SCHEDULE 14A
Information Required in Proxy Statement
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
Filed by the Registrant: Yes.
Filed by a Party other than the Registrant: No.
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as Permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 240.14a-12
LOGANSPORT FINANCIAL CORP.
(Name Of Registrant As Specified In Its Charter)
LOGANSPORT FINANCIAL CORP.
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11
(1) Title of each class of securities to which transaction
applies: N/A
(2) Aggregate number of securities to which transaction
applies: N/A
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth
the amount on which the filing fee is calculated and
state how it was determined): N/A
(4) Proposed maximum aggregate value of transaction: N/A
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials
[ ] Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the Form or
Schedule and the date of its filing. N/A
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE>
[LOGO] LOGANSPORT FINANCIAL CORP.
723 East Broadway
Logansport, Indiana 46947
(219) 722-3855
----------------------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
----------------------------------------
To Be Held On April 14, 1998
Notice is hereby given that the Annual Meeting of Shareholders of
Logansport Financial Corp. (the "Holding Company") will be held at the Holding
Company's office at 723 East Broadway, Logansport, Indiana, on Tuesday, April
14, 1998, at 2:00 p.m., Eastern Standard time.
The Annual Meeting will be held for the following purposes:
1. Election of Directors. Election of two of the directors of the Holding
Company for terms expiring in 2001.
2. Other Business. Such other matters as may properly come before the
meeting or any adjournment thereof.
Shareholders of record at the close of business on February 17, 1998, are
entitled to vote at the meeting or any adjournment thereof.
We urge you to read the enclosed Proxy Statement carefully so that you may
be informed about the business to come before the meeting, or any adjournment
thereof. At your earliest convenience, please sign and return the accompanying
proxy in the postage-paid envelope furnished for that purpose.
A copy of our Annual Report for the fiscal year ended December 31, 1997, is
enclosed. The Annual Report is not a part of the proxy soliciting material
enclosed with this letter.
By Order of the Board of Directors
/s/ Thomas G. Williams
Thomas G. Williams, President and
Chief Executive Officer
Logansport, Indiana
March 9, 1998
IT IS IMPORTANT THAT THE PROXIES BE RETURNED PROMPTLY. THEREFORE, WHETHER OR NOT
YOU PLAN TO BE PRESENT IN PERSON AT THE ANNUAL MEETING, PLEASE SIGN, DATE AND
COMPLETE THE ENCLOSED PROXY AND RETURN IT IN THE ENCLOSED ENVELOPE WHICH
REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.
<PAGE>
LOGANSPORT FINANCIAL CORP.
723 East Broadway
Logansport, Indiana 46947
(219) 722-3855
---------------
PROXY STATEMENT
---------------
FOR
ANNUAL MEETING OF SHAREHOLDERS
April 14, 1998
This Proxy Statement is being furnished to the holders of common stock,
without par value (the "Common Stock"), of Logansport Financial Corp. (the
"Holding Company"), an Indiana corporation, in connection with the solicitation
of proxies by the Board of Directors of the Holding Company to be voted at the
Annual Meeting of Shareholders to be held at 2:00 p.m., Eastern Standard time,
on April 14, 1998, at the Holding Company's office at 723 East Broadway,
Logansport, Indiana, and at any adjournment of such meeting. 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 Logansport Savings Bank, FSB
("Logansport Savings"). This Proxy Statement is expected to be mailed to the
shareholders on or about March 9, 1998.
The proxy solicited hereby, if properly signed and returned to the Holding
Company and not revoked prior to its use, will be voted in accordance with the
instructions contained therein. If no contrary instructions are given, each
proxy received will be voted for each of the matters described below and, upon
the transaction of such other business as may properly come before the meeting,
in accordance with the best judgment of the persons appointed as proxies.
Any shareholder giving a proxy has the power to revoke it at any time
before it is exercised by (i) filing with the Secretary of the Holding Company
written notice thereof (Dottye Robeson, 723 East Broadway, Logansport, Indiana
46947), (ii) submitting a duly executed proxy bearing a later date, or (iii) by
appearing at the Annual Meeting and giving the Secretary notice of his or her
intention to vote in person. Proxies solicited hereby may be exercised only at
the Annual Meeting and any adjournment thereof and will not be used for any
other meeting.
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
Only shareholders of record at the close of business on February 17, 1998
("Voting Record Date"), will be entitled to vote at the Annual Meeting. On the
Voting Record Date, there were 1,261,100 shares of the Common Stock issued and
outstanding, and the Holding Company had no other class of equity securities
outstanding. Each share of Common Stock is entitled to one vote at the Annual
Meeting on all matters properly presented at the Annual Meeting. The holders of
over 50% of the outstanding shares of Common Stock as of the Voting Record Date
must be present in person or by proxy at the Annual Meeting to constitute a
quorum. In determining whether a quorum is present, shareholders who abstain,
cast broker non-votes, or withhold authority to vote on one or more director
nominees will be deemed present at the Annual Meeting.
<PAGE>
The following table sets forth certain information regarding the beneficial
ownership at the Common Stock as of February 17, 1998, by each person who is
known by the Holding Company to own beneficially 5% or more of the Common Stock.
Unless otherwise indicated, the named beneficial owner has sole voting and
dispositive power with respect to the shares.
<TABLE>
<CAPTION>
Number of Shares of
Name and Address of Common Stock Percent of
Beneficial Owner (1) Beneficially Owned Class (2)
-------------------- ------------------ ---------
<S> <C> <C>
Wellington Management Company, LLP (3) 86,000 6.8%
Bay Pond Partners, L.P.
Wellington Hedge Management Limited Partnership
Wellington Hedge Management, Inc.
75 State Street
Boston, Massachusetts 02109
John Hancock Advisers, Inc. (4) 117,500 9.3%
John Hancock Mutual Life Insurance Company
John Hancock Subsidiaries, Inc.
John Hancock Asset Management
The Berkeley Financial Group
101 Huntington Avenue
Boston, Massachusetts 02199
SoGen International Fund, Inc. (5) 90,000 7.2%
Societe Generale Asset Management Corp.
1221 Avenue of the Americas
New York, New York 10020
</TABLE>
(1) The information in this chart is based on Schedule 13D and 13G Reports
filed by the above-listed persons with the Securities and Exchange
Commission (the "SEC") containing information concerning shares held by
them, and information provided to the Holding Company after such filing
was made. It does not reflect any changes in those shareholdings which
may have occurred since the date of such information provided to the
Holding Company.
(2) Based upon 1,261,100 shares of Common Stock outstanding which does not
include options for 124,615 shares of Common Stock granted to certain
directors, officers and employees of the Holding Company and Logansport
Savings.
(3) In Schedules 13G and 13D filed with the SEC, the entities listed above
indicate they may be the beneficial owners of the foregoing shares and
that over 5% of the Holding Company's outstanding shares may be deemed
to be beneficially owned by the Bay Pond Partners, L.P. ("Bay Pond"), a
Delaware limited partnership. Any shares not beneficially owned by Bay
Pond may be held by other clients of Wellington Management Company, LLP
("WMC"), a Massachusetts limited partnership and a registered
investment adviser. Bay Pond shares with WMC voting and dispositive
power with respect to the shares it owns. WMC shares dispositive power
with respect to any remaining shares with its other investment advisory
clients. Wellington Hedge Management Limited Partnership ("WHMLP"), a
Massachusetts limited partnership, is the sole general partner of Bay
Pond. Wellington Hedge Management, Inc., a Massachusetts corporation,
is the sole general partner of WHMLP.
(4) In a Schedule 13G filed with the SEC, the entities listed above
indicate they may be the beneficial owners of the foregoing shares,
67,500 of which are held by the John Hancock Bank and Thrift
Opportunity Fund and 50,000 of which are held by the John Hancock
Regional Bank Fund, each of which is a registered investment company.
John Hancock Advisers, Inc. ("Advisers") acts as investment adviser to
both of those funds. The other entities listed above are parent company
affiliates of Advisers. Advisers has sole power to vote and dispose of
the shares.
(5) In a Schedule 13G filed with the SEC, the entities listed above
indicate they may be the beneficial owners of the foregoing shares
which are held by SoGen International Fund, Inc., a Maryland
corporation, whose investment adviser is Societe Generale Asset
Management Corp., a Delaware corporation. These two entities share
voting and dispositive power with respect to these shares.
<PAGE>
PROPOSAL I -- ELECTION OF DIRECTORS
The Board of Directors consists of seven members. The By-Laws provide that
the Board of Directors is to be divided into three classes as nearly equal in
number as possible. The members of each class are to be elected for a term of
three years and until their successors are elected and qualified. One class of
directors is to be elected annually. The two nominees for election as a director
this year are Donald G. Pollitt and Susanne S. Ridlen, each whom currently
serves as a director whose term will expire upon the completion of the election
at the Annual Meeting. Mr. Pollitt and Mrs. Ridlen each have been nominated to
serve for a three-year term ending in 2001.
Unless otherwise directed, each proxy executed and returned by a
shareholder will be voted for the election of the nominees listed below. If any
person named as a nominee should be unable or unwilling to stand for election at
the time of the Annual Meeting, the proxy holders will nominate and vote for a
replacement nominee recommended by the Board of Directors. At this time, the
Board of Directors knows of no reason why the nominees listed below may not be
able to serve as directors if elected.
The following table sets forth certain information regarding the nominees
for the position of director of the Holding Company and each director continuing
in office after the Annual Meeting, including the number and percent of shares
of Common Stock beneficially owned by such persons as of the Voting Record Date.
Unless otherwise indicated, each director or nominee has sole investment and/or
voting power with respect to the shares shown as beneficially owned by him. No
nominee for director or director is related to any other nominee for director,
director, or executive officer of the Holding Company by blood, marriage, or
adoption, and there are no arrangements or understandings between any nominee
and any other person pursuant to which such nominee was selected. The table also
sets forth the number of shares of Holding Company Common Stock beneficially
owned by all directors and executive officers of the Holding Company as a group.
<TABLE>
<CAPTION>
Director Common Stock
Director of of the Beneficially
Expiration of Logansport Holding Owned as of
Term as Savings Company February 17, Percentage
Name Director Since Since 1998 (1) of Class
- ---------------------------- ------------- ----------- --------- -------------- --------
Director Nominees
- -----------------
<S> <C> <C> <C> <C> <C>
Donald G. Pollitt 2001 1960 1995 18,041(2) 1.4%
Susanne S. Ridlen 2001 1982 1995 8,291(3) .66%
Directors
Continuing in Office
- --------------------
Norbert E. Adrian 2000 1979 1995 24,262(4) 1.9%
Charles J. Evans 1999 --- 1995 31,642(5) 2.5%
William Tincher, Jr. 2000 1994 1995 20,986(6) 1.7%
David G. Wihebrink 1999 1991 1995 14,801(7) 1.2%
Thomas G. Williams 1999 1962 1995 49,663(8) 3.9%
All directors and executive officers
as a group (9 persons) 193,083(9) 14.8%
</TABLE>
<PAGE>
(1) Based upon information furnished by the respective directors or director
nominees. Under applicable regulations, shares are deemed to be
beneficially owned by a person if he or she directly or indirectly has or
shares the power to vote or dispose of the shares, whether or not he or she
has any economic power with respect to the shares. Includes shares
benefically owned by members of the immediate families of the directors or
director nominees residing in their homes.
(2) Includes 13,479 shares held jointly by Mr. Pollitt and his spouse, 2,446
shares subject to a stock option granted under the Logansport Financial
Corp. Stock Option Plan (the "Option Plan") and 2,116 shares held under the
Logansport Savings Bank, FSB Recognition and Retention Plan and Trust (the
"RRP"). Does not include stock options for 4,723 shares which are not
exercisable for a period of 60 days following the Voting Record Date.
(3) Includes 529 shares held jointly by Ms. Ridlen and her spouse, 3,146 shares
subject to a stock option granted under the Option Plan and 2,116 shares
held under the RRP. Does not include stock options for 4,723 shares which
are not exercisable for a period of 60 days following the Voting Record
Date.
(4) Includes 8,000 shares held jointly by Mr. Adrian and his son, 3,146 shares
subject to a stock option granted under the Option Plan and 2,116 shares
held under the RRP. Does not include stock options for 4,723 shares which
are not exercisable for a period of 60 days following the Voting Record
Date.
(5) Includes 4,645 shares held jointly by Mr. Evans and his spouse, 15,738
shares subject to a stock option granted under the Option Plan and 10,580
shares are held under the RRP. Does not include stock options for 23,607
shares which are not exercisable for a period of 60 days following the
Voting Record Date.
(6) Of these shares, 17,272 are held jointly by Mr. Tincher with his spouse and
children, 1,573 shares are subject to a stock option granted under the
Option Plan and 2,116 shares are held under the RRP. Does not include stock
options for 4,723 shares which are not exercisable for a period of 60 days
following the Voting Record Date.
(7) Of these shares, 877 are held by Mr. Wihebrink as custodian for his minor
children, 1,573 shares are subject to a stock option granted under the
Option Plan and 2,116 shares are held under the RRP. Does not include stock
options for 4,723 shares which are not exercisable for a period of 60 days
following the Voting Record Date.
(8) Includes 15,738 shares subject to a stock option granted under the Option
Plan and 10,580 shares held under the RRP. Does not include stock options
for 23,607 shares which are not exercisable for a period of 60 days
following the Voting Record Date.
(9) The total of such shares includes 44,550 shares subject to stock options
granted under the Option Plan and 36,140 shares which are held under the
RRP. Does not include stock options for 72,614 shares which are not
exercisable within a period of 60 days following the Voting Record Date.
Presented below is certain information concerning the director nominees of
the Holding Company:
Norbert E. Adrian (age 68) retired as the General Manager of Rockwell
International ("Rockwell") in 1984 after 20 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.
Charles J. Evans (age 51) has served as Vice President and Senior Loan
Officer of Logansport Savings since 1980.
Donald G. Pollitt (age 70) 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.
<PAGE>
Susanne S. Ridlen (age 57) has served as Faculty member of Indiana
University Kokomo since 1969. Ms. Ridlen also currently serves as a member of
the Board of Directors of the Cass County Community Foundation in Logansport,
Indiana.
William Tincher, Jr. (age 58) 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 50) 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 Home retirement home in Logansport, Indiana.
Thomas G. Williams (age 64) has served as President of Logansport Savings
since 1971.
THE DIRECTORS SHALL BE ELECTED UPON RECEIPT OF A PLURALITY OF VOTES CAST AT
THE ANNUAL SHAREHOLDERS MEETING. PLURALITY MEANS THAT INDIVIDUALS WHO RECEIVE
THE LARGEST NUMBER OF VOTES CAST ARE ELECTED UP TO THE MAXIMUM NUMBER OF
DIRECTORS TO BE CHOSEN AT THE MEETING. ABSTENTIONS, BROKER NON-VOTES, AND
INSTRUCTIONS ON THE ACCOMPANYING PROXY TO WITHHOLD AUTHORITY TO VOTE FOR ONE OR
MORE OF THE NOMINEES WILL RESULT IN THE RESPECTIVE NOMINEE RECEIVING FEWER
VOTES. HOWEVER, THE NUMBER OF VOTES OTHERWISE RECEIVED BY THE NOMINEE WILL NOT
BE REDUCED BY SUCH ACTION.
The Board of Directors and its Committees
During the fiscal year ended December 31, 1997, the Board of Directors of
the Holding Company met or acted by written consent twelve times. No director
attended fewer than 75% of the aggregate total number of meetings during the
last fiscal year of the Board of Directors of the Holding Company held while he
served as director and of meetings of committees which he served during that
fiscal year. The Board of Directors of the Holding Company has an Audit
Committee, a Stock Compensation Committee and Nominating Committee, among its
other Board Committees. All committee members are appointed by the Board of
Directors.
The Holding Company's Audit Committee is comprised of all members of the
Board of Directors, recommends the appointment of the Holding Company's
independent accountants, and meets with them to outline the scope and review the
results of audits. The Audit Committee met one time during 1997.
The Stock Compensation Committee administers the Option Plan and the RRP.
The members of that Committee are Susanne Ridlen, William Tincher, Jr., and
David G. Wihebrink. It met one time during 1997.
