 474,542
----------- -----------
Total assets $77,668,493 $74,647,308
=========== ===========
Liabilities
Deposits
Noninterest-bearing $ 631,122 $ 469,024
Interest-bearing 56,765,078 51,991,956
----------- -----------
Total deposits 57,396,200 52,460,980
Short-term borrowings 3,400,000 1,000,000
Interest payable 84,490 64,163
Other liabilities 1,360,915 667,895
----------- -----------
Total liabilities 62,241,605 54,193,038
----------- -----------
Commitments and Contingencies
Stockholders' Equity
Preferred stock, no-par value
Authorized and unissued--2,000,000 shares
Common stock, no-par value
Authorized--5,000,000 shares
Issued and outstanding--1,256,375 and 1,322,500 shares 7,518,062 12,670,006
Retained earnings--substantially restricted 8,587,979 7,774,213
Unearned compensation (522,382)
Net unrealized gain (loss) on securities available for sale (156,771) 10,051
----------- -----------
Total stockholders' equity 15,426,888 20,454,270
----------- -----------
Total liabilities and stockholders' equity $77,668,493 $74,647,308
=========== ===========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
LOGANSPORT FINANCIAL CORP. AND SUBSIDIARY
Consolidated Statement of Income
<TABLE>
<CAPTION>
Year Ended December 31 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------
Interest Income
<S> <C> <C> <C>
Loans receivable $4,420,668 $3,724,129 $3,098,456
Investment securities
Taxable 917,529 760,351 756,506
Tax-exempt 125,765 117,422 103,038
Other interest and dividend income 189,293 172,763 73,562
---------- ---------- ----------
Total interest income 5,653,255 4,774,665 4,031,562
---------- ---------- ----------
Interest Expense
Deposits 2,613,552 2,435,953 2,037,337
Short-term borrowings 106,037 31,900 6,063
---------- ---------- ----------
Total interest expense 2,719,589 2,467,853 2,043,400
---------- ---------- ----------
Net Interest Income 2,933,666 2,306,812 1,988,162
Provision for losses on loans 12,000 20,000 5,964
---------- ---------- ----------
Net Interest Income After Provision for Losses on Loans 2,921,666 2,286,812 1,982,198
Other Income
Service charges on deposit accounts 67,208 47,088 35,015
Net realized gains (losses) on sales of securities (47,238) 3,095
Recoveries on previously written-off securities 17,291 89,683
Other income 45,247 39,405 43,801
---------- ---------- ----------
Total other income 82,508 179,271 78,816
---------- ---------- ----------
Other Expenses
Salaries and employee benefits 618,793 492,322 459,086
Net occupancy expenses 39,115 34,341 29,111
Equipment expenses 42,221 46,450 54,811
Deposit insurance expense 449,429 116,224 113,616
Computer processing fees 91,076 92,910 66,836
Other expenses 343,224 249,840 233,997
---------- ---------- ----------
Total other expenses 1,583,858 1,032,087 957,457
---------- ---------- ----------
Income Before Income Tax 1,420,316 1,433,996 1,103,557
Income tax expense 507,363 526,142 369,634
---------- ---------- ----------
Net Income $ 912,953 $ 907,854 $ 733,923
========== ========== ==========
Earnings Per Share $.69
Weighted Average Shares Outstanding 1,316,372
</TABLE>
See notes to consolidated financial statements.
<PAGE>
LOGANSPORT FINANCIAL CORP. AND SUBSIDIARY
Consolidated Statement of Changes in Stockholders' Equity
<TABLE>
<CAPTION>
Net Unrealized
Gain (Loss) on
Common Stock Securities
Shares Retained Unearned Available
Outstanding Amount Earnings Compensation For Sale Total
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balances, January 1, 1994 $6,396,936 $ 6,396,936
Net income for 1994 733,923 733,923
Cumulative effect of change
in method of accounting
for securities $123,354 123,354
Net change in unrealized gain
(loss) on securities
available for sale (420,719) (420,719)
--------- ----------- ---------- -------- --------- -----------
Balances, December 31, 1994 7,130,859 (297,365) 6,833,494
Net income for 1995 907,854 907,854
Common stock issued in
conversion, net of costs 1,322,500 $12,670,006 12,670,006
Cash dividends ($.20 per share) (264,500) (264,500)
Net change in unrealized gain
(loss) on securities available
for sale 307,416 307,416
--------- ----------- ---------- -------- --------- -----------
Balances, December 31, 1995 1,322,500 12,670,006 7,774,213 10,051 20,454,270
Net income for 1996 912,953 912,953
Regular cash dividends
($.40 per share) (423,200) (99,187) (522,387)
Special cash distribution
($3.00 per share) (3,930,000) (3,930,000)
Contribution for unearned
compensation $(614,567) (614,567)
Amortization of unearned
compensation 92,185 92,185
Purchase of stock (66,125) (798,744) (798,744)
Net change in unrealized
gain (loss) on securities
available for sale (166,822) (166,822)
--------- ----------- ---------- -------- --------- -----------
Balances, December 31, 1996 1,256,375 $ 7,518,062 $8,587,979 (522,382) $(156,771) $15,426,888
========= =========== ========== ======== ========= ===========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
LOGANSPORT FINANCIAL CORP. AND SUBSIDIARY
Consolidated Statement of Cash Flows
Year Ended December 31 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------
Operating Activities
<S> <C> <C> <C>
Net income $ 912,953 $ 907,854 $ 733,923
Adjustments to reconcile net income to net cash
provided by operating activities
Provision for loan losses 12,000 20,000 5,964
Securities (gains) losses 47,238 (3,095)
Gain on sale of foreclosed real estate (869) (12,144)
Investment securities (accretion) amortization, net 54,374 (21,422) 23,556
Depreciation 38,432 45,543 51,048
