SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _____________ TO
_____________________.
Commission file number: 0-25910
LOGANSPORT FINANCIAL CORP.
(Exact name of registrant specified in its charter)
Indiana 35-1945736
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
723 East Broadway
P.O. Box 569
Logansport, Indiana 46947
(Address of principal executive offices
including Zip Code)
(219) 722-3855
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such report), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
The number of shares of the Registrant's common stock, without par value, as of
November 1, 1999 was 1,199,210.
Page 1 of 17
<PAGE>
Logansport Financial Corp.
Form 10-Q
Index
Page No.
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements 3
Consolidated Statements of Financial
Condition as of September 30, 1999
(Unaudited) and December 31, 1998
Consolidated Statements of Earnings
for the three and nine months ended September 30,
1999 and 1998 (Unaudited)
Consolidated Statements of Shareholders'
Equity for the nine months ended
September 30, 1999 and 1998 (Unaudited)
Consolidated Statements of Cash Flows
for the nine months ended September 30, 1999
and 1998 (Unaudited)
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk 14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 6. Exhibits and Reports of Form 8-K 16
SIGNATURES 17
2
<PAGE>
<TABLE>
LOGANSPORT FINANCIAL CORP.
<CAPTION>
Consolidated Statements of Financial Condition
(Unaudited)
(In thousands, except share data)
September 30, December 31,
ASSETS 1999 1998
<S> <C> <C>
Cash and due from banks $ 1,772 $ 363
Interest-bearing deposits in other financial institutions 3,769 3,965
------- ------
Cash and cash equivalents 5,541 4,328
Investment securities available for sale-at market 8,278 5,033
Mortgage-backed securities available for sale-at market 6,214 8,129
Loans receivable-net 87,042 73,073
Office premises and equipment-at depreciated cost 1,914 1,528
Federal Home Loan Bank stock- at cost 1,024 568
Investment in real estate partnership 1,512 1,566
Accrued interest receivable on loans 417 337
Accrued interest receivable on mortgage-backed securities 52 66
Accrued interest receivable on investments 130 62
Prepaid expenses and other assets 42 36
Cash surrender value of life insurance 1,167 1,135
Prepaid income tax 110 29
Deferred income tax asset 362 195
------- ------
Total assets $113,805 $96,085
======= ======
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits $ 76,819 $70,011
Advances from the Federal Home Loan Bank 18,000 7,000
Notes payable 1,307 1,375
Accrued interest and other liabilities 976 1,211
------- ------
Total liabilities 97,102 79,597
Shareholders' equity
Common stock 6,675 6,670
Retained earnings-restricted 10,507 10,031
Less shares acquired by stock benefit plan (272) (368)
Unrealized gains (losses) on securities designated as
available for sale, net of related tax effects (207) 155
------- ------
Total shareholders' equity 16,703 16,488
------- ------
Total liabilities and shareholders' equity $113,805 $96,085
======= ======
</TABLE>
3
<PAGE>
<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,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Interest income
Loans $1,658 $1,401 $4,707 $4,102
Mortgage-backed securities 96 130 316 412
Investment securities 122 54 285 190
Interest-bearing deposits and other 69 79 188 187
----- ----- ----- -----
Total interest income 1,945 1,664 5,496 4,891
Interest expense
Deposits 860 799 2,432 2,293
Borrowings 200 95 453 284
----- ----- ----- -----
Total interest expense 1,060 894 2,885 2,577
----- ----- ----- -----
Net interest income 885 770 2,611 2,314
Provision for losses on loans 41 13 122 31
----- ----- ----- -----
Net interest income after provision for
losses on loans 844 757 2,489 2,283
Other income
Service charges on deposit accounts 40 26 102 69
Loss on sale of investments and mortgage-backed securities - (3) - -
Gain on sale of real estate acquired through foreclosure - - - 6
Loss on equity investment (36) - (86)
Other operating 40 37 106 107
----- ----- ----- -----
Total other income 44 60 122 182
General, administrative and other expense
Employee compensation and benefits 222 177 666 536
Occupancy and equipment 41 22 117 58
Federal deposit insurance premiums 10 9 30 28
Data processing 38 30 110 81
Other operating 86 82 320 254
----- ----- ----- -----
Total general, administrative and other expense 397 320 1,243 957
----- ----- ----- -----
Earnings before income taxes 491 497 1,368 1,508
Income tax expense 173 189 497 571
----- ----- ----- -----
NET EARNINGS $ 318 $ 308 $ 871 $ 937
===== ===== ===== =====
Other comprehensive income, net of tax
Unrealized gains (losses) on securities, net of tax (132) 47 (362) 59
----- ----- ----- -----
COMPREHENSIVE INCOME $ 186 $ 355 $ 509 $ 996
===== ===== ===== =====
EARNINGS PER SHARE
Basic (based on net earnings) $.27 $.24 $.73 $.74
=== === === ===
Diluted (based on net earnings) $.27 $.24 $.72 $.72
=== === === ===
</TABLE>
4
<PAGE>
<TABLE>
LOGANSPORT FINANCIAL CORP.