The Board of Directors nominated the slate of directors set forth in the
Proxy Statement. Although the Board of Directors of the Holding Company will
consider nominees recommended by shareholders, it has not actively solicited
recommendations for nominees from shareholders nor has it established procedures
for this purpose. Article III, Section 12 of the Holding Company's By-Laws
provides that shareholders entitled to vote for the election of directors may
name nominees for election to the Board of Directors but there are certain
requirements that must be satisfied in order to do so. Among other things,
written notice of a proposed nomination must be received by the Secretary of the
Holding Company not less than 60 days prior to the Annual Meeting; provided,
however, that in the event that less than 70 days' notice or public disclosure
of the date of the meeting is given or made to shareholders (which notice or
public disclosure includes the date of the Annual Meeting specified in the
Holding Company's By-Laws if the Annual Meeting is held on such date), notice
must be received not later than the close of business on the 10th day following
the day on which such notice of the date of the meeting was mailed or such
public disclosure was made.
<PAGE>
Management Remuneration and Related Transactions
Remuneration of Named Executive Officer
During the fiscal year ended December 31, 1997, no cash compensation was
paid directly by the Holding Company to any of its executive officers. Each of
such officers was compensated by Logansport Savings.
The following table sets forth information as to annual, long-term and
other compensation for services in all capacities to the Holding Company and its
subsidiaries for each of the three fiscal years ended December 31, 1997, of the
person who served as chief executive officer of the Holding Company during the
fiscal year ended December 31, 1997 (the "Named Executive Officer"). There were
no other executive officers of the Holding Company who earned over $100,000 in
salary and bonuses during that fiscal year.
Summary Compensation Table
<TABLE>
<CAPTION>
Long Term Compensation
-----------------------
Annual Compensation Awards
-------------------------------------- -----------------------
Name Other All
and Annual Restricted Securities Other
Principal Fiscal Compen- Stock Underlying Compen-
Position Year Salary ($)(1) Bonus ($) sation($)(2) Awards($) Options(#) sation($)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Thomas G. Williams 1997 $76,800 $38,898 --- --- --- ---
President, Chief Executive 1996 $74,800 $32,611 --- $165,313(3) 33,063(4) ---
Officer and Director 1995 $73,300 $32,256 --- --- --- ---
</TABLE>
(1) Includes fees received for service on Logansport Savings Board of
Directors, including fees deferred pursuant to Mr. Williams' deferred
compensation agreement. Does not include commissions received on the sale
of credit life and mortgage life insurance or fees for appraisal
securities. See "Transactions with Certain Related Persons."
(2) The Named Executive Officer of the Holding Company receives certain
perquisites, but the incremental cost of providing such perquisites does
not exceed the lesser of $50,000 or 10% of the officer's salary and bonus.
(3) The value of the restricted stock awards was determined by multiplying the
fair market value of the Common Stock on the date the shares were awarded
by the number of shares awarded. These shares vest over a five year period.
As of December 31, 1997, the number and aggregate value of restricted stock
holdings by Mr. Williams were 10,580 and $191,763, respectively. Dividends
paid on the restricted shares are payable to the grantee as the shares are
vested and are not included in the table.
(4) Effective January 14, 1997, these options were adjusted so as to be for the
purchase of 39,345 shares as a result of the Corporation's special cash
distribution paid on December 10, 1996.
Stock Options
The following table includes the number of shares covered by stock options
held by the Named Executive Officer as of December 31, 1997. Also reported are
the values for "in-the-money" options (options whose exercise price is lower
than the market value of the shares at fiscal year end) which represent the
spread between the exercise price of any such existing stock options and the
fiscal year-end market price of the stock. The Named Executive Officer did not
exercise any stock options during the fiscal year.
<PAGE>
Outstanding Stock Option Grants and Value Realized As Of 12/31/97
<TABLE>
<CAPTION>
Number of Unexercised Value of Unexercised In-the-Money
Options at Fiscal Year End Options at Fiscal Year End (1)
--------------------------------- -----------------------------------
Name Exercisable Unexercisable(2) Exercisable Unexercisable(2)
- ------------------ ----------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C>
Thomas G. Williams 7,869 31,476 $ 59,765 $239,060
</TABLE>
(1) Amounts reflecting gains on outstanding options are based on the average
between the high and low prices for the shares on December 31, 1997, which
was $18.125 per share.
(2) The shares represented could not be acquired by the Named Executive Officer
as of December 31, 1997.
Employment Contracts
Logansport Savings has entered into three-year employment contracts with
Mr. Williams, the Holding Company's Named Executive Officer, and Charles J.
Evans, the Holding Company's Vice President (together, the "Employees"). The
contracts with the Employees extend annually for an additional one-year term to
maintain their three-year term if the Board of Directors of Logansport Savings
determines to so extend them, unless notice not to extend is properly given by
either party to the contract. Each Employee receives an initial salary under the
contract equal to his current salary subject to increases approved by the Board
of Directors. The contracts also provide, among other things, for participation
in other fringe benefits and benefit plans available to Logansport Savings'
employees. Each Employee may terminate his employment upon sixty days' written
notice to Logansport Savings. Logansport Savings may discharge each Employee for
cause (as defined in the contract) at any time or in certain events specified by
Office of Thrift Supervision ("OTS") regulations. If Logansport Savings
terminates an Employee's employment for other than cause or if the employee
terminates his own employment for cause (as defined in the contract), the
Employee will receive his base compensation under the contract for an additional
three years if the termination follows a change of control in the Holding
Company (as defined below). In addition, during such period, the employee will
continue to participate in Logansport Savings' group insurance plans or receive
comparable benefits. Moreover, within a period of three months after such
termination following a change of control, the employee will have the right to
cause Logansport Savings to purchase any stock options he holds for a price
equal to the fair market value (as defined in the contact) of the shares subject
to such options minus their option price. If the payments provided for in the
contract, together with any other payments made to the employee by Logansport
Savings, are deemed to be payments in violation of the "golden parachute" rules
of the Code, such payments will be reduced to the largest amount which would not
cause Logansport Savings to lose a tax deduction for such payments under those
rules. As of the date hereof, the cash compensation which would be paid under
the contracts to the Employees if the contracts were terminated either after a
change of control of the Holding Company, without cause by Logansport Savings,
or for cause by the Employees, would be $225,000 for Mr. Williams and $165,000
for Mr. Evans. For purposes of these employment contracts, a change of control
of the Holding Company is generally an acquisition of control, as defined in
regulations issued under the Change in Bank Control Act and the Savings and Loan
Holding Company Act.
The employment contracts provide Logansport Savings protection of its
confidential business information and protection from competition by the
Employees should they voluntarily terminate their employment without cause or be
terminated by Logansport Savings for cause.
<PAGE>
Executive Supplemental Retirement Income Agreements.
Logansport Savings has entered into supplemental retirement agreements with
Messrs. Williams and Evans (each, an "Executive"). These agreements provide that
upon retirement after attaining age 65, assuming continuous service to
Logansport Savings until that date, the Executive is entitled to receive annual
supplemental retirement benefits in an amount equal to 40% of the highest salary
received by the Executive during any 12 month period during his term of service
with Logansport Savings, subject to a maximum benefit of $42,000 annually in the
case of Mr. Williams and $52,000 annually in the case of Mr. Evans (the "Annual
Retirement Benefit"). These benefits are payable in equal monthly installments
over a period of 180 months following retirement.
The Executives may elect to receive early retirement benefits upon
attaining age 62, assuming continuous service to Logansport Savings until that
date. Upon an Executive's election to receive such benefits, the Executive is
entitled to receive his Annual Retirement Benefit, reduced by 3% in the case of
Mr. Williams and 2% in the case of Mr. Evans, for each year or fraction thereof
that the Executive's early retirement date precedes his normal retirement date.
These early retirement benefit payments begin at the Executive's normal
retirement date. However, earlier payment may be requested by the Executive,
subject to Board approval. If early payment is approved by the Board of
Directors, the Executive's benefit amount is reduced to the present value using
a discount rate equal to Logansport Savings' average cost of deposits for the
most recent 12 month period. If early payment is not approved by the Board, the
Executive is entitled to receive that portion of his Annual Retirement Benefit
which is required to be expensed and accrued under generally accepted accounting
principles (the "Accrued Benefit") and is vested. Mr. Williams' benefits are
fully vested. Mr. Evans' benefits are 40% vested and will continue to vest at
the rate of 20% for each additional calendar year of his service through
calendar year 2000.
If the Executive dies prior to retirement, his beneficiary will receive an
annual survivor's benefit in an amount equal to 40% of the Executive's annual
salary at death, subject to a maximum $42,000 in the case of Mr. Williams and
$52,000 in the case of Mr. Evans. The survivor's benefit is payable in equal
monthly installments over a period of 180 months. If the Executive dies after he
has begun receiving retirement benefits under his agreement, his beneficiary
will continue to receive the balance of the payments otherwise payable to the
Executive under his agreement. Upon the Executive's death, his beneficiary also
will receive a one-time lump sum death benefit in the amount of $12,500.
If the Executive is disabled prior to retirement, the Executive is entitled
to receive his Accrued Benefit payable in equal monthly installments over a
period of 180 months. If the Executive dies while receiving disability benefit
payments, his beneficiary is entitled to receive an annual survivor's benefit in
an amount equal to $42,000 in the case of Mr. Williams and $52,000 in the case
of Mr. Evans payable in equal monthly installments for the remainder of the
Executive's 180 month disability benefit period. In addition, at the Executive's
death, if the total disability benefit payments received, or to be received, are
less than $250,000, the Executive's beneficiary is entitled to a lump sum
payment in an amount sufficient to make the total benefits equal to $250,000.
Payments of benefits under the agreements are conditioned upon (1) the
Executive not becoming employed by a competitor of Logansport Savings or
otherwise competing with Logansport Savings while receiving benefits under the
agreements and (2) in the case of Mr. Williams, the Executive rendering
reasonable business consulting advisory services to Logansport Savings for a
period of five years following his retirement. Mr. Williams' agreement further
provides that if, prior to his retirement, he is terminated without cause by
Logansport Savings, he is entitled to begin receiving his Annual Retirement
Benefit upon attaining age 65. However, if Mr. Williams voluntarily terminates
his employment, he is entitled to that portion of his Accrued Benefit which has
vested at the date of termination. Mr. Evans' agreement provides that if he is
terminated for any reason other than cause, he is entitled to receive that
portion of his Accrued Benefit which has vested. No benefits are provided if Mr.
Evans voluntarily terminates his employment before he is otherwise entitled to
benefits under the agreement. If an Executive's employment is terminated for
cause, all benefits under his agreement are forfeited and the agreement is
rendered null and void. Logansport Savings expensed $73,682 in connection with
these agreements for the year ended December 31, 1997.
<PAGE>
Logansport Savings has purchased paid-up life insurance on the lives of the
Executives to fund the benefits payable under the supplemental retirement
agreements. See "-- Insurance to Fund Certain Benefits."
Compensation of Directors
All directors of Logansport are entitled to receive a monthly director fee
of $400. Total fees paid to directors for the year ended December 31, 1997 were
$37,572. Logansport Savings' directors may, pursuant to deferred compensation
agreements, defer payment of some or all of the directors' fees until after they
retire or otherwise no longer serve as directors. Upon their attainment of age
70, directors who participate in the deferred compensation plan receive fixed
monthly payments for 180 months, but may also elect to receive their benefits in
a lump sum. The amount of each director's monthly payments depends on the amount
of fees deferred and the period over which the fees were deferred. The
agreements also provide for the payment of disability benefits and death
benefits. The beneficiary of a director participating in the deferred
compensation plan also receives a $7,500 lump sum death benefit upon the
director's death. Logansport Savings has purchased paid-up life insurance on the
lives of directors participating in the deferred compensation plans to fund
benefits payable thereunder. Logansport Savings expensed $12,079 in connection
with these agreements for the year ended December 31, 1997. See "-- Insurance to
Fund Certain Benefits." Advisory Director, Forrest H. Montgomery, receives a
monthly advisory director fee of $331 pursuant to the terms of an amended death
benefit agreement. See "-- Death Benefit Agreement with Advisory Director."
Directors of the Holding Company are not currently paid directors' fees.
The Holding Company may, if it believes it is necessary to attract qualified
directors or otherwise beneficial to the Holding Company, adopt a policy of
paying directors' fees.
Death Benefit Agreement with Advisory Director
Logansport Savings has entered into an amended death benefit agreement with
Forrest H. Montgomery, an advisory director to Logansport. This agreement
provides for the payment of a monthly benefit in the amount of $331 which
commenced on April, 1992 upon Mr. Montgomery's retirement and continues for a
120-month period. If Mr. Montgomery dies while receiving monthly benefits under
the Agreement, the unpaid balance of the monthly payments will be paid monthly
to his designated beneficiary for the remainder of the period. The payment of
these benefits is conditioned upon (i) Mr. Montgomery's continued service as an
advisory director to Logansport and (ii) Mr. Montgomery not becoming employed by
a competitor of Logansport Savings or otherwise competing with Logansport
Savings while receiving benefits under the agreement and for a period of two (2)
years thereafter.
Logansport Savings has purchased paid-up life insurance on the life of Mr.
Montgomery to fund the benefits payable under the amended death benefit
agreement. See "-- Insurance to Fund Certain Benefits."
Insurance to Fund Certain Benefits
Logansport Savings has purchased paid-up life insurance on the lives of the
Executives covered under the supplemental retirement income agreements with Mr.
Williams and Mr. Evans, and on the lives of the directors and the advisory
director covered under the deferred compensation agreements and the amended
death benefit agreement to fund the obligations under these agreements. The
insurance is provided by Transamerica Life Insurance Company. At December 31,
1997, the cash surrender value of the policies was carried on the books of
Logansport at an amount equal to $1,085,001.
Transactions With Certain Related Persons
Logansport Savings has followed a policy of offering to its directors,
officers, and employees real estate mortgage loans secured by their principal
residence and other loans. These loans are made in the ordinary course of
business with the same collateral, interest rates and underwriting criteria as
those of comparable transactions prevailing at the time and do not involve more
than the normal risk of collectibility or present other unfavorable features.
Loans to directors and executive officers totaled approximately $258,000, or
1.56% of shareholders' equity on a consolidated basis at December 31, 1997.
<PAGE>
In addition to their compensation from Logansport Savings, Mr. Williams and
Mr. Evans also receive commissions on sales of credit life insurance and
mortgage life insurance to Logansport Savings' customers. Mr. Williams and Mr.
Evans are duly licensed to sell such products and retains 50% of the commissions
received on credit life and mortgage life insurance sales. Logansport Savings
receives the other half of the commissions earned by Mr. Williams and Mr. Evans
from the sales of these products. For the year ended December 31, 1997, Mr.
Williams and Mr. Evans received $8,238 and $0, respectively, in commissions from
the sale of credit life and mortgage life insurance.
Logansport currently utilizes Mr. Evans, who is a state licensed appraiser,
as a staff appraiser for substantially all residential mortgage loans under
$250,000. Mr. Williams serves as a review appraiser for all appraisals performed
by Mr. Evans. As part of closing costs, Logansport charges an appraisal fee of
approximately $100 for all residential mortgage loans. In connection with their
appraisal work, Mr. Evans and Mr. Williams receive 60% and 40%, respectively, of
this appraisal fee. For the year ended December 31, 1997, Mr. Evans and Mr.
Williams received $12,915 and $8,610, respectively, as compensation for their
appraisal work.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the 1934 Act requires that the Holding Company's officers
and directors and persons who own more than 10% of the Holding Company's Common
Stock file reports of ownership and changes in ownership with the Securities and
Exchange Commission (the "SEC"). Officers, directors and greater than 10%
shareholders are required by SEC regulations to furnish the Holding Company with
copies of all Section 16(a) forms that they file.
Based solely on its review of the copies of such forms received by it,
and/or written representations from certain reporting persons that no Forms 5
were required for those persons, the Holding Company believes that for the
fiscal year ended December 31, 1997, all filing requirements applicable to its
officers, directors and greater than 10% beneficial owners with respect to
Section 16(a) of the 1934 Act were satisfied in a timely manner.
ACCOUNTANTS
Grant Thornton LLP has served as auditors for the Holding Company since
1997. A representative of Grant Thornton LLP is expected to be present at the
Annual Meeting with the opportunity to make a statement if he so desires. He
will also be available to respond to any appropriate questions shareholders may
have. Grant Thornton LLP has been selected as the independent public accounting
firm to audit the Holding Company's books, records and accounts for the fiscal
year ended December 31, 1998.
