FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended December 31, 1997
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _____________ to _______________
Commission File Number 0-25910
LOGANSPORT FINANCIAL CORP.
(Exact name of registrant as specified in its charter)
INDIANA 35-1945736
(State or other Jurisdiction (I.R.S. Employer Identification
of Incorporation or Organization) Number)
723 East Broadway, Logansport, Indiana 46947
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number including area code:
(219) 722-3855
Securities Registered Pursuant to Section 12(b) of the Act:
NONE
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, without par value
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. YES X NO ____
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405,
Regulation S-K (ss. 229.405 of this chapter) is not contained herein, and will
not be contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K.
The aggregate market value of the issuer's voting stock held by non-affiliates,
as of March 25, 1998, was $20,678,436.
The number of shares of the Registrant's Common Stock, without par value,
outstanding as of March 25, 1998, was 1,261,100 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Shareholders for the year ended December 31,
1997, are incorporated into Part II. Portions of the Proxy Statement for the
1998 Annual Meeting of Shareholders are incorporated in Part I and Part III.
Exhibit Index on Page 32
Page 1 of 31 Pages
<PAGE>
LOGANSPORT FINANCIAL CORP.
Form 10-K
INDEX
Page
Forward Looking Statements................................................. 1
PART I
Item 1. Business...................................................... 1
Item 2. Properties.................................................... 25
Item 3. Legal Proceedings............................................. 25
Item 4. Submission of Matters to a Vote of Security Holders........... 25
Item 4.5. Executive Officers of Registrant.............................. 25
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters......................................... 26
Item 6. Selected Financial Data....................................... 27
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations......................... 27
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.... 27
Item 8. Financial Statements and Supplementary Data................... 27
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure......................... 27
PART III
Item 10. Directors and Executive Officers of Registrant................ 28
Item 11. Executive Compensation........................................ 28
Item 12. Security Ownership of Certain Beneficial Owners
and Management.............................................. 28
Item 13. Certain Relationships and Related Transactions................ 28
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K................................................. 29
Signatures.................................................... 30
<PAGE>
FORWARD LOOKING STATEMENTS
This Annual Report on Form 10-K ("Form 10-K") contains statements which
constitute forward looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. These statements appear in a number of
places in this Form 10-K and include statements regarding the intent, belief,
outlook, estimate or expectations of the Company (as defined below), its
directors or its officers primarily with respect to future events and the future
financial performance of the Company. Readers of this Form 10-K are cautioned
that any such forward looking statements are not guarantees of future events or
performance and involve risks and uncertainties, and that actual results may
differ materially from those in the forward looking statements as a result of
various factors. The accompanying information contained in this Form 10-K
identifies important factors that could cause such differences. These factors
include changes in interest rates; loss of deposits and loan demand to other
savings and financial institutions; substantial changes in financial markets;
changes in real estate values and the real estate market; regulatory changes; or
unanticipated results in pending legal proceedings.
PART I
Item 1. Business.
General
Logansport Financial Corp. (the "Holding Company" and, together with
the Bank (as defined below), the "Company") is an Indiana corporation organized
in February, 1995, to become a unitary savings and loan holding company. The
Holding Company became a unitary savings and loan holding company upon the
conversion of Logansport Savings Bank, FSB (the "Bank") from a federal mutual
savings bank to a federal stock savings bank on June 13, 1995. The principal
asset of the Holding Company consists of 100% of the issued and outstanding
shares of common stock, $.01 par value per share, of the Bank. The Bank began
operations in Logansport, Indiana under the name Logansport Building and Loan
Association in 1925. In 1962, the Bank changed its name to Logansport Savings
and Loan Association, and in 1992, the Bank converted to a federally charted
savings bank known as Logansport Savings Bank, FSB. The Bank serves the needs of
residents of primarily Cass County, Indiana.
The Bank is the oldest financial institution headquartered in
Logansport, Indiana. Management believes the Bank has developed a solid
reputation among its loyal customer base because of its commitment to personal
service and its strong support of the local community. The Bank offers a number
of consumer and commercial financial services. These services include: (i)
residential real estate loans; (ii) home equity loans; (iii) home improvement
loans; (iv) construction loans; (v) share loans; (vi) commercial real estate
loans; (vii) multi-family loans; (viii) consumer loans; (ix) NOW accounts; (x)
passbook savings accounts; (xi) certificates of deposit; (xii) consumer and
commercial demand deposit accounts; and (xiii) individual retirement accounts.
The Holding Company and the Bank conduct business out of their main office
located in Logansport, Indiana. The Bank is and historically has been a
significant real estate mortgage lender in Cass County, Indiana, originating
approximately 27.8% of the mortgage loan volume recorded in Cass County by Cass
County institutions during the year ended December 31, 1997.
The Bank historically has concentrated its lending activities on the
origination of loans secured by first mortgage liens for the purchase,
construction or refinancing of one- to four-family residential real property.
One- to four-family residential mortgage loans continue to be the major focus of
the Bank's loan origination activities, representing 72.5% of the Company's
total loan portfolio at December 31, 1997. The Bank also offers multi-family
mortgage loans, commercial real estate loans, construction loans, and consumer
loans. Mortgage loans secured by multi-family properties and commercial real
estate totaled approximately 2.9% and 5.0%, respectively, of the Company's total
loan portfolio at December 31, 1997. Residential, multi-family and commercial
real estate construction loans constituted approximately 2.1% of the Company's
total loan portfolio at December 31, 1997. Installment, share, home equity, and
home improvement loans constituted approximately 8.4%, .5%, 1.1%, and 7.8%,
respectively, of the Company's total loan portfolio at December 31, 1997.
<PAGE>
Lending Activities
Loan Portfolio Data. The following table sets forth the composition of
the Company's loan portfolio by loan type and security type as of the dates
indicated, including a reconciliation of gross loans receivable after
consideration of the allowance for loan losses and loans in process.
<TABLE>
<CAPTION>
At December 31,
1997 1996 1995 1994 1993
--------------- --------------- ---------------- ---------------- ----------------
Percent Percent Percent Percent Percent
Amount of Total Amount of Total Amount of Total Amount of Total Amount of Total
------ -------- ------ -------- ------ -------- ------ -------- ------ --------
(Dollars in thousands)
TYPE OF LOAN
Mortgage loans:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Residential................. $46,419 72.48% $41,109 72.05% $36,608 73.15% $33,402 74.92% $28,942 74.39%
Commercial real estate...... 3,072 4.80 2,701 4.73 1,620 3.24 2,718 6.10 2,667 6.85
Multi-family................ 1,844 2.88 2,370 4.15 1,915 3.83 722 1.62 549 1.41
Construction:
Residential ................ 1,333 2.08 574 1.01 575 1.15 330 .74 1,170 3.00
Commercial
real estate............... --- --- 194 .34 198 .39 --- --- --- ---
Multi-family................ --- --- 248 .43 250 .50 680 1.52 427 1.10
Commercial paper .............. --- --- --- --- 878 1.75 500 1.12 --- ---
Consumer loans:
Installment (2)............. 5,409 8.44 4,615 8.09 3,729 7.45 2,778 6.23 2,072 5.33
Share ...................... 313 .49 286 .50 219 .44 244 .55 183 .47
Home equity................. 685 1.07 595 1.04 398 .79 300 .67 393 1.01
Home improvement............ 4,972 7.76 4,368 7.66 3,656 7.31 2,911 6.53 2,505 6.44
------- ------ ------- ------ ------- ------ ------- ------ ------- ------
Gross loans receivable.... $64,047 100.00% $57,060 100.00% $50,046 100.00% $44,585 100.00% $38,908 100.00%
======= ====== ======= ====== ======= ====== ======= ====== ======= ======
TYPE OF SECURITY
Residential (1)............. 53,409 83.39% $46,689 81.83% $41,407 82.74% $36,943 82.86% $33,010 84.84%
Commercial real estate...... 3,212 5.02 2,895 5.07 1,818 3.63 2,718 6.10 2,667 6.86
Multi-family................ 1,844 2.88 2,618 4.59 2,165 4.33 1,402 3.14 976 2.51
Deposits.................... 313 .49 286 .50 219 .44 244 .55 183 .47
Auto........................ 2,148 3.35 2,042 3.58 1,288 2.57 1,005 2.26 799 2.05
Consumer residential (2).... 1,617 2.52 1,074 1.88 1,232 2.46 846 1.90 447 1.15
Other security.............. 1,504 2.35 1,456 2.55 1,039 2.08 917 2.05 683 1.75
Unsecured (3)............... --- --- --- --- 878 1.75 510 1.14 143 .37
------- ------ ------- ------ ------- ------ ------- ------ ------- ------
Gross loans receivable.... 64,047 100.00% 57,060 100.00% 50,046 100.00 44,585 100.00 38,908 100.00
Deduct:
Allowance for loan losses...... 245 .38 236 .41 223 .45 206 .46 201 .52
Loans in process............... 167 .26 22 .04 116 .23 359 .81 856 2.20
Net loans receivable........ $63,635 99.36% $56,802 99.55% $49,707 99.32% $44,020 98.73% $37,851 97.28%
Mortgage Loans:
Adjustable-rate............. 42,984 81.61 38,729 82.06 $34,715 84.33% $31,057 82.05% $27,760 82.24%
Fixed-rate.................. 9,684 18.39 8,467 17.94 6,451 15.67 6,795 17.95 5,995 17.76
------- ------ ------- ------ ------- ------ ------- ------ ------- ------
Total..................... $52,668 100.00% $47,196 100.00% $41,166 100.00% $37,852 100.00% $33,755 100.00%
======= ====== ======= ====== ======= ====== ======= ====== ======= ======
</TABLE>
(1) Includes home equity, residential construction and home improvement loans.
(2) Includes "one-pay" notes due in less than one year secured by residential
real estate.
(3) Includes commercial paper and bankers' acceptances.
<PAGE>
The following table sets forth certain information at December 31,
1997, regarding the dollar amount of loans maturing in the Company's loan
portfolio based on the date that final payment is due under the terms of the
loan. Demand loans having no stated schedule of repayments and no stated
maturity and overdrafts are reported as due in one year or less. This schedule
does not reflect the effects of possible prepayments or enforcement of
due-on-sale clauses. Management expects prepayments will cause actual maturities
to be shorter.
<TABLE>
<CAPTION>
Balance Due during years ending December 31,
Outstanding 2001 2003 2008 2013
at December 31, to to to and
1997 1998 1999 2000 2002 2007 2012 following
------- ------ ----- ------ ------ ------- ------- ---------
(In thousands)
Mortgage loans:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Residential .................... $47,752 $1,395 $ 29 $ 137 $ 857 $7,269 $13,084 $24,981
Multi-family.................... 1,844 --- --- --- --- 854 990 ---
Commercial real estate.......... 3,072 1 4 1 76 1,028 1,421 541
Commercial paper................... --- --- --- --- --- --- --- ---
Consumer loans:
Home improvement................ 4,972 32 170 582 806 2,082 1,150 150
Home equity..................... 685 --- --- --- --- --- 685 ---
Installment..................... 5,409 2,633 495 720 1,174 134 253 ---
Share........................... 313 313 --- --- --- --- --- ---
------- ------ ---- ------ ------ ------- ------- -------
Total ............................ $64,047 $4,374 $698 $1,440 $2,913 $11,367 $17,583 $25,672
======= ====== ==== ====== ====== ======= ======= =======
</TABLE>
The following table sets forth, as of December 31, 1997, the dollar
amount of all loans due after one year which have fixed interest rates and
floating or adjustable rates.
Due After December 31, 1998
----------------------------------------
Fixed Rates Variable Rates Total
----------- -------------- -----
(In thousands)
Mortgage loans:
Residential ................... $ 8,387 $37,970 $46,357
Multi-family................... --- 1,844 1,844
Commercial real estate......... 1,274 1,797 3,071
Consumer loans:
Home improvement............... 4,940 --- 4,940
Home equity.................... --- 685 685
Installment.................... 2,776 --- 2,776
------- ------- -------
Total........................ $17,377 $42,296 $59,673
======= ======= =======
Residential Loans. Residential loans consist primarily of one- to
four-family loans. Approximately $46.4 million, or 72.5% of the Company's
portfolio of loans at December 31, 1997, consisted of one- to four-family
residential mortgage loans, of which approximately 81.6% had adjustable rates.
