SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED
SEPTEMBER 30, 1998 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM
_____________ TO _____________________.
Commission file number: 0-25910
LOGANSPORT FINANCIAL CORP.
(Exact name of registrant specified in its charter)
Indiana 35-1945736
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
723 East Broadway
P.O. Box 569
Logansport, Indiana 46947
(Address of principal executive offices
including Zip Code)
(219) 722-3855
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such report), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
The number of shares of the Registrant's common stock, without par value, as of
November 1, 1998 was 1,198,710.
Page 1 of 19
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Logansport Financial Corp.
Form 10-Q
Index
Page No.
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements 3
Consolidated Statements of Financial
Condition as of September 30, 1998
(Unaudited) and December 31, 1997
Consolidated Statements of Earnings
for the three and nine months ended
September 30, 1998 and 1997 (Unaudited )
Consolidated Statements of Shareholders'
Equity for the nine months ended
September 30, 1998 and 1997 (Unaudited)
Consolidated Statements of Cash Flows
for the nine months ended
September 30, 1998 and 1997 (Unaudited)
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
Item 3. Quantitative and Qualitative Disclosures About Market Risk 16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 6. Exhibits and Reports of Form 8-K 18
SIGNATURES 19
2
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<TABLE>
LOGANSPORT FINANCIAL CORP.
<CAPTION>
Consolidated Statements of Financial Condition
(Unaudited)
(In thousands, except share data)
September 30, December 31,
1998 1997
ASSETS
<S> <C> <C>
Cash and due from banks $ 558 $ 589
Interest-bearing deposits in other financial institutions 5,290 1,680
------ ------
Cash and cash equivalents 5,848 2,269
Certificates of deposit in other financial institutions - 100
Investment securities available for sale-at market 3,572 5,750
Mortgage-backed securities available for sale-at market 8,985 9,932
Loans receivable-net 69,475 63,635
Real estate acquired through foreclosure-net - 106
Office premises and equipment-at depreciated cost 715 465
Federal Home Loan Bank stock- at cost 568 494
Investment in real estate partnership 1,560 1,540
Accrued interest receivable on loans 323 299
Accrued interest receivable on mortgage-backed securities 69 83
Accrued interest receivable on investments 40 121
Prepaid expenses and other assets 42 33
Cash surrender value of life insurance 1,116 1,085
Deferred income tax asset 181 203
------ ------
Total assets $92,494 $86,115
====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits $67,421 $60,595
Advances from the Federal Home Loan Bank 6,500 6,500
Notes payable 1,450 1,525
Accrued interest and other liabilities 919 861
Accrued income taxes 3 92
------ ------
Total liabilities 76,293 69,573
Shareholders' equity
Common stock 7,575 7,566
Retained earnings-restricted 9,853 9,316
Treasury stock at cost, 63,090 shares (946) -
Less shares acquired by stock benefit plan (400) (400)
Unrealized gains on securities designated as
available for sale, net of related tax effects 119 60
------ ------
Total shareholders' equity 16,201 16,542
------ ------
Total liabilities and shareholders' equity $92,494 $86,115
====== ======
</TABLE>
3
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<TABLE>
LOGANSPORT FINANCIAL CORP.
<CAPTION>
Consolidated Statements of Earnings
(Unaudited)
(In thousands, except share data)
Three months ended Nine months ended
September 30, September 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Interest income
Loans $1,401 $1,262 $4,102 $3,631
Mortgage-backed securities 130 139 412 399
Investment securities 54 96 190 299
Interest-bearing deposits and other 79 60 187 167
----- ----- ----- -----
Total interest income 1,664 1,557 4,891 4,496
Interest expense
Deposits 799 731 2,293 2,123
Borrowings 95 73 284 171
----- ----- ----- -----
Total interest expense 894 804 2,577 2,294
----- ----- ----- -----
Net interest income 770 753 2,314 2,202
Provision for losses on loans 13 9 31 17
----- ----- ----- -----
Net interest income after provision for
losses on loans 757 744 2,283 2,185
Other income
Service charges on deposit accounts 26 27 69 64
Loss on sale of investments and mortgage-backed securities (3) (19) - (51)
Gain on sale of real estate acquired through foreclosure - - 6 1
Other operating 37 32 107 88
----- ----- ----- -----
Total other income 60 40 182 102
General, administrative and other expense
Employee compensation and benefits 177 176 536 509
Occupancy and equipment 22 18 58 56
Federal deposit insurance premiums 9 9 28 27
Data processing 30 27 81 72
Other operating 82 80 254 237
----- ----- ----- -----
Total general, administrative and other expense 320 310 957 901
----- ----- ----- -----
Earnings before income taxes 497 474 1,508 1,386
Income tax expense 189 177 571 514
----- ----- ----- -----
NET EARNINGS $ 308 $ 297 $ 937 $ 872
===== ===== ===== =====
Other comprehensive income, net of tax
Unrealized gains on securities 47 47 59 153
----- ----- ----- -----
COMPREHENSIVE INCOME $ 355 $ 344 $ 996 $1,025
===== ===== ===== =====
EARNINGS PER SHARE
Basic (based on net earnings) $.24 $.23 $.74 $.69
=== === === ===
Diluted (based on net earnings) $.24 $.23 $.72 $.68
=== === === ===
</TABLE>
4
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<TABLE>
LOGANSPORT FINANCIAL CORP.