Amortization of unearned compensation 92,185
Deferred income tax (85,564) 7,174 (34,651)
Change in
Interest receivable 19,381 (109,842) 22,708
Interest payable 20,327 17,837 5,027
Cash surrender value life insurance (34,556) (25,006) (27,260)
Other adjustments 29,613 254,722 (1,696)
---------- ---------- ----------
Net cash provided by operating activities 1,105,514 1,081,621 778,619
---------- ---------- ----------
Investing Activities
Net change in interest-bearing deposits (100,000)
Purchases of securities available for sale (8,011,623) (8,056,729) (1,513,625)
Proceeds from maturities of securities available for sale 5,847,904 3,939,484 92,980
Purchases of securities held to maturity (5,530,959) (1,088,056)
Proceeds from maturities of securities held to maturity 1,558,611 4,256,619
Proceeds from sales of securities 7,338,154 708,095
Purchase of Federal Home Loan Bank stock (38,300) (40,900) (18,200)
Net change in loans (7,105,635) (5,688,663) (6,175,045)
Proceeds from foreclosed real estate sales 8,500
Purchase of premises and equipment (82,582) (62,578) (32,371)
Other investing activities (242) (15,393)
Net cash used by investing activities (2,052,324) (13,280,532) (4,477,698)
---------- ----------- ----------
Financing Activities
Net change in
Noninterest-bearing, interest-bearing demand
and savings deposits 1,927,086 1,585,557 (10,985)
Certificates of deposit 3,008,134 (326,703) 1,654,764
Short-term borrowings 1,400,000
Proceeds from Federal Home Loan Bank advances 6,000,000 1,000,000 1,000,000
Payment of Federal Home Loan Bank advances (5,000,000) (1,000,000)
Dividends (4,459,000) (132,250)
Purchase of stock (798,744)
Contribution for unearned compensation (614,567)
Sale of stock, net of costs 12,670,006
---------- ---------- ----------
Net cash provided by financing activities 1,462,909 13,796,610 2,643,779
---------- ---------- ----------
Net Change in Cash and Cash Equivalents 516,099 1,597,699 (1,055,300)
Cash and Cash Equivalents, Beginning of Year 3,242,579 1,644,880 2,700,180
---------- ---------- ----------
Cash and Cash Equivalents, End of Year $3,758,678 $3,242,579 $1,644,880
========== ========== ==========
Additional Cash Flows and Supplementary Information
Interest paid $2,699,262 $2,450,016 $2,038,374
Income tax paid 628,968 411,900 492,628
Dividends payable at end of year 125,637 132,250
Due from broker for called securities 400,000
Due to broker for purchased securities 706,000
</TABLE>
See notes to consolidated financial statements.
<PAGE>
LOGANSPORT FINANCIAL CORP. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of Logansport Financial Corp. ("Company"),
and its wholly owned subsidiary, Logansport Savings Bank, FSB ("Bank"), conform
to generally accepted accounting principles and reporting practices followed by
the thrift industry. The more significant of the policies are described below.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
The Company is a thrift holding company whose principal activity is the
ownership and management of the Bank. The Bank operates under a federal thrift
charter and provides full banking services. As a federally-chartered thrift, the
Bank is subject to the regulation of the Office of Thrift Supervision and the
Federal Deposit Insurance Corporation.
The Bank generates mortgage and consumer loans and receives deposits from
customers located primarily in Cass County, Indiana. The Bank's loans are
generally secured by specific items of collateral including real property and
consumer assets.
Consolidation--The consolidated financial statements include the accounts of the
Company and the Bank after elimination of all material intercompany transactions
and accounts.
Investment Securities--The Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 115, Accounting For Certain Investments in Debt and
Equity Securities, on January 1, 1994.
Debt securities are classified as held to maturity when the Company has the
positive intent and ability to hold the securities to maturity. Securities held
to maturity are carried at amortized cost.
Debt securities not classified as held to maturity and marketable equity
securities are classified as available for sale. Securities available for sale
are carried at fair value with unrealized gains and losses reported separately
in stockholders' equity, net of tax.
Amortization of premiums and accretion of discounts are recorded as interest
income from securities. Realized gains and losses are recorded as net security
gains (losses). Gains and losses on sales of securities are determined on the
specific-identification method.
At January 1, 1994, investment securities with an approximate carrying value of
$5,816,700 were reclassified as available for sale. This reclassification
resulted in an increase in total stockholders' equity, net of taxes, of
$123,354.
<PAGE>
LOGANSPORT FINANCIAL CORP. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
Loans are carried at the principal amount outstanding. Interest income is
accrued on the principal balances of loans. The accrual of interest on impaired
loans is discontinued when, in management's opinion, the borrower may be unable
to meet payments as they become due. When interest accrual is discontinued, all
unpaid accrued interest is reversed. Interest income is subsequently recognized
only to the extent cash payments are received. Loan origination fees are
generally charged in amounts that do not materially exceed the direct costs of
underwriting and closing loans, and therefore, no deferred loan fees are
recorded.