The Bank currently offers adjustable-rate one- to four-family
residential mortgage loans ("ARMs") which adjust annually and are indexed to the
one-year U.S. Treasury securities yields adjusted to a constant maturity. These
ARMs have a current margin above such index of 2.75%, or 3.00% if interest is
amortized and payments are due bi-weekly, and interest rate minimums equal to
the rate at the time of origination. Many of the residential ARMs in the
Company's portfolio at December 31, 1997 provided for a maximum rate adjustment
per year of 1%, although the Bank began originating residential ARMs which
provide for a maximum rate adjustment of 2% per year in 1995. The Bank's
residential ARMs provide for a maximum rate adjustment of 5% over the life of
the loan. These ARMs generally bear terms of between 15 and 25 years.
<PAGE>
The Bank also currently offers fixed-rate loans which provide for the
payment of principal and interest over a period not to exceed 15 years. At
December 31, 1997, 18.4% of the Company's residential mortgage loans had fixed
rates of interest.
The Bank does not currently originate residential mortgage loans if the
ratio of the loan amount to the lesser of current cost or appraised value of the
property (i.e., the "loan-to-value ratio") exceeds 90% and does not currently
require private mortgage insurance on its residential single-family mortgage
loans.
Substantially all of the residential mortgage loans that the Bank
originates include "due-on-sale" clauses, which give the Bank the right to
declare a loan immediately due and payable in the event that, among other
things, the borrower sells or otherwise disposes of the real property subject to
the mortgage and the loan is not repaid.
The Bank's residential mortgage loans are not originated on terms and
conditions and using documentation that conform with the standard underwriting
criteria required to sell such loans on the secondary market. The Bank generally
retains its loans in its portfolio and does not anticipate the need to sell its
non-conforming loans. See "-- Origination, Purchase and Sale of Loans."
At December 31, 1997, residential loans amounting to $350,000, or .55%
of total loans, were included in non-performing assets. See "-- Non-Performing
and Problem Assets."
Commercial Real Estate Loans. At December 31, 1997, $3.1 million, or
4.8% of the Company's total loan portfolio, consisted of commercial real estate
loans. Of these loans, $439,000 constituted participations in loans secured by
commercial real estate which were purchased from other financial institutions.
The commercial real estate loans included in the Company's portfolio are
primarily secured by non-residential real estate such as small office buildings,
nursing homes and churches. The Bank currently originates commercial real estate
loans as adjustable-rate loans indexed to the one-year U.S. Treasury securities
yields adjusted to a constant maturity with a margin of 4.75% above such index
or as fixed rate loans. Many of the commercial real estate loans in the
Company's portfolio at December 31, 1997 provided for a maximum rate adjustment
per year of 1%, although the Bank began originating commercial real estate ARMs
which provide for a maximum rate adjustment of 2% per year in 1995. In addition,
the maximum rate adjustment over the life of the loan is 5%, and these loans
have a maximum loan-to-value ratio of 80%. The Bank underwrites these loans on a
case-by-case basis and, in addition to its normal underwriting criteria, the
Bank evaluates the borrower's ability to service the debt from the net operating
income of the property. No single commercial real estate loan at December 31,
1997 exceeded $307,000. No commercial real estate loans were included in
non-performing assets at that date.
Loans secured by commercial real estate generally are larger than one-
to four-family residential loans and involve a greater degree of risk.
Commercial real estate loans often involve large loan balances to single
borrowers or groups of related borrowers. Payments on these loans depend to a
large degree on results of operations and management of the properties and may
be affected to a greater extent by adverse conditions in the real estate market
or the economy in general. Accordingly, the nature of the loans makes them more
difficult for management to monitor and evaluate.
Multi-Family Loans. Approximately $1.8 million, or 2.9% of the
Company's portfolio of loans at December 31, 1997, consisted of multi-family
loans. These loans are generally purchased participations and secured by
apartment complexes and other multi-family residential properties. At December
31, 1997, none of the multi-family loans included in the Company's portfolio was
included in non-performing assets.
Construction Loans. The Bank offers construction loans with respect to
owner-occupied residential real estate and, in limited cases, to builders or
developers constructing such properties on a speculative investment basis (i.e.,
before the builder/developer obtains a commitment from a buyer). The Bank may
also purchase participations.
<PAGE>
At December 31, 1997, $1.3 million, or 2.1%, of the Company's total
loan portfolio consisted of construction loans. All construction loans at
December 31, 1997 were residential loans. The largest construction loan at
December 31, 1997, was approximately $273,000 which included the construction of
residential home and the purchase of land acreage. No construction loans were
included in non-performing assets on that date.
Construction loans originated by the Bank are written such that
interest only is payable during the construction phase, which is typically
limited to six (6) months, and following the construction phase, a permanent
loan is made. Inspections are made prior to any disbursement under a
construction loan.
Consumer Loans. Federal laws and regulations permit federally chartered
savings associations to make secured and unsecured consumer loans in an
aggregate amount up to 35% of the association's total assets. In addition, a
federally chartered savings association has lending authority above the 35%
limit for certain consumer loans, such as property improvement loans and deposit
account secured loans. However, the Qualified Thrift Lender test places
additional limitations on a savings association's ability to make consumer
loans. See "Regulation -- Qualified Thrift Lender."
The Company's consumer loans, consisting primarily of installment,
share, home improvement, and home equity loans, aggregated $11.4 million as of
December 31, 1997, or 17.8% of the Company's total loan portfolio. The Bank
consistently originates consumer loans to meet the needs of its customers and to
assist in meeting its asset/liability management goals. All of the Bank's
consumer loans originated by the Bank, except home equity loans, are fixed-rate
loans, and substantially all are secured loans.
Installment loans, totaling $5.4 million, or 8.4% of total loans at
December 31, 1997, are fixed-rate loans generally secured by collateral,
including automobiles, and are made for maximum terms of up to 10 years
(depending on the collateral). The Bank's installment loans also include
"one-pay" notes, some of which are secured by residential real estate and all of
which amortize at rates similar to those for home improvement loans and have
maximum terms of 6 months to one year.
Share loans, totaling $313,000, or .5% of total loans at December 31,
1997, are made up to 80% of the original account balance and accrue at a rate of
2-3% over the underlying certificate of deposit rate. Interest on share loans is
paid quarterly. Home improvement loans totaled $5.0 million, or 7.8% of the
Company's total loan portfolio at December 31, 1997, and are close-ended
fixed-rate loans made for maximum terms up to 15 years. The Bank's home
improvement loans are generally made only to those borrowers for whom the Bank
holds the primary mortgage on the property, if any.
The Bank also offers open-ended lines of credit secured by a lien on
the equity in the borrower's home in amounts up to 90% of the appraised value of
the real estate (taking into account any other mortgages on the property). The
Bank's home equity loans are adjustable-rate loans with interest rates equal to
the national prime rate plus 2%, and payments equal to the greater of 2% of the
outstanding loan balance or $50. The Bank's home equity loans are generally made
only to those borrowers for whom the Bank holds the primary mortgage on the
property, if any, and generally have a maximum term of 15 years. At December 31,
1997, the Bank had approved $1,245,000 of home equity loans, of which $685,000
were outstanding.
The Bank also offers credit cards to its customers, but does not
underwrite the credit cards or have any other credit risk with respect to the
cards. The Company earns a fee upon the origination of the credit card accounts.
To date, the income earned by the Company from offering these credit cards has
not been significant.
As a general rule, consumer loans involve a higher level of risk than
one- to four-family residential mortgage loans because consumer loans are
generally made based upon the borrower's ability to repay the loan, which is
subject to change, rather than the value of the underlying collateral, if any.
However, the relatively higher yields and shorter terms to maturity of consumer
loans are believed to be helpful in reducing interest-rate risk. The Bank has
thus far been successful in managing consumer loan risk. As of December 31,
1997, consumer loans totaling $81,000 were included in non-performing assets.
<PAGE>
Letters of Credit Securing Tax-Exempt Bonds. The Bank currently
maintains three letters of credit, each in the amount of $253,000, to secure
payments required under tax-exempt bonds issued to raise funds for low-income
housing projects in Franklin, Kokomo and Michigan City, Indiana. The issuer of
the tax-exempt bonds is permitted to draw against these letters of credit only
in the event it defaults in making payments required under the bonds, and any
such draws made against the letters of credit would be secured by a mortgage on
the subject housing project. No draws against any letters of credit had been
made as of December 31, 1997.
Origination, Purchase and Sale of Loans. In an effort to control costs
incurred by its mortgage customers, the Bank currently originates its mortgage
loans pursuant to its own underwriting standards which are not in conformity
with the standard criteria of the Federal Home Loan Mortgage Corporation
("FHLMC") or Federal National Mortgage Association ("FNMA"). If it desired to
sell its mortgage loans, the Bank might therefore experience some difficulty
selling such loans quickly in the secondary market. The Bank has no intention,
however, of attempting to sell such loans. The Bank's ARMs vary from secondary
market criteria because, among other things, the Bank does not require current
property surveys in most cases and does not require escrow accounts for taxes
and insurance.
The Bank confines its loan origination activities primarily to Cass
County, Indiana. At December 31, 1997, no loans were secured by property located
outside of Indiana. The Bank's loan originations are generated from referrals
from real estate dealers and existing customers, and newspaper and periodical
advertising. All loan applications are processed and underwritten at the Bank's
main office.
Under the Financial Institutions Reform, Recovery, and Enforcement Act
of 1989 ("FIRREA"), a savings association generally may not make any loan to a
borrower or its related entities if the total of all such loans by the savings
association exceeds 15% of its capital (plus up to an additional 10% of capital
in the case of loans fully collateralized by readily marketable collateral);
provided, however, that loans up to $500,000 regardless of the percentage
limitations may be made and certain housing development loans of up to $30
million or 30% of capital, whichever is less, are permitted. The maximum amount
which the Bank could have loaned to one borrower and the borrower's related
entities under the 15% of capital limitation was $2.5 million at December 31,
1997. The Company's portfolio of loans currently contains no loans that exceed
the 15% of capital limitation.
The Bank's loan approval process is intended to assess the borrower's
ability to repay the loan, the viability of the loan and the adequacy of the
value of the property that will secure the loan. To assess the borrower's
ability to repay, the Bank studies the employment and credit history and
information on the historical and projected income and expenses of its
mortgagors. Secured loans up to $75,000 may be approved by the Senior Loan
Officer, and secured loans up to $150,000 may be approved by the President or
the Executive Committee. Loans up to $250,000 may be approved by the Loan
Committee. All loans for more than $250,000 must be approved in advance by the
Board of Directors.
The Bank generally requires appraisals on all property securing its
loans and requires title insurance or an abstract and a valid lien on its
mortgaged real estate. Appraisals for residential real property are generally
performed by an in-house appraiser who is a state-licensed residential
appraiser. From time to time, the Bank also uses the services of certified
residential appraisers who are not in-house, including for loans in excess of
$250,000. The Bank requires fire and extended coverage insurance in amounts at
least equal to the principal amount of the loan. It also requires flood
insurance to protect the property securing its interest if the property is in a
flood plain.
The Bank's underwriting standards for consumer loans are intended to
protect against some of the risks inherent in making consumer loans. Borrower
character, paying habits and financial strengths are important considerations.
<PAGE>
The Bank historically has not participated in the secondary market as a
seller of its mortgage loans, but does occasionally purchase participations in
commercial real estate and multi-family loans from other financial institutions.
The following table shows loan origination, purchase and repayment
activity for the Bank during the periods indicated.
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996 1995
------- --------- ---------
(In thousands)
Gross loans receivable
<S> <C> <C> <C>
at beginning of period..................... $57,060 $50,046 $44,585
Originations:
Mortgage loans:
Residential.............................. 13,102 11,277 8,323
Commercial real estate and
multi-family........................... 417 1,885 318
------- ------- -------
Total mortgage loans..................... 13,519 13,162 8,641
Consumer loans:
Installment.............................. 3,476 3,757 3,129
Share.................................... 101 259 88
Home improvement......................... 2,510 1,774 1,435
Home equity.............................. 163 319 104
------- ------- -------
Total consumer loans................... 6,250 6,109 4,756
------- ------- -------
Total originations................ 19,769 19,271 13,397
Purchases:
Commercial real estate and multi-family.. --- 1,046 1,010
Commercial paper......................... --- --- 3,842
------- ------- -------
Total originations and purchases....... 19,769 20,317 18,249
Repayments:
Commercial paper......................... --- 878 3,464
Other loans and deductions............... 12,782 12,425 9,324
------- ------- -------
Gross loans receivable at end of period.... $64,047 $57,060 $50,046
======= ======= =======
</TABLE>
Origination and Other Fees. The Company realizes income from
origination fees, late charges, checking account service charges, credit card
fees, and fees for other miscellaneous services. The Bank currently charges $200
plus closing costs on its adjustable-rate mortgage loans. Points may be charged
on fixed-rate loans. Late charges are generally assessed if payment is not
received within a specified number of days after it is due. The grace period
depends on the individual loan documents.