<CAPTION>
Consolidated Statements of Shareholders' Equity
(Unaudited)
(In thousands, except share data)
Nine months ended
September 30,
1999 1998
<S> <C> <C>
Balance at January 1 $16,488 $16,542
Issuance of shares under stock option plan 5 9
Purchase of shares for stock benefit plan - (93)
Amortization of stock benefit plan 96 93
Purchase of shares - (946)
Cash dividends of $.33 per share in 1999 and $.32 in 1998 (395) (400)
Unrealized gains (losses) on securities designated as
available for sale, net of related tax effects (362) 59
Net earnings 871 937
------ ------
Balance at September 30 $16,703 $16,201
====== ======
Accumulated other comprehensive income $ (207) $ 119
====== ======
</TABLE>
5
<PAGE>
<TABLE>
LOGANSPORT FINANCIAL CORP.
<CAPTION>
Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
Nine months ended
September 30,
1999 1998
<S> <C> <C>
Cash flows from operating activities:
Net earnings for the period $ 871 $ 937
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Depreciation and amortization 59 28
Amortization of premiums on investments and
mortgage-backed securities 85 142
Amortization expense of stock benefit plan 96 93
Provision for losses on loans 122 31
Loss of equity investment 86 -
Gain on sale of real estate acquired through foreclosure - (6)
Increase (decrease) in cash, due to changes in:
Accrued interest receivable on loans (80) (24)
Accrued interest receivable on mortgage-backed securities 14 14
Accrued interest receivable on investments (68) 81
Prepaid expenses and other assets (6) (9)
Accrued interest and other liabilities (235) 58
Federal income taxes
Current (81) (89)
Deferred 20 22
------ ------
Net cash provided by operating activities 883 1,278
Cash flows provided by (used in) investing activities:
Proceeds from certificates of deposit in other institutions - 100
Purchase of investment securities (4,020) (400)
Maturities/calls of investment securities 375 2,655
Purchase of Federal Home Loan Bank stock (456) (74)
Proceeds from sale of mortgage-backed securities - 1,177
Purchase of mortgage-backed securities - (3,039)
Principal repayments on mortgage-backed securities 1,681 2,673
Loan disbursements (31,653) (18,550)
Investment in real estate partnership (32) (20)
Principal repayments on loans 17,562 12,763
Purchases and additions to office premises and equipment (445) (278)
Proceeds from sale of real estate acquired through foreclosure - 4
Increase in cash surrender value of life insurance policy (32) (31)
------ ------
Net cash used in investing activities (17,020) (3,020)
------ ------
</TABLE>
6
<PAGE>
<TABLE>
LOGANSPORT FINANCIAL CORP.