Allowance for loan losses is maintained to absorb potential loan losses based on
management's continuing review and evaluation of the loan portfolio and its
judgment as to the impact of economic conditions on the portfolio. The
evaluation by management includes consideration of past loss experience, changes
in the composition of the portfolio, the current condition and amount of loans
outstanding, and the probability of collecting all amounts due. Impaired loans
are measured by the present value of expected future cash flows, or the fair
value of the collateral of the loan, if collateral dependent.
The determination of the adequacy of the allowance for loan losses is based on
estimates that are particularly susceptible to significant changes in the
economic environment and market conditions. Management believes that as of
December 31, 1996, the allowance for loan losses is adequate based on
information currently available. A worsening or protracted economic decline in
the area within which the Company operates would increase the likelihood of
additional losses due to credit and market risks and could create the need for
additional loss reserves.
Premises and equipment are carried at cost net of accumulated depreciation.
Depreciation is computed using the straight-line and accelerated methods based
principally on the estimated useful lives of the assets. Maintenance and repairs
are expensed as incurred while major additions and improvements are capitalized.
Gains and losses on dispositions are included in current operations.
Federal Home Loan Bank stock is a required investment for institutions that are
members of the Federal Home Loan Bank system. The required investment in the
common stock is based on a predetermined formula.
Foreclosed real estate is carried at the lower of cost or fair value less
estimated selling costs. When foreclosed real estate is acquired, any required
adjustment is charged to the allowance for loan losses. All subsequent activity
is included in current operations.
Income tax in the consolidated statement of income includes deferred income tax
provisions or benefits for all significant temporary differences in recognizing
income and expenses for financial reporting and income tax purposes.
Earnings per share for 1996 was computed based upon the weighted average common
shares outstanding during the period subsequent to the Bank's conversion to a
stock savings bank on June 13, 1995. Net income per share for the year ended
December 31, 1995, is not meaningful.
<PAGE>
LOGANSPORT FINANCIAL CORP. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
INVESTMENT SECURITIES
<TABLE>
<CAPTION>
1996
------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
December 31 Cost Gains Losses Value
- --------------------------------------------------------------------------------------------------------------
Available for sale
<S> <C> <C> <C> <C>
Federal agencies $ 5,245 $ 1 $366 $ 4,880
State and municipal 2,194 48 2,242
Mortgage and other asset-backed
securities 6,768 8 102 6,674
Marketable equity securities 6 153 159
Corporate obligations 350 2 348
------- ---- ---- -------
Total investment securities $14,563 $210 $470 $14,303
======= ==== ==== =======
</TABLE>
<TABLE>
<CAPTION>
1995
------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
December 31 Cost Gains Losses Value
- ---------------------------------------------------------------------------------------------------------------
Available for sale
<S> <C> <C> <C> <C>
Federal agencies $ 7,424 $ 23 $272 $ 7,175
State and municipal 2,229 67 2 2,294
Mortgage and other asset-backed
securities 7,422 49 3 7,468
Marketable equity securities 6 114 120
Corporate obligations 1,655 45 4 1,696
------- ---- ---- -------
Total investment securities $18,736 $298 $281 $18,753
======= ==== ==== =======
</TABLE>
The amortized cost and fair value of securities available for sale at December
31, 1996, by contractual maturity, are shown below. Expected maturities will
differ from contractual maturities because issuers may have the right to call or
prepay obligations with or without call or prepayment penalties. <PAGE>
LOGANSPORT FINANCIAL CORP. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
1996
Amortized Fair
Maturity Distribution at December 31 Cost Value
- ---------------------------------------------------------------------------
Within one year $ 1,463 $ 1,462
One to five years 2,351 2,281
Five to ten years 3,411 3,152
After ten years 564 575
------- -------
7,789 7,470
Marketable equity securities 6 159
Mortgage-backed and
other asset-backed securities 6,768 6,674
------- -------
Totals $14,563 $14,303
======= =======
Securities with a carrying value of $11,268,000 and $11,642,000 were pledged at
December 31, 1996 and 1995 to secure FHLB advances.
Proceeds from sales of securities available for sale during 1996 and 1995 were
$7,338,154 and $708,095. Gross gains of $19,553 and $3,095 in 1996 and 1995 and
gross losses of $66,791 in 1996 were realized on those sales.
On November 30, 1995, the Company transferred certain securities from held to
maturity to available for sale in accordance with a transition reclassification
allowed by the Financial Accounting Standards Board. Such securities had a
carrying value of $10,267,223 and a fair value of $10,391,280.
During the fourth quarter of 1994, the Company transferred investments with a
carrying value of $1,774,000 from the available-for-sale category to the
held-to-maturity category. Accordingly, the difference between the carrying
value and par value will be amortized to maturity. The net unrealized loss on
these investments of $101,262 at December 31, 1994, included in the unrealized
loss on securities available for sale on the statement of financial condition as
part of stockholders' equity, was also to be amortized to maturity in an equal
offsetting amount. During 1995, these investments were included in the transfer
of certain securities from the held-to-maturity category to the
available-for-sale category as allowed by the Financial Accounting Standards
Board.
Certain corporate obligations previously included in securities available for
sale were written down in prior years by a total of $185,000 due to their
deteriorated credit quality. Recoveries of approximately $17,000 and $90,000
were recorded in 1996 and 1995 for principal payments received in excess of the
carrying value.
The tax expense (benefit) for securities gains (losses) was $(18,771) for 1996
and $1,226 for 1995.