Non-Performing and Problem Assets
Mortgage loans are reviewed by the Bank on a regular basis and are
placed on a non-accrual status when the loans become contractually past due
ninety days or more. At the end of each month, delinquency notices are sent with
respect to all mortgage loans for which payments have not been received. Contact
by phone or in person is made, if feasible, with respect to all such loans. When
loans are sixty days in default, an additional delinquency notice is sent and
personal contact is made with the borrower to establish an acceptable repayment
schedule. When loans are ninety days in default, contact is made with the
borrower by the Senior Loan Officer who attempts to establish an acceptable
repayment schedule. Management is authorized to commence foreclosure proceedings
for any loan upon making a determination that it is prudent to do so. All loans
for which foreclosure proceedings have been commenced are placed on non-accrual
status.
<PAGE>
Consumer loans are reviewed by the Bank on a daily basis. Notices are
sent to borrowers when any consumer loan is 5, 10 and 15 days past due. After
consumer loans are 15 days delinquent, a late fee in the amount of 10% of the
payment is imposed until the loan is brought current.
Non-Performing Assets. At December 31, 1997, $537,000, or .62% of the
Company's total assets, were non-performing assets (loans delinquent more than
90 days, non-accruing loans, real estate owned ("REO"), troubled debt
restructurings and non-accruing investments), compared to $406,000, or .52%, of
the Company's total assets at December 31, 1996. At December 31, 1997,
residential loans, multi-family loans, commercial real estate loans, consumer
loans and REO accounted for 65.2%, 0%, 0%, 15.1% and 19.7%, respectively, of
non-performing assets. There were no non-accruing investments at December 31,
1997.
The table below sets forth the amounts and categories of the Company's
non-performing assets (non-accruing investments, non-accruing loans, and real
estate owned). It is the policy of the Company that all earned but uncollected
interest on all loans be reviewed monthly to determine if any portion thereof
should be classified as uncollectible for any loan past due in excess of 90
days.
<TABLE>
<CAPTION>
At December 31,
1997 1996 1995 1994 1993
---- ---- ---- ----- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Non-accruing investments (1).................. $ --- $ --- $ --- $ 150 $ 181
Non-accruing loans (2)........................ 431 406 311 337 597
Real estate owned, net........................ 106 --- --- --- ---
---- ---- ---- ----- -----
Total non-performing assets................ $537 $406 $311 $ 487 $ 778
==== ==== ==== ===== =====
Non-performing loans to total loans, net (3).. .67% .71% .63% .76% 1.57%
Non-performing assets to total assets......... .62 .52 .42 .82 1.38
</TABLE>
- ---------------
(1) Non-accruing investments consist of certain corporate obligations at market
value for 1994 since included in securities available for sale and at book
value prior to 1994 since included in securities held to maturity. The book
value at December 31, 1994 of corporate obligations was $90,000. Income
collected and recorded on these securities during 1996 was $4,700.
(2) The Company generally places loans on a non-accruing status when the loans
become contractually past due 90 days or more. At December 31, 1997,
$350,000 of non-accruing loans were residential loans and $81,000 were
consumer loans. For the year ended December 31, 1997, the income that would
have been recorded had the non-accruing loans not been in a non-performing
status totaled $36,000 compared to actual income recorded of $12,000.
(3) Total loans less loans in process.
Classified Assets. Federal regulations and the Bank's Internal Loan
Review policy provide for the classification of loans and other assets such as
debt and equity securities considered by the OTS to be of lesser quality as
"substandard," "doubtful" or "loss" assets. An asset is considered "substandard"
if it is inadequately protected by the current net worth and paying capacity of
the obligor or of the collateral pledged, if any. "Substandard" assets include
those characterized by the "distinct possibility" that the association will
sustain "some loss" if the deficiencies are not corrected. Assets classified as
"doubtful" have all of the weaknesses inherent in those classified
"substandard," with the added characteristic that the weaknesses present make
"collection or liquidation in full," on the basis of currently existing facts,
conditions, and values, "highly questionable and improbable." Assets classified
as "loss" are those considered "uncollectible" and of such little value that
their continuance as assets without the establishment of a specific loss reserve
is not warranted. Assets which do not currently expose the insured institution
to sufficient risk to warrant classification in one of the aforementioned
categories but possess weaknesses are required to be designated "special
mention" by management.
<PAGE>
An insured institution is required to establish general allowances for
loan losses in an amount deemed prudent by management for loans classified
substandard or doubtful, as well as for other problem loans. General allowances
represent loss allowances which have been established to recognize the inherent
risk associated with lending activities, but which, unlike specific allowances,
have not been allocated to particular problem assets. When an insured
institution classifies problem assets as "loss," it is required either to
establish a specific allowance for losses equal to 100% of the amount of the
asset so classified or to charge off such amount. An institution's determination
as to the classification of its assets and the amount of its valuation
allowances is subject to review by the OTS which can order the establishment of
additional general or specific loss allowances.
At December 31, 1997, the aggregate amount of the Company's classified
assets, and of the Company's general and specific loss allowances were as
follows:
At December 31, 1997
--------------------
(In thousands)
Substandard loans......................................... $431
Doubtful loans............................................ ---
Loss loans................................................ ---
----
Total classified loans................................. $431
General loss allowances................................... $245
====
Specific loss allowances.................................. ---
----
Total allowances....................................... $245
====
The Company regularly reviews its loan portfolio to determine whether
any loans require classification in accordance with applicable regulations.
Allowance for Loan Losses
The allowance for loan losses is maintained through the provision for
loan losses, which is charged to earnings. The provision for loan losses is
determined in conjunction with management's review and evaluation of current
economic conditions (including those of the Bank's lending area), changes in the
character and size of the loan portfolio, loan delinquencies (current status as
well as past and anticipated trends) and adequacy of collateral securing loan
delinquencies, historical and estimated net charge-offs, and other pertinent
information derived from a review of the loan portfolio. In management's
opinion, the Company's allowance for loan losses is adequate to absorb
anticipated future losses from loans at December 31, 1997. However, there can be
no assurance that regulators, when reviewing the Company's loan portfolio in the
future, will not require increases in its allowances for loan losses or that
changes in economic conditions will not adversely affect the Company's loan
portfolio.
<PAGE>
Summary of Loan Loss Experience. The following table analyzes changes
in the allowance for loan losses during the past five (5) one-year periods ended
December 31, 1997.
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996 1995 1994 1993
----- ----- ----- ----- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Balance of allowance at beginning
of period................................ $ 236 $ 223 $ 206 $ 201 $ 86
Recoveries.................................. 1 1 --- --- ---
Less charge-offs:
Residential real estate loans............ 10 --- --- --- ---
Consumer loans........................... 8 --- 3 1 46
----- ----- ----- ----- -----
Net charge-offs............................. 18 --- 3 1 46
Provisions for losses on loans.............. 26 12 20 6 161
----- ----- ----- ----- -----
Balance of allowance at end of period....... $245 $236 $223 $ 206 $ 201
===== ===== ===== ===== =====
Net charge-offs to total average
loans receivable for period............ .03 --- (*) (*) .13%
Allowance at end of period to
net loans receivable at end
of period (1).......................... .38 .41 .45 .47 .53
Allowance to total non-performing
loans at end of period................. 56.84 58.12 71.61 61.13 33.67
</TABLE>
- -------------------
(1) Total loans less loans in process.
(*) Less than .01%.
Allocation of Allowance for Loan Losses. The following table presents
an analysis of the allocation of the Company's allowance for loan losses at the
dates indicated.
<TABLE>
<CAPTION>
At December 31,
1997 1996 1995 1994 1993
---------------- ---------------- ---------------- --------------- ---------------
Percent Percent Percent Percent Percent
of loans of loans of loans of loans of loans
in each in each in each in each in each
category category category category category
of total of total of total of total of total
Amount loans Amount loans Amount loans Amount loans Amount loans
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
(Dollars in thousands)
Balance at end of period
applicable to:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Residential.................. $193 72.48% $158 72.05% $122 73.15% $103 74.92% $108 74.39%
Commercial real estate....... 6 4.80 6 4.73 6 3.24 6 6.10 7 6.85
Multi-family................. 1 2.88 1 4.15 1 3.83 2 1.62 1 1.41
Construction loans........... --- 2.08 --- 1.78 --- 2.04 --- 2.26 --- 4.10
Commercial paper and
bankers' acceptances...... --- --- --- --- --- 1.75 --- 1.12 --- ---
Consumer loans............... 45 17.76 71 17.29 86 15.99 80 13.98 72 13.25
Unallocated.................. --- --- --- --- 8 --- 15 --- 13 ---
---- ------ ---- ------ ---- ------ ---- ------ ---- ------
Total..................... $245 100.00% $236 100.00% $223 100.00% $206 100.00% $201 100.00%
==== ====== ==== ====== ==== ====== ==== ====== ==== ======
</TABLE>
Investments and Mortgage- and Other Asset-Backed Securities
<PAGE>
Federally chartered savings associations have the authority to invest
in various types of liquid assets, including U.S. Treasury obligations,
securities of various federal agencies, certain certificates of deposit of
insured banks and savings institutions, repurchase agreements and federal funds
sold. Subject to various restrictions, federally chartered savings associations
may also invest a portion of their assets in corporate debt securities and
asset-backed securities. The investment policy of the Bank, which is established
and implemented by the Bank's Investment Committee, is designed primarily to
maximize the yield on the investment portfolio subject to minimal liquidity
risk, default risk, interest rate risk, and prudent asset/liability management.
The Company's investments consist of U.S. government and other agency
securities, mortgage- and other asset-backed securities, state and municipal
bonds, corporate obligations, marketable equity securities, certificates of
deposit, and FHLB stock. At December 31, 1997, approximately $16.3 million, or
18.9% of the Company's total assets, consisted of such investments.
At December 31, 1997, the Company had $9.9 million of mortgage- and
other asset-backed securities outstanding, all of which were classified as
available for sale. Other-asset backed securities include securities backed by
automobile receivables. These fixed-rate mortgage- and other asset-backed
securities may be used as collateral for borrowings and through repayments, as a
source of liquidity. Mortgage- and other asset-backed securities offer yields
above those available for investments of comparable credit quality and duration.
Mortgage-backed securities are qualifying thrift investments under the Qualified
Thrift Lender test. See "Regulation--Qualified Thrift Lender."
The following table sets forth the carrying value and market value of
the Company's investments and mortgage- and other asset-backed securities at the
dates indicated.
<TABLE>
<CAPTION>
At December 31,
1997 1996 1995
-------------------- ---------------------- -----------------------
Carrying Market Carrying Market Carrying Market
Value Value Value Value Value Value
----- ----- ----- ----- ----- -----
(In thousands)
Securities available for sale:
<S> <C> <C> <C> <C> <C> <C>
Federal agencies................... $3,598 $3,451 $ 5,245 $ 4,880 $ 7,424 $ 7,175
State and municipal................ 1,780 1,847 2,194 2,242 2,229 2,294
Mortgage- and other asset-backed
securities....................... 9,998 9,932 6,768 6,674 7,422 7,468
Corporate obligations.............. 200 209 350 348 1,655 1,696
Marketable equity securities....... 6 243 6 159 6 120
------- ------- ------- ------- ------- -------
Total securities
available for sale............... 15,582 15,682 14,563 14,303 18,736 18,753
------- ------- ------- ------- ------- -------
Certificate of deposit (1)............ 100 100 100 100 100 100
FHLB stock (1)........................ 494 494 387 387 348 348
------- ------- ------- ------- ------- -------
Total investments................ $16,176 $16,276 $15,050 $14,790 $19,184 $19,201
======= ======= ======= ======= ======= =======
</TABLE>
(1) Market value approximates carrying values.