SHAREHOLDER PROPOSALS
Any proposal which a shareholder wishes to have presented at the next
Annual Meeting of the Holding Company and included in the Holding Company's
proxy statement, must be received at the main office of the Holding Company for
the inclusion in the proxy statement no later than 120 days in advance of March
9, 1999. Any such proposal should be sent to the attention of the Secretary of
the Holding Company at 723 East Broadway, Logansport, Indiana 46947.
OTHER MATTERS
Management is not aware of any business to come before the Annual Meeting
other than those matters described in the Proxy Statement. However, if any other
matters should properly come before the Annual Meeting, it is intended that the
proxies solicited hereby will be voted with respect to those other matters in
accordance with the judgment of the persons voting the proxies.
The cost of solicitation of proxies will be borne by the Holding Company.
The Holding Company will reimburse brokerage firms and other custodians,
nominees and fiduciaries for reasonable expenses incurred by them in sending
proxy material to the beneficial owners of the Common Stock. In addition to
solicitation by mail, directors, officers, and employees of the Holding Company
may solicit proxies personally or by telephone without additional compensation.
Each shareholder is urged to complete, date and sign the proxy and return
it promptly in the enclosed envelope.
By Order of the Board of Directors
/s/ Thomas G. Williams
Thomas G. Williams, President and
Chief Executive Officer
March 9, 1998
<PAGE>
REVOCABLE PROXY LOGANSPORT FINANCIAL CORP.
Annual Meeting of Shareholders
April 14, 1998
The undersigned hereby appoints Dianne Hoffman and Dottye Robeson, with
full powers of substitution, to act as attorneys and proxies for the undersigned
to vote all shares of common stock of Logansport Financial Corp. which the
undersigned is entitled to vote at the Annual Meeting of Shareholders to be held
at the office of Logansport Financial Corp. at 723 East Broadway, Logansport,
Indiana, on Tuesday, April 14, 1998, at 2:00 P.M., and at any and all
adjournments thereof, as follows:
1. The election as directors of all nominees listed below, except as
marked to the contrary [ ] FOR [ ] VOTE [ ] WITHHELD
INSTRUCTIONS: To withhold authority to vote for any individual nominee, strike a
line through the nominee's name on the list below:
Donald G. Pollitt Susanne S. Ridlen
(each for a three year term)
In their discretion, the proxies are authorized to vote on any other business
that may properly come before the Meeting or any adjournment thereof.
The Board of Directors recommends a vote "FOR" each of the listed propositions.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
This Proxy may be revoked at any time prior to the voting thereof.
The undersigned acknowledges receipt from Logansport Financial Corp., prior to
the execution of this Proxy, of Notice of the Meeting, a Proxy Statement and an
Annual Report to Shareholders.
<PAGE>
THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NO INSTRUCTIONS ARE SPECIFIED, THIS
PROXY WILL BE VOTED FOR EACH OF THE DIRECTOR NOMINEES. IF ANY OTHER BUSINESS IS
PRESENTED AT SUCH MEETING, THIS PROXY WILL BE VOTED BY THOSE NAMED IN THIS PROXY
IN THEIR BEST JUDGMENT. AT THE PRESENT TIME, THE BOARD OF DIRECTORS KNOWS OF NO
OTHER BUSINESS TO BE PRESENTED AT THE MEETING. __________________, 1998
------------------------- -------------------------
Print Name of Shareholder Print Name of Shareholder
------------------------- -------------------------
Signature of Shareholder Signature of Shareholder
Please sign as your name appears on the envelope in
which this card was mailed. When signing as attorney,
executor, administrator, trustee or guardian, please
give your full title. If shares are held jointly, each
holder should sign.
[FRONT COVER]
[PHOTO OF BRIEFCASE]
LOGANSPORT FINANCIAL CORP.
1997
SHAREHOLDER ANNUAL REPORT
<PAGE>
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 17, 1998, there were 848 shareholders of record of
the Company's Common Stock.
Stock Price Per Share
Quarter Ended High Low Dividends
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*
March 31, 1997 15 11 1/8 $0.10
June 30, 1997 14 12 1/2 $0.10
September 30, 1997 16 13 1/4 $0.10
December 31, 1997 18 15 $0.10
* 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 Independent Auditor
Barnes & Thornburg Grant Thornton LLP
11 South Meridian Street 625 Eden Park Drive, Suite 900
Indianapolis, Indiana 46204 Cincinnati, Ohio 45202
Shareholder & General Inquiries
The Company is required to file an Annual Report on Form 10-K for its
fiscal year ended December 31, 1997 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
<PAGE>
TABLE OF CONTENTS
Page
President's Message to Shareholders.............................. 2
Selected Consolidated Financial Data............................. 4
Management's Discussion and Analysis............................. 5
Change in Accountants............................................ 15
Independent Auditor's Report..................................... 16
Consolidated Statements of Financial Condition................... 17
Consolidated Statements of Earnings.............................. 18
Consolidated Statements of Changes in Shareholders' Equity....... 19
Consolidated Statements of Cash Flows............................ 20
Notes to Consolidated Financial Statements....................... 22
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 report that Logansport Financial Corp. and its subsidiary,
Logansport Savings Bank, had another excellent year.
Among our accomplishments this year is a 1.50% return on average assets, well
above the industry average. Another important ratio of significance to
shareholders is return on average equity which increased substantially to 7.69%
in 1997 from 4.76% in 1996. This is a result of our excellent earning
performance and our $3.00 return of capital distribution to shareholders in
December 1996. In addition, the performance of the Company has resulted in
substantial increases in the market value of the stock during the year. 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. We are pleased with these improvements but
continue to explore additional ways to increase shareholder value.
Another indicator of our financial soundness is reflected in our growth. Total
assets for the year ended December 31, 1997 were $86.1 million compared to $77.7
million at December 31, 1996. Total loans increased by $6.8 million during the
year. The loan department is headed by Charles Evans, Vice President, who has
been with the Bank for 25 years. He is an important part of our management team
and instrumental in the excellent performance of the loan portfolio. In addition
to serving on the Board of Directors of Logansport Financial Corp., he was added
to the Bank's Board of Directors in 1997. The increase in the loan portfolio is
a significant contributing factor to our strong earnings. We continue to be a
community leader in providing both excellent loan service and products. Net
earnings for the year ended December 31, 1997 totaled $1.2 million compared to
$913,000 for the year ended December 31, 1996. Earnings per share increased to
$.98 in 1997 compared to $.69 in 1996. The benefit of lower FDIC insurance
premiums is reflected in the increased earnings for 1997.
In looking ahead to 1998, the current interest rate environment could offer many
challenges for financial institutions. Earnings have been very strong in the
last two years but declining rates could impact earnings in the coming year.
However, we remain optimistic regarding our prospects for additional growth and
consistent profitability in 1998. Logansport Financial Corp. has grown
substantially in the last few years and for this reason the Directors are
currently planning for a facilities expansion to better meet the needs of our
customers. Tentative plans have been approved with the hope of proceeding in the
early spring.
I would like to thank our Directors, officers, employees, customers and
shareholders for their part in making 1997 an excellent year. We are proud of
the performance of Logansport Financial Corp. and we are grateful for your
support. We look forward to a long and mutually beneficial relationship.
Sincerely,
/s/ Thomas G. Williams
Thomas G. Williams
President
<PAGE>
Officers of Logansport Financial Corp.
[PHOTO]
(left to right) Charles J. Evans, Vice President; Dottye Robeson,
Secretary/Treasurer; Thomas G. Williams, President
Board of Directors of Logansport Financial Corp.
[PHOTO]
Front (left to right) Thomas G. Williams, Susanne S. Ridlen, Charles J. Evans
Back (left to right) Norbert E. Adrian, William Tincher, Jr., Donald G. Pollitt,
David G. Wihebrink
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
OF LOGANSPORT FINANCIAL CORP. AND SUBSIDIARY
<TABLE>
<CAPTION>
AT DECEMBER 31,
1997 1996 1995 1994 1993
--------------------------------------------------------------------------
(Dollars in thousands)
Statement of Financial Condition Data:
<S> <C> <C> <C> <C> <C>
Total assets ........................... $86,115 $77,668 $74,647 $59,351 $56,229
Loans receivable, net .................. 63,635 56,802 49,707 44,020 37,851
Mortgage-backed securities - at market.. 9,932 6,674 7,468 1,229 2,784
Cash and cash equivalents............... 2,269 3,759 3,243 1,645 2,700
Investment securities - at market....... 5,750 7,629 11,285 10,009 10,718
Certificates of deposit in other
financial institutions............... 100 100 100 --- ---
Deposits................................ 60,595 57,396 52,461 51,202 49,558
Borrowings.............................. 8,025 3,400 1,000 1,000 ---
Shareholders' equity, net............... 16,542 15,427 20,454 6,833 6,397
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1997 1996 1995 1994 1993
-----------------------------------------------------------------
(Dollars in thousands)
Summary of Operating Results:
<S> <C> <C> <C> <C> <C>
Interest income ........................... $ 6,101 $ 5,653 $ 4,775 $ 4,031 $ 4,033
Interest expense .......................... 3,115 2,719 2,468 2,043 1,984
------- ------- ------- ------- -------
Net interest income .................... 2,986 2,934 2,307 1,988 2,049
Provision for loan losses ................. 26 12 20 6 161
------- ------- ------- ------- -------
Net interest income after provision for
loan losses ......................... 2,960 2,922 2,287 1,982 1,888
Other income:
Service charges on deposit accounts .... 88 67 47 35 26
Investment securities gains (losses) .. (50) (47) 3 -- 22
Other .................................. 132 62 129 44 37
------- ------- ------- ------- -------
Total other income .................. 170 82 179 79 85
Other expense:
Employee compensation and benefits ..... 649 661 531 493 440
Occupancy and equipment ................ 78 81 81 84 69
Deposit insurance premiums ............. 37 449 116 114 83
Other .................................. 406 393 304 266 226
------- ------- ------- ------- -------
Total other expense ............... 1,170 1,584 1,032 957 818
------- ------- ------- ------- -------
Earnings before income taxes and cumulative
effect of change in accounting principle 1,960 1,420 1,434 1,104 1,155
Income taxes .............................. 728 507 526 370 422
Cumulative effect of change
in accounting principle ................ --- --- --- --- 44
------- ------- ------- ------- -------
Net earnings ........................... $ 1,232 $ 913 $ 908 $ 734 $ 777
======= ======= ======= ======= =======
Basic earnings per share .................. $ .98 $ .69 $ --- $ --- $ ---
======= ======= ======= ======= =======
Cash dividends per share
Regular ................................ .40 .40 .20 --- ---
Special (2) ............................ --- 3.00 --- --- ---
Supplemental Data:
Return on assets (3) ...................... 1.50% 1.18% 1.34% 1.27% 1.45%
Return on equity (4) ...................... 7.69 4.76 6.33 10.78 12.92
Interest rate spread (5) .................. 2.94 2.80 2.77 3.32 3.75
Net yield on interest-earning assets (6) .. 3.86 3.99 3.64 3.67
4.07
<PAGE>
General, administrative and other expense
to average assets ...................... 1.42 2.04 1.53 1.65 1.52
Net interest income to general,
administrative and
other expense .......................... 2.55x 1.85x 2.24x 2.08x 2.50x
Equity-to-assets (7) ...................... 19.21 19.86 27.40 11.51 11.38
Average interest-earning assets to average
interest-bearing liabilities ........... 123.36 132.80 122.90 109.64 108.48
Non-performing assets to total assets ..... .62 .52 .42 .82 1.38
Non-performing loans to total loans ....... .67 .71 .63 .76 1.57
Loan loss allowance to total loans, net ... .38 .41 .45 .47 .53
Loan loss allowance to
non-performing loans .................. 56.84 58.12 71.61 61.13 33.67
Dividend payout ratio ..................... 40.82 57.97(8) --- ---(1) ---(1)
Net charge-offs to average loans .......... .03 (*) (*) (*) .13
</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 earnings divided by average total assets.
(4) Net earnings 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
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.
Forward-Looking Statements
In the following pages, management presents an analysis of the
Company's financial condition as of December 31, 1997, and the results of
operations for the year ended December 31, 1997 as compared to prior periods. In
addition to this historical information, the following discussion contains
forward-looking statements that involve risks and uncertainties. Economic
circumstances, the Company's operations and the Company's actual results could
differ significantly from those discussed in the forward-looking statements.
Some of the factors that could cause or contribute to such differences are
discussed herein but also include changes in the economy and interest rates in
the nation and in the Company's general market area.
Without limiting the foregoing, some of the forward-looking statements include
the following:
Management's establishment of an allowance for loan losses and its
statements regarding the adequacy of such allowance for loan losses.
Management's opinions as to the financial statement effect of recent
accounting pronouncements.
<PAGE>
Asset/Liability Management
The Bank, like other savings associations, is subject to interest rate
risk to the degree that its interest-bearing liabilities, primarily deposits
with short- and medium-term maturities, mature or reprice at different rates
than its interest-earning assets. Management of the Bank believes it is critical
to manage the relationship between interest rates and the effect on the Bank's
net portfolio value ("NPV"). Generally, NPV is the discounted present value of
the difference between incoming cash flows on interest-earning and other assets
and outgoing cash flows on interest-bearing liabilities. Management of the
Bank's assets and liabilities is done within the context of the marketplace,
regulatory limitations and within limits established by the Board of Directors
on the amount of change in NPV which is acceptable given certain interest rate
changes.
The Office of Thrift Supervision ("OTS") issued a regulation, effective
January 1, 1994, which uses a net market value methodology to measure the
interest rate risk exposure of thrift institutions. Under OTS regulations, an
institution's "normal" level of interest rate risk in the event of an assumed
change in interest rates is a decrease in the institution's NPV in an amount not
exceeding 2% of the present value of its assets. Thrift institutions with over
$300 million in assets or less than a 12% risk-based capital ratio are required
to file OTS Schedule CMR. Data from Schedule CMR is used by the OTS to calculate
changes in NPV (and the related "normal" level of interest rate risk) based upon
certain interest rate changes (discussed below). Institutions which do not meet
either of the filing requirements are not required to file OTS Schedule CMR, but
may do so voluntarily. The Bank does not currently meet either of these
requirements, but it does voluntarily file Schedule CMR. Presented below, as of
September 30, 1997, (the latest available date), is an analysis performed by the
OTS of the Bank's interest rate risk as measured by changes in NPV for
instantaneous and sustained parallel shifts in the yield curve, in 100 basis
point increments, up and down 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.
<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 * $12,081 $(5,855) (33%) 15.05% (549 bp)
+ 300 bp $13,854 $(4,082) (23%) 16.83% (371 bp)
+ 200 bp $15,525 $(2,410) (13%) 18.42% (212 bp)
+ 100 bp $16,923 $(1,013) (6%) 19.68% (86 bp)
0 bp $17,936 $ --- ---% 20.54% --- bp
- 100 bp $18,579 $ 644 4% 21.04% 50 bp
- 200 bp $19,130 $ 1,195 7% 21.44% 89 bp
- 300 bp $19,907 $ 1,971 11% 22.02% 147 bp
- 400 bp $20,963 $ 3,027 17% 22.82% 227 bp
</TABLE>
Interest Rate Risk Measures: 200 Basis Point (bp) Rate Shock
Pre-Shock NPV Ratio: NPV as % of PV of Assets............. 20.54%
Exposure Measure: Post-Shock NPV Ratio.................... 18.42%
Sensitivity Measure: Change in NPV Ratio.................. (212 bp)
* Basis points
<PAGE>
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.
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 Company's interest-earning assets and
interest-bearing liabilities, and the average yields earned and interest rates
paid on such balances. Such yields and costs are determined by dividing income
or expense by the average balance of assets or liabilities, respectively, for
the periods presented.