<PAGE>
LOGANSPORT FINANCIAL CORP. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
LOANS AND ALLOWANCE
December 31 1996 1995
- -------------------------------------------------------------------------
Real estate mortgage loans
One-to-four family $41,109 $36,608
Multi-family 2,370 1,915
Commercial 2,701 1,620
Construction loans 994 907
Consumer loans 9,864 8,002
Commercial paper 878
----- -----
$57,038 $49,930
======= =======
Year Ended December 31 1996 1995 1994
- ------------------------------------------------------------------------------
Allowance for loan losses
Balances, January 1 $223 $206 $201
Provision for loan losses 12 20 6
Loans recovered (charged off) 1 (3) (1)
---- ---- ----
Balances, December 31 $236 $223 $206
==== ==== ====
PREMISES AND EQUIPMENT
December 31 1996 1995
- ------------------------------------------------------------------------------
Land $203 $148
Buildings and land improvements 443 423
Furniture and equipment 264 258
---- ----
Total cost 910 829
Accumulated depreciation (434) (397)
---- ----
Net $476 $432
==== ====
<PAGE>
LOGANSPORT FINANCIAL CORP. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
DEPOSITS
December 31 1996 1995
- --------------------------------------------------------------------------
Demand deposits $20,294 $18,290
Savings deposits 3,119 3,196
Certificates of $100,000 or more 4,358 3,643
Other certificates 29,625 27,332
------ ------
Total deposits $57,396 $52,461
======= =======
Certificates maturing in
years ending after December 31, 1996:
1997 $19,939
1998 11,706
1999 1,083
2000 708
2001 519
Thereafter 28
-------
$33,983
=======
SHORT-TERM BORROWINGS
December 31 1996 1995
- -------------------------------------------------------------------------------
Federal Home Loan Bank advances $2,000 $1,000
Note payable 1,400
------ ------
Total short-term borrowings $3,400 $1,000
====== ======
The weighted average interest rate on the advances was 5.38% and 6.02% at
December 31, 1996 and 1995. The advances at December 31, 1996 are due in
January, 1997.
The Federal Home Loan Bank advances are secured by first-mortgage loans and
investment securities totaling $49,412,000. Advances are subject to restrictions
or penalties in the event of prepayment.
The note payable to another bank was due on March 5, 1997. It was secured by
100% of the Bank's common stock, and interest was at the prime rate. The note
was repaid on January 16, 1997, from the proceeds of a Bank dividend to the
Company.
<PAGE>
LOGANSPORT FINANCIAL CORP. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
INCOME TAX
<TABLE>
<CAPTION>
Year Ended December 31 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income tax expense
Currently payable
Federal $457 $395 $299
State 136 124 106
Deferred
Federal (69) 7 (25)
State (17) (10)
---- ---- ----
Total income tax expense $507 $526 $370
==== ==== ====
Reconciliation of federal statutory to actual tax expense
Federal statutory income tax at 34% $483 $488 $375
Tax exempt interest (37) (35) (31)
Nontaxable income (12) (9) (9)
Effect of state income taxes 79 82 63
Other (6) (28)
---- ---- ----
Actual tax expense $507 $526 $370
---- ---- ----
Effective income tax rate 35.7% 36.7% 33.5%
==== ==== ====
</TABLE>
A cumulative deferred tax asset is included in other assets at December 31, 1996
and 1995. The components of the asset are as follows at:
<TABLE>
<CAPTION>
December 31 1996 1995
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Differences in depreciation methods $ (9) $ (10)
Differences in accounting for investment writedown 33 40
Differences in accounting for loan losses 27 12
Compensation 72 23
Differences in accounting for supplemental retirement plan 101 74
State income tax (21) (15)
Other 7
Unrealized (gain) loss on securities available for sale 102 (7)
$312 $117
==== ====
Assets $342 $149
Liabilities (30) (32)
---- ----
$312 $117
==== ====
</TABLE>
No valuation allowance was necessary during any time in 1996, 1995 or 1994.
<PAGE>
LOGANSPORT FINANCIAL CORP. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
Retained earnings include approximately $1,531,000 for which no deferred income
tax liability has been recognized. This amount represents an allocation of
income to bad debt deductions as of December 31, 1987 for tax purposes only.
Reduction of amounts so allocated for purposes other than tax bad debt losses
including redemption of bank stock or excess dividends, or loss of "bank"
status, would create income for tax purposes only, which income would be subject
to the then-current corporate income tax rate. The unrecorded deferred income
tax liability on the above amount at December 31, 1996 was approximately
$521,000.
EQUITY CHANGES
The Bank converted from a mutual federal savings bank to a stock federal savings
bank (the "Conversion") on June 13, 1995 and issued all of its common stock to
the Company. Concurrently with the Conversion, the Company issued 1,322,500
shares of Company common stock, with no par value. Net proceeds of the Company's
stock issuance, after costs, were $12,670,006.
In September, 1996, the Board of Directors declared a one-time special cash
distribution of $3.00 per share to the holders of the Company's common stock.
The special one-time cash distribution of $3,930,000 on 1,310,000 outstanding
shares was paid on December 10, 1996 to stockholders of record on November 25,
1996. The Company received a Private Letter Ruling from the Internal Revenue
Service which qualified most of the 1996 cash distributions to stockholders,
including regular quarterly dividends and the one-time special cash
distribution, as a nontaxable return of capital. Accordingly, $3.32 per share,
or $4,353,200, has been charged to common stock, and the remaining amount of
distributions of $99,187 has been charged to retained earnings.
In October, 1996, the Company announced its intention to repurchase, from time
to time, on the open market up to 5% of the Company's common stock, or 66,125
shares. During the remainder of 1996, the Company purchased the 66,125 shares
pursuant to this program for $798,744.