<CAPTION>
Consolidated Statements of Shareholders' Equity
(Unaudited)
(In thousands, except share data)
Nine months ended
September 30,
1998 1997
<S> <C> <C>
Balance at January 1 $16,542 $15,427
Issuance of shares under stock option plan 9 45
Purchase of shares for stock benefit plan (93) -
Amortization of stock benefit plan 93 92
Purchase of shares (946) -
Cash dividends of $.32 per share in 1998 and $.30 in 1997 (400) (378)
Unrealized gains on securities designated as
available for sale, net of related tax effects 59 153
Net earnings 937 872
------ ------
Balance at September 30 $16,201 $16,211
====== ======
Accumulated other comprehensive income $ 119 $ (4)
====== ======
</TABLE>
5
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<TABLE>
LOGANSPORT FINANCIAL CORP.
<CAPTION>
Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
Nine months ended
September 30,
1998 1997
<S> <C> <C>
Cash flows from operating activities:
Net earnings for the period $ 937 $ 872
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Depreciation and amortization 28 28
Amortization of premiums on investments and
mortgage-backed securities 142 70
Amortization expense of stock benefit plan 93 92
Loss on sale of investment and mortgage-backed securities - 51
Provision for losses on loans 31 17
Gain on sale of real estate acquired through foreclosure (6) (1)
Increase (decrease) in cash, due to changes in:
Accrued interest receivable on loans (24) (10)
Accrued interest receivable on mortgage-backed securities 14 (26)
Accrued interest receivable on investments 81 49
Prepaid expenses and other assets (9) 17
Accrued interest and other liabilities 58 6
Federal income taxes
Current (89) (42)
Deferred 22 100
------ ------
Net cash provided by operating activities 1,278 1,223
Cash flows provided by (used in) investing activities:
Proceeds from certificates of deposit in other institutions 100 -
Proceeds from sale of investment securities - 1,797
Purchase of investment securities (400) (1,401)
Maturities/calls of investment securities 2,655 750
Purchase of Federal Home Loan Bank stock (74) (107)
Proceeds from sale of mortgage-backed securities 1,177 420
Purchase of mortgage-backed securities (3,039) (4,974)
Principal repayments on mortgage-backed securities 2,673 1,104
Loan disbursements (18,550) (13,845)
Investment in real estate partnership (20) (8)
Principal repayments on loans 12,763 9,517
Purchases and additions to office premises and equipment (278) (19)
Proceeds from sale of real estate acquired through foreclosure 4 14
Increase in cash surrender value of life insurance policy (31) (27)
------ ------
Net cash used in investing activities (3,020) (6,779)
------ ------
</TABLE>
6
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<TABLE>
LOGANSPORT FINANCIAL CORP.
<CAPTION>
Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
Nine months ended
September 30,
1998 1997
<S> <C> <C>
Cash flows provided by (used in) financing activities:
Net increase in deposit accounts $6,826 $4,345
Proceeds from Federal Home Loan Bank advances 5,500 9,500
Proceeds from note payable - 100
Repayment of Federal Home Loan Bank advances (5,500) (6,000)
Repayment of note payable (75) (1,500)
Proceeds from the exercise of stock options 9 45
Purchase of shares for stock benefit plan (93) -
Purchase of shares (946) -
Dividends on common stock (400) (378)
----- -----
Net cash provided by financing activities 5,321 6,112
----- -----
Net increase in cash and cash equivalents 3,579 556
Cash and cash equivalents, beginning of period 2,269 3,759
----- -----
Cash and cash equivalents, end of period $5,848 $4,315
===== =====
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest on deposits and borrowings $2,560 $2,278
===== =====
Income taxes $ 675 $ 556
===== =====
Dividends payable at end of period $ 135 $ 126
===== =====
Foreclosed mortgage loans transferred to
real estate acquired through foreclosure $ 54 $ 136
===== =====
Loan originated through sales of real estate owned $ 148 $ 14
===== =====
</TABLE>
7
<PAGE>
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTE A: Basis of Presentation
The unaudited interim consolidated financial statements include the accounts of
Logansport Financial Corp. (the "Company") and its subsidiary, Logansport
Savings Bank, FSB, (the "Bank").