Included in the Company's investment portfolio at December 31, 1997
were approximately $1.1 million (amortized cost) in derivative securities, which
were structured notes issued by the FHLBs. The fair value of these investments
was approximately $948,000 at December 31, 1997. These structured notes, which
are not obligations of, or guaranteed by, the United States, represent
obligations to repay principal with interest that is either fixed or fluctuates
in accordance with an interest formula tied to various indices. The interest on
the Company's structured notes generally adjusts quarterly or semi-annually
based on certain indices such as the LIBOR and the CMT.
Approximately $1.1 million (amortized cost) of these structured notes
with approximate fair value of $948,000 had fluctuating interest rates that
adjust in the opposite direction of changes in the index to which it is tied or
that adjust on the basis of a formula tied to two different indices, such as the
CMT and an inverse LIBOR rate. All of these inversely or dually indexed
securities were classified as available for sale at December 31, 1997.
<PAGE>
The average yield at December 31, 1997, of these derivative securities,
was 3.43%. In a rising interest rate environment, it is anticipated that the
yield on and market value of these securities will decline, and may decline
substantially.
The following table sets forth investment securities, mortgage- and
other asset-backed securities and FHLB stock which mature during each of the
periods indicated and the weighted average yields for each range of maturities
at December 31, 1997.
<TABLE>
<CAPTION>
Amount at December 31, 1997, which matures in
One One to Five to Over
Year or Less Five Years Ten Years Ten Years
------------------- ------------------ ------------------ --------------------
Weighted Weighted Weighted Weighted
Carrying Average Carrying Average Carrying Average Carrying Average
Value Yield Value Yield Value Yield Value Yield
----- ----- ----- ----- ----- ----- ----- -----
(Dollars in thousands)
Securities available for sale (1)(3) :
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Federal agencies.............. $ --- ---% $ 300 3.31% $3,098 6.21% $ 200 7.29%
State and municipal (2)....... 356 6.38 175 5.04 1,239 5.36 10 7.25
Mortgage- and other
asset-backed securities.... 1,927 5.84 3,634 6.40 1,825 7.20 2,612 7.70
Corporate obligations......... --- --- --- --- 100 7.29 100 7.41
Marketable equity securities.. --- --- --- --- --- --- 6 41.35
------ ---- ------ ---- ------ ---- ------ ----
Total securities
available for sale....... 2,283 5.92 4,109 6.12 6,262 6.35 2,928 7.73
------ ---- ------ ---- ------ ---- ------ ----
Certificate of deposit........... --- --- --- --- --- --- 100 7.10
FHLB stock....................... --- --- --- --- --- --- 494 8.00
------ ---- ------ ---- ------ ---- ------ ----
Total investments........... $2,283 5.92% $4,109 6.12% $6,262 6.35% $3,522 7.75%
====== ==== ====== ==== ====== ==== ====== ====
</TABLE>
- --------------
(1) Securities available for sale are set forth at amortized cost for
purposes of this table.
(2) Fully taxable equivalent basis.
(3) No effect is given for possible prepayments.
In 1988 and 1989, the Bank purchased three investments in revenue bonds
with an aggregate par value of $370,000 for an approximate purchase price of
$359,000. The proceeds of the bonds were to be invested in low income housing
projects. Pending investment in the housing projects, the proceeds were invested
in municipal guaranteed investment contracts backed by the former Executive Life
Insurance Company ("ELIC"). ELIC was placed into conservatorship by the
California Commissioner of Insurance on April 11, 1991. Liquidation and
rehabilitation of ELIC has proceeded in an orderly manner which has resulted in
substantial payment of these bonds to date. As of December 31, 1997, the Company
had received principal and interest payments of $366,000 on these bonds, had
recognized losses to date of $54,000 and had ceased carrying the bonds on its
books. The Company anticipates receiving further payments on these bonds,
although the timing of such payments is not known.
Sources of Funds
General. Deposits have traditionally been the Bank's primary source of
funds for use in lending and investment activities. In addition to deposits, the
Company derives funds from scheduled loan payments, loan prepayments, retained
earnings and income on earning assets. While scheduled loan payments and income
on earning assets are relatively stable sources of funds, deposit inflows and
outflows can vary widely and are influenced by prevailing interest rates, market
conditions and levels of competition. Borrowings from the FHLB of Indianapolis
may be used in the short-term to compensate for reductions in deposits or
deposit inflows at less than projected levels. The Bank rarely borrows on a
longer-term basis, for example, to support expanded activities or to assist in
its asset/liability management.
<PAGE>
Deposits. Deposits are attracted, principally from within Cass County,
through the offering of a broad selection of deposit instruments including NOW
and other transaction accounts, fixed-rate certificates of deposit, individual
retirement accounts, and savings accounts. The Bank does not actively solicit or
advertise for deposits outside of Cass County. Substantially all of the Bank's
depositors are residents of that county. Deposit account terms vary, with the
principal differences being the minimum balance required, the amount of time the
funds remain on deposit and the interest rate. The Bank does not pay a fee for
any deposits it receives.
Deposits totaled $60.6 million at December 31, 1997.
Interest rates paid, maturity terms, service fees and withdrawal
penalties are established by the Bank on a periodic basis. Determination of
rates and terms are predicated on funds acquisition and liquidity requirements,
rates paid by competitors, growth goals, and federal regulations. The Bank
relies, in part, on customer service and long-standing relationships with
customers to attract and retain its deposits, but also closely prices its
deposits in relation to rates offered by its competitors.
The flow of deposits is influenced significantly by general economic
conditions, changes in money market and prevailing interest rates and
competition. The variety of deposit accounts offered by the Bank has allowed it
to be competitive in obtaining funds and to respond with flexibility to changes
in consumer demand. The Bank has become more susceptible to short-term
fluctuations in deposit flows as customers have become more interest rate
conscious. The Bank manages the pricing of its deposits in keeping with its
asset/liability management and profitability objectives. Based on its
experience, the Bank believes that its passbook, NOW and non-interest-bearing
checking accounts are relatively stable sources of deposits. However, the
ability of the Bank to attract and maintain certificates of deposit, and the
rates paid on these deposits, has been and will continue to be significantly
affected by market conditions.
An analysis of the Bank's deposit accounts by type, maturity, and rate
at December 31, 1997, is as follows:
<TABLE>
<CAPTION>
Minimum Balance at Weighted
Opening December 31, % of Average
Type of Account Balance 1997 Deposits Rate
- --------------- ------- ------------ -------- ----------
(Dollars in thousands)
Withdrawable:
<S> <C> <C> <C> <C>
Passbook savings accounts......................... $ 10 $ 3,070 5.07% 3.00%
Regular money market accounts..................... 2,500 1,050 1.73 3.23
Hi yield money market accounts.................... 10,000 15,686 25.89 4.70
Super NOW accounts................................ 2,500 464 .76 2.48
NOW and other transaction accounts................ 200 3,732 6.16 1.93
Other transaction accounts........................ 100 862 1.42 ---
------- ------
Total withdrawable................................... 24,864 41.03 3.80
------- ------
Certificates (original terms):
91 days........................................... 1,000 362 .60 4.75
6 months.......................................... 1,000 3,541 5.84 5.04
12 months......................................... 1,000 5,751 9.49 5.38
18 months......................................... 500 1,019 1.68 5.65
24 months......................................... 500 10,530 17.38 5.55
30 months......................................... 500 6,282 10.37 5.82
60 months......................................... 1,000 3,552 5.86 5.53
IRAs
18 months......................................... 100 4,694 7.75 5.63
------- ------
Total certificates................................... 35,731 58.97 5.52
------- ------
Total deposits ...................................... $60,595 100.00% 4.82%
======= ====== ====
</TABLE>
<PAGE>
The following table sets forth by various interest rate categories the
composition of time deposits of the Bank at the dates indicated:
At December 31,
1997 1996 1995
--------- --------------- ---------
(In thousands)
4.00% and under..... $ 136 $ 199 $ 125
4.01 - 6.00 %....... 35,087 32,499 27,648
6.01 - 8.00%........ 508 1,285 3,202
------- ------- -------
Total ............. $35,731 $33,983 $30,975
======= ======= =======
The following table represents, by various interest rate categories,
the amounts of time deposits maturing during each of the three years following
December 31, 1997, and the total amount maturing thereafter. Matured
certificates which have not been renewed as of December 31, 1997, have been
allocated based upon certain rollover assumptions:
<TABLE>
<CAPTION>
Amounts At
December 31, 1997, Maturing in
One Year Two Three Greater Than
or Less Years Years Three Years
------- ----- ----- -----------
(In thousands)
<C> <C> <C> <C> <C>
4.00% and under.... $ 136 $ --- $ --- $ ---
4.01 - 6.00 %...... 22,287 7,665 3,947 1,188
6.01-8.00%......... 100 154 223 31
------- ------ ------ ------
Total ............ $22,523 $7,819 $4,170 $1,219
======= ====== ====== ======
</TABLE>
The following table indicates the amount of the Bank's certificates of
deposit of $100,000 or more by time remaining until maturity as of December 31,
1997.
Maturity (In thousands)
-------- --------------
Three months or less.............................. $ 711
Greater than three months
through six months........................... 1,056
Greater than six months
through twelve months........................ 1,489
Over twelve months................................ 539
------
Total........................................ $3,795
======
<PAGE>
The following table sets forth the dollar amount of savings in the
various types of deposits programs offered by the Bank at the dates indicated,
and the amount of increase or decrease in such deposits as compared to the
previous period.
<TABLE>
<CAPTION>
Deposit Activity
Increase Increase
(Decrease) (Decrease)
Balance at from Balance at from
December 31, % of December 31, December 31, % of December 31,
1997 Deposits 1996 1996 Deposits 1995
------- ------ ------ ------- ------ ------
(Dollars in thousands)
Withdrawable:
<S> <C> <C> <C> <C> <C> <C>
Passbook savings accounts............ $3,070 5.07% $ (49) $ 3,119 5.43% $ (77)
Regular money market accounts........ 1,050 1.73 (108) 1,158 2.02 (179)
Hi yield money market accounts....... 15,686 25.89 1,198 14,488 25.24 1,796
Super NOW accounts................... 464 .76 (222) 686 1.20 124
NOW accounts......................... 3,732 6.16 401 3,331 5.80 101
Other transaction accounts........... 862 1.42 231 631 1.10 162
------- ------ ------ ------- ------ ------
Total withdrawable...................... 24,864 41.03 1,451 23,413 40.79 1,927
------- ------ ------ ------- ------ ------
Certificates (original terms):
91 days.............................. 362 .60 43 319 .56 (621)
6 months............................. 3,541 5.84 (1,023) 4,564 7.95 1,056
12 months............................ 5,751 9.49 789 4,962 8.65 (310)
18 months............................ 1,019 1.68 75 944 1.64 (149)
24 months............................ 10,530 17.38 (930) 11,460 19.97 4,236
30 months............................ 6,282 10.37 2,952 3,330 5.80 (1,231)
60 months............................ 3,552 5.86 (205) 3,757 6.54 (401)
IRAs
18 months............................ 4,694 7.75 47 4,647 8.10 428
------- ------ ------ ------- ------ ------
Total certificates...................... 35,731 58.97 1,748 33,983 59.21 3,008
------- ------ ------ ------- ------ ------
Total deposits.......................... $60,595 100.00% $3,199 $57,396 100.00% $4,935
======= ====== ====== ======= ====== ======
</TABLE>
Deposit Activity
Increase
(Decrease)
Balance at from
December 31, % of December 31,
1995 Deposits 1994
--------------------------------
(Dollars in thousands)
Withdrawable:
Passbook savings accounts......... $ 3,196 6.09% $ (50)
Regular money market accounts..... 1,337 2.55 13
Hi yield money market accounts.... 12,692 24.19 1,101
Super NOW accounts................ 562 1.07 (213)
NOW accounts...................... 3,230 6.16 732
Other transaction................. 469 .90 3
------- ------ ------
Total withdrawable................... 21,486 40.96 1,586
Certificates (original terms):
91 days........................... 940 1.79 (126)
6 months.......................... 3,508 6.69 (312)
12 months......................... 5,272 10.05 2,657
18 months......................... 1,093 2.08 461
24 months......................... 7,224 13.77 (1,131)
30 months......................... 4,561 8.69 (1,807)
60 months......................... 4,158 7.93 (19)
IRAs
18 months......................... 4,219 8.04 (50)
------- ------ ------
Total certificates................... 30,975 59.04 (327)
------- ------ ------
Total deposits ...................... $52,461 100.00% $1,259
======= ====== ======
<PAGE>
Borrowings. The Bank focuses on generating high quality loans and then
seeks the best source of funding from deposits, investments or borrowings. There
are regulatory restrictions on advances from the FHLBs. See "Regulation --
Federal Home Loan Bank System" and "-- Qualified Thrift Lender." At December 31,
1997, the Company had $4.0 million in borrowings from the FHLB of Indianapolis
which mature within one year and $2.5 million which mature in one to two years
and had a weighted average interest rate of 5.79%. The Company does not
anticipate any difficulty in obtaining advances appropriate to meet its
requirements in the future. The Company also had a $1.5 million note payable to
another bank due on March 5, 1997. It was secured by 100% of the Bank's common
stock, and the interest was at the prime rate. This note was repaid on January
16, 1997.