DEPOSIT INSURANCE EXPENSE
The Bank's deposits are presently insured by the Savings Association Insurance
Fund (the "SAIF"). A recapitalization plan for the SAIF was signed into law on
September 30, 1996, which provided for a special assessment on all SAIF-insured
institutions to enable the SAIF to achieve its required level of reserves. The
assessment of .065% was effected based on deposits as of March 31, 1995. The
Company's special assessment totaled $334,660 before taxes, and was charged
against current year income and included with deposit insurance expense.
<PAGE>
LOGANSPORT FINANCIAL CORP. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
COMMITMENTS AND CONTINGENT LIABILITIES
In the normal course of business there are outstanding commitments and
contingent liabilities, such as commitments to extend credit and standby letters
of credit, which are not included in the accompanying financial statements. The
Bank's exposure to credit loss in the event of nonperformance by the other party
to the financial instruments for commitments to extend credit and standby
letters of credit is represented by the contractual or notional amount of those
instruments. The Bank uses the same credit policies in making such commitments
as it does for instruments that are included in the statement of financial
condition.
Financial instruments whose contract amount represents credit risk were as
follows:
December 31 1996 1995
- ---------------------------------------------------------------------------
Mortgage loan commitments $1,126 $947
Consumer loan commitments,
principally home equity lines of credit 438 272
Standby letters of credit 759 759
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Bank evaluates each customer's credit
worthiness on a case-by-case basis. The amount of collateral obtained, if deemed
necessary by the Bank upon extension of credit, is based on management's credit
evaluation. Collateral held varies, but may include residential real estate,
income-producing commercial properties, or other assets of the borrower. Standby
letters of credit are conditional commitments issued by the Bank to guarantee
the performance of a customer to a third party.
In June, 1995, the Company entered into three-year agreements (with provisions
for extensions) with two of its key employees which provide for salary
continuation for a three-year period under certain circumstances following a
change of control of the Company, as defined. Under the terms of the agreements,
these payments could occur if, following a change of control, such officers are
terminated other than for cause or unreasonable changes are made in their
employment relationships.
In November, 1996, the Bank agreed, subject to certain conditions under the
agreement, to invest approximately $1,525,000 in 1997 in a limited partnership
organized to build and operate an affordable housing project.
The Company and Bank are also subject to claims and lawsuits which arise
primarily in the ordinary course of business. It is the opinion of management
that the disposition or ultimate determination of such possible claims or
lawsuits will not have a material adverse effect on the financial position of
the Company.
<PAGE>
LOGANSPORT FINANCIAL CORP. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
RESTRICTION ON DIVIDENDS
The Company is not subject to any regulatory restrictions on the payment of
dividends to its stockholders. The Office of Thrift Supervision ("OTS")
regulations provide that a savings association which meets fully phased-in
capital requirements (those in effect on December 31, 1994) and is subject only
to "normal supervision" may pay out, as a dividend, 100 percent of net income to
date over the calendar year and 50 percent of surplus capital existing at the
beginning of the calendar year without supervisory approval, but with 30 days
prior notice to the OTS. Any additional amount of capital distributions would
require prior regulatory approval. A savings association failing to meet current
capital standards may only pay dividends with supervisory approval.
At December 31, 1996, total stockholders' equity of the Bank was $16,861,000, of
which approximately $7,320,000 was available for the payment of dividends.
At the time of Conversion, a liquidation account was established in an amount
equal to the Bank's net worth as reflected in the latest statement of condition
used in its final conversion offering circular. The liquidation account is
maintained for the benefit of eligible deposit account holders who maintain
their deposit account in the Bank after Conversion. In the event of a complete
liquidation (and only in such event), each eligible deposit account holder will
be entitled to receive a liquidation distribution from the liquidation account
in the amount of the then current adjusted subaccount balance for deposit
accounts then held, before any liquidation distribution may be made to
stockholders. Except for the repurchase of stock and payment of dividends, the
existence of the liquidation account will not restrict the use or application of
net worth. The initial balance of the liquidation account was $7,025,000.
REGULATORY CAPITAL
The Bank is subject to various regulatory capital requirements administered by
the federal banking agencies. Failure to meet minimum capital requirements can
initiate actions by the regulatory agencies that, if undertaken, could have a
material effect on the Company's financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the Bank
must meet specific capital guidelines that involve quantitative measures of the
Bank's assets, liabilities, and certain off-balance-sheet items as calculated
under regulatory accounting practices. The Bank's capital amounts and
classification are also subject to qualitative judgments by the regulators about
components, risk weightings, and other factors.
At December 31, 1996, the Bank meets all capital adequacy requirements to which
it is subject, and the most recent notification from the regulatory agency
categorized the Bank as well capitalized under the regulatory framework for
prompt corrective action. There have been no conditions or events since that
notification that management believes have changed this categorization.
<PAGE>
LOGANSPORT FINANCIAL CORP. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
The actual and required capital amounts and ratios are as follows:
<TABLE>
<CAPTION>
1996
Required for Adequate To Be Well
Actual Capital 1 Capitalized 1
------------------ ----------------- -----------------
December 31 Amount Ratio Amount Ratio Amount Ratio
- ----------- ------ ----- ------ ----- ------ -----
Total risk-based capital1
<S> <C> <C> <C> <C> <C> <C>
(to risk-weighted assets) $ 17,254 41.1% $3,356 8.0% $4,195 10.0%
Core capital1
(to adjusted tangible assets) 17,018 21.9% 2,332 3.0% 4,664 6.0%
Core capital1
(to adjusted total assets) 17,018 21.9% 2,332 3.0% 3,886 5.0%
1As defined by regulatory agencies
</TABLE>
The Bank's tangible capital at December 31, 1996 was $17,018,000 which amount
was 21.9% of tangible assets and exceeded the required ratio of 1.5%.