The unaudited interim consolidated financial statements have been prepared in
accordance with the instructions to Form 10-Q and, therefore, do not include all
information and disclosures required by generally accepted accounting principles
for complete financial statements. Accordingly, these financial statements
should be read in conjunction with the consolidated financial statements and
notes thereto included in the Annual Report on Form 10-K for the year ended
December 31, 1997. In the opinion of management, the financial statements
reflect all adjustments (consisting of only normal recurring accruals) necessary
to present fairly the Company's financial position as of September 30, 1998,
results of operations for the three and nine month periods ended September 30,
1998 and 1997 and cash flows for the nine month periods ended September 30, 1998
and 1997.
NOTE B: Earnings Per Share and Dividends Per Share
Basic earnings per share is computed based upon the weighted-average shares
outstanding during the period. Weighted-average common shares outstanding
totaled 1,259,225 and 1,258,594 for the nine month periods ended September 30,
1998 and 1997, respectively, and 1,255,155 and 1,260,593 for the three month
periods ended September 30, 1998 and 1997, respectively. Diluted earnings per
share is computed taking into consideration common shares outstanding and
dilutive potential common shares to be issued under the Company's stock option
plan. Weighted-average common shares deemed outstanding for purposes of
computing diluted earnings per share totaled 1,305,333 and 1,286,547 for the
nine months ended September 30, 1998 and 1997, respectively, and 1,294,506 and
1,294,529 for the three months ended September 30, 1998 and 1997, respectively.
A cash dividend of $.11 per common share was declared on September 9, 1998,
payable on October 9, 1998, to stockholders of record as of September 21, 1998.
NOTE C: Recent Accounting Pronouncements
In June 1996, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 125, "Accounting for
Transfer 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
8
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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
value. 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, securitization 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 obligations 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 special
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. Management adopted SFAS No. 130
effective January 1, 1998, as required, without material impact on the Company's
financial statements.
9
<PAGE>
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 management organizes the segments within the enterprise for making the
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. Management adopted SFAS No. 131 effective January, 1 1998,
without a material impact on the Company's financial statements.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which requires entities to recognize all
derivatives in their financial statements as either assets or liabilities
measured at fair value. SFAS No. 133 also specifies new methods of accounting
for hedging transactions, prescribes the items and transactions that may be
hedged, and specifies detailed criteria to be met to qualify for hedge
accounting.
The definition of a derivative financial instrument is complex, but in general,
it is an instrument with one or more underlyings, such as an interest rate or
foreign exchange rate, that is applied to a notional amount, such as an amount
of currency, to determine the settlement amount(s). It generally requires no
significant initial investment and can be settled net or by delivery of an asset
that is readily convertible to cash. SFAS No. 133 applies to derivatives
embedded in other contracts, unless the underlying of the embedded derivative is
clearly and closely related to the host contract.
SFAS No. 133 is effective for fiscal years beginning after June 15, 1999. On
adoption, entities are permitted to transfer held-to-maturity debt securities to
the available-for-sale or trading category without calling into question their
intent to hold other debt securities to maturity in the future. SFAS No. 133 is
not expected to have a material impact on the Company's financial statements.
Note D: Stock Repurchase
On September 8, 1998 the Company announced its intention to repurchase, from
time to time, on the open market, up to 5% of the Company's outstanding shares
of common stock, without par value, or 63,090 shares. Repurchases began on
September 14, 1998 and the program was completed on September 18, 1998. A total
of 63,090 share were repurchased at an average price of $15.00 per share.
10
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operation.
Forward Looking Statements
In addition to historical information contained herein, the following discussion
contains forward-looking statements that involve risks and uncertainties.
Economic circumstances, the Company's operations and the Company's actual
results could differ significantly from those discussed in the forward-looking
statements. Some of the factors that could cause or contribute to such
differences are discussed herein but also include changes in the economy and
interest rates in the nation and the Company's market area generally.
Some of the forward-looking statements included herein are the statements
regarding management's determination of the amount and adequacy of the allowance
for losses on loans, the effect of the year 2000 on information technology
systems and the effect of certain recent accounting pronouncements.
Financial Condition
Total assets were $92.5 million at September 30, 1998 compared to $86.1 million
at December 31, 1997, an increase of $6.4 million or 7.4%. This increase was
funded primarily from a growth in deposits. Cash and cash equivalents increased
approximately $3.5 million, from $2.3 million at December 31, 1997 to $5.8
million at September 30, 1998. Efforts to reinvest the growth of deposits in new
loans and investments are on-going; however, the interest rate environment
contributed to the time required to obtain quality investments and resulted in
the increase in cash equivalents. Securities decreased from $15.7 million at
December 31, 1997 to $12.6 million at September 30, 1998. Mortgage-backed
securities experienced accelerated pay backs which resulted in a decrease in the
yield in the investment portfolio and $2.7 million of investment securities
either matured or were called during the nine months ended September 30, 1998.