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------------------------------------
1997 1996 1995
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..............$ 3,398 $ 179 5.27% $ 3,192 $ 160 5.01% $ 2,542 $ 146 5.74%
Mortgage- and other asset-backed
securities(1)........................ 8,380 559 6.67 7,916 510 6.44 3,566 227 6.37
Other investment securities (1)........ 6,715 444 6.61 9,965 587 5.89 11,490 701 6.10
Loans receivable (2)................... 59,606 4,932 8.27 53,409 4,421 8.28 46,746 3,724 7.97
Stock in FHLB of Indianapolis.......... 466 37 7.94 376 29 7.71 338 27 7.99
------ ----- ------ ----- ------ -----
Total interest-earning assets........ 78,565 6,151 7.83 74,858 5,707 7.62 64,682 4,825 7.46
Non-interest earning assets, net of
allowance for loan losses and
unrealized gain (loss) on securities
available for sale..................... 3,650 2,709 2,822
------- ------- -------
Total assets......................... $82,215 $77,567 $67,504
======= ======= =======
Liabilities and stockholders' equity:
Interest-bearing liabilities:
Savings accounts....................... $3,347 101 3.02 $ 3,298 100 3.03 $ 3,986 121 3.04
NOW and money
market accounts...................... 20,169 823 4.08 18,751 769 4.10 16,791 698 4.16
Certificates of deposit................ 35,636 1,940 5.44 32,432 1,744 5.38 31,352 1,617 5.16
Borrowings ........................... 4,535 251 5.53 1,889 106 5.61 501 32 6.39
------ ----- ------ ----- ------ -----
Total interest-bearing liabilities... 63,687 3,115 4.89 56,370 2,719 4.82 52,630 2,468 4.69
Other liabilities......................... 2,506 2,016 529
------- ------- -------
Total liabilities.................... 66,193 58,386 53,159
Shareholders' equity
Total shareholders' equity........... 16,022 19,181 14,345
------- ------- -------
Total liabilities and shareholders'
equity ............................ $82,215 $77,567 $67,504
======= ------ ======= ------ ======= ------
Net interest-earning assets............... $14,878 $18,488 $12,052
Net interest income....................... $3,036 $2,988 $2,357
====== ====== ======
Interest rate spread (3) ................. 2.94% 2.80% 2.77%
==== ==== ====
Net yield on weighted average
interest-earning assets (4)............ 3.86% 3.99% 3.64%
==== ==== ====
Average interest-earning assets to
average interest-bearing liabilities... 123.36% 132.80% 122.90%
Adjustment of interest on tax-exempt
securities to a tax-equivalent basis... $ 50 $ 54 $ 50
</TABLE>
<PAGE>
(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.
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 Company 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,
1997 1997 1996 1995
--------------------------------------------------------------------
Weighted average interest rate earned on:
<S> <C> <C> <C> <C>
Interest-earning deposits................... 5.32% 5.27% 5.01% 5.74%
Mortgage-backed securities.................. 6.71 6.67 6.44 6.37
Investment securities....................... 6.53 6.61 5.89 6.10
Loans receivable............................ 8.33 8.27 8.28 7.97
Stock in FHLB of Indianapolis............... 8.01 7.94 7.71 7.99
Total interest-earning assets............. 7.95 7.83 7.62 7.46
Weighted average interest rate cost of:
Savings accounts............................ 3.00 3.02 3.03 3.04
NOW and money market accounts............... 4.08 4.08 4.10 4.16
Certificates of deposit..................... 5.52 5.44 5.38 5.16
Borrowings.................................. 5.82 5.53 5.61 6.39
Total interest-bearing liabilities........ 4.98 4.89 4.82 4.69
Interest rate spread (1)....................... 2.97 2.94 2.80 2.77
Net yield on weighted average
interest-earning assets (2)................. N/A 3.86 3.99 3.64
</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, 1997, because the computation of net yield is applicable only over a
period rather than at a specific date.
<PAGE>
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, 1997
compared to Year ended December 31, 1996
Interest-earning assets:
<S> <C> <C> <C>
Interest-earning deposits.............................. $ 19 $ 11 $ 8
Mortgage-backed securities............................. 49 22 27
Investment securities.................................. (143) 81 (224)
Loans receivable....................................... 511 8 503
Stock in FHLB of Indianapolis.......................... 8 1 7
------- ------- -------
Total................................................ 444 123 321
------- ------- -------
Interest-bearing liabilities:
Savings accounts....................................... 1 --- 1
NOW and money market accounts.......................... 54 (4) 58
Certificates of deposit................................... 196 24 172
Borrowings............................................. 145 1 144
------- ------- -------
Total................................................ 396 21 375
------- ------- -------
Change in net interest income
(fully taxable equivalent basis)....................... 48 102 (54)
Tax equivalent adjustment................................. 4 1 3
------- ------- -------
Change in net interest income............................. $ 52 $ 103 $ (51)
======= ======= =======
Year ended December 31, 1996
compared to Year ended December 31, 1995
Interest-earning assets:
Interest-earning deposits.............................. $ 14 $ (20) $ 34
Mortgage-backed securities............................. 283 3 280
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
======= ======= =======
</TABLE>
<PAGE>
Comparison of Years Ended December 31, 1997 and 1996
General. The Company's total assets were $86.1 million at December 31,
1997, an increase of $8.4 million or 10.9% over the $77.7 million total at
December 31, 1996. The increase in assets was funded primarily through growth in
deposits of $3.2 million, increases in borrowings of $4.6 million and an
increase in shareholders' equity of $1.1 million. The percentage of
interest-earning assets to total assets was 96.0% at December 31, 1997 and 96.0%
at December 31, 1996.
At December 31, 1997, the total of securities was $15.7 million
compared to $14.3 million at December 31, 1996, an increase of $1.4 million, or
9.6%. The primary investments added to the portfolio were asset-backed
securities, with the exception of a $1.0 million FHLB callable fixed rate note
which was funded with a matching advance from the Federal Home Loan Bank. At
December 31, 1997 the Company held $200,000 of corporate obligations all of
which was debt of domestic corporations rated AA or better by Moody's Investors
Service, Inc. The Company had $1.1 million of structured FHLB notes in its
investment portfolio at December 31, 1997.
Total loans increased by $6.8 million from December 31, 1996 to
December 31, 1997, an increase of 12.0%. Most of the increase occurred in the
one-to-four family mortgages and consumer loans. One-to-four family mortgage
loans increased by $5.3 million, and consumer loans, by $1.5 million. The
increase was funded primarily by the increase in deposits and advances.
During the 1997 year the Company invested $1.5 million in a limited
partnership which will construct and manage residential real estate apartments
for low and moderate income residents. This investment reflects a 49.5%
participation in the partnership. The affordable housing project is expected to
generate significant tax credits for the Bank in future years, beginning in
1999. This investment resulted in an increase to total assets of $1.5 million
with a corresponding increase in other liabilities. At December 31, 1997, the
project was still in construction; therefore, there was no income or loss to
allocate to the Company.
Deposits increased by $3.2 million to $60.6 million at December 31,
1997 from $57.4 million at December 31, 1996. Non-interest bearing deposits, NOW
accounts, passbook savings and money market savings increased by $1.5 million
while certificates of deposits increased by $1.7 million. Borrowings also
increased by $4.6 million during the year. At December 31,1996, borrowings
consisted of $2.0 million in FHLB advances and $1.4 million borrowed from
another bank. The $1.4 million borrowed from another bank was repaid in early
1997 and at December 31, 1997 all borrowings were FHLB advances.
Shareholders' equity increased by $1.1 million during 1997. Equity was
used to fund regular quarterly dividends and was increased by the amortization
of the Company's RRP, and a recovery of unrealized losses on available for sale
securities. Net earnings for the year ended December 31, 1997 was $1.2 million.
This compares to net earnings of $913,000 for the year ended December 31, 1996.
Net earnings for the fiscal year ended December 31, 1997, totaled $1.2
million, an increase of $319,000, or 34.9%, from the $913,000 in net earnings
recorded in 1996. The increase was primarily attributable to an increase in net
interest income of $52,000 and a decrease in general, administrative, and other
expense of $414,000, including the effects of the $335,000 charge in fiscal 1996
related to the Savings Association Insurance Fund ("SAIF") recapitalization
assessment, which was partially offset by an increase of $221,000 in the
provision for income taxes.
Interest Income (fully taxable equivalent basis). The Company's total
interest income was $6.1 million for the year ended December 31, 1997 compared
to $5.7 million during 1996, an increase of $448,000. The increase in average
interest earning assets from $74.9 million in 1996 to $78.6 million in 1997,
combined with stable loan rates, contributed to 21 basis points increase in the
average yield on interest earning assets to 7.83% in 1997 compared to 7.62% in
1996. While average loan yield remained constant, yield on mortgage-backed
securities, investment securities and interest-earning deposits all improved
during the year.
<PAGE>
Interest Expense. Interest expense increased by $396,000 for the year
ended December 31, 1997 compared to 1996. This increase was the result of an
increase in the average balance of interest-bearing liabilities by $7.3 million
and the increase in the average cost of these liabilities by 7 basis points,
from 4.82% during 1996 to 4.89% in 1997. Local competition resulted in pressure
to maintain competitive rates; however, the interest rate spread improved in
1997.
Net Interest Income (fully taxable equivalent basis). Net interest
income increased by $52,000 for 1997 to approximately $3.0 million as compared
with $2.9 million in 1996. Net yield on weighted average interest-earning assets
declined in 1997 to 3.86% from 3.99% in 1996.
Provision for losses on loans. The Company's provision for losses on
loans for the year ended December 31, 1997 and 1996 was $26,000 and $12,000
respectively. This provision and the related increase in the allowance for loan
losses were considered adequate based on the degree of delinquencies in the loan
portfolio and the Company's loan loss history. There were recoveries of $1,100
in 1997 and $1,270 in 1996, and chargeoffs of $18,256 in 1997; there were no
chargeoffs in 1996. The Bank also recorded as a charitable donation an $8,000
property held in real estate acquired through foreclosure during 1997 which it
donated to Habitat for Humanity of Cass County, Indiana, Inc. 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, 1997 and 1996 the allowance was $245,000 and $236,000,
respectively, a ratio of 0.38% and 0.41% of total loans at each date.
Non-performing loans at these dates were $431,000 and $406,000, respectively.
The ratio of allowance for loan losses to non-performing loans decreased from
58.1% at December 31, 1996 to 56.8% at December 31, 1997. Based on management's
review of the loan portfolio during these years, the allowance for loan losses
at December 31, 1997 and 1996 is considered to be adequate to cover potential
losses inherent in the loan portfolio.
Other Income. The Company's other income for the years ended December
31, 1997 and 1996 was $170,000 and $82,000, respectively. The year ended
December 31, 1996 included a $17,000 recovery on investments previously written
off while 1997 included $24,000 of additional recovery. During 1997, the Company
recorded $50,000 of net losses on sales of securities. Structured notes of $2.0
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 $21,000 in 1997 compared to 1996.
General, Administrative and Other Expense. General, administrative and
other expense totaled $1.2 million in 1997 compared to $1.6 million in 1996, a
decrease of $414,000 or 26.1%. Employee compensation and benefits decreased by
$12,000 due primarily to a general increase in deferred loan origination costs
year-to-year. Deposit insurance costs decreased by $412,000 due to the absence
of the one-time SAIF recapitalization assessment in 1997 and the new FDIC
premium rates. Data processing fees increased $5,000 for the year. Various other
operating expenses increased by $8,000. The majority 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,
1997 and 1996 was $728,000 and $507,000. Pretax income increased significantly
in 1997 over 1996, mainly due to the SAIF assessment in 1996. This resulted in a
corresponding increase in income tax expense.
Comparison of Years Ended December 31, 1996 and 1995
General. Net earnings for the year ended December 31, 1996 was
$913,000. This compares to net earnings 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.
<PAGE>
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 $882,000. 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 interest-bearing 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 $631,000 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
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 71.7% 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
was 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.
General, Administraive and Other Expense. General, administrative and
other expense totaled $1.6 million in 1996 compared to $1.0 million 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, and higher costs of other fringe benefits. Pension plan expense decreased
by $36,000 resulting in a net increase in employee compensation and benefits of
$130,000. Deposit insurance costs increased $333,000 due to the one-time SAIF
recapitalization assessment. 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.
<PAGE>
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.
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.
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, 1997, 1996, and 1995, the Company originated mortgage loans in the
amounts of $13.5 million, $13.2 million and $8.6 million, respectively. The
Company originated consumer loans of $6.2 million, $6.1 million and $4.8
million, respectively. The Company purchased no loans, excluding commercial
paper, in 1997, and purchased loans, excluding commercial paper, of $1.0 million
in 1996 and 1995. Loan repayments, excluding commercial paper, totaled $12.9
million, $12.4 million, and $9.3 million for 1997, 1996, and 1995, respectively.
During the years ended December 31, 1997, 1996, and 1995, the Company
purchased investment securities in the amounts of $7.5 million, $8.7 million,
and $13.6 million, respectively. Sales or maturities of such securities held by
the Company and payments on mortgage-backed or other asset-backed securities
were $5.7 million, $12.8 million, and $6.6 million for 1997, 1996, and 1995,
respectively.
Deposits grew by $4.9 million from December 31, 1995 to December 31,
1996, and by $3.2 million from December 31, 1996 to December 31, 1997.
The Company experienced an increase in cash and cash equivalents to
$3.8 million at December 31, 1996 from $3.2 million at December 31, 1995. From
December 31, 1996 to December 31, 1997, cash and cash equivalents decreased by
$1.5 million.
At December 31, 1997 and 1996, the Company had outstanding loan
commitments and standby letters of credit totaling $3.1 million and $2.3
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, 1997 and
1996 totaled $22.5 million and $19.9 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, 1997 and 1996, the Company had outstanding FHLB advances of $6.5 million and
$2.0 million, respectively.
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.
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. The OTS recently reduced the level of
liquid assets that must be held by a savings association from 5% to 4% of the
association's net withdrawable accounts plus short-term borrowings based upon
the average daily balance of such liquid assets for each quarter of the
associations's fiscal year. The OTS may impose monetary penalties upon savings
associations that fail to comply with those liquidity requirements. As of
December 31, 1997, the Bank had liquid assets of $16.0 million, and a regulatory
liquidity ratio of 37.4%.
<PAGE>
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, 1997, the Bank's tangible capital ratio was 19.1%,
its leverage ratio was 19.1%, and its risk-based capital to risk-weighted assets
ratio was 35.2%. Therefore, at December 31, 1997, 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, 1997:
<TABLE>
<CAPTION>
At December 31, 1997
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% $1,289 19.1% $16,412 $15,123
Core capital (2)............................ 3.0 2,578 19.1 16,412 13,834
Risk-based capital.......................... 8.0 3,781 35.2 16,657 (3) 12,876
</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 $245,000 of general valuation
allowances.
As of December 31, 1997, 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 consolidated 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.
Year 2000 Compliance
Because computer memory was so expensive on early mainframe computers,
some computer programs used only the final two digits for the year in the date
field while maintaining the first two digits of each year constant. As a result,
some computer applications may be unable to interpret the change from year 1999
to the year 2000. The Company is actively monitoring its year 2000 computer
compliance issues. The bulk of the Company's computer processing is provided
under contract by Intrieve Corporation in Cincinnati, Ohio ("Intrieve").
Intrieve expects to be year 2000 compliant by December, 1998. Intrieve will
assist the Company with other phases of year 2000 compliance throughout the
remainder of 1998 and 1999. The Bank's loan documentation system is provided by
Banker's Systems and is also expected to be year 2000 compliant within the next
year. The Company has also appointed one of its executive officers to address
all aspects of year 2000 compliance.
<PAGE>
Effects of Recent Accounting Pronouncements
In June 1996, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 125, "Accounting for
Transfers and Servicing of Financial Assets, and Extinguishments of
Liabilities," that provides accounting guidance on transfers of financial
assets, servicing of financial assets, and extinguishment of liabilities. SFAS
No. 125 introduces an approach to accounting for transfers of financial assets
that provides a means of dealing with more complex transactions in which the
seller disposes of only a partial interest in the assets, retains rights or
obligations, makes use of special purpose entities in the transaction, or
otherwise has continuing involvement with the transferred assets. The new
accounting method, the financial components approach, provides that the carrying
amount of the financial assets transferred be allocated to components of the
transaction based on their relative fair values. SFAS No. 125 provides criteria
for determining whether control of assets has been relinquished and whether a
sale has occurred. If the transfer does not qualify as a sale, it is accounted
for as a secured borrowing. Transactions subject to the provisions of SFAS No.
125 include, among others, transfers involving repurchase agreements,
securitizations of financial assets, loan participations, factoring
arrangements, and transfers of receivables with recourse.