BENEFITS PLANS
The Company is a participant in a pension fund known as the Financial
Institutions Retirement Fund ("FIRF"). This plan is a multi-employer plan. There
was no pension expense for 1996. Pension expense was $35,787 and $48,627 for
1995 and 1994. This plan provides pension benefits for substantially all of the
Company's eligible employees.
The Bank has purchased life insurance on certain officers and directors. The
insurance has an approximate cash value of $1,040,242 and $1,005,686 at December
31, 1996 and 1995. The Bank has approved compensation arrangements that provide
retirement benefits to certain officers and deferral of fees for directors
covered by the keyman policies. The benefit arrangement for one individual
provides that the individual provide consulting services to the 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. The accrual
of benefits totaled $87,077, $76,054 and $66,246 for 1996, 1995, and 1994.
The Bank adopted the Logansport Savings Bank, FSB Employee Stock Ownership Plan
and Trust Agreement ("ESOP") effective July 1, 1995, for eligible employees of
the Bank. The ESOP will be funded by discretionary employer contributions made
in cash, which will be invested in shares of the Company's common stock. No
contributions were made to the ESOP in 1996 or 1995.
In April, 1996, the Company's stockholders approved the Logansport Savings Bank,
FSB Recognition and Retention Plan and Trust (RRP). The RRP may acquire up to
52,900 shares of the Company's common stock, an amount equal to 4.0% of the
number of shares issued in the Conversion, for awards to management. Shares
awarded to management under the RRP vest at a rate of 20% at the end of each
full twelve months of service with the Bank after the date of grant. During the
quarter ended June 30, 1996, the Bank contributed $614,567 to the RRP for the
purchase of 46,675 shares of the Company's common stock awarded to management
and recorded the amount as unearned compensation. Amortization expense of
unearned compensation under the RRP was $92,185 for 1996.
<PAGE>
LOGANSPORT FINANCIAL CORP. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
STOCK OPTION PLAN
In April, 1996, the Company's stockholders approved the Logansport Financial
Corp. Stock Option Plan (Stock Option Plan), which reserved for issuance 132,250
shares, an amount equal to 10% of the shares issued in the Conversion. Under the
Stock Option Plan, which is accounted for in accordance with Accounting
Principles Board Opinion (APB) No. 25, Accounting for Stock Issued to Employees,
and related interpretations, the Company granted directors, officers and other
key employees stock option awards which vest and become fully exercisable at the
end of five years of continued employment. The exercise price of each option,
which has a ten-year life, was equal to the market price of the Company's stock
on the date of grant; therefore, no compensation expense was recognized.
In April, 1996, the Company granted stock option awards for 108,691 shares with
an exercise price of $12.50. As a result of the one-time special cash
distribution of $3.00 per share in late 1996, the number of shares awarded and
exercise price were adjusted to 129,340 shares and $10.53 to ensure equivalent
economic consequences to option holders following the distribution.
No options were exercisable or forfeited at December 31, 1996. The
weighted-average fair value of options granted during 1996 was $1.81, and the
options outstanding have a weighted-average remaining contractual life of 9.25
years. There were 2,910 shares available for grant at December 31, 1996.
SFAS No. 123, Stock-Based Compensation, is effective for the Company in 1996.
This Statement establishes a fair value based method of accounting for
stock-based compensation plans. Although the Company has elected to follow APB
No. 25, SFAS No. 123 requires pro forma disclosures of net income and earnings
per share as if the Company had accounted for its stock options under that
Statement. The fair value of each option grant was estimated on the grant date
using an option-pricing model with the following assumptions:
Risk-free interest rate 6.50%
Dividend yield 3.67%
Expected volatility factor of market price of common stock 11.50%
Weighted-average expected life of the options 7 years
Under SFAS No. 123, compensation cost is recognized in the amount of the
estimated fair value of the options and amortized to expense over the options'
vesting period. The pro forma effect on net income and earnings per share of
this Statement are as follows:
Net income As reported $913
Pro forma 883
Earnings per share As reported .69
Pro forma .67
<PAGE>
LOGANSPORT FINANCIAL CORP. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
each class of financial instrument:
Cash and Cash Equivalents--The fair value of cash and cash equivalents
approximates carrying value.
Interest-Bearing Deposits--The fair value of interest-bearing deposits
approximates carrying value.
Securities and Mortgage-backed Securities--Fair values are based on quoted
market prices.
Loans--For both short-term loans and variable-rate loans that reprice frequently
and with no significant change in credit risk, fair values are based on carrying
values. The fair values for other loans are estimated using discounted cash flow
analyses and interest rates currently being offered for loans with similar terms
to borrowers of similar credit quality.
Interest Receivable/Payable--The fair value of interest receivable/payable
approximates carrying values.
FHLB Stock--Fair value of FHLB stock is based on the price at which it may be
resold to the FHLB.
Due From Broker--Fair value approximates carrying value.
Deposits--The fair values of noninterest-bearing, interest-bearing demand and
savings accounts are equal to the amount payable on demand at the balance sheet
date. The carrying amounts for variable rate, fixed-term certificates of deposit
approximate their fair values at the balance sheet date. Fair values for
fixed-rate certificates of deposit are estimated using a discounted cash flow
calculation that applies interest rates currently being offered on certificates
to a schedule of aggregated expected monthly maturities on such time deposits.