Employees
As of December 31, 1997, the Bank employed 11 persons on a full-time
basis and four persons on a part-time basis. None of the Bank's employees are
represented by a collective bargaining group. Management considers its employee
relations to be excellent.
The Bank's employee benefits for full-time employees include, among
other things, a Financial Institutions Retirement Fund ("FIRF" or the "Pension
Plan") defined benefit pension plan and major medical and long-term disability
insurance.
Employee benefits are considered by management to be competitive with
those offered by other financial institutions and major employers in the Bank's
market area. See "Executive Compensation and Related Transactions." Competition
The Bank operates in North Central Indiana and makes almost all of its
loans to and accepts most of its deposits from residents of Cass County in
Indiana.
The Bank is subject to competition from various financial institutions,
including state and national banks, state and federal savings institutions,
credit unions, certain non-banking consumer lenders, and other companies or
firms, including brokerage houses and mortgage brokers, that provide similar
services in Cass County. The Bank must also compete with money market funds and
with insurance companies with respect to its individual retirement accounts. See
"Regulation--Acquisitions or Dispositions and Branching."
The primary factors in competing for deposits are interest rates and
convenience of office locations. The Bank competes for loan originations
primarily through the efficiency and quality of services it provides borrowers
and through interest rates and loan fees it charges. Competition is affected by,
among other things, the general availability of lendable funds, general and
local economic conditions, current interest rate levels, and other factors which
are not readily predictable.
REGULATION
General
As a federally chartered, SAIF-insured savings association, the Bank is
subject to extensive regulation by the OTS and the FDIC. For example, the Bank
must obtain OTS approval before it may engage in certain activities and must
file reports with the OTS regarding its activities and financial condition. The
OTS periodically examines the Bank's books and records and, in conjunction with
the FDIC in certain situations, has examination and enforcement powers. This
supervision and regulation are intended primarily for the protection of
depositors and the federal deposit insurance funds. The Bank's semi- annual
assessment owed to the OTS, which is based upon a specified percentage of
assets, is approximately $14,000.
<PAGE>
The Bank is also subject to federal and state regulation as to such
matters as loans to officers, directors, or principal shareholders, required
reserves, limitations as to the nature and amount of its loans and investments,
regulatory approval of any merger or consolidation, issuance or retirements of
securities, and limitations upon other aspects of banking operations. In
addition, the Bank's activities and operations are subject to a number of
additional detailed, complex and sometimes overlapping federal and state laws
and regulations. These include state usury and consumer credit laws, state laws
relating to fiduciaries, the Federal Truth-In-Lending Act and Regulation Z, the
Federal Equal Credit Opportunity Act and Regulation B, the Fair Credit Reporting
Act, the Community Reinvestment Act, anti-redlining legislation and antitrust
laws.
The United States Congress is considering legislation that would require
all federal savings associations, such as the Bank, to either convert to a
national bank or a state-chartered bank by a specified date to be determined. In
addition, under the legislation, the Holding Company likely would not be
regulated as a savings and loan holding company but rather as a bank holding
company. This proposed legislation would abolish the OTS and transfer its
functions among the other federal banking regulators. Certain aspects of the
legislation remain to be resolved and, therefore, no assurance can be given as
to whether or in what form the legislation will be enacted or its effect on the
Holding Company and the Bank.
Savings and Loan Holding Company Regulation
As the holding company for the Bank, the Holding Company is regulated as a
"non-diversified savings and loan holding company" within the meaning of the
Home Owners' Loan Act, as amended ("HOLA"), and subject to regulatory oversight
by the Director of the OTS. As such, the Holding Company is registered with the
OTS and thereby subject to OTS regulations, examinations, supervision and
reporting requirements. As a subsidiary of a savings and loan holding company,
the Bank is subject to certain restrictions in its dealings with the Holding
Company and with other companies affiliated with the Holding Company.
In general, the HOLA prohibits a savings and loan holding company, without
prior approval of the Director of the OTS, from acquiring control of another
savings association or savings and loan holding company or retaining more than
5% of the voting shares of a savings association or of another holding company
which is not a subsidiary. The HOLA also restricts the ability of a director or
officer of the Holding Company, or any person who owns more than 25% of the
Holding Company's stock, from acquiring control of another savings association
or savings and loan holding company without obtaining the prior approval of the
Director of the OTS.
The Holding Company's Board of Directors presently intends to continue to
operate the Holding Company as a unitary savings and loan holding company. OTS
regulations generally do not restrict the permissible business activities of a
unitary savings and loan holding company.
Notwithstanding the above rules as to permissible business activities of
unitary savings and loan holding companies, if the savings association
subsidiary of such a holding company fails to meet the Qualified Thrift Lender
("QTL") test, then such unitary holding company would become subject to the
activities restrictions applicable to multiple holding companies. (Additional
restrictions on securing advances from the FHLB also apply.) At December 31,
1997, the Bank's asset composition was in excess of that required to qualify as
a Qualified Thrift Lender.
<PAGE>
If the Holding Company were to acquire control of another savings
association other than through a merger or other business combination with the
Bank, the Holding Company would thereupon become a multiple savings and loan
holding company. Except where such acquisition is pursuant to the authority to
approve emergency thrift acquisitions and where each subsidiary savings
association meets the QTL test, the activities of the Holding Company and any of
its subsidiaries (other than the Bank or other subsidiary savings associations)
would thereafter be subject to further restrictions. The HOLA provides that,
among other things, no multiple savings and loan holding company or subsidiary
thereof which is not a savings association shall commence or continue for a
limited period of time after becoming a multiple savings and loan holding
company or subsidiary thereof, any business activity other than (i) furnishing
or performing management services for a subsidiary savings association, (ii)
conducting an insurance agency or escrow business, (iii) holding, managing, or
liquidating assets owned by or acquired from a subsidiary savings association,
(iv) holding or managing properties used or occupied by a subsidiary savings
association, (v) acting as trustee under deeds of trust, (vi) those activities
previously directly authorized by the FSLIC by regulation as of March 5, 1987,
to be engaged in by multiple holding companies, or (vii) those activities
authorized by the Federal Reserve Board (the "FRB") as permissible for bank
holding companies, unless the Director of the OTS by regulation prohibits or
limits such activities for savings and loan holding companies. Those activities
described in (vii) above must also be approved by the Director of the OTS before
a multiple holding company may engage in such activities.
The Director of the OTS may also approve acquisitions resulting in the
formation of a multiple savings and loan holding company which controls savings
associations in more than one state, if the multiple savings and loan holding
company involved controls a savings association which operated a home or branch
office in the state of the association to be acquired as of March 5, 1987, or if
the laws of the state in which the association to be acquired is located
specifically permit associations to be acquired by state-chartered associations
or savings and loan holding companies located in the state where the acquiring
entity is located (or by a holding company that controls such state-chartered
savings associations). Also, the Director of the OTS may approve an acquisition
resulting in a multiple savings and loan holding company controlling savings
associations in more than one state in the case of certain emergency thrift
acquisitions.
Indiana law permits federal and state savings association holding
companies with their home offices located outside of Indiana to acquire savings
associations whose home offices are located in Indiana and savings association
holding companies with their principal place of business in Indiana ("Indiana
Savings Association Holding Companies") upon receipt of approval by the Indiana
Department of Financial Institutions. Moreover, Indiana Savings Association
Holding Companies may acquire savings associations with their home offices
located outside of Indiana and savings association holding companies with their
principal place of business located outside of Indiana upon receipt of approval
by the Indiana Department of Financial Institutions.
No subsidiary savings association of a savings and loan holding company
may declare or pay a dividend on its permanent or nonwithdrawable stock unless
it first gives the Director of the OTS 30 days advance notice of such
declaration and payment. Any dividend declared during such period or without
giving notice shall be invalid.
Federal Home Loan Bank System
The Bank is a member of the FHLB of Indianapolis, which is one of 12
regional FHLBs. Each FHLB serves as a reserve or central bank for its members
within its assigned region. It is funded primarily from funds deposited by
savings associations and proceeds derived from the sale of consolidated
obligations of the FHLB system. It makes loans to members (i.e., advances) in
accordance with policies and procedures established by the Board of Directors of
the FHLB. All FHLB advances must be fully secured by sufficient collateral as
determined by the FHLB. The Federal Housing Finance Board ("FHFB"), an
independent agency, controls the FHLB System, including the FHLB of
Indianapolis.
<PAGE>
As a member, the Bank is required to purchase and maintain stock in the
FHLB of Indianapolis in an amount equal to at least 1% of its aggregate unpaid
residential mortgage loans, home purchase contracts, or similar obligations at
the beginning of each year. At December 31, 1997, the Bank's investment in stock
of the FHLB of Indianapolis was $494,000. The FHLB imposes various limitations
on advances such as limiting the amount of certain types of real estate-related
collateral to 30% of a member's capital and limiting total advances to a member.
Interest rates charged for advances vary depending upon maturity, the cost of
funds to the FHLB of Indianapolis and the purpose of the borrowing.
The FHLBs are required to provide funds for the resolution of troubled
savings associations and to contribute to affordable housing programs through
direct loans or interest subsidies on advances targeted for community investment
and low- and moderate-income housing projects. These contributions have
adversely affected the level of FHLB dividends paid and could continue to do so
in the future. For the fiscal year ended December 31, 1997, dividends paid by
the FHLB of Indianapolis to the Bank totaled approximately $37,000, for an
annual rate of 8.00%.
Insurance of Deposits
Deposit Insurance. The FDIC is an independent federal agency that insures
the deposits, up to prescribed statutory limits, of banks and thrifts and
safeguards the safety and soundness of the banking and thrift industries. The
FDIC administers two separate insurance funds, the Bank Insurance Fund (the
"BIF") for commercial banks and state savings banks and the SAIF for savings
associations such as the Bank and banks that have acquired deposits from savings
associations. The FDIC is required to maintain designated levels of reserves in
each fund. As of September 30, 1996, the reserves of the SAIF were below the
level required by law, primarily because a significant portion of the
assessments paid into the SAIF have been used to pay the cost of prior thrift
failures, while the reserves of the BIF met the level required by law in May,
1996. However, on September 30, 1996, provisions designed to recapitalize the
SAIF and eliminate the premium disparity between the BIF and SAIF were signed
into law. See "-- Assessments" below.
Assessments. The FDIC is authorized to establish separate annual
assessment rates for deposit insurance for members of the BIF and members of the
SAIF. The FDIC may increase assessment rates for either fund if necessary to
restore the fund's ratio of reserves to insured deposits to the target level
within a reasonable time and may decrease these rates if the target level has
been met. The FDIC has established a risk-based assessment system for both SAIF
and BIF members. Under this system, assessments vary depending on the risk the
institution poses to its deposit insurance fund. An institution's risk level is
determined based on its capital level and the FDIC's level of supervisory
concern about the institution.
On September 30, 1996, President Clinton signed into law legislation which
included provisions designed to recapitalize the SAIF and eliminate the
significant premium disparity between the BIF and the SAIF. Under the new law,
the Bank was charged a one-time special assessment equal to $.657 per $100 in
assessable deposits at March 31, 1996. The Bank paid this one-time assessment of
$335,000 in November 1996. This special assessment significantly increased
noninterest expense and adversely affected the Holding Company's results of
Operations for the three months ended September 30, 1996. The assessment was
fully deductible for both federal and state income tax purposes. Beginning
January 1, 1997, the Bank's annual deposit insurance premium was reduced from
.23% to .0644% of total assessable deposits. BIF institutions pay lower
assessments than comparable SAIF institutions because BIF institutions pay only
20% of the rate being paid by SAIF institutions on their deposits with respect
to obligations issued by the federally-chartered corporation which provided some
of the financing to resolve the thrift crisis in the 1980s ("FICO"). The 1996
law also provides for the merger of the SAIF and the BIF by 1999, but not until
such time as bank and thrift charters are combined. Until the charters are
combined, savings associations with SAIF deposits may not transfer deposits into
the BIF system without paying various exit and entrance fees, and SAIF
institutions will continue to pay higher FICO assessments. Such exit and
entrance fees need not be paid if a SAIF institution converts to a bank charter
or merges with a bank, as long as the resulting bank continues to pay applicable
insurance assessments to the SAIF, and as long as certain other conditions are
met.