An entity that undertakes an obligation to service financial assets
recognizes either a servicing asset or liability for the servicing contract
(unless related to a securitization of assets, and all the securitized assets
are retained and classified as held-to-maturity). A servicing asset or liability
that is purchased or assumed is initially recognized at its fair value.
Servicing assets and liabilities are amortized in proportion to and over the
period of estimated net servicing income or net servicing loss and are subject
to subsequent assessments for impairment based on fair value.
SFAS No. 125 provides that a liability is removed from the balance
sheet only if the debtor either pays the creditor and is relieved of its
obligation for the liability or is legally released from being the primary
obligor.
SFAS No. 125 is effective for transfers and servicing of financial
assets and extinguishment of liabilities occurring after December 31, 1997, and
is to be applied prospectively. Earlier or retroactive application is not
permitted. Management adopted SFAS No. 125 effective January 1, 1998, as
required, without material effect on the Company's consolidated financial
position or results of operations.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." SFAS No. 130 establishes standards for reporting and display of
comprehensive income and its components (revenues, expenses, gains and losses)
in a full set of general-purpose financial statements. SFAS No. 130 requires
that all items that are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements. It does not
require a specific format for that financial statement but requires that an
enterprise display an amount representing total comprehensive income for the
period in that financial statement.
SFAS No. 130 requires that an enterprise (a) classify items of other
comprehensive income by their nature in a financial statement and (b) display
the accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity section of a statement of
financial position. SFAS No. 130 is effective for fiscal years beginning after
December 15, 1997. Reclassification of financial statements for earlier periods
provided for comparative purposes is required. SFAS No. 130 is not expected to
have a material impact on the Company's financial statements.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information." SFAS No. 131 significantly changes
the way that public business enterprises report information about operating
segments in annual financial statements and requires that those enterprises
report selected information about reportable segments in interim financial
reports issued to shareholders. It also establishes standards for related
disclosures about products and services, geographic areas and major customers.
SFAS No. 131 uses a "management approach" to disclose financial and descriptive
information about the way that management organizes the segments within the
enterprise for making operating decisions and assessing performance. For many
enterprises, the management approach will likely result in more segments being
reported. In addition, SFAS No. 131 requires significantly more information to
be disclosed for each reportable segment than is presently being reported in
annual financial statements and also requires that selected information be
reported in interim financial statements. SFAS No. 131 is effective for fiscal
years beginning after December 15, 1997. SFAS No. 131 is not expected to have a
material impact on the Company's financial statements.
<PAGE>
CHANGE IN ACCOUNTANTS
On August 12, 1997, the Board of Directors of the Holding Company
selected the accounting firm of Grant Thornton LLP to examine the consolidated
financial statements of the Company for the fiscal year ending December 31,
1997.
The audit reports issued by Geo. S. Olive & Co. LLC with respect to the
Company's consolidated financial statements for 1995 and 1996 did not contain an
adverse opinion or disclaimer of opinion, and were not qualified as to
uncertainty, audit scope or accounting principles. During 1995 and 1996 (and any
subsequent interim period), there have been no disagreements between the Company
and Geo. S. Olive & Co. LLC on any matter of accounting principles or practices,
financial statement disclosure or auditing scope or procedure, which
disagreements, if not resolved to the satisfaction of Geo. S. Olive & Co. LLC,
would have caused it to make a reference to the subject matter of the
disagreement in connection with its audit report. Moreover, none of the events
listed in Item 304(a)(1)(v) of Regulation S-K occurred during 1995 or 1996 or
any subsequent interim period.
In 1996, the Company consulted Grant Thornton LLP for financial
accounting and tax advice regarding a tax-free return of capital which was paid
in 1996. Grant Thornton LLP provided a letter to the Company stating its views
with respect to accounting for the exercise price of stock options following
such return of capital distribution. Their written views are incorporated by
reference to Exhibit A to the Company's Current Report on Form 8-K, filed with
the Commission on August 19, 1997. Geo. S. Olive & Co. LLC was consulted during
its completion of the 1996 audit of the consolidated financial statements in
1997 for concurrence with Grant Thornton LLP on their written views, and Geo. S.
Olive & Co. LLC concurred.
<PAGE>
Suite 900
625 Eden Park Drive
Cincinnati, OH 45202-4181
513 762-5000
FAX 513 241-6125
GRANT THORNTON
Grant Thornton LLP
Accountants and
Management Consultants
The U.S. Member Firm of
Grant Thornton International
Report of Independent Certified Public Accountants
Board of Directors
Logansport Financial Corp.
We have audited the accompanying consolidated statement of financial condition
of Logansport Financial Corp. as of December 31, 1997, and the related
consolidated statements of earnings, shareholders' equity, and cash flows for
the year then ended. These consolidated financial statements are the
responsibility of the Corporation's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audit. The
consolidated financial statements as of December 31, 1996, and for the years
ended December 31, 1996 and 1995 were audited by other auditors, whose report
thereon dated January 23, 1997, expressed an unqualified opinion on those
statements.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the 1997 financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Logansport
Financial Corp. as of December 31, 1997, and the consolidated results of its
operations and its cash flows for the year then ended, in conformity with
generally accepted accounting principles.
/s/ Grant Thornton LLP
Cincinnati, Ohio
February 24, 1998
<PAGE>
LOGANSPORT FINANCIAL CORP.
Consolidated Statements of Financial Condition
December 31,
(In thousands, except share data)
<TABLE>
<CAPTION>
ASSETS 1997 1996
<S> <C> <C>
Cash and due from banks $ 589 $ 998
Interest-bearing deposits in other financial institutions 1,680 2,761
------- -------
Cash and cash equivalents 2,269 3,759
Certificates of deposit in other financial institutions 100 100
Investment securities available for sale - at market 5,750 7,629
Mortgage-backed securities available for sale - at market 9,932 6,674
Loans receivable - net 63,635 56,802
Real estate acquired through foreclosure - net 106 -
Office premises and equipment - at depreciated cost 465 476
Federal Home Loan Bank stock - at cost 494 387
Investment in real estate partnership 1,540 -
Accrued interest receivable on loans 299 266
Accrued interest receivable on mortgage-backed securities 83 54
Accrued interest receivable on investments and interest-bearing deposits 121 127
Prepaid expenses and other assets 33 42
Cash surrender value of life insurance 1,085 1,040
Deferred income tax asset 203 312
------- -------
Total assets $86,115 $77,668
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits $60,595 $57,396
Advances from the Federal Home Loan Bank 6,500 2,000
Notes payable 1,525 1,400
Accrued interest and other liabilities 861 1,391
Accrued income taxes 92 54
------- -------
Total liabilities 69,573 62,241
Commitments - -
Shareholders' equity
Preferred stock - no par value, 2,000,000 shares authorized; none issued - -
Common stock - no par value, 5,000,000 shares authorized; 1,260,920
and 1,256,375 shares at aggregate value issued and outstanding at
December 31, 1997 and 1996 7,566 7,518
Retained earnings - restricted 9,316 8,588
Less shares acquired by stock benefit plan (400) (522)
Unrealized gains (losses) on securities designated as available for sale,
net of related tax effects 60 (157)
------- -------
Total shareholders' equity 16,542 15,427
------- -------
Total liabilities and shareholders' equity $86,115 $77,668
======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
LOGANSPORT FINANCIAL CORP.
Consolidated Statements of Earnings
For the Year Ended December 31,
(In thousands, except share data)
<TABLE>
<CAPTION>
1997 1996 1995
Interest income
<S> <C> <C> <C>
Loans $4,932 $4,421 $3,724
Mortgage-backed securities 559 510 227
Investment securities 394 533 651
Interest-bearing deposits and other 216 189 173
-------- -------- -------
Total interest income 6,101 5,653 4,775
Interest expense
Deposits 2,864 2,613 2,436
Borrowings 251 106 32
-------- -------- -------
Total interest expense 3,115 2,719 2,468
-------- -------- -------
Net interest income 2,986 2,934 2,307
Provision for losses on loans 26 12 20
-------- -------- -------
Net interest income after provision for losses on loans 2,960 2,922 2,287
Other income
Service charges on deposit accounts 88 67 47
Gain (loss) on sale of investment and mortgage-backed securities (50) (47) 3
Gain on sale of real estate acquired through foreclosure 1 1 12
Other operating 131 61 117
-------- -------- -------
Total other income 170 82 179
General, administrative and other expense
Employee compensation and benefits 649 661 531
Occupancy and equipment 78 81 81
Federal deposit insurance premiums 37 449 116
Data processing 96 91 93
Other operating 310 302 211
-------- -------- -------
Total general, administrative and other expense 1,170 1,584 1,032
-------- -------- -------
Earnings before income taxes 1,960 1,420 1,434
Income taxes
Current 761 593 519
Deferred (33) (86) 7
-------- -------- -------
Total income taxes 728 507 526
-------- -------- -------
NET EARNINGS $1,232 $ 913 $ 908
======== ======== =======
EARNINGS PER SHARE
Basic $ .98 $ .69 N/A
======== ======== =======
Diluted $ .95 $ .69 N/A
======== ======== =======
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
LOGANSPORT FINANCIAL CORP.
Consolidated Statements of Shareholders' Equity
For the years ended December 31, 1997, 1996 and 1995
(In thousands, except share data)
<TABLE>
<CAPTION>
Shares Unrealized
acquired gains (losses) on
by stock securities
Common Retained benefit available
stock earnings plan for sale Total
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1995 $ - $7,131 $ - $(297) $ 6,834
Net earnings for the year ended
December 31, 1995 - 908 - - 908
Proceeds from issuance of common
stock - net 12,670 - - - 12,670
Unrealized gains on securities designated
as available for sale, net of related
tax effects - - - 307 307
Cash dividends of $.20 per share - (265) - - (265)
-------- ------ ----- ------ -------
Balance at December 31, 1995 12,670 7,774 - 10 20,454
Net earnings for the year ended
December 31, 1996 - 913 - - 913
Return of capital distribution to
shareholders (3,930) - - - (3,930)
Purchase of shares for stock benefit plan - - (615) - (615)
Purchase of shares (799) - - - (799)
Unrealized losses on securities
designated as available for sale, net of
related tax effects - - - (167) (167)
Amortization of stock benefit plan - - 93 - 93
Cash dividends of $.40 per share (423) (99) - - (522)
-------- ------ ----- ------ -------
Balance at December 31, 1996 7,518 8,588 (522) (157) 15,427
Net earnings for the year ended
December 31, 1997 - 1,232 - - 1,232
Issuance of shares under stock option plan 48 - - - 48
Unrealized gains on securities designated
as available for sale, net of related
tax effects - - - 217 217
Amortization of stock benefit plan - - 122 - 122
Cash dividends of $.40 per share - (504) - - (504)
-------- ------ ----- ------ -------
Balance at December 31, 1997 $ 7,566 $9,316 $(400) $ 60 $16,542
======== ====== ===== ====== =======
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
LOGANSPORT FINANCIAL CORP.
Consolidated Statements of Cash Flows
For the year ended December 31,
(In thousands)
<TABLE>
<CAPTION>
1997 1996 1995
Cash flows from operating activities:
<S> <C> <C> <C>
Net earnings for the year $ 1,232 $ 913 $ 908
Adjustments to reconcile net earnings
to net cash provided by
(used in) operating activities:
Depreciation and amortization 37 38 46
Amortization of premiums on investments and
mortgage-backed securities 104 36 (21)
Amortization expense of stock benefit plan 122 93 -
(Gain) loss on sale of investment and
mortgage-backed securities 50 47 (3)
Provision for losses on loans 26 12 20
Gain on sale of real estate acquired through foreclosure (1) (1) (12)
Increase (decrease) in cash, due to changes in:
Accrued interest receivable on loans (33) (37) (56)
Accrued interest receivable on mortgage-backed securities (29) (2) (48)
Accrued interest receivable on investments 6 58 (6)
Prepaid expenses and other assets 9 25 (95)
Accrued interest and other liabilities (530) (89) 302
Federal income taxes
Current 38 (32) 149
Deferred (33) (86) 7
-------- --------- ---------
Net cash provided by operating activities 998 975 1,191
Cash flows provided by (used in) investing activities:
Increase in certificates of deposit in
other financial institutions - - (100)
Proceeds from sale of investment securities
designated as available for sale 2,495 3,835 708
Purchase of investment securities designated
as available for sale (2,100) (2,834) (8,057)
Purchase of investment securities designated
as held to maturity - - (356)
Maturities of investment securities designated
as available for sale 1,471 2,877 3,939
Maturities of investment securities designated
as held to maturity - - 450
Purchase of Federal Home Loan Bank stock (107) (38) (41)
Proceeds from sale of mortgage-backed
securities designated as
available for sale 421 3,503 -
Purchase of mortgage-backed securities designated
as available for sale (5,126) (5,178) -
Purchase of mortgage-backed securities designated
as held to maturity - - (5,175)
Principal repayments on mortgage-backed
securities designated as
available for sale 1,665 2,971 1,109
Purchase of loans - (1,046) (4,852)
Loan disbursements (19,769) (19,211) (13,397)
Investment in real estate partnership (15) - -
Principal repayments on loans 12,791 13,303 12,461
Purchases and additions to office premises and equipment (26) (83) (63)
Proceeds from sale of real estate acquired through foreclosure 14 15 9
Increase in cash surrender value of life insurance policy (45) (35) (25)
-------- --------- ---------
Net cash used in investing activities (8,331) (1,921) (13,390)
-------- --------- ---------
Net cash used in operating and investing activities
(subtotal carried forward) (7,333) (946) (12,199)
-------- --------- ---------
</TABLE>
<PAGE>
LOGANSPORT FINANCIAL CORP.
Consolidated Statements of Cash Flows
For the year ended December 31,
(In thousands)
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Net cash used in operating and investing activities
(subtotal brought forward) $ (7,333) $ (946) $(12,199)
Cash provided by (used in) financing activities:
Net increase in deposit accounts 3,199 4,935 1,259
Proceeds from Federal Home Loan Bank advances 10,500 6,000 1,000
Proceeds from note payable 100 1,400 -
Repayment of Federal Home Loan Bank advances (6,000) (5,000) (1,000)
Repayment of note payable (1,500) - -
Proceeds from the exercise of stock options 48 - -
Proceeds from issuance of common stock - net - - 12,670
Return of capital distribution - (3,930) -
Purchase of shares for stock benefit plan - (615) -
Dividends on common stock (504) (529) (132)
Purchase of shares - (799) -
-------- --------- ---------
Net cash provided by financing activities 5,843 1,462 13,797
-------- --------- ---------
Net increase (decrease) in cash and cash equivalents (1,490) 516 1,598
Cash and cash equivalents at beginning of year 3,759 3,243 1,645
-------- --------- ---------
Cash and cash equivalents at end of year $ 2,269 $3,759 $ 3,243
======== ====== =========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Income taxes $ 680 $ 629 $ 412
======== ====== =========
Interest on deposits and borrowings $ 3,129 $2,699 $ 2,450
======== ====== =========
Supplemental disclosure of noncash investing
and financing activities:
Foreclosed mortgage loans transferred to real
estate acquired through foreclosure $ 136 $ 18 $ 84
======== ====== =========
Transfer of investment and mortgage-backed securities
to an available for sale classification $ --- $ --- $ 10,016
======== ====== =========
Investment in real estate partnership via
financing from notes payable $ 1,525 $ --- $ ---
======== ====== =========
Unrealized gains (losses) on securities
designated as available
for sale, net of related tax effects $ 217 $ (167) $ 307
======== ====== =========
Due from broker for called securities $ --- $ --- $ 400
======== ====== =========
Due to broker for purchased securities $ --- $ 706 $ ---
======== ====== =========
Dividends payable at end of year $ 126 $ 126 $ 132
======== ====== =========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
LOGANSPORT FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
During 1995, the Board of Directors of Logansport Savings Bank, FSB (the
"Savings Bank") adopted an overall plan of conversion and reorganization (the
"Plan") whereby the Savings Bank would convert to the stock form of ownership
(the "Conversion"), followed by the issuance of all of the Savings Bank's
outstanding stock to a newly formed holding company, Logansport Financial Corp.
(the "Corporation"), and the issuance of common shares of the Corporation to
subscribing members of the Savings Bank. The conversion to the stock form of
ownership was completed in June 1995, culminating in the Corporation's issuance
of 1,322,500 common shares. Condensed financial statements of the Corporation
are presented in Note O. Future references are made to either the Corporation or
the Savings Bank as applicable.