Net loans increased $5.8 million, or 9.2%, from $63.6 million at December 31,
1997 to $69.4 million at September 30, 1998. Loan originations amounted to $18.6
million for the nine months ended September 30, 1998, with payoffs equaling
$12.8 million. Loan demand continued to be strong.
Deposits were $67.4 million at September 30, 1998 compared to $60.6 million at
December 31, 1997, an increase of $6.8 million in the first nine months of 1998.
Borrowings consisted of $6.5 million of FHLB advances and a $1.5 million note
payable related to an equity investment in low income housing.
Shareholders' equity was $16.2 million at September 30, 1998 and $16.5 million
at December 31, 1997. During the third quarter approximately $1.0 million of
equity was used to repurchase 5% of the Company's common stock and additional
shares were also purchased for the Bank RRP Plan. This, combined with the
payment of dividends, resulted in a decrease in equity of $1.4 million. Equity
was increased approximately $1.1 million by earnings, amortization of the stock
benefit plan, and an increase in the market value of available for sale
securities.
11
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Results of Operations
Comparison of the Three Months Ended September 30, 1998 and September 30, 1997
Net earnings for the Company for the three months ended September 30, 1998 were
$308,000 compared with $297,000 for three months ended September 30, 1997, an
increase of $11,000 or 3.7%. Net interest income increased $17,000 while
general, administrative and other expenses increased $10,000 and taxes increased
$12,000. The major contributor to the increase in net interest income was the
growth in the loan portfolio during the past twelve months. Loans were $69.4
million at September 30, 1998 compared to $61.0 million at September 30, 1997.
However, the impact of such growth was off-set by a decline in the yield on the
loan and investment portfolios.
The provision for loan losses was $13,000 for the three months ended September
30, 1998 and $9,000 for the three months ended September 30, 1997. No property
was in real estate owned on September 30, 1998. One property, which was valued
at $106,000, was in real estate owned on December 31, 1997. Non-performing loans
decreased to $225,000, or 0.32% of loans at September 30, 1998 from $431,000, or
0.67% of loans at December 31, 1997. Loan loss reserves amounted to $253,000 or
.36% of total loans at September 30, 1998 compared to $245,000, or 0.38% at
December 31, 1997.
Although management believes that it uses the best information available in
providing for possible loan losses and believes that the allowance is adequate
at September 30, 1998, future adjustments to the allowance could be necessary
and net earnings could be affected if circumstances and/or economic conditions
differ substantially from the assumptions used in making the initial
determinations.
Total other income increased by $20,000, or 50.0%, during the three months ended
September 30, 1998, mainly because of a $19,000 loss on the sale of securities
in the three month period ending September 30, 1997. In addition, service
charges on deposit accounts decreased $1,000 and other operating income
increased $5,000.
Total general, administrative and other expenses increased $10,000, or 3.2%, in
the three months ended September 30, 1998 compared to September 30, 1997. Data
processing fees increased $3,000 due to loan and deposit growth and occupancy
and equipment expense increased $4,000 mainly because of increased depreciation
related to the purchase of new computer equipment.
The Company's effective tax rate for the three months ended September 30, 1998
was 38.0% and was 37.3% for the three months ended September 30, 1997.
Comparison of the Nine Months Ended September 30,1998 and September 30, 1997
Net earnings for the Company for the nine months ended September 30, 1998 was
$937,000 compared with $872,000 for the nine months ended September 30, 1997, an
increase of $65,000 or 7.5%. Interest income increased $395,000, or 8.8%, as a
result of the increase in the loan portfolio. Interest expense increased
$283,000, or 12.3% resulting in an improvement in net interest income of
$112,000, or 5.1%, when comparing the nine months ended September 30, 1998 to
the nine months ended September 30, 1997.
The provision for loan losses was $31,000 for the nine months ended September
30, 1998 and $17,000 for the nine months ended September 30, 1997. There were
two properties taken into real estate owned in the nine months ended September
30, 1998. One property was written down from $37,000 to a net realizable value
of $23,000 during the first quarter. During the second quarter, two consumer
loans were
12
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written off for $9,000, resulting in a total of $23,000 being written off
against the allowance in the first nine months of 1998. Three properties were
taken into real estate owned during the nine months ended September 30, 1997 and
net loan chargeoffs and recoveries totaled $17,000 for the first nine months of
1997.
Total other income increased by $80,000, or 78.4%, during the nine months ended
September 30, 1998, compared to the nine months ended September 30, 1997,
primarily because of the $51,000 loss on the sale of available for sale
securities during the nine months ended September 30, 1997. Service charges on
deposit accounts increased $5,000, or 7.8%. This increase is a result of an
increase in the volume of transaction accounts. There was a nonrecurring
recovery on securities previously written off of $13,083 which is reflected in
other operating income for the nine months ended June 30, 1997.