<PAGE>
Savings Association Regulatory Capital
Currently, savings associations are subject to three separate minimum
capital-to-assets requirements: (i) a leverage limit, (ii) a tangible capital
requirement, and (iii) a risk-based capital requirement. The leverage limit
requires that savings associations maintain "core capital" of at least 3% of
total assets. Core capital is generally defined as common shareholders' equity
(including retained income), noncumulative perpetual preferred stock and related
surplus, certain minority equity interests in subsidiaries, qualifying
supervisory goodwill, purchased mortgage servicing rights and purchased credit
card relationships (subject to certain limits) less nonqualifying intangibles.
Under the tangible capital requirement, a savings association must maintain
tangible capital (core capital less all intangible assets except purchased
mortgage servicing rights which may be included after making the above-noted
adjustment in an amount up to 100% of tangible capital) of at least 1.5% of
total assets. Under the risk-based capital requirements, a minimum amount of
capital must be maintained by a savings association to account for the relative
risks inherent in the type and amount of assets held by the savings association.
The risk-based capital requirement requires a savings association to maintain
capital (defined generally for these purposes as core capital plus general
valuation allowances and permanent or maturing capital instruments such as
preferred stock and subordinated debt less assets required to be deducted) equal
to 8.0% of risk-weighted assets. Assets are ranked as to risk in one of four
categories (0-100%). A credit risk-free asset, such as cash, requires no
risk-based capital, while an asset with a significant credit risk, such as a
non-accrual loan, requires a risk factor of 100%. Moreover, a savings
association must deduct from capital, for purposes of meeting the core capital,
tangible capital and risk-based capital requirements, its entire investment in
and loans to a subsidiary engaged in activities not permissible for a national
bank (other than exclusively agency activities for its customers or mortgage
banking subsidiaries). At December 31, 1997, the Bank was in compliance with all
capital requirements imposed by law.
The OTS has promulgated a rule which sets forth the methodology for
calculating an interest rate risk component to be used by savings associations
in calculating regulatory capital. The OTS has delayed the implementation of
this rule, however. The rule requires savings associations with "above normal"
interest rate risk (institutions whose portfolio equity would decline in value
by more than 2% of assets in the event of a hypothetical 200-basis-point move in
interest rates) to maintain additional capital for interest rate risk under the
risk-based capital framework. If the OTS were to implement this regulation, the
Bank would not be required to maintain additional capital at December 31, 1997
under the terms of the OTS proposed interest rate risk rule.
Prompt Corrective Regulatory Action
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FedICIA") requires, among other things, that federal bank regulatory
authorities take "prompt corrective action" with respect to institutions that do
not meet minimum capital requirements. For these purposes, FedICIA establishes
five capital tiers: well capitalized, adequately capitalized, undercapitalized,
significantly undercapitalized, and critically undercapitalized. At December 31,
1997, the Bank was categorized as "adequately capitalized," meaning that its
total risk-based capital ratio exceeded 8%, its Tier I risk-based capital ratio
exceeded 4%, its leverage ratio exceeded 4%, and it was not subject to a
regulatory order, agreement or directive to meet and maintain a specific capital
level for any capital measure.
The FDIC may order savings associations which have insufficient capital to
take corrective actions. For example, a savings association which is categorized
as "undercapitalized" would be subject to growth limitations and would be
required to submit a capital restoration plan, and a holding company that
controls such a savings association would be required to guarantee that the
savings association complies with the restoration plan. "Significantly
undercapitalized" savings associations would be subject to additional
restrictions. Savings associations deemed by the FDIC to be "critically
undercapitalized" would be subject to the appointment of a receiver or
conservator.
<PAGE>
Dividend Limitations
An OTS regulation imposes limitations upon all "capital distributions" by
savings associations, including cash dividends, payments by an association to
repurchase or otherwise acquire its shares, payments to shareholders of another
institution in a cash-out merger and other distributions charged against
capital. The regulation establishes a three-tiered system of regulation, with
the greatest flexibility being afforded to well-capitalized associations. A
savings association which has total capital (immediately prior to and after
giving effect to the capital distribution) that is at least equal to its fully
phased-in capital requirements would be a Tier 1 institution ("Tier 1
Institution"). An association that has total capital at least equal to its
minimum capital requirements, but less than its fully phased-in capital
requirements, would be a Tier 2 institution ("Tier 2 Institution"). An
institution having total capital that is less than its minimum capital
requirements would be a Tier 3 institution ("Tier 3 Institution"). However, an
institution which otherwise qualifies as a Tier 1 Institution may be designated
by the OTS as a Tier 2 Institution or Tier 3 Institution if the OTS determines
that the institution is "in need of more than normal supervision." The Bank is
currently a Tier 1 Institution.
A Tier 1 Institution may, after prior notice but without the approval of
the OTS, make capital distributions during a calendar year up to the greater of
(a) 100% of its net income to date during the calendar year plus the amount that
would reduce by one-half its "surplus capital ratio" at the beginning of the
calendar year (the smallest excess over its capital requirements), or (b) 75% of
its net income over the most recent four-quarter period. Any additional amount
of capital distributions would require prior regulatory approval.
The OTS has proposed revisions to these regulations which would permit a
savings association, without filing a prior notice or application with the OTS,
to make a capital distribution to its shareholders in an amount that does not
exceed the association's undistributed net income for the prior two years plus
the amount of its undistributed income from the current year. This proposed rule
would require a savings association, such as the Bank, that is a subsidiary of a
savings and loan holding company to file a notice with the OTS before making a
capital distribution up to the "maximum amount" described above. The proposed
rule would also require all savings associations, whether under a holding
company or not, to file an application with the OTS prior to making any capital
distribution where the association is not eligible for expedited processing
under the OTS "Expedited Processing Regulation," or where the proposed
distribution, together with any other distributions made in the same year, would
exceed the "maximum amount" described above.
Liquidity
Federal law requires that savings associations maintain an average daily
balance of liquid assets in an amount not less than 4% or more than 10% of their
withdrawable accounts plus short-term borrowings. Liquid assets include cash,
certain time deposits, certain bankers' acceptances, specified U.S. government,
state or federal agency obligations, certain corporate debt securities,
commercial paper, certain mutual funds, certain mortgage-related securities, and
certain first-lien residential mortgage loans. The OTS recently amended its
regulation that implements this statutory liquidity requirement to reduce the
amount of liquid assets a savings association must hold from 5% of net
withdrawable accounts and short-term borrowings to 4%. The OTS also eliminated
the requirement that savings associations maintain short-term liquid assets
constituting at least 1% of their average daily balance of net withdrawable
deposit accounts and current borrowings. The revised OTS rule also permits
savings associations to calculate compliance with the liquidity requirement
based upon their average daily balance of liquid assets during each quarter
rather than during each month, as was required under the prior rule. The OTS may
impose monetary penalties on savings associations that fail to meet these
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>
Limitations on Rates Paid for Deposits
Regulations promulgated by the FDIC pursuant to FedICIA limit the ability
of insured depository institutions to accept, renew or roll over deposits by
offering rates of interest which are significantly higher than the prevailing
rates of interest on deposits offered by other insured depository institutions
having the same type of charter in the institution's normal market area. Under
these regulations, "well-capitalized" depository institutions may accept, renew
or roll such deposits over without restriction, "adequately capitalized"
depository institutions may accept, renew or roll such deposits over with a
waiver from the FDIC (subject to certain restrictions on payments of rates) and
"undercapitalized" depository institutions may not accept, renew or roll such
deposits over. The regulations contemplate that the definitions of "well
capitalized," "adequately capitalized" and "undercapitalized" will be the same
as the definition adopted by the agencies to implement the corrective action
provisions of FedICIA. The Bank does not believe that these regulations will
have a materially adverse effect on its current operations.
Safety and Soundness Standards
On February 2, 1995, the federal banking agencies adopted final safety and
soundness standards for all insured depository institutions. The standards,
which were issued in the form of guidelines rather than regulations, relate to
internal controls, information systems, internal audit systems, loan
underwriting and documentation, compensation and interest rate exposure. In
general, the standards are designed to assist the federal banking agencies in
identifying and addressing problems at insured depository institutions before
capital becomes impaired. If an institution fails to meet these standards, the
appropriate federal banking agency may require the institution to submit a
compliance plan. Failure to submit a compliance plan may result in enforcement
proceedings. On August 27, 1996, the federal banking agencies added asset
quality and earning standards to the safety and soundness guidelines.
Real Estate Lending Standards
OTS regulations require savings associations to establish and maintain
written internal real estate lending policies. Each association's lending
policies must be consistent with safe and sound banking practices and
appropriate to the size of the association and the nature and scope of its
operations. The policies must establish loan portfolio diversification
standards; establish prudent underwriting standards, including loan-to-value
limits, that are clear and measurable; establish loan administration procedures
for the association's real estate portfolio; and establish documentation,
approval, and reporting requirements to monitor compliance with the
association's real estate lending policies. The association's written real
estate lending policies must be reviewed and approved by the association's Board
of Directors at least annually. Further, each association is expected to monitor
conditions in its real estate market to ensure that its lending policies
continue to be appropriate for current market conditions.
Loans to One Borrower
Under OTS regulations, the Bank may not make a loan or extend credit to a
single or related group of borrowers in excess of 15% of its unimpaired capital
and surplus. Additional amounts may be lent, not in excess of 10% of unimpaired
capital and surplus, if such loans or extensions of credit are fully secured by
readily marketable collateral, including certain debt and equity securities but
not including real estate. In some cases, a savings association may lend up to
30 percent of unimpaired capital and surplus to one borrower for purposes of
developing domestic residential housing, provided that the association meets its
regulatory capital requirements and the OTS authorizes the association to use
this expanded lending authority. At December 31, 1997, the Bank did not have any
loans or extensions of credit to a single or related group of borrowers in
excess of its lending limits.
<PAGE>
Qualified Thrift Lender
Savings associations must meet a QTL test. If the Bank maintains an
appropriate level of qualified thrift investments ("QTIs") (primarily
residential mortgages and related investments, including certain
mortgage-related securities) and otherwise qualify as a QTL, the Bank will
continue to enjoy full borrowing privileges from the FHLB of Indianapolis. The
required percentage of QTIs is 65% of portfolio assets (defined as all assets
minus intangible assets, property used by the association in conducting its
business and liquid assets equal to 10% of total assets). Certain assets are
subject to a percentage limitation of 20% of portfolio assets. In addition,
savings associations may include shares of stock of the FHLBs, FNMA, and FHLMC
as QTIs. Compliance with the QTL test is determined on a monthly basis in nine
out of every twelve months. As of December 31, 1997, the Bank was in compliance
with its QTL requirement, with approximately 88.5% of its assets invested in
QTIs.
A savings association which fails to meet the QTL test must either convert
to a bank (but its deposit insurance assessments and payments will be those of
and paid to the SAIF) or be subject to the following penalties: (i) it may not
enter into any new activity except for those permissible for a national bank and
for a savings association; (ii) its branching activities shall be limited to
those of a national bank; (iii) it shall not be eligible for any new FHLB
advances; and (iv) it shall be bound by regulations applicable to national banks
respecting payment of dividends. Three years after failing the QTL test the
association must (i) dispose of any investment or activity not permissible for a
national bank and a savings association and (ii) repay all outstanding FHLB
advances. If such a savings association is controlled by a savings and loan
holding company, then such holding company must, within a prescribed time
period, become registered as a bank holding company and become subject to all
rules and regulations applicable to bank holding companies (including
restrictions as to the scope of permissible business activities).
Acquisitions or Dispositions and Branching
The Bank Holding Company Act specifically authorizes a bank holding
company, upon receipt of appropriate regulatory approvals, to acquire control of
any savings association or holding company thereof wherever located. Similarly,
a savings and loan holding company may acquire control of a bank. Moreover,
federal savings associations may acquire or be acquired by any insured
depository institution. Regulations promulgated by the FRB restrict the
branching authority of savings associations acquired by bank holding companies.