The Corporation is a savings and loan holding company whose activities are
primarily limited to holding the common stock of the Savings Bank. The Savings
Bank conducts a general banking business in north-central Indiana which consists
of attracting deposits from the general public and applying those funds to the
origination of loans for residential, consumer and nonresidential purposes. The
Savings Bank's profitability is significantly dependent on its net interest
income, which is the difference between interest income generated from
interest-earning assets (i.e. loans and investments) and the interest expense
paid on interest-bearing liabilities (i.e. customer deposits and borrowed
funds). Net interest income is affected by the relative amount of
interest-earning assets and interest-bearing liabilities and the interest
received or paid on these balances. The level of interest rates paid or received
by the Savings Bank can be significantly influenced by a number of environmental
factors, such as governmental monetary policy, that are outside of management's
control.
The financial information presented herein has been prepared in accordance with
generally accepted accounting principles ("GAAP") and general accounting
practices within the financial services industry. In preparing consolidated
financial statements in accordance with GAAP, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the consolidated financial statements and revenues and expenses during the
reporting period. Actual results could differ from such estimates.
The following is a summary of the Corporation's significant accounting policies
which have been consistently applied in the preparation of the accompanying
consolidated financial statements.
1. Principles of Consolidation
The consolidated financial statements include the accounts of the Corporation
and its subsidiary, the Savings Bank. All significant intercompany balances and
transactions have been eliminated.
2. Investment and Mortgage-backed Securities
The Corporation accounts for investments and mortgage-backed securities in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 115
"Accounting for Certain Investments in Debt and Equity Securities". SFAS No. 115
requires that investments be categorized as held-to-maturity, trading, or
available for sale. Securities classified as held to maturity are carried at
cost only if the Corporation has the positive intent and ability to hold these
securities to maturity. Trading securities and securities available for sale are
carried at fair value with resulting unrealized gains or losses charged to
operations or shareholders' equity, respectively.
At December 31, 1997 and 1996, the Corporation's shareholders' equity accounts
reflected a net unrealized gain and a net unrealized loss on available for sale
securities of $60,000 and $157,000, respectively.
Realized gains and losses on sales of securities are recognized using the
specific identification method.
<PAGE>
LOGANSPORT FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997, 1996 and 1995
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
3. Loans Receivable
Loans receivable are stated at the principal amount outstanding, adjusted for
the allowance for loan losses. Interest is accrued as earned, unless the
collectibility of the loan is in doubt. Uncollectible interest on loans that are
contractually past due is charged off, or an allowance is established based on
management's periodic evaluation. The allowance is established by a charge to
interest income equal to all interest previously accrued, and income is
subsequently recognized only to the extent that cash payments are received
until, in management's judgment, the borrower's ability to make periodic
interest and principal payments has returned to normal, in which case the loan
is returned to accrual status. If the ultimate collectibility of the loan is in
doubt, in whole or in part, all payments received on nonaccrual loans are
applied to reduce principal until such doubt is eliminated.
4. Loan Origination Fees
The Savings Bank accounts for loan origination fees in accordance with SFAS No.
91, "Accounting for Nonrefundable Fees and Costs Associated with Originating or
Acquiring Loans and Initial Direct Costs of Leases". Pursuant to the provisions
of SFAS No. 91, origination fees received from loans, net of certain direct
origination costs, are deferred and amortized to interest income using the
interest method, giving effect to actual loan prepayments. Additionally, SFAS
No. 91 generally limits the definition of loan origination costs to the direct
costs attributable to originating a loan, i.e. principally actual personnel
costs. Fees received for loan commitments that are expected to be drawn upon,
based on the Savings Bank's experience with similar commitments, are deferred
and amortized over the life of the loan using the level-yield method. Fees for
other loan commitments are deferred and amortized over the loan commitment
period on a straight-line basis.
5. Allowance for Losses on Loans
It is the Savings Bank's policy to provide valuation allowances for estimated
losses on loans based on past loss experience, trends in the level of delinquent
and problem loans, adverse situations that may affect the borrower's ability to
repay, the estimated value of any underlying collateral and current and
anticipated economic conditions in the primary lending area. When the collection
of a loan becomes doubtful, or otherwise troubled, the Savings Bank records a
loan loss provision equal to the difference between the fair value of the
property securing the loan and the loan's carrying value. Major loans and major
lending areas are reviewed periodically to determine potential problems at an
early date. The allowance for loan losses is increased by charges to earnings
and decreased by charge-offs (net of recoveries).
The Savings Bank accounts for impaired loans in accordance with SFAS No. 114,
"Accounting by Creditors for Impairment of a Loan". SFAS No. 114 requires that
impaired loans be measured based upon the present value of expected future cash
flows discounted at the loan's effective interest rate or, as an alternative, at
the loan's observable market price or fair value of the collateral. The Savings
Bank's current procedures for evaluating impaired loans result in carrying such
loans at the lower of cost or fair value.
<PAGE>
LOGANSPORT FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997, 1996 and 1995
NOTE A - SUMMARY OF ACCOUNTING POLICIES (continued)
5. Allowance for Losses on Loans (continued)
A loan is defined under SFAS No. 114 as impaired when, based on current
information and events, it is probable that a creditor will be unable to collect
all amounts due according to the contractual terms of the loan agreement. In
applying the provisions of SFAS No. 114, the Savings Bank considers its
investment in one- to four-family residential loans and consumer installment
loans to be homogeneous and therefore excluded from separate identification for
evaluation of impairment. With respect to the Savings Bank's investment in
nonresidential and multi-family residential real estate loans, and its
evaluation of impairment thereof, such loans are generally collateral dependent
and, as a result, are carried as a practical expedient at the lower of cost or
fair value.
Collateral dependent loans which are more than ninety days delinquent are
considered to constitute more than a minimum delay in repayment and are
evaluated for impairment under SFAS No. 114 at that time.
At December 31, 1997 and 1996, the Savings Bank had no loans that would be
defined as impaired under SFAS No. 114.
6. Real Estate Acquired Through Foreclosure
Real estate acquired through foreclosure is carried at the lower of the loan's
unpaid principal balance (cost) or fair value less estimated selling expenses at
the date of acquisition. Real estate loss provisions are recorded if the
properties' fair value subsequently declines below the value determined at the
recording date. In determining the lower of cost or fair value at acquisition,
costs relating to development and improvement of property are capitalized. Costs
relating to holding real estate acquired through foreclosure, net of rental
income, are charged against earnings as incurred.
7. Office Premises and Equipment
Office premises and equipment are carried at cost and include expenditures which
extend the useful lives of existing assets. Maintenance, repairs and minor
renewals are expensed as incurred. For financial reporting, depreciation and
amortization are provided on the straight-line and accelerated methods over the
useful lives of the assets, estimated to be thirty to forty years for buildings,
five to twenty years for building improvements, five to fifteen years for
furniture and equipment and five years for automobiles. An accelerated method is
used for tax reporting purposes.
8. Investment in Real Estate Partnership
During 1997, the Corporation invested $1.5 million in a real estate partnership
which will construct and manage residential real estate apartments for low and
moderate income residents. The investment reflects a 49.5% participation in the
partnership. This affordable housing project is expected to generate significant
tax credits for the Savings Bank in future years.
9. Income Taxes
The Corporation accounts for income taxes pursuant to SFAS No. 109, "Accounting
for Income Taxes". SFAS No. 109 established financial accounting and reporting
standards for the effects of income taxes that result from the Corporation's
activities within the current and previous years. In accordance with SFAS No.
109, a deferred tax liability or deferred tax asset is computed by applying the
current statutory tax rates to net taxable or deductible temporary differences
between the tax basis of an asset or liability and its reported
<PAGE>
LOGANSPORT FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997, 1996 and 1995
NOTE A - SUMMARY OF ACCOUNTING POLICIES (continued)
9. Income Taxes (continued)
amount in the consolidated financial statements that will result in net taxable
or deductible amounts in future periods. Deferred tax assets are recorded only
to the extent that the amount of net deductible temporary differences or
carryforward attributes may be utilized against current period earnings, carried
back against prior years' earnings, offset against taxable temporary differences
reversing in future periods, or utilized to the extent of management's estimate
of future taxable income. A valuation allowance is provided for deferred tax
assets to the extent that the value of net deductible temporary differences and
carryforward attributes exceeds management's estimates of taxes payable on
future taxable income. Deferred tax liabilities are provided on the total amount
of net temporary differences taxable in the future.
Deferral of income taxes results primarily from the different methods of
accounting for certain retirement plans, general loan loss allowances and
percentage of earnings bad debt deductions. Additional temporary differences
result from depreciation computed using accelerated methods for tax purposes.
10. Benefit Plans
Employees of the Savings Bank are covered by the Pentegra Group, previously the
Financial Institutions Retirement Fund (the "Fund"), which is a defined benefit
pension plan to which contributions are made for the benefit of the employees.
Contributions are determined to cover the normal cost of pension benefits, the
one-year cost of the pre-retirement death and disability benefits and the
amortization of any unfunded accrued liabilities.
The Fund had previously advised the Savings Bank that the pension plan meets the
criteria of a multi-employer pension plan as defined in SFAS No. 87, "Employers'
Accounting for Pensions". In accordance with SFAS No. 87, net pension cost is
recognized for any required contribution for the period. A liability is
recognized for any contributions due and unpaid. During 1993, the Savings Bank
acquired additional benefits for all qualified employees covered by the Fund
which were paid for by reducing the overfunded amount. Due to a continuation of
the funds overfunded status, no contributions were made to the pension plan
during the years ended December 31, 1997 and 1996. Pension expense was $36,000
for the year ended December 31, 1995. The provision for pension expense was
computed by the Fund's actuaries utilizing the projected unit credit cost method
and assuming a 7.5% return on Fund assets.
The Savings Bank has purchased life insurance policies on certain officers and
directors. The insurance policies had an approximate cash surrender value of
$1.1 million and $1.0 million at December 31, 1997 and 1996. The Savings Bank
has approved compensation arrangements that provide retirement benefits to
certain officers and deferral of fees for directors covered by the policies. The
benefit arrangement for one individual requires that the individual provide
consulting services to the Savings Bank during the five-year period following
retirement. The benefits to be paid, excluding amounts attributable to
consulting, are being accrued from the date of approval of the arrangements to
the date that full eligibility is attained. Expense related to the above
described plans totaled $99,000, $87,000 and $76,000 for the years ended
December 31, 1997, 1996 and 1995, respectively.
The Savings Bank adopted the Logansport Savings Bank, FSB Employee Stock
Ownership Plan and Trust Agreement ("ESOP") in 1995, for eligible employees of
the Savings Bank. The ESOP will be funded by discretionary employer
contributions made in cash, which will be invested in shares of the
Corporation's common stock. No contributions were made to the ESOP during the
years ended December 31, 1997, 1996 or 1995.
<PAGE>
LOGANSPORT FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997, 1996 and 1995
NOTE A - SUMMARY OF ACCOUNTING POLICIES (continued)
10. Benefit Plans (continued)
In April 1996, the Corporation's shareholders approved the Logansport Savings
Bank, FSB Recognition and Retention Plan and Trust ("RRP"). The RRP may acquire
up to 52,900 shares of the Corporation'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
1996, the Savings Bank contributed $615,000 to the RRP for the purchase of
46,675 shares of the Corporation's common stock awarded to management and
recorded the amount as unearned compensation. Amortization expense under the RRP
totaled $123,000 and $92,000 for the years ended December 31, 1997 and 1996,
respectively.
11. Earnings Per Share and Cash Distributions Per Share
Basic earnings per share is computed based upon the weighted-average shares
outstanding during the year. Weighted-average common shares outstanding totaled
1,259,162 and 1,316,372 for the years ended December 31, 1997 and 1996,
respectively. Diluted earnings per share is computed taking into consideration
common shares outstanding and dilutive potential common shares to be issued
under the Corporation's stock option plan. Weighted-average common shares deemed
outstanding for purposes of computing diluted earnings per share, which gives
effect to 32,384 and 8,600 incremental shares from assumed exercise of stock
options, totaled 1,291,546 and 1,324,972 for the years ended December 31, 1997
and 1996, respectively. The provisions of SFAS No. 128, "Earnings Per Share,"
are not applicable for the year ended December 31, 1995, as the Corporation was
not a stock company for the entire year. During 1996, the Corporation paid
capital distributions of $3.32 with respect to its common stock and dividends of
$.08 per share.
Effective December 31, 1997, the Corporation began presenting earnings per share
pursuant to the provisions of SFAS No. 128. In accordance with the Statement,
the 1996 earnings per share presentation has been revised to conform to SFAS No.
128.
12. Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents includes cash
and due from banks and interest-bearing deposits in other financial institutions
with original maturities of less than 90 days.
13. Fair Value of Financial Instruments
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments", requires
disclosure of fair value of financial instruments, both assets and liabilities,
whether or not recognized in the consolidated statement of financial condition,
for which it is practicable to estimate that value. For financial instruments
where quoted market prices are not available, fair values are based on estimates
using present value and other valuation methods.
The methods used are greatly affected by the assumptions applied, including the
discount rate and estimates of future cash flows. Therefore, the fair values
presented may not represent amounts that could be realized in an exchange for
certain financial instruments.
<PAGE>
LOGANSPORT FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997, 1996 and 1995
NOTE A - SUMMARY OF ACCOUNTING POLICIES (continued)
13. Fair Value of Financial Instruments (continued)
The following methods and assumptions were used by the Corporation in estimating
its fair value disclosures for financial instruments at December 31, 1997 and
1996:
Cash and cash equivalents: The carrying amounts presented in the
consolidated statements of financial condition for cash and cash
equivalents are deemed to approximate fair value.
Certificates of deposit: The carrying amount presented in the
consolidated statements of financial condition is deemed to approximate
fair value.
Investment and mortgage-backed securities: For investment and
mortgage-backed securities, fair value is deemed to equal the quoted
market price.
Loans receivable: The loan portfolio has been segregated into
categories with similar characteristics, such as one- to four-family
residential, multi-family residential, nonresidential real estate and
consumer. These loan categories were further delineated into fixed-rate
and adjustable-rate loans. The fair values for the resultant loan
categories were computed via discounted cash flow analysis, using
current interest rates offered for loans with similar terms to
borrowers of similar credit quality.
Federal Home Loan Bank stock: The carrying amount presented in the
consolidated statements of financial condition is deemed to approximate
fair value.
Deposits: The fair value of NOW accounts, passbook and club accounts,
and money market deposits is deemed to approximate the amount payable
on demand at December 31, 1997 and 1996. Fair values for fixed-rate
certificates of deposit have been estimated using a discounted cash
flow calculation using the interest rates currently offered for
deposits of similar remaining maturities.
Federal Home Loan Bank advances: The fair value of Federal Home Loan
Bank advances has been estimated using discounted cash flow analysis,
based on the interest rates currently offered for advances of similar
remaining maturities.
Notes Payable: The fair value of notes payable is deemed to approximate
the carrying value.
Commitments to extend credit: For fixed-rate and adjustable-rate loan
commitments, the fair value estimate considers the difference between
current levels of interest rates and committed rates. At December 31,
1997 and 1996, the difference between the fair value and notional
amount of loan commitments was not material.
<PAGE>
LOGANSPORT FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997, 1996 and 1995
NOTE A - SUMMARY OF ACCOUNTING POLICIES (continued)
13. Fair Value of Financial Instruments (continued)
Based on the foregoing methods and assumptions, the carrying value and fair
value of the Corporation's financial instruments are as follows at December 31:
<TABLE>
<CAPTION>
1997 1996
Carrying Fair Carrying Fair
value value value value
(In thousands)
Financial assets
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 2,269 $ 2,269 $ 3,759 $ 3,759
Certificates of deposit 100 100 100 100
Investment securities 5,750 5,750 7,629 7,629
Mortgage-backed securities 9,932 9,932 6,674 6,674
Loans receivable 63,635 66,286 56,802 57,310
Federal Home Loan Bank stock 494 494 387 387
------- ------- ------- -------
$82,180 $84,831 $75,351 $75,859
======= ======= ======= =======
Financial liabilities
Deposits $60,595 $60,554 $57,396 $57,257
Advances from Federal Home
Loan Bank 6,500 6,499 2,000 1,998
Notes payable 1,525 1,525 1,400 1,400
Due to broker --- --- 706 706
------- ------- ------- -------
$68,620 $68,578 $61,502 $61,361
======= ======= ======= =======
</TABLE>
14. Advertising
Advertising costs are expensed when incurred.