Although management believes that it uses the best information available in
providing for possible loan losses and believes that the allowance is adequate
at September 30, 1998, future adjustments to the allowance could be necessary
and net earnings could be affected if circumstances and/or economic conditions
differ substantially from the assumptions used in making the initial
determinations.
Total general, administrative and other expenses increased $56,000, or 6.2%, for
the nine months ended September 30, 1998 compared to the nine months ended
September 30, 1997. Employee compensation and benefits increased $27,000, or
5.3%. Data processing costs increased $9,000 as a result of an increase in the
volume of accounts and price increases. Other operating expenses increased
$17,000, or 7.2%, mainly as a result of an increase in bank service fees
incurred in processing our cash deposit. This is offset by an increase in
interest income due to improved cash availability.
The Company's effective tax rate for the nine months ended September 30,1998 was
37.9% compared to 37.1% for the nine months ended September 30, 1997.
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Capital Resources
Pursuant to OTS capital regulations, savings associations must currently meet a
1.5% tangible capital requirement, a 4% leverage ratio (or core capital)
requirement, and total risk-based capital to risk-weighted assets ratio of 8%.
At September 30, 1998, the Bank's tangible capital ratio was 17.24%, its
leverage ratio was 17.24%, and its risk-based capital to risk-weighted assets
ratio was 31.84%. Therefore, the Bank's capital significantly exceeded all of
the capital requirements currently in effect. The following table provides the
minimum regulatory capital requirements and the Bank's capital ratios as of
September 30, 1998.
<TABLE>
<CAPTION>
Capital Standard Required Bank's Excess
- ---------------- -------- ------ ------
<S> <C> <C> <C>
Tangible (1.5%) $1,381,000 $15,870,000 $14,489,000
Core (4.0%) 3,683,000 15,870,000 12,187,000
Risk-based (8.0%) 4,051,000 16,123,000 12,072,000
</TABLE>
Liquidity
The standard measure of liquidity for savings associations is the ratio of cash
and eligible investments to a certain percentage of net withdrawable savings
accounts and borrowings due within one year. The minimum required ratio is
currently set by the Office of Thrift Supervision at 4%. At September 30, 1998
the Bank's regulatory liquidity ratio was 34.3%.
Year 2000 Compliance Matters
As with all providers of financial services, the Company's operations are
heavily dependent on information technology systems. The Bank is addressing the
potential problems associated with the possibility that the computers that
control or operate the Bank's information technology systems and infrastructure
may not be programmed to read four-digit date codes and, upon arrival of the
year 2000, may recognize the two-digit code "00" as the year 1900, causing
systems to fail to function or to generate erroneous data. The Bank is working
with the companies that supply or service its information technology systems to
identify and remedy any year 2000 related problems.
Management and the Board of Directors recognize and understand Year 2000 ("Y2K")
risks, are active in overseeing corrective efforts, and are ensuring that all
necessary resources are available to address the problem. The awareness and
assessment phases of the Company's Year 2000 plan have been completed and the
testing phase will begin soon. The Company's data processing is performed
primarily by a third party servicer. The Company also uses software and hardware
which are covered under maintenance agreements with third party vendors.
Consequently the Company is dependent on these vendors to conduct its business.
The Company has contacted each vendor to request time tables for Year 2000
compliance and the expected costs, if any, to be passed along to the Company.
The Company has been informed that its primary service provider is on schedule
and testing will begin in the fourth quarter.
During 1998 the Company has replaced or upgraded all equipment to be Year 2000
compliant at a cost of less than $30,000. As of September 30, 1998, management
has developed an estimate of expenses that are reasonably likely to be incurred
by the Bank in connection with this issue; however, the Company does not expect
to incur significant expenses to implement the necessary corrective measures and
additional costs related to the Y2K issues are not expected to have a material
impact on the Company's 1998 or 1999 financial statements.
14
<PAGE>
Should the Company's data center become unable to provide the necessary services
upon arrival of the Year 2000, the Company will have the capability to account
for transactions on a manual basis until the data center returns to normal
operations, or the Company will consider the need to contract with an alternate
service provider.
In addition to possible expense related to its own systems, the Bank could incur
losses if loan payments are delayed due to year 2000 problems affecting any
major borrowers in the Bank's primary market area. Because the Bank's loan
portfolio is highly diversified with regard to individual borrowers and types of
businesses, and the Bank's primary market areas are not significantly dependent
upon any one employer or industry, the Bank does not expect any significant or
prolonged difficulties that will affect net earnings or cash flow.