Savings associations acquired by bank holding companies may be converted to
banks if they continue to pay SAIF premiums, but as such they become subject to
branching and activity restrictions applicable to banks.
Subject to certain exceptions, commonly-controlled banks and savings
associations must reimburse the FDIC for any losses suffered in connection with
a failed bank or savings association affiliate. Institutions are commonly
controlled if one is owned by another or if both are owned by the same holding
company. Such claims by the FDIC under this provision are subordinate to claims
of depositors, secured creditors, and holders of subordinated debt, other than
affiliates.
The OTS has adopted regulations which permit nationwide branching to the
extent permitted by federal statute. Federal statutes permit federal savings
associations to branch outside of their home state if the association meets the
domestic building and loan test in ss.7701(a)(19) of the Code or the asset
composition test of ss.7701(c) of the Code. Branching that would result in the
formation of a multiple savings and loan holding company controlling savings
associations in more than one state is permitted if the law of the state in
which the savings association to be acquired is located specifically authorizes
acquisitions of its state-chartered associations by state-chartered associations
or their holding companies in the state where the acquiring association or
holding company is located. Moreover, Indiana banks and savings associations are
permitted to acquire other Indiana banks and savings associations and to
establish branches throughout Indiana.
<PAGE>
Finally, The Riegle-Neal Interstate Banking and Branching Efficiency Act
of 1994 (the "Riegle-Neal Act") permits bank holding companies to acquire banks
in other states and, with state consent and subject to certain limitations,
allows banks to acquire out-of-state branches either through merger or de novo
expansion. The State of Indiana enacted legislation establishing interstate
branching provisions for Indiana state-chartered banks consistent with those
established by the Riegle-Neal Act (the "Indiana Branching Law"). The Indiana
Branching Law authorizes Indiana banks to branch interstate by merger or de novo
expansion, provided that such transactions are not permitted to out-of-state
banks unless the laws of their home states permit Indiana banks to merge or
establish de novo banks on a reciprocial basis. The Indiana Branching Law became
effective March 15, 1996.
Federal Reserve System
Under FRB regulations, the Bank is required to maintain reserves
against its transaction accounts (primarily checking and NOW accounts) and
non-personal money market deposit accounts. The effect of these reserve
requirements is to increase the Bank's cost of funds. The Bank is in compliance
with its reserve requirements. A federal savings association, like other
depository institutions maintaining reservable accounts, may borrow from the
Federal Reserve Bank "discount window," but the FRB's regulations require the
savings association to exhaust other reasonable alternative sources, including
borrowing from its regional FHLB, before borrowing from the Federal Reserve
Bank. Current law imposes certain limitations on the ability of undercapitalized
depository institutions to borrow from Federal Reserve Banks.
Limitations on Repurchase of Common Stock of Holding Company
OTS regulations currently provide that the Holding Company is
prohibited from repurchasing any of its shares within one year of the
Conversion, which occured on June 13, 1995. So long as the Bank continues to
meet certain capitalization requirements, the Holding Company may repurchase
shares in an open-market repurchase program (which cannot exceed 5% of its
outstanding shares in a twelve-month period) during the second and third years
following its Conversion by giving appropriate prior notice to the OTS. The OTS
has the authority to waive these restrictions under certain circumstances.
Unless repurchases are permitted under the foregoing regulations, the Holding
Company may not, for a period of three years from the date of the Conversion,
repurchase any of its capital stock from any person, except in the event of an
offer to purchase by the Holding Company on a pro rata basis from all of its
shareholders which is approved in advance by the OTS or except in exceptional
circumstances established to the satisfaction of the OTS.
Under Indiana law, the Holding Company will be precluded from
repurchasing its equity securities if, after giving effect to such repurchase,
the Holding Company would be unable to pay its debts as they become due or the
Holding Company's assets would be less than its liabilities and obligations to
preferential shareholders.
Transactions with Affiliates
The Bank and the Holding Company are subject to Sections 22(h), 23A and
23B of the Federal Reserve Act, which restrict financial transactions between
banks and affiliated companies. The statute limits credit transactions between a
bank or savings association and its executive officers and its affiliates,
prescribes terms and conditions for bank affiliate transactions deemed to be
consistent with safe and sound banking practices, and restricts the types of
collateral security permitted in connection with a bank's extension of credit to
an affiliate.
Federal Securities Law
The shares of Common Stock of the Holding Company are registered with the
Securities and Exchange Commission (the "Commission") under the Securities
Exchange Act of 1934, as amended (the "1934 Act"). The Holding Company is
subject to the information, proxy solicitation, insider trading restrictions and
other requirements of the 1934 Act and the rules of the Commission thereunder.
<PAGE>
Shares of Common Stock held by persons who are affiliates of the Holding
Company may not be resold without registration unless sold in accordance with
the resale restrictions of Rule 144 under the Securities Act of 1933, as amended
(the "1933 Act"). If the Holding Company meets the current public information
requirements under Rule 144, each affiliate of the Holding Company who complies
with the other conditions of Rule 144 (including those that require the
affiliate's sale to be aggregated with those of certain other persons) will be
able to sell in the public market, without registration, a number of shares not
to exceed, in any three-month period, the greater of (i) 1% of the outstanding
shares of the Holding Company or (ii) the average weekly volume of trading in
such shares during the preceding four calendar weeks.
Community Reinvestment Act Matters
Federal law requires that ratings of depository institutions under the
Community Reinvestment Act of 1977 ("CRA") be disclosed. The disclosure includes
both a four-unit descriptive rating -- outstanding, satisfactory, needs to
improve, and substantial noncompliance -- and a written evaluation of an
institution's performance. Each FHLB is required to establish standards of
community investment or service that its members must maintain for continued
access to long-term advances from the FHLBs. The standards take into account a
member's performance under the CRA and its record of lending to first-time home
buyers. The OTS has designated the Bank's record of meeting community credit
needs as satisfactory.
TAXATION
Federal Taxation
Historically, savings associations, such as the Bank, have been
permitted to compute bad debt deductions using either the bank experience method
or the percentage of taxable income method. However, for years beginning after
December 31, 1995, the Bank will no longer be able to use the percentage of
taxable income method of computing its allocable tax bad debt deduction. The
Bank will be required to compute its allocable deduction using the experience
method. As a result of the repeal of the percentage of taxable income method,
reserves taken after 1987 using the percentage of taxable income method
generally must be included in future taxable income over a six-year period,
although a two-year delay may be permitted for institutions meeting a
residential mortgage loan origination test. In addition, the pre-1988 reserve,
in which no deferred taxes have been recorded, will not have to be recaptured
into income unless (i) the Bank no longer qualifies as a bank under the Code, or
(ii) excess dividends are paid out by the Bank.
Depending on the composition of its items of income and expense, a
savings institution may be subject to the alternative minimum tax. A savings
institution must pay an alternative minimum tax equal to the amount (if any) by
which 20% of alternative minimum taxable income ("AMTI"), as reduced by an
exemption varying with AMTI, exceeds the regular tax due. AMTI equals regular
taxable income increased or decreased by certain tax preferences and
adjustments, including depreciation deductions in excess of that allowable for
alternative minimum tax purposes, tax-exempt interest on most private activity
bonds issued after August 7, 1986 (reduced by any related interest expense
disallowed for regular tax purposes), the amount of the bad debt reserve
deduction claimed in excess of the deduction based on the experience method and
75% of the excess of adjusted current earnings over AMTI (before this adjustment
and before any alternative tax net operating loss). AMTI may be reduced only up
to 90% by net operating loss carryovers, but alternative minimum tax paid that
is attributable to most preferences (although not to post-August 7, 1986
tax-exempt interest) can be credited against regular tax due in later years.
<PAGE>
State Taxation
The Bank is subject to Indiana's Financial Institutions Tax ("FIT"),
which is imposed at a flat rate of 8.5% on "adjusted gross income." "Adjusted
gross income," for purposes of FIT, begins with taxable income as defined by
Section 63 of the Code and, thus, incorporates federal tax law to the extent
that it affects the computation of taxable income. Federal taxable income is
then adjusted by several Indiana modifications, the most notable of which is the
required addback of interest that is tax-free for federal income tax purposes.
Other applicable state taxes include generally applicable sales and use taxes
plus real and personal property taxes.
Item 2. Properties.
At December 31, 1997, the Bank and the Holding Company conducted
business from a single office at 723 East Broadway, Logansport, Indiana. The
following table provides certain information with respect to the Company's
office as of December 31, 1997:
<TABLE>
<CAPTION>
Total Deposits Net Book Value
at of Property,
Owned or Year December 31, Furniture & Approximate
Description and Address Leased Opened 1997 Fixtures Square Footage
---------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
723 East Broadway Owned 1962 $60,595 $465 4,200
Logansport, Indiana 46947
</TABLE>
The Company owns computer and data processing equipment which is used for
transaction processing and accounting. The net book value of electronic data
processing equipment owned by the Company was $8,400 at December 31, 1997.
The Bank also has contracted for the data processing and reporting
services of the Intrieve Data Center in Cincinnati, Ohio. The cost of these data
processing services is approximately $8,500 per month.
Item 3. Legal Proceedings.
Neither the Holding Company nor the Bank is a party to any pending
legal proceedings, other than routine litigation incidental to its business.
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted to a vote of the Holding Company's shareholders
during the quarter ended December 31, 1997.
Item 4.5. Executive Officers of the Registrant.
Presented below is certain information regarding the executive officers
of the Holding Company:
Name Position
Thomas G. Williams President and Chief Executive Officer
Charles J. Evans Vice President
Dottye Robeson Secretary/Treasurer
Thomas G. Williams (age 65) has served as President of the Bank since
1971 and as President and Chief Executive Officer of the Holding Company since
its organization.
Charles J. Evans (age 52) has served as Vice President and Senior Loan
Officer of the Bank since 1980 and as Vice President of the Holding Company
since its organization.
<PAGE>
Dottye Robeson (age 48) has served as Chief Financial Officer of the
Bank since 1994 and as Secretary/Treasurer of the Holding Company since its
organization. From 1990 to 1994, she served as Cashier, Vice President and Chief
Financial Officer of Bright National Bank in Flora, Indiana. From 1984 to 1990
she was employed by Smith, Thompson & Wihebrink (Logansport). She has been a
certified public accountant since 1987.
PART II
Item 5. Market for Registrant's Common Equity and Related Shareholder Matters.
Logansport Savings Bank, FSB converted from a mutual savings bank to a
stock form federal savings bank effective June 13, 1995 (the "Conversion") and
simultaneously formed a savings and loan holding company, Logansport Financial
Corp. The Holding Company's common stock, without par value ("Common Stock"), is
quoted on the National Association of Securities Dealers Automated Quotation
System ("NASDAQ"), Small Cap Market, under the symbol "LOGN." The following
table sets forth the high and low bid prices and dividends paid per share of
Common Stock for the quarters indicated. Such over-the-counter quotations
reflect inter-dealer prices, without retail mark-up, mark-down or commission,
and may not necessarily represent actual transactions.
Quarter Ended High Bid Low Bid Dividends Declared
--------------------------------------------------------------------
March 31, 1996 $ 13 1/4 $ 12 3/8 $ .10
June 30, 1996 13 3/4 12 3/8 .10
September 30, 1996 14 3/4 12 1/2 .10
December 31, 1996 14 3/4 11 1/4 3.10
March 31, 1997 15 11 1/8 .10
June 30, 1997 14 12 1/2 .10
September 30, 1997 16 13 1/4 .10
December 31, 1997 18 15 .10
As of February 17, 1998, there were 848 record holders of the Holding
Company's Common Stock. The Holding Company has established a policy of paying
regular periodic cash dividends, and the Board of Directors intends to continue
this policy, subject to the Holding Company's operating results, financial
condition, capital, income tax considerations, regulatory restrictions, and
other relevant factors.
Since the Holding Company has no independent operations other than
investment-related activities or other subsidiaries to generate income, its
ability to accumulate earnings for the payment of cash dividends to its
shareholders will be directly dependent upon the ability of the Bank to pay
dividends to the Holding Company.