Federal Home Loan Bank Advances--Fair value approximates carrying value.
Due to Broker--Fair value approximates carrying value.
<PAGE>
LOGANSPORT FINANCIAL CORP. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
The estimated fair values of the Company's financial instruments are as follows:
<TABLE>
<CAPTION>
1996 1995
------------------------- --------------------------
Carrying Fair Carrying Fair
December 31 Amount Value Amount Value
- ----------------------------------------------------------------------------------------------------------
Assets
<S> <C> <C> <C> <C>
Cash and cash equivalents $3,759 $3,759 $3,243 $3,243
Interest-bearing deposits 100 100 100 100
Securities available for sale 14,303 14,303 18,753 18,753
Loans, net 56,802 57,310 49,707 50,453
Interest receivable 447 447 466 466
Stock in FHLB 387 387 348 348
Due from broker 400 400
Liabilities
Deposits 57,396 57,257 52,461 52,602
Short-term borrowings 3,400 3,398 1,000 1,000
Interest payable 84 84 64 64
Due to broker 706 706
</TABLE>
CONDENSED FINANCIAL INFORMATION (PARENT COMPANY ONLY)
Presented below is condensed financial information as to financial position,
results of operations and cash flows of the Company:
<TABLE>
<CAPTION>
Condensed Balance Sheet
December 31 1996 1995
- ----------------------------------------------------------------------------------------------------------
Assets
<S> <C> <C>
Cash and cash equivalents $ 89 $ 591
Investment securities available for sale 2,454
Loans--commercial paper 878
Investment in subsidiary 16,861 16,671
Other assets 5 15
------- -------
Total assets $16,955 $20,609
======= =======
Liabilities
Short-term borrowings $ 1,400
Other 128 $ 155
Total liabilities 1,528 155
------- -------
Stockholders' Equity
Common stock 7,518 12,670
Retained earnings 8,588 7,774
Unearned compensation (522)
Net unrealized gain (loss) on securities available for sale (157) 10
------- -------
Total stockholders' equity 15,427 20,454
------- -------
Total liabilities and stockholders' equity $16,955 $20,609
======= =======
</TABLE>
<PAGE>
LOGANSPORT FINANCIAL CORP. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
Condensed Statement of Income
<TABLE>
<CAPTION>
Year Ended December 31 1996 1995
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Income $174 $120
Expenses 100 28
---- ----
Income before income tax and equity
in undistributed income of subsidiary 74 92
Income tax expense 30 36
---- ----
Income before equity in undistributed
income of subsidiary 44 56
Equity in undistributed income of subsidiary 869 852
---- ----
Net Income $913 $908
==== ====
Condensed Statement of Cash Flows
Year Ended December 31 1996 1995
- ------------------------------------------------------------------------------------------------------------
Operating Activities
Net income $913 $908
Adjustments to reconcile net income to net
cash provided by operating activities (866) (852)
----- -----
Net cash provided by operating activities 47 56
----- -----
Investing Activities
Purchases of securities available for sale (1,638) (2,431)
Proceeds from maturities of securities available for sale 2,245 246
Proceeds from sales of securities available for sale 1,824
Purchases of securities held to maturity (253)
Net change in loans 878 (878)
----- -----
Net cash provided (used) by investing activities 3,309 (3,316)
----- -----
Financing Activities
Net change in short-term borrowings 1,400
Sale of stock, net of costs 12,670
Dividends (4,459) (132)
Purchase of stock (799)
Capital contribution to subsidiary (8,687)
----- -----
Net cash provided (used) by financing activities (3,858) 3,851
----- -----
Net Change in Cash and Cash Equivalents (502) 591
Cash and Cash Equivalents at Beginning of Year 591
----- -----
Cash and Cash Equivalents at End of Year $ 89 $591
==== ====
</TABLE>
<PAGE>
LOGANSPORT FINANCIAL CORP. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
QUARTERLY DATA (UNAUDITED)
Summarized quarterly financial data for 1996 and 1995 is as follows
(dollars in thousands, except for per share data):
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
1996
<S> <C> <C> <C> <C>
Total interest income $1,339 $1,403 $1,453 $1,458
Total interest expense 641 653 684 741
Net interest income 698 750 769 717
Provision for loan losses 3 3 3 3
Net income 274 283 81 275
Earnings per share .21 .21 .06 .21
Dividends declared per share .10 .10 .10 .10
Special cash distribution declared per share 3.00
1995
Total interest income $1,051 $1,132 $1,265 $1,327
Total interest expense 586 635 614 633
Net interest income 465 497 651 694
Provision for loan losses 3 3 3 11
Net income 179 165 262 302
Earnings per share .20 .23
Dividends declared per share .10 .10
</TABLE>
SHAREHOLDER INFORMATION
Market Information
The common stock of the Company is traded on the National Association of
Securities Dealers Automated Quotation System, Small Cap Market, under the
symbol "LOGN." As of February 14, 1997, there were 893 shareholders of record of
the Company's Common Stock.