15
<PAGE>
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Bank, like other savings associations, is subject to interest rate risk to
the degree that its interest-bearing liabilities, primarily deposits with short
and medium-term maturities, mature or reprice at different rates than its
interest-earning assets. Management of the Bank believes it is critical to
manage the relationship between interest rates and the effect on the Bank's net
portfolio value ("NPV"). Generally, NPV is the discounted present value of the
difference between incoming cash flows on interest-earning and other assets and
outgoing cash flows on interest-bearing liabilities. Management of the Bank's
assets and liabilities is done within the context of the marketplace, regulatory
limitations and within limits established by the Board of Directors on the
amount of change in NPV which is acceptable given certain interest rate changes.
The Office of Thrift Supervision ("OTS") issued a regulation, effective January
1, 1994, which uses a net market value methodology to measure the interest rate
risk exposure of thrift institutions. Under OTS regulations, an institution's
"normal" level of interest rate risk in the event of an assumed change in
interest rates, is a decrease in the institution's NPV in an amount not
exceeding 2% of the present value of its assets. Thrift institutions with over
$300 million in assets or less than a 12% risk-based capital ratio are required
to file OTS Schedule CMR. Data from schedule CMR is used by the OTS to calculate
changes in NPV and the related "normal" level of interest rate risk based upon
certain interest rate changes (discussed below). Institutions which do not meet
either of the filing requirements are not required to file OTS Schedule CMR, but
may do so voluntarily. The Bank does not currently meet either of these
requirements, but it does voluntarily file Schedule CMR. Presented below, as of
June 30, 1998, 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 and 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>
+400bp 12,725 -5,309 -29% 15.07% -469bp
+300bp 14,421 -3,614 -20% 16.67% -309bp
+200bp 15,962 -2,072 -11% 18.05% -171bp
+100bp 17,205 -829 - 5% 19.11% - 65bp
0bp 18,034 19.76%
- -100bp 18,597 563 +3% 20.16% + 40bp
- -200bp 19,172 1,138 +6% 20.56% + 80bp
- -300bp 20,014 1,979 +11% 21.17% +141bp
- -400bp 21,145 3,111 +17% 21.99% +223bp
</TABLE>
Interest Rate Risk Measures: 200 Basis Point (bp) Rate Shock
Pre-shock NPV Ratio: NPV as % of PV of Assets 19.76 %
Exposure Measure: Post-Shock NPV Ratio 18.05 %
Sensitivity Measure: Change in NPV Ratio (171 bp)
16
<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.
17
<PAGE>
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
Neither the Bank nor the Company were, during the three-month period ended
September 30, 1998, or are as of the date hereof involved in any legal
proceeding of a material nature. From time to time, the Bank is a party to legal
proceedings wherein it enforces its security interests in connection with its
mortgage and other loans.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
The following exhibits are attached to this report on Form 10-Q:
3.1 The Articles of Incorporation of the Registrant are
incorporated by reference to Exhibit 3.1 to the Registration
Statement on Form S-1 (Registration No. 33-89788).
3.2 The Code of By-Laws of the Registrant is incorporated by
reference to Exhibit 3.2 to the Form 10-Q for the period
ended June 30, 1997, filed with the Commission on August 13,
1997.
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,
and resolutions dated July 14, 1998, amending the
Registrant's Stock Option Plan.
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, and resolutions dated July
14, 1998, amending the Logansport Savings Bank, FSB
Recognition and Retention Plan and Trust.
27.1 Financial Data Schedule for the nine month period ended
September 30, 1998.
27.2 Restated Financial Data Schedule for the nine month period
ended September 30, 1997.
(b) Reports on Form 8-K
One report on Form 8-K was filed on September 9, 1998
to report the Company's intention to repurchase 5% of
the Company's outstanding shares of common stock from
time to time on the open market.
18
<PAGE>
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the Registrant has duly caused this report to be signed on behalf of the
undersigned thereto duly authorized.
Logansport Financial Corp.
Date: November 12, 1998 By: /s/ Thomas G. Williams
------------------ ---------------------------------
Thomas G. Williams, President and
Chief Executive Officer
Date: November 12, 1998 By: /s/ Dottye Robeson
------------------ ---------------------------------
Dottye Robeson, Secretary and
Treasurer
19
RESOLUTIONS ADOPTED BY
THE BOARD OF DIRECTORS OF
LOGANSPORT FINANCIAL CORP.