15. Reclassifications
Certain prior year amounts have been reclassified to conform to the 1997
consolidated financial statement presentation.
<PAGE>
LOGANSPORT FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997, 1996 and 1995
NOTE B - INVESTMENT AND MORTGAGE-BACKED SECURITIES
The amortized cost, gross unrealized gains, gross unrealized losses, and
estimated fair value of investment securities designated as available for sale
at December 31, 1997 and 1996, are as follows:
<TABLE>
<CAPTION>
1997
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gains losses value
(In thousands)
<S> <C> <C> <C> <C>
U.S. Government agency obligations $3,598 $ 6 $153 $3,451
State and municipal obligations 1,780 67 - 1,847
FHLMC stock 6 237 - 243
Corporate debt obligations 200 9 - 209
------ ---- ---- ------
Total investment securities $5,584 $319 $153 $5,750
====== ==== ==== ======
</TABLE>
<TABLE>
<CAPTION>
1996
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gains losses value
(In thousands)
<S> <C> <C> <C> <C>
U.S. Government agency obligations $5,245 $ 1 $366 $4,880
State and municipal obligations 2,194 48 - 2,242
FHLMC stock 6 153 - 159
Corporate debt obligations 350 - 2 348
------ ---- ---- ------
Total investment securities $7,795 $202 $368 $7,629
====== ==== ==== ======
</TABLE>
The amortized cost and estimated fair value of investment securities by term to
maturity at December 31, 1997, are shown below.
Estimated
Amortized fair
cost value
(In thousands)
Due in one year or less $ 356 $ 359
Due after one year through five years 475 452
Due after five through ten years 4,437 4,375
Due after ten years 310 321
------ ------
5,578 5,507
FHLMC stock 6 243
------ ------
$5,584 $5,750
====== ======
<PAGE>
LOGANSPORT FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997, 1996 and 1995
NOTE B - INVESTMENT AND MORTGAGE-BACKED SECURITIES (continued)
The amortized cost, gross unrealized gains, gross unrealized losses and
estimated fair values of mortgage-backed securities at December 31, 1997 and
1996.
<TABLE>
<CAPTION>
1997
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gains losses value
(In thousands)
Federal Home Loan Mortgage
<S> <C> <C> <C> <C>
Corporation participation certificates $ 949 $ 1 $ 14 $ 936
Government National Mortgage
Association participation certificates 3,880 5 51 3,834
Federal National Mortgage
Association participation certificates 2,849 6 16 2,839
Federal Housing Authority participation
certificates 884 6 - 890
Small Business Administration
participation certificates 1,298 1 5 1,294
Other 138 1 - 139
------ --- ----- ------
Total mortgage-backed securities $9,998 $20 $ 86 $9,932
====== === ===== ======
</TABLE>
<TABLE>
<CAPTION>
1996
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gains losses value
(In thousands)
Federal Home Loan Mortgage
<S> <C> <C> <C> <C>
Corporation participation certificates $1,112 $ 2 $ 11 $1,103
Government National Mortgage
Association participation certificates 1,758 - 47 1,711
Federal National Mortgage
Association participation certificates 2,202 5 32 2,175
Federal Housing Authority participation
certificates 703 - - 703
Small Business Administration
participation certificates 729 - 10 719
Other 264 1 2 263
------ --- ----- ------
Total mortgage-backed securities $6,768 $ 8 $102 $6,674
====== ====== ==== ======
</TABLE>
The amortized cost and estimated fair value of mortgage-backed securities at
December 31, 1997 and 1996, by contractual terms to maturity, are shown below.
Expected maturities will differ from contractual maturities because borrowers
may generally prepay obligations without prepayment penalties.
<PAGE>
LOGANSPORT FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997, 1996 and 1995
NOTE B - INVESTMENT AND MORTGAGE-BACKED SECURITIES (continued)
<TABLE>
<CAPTION>
1997 1996
Estimated Estimated
Amortized fair Amortized fair
cost value cost value
(In thousands)
<S> <C> <C> <C> <C>
Due within one year $1,927 $1,915 $1,556 $1,539
Due after one year to three years 2,285 2,266 1,483 1,464
Due after three years to five years 1,349 1,337 816 803
Due after five years to ten years 1,825 1,806 1,331 1,307
Due after ten years 2,612 2,608 1,582 1,561
------ ------ ------ ------
Total mortgage-backed securities $9,998 $9,932 $6,768 $6,674
====== ====== ====== ======
</TABLE>
NOTE C - LOANS RECEIVABLE
The composition of the loan portfolio at December 31 is as follows:
<TABLE>
<CAPTION>
1997 1996
(In thousands)
Residential real estate
<S> <C> <C>
One- to four-family residential $46,419 $41,109
Multi-family residential 1,844 2,370
Construction 1,333 1,016
Commercial 3,072 2,701
Consumer and other 11,379 9,864
------- -------
64,047 57,060
Less:
Undisbursed portion of loans in process 167 22
Allowance for loan losses 245 236
------- -------
$63,635 $56,802
======= =======
</TABLE>
The Savings Bank's lending efforts have historically focused on one- to
four-family residential and multi-family residential real estate loans, which
comprised approximately $49.6 million, or 77%, of the total loan portfolio at
December 31, 1997, and $44.5 million, or 78% of the total portfolio at December
31, 1996. Generally, such loans have been underwritten on the basis of no more
than an 80% loan-to-value ratio, which has historically provided the Savings
Bank with adequate collateral coverage in the event of default. Nevertheless,
the Savings Bank, as with any lending institution, is subject to the risk that
real estate values could deteriorate in its primary lending area of
north-central Indiana, thereby impairing collateral values. However, management
is of the belief that real estate values in the Savings Bank's primary lending
area are presently stable.
In the normal course of business, the Savings Bank has made loans to its
directors, officers and their related business interests. Related party loans
are made on the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with unrelated persons and do
not involve more than the normal risk of collectibility. Loans to officers and
directors totaled approximately $431,000 and $492,000, at December 31, 1997 and
1996, respectively.
<PAGE>
LOGANSPORT FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997, 1996 and 1995
NOTE D - ALLOWANCE FOR LOAN LOSSES
The activity in the allowance for loan losses for the year ended December 31 is
as follows:
1997 1996 1995
(In thousands)
Beginning balance $236 $223 $206
Provision for loan losses 26 12 20
Recoveries (charge-offs) of loans - net (17) 1 (3)
---- ---- ----
Ending balance $245 $236 $223
==== ==== ====
At December 31, 1997, the Savings Bank's allowance for loan losses was comprised
entirely of a general loan loss allowance which is includible as a component of
regulatory risk-based capital.
At December 31, 1997, 1996 and 1995, the Savings Bank had loans of $431,000,
$406,000 and $311,000, respectively, which had been placed on nonaccrual status
due to concerns as to borrowers' ability to pay. Interest income that would have
been recognized had nonaccrual loans performed pursuant to contractual terms
totaled approximately $24,000, $22,000 and $15,000 for the years ended December
31, 1997, 1996 and 1995, respectively.
NOTE E - OFFICE PREMISES AND EQUIPMENT
Office premises and equipment is comprised of the following at December 31:
1997 1996
(In thousands)
Land $203 $203
Buildings and improvements 460 443
Furniture and equipment 264 264
---- ----
927 910
Less accumulated depreciation and amortization (462) (434)
---- ----
$465 $476
==== ====
The Corporation intends to commence with expansion of its main office facility
in 1998. As of December 31, 1997, the Corporation has committed approximately
$1.5 million to such expansion and renovation which is expected to be completed
during fiscal 1999.
<PAGE>
LOGANSPORT FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997, 1996 and 1995
NOTE F - DEPOSITS
Deposits consist of the following major classifications at December 31:
<TABLE>
<CAPTION>
Deposit type and weighted average
interest rate 1997 1996
(In thousands)
NOW accounts
<S> <C> <C>
December 31, 1997 - 1.99% $ 4,196
December 31, 1996 - 2.14% $ 4,017
Passbook and club accounts
December 31, 1997 - 3.00% 3,070
December 31, 1996 - 3.00% 3,119
Money market deposit accounts
December 31, 1997 - 4.61% 16,736
December 31, 1996 - 4.59% 15,646
Non-interest bearing accounts 862 631
------ ------
Total demand, transaction and passbook deposits 24,864 23,413
Certificates of deposit
Original maturities of:
Less than 12 months
December 31, 1997 - 5.01% 3,903
December 31, 1996 - 5.07% 4,883
12 months to 18 months
December 31, 1997 - 5.42% 6,770
December 31, 1996 - 5.31% 5,906
24 months to 30 months
December 31, 1997 - 5.65% 16,812
December 31, 1996 - 5.53% 14,790
More than 30 months
December 31, 1997 - 5.53% 3,552
December 31, 1996 - 5.55% 3,757
Individual retirement accounts
December 31, 1997 - 5.63% 4,694
December 31, 1996 - 5.61% 4,647
------- -------
Total certificates of deposit 35,731 33,983
------- -------
Total deposits $60,595 $57,396
======= =======
</TABLE>
At December 31, 1997 and 1996, the Savings Bank had certificate of deposit
accounts with balances greater than $100,000 totaling $3.8 million and $4.4
million, respectively.
<PAGE>
LOGANSPORT FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997, 1996 and 1995
NOTE F - DEPOSITS (continued)
Interest expense on deposits for the year ended December 31 is summarized as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
(In thousands)
<S> <C> <C> <C>
Passbook and money market deposit accounts $ 837 $ 763 $ 715
NOW accounts 87 106 104
Certificates of deposit 1,940 1,744 1,617
------ ------ ------
$2,864 $2,613 $2,436
====== ====== ======
</TABLE>
Maturities of outstanding certificates of deposit at December 31 are summarized
as follows:
1997 1996
(In thousands)
Less than one year $22,523 $19,939
One to three years 11,989 12,789
Over three years 1,219 1,255
------- -------
$35,731 $33,983
======= =======
NOTE G - ADVANCES FROM THE FEDERAL HOME LOAN BANK
Advances from the Federal Home Loan Bank, collateralized at December 31, 1997 by
a blanket pledge of residential mortgage loans, and the Savings Bank's
investment in certain U.S. Government agency securities and mortgage-backed
securities totaling $13.3 million, are summarized as follows:
Maturing year December 31,
Interest rate ending December 31, 1997 1996
(In thousands)
5.38% 1997 $ - $2,000
5.70% - 5.89% 1998 4,000 -
5.65% - 6.09% 1999 2,500 -
------ ------
$6,500 $2,000
====== ======
Weighted-average interest rate 5.79% 5.38%
====== ======
NOTE H - NOTES PAYABLE
At December 31, 1997, notes payable consists of construction borrowings secured
by the Savings Bank's investment in a real estate partnership. The Savings Bank
pays only interest until completion of the project at which time repayment terms
will convert to a ten year amortization. At December 31, 1997, the interest rate
on the variable rate borrowing was 4.35%.
At December 31, 1996, notes payable consisted of short-term borrowings secured
by 100% of the Bank's common stock, with interest at the prime rate, from a
commercial bank. The note was repaid in January 1997.
<PAGE>
LOGANSPORT FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997, 1996 and 1995
NOTE I - INCOME TAXES
The provision for income taxes differs from that computed at the statutory
corporate tax rate for the year ended December 31 as follows:
<TABLE>
<CAPTION>
1997 1996 1995
(In thousands)
<S> <C> <C> <C>
Federal income taxes computed at the statutory rate $666 $483 $488
Increase (decrease) in taxes resulting from:
Tax exempt interest (34) (37) (35)
Increase in cash surrender value of life insurance (15) (12) (9)
State income taxes 112 79 82
Other (1) (6) -
---- ---- ----
Income tax provision per consolidated
financial statements $728 $507 $526
==== ==== ====
</TABLE>
The composition of the Corporation's net deferred tax asset at December 31 is as
follows:
<TABLE>
<CAPTION>
Taxes (payable) refundable on temporary 1997 1996
differences at statutory rate: (In thousands)
Deferred tax assets:
<S> <C> <C>
Other than temporary declines in investment securities $ 23 $ 33
Retirement expense 132 101
General loan loss allowance 104 100
Unrealized losses on securities designated as available for sale - 103
Stock benefit plan expense 83 72
Other 7 7
---- ----
Total deferred tax assets 349 416
Deferred tax liabilities:
State income taxes (23) (21)
Percentage of earnings bad debt deduction (74) (74)
Unrealized gains on securities designated as available for sale (40) -
Book vs. tax depreciation (9) (9)
---- ----
Total deferred tax liabilities (146) (104)
---- ----
Net deferred tax asset $203 $312
==== ====
</TABLE>
<PAGE>
LOGANSPORT FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997, 1996 and 1995
NOTE I - INCOME TAXES (continued)
The Savings Bank was allowed a special bad debt deduction based on a percentage
of earnings, generally limited to 8% of otherwise taxable income, or the amount
of qualifying and nonqualifying loans outstanding and subject to certain
limitations based on aggregate loans and savings account balances at the end of
the year. This percentage of earnings bad debt deduction had accumulated to
approximately $1.7 million as of December 31, 1997. If the amounts that qualify
as deductions for federal income taxes are later used for purposes other than
bad debt losses, including distributions in liquidation, such distributions will
be subject to federal income taxes at the then current corporate income tax
rate. The approximate amount of unrecognized deferred tax liability relating to
the cumulative bad debt deduction is approximately $500,000 at December 31,
1997. See Note L for additional information regarding future percentage of
earnings bad debt deductions.
NOTE J - COMMITMENTS
The Savings Bank is a party to financial instruments with off-balance-sheet risk
in the normal course of business to meet the financing needs of its customers
including commitments to extend credit. Such commitments involve, to varying
degrees, elements of credit and interest-rate risk in excess of the amount
recognized in the consolidated statement of financial condition. The contract or
notional amounts of the commitments reflect the extent of the Savings Bank's
involvement in such financial instruments.
The Savings Bank's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit is
represented by the contractual notional amount of those instruments. The Savings
Bank uses the same credit policies in making commitments and conditional
obligations as those utilized for on-balance-sheet instruments.
At December 31, 1997, the Savings Bank had outstanding commitments of
approximately $1.5 million to originate loans. Additionally, the Savings Bank
had unused lines of credit totaling $560,000 at December 31, 1997. In the
opinion of management, all loan commitments equaled or exceeded prevalent market
interest rates as of December 31, 1997, and will be funded from normal cash flow
from operations. Finally, the Savings Bank had a commitment under a standby
letter of credit totaling $759,000 at December 31, 1997. Standby letters of
credit are conditional commitments issued by the Savings Bank to guarantee the
performance of a customer to a third party.
<PAGE>
LOGANSPORT FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997, 1996 and 1995
NOTE K - REGULATORY CAPITAL
The Savings Bank is subject to minimum capital requirements promulgated by the
Office of Thrift Supervision ("OTS"). Failure to meet minimum capital
requirements can initiate certain mandatory - and possibly additional
discretionary -- actions by regulators that, if undertaken, could have a direct
material effect on the Corporation's financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action,
the Savings Bank must meet specific capital guidelines that involve quantitative
measures of the Savings Bank's assets, liabilities, and certain
off-balance-sheet items as calculated under regulatory accounting practices. The
Savings Bank's capital amounts and classifications are also subject to
qualitative judgments by the regulators about components, risk weightings, and
other factors. Such minimum capital standards generally require the maintenance
of regulatory capital sufficient to meet each of three tests, hereinafter
described as the tangible capital requirement, the core capital requirement and
the risk-based capital requirement. The tangible capital requirement provides
for minimum tangible capital (defined as shareholders' equity less all
intangible assets) equal to 1.5% of adjusted total assets. The core capital
requirement provides for minimum core capital (tangible capital plus certain
forms of supervisory goodwill and other qualifying intangible assets) equal to
3.0% of adjusted total assets. An OTS proposal, if adopted in present form,
would increase the core capital requirement to a range of 4.0% - 5.0% of
adjusted total assets for substantially all savings institutions. Management
anticipates no material change to the Savings Bank's present excess regulatory
capital position as a result of this proposed change to the regulatory capital
requirement. The risk-based capital requirement currently provides for the
maintenance of core capital plus general loan loss allowances equal to 8.0% of
risk-weighted assets. In computing risk-weighted assets, the Savings Bank
multiplies the value of each asset on its statement of financial condition by a
defined risk-weighting factor, e.g., one- to four-family residential loans carry
a risk-weighted factor of 50%.