Under OTS regulations, a converted savings institution may not declare
or pay a cash dividend if the effect would be to reduce its net worth below the
amount required for the liquidation account created at the time it converted. In
addition, under OTS regulations, the extent to which a savings institution may
make a "capital distribution," which includes, among other things, cash
dividends, will depend upon in which one of three categories, based upon levels
of capital, that savings institution is classified. The Bank is now and expects
to continue to be a "tier one institution" and therefore would be able to pay
cash dividends to the Holding Company during any calendar year up to 100% of its
net income during that calendar year plus the amount that would reduce by one
half its "surplus capital ratio" (the excess over its fully phased-in capital
requirements) at the beginning of the calendar year. See "Regulation -- Capital
Distributions Regulation." Prior notice of any dividend to be paid by the Bank
to the Holding Company will have to be given to the OTS.
Income of the Bank appropriated to bad debt reserves and deducted for
federal income tax purposes is not available for payment of cash dividends or
other distributions to the Holding Company without the payment of federal income
taxes by the Bank on the amount of such income deemed removed from the reserves
at the then-current income tax rate. At December 31, 1997, approximately $1.7
million of the Bank's retained income represented bad debt deductions for which
no federal income tax provision had been made.
See "Taxation--Federal Taxation."
<PAGE>
Unlike the Bank, generally there is no regulatory restriction on the
payment of dividends by the Holding Company. Indiana law, however, would
prohibit the Holding Company from paying a dividend if, after giving effect to
the payment of that dividend, the Holding Company would not be able to pay its
debts as they become due in the usual course of business or the Holding
Company's total assets would be less than the sum of its total liabilities plus
preferential rights of holders of preferred stock, if any.
Item 6. Selected Financial Data.
The information required by this item is incorporated by reference to
the material under the heading "Selected Consolidated Financial Data of
Logansport Financial Corp. and Subsidiary" on page 4 of the Holding Company's
1997 Shareholder Annual Report (the "Shareholder Annual Report").
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operation.
The information required by this item is incorporated by reference to
pages 5 through 14 of the Shareholder Annual Report.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The information required by this item is incorporated by reference to
pages 5 through 6 of the Shareholder Annual Report.
Item 8. Financial Statements and Supplementary Data.
The Holding Company's Consolidated Financial Statements and Notes
thereto contained on pages 17 through 44 in the Shareholder Annual Report are
incorporated herein by reference. The Company's unaudited quarterly results of
operations contained on page 44 in the Shareholder Annual Report are
incorporated herein by reference.
Independent Auditor's Report
To the Board of Directors
Logansport Financial Corp.
Logansport, Indiana
We have audited the consolidated statement of financial condition of Logansport
Financial Corp. and subsidiary as of December 31, 1996, and the related
consolidated statements of income, changes in stockholders' equity and cash
flows for each of the two years in the period ended December 31, 1996. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements described above present
fairly, in all material respects, the consolidated financial position of
Logansport Financial Corp. and subsidiary as of December 31, 1996, and the
results of their operations and their cash flows for each of the two years in
the period ended December 31, 1996, in conformity with generally accepted
accounting principles.
/s/ Geo. S. Olive & Co. LLC
Indianapolis, Indiana
January 23, 1997
<PAGE>
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.
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.
Pursuant to Item 304 of Regulation S-K, the Holding Company provided a
copy of its Current Report on Form 8-K announcing the change in the Company's
Certifying Accountant, which was filed with the Commission on August 19, 1997,
to Geo. S. Olive & Co. LLC for review. A letter from Geo. S. Olive & Co. LLC
indicating that it agrees with the statements made by the Holding Company
therein is incorporated by reference to Exhibit 16 to the Company's Current
Report on Form 8-K, filed with the Commission on August 19, 1997.
PART III
Item 10. Directors and Executive Officers of the Registrant.
The information required by this item with respect to directors is
incorporated by reference to pages 2 through 4 of the Holding Company's Proxy
Statement for its 1998 Annual Shareholder Meeting (the "1998 Proxy Statement").
Information concerning the Holding Company's executive officers is included in
Item 4.5 in Part I of this report.
Item 11. Executive Compensation.
The information required by this item with respect to executive
compensation is incorporated by reference to pages 2 to 4 of the Holding
Company's 1998 Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information required by this item is incorporated by reference to
pages 2 and 3 of the 1998 Proxy Statement.
Item 13. Certain Relationships and Related Transactions.
The information required by this item is incorporated by reference to
page 8 of the 1998 Proxy Statement.
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) List the following documents filed as part of the report:
<TABLE>
<CAPTION>
Financial Statements
<S> <C>
Independent Auditor's Report (Geo. S. Olive & Co. LLC)............... See Item 8
Independent Auditor's Report (Grant Thornton LLP).................... See Shareholder Annual Report
Page 16
Consolidated Statements of Financial Condition
at December 31, 1997, and 1996................................... See Shareholder Annual Report
Page 17
Consolidated Statements of Earnings for the Years Ended
December 31, 1997, 1996, and 1995................................ See Shareholder Annual Report
Page 18
Consolidated Statements of Changes in Shareholders' Equity
for the Years Ended December 31, 1997, 1996 and 1995............. See Shareholder Annual Report
Page 19
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1997, 1996, and 1995................................ See Shareholder Annual Report
Page 20-21
Notes to Consolidated Financial Statements........................... See Shareholder Annual Report
Page 22
</TABLE>
(b) Reports on Form 8-K.
The Holding Company filed no reports on Form 8-K during the
fourth quarter of its 1997 fiscal year.
(c) The exhibits filed herewith or incorporated by reference
herein are set forth on the Exhibit Index on page E-1.
Included in those exhibits are Executive Compensation Plans
and Arrangements which are identified as Exhibits 10(1)
through 10(12).
(d) All schedules are omitted as the required information either
is not applicable or is included in the Consolidated Financial
Statements or related notes.
<PAGE>
SIGNATURES
Pursuant to the requirement of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on behalf of the undersigned, thereto duly authorized.
LOGANSPORT FINANCIAL CORP.
Date: March 25, 1998 By: /s/ Thomas G. Williams
----------------------------------
Thomas G. Williams, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the Registrant and in the capacities indicated on this 25th day of March, 1998.
/s/ Thomas G. Williams
- ------------------------
Thomas G. Williams
President, Chief Executive Officer and Director
(Principal Executive Officer)
/s/ Dottye Robeson
- ------------------------
Dottye Robeson,
Secretary/Treasurer (Principal Financial and
Accounting Officer)
/s/ Norbert E. Adrian
- ------------------------
Norbert E. Adrian, Director
/s/ Charles J. Evans
- ------------------------
Charles J. Evans, Vice President and Director
/s/ Donald G. Pollitt
- ------------------------
Donald G. Pollitt, Director
/s/ Susanne S. Ridlen
- ------------------------
Susanne S. Ridlen, Director
/s/ William Tincher, Jr.
- ------------------------
William Tincher, Jr., Director
/s/ David Wihebrink
- ------------------------
David Wihebrink, Director
<PAGE>
EXHIBIT INDEX
Exhibit Page
3(1) The Articles of Incorporation of the Registrant are
incorporated by reference to Exhibit 3(1) to the
Registration Statement on Form S-1 (Registration No.
33-89788).
3(2) The Code of By-Laws of the Registrant are
incorporated by reference to Exhibit 3(2) to the
Registration Statement on Form S-1 (Registration No.
33-89788).
10(1) The Registrant's Stock Option Plan is incorporated
by reference to Exhibit A to the Registrant's Proxy
Statement for its Annual Shareholder Meeting held on
April 9, 1996.
10(2) Logansport Savings Bank, FSB Recognition and
Retention Plan and Trust is incorporated by
reference to Exhibit B to the Registrant's Proxy
Statement for its Annual Shareholder Meeting held on
April 9, 1996.
10(3) Logansport Savings Bank, FSB Employee Stock
Ownership Plan and Trust Agreement is incorporated
by reference to Exhibit 10(4) to the Registration
Statement on Form S-1 (Registration No. 33-89788).
10(4) Employment Agreement between Logansport Savings
Bank, FSB and Thomas G. Williams is incorporated by
reference to Exhibit 10(5) to the Registration
Statement on Form S-1 (Registration No. 33-89788).
10(5) Employment Agreement between Logansport Savings
Bank, FSB and Charles J. Evans is incorporated by
reference to Exhibit 10(6) to the Registration
Statement on Form S-1 (Registration No. 33-89788).
10(6) Director Deferred Compensation Agreement between
Logansport Savings Bank, FSB and Thomas G. Williams,
effective 4/1/92 is incorporated by reference to
Exhibit 10(7) to the Registration Statement on Form
S-1 (Registration No. 33-89788).
10(7) Director Deferred Compensation Agreement between
Logansport Savings Bank, FSB and Don Pollitt,
effective 4/1/92 is incorporated by reference to
Exhibit 10(8) to the Registration Statement on Form
S-1 (Registration No. 33-89788).
10(8) Director Deferred Compensation Agreement between
Logansport Savings Bank, FSB and Norbert Adrian,
effective 4/1/92 is incorporated by reference to
Exhibit 10(9) to the Registration Statement on Form
S-1 (Registration No. 33-89788).
10(9) Director Deferred Compensation Agreement between
Logansport Savings Bank, FSB and Susanne Ridlen,
effective 4/1/92 is incorporated by reference to
Exhibit 10(10) to the Registration Statement on Form
S-1 (Registration No. 33-89788).
10(10) Director Deferred Compensation Agreement between
Logansport Savings Bank, FSB and David Wihebrink,
effective 4/1/92 is incorporated by reference to
Exhibit 10(11) to the Registration Statement on Form
S-1 (Registration No. 33-89788).
10(11) Executive Supplemental Retirement Income Agreement
between Logansport Savings Bank, FSB and Thomas G.
Williams, executed May 7, 1992 is incorporated by
reference to Exhibit 10(12) to the Registration
Statement on Form S-1 (Registration No. 33-89788).
10(12) Executive Supplemental Retirement Income Agreement
between Logansport Savings Bank, FSB and Charles J.
Evans, executed May 7, 1992 is incorporated by
reference to Exhibit 10(13) to the Registration
Statement on Form S-1 (Registration No. 33-89788).
13 1997 Shareholder Annual Report ______
21 Subsidiaries of the Registrant are incorporated by
reference to Exhibit 21 to the Registration
Statement on Form S-1 (Registration No. 33-89788).
23(1) Independent Auditor's Consent (Geo. S. Olive & Co.
LLC) ______
23(2) Independent Auditor's Consent (Grant Thornton LLP) ______
27 Financial Data Schedule ______
[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
We consent to the incorporation by reference in the Registration Statement on
Form S-8, File No. 33-89788, of our report dated January 23, 1997 contained in
this 1997 Annual Report on Form 10-K.
/s/ Geo. S. Olive & Co. LLC
Indianapolis, Indiana
March 25, 1998
We consent to the incorporation by reference in the Registration
Statements on Form S-8, File No. 33-89788, of our report dated February 24, 1998
contained in the 1997 Annual Report to Shareholders of Logansport Financial
Corp., which is incorporated by reference in this Form 10-K.
/s/ Grant Thornton LLP
Cincinnati, Ohio
March 25, 1998
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S AUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED
DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000939928
<NAME> Logansport Financial Corporation
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-1-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1.000
<CASH> 2,269
<INT-BEARING-DEPOSITS> 100
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 15,682
<INVESTMENTS-CARRYING> 15,682
<INVESTMENTS-MARKET> 15,682
<LOANS> 63,880
<ALLOWANCE> (245)
<TOTAL-ASSETS> 86,115
<DEPOSITS> 60,595
<SHORT-TERM> 6,500
<LIABILITIES-OTHER> 953
<LONG-TERM> 1,525
<COMMON> 7,566
0
0
<OTHER-SE> 8,856
<TOTAL-LIABILITIES-AND-EQUITY> 86,115
<INTEREST-LOAN> 4,932
<INTEREST-INVEST> 953
<INTEREST-OTHER> 216
<INTEREST-TOTAL> 6,101
<INTEREST-DEPOSIT> 2,864
<INTEREST-EXPENSE> 3,115
<INTEREST-INCOME-NET> 2,986
<LOAN-LOSSES> (26)
<SECURITIES-GAINS> (50)
<EXPENSE-OTHER> 1,170
<INCOME-PRETAX> 1,960
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,232
<EPS-PRIMARY> .98
<EPS-DILUTED> .95
<YIELD-ACTUAL> 3.86
<LOANS-NON> 431
<LOANS-PAST> 431
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 236
<CHARGE-OFFS> 18
<RECOVERIES> 1
<ALLOWANCE-CLOSE> 245
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 245
</TABLE>