ON JULY 14, 1998
RESOLVED, that Section 5(e) of the Logansport Financial Corp. Stock
Option Plan (the "Option Plan") shall be amended to read in its entirety as
follows:
(e) Termination of Option. If an Optionee (other than an
Outside Director) ceases to be an employee of the Holding Company and
the Subsidiaries for any reason other than retirement, permanent and
total disability (within the meaning of ss. 22(e)(3) of the Code), or
death, any option granted to him shall forthwith terminate. Leave of
absence approved by the Committee shall not constitute cessation of
employment. If an Optionee (other than an Outside Director) ceases to
be an employee of the Holding Company and the Subsidiaries by reason of
retirement, any option granted to him may be exercised by him in whole
or in part within three (3) years after the date of his retirement, to
the extent the option was otherwise exercisable at the date of his
retirement; provided, however, that if such employee remains a director
or director emeritus of the Holding Company, the option granted to him
shall continue to vest while he serves as a director or director
emeritus and may be exercised by him in whole or in part until the
later of (a) three (3) years after the date of his retirement, or (b)
six months after his service as a director or director emeritus of the
Holding Company terminates. (The term "retirement" as used herein means
such termination of employment as shall entitle such individual to
early or normal retirement benefits under any then existing pension
plan of the Holding Company or a Subsidiary.) If an Optionee (other
than an Outside Director) ceases to be an employee of the Holding
Company and the Subsidiaries by reason of permanent and total
disability (within the meaning of ss. 22(e)(3) of the Code), any option
granted to him may be exercised by him in whole or in part within one
(1) year after the date of his termination of employment by reason of
such disability whether or not the option was otherwise exercisable at
the date of such termination. Options granted to Outside Directors
shall cease to be exercisable six (6) months after the date such
Outside Director is no longer a director or director emeritus of the
Holding Company or its Subsidiaries for any reason other than death or
disability. If an Optionee who is an Outside Director ceases to be a
director or a director emeritus of the Holding Company or its
Subsidiaries by reason of disability, any option granted to him may be
exercised in whole or in part within one (1) year after the date the
Optionee ceases to be a director or a director emeritus by reason of
such disability, whether or not the option was otherwise exercisable at
such date. In the event of the death of an Optionee while in the employ
or service as a director or director emeritus of the Holding Company or
a Subsidiary, or, if the Optionee is not an Outside Director, within
three (3) years after the date of his retirement (or, if later, six
months following his termination of service as a director or director
emeritus of the Holding Company or its subsidiaries) or within one (1)
years after the termination of his employment by reason of permanent
and total disability (within the meaning of ss. 22(e)(3) of the Code),
or, if the Optionee is an Outside Director, within six (6) months after
he is no longer a director or director emeritus of the Holding Company
or its Subsidiaries for reasons other than disability or, within one
(1) year after the termination of his service by reason of disability,
any option granted to him may be exercised in whole or in part at any
time within one (1) years after
<PAGE>
the date of such death by the executor or administrator of his estate
or by the person or persons entitled to the option by will or by
applicable laws of descent and distribution until the expiration of the
option term is fixed by the Committee, whether or not the option was
otherwise exercisable at the date of his death. Notwithstanding the
foregoing provisions of this subsection (e), no option shall in any
event be exercisable after the expiration of the period fixed by the
Committee in accordance with subsection (b) above.
FURTHER RESOLVED, that the foregoing amendment to the Option Plan be
applied to outstanding stock options and that the Corporation's officers notify
the current holders of stock options granted under the Plan of this amendment
and advise them of its impact on the vesting of their stock options.
RESOLUTIONS ADOPTED BY
THE BOARD OF DIRECTORS OF
LOGANSPORT FINANCIAL SAVINGS BANK, FSB AND
LOGANSPORT FINANCIAL CORP.
ON JULY 14, 1998
FURTHER RESOLVED, that Section 3.09 of the Logansport Savings Bank, FSB
Recognition and Retention Plan and Trust (the "RRP") be amended to read in its
entirety as follows:
3.09. "Disability" means any physical or mental impairment
which qualifies an Employee, Director or Director Emeritus for
disability benefits under the applicable long-term disability plan
maintained by the Bank or an Affiliate, or, if no such plan applies,
which would qualify such Employee, Director or Director Emeritus for
disability benefits under the long-term disability plan maintained by
the Bank, if such Employee, Director or Director Emeritus were covered
by that Plan.
FURTHER RESOLVED, that Section 3.12 of the RRP be amended to read in
its entirety as follows:
3.12. "Outside Director" means a member of the Board of
Directors of the Bank or the Holding Company, who is not also an
Employee and who may be a Director or Director Emeritus.
FURTHER RESOLVED, that a new Section 3.19 be added to the RRP to read
in its entirety as follows:
3.19 "Director Emeritus" shall mean an honorary, non-voting
member of the Board of Directors of the Bank or the Holding Company.