As of December 31, 1997 and 1996, management believes that the Savings Bank met
all capital adequacy requirements to which it is subject.
<TABLE>
<CAPTION>
1997: To be "well-
capitalized" under
For capital prompt corrective
Actual adequacy purposes action provisions
--------------------- --------------------------- ------------------------
Amount Ratio Amount Ratio Amount Ratio
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Tangible capital $16,412 19.1% (1) $1,289 (1) 1.5% (1) $4,297 (1) 5.0%
Core capital $16,412 19.1% (1) $2,578 (1) 3.0% (1) $5,156 (1) 6.0%
Risk-based capital $16,657 35.2% (1) $3,781 (1) 8.0% (1) $4,726 (1) 10.0%
1996: To be "well-
capitalized" under
For capital prompt corrective
Actual adequacy purposes action provisions
--------------------- --------------------------- ------------------------
Amount Ratio Amount Ratio Amount Ratio
(Dollars in thousands)
Tangible capital $17,018 21.9% (1) $1,166 (1) 1.5% (1) $3,886 (1) 5.0%
Core capital $17,018 21.9% (1) $2,332 (1) 3.0% (1) $4,664 (1) 6.0%
Risk-based capital $17,254 41.1% (1) $3,356 (1) 8.0% (1) $4,195 (1) 10.0%
- ---------
(1) Equal to or greater than sign omitted for EDGAR.
</TABLE>
At December 31, 1997 and 1996, the Savings Bank met all regulatory requirements
for classification as a "well-capitalized" institution. A "well-capitalized"
institution must have risk-based capital of 10.0%, and core capital of 5.0%. The
Savings Bank's regulatory capital exceeded the minimum required amounts for
classification as a "well-capitalized" institution at December 31, 1997 by $11.9
million and $12.1 million, respectively.
<PAGE>
LOGANSPORT FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997, 1996 and 1995
NOTE K - REGULATORY CAPITAL (continued)
Regulations of the Office of Thrift Supervision ("OTS") impose limitations on
the payment of dividends and other capital distributions by savings
associations. Under such regulations, a savings association that, immediately
prior to, and on a pro forma basis after giving effect to, a proposed capital
distribution, has total capital (as defined by OTS regulation) that is equal to
or greater than the amount of its fully phased-in capital requirement is
generally permitted without OTS approval (but subsequent to 30 days prior notice
to the OTS of the planned dividend) to make capital distributions during a
calendar year in the amount of (i) up to 100% of its net earnings to date during
the year plus an amount equal to one-half of the amount by which its total
capital to assets ratio exceeded its fully phased-in capital to assets ratio at
the beginning of the year (ii) or 75% of its net earnings for the most recent
four quarters. Pursuant to such OTS dividend regulations, the Savings Bank had
the ability to pay dividends of approximately $6.9 million to the Corporation at
December 31, 1997.
NOTE L - LEGISLATIVE DEVELOPMENTS
The deposit accounts of the Savings Bank and of other savings associations are
insured by the Federal Deposit Insurance Corporation ("FDIC") through the SAIF.
The reserves of the SAIF were below the level required by law, because a
significant portion of the assessments paid into the fund had been used to pay
the cost of prior thrift failures. The deposit accounts of commercial banks are
insured by the FDIC in the Bank Insurance Fund ("BIF"), except to the extent
such banks have acquired SAIF deposits. The reserves of the BIF met the level
required by law in 1995. As a result of the respective reserve levels of the
funds, deposit insurance assessments paid by healthy savings associations
exceeded those paid by healthy commercial banks by approximately $.19 per $100
in deposits in 1995. In 1996, no BIF assessments were required for healthy
commercial banks except for a $2,000 minimum fee.
On September 30, 1996, the President enacted legislation to recapitalize the
SAIF which provided for a special assessment of $.657 per $100 of deposits held
at March 31, 1995. The Savings Bank had $50.9 million in SAIF deposits at March
31, 1995, resulting in an assessment of approximately $335,000, or $221,000
after-tax, which was recorded as a charge in 1996.
The legislation also provided for a reduction of future annual deposit insurance
premiums from $.235 per $100 of SAIF deposits to $.064 per $100 of SAIF deposits
beginning in 1997.
Congress is considering legislation to eliminate the federal savings and loan
charter and the separate federal regulation of savings and loan associations.
Pursuant to such legislation, Congress may eliminate the OTS, and the Savings
Bank may be regulated under federal law as a bank holding company. Such change
in regulation would likely change the range of activities in which the Savings
Bank may engage and would probably subject the Savings Bank to more regulation
by the FDIC. In addition, the Corporation might become subject to a different
form of holding company regulation, which may limit the activities in which the
Corporation may engage, and subject the Corporation to other additional
regulatory requirements, including separate capital requirements. At this time,
the Corporation cannot predict when or whether Congress may actually pass
legislation regarding the Corporation's or the Savings Bank's regulatory
requirements. Although such legislation may change the activities in which
either the Corporation and the Savings Bank may engage, it is not anticipated
that the current activities of both the Corporation and the Savings Bank will be
materially affected by those activity limits.
<PAGE>
LOGANSPORT FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997, 1996 and 1995
NOTE L - LEGISLATIVE DEVELOPMENTS (continued)
Under separate legislation related to the recapitalization plan, the Savings
Bank is required to recapture as taxable income approximately $220,000,
representing its post-1987 percentage of earnings bad debt deduction. The
Savings Bank has provided deferred taxes for this amount and is permitted by
such legislation to recapture such income over a six year period.
NOTE M - STOCK OPTION PLAN
During fiscal 1996, the Board of Directors adopted a Stock Option Plan that
provided for the issuance of 132,250 shares of authorized, but unissued shares
of common stock at the fair market value at the date of grant. In April 1996,
the Corporation granted options to purchase 108,691 shares at an exercise price
of $12.50 per share. As a result of the return of capital distribution of $3.00
per share during fiscal 1996, the number of shares awarded and exercise price
were adjusted to ensure equivalent economic consequences to option holders
following the distribution.
In accordance with SFAS No. 123, the Corporation continues to apply Accounting
Principles Board Opinion No. 25 and related Interpretations in accounting for
its stock option plan. Accordingly, no compensation cost has been recognized for
the plan. Had compensation cost for the Corporation's stock option plan been
determined based on the fair value at the grant dates for awards under the plan
consistent with the accounting method utilized in SFAS No. 123, the
Corporation's net earnings and earnings per share would have been reduced to the
pro forma amounts indicated below:
1997 1996
Net earnings As reported $1,232 $913
====== ====
Pro-forma $1,232 $883
====== ====
Basic earnings per share As reported $ .98 $.69
====== ====
Pro-forma $ .98 $.67
====== ====
Diluted earnings per share As reported $ .95 $.69
====== ====
Pro-forma $ .95 $.67
====== ====
The fair value of each option grant is estimated on the date of grant using the
modified Black-Scholes options-pricing model with the following weighted-average
assumptions used for grants in 1996; dividend yield of 3.67% and expected
volatility of 11.5%; risk-free interest rate of 6.5% and expected lives of seven
years.
<PAGE>
LOGANSPORT FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997, 1996 and 1995
NOTE M - STOCK OPTION PLAN (continued)
A summary of the status of the Corporation's fixed stock option plans as of
December 31, 1997 and 1996, and changes during the periods ending on those dates
is presented below:
<TABLE>
<CAPTION>
1997 1996
Weighted- Weighted-
average average
exercise exercise
Shares price Shares price
<S> <C> <C> <C> <C>
Outstanding at beginning of year 129,340 $ 10.53 - $ -
Granted - $ - 108,691 $ 12.50
Adjustment for return of capital distribution - $ - 20,649 $ (1.97)
Exercised 4,545 $ 10.53 - $ -
Forfeited - $ - - $ -
------- -------- ------- -------
Outstanding at end of year 124,795 $ 10.53 129,340 $ 10.53
======= ======== ======= =======
Options exercisable at year-end 21,323 $ 10.53 - $ -
======= ======== ======= =======
Weighted-average fair value of
options granted during the year N/A $ 1.81
======== =======
The following information applies to options outstanding at December 31, 1997:
Number outstanding 124,795
Exercise price $10.53
Weighted-average exercise price $10.53
Weighted-average remaining contractual life 8.25 years
</TABLE>
NOTE N - CORPORATE REORGANIZATION AND CONVERSION TO STOCK FORM
In October 1994, the Savings Bank's Board of Directors adopted a Plan of
Conversion whereby the Savings Bank would convert to the stock form of
ownership, followed by the issuance of all of the Savings Bank's outstanding
common stock to a newly formed holding company, Logansport Financial Corp.
In June 1995, the Savings Bank completed its conversion to the stock form of
ownership, and issued all of the Association's outstanding common shares to the
Corporation.
In connection with the conversion, the Corporation sold 1,322,500 shares at a
price of $10.00 per share which, after consideration of offering expenses
totaling approximately $555,000 resulted in net equity proceeds of approximately
$12.7 million.
<PAGE>
LOGANSPORT FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997, 1996 and 1995
NOTE N - CORPORATE REORGANIZATION AND CONVERSION TO STOCK FORM (continued)
At the date of the conversion, the Savings Bank established a liquidation
account in an amount equal to retained earnings reflected in the statement of
financial condition used in the conversion offering circular. The liquidation
account will be maintained for the benefit of eligible savings account holders
who maintained deposit accounts in the Savings Bank after conversion. In the
event of a complete liquidation (and only in such event), each eligible savings
account holder will be entitled to receive a liquidation distribution from the
liquidation account in the amount of the then current adjusted balance of
deposit accounts held, before any liquidation distribution may be made with
respect to common stock. Except for the repurchase of stock and payment of
dividends by the Savings Bank, the existence of the liquidation account will not
restrict the use or application of such retained earnings. The Savings Bank may
not declare, pay a cash dividend on, or repurchase any of its common stock, if
the effect thereof would cause retained earnings to be reduced below either the
amount required for the liquidation account or the regulatory capital
requirements for SAIF insured institutions.
NOTE O - CONDENSED FINANCIAL STATEMENTS OF LOGANSPORT FINANCIAL CORP.
The following condensed financial statements summarize the financial position of
Logansport Financial Corp. as of December 31, 1997 and 1996, and the results of
its operations and cash flows for the periods ended December 31, 1997, 1996 and
1995.
Logansport Financial Corp.
STATEMENTS OF FINANCIAL CONDITION
December 31,
(In thousands)
<TABLE>
<CAPTION>
ASSETS 1997 1996
<S> <C> <C>
Cash and cash equivalents $ 160 $ 89
Investment in subsidiary 16,471 16,861
Prepaid expenses and other 5 5
------- -------
Total assets $16,636 $16,955
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Borrowings $ - $ 1,400
Other liabilities 94 128
------- -------
Total liabilities 94 1,528
Shareholders' equity
Common stock 7,566 7,518
Retained earnings 9,316 8,588
Shares acquired by stock benefit plan (400) (522)
Unrealized gains (losses) on securities designated
as available for sale, net 60 (157)
Total shareholders' equity 16,542 15,427
------- -------
Total liabilities and shareholders' equity $16,636 $16,955
======= =======
</TABLE>
<PAGE>
LOGANSPORT FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997, 1996 and 1995
NOTE O - CONDENSED FINANCIAL STATEMENTS OF LOGANSPORT FINANCIAL CORP.
(continued)
Logansport Financial Corp.
STATEMENTS OF EARNINGS
Period ended December 31,
(In thousands)
<TABLE>
<CAPTION>
1997 1996 1995
Revenue
<S> <C> <C> <C>
Interest income $ 12 $ 174 $120
Equity in earnings of subsidiary 1,270 869 852
------ ------- ----
1,282 1,043 972
Interest expense 5 - -
General and administrative expenses 70 100 28
------ ------- ----
Earnings before income taxes 1,207 943 944
Income taxes (credits) (25) 30 36
------ ------- ----
NET EARNINGS $1,232 $ 913 $908
====== ======= ====
</TABLE>
<PAGE>
LOGANSPORT FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997, 1996 and 1995
NOTE O - CONDENSED FINANCIAL STATEMENTS OF LOGANSPORT FINANCIAL CORP.
(continued)
Logansport Financial Corp.
STATEMENTS OF CASH FLOWS
Period ended December 31,
(In thousands)
<TABLE>
<CAPTION>
1997 1996 1995
Cash flows provided by (used in) operating activities:
<S> <C> <C> <C>
Net earnings for the period $1,232 $ 913 $ 908
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
(Undistributed earnings of ) excess distributions from
consolidated subsidiary 730 (869) (852)
Increases (decreases) in cash due to changes in:
Other liabilities (34) - -
Other (1) 3 -
------- -------- ---------
Cash provided by operating activities 1,927 47 56
Cash flows provided by (used in) investing activities:
Purchase of securities available for sale - (1,638) (2,431)
Maturities of investment securities available for sale - 2,245 246
Proceeds from sale of securities designated as available
for sale - 1,824 -
Purchase of securities held to maturity - - (253)
Investment in subsidiary - - (8,687)
Loan disbursements - - (878)
Loan repayments - 878 -
------- -------- ---------
Net cash provided by (used in) investment activities - 3,309 (12,003)
Cash flows provided by (used in) financing activities:
Proceeds from issuance of common stock 48 - 12,670
Proceeds from note payable 100 1,400 -
Return of capital distribution - (3,930) -
Repayment of note payable (1,500) - -
Dividends on common stock (504) (529) (132)
Purchase of shares - (799) -
------- -------- ---------
Net cash provided by (used in) financing activities (1,856) (3,858) 12,538
------- -------- ---------
Net increase (decrease) in cash and cash equivalents 71 (502) 591
Cash and cash equivalents at beginning of period 89 591 -
------- -------- ---------
Cash and cash equivalents at end of period $ 160 $ 89 $ 591
======= ======== =========
</TABLE>
<PAGE>
LOGANSPORT FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997, 1996 and 1995
NOTE P - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following table summarizes the Corporation's quarterly results for the years
ended December 31, 1997 and 1996. Certain amounts, as previously reported, have
been reclassified to conform to the 1997 presentation.
<TABLE>
<CAPTION>
Three Months Ended
March 31, June 30, September 30, December 31,
1997: (In thousands, except per share data)
<S> <C> <C> <C> <C>
Total interest income $1,452 $1,504 $1,570 $1,620
Total interest expense 729 761 804 821
------ ------ ------ ------
Net interest income 723 743 766 799
Provision for losses on loans 3 5 9 9
Other income 4 41 19 38
General, administrative and other expense 282 286 292 287
------ ------ ------ ------
Earnings before income taxes 442 493 484 541
Income taxes 159 179 176 214
------ ------ ------ ------
Net earnings $ 283 $ 314 $ 308 $ 327
====== ====== ====== ======
Basic earnings per share $ .22 $ .24 $ .23 $ .29
====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
March 31, June 30, September 30, December 31,
1996: (In thousands, except per share data)
<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 losses on loans 3 3 3 3
Other income 36 41 (2) 29
General, administrative and other expense 297 335 658 316
------ ------ ------ ------
Earnings before income taxes 434 453 106 427
Income taxes 160 170 25 152
------ ------ ------ ------
Net earnings $ 274 $ 283 $ 81 $ 275
====== ====== ====== ======
Basic earnings per share $ .21 $ .21 $ .06 $ .21
====== ====== ====== ======
</TABLE>
<PAGE>
DIRECTORS AND OFFICERS
Directors
Norbert E. Adrian (age 68) 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 70) 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 58) 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 58) 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 50) 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 65) has served as President of Logansport Savings
Bank, FSB since 1971.
Charles J. Evans (age 52) 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
<PAGE>
[BACK COVER]
[LOGO] LOGANSPORT SAVINGS BANK FSB
"Bank on our Strength"
725 EAST BROADWAY, LOGANSPORT, INDIANA 46947
PHONE 219.722.3855 FAX 219.722.3857