Stock Price Per Share
Quarter Ended High Low Dividends
- ------------------------------------------------------------------------------
September 30, 1995 $ 12 1/2 $11 1/4 $0.10
December 31, 1995 13 1/4 12 $0.10
March 31, 1996 13 1/4 12 3/8 $0.10
June 30, 1996 13 3/4 12 3/8 $0.10
September 30, 1996 14 3/4 12 1/2 $0.10
December 31, 1996 14 3/4 11 1/4 $3.10*
* This includes a $3.00 per share one-time special cash distribution which
qualified as a non-taxable return of capital pursuant to an IRS Private
Letter Ruling.
Transfer Agent and Registrar
The Fifth Third Bank of Cincinnati, Ohio ("Fifth Third") is the Company's
stock transfer agent and registrar. Fifth Third maintains the Company's
shareholder records. To change name, address or ownership of stock, to report
lost certificates, or to consolidate accounts, contact:
Fifth Third Bank
Corporate Trust Operations
Mail Drop 1090D2
38 Fountain Square
Cincinnati, Ohio 45263
(800) 837-2755
General Counsel
Barnes & Thornburg
1313 Merchants Bank Building
11 South Meridian Street
Indianapolis, Indiana 46204
Independent Auditor
Geo. S. Olive & Co. LLC
201 North Illinois Street
Indianapolis, Indiana 46204
Shareholder & General Inquiries
The Company is required to file an Annual Report on Form 10-K for its
fiscal year ended December 31, 1996 with the Securities and Exchange Commission.
Copies of this annual report may be obtained without charge upon written request
to:
Dottye Robeson
Logansport Financial Corp.
723 East Broadway, Box 569
Logansport, Indiana 46947
(219) 722-3855
Office Location
723 East Broadway
Logansport, Indiana 46947
(219) 722-3855
DIRECTORS AND OFFICERS
Directors
Norbert E. Adrian (age 67) retired as the General Manager of Rockwell
International ("Rockwell") in 1984 after 12 years of service. Rockwell is
located in Logansport, Indiana, and manufactures custom automotive parts. Prior
to his employment with Rockwell, Mr. Adrian was employed by the accounting firm
of Bailey, Cord and Williams.
Donald G. Pollitt (age 69) is the former Business and Promotion Manager of
the Logansport Pharos-Tribune and a former President of the Rolling Hills Golf
Course in Logansport, Indiana.
Susanne S. Ridlen (age 57) has served as an adjunct faculty member of
Indiana University Kokomo ("IUK") since 1969. Ms. Ridlen also currently serves
as a member of the Boards of Directors of the Logansport Art Association and the
Cass County Children's Home in Logansport, Indiana.
William Tincher, Jr. (age 57) 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 49) has served as Vice President and Chief
Financial Officer of TM Morris Manufacturing Co., Inc. ("Morris"), since 1988.
Morris is located in Logansport, Indiana, and manufactures lead wire assemblies
and wiring harnesses and stampings. Prior to his employment with Morris, Mr.
Wihebrink was a member of the accounting firm Smith, Thompson & Wihebrink
(Logansport) for 15 years. Mr. Wihebrink also currently serves as a member of
the Board of Directors of the Neal House retirement home in Logansport, Indiana.
Thomas G. Williams (age 64) has served as President of Logansport Savings
Bank, FSB since 1971.
Charles J. Evans (age 51) has served as Vice President and Senior Loan
Officer of Logansport Savings Bank, FSB since 1980.
LOGANSPORT FINANCIAL CORP. LOGANSPORT SAVINGS BANK, FSB
Officers Officers
THOMAS G. WILLIAMS THOMAS G. WILLIAMS
President and Chief President
Executive Officer
CHARLES J. EVANS CHARLES J. EVANS
Vice President Vice President
DOTTYE ROBESON DIANNE HOFFMAN
Secretary/Treasurer Secretary/Treasurer
DOTTYE ROBESON
Chief Financial Officer
We consent to the incorporation by reference in the Registration Statements on
Form S-8, File No. 33-89788, of our report dated January 23, 1997 contained in
the 1996 Annual Report to Shareholders of Logansport Financial Corp., which is
incorporated by reference in this Form 10-K.
/s/ Geo. S. Olive & Co. LLC
Indianapolis, Indiana
March 21, 1997
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S AUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED
DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000939928
<NAME> Logansport Financial Corporation
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-1-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1.000
<CASH> 3,759
<INT-BEARING-DEPOSITS> 100
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 14,303
<INVESTMENTS-CARRYING> 14,303
<INVESTMENTS-MARKET> 14,303
<LOANS> 57,038
<ALLOWANCE> 236
<TOTAL-ASSETS> 77,668
<DEPOSITS> 57,396
<SHORT-TERM> 3,400
<LIABILITIES-OTHER> 1,445
<LONG-TERM> 0
<COMMON> 7,518
0
0
<OTHER-SE> 7,909
<TOTAL-LIABILITIES-AND-EQUITY> 77,668
<INTEREST-LOAN> 4,421
<INTEREST-INVEST> 1,043
<INTEREST-OTHER> 189
<INTEREST-TOTAL> 5,653
<INTEREST-DEPOSIT> 2,613
<INTEREST-EXPENSE> 106
<INTEREST-INCOME-NET> 2,934
<LOAN-LOSSES> (12)
<SECURITIES-GAINS> (47)
<EXPENSE-OTHER> 1,584
<INCOME-PRETAX> 1,420
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 913
<EPS-PRIMARY> .69
<EPS-DILUTED> .69
<YIELD-ACTUAL> 3.99
<LOANS-NON> 406
<LOANS-PAST> 406
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 223
<CHARGE-OFFS> 0
<RECOVERIES> 1
<ALLOWANCE-CLOSE> 236
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 236
</TABLE>