FURTHER RESOLVED, that Sections 7.01(a) and 7.01(b) of the RRP be
revised to read in their entirety as follows:
(a) General Rules. Plan Shares subject to an Award shall be earned by a
Recipient at the rate of twenty percent (20%) of the aggregate number
of Shares covered by the Award at the end of each full twelve months
of consecutive service with the Bank or an Affiliate after the date of
grant of the Award. If the term of service of a Recipient terminates
as an Employee, as a Director and as a Director Emeritus prior to the
fifth anniversary (or such later date as the Committee shall
determine) of the date of grant of an Award for any reason (except as
specifically provided in Subsection (b) below or in Section 4.01
hereof), the Recipient shall forfeit the right to earn any Shares
subject to the Award which have not theretofore been earned.
In determining the number of Plan Shares which are earned, fractional
shares shall be rounded down to the nearest whole number, provided
that such fractional shares shall be aggregated and earned, on the
fifth anniversary of the date of grant.
<PAGE>
(b) Exception for Termination due to Death and Disability. Notwithstanding
the general rule contained in Section 7.01(a) above, all Plan Shares
subject to a Plan Share Award held by a Recipient whose term of
service as an Employee and as a Director or Director Emeritus with the
Holding Company, Bank or an Affiliate terminates due to death or
Disability shall be deemed earned as of the Recipient's last day of
service with the Holding Company, Bank or an Affiliate as a result of
such death or Disability. If the Recipient's service as an Employee
and as a Director or Director Emeritus terminates due to Disability
within one year of the effective date of the Conversion, the Shares
earned by the Recipient may not be disposed of by the Recipient during
the one-year period following the Conversion, and stock certificate
legends to that effect may be placed on the stock certificates for any
such shares.
FURTHER RESOLVED, that the second sentence of Section 9.02 of the RRP
be amended to read in its entirety as follows:
The power to amend or terminate shall include the power to
direct the Trustee to return to the Holding Company all or any part of
the assets of the Trust, including shares of Common Stock held in the
Plan Share Reserve, as well as shares of Common Stock and other assets
subject to Plan Share Awards but not yet earned by the Employees or
Outside Directors to whom they are allocated.
FURTHER RESOLVED, that the foregoing amendments to the RRP be applied
to outstanding RRP awards and that the Corporation notify the current recipients
of RRP awards and advise them of the impact of the amendments on the vesting of
their RRP's.
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 5,848
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 12,557
<INVESTMENTS-CARRYING> 12,557
<INVESTMENTS-MARKET> 12,557
<LOANS> 69,728
<ALLOWANCE> 253
<TOTAL-ASSETS> 92,494
<DEPOSITS> 67,421
<SHORT-TERM> 6,500
<LIABILITIES-OTHER> 922
<LONG-TERM> 1,450
0
0
<COMMON> 7,575
<OTHER-SE> 8,626
<TOTAL-LIABILITIES-AND-EQUITY> 92,494
<INTEREST-LOAN> 4,102
<INTEREST-INVEST> 602
<INTEREST-OTHER> 187
<INTEREST-TOTAL> 4,891
<INTEREST-DEPOSIT> 2,293
<INTEREST-EXPENSE> 2,577
<INTEREST-INCOME-NET> 2,314
<LOAN-LOSSES> (31)
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 957
<INCOME-PRETAX> 1,508
<INCOME-PRE-EXTRAORDINARY> 937
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 937
<EPS-PRIMARY> .74
<EPS-DILUTED> .72
<YIELD-ACTUAL> 3.47
<LOANS-NON> 225
<LOANS-PAST> 225
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 245
<CHARGE-OFFS> (23)
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 253
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 253
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 4,315
<INT-BEARING-DEPOSITS> 100
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 16,038
<INVESTMENTS-CARRYING> 16,038
<INVESTMENTS-MARKET> 16,038
<LOANS> 61,230
<ALLOWANCE> (236)
<TOTAL-ASSETS> 85,801
<DEPOSITS> 61,741
<SHORT-TERM> 5,500
<LIABILITIES-OTHER> 2,349
<LONG-TERM> 0
0
0
<COMMON> 7,563
<OTHER-SE> 8,648
<TOTAL-LIABILITIES-AND-EQUITY> 85,801
<INTEREST-LOAN> 3,631
<INTEREST-INVEST> 698
<INTEREST-OTHER> 167
<INTEREST-TOTAL> 4,496
<INTEREST-DEPOSIT> 2,123
<INTEREST-EXPENSE> 2,294
<INTEREST-INCOME-NET> 2,202
<LOAN-LOSSES> (17)
<SECURITIES-GAINS> (51)
<EXPENSE-OTHER> 901
<INCOME-PRETAX> 1,386
<INCOME-PRE-EXTRAORDINARY> 872
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 872
<EPS-PRIMARY> .69
<EPS-DILUTED> .68
<YIELD-ACTUAL> 3.98
<LOANS-NON> 318
<LOANS-PAST> 318
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 236
<CHARGE-OFFS> 18
<RECOVERIES> 1
<ALLOWANCE-CLOSE> 236
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 236
</TABLE>