<CAPTION>
Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
Nine months ended
September 30,
1999 1998
<S> <C> <C>
Cash flows provided by (used in) financing activities:
Net increase in deposit accounts $ 6,808 $6,826
Proceeds from Federal Home Loan Bank advances 24,000 5,500
Repayment of Federal Home Loan Bank advances (13,000) (5,500)
Repayment of note payable (68) (75)
Proceeds from the exercise of stock options 5 9
Purchase of shares for stock benefit plan - (93)
Purchase of shares - (946)
Dividends on common stock (395) (400)
------ -----
Net cash provided by financing activities 17,350 5,321
------ -----
Net increase in cash and cash equivalents 1,213 3,579
Cash and cash equivalents, beginning of period 4,328 2,269
------ -----
Cash and cash equivalents, end of period $ 5,541 $5,848
====== =====
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest on deposits and borrowings $ 2,872 $2,560
====== =====
Income taxes $ 559 $ 675
====== =====
Dividends payable at end of period $ 132 $ 135
====== =====
Foreclosed mortgage loans transferred to
real estate acquired through foreclosure $ - $ 54
====== =====
Loan originated through sales of real estate owned $ - $ 148
====== =====
</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, 1998. In the opinion of management, the financial statements
reflect all adjustments (consisting of only normal recurring accruals) necessary
to present fairly the Company's financial position as of September 30, 1999,
results of operations for the three and nine month periods ended September 30,
1999 and 1998 and cash flows for the three and nine month periods ended
September 30, 1999 and 1998.
NOTE B: Earnings Per Share and Dividends Per Share
Basic earnings per share is computed based upon the weighted-average shares
outstanding during the period. Weighted-average common shares outstanding
totaled 1,199,005 and 1,259,225 for the nine month periods ended September 30,
1999 and 1998, respectively and 1,199,210 and 1,255,155 for the three month
periods ended September 30, 1999 and 1998, respectively. Diluted earnings per
share is computed taking into consideration common shares outstanding and
dilutive potential common shares to be issued under the Company's stock option
plan. Weighted-average common shares deemed outstanding for purposes of
computing diluted earnings per share totaled 1,213,148 and 1,305,333 for the
nine months ended September 30, 1999 and 1998, respectively, and 1,202,566 and
1,294,506 for the three months ended September 30, 1999 and 1998, respectively.
Incremental shares related to the assumed exercise of stock options included in
the computation of diluted earnings per share totaled 14,143 and 46,108 for the
nine month periods ended September 30, 1999 and 1998, and 3,356 and 39,351 for
the three month periods ended September 30, 1999 and 1998, respectively.
A cash dividend of $.11 per common share was declared on September 1, 1999,
payable on October 8, 1999, to stockholders of record as of September 17, 1999.
NOTE C: Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities," which requires entities to
recognize all derivatives in their financial statements as either assets or
liabilities measured at fair value. SFAS No. 133 also specifies new methods of
accounting for hedging transactions, prescribes the items and transactions that
may be hedged, and specifies detailed criteria to be met to qualify for hedge
accounting.
8
<PAGE>
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
NOTE C: Recent Accounting Pronouncements (continued)
The definition of a derivative financial instrument is complex, but in general,
it is an instrument with one or more underlyings, such as an interest rate or
foreign exchange rate, that is applied to a notional amount, such as an amount
of currency, to determine the settlement amount(s). It generally requires no
significant initial investment and can be settled net or by delivery of an asset
that is readily convertible to cash. SFAS No. 133 applies to derivatives
embedded in other contracts, unless the underlying of the embedded derivative is
clearly and closely related to the host contract.
SFAS No. 133, as amended by SFAS No. 137, is effective for fiscal years
beginning after June 15, 2000. On adoption, entities are permitted to transfer
held-to-maturity debt securities to the available-for-sale or trading category
without calling into question their intent to hold other debt securities to
maturity in the future. SFAS No. 133 is not expected to have a material impact
on the Company's financial statements.
9
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operation.
Forward Looking Statements
In addition to historical information contained herein, the following discussion
contains forward-looking statements that involve risks and uncertainties.
Economic circumstances, the Company's operations and the Company's actual
results could differ significantly from those discussed in the forward-looking
statements. Some of the factors that could cause or contribute to such
differences are discussed herein but also include changes in the economy and
interest rates in the nation and the Company's market area generally.
Some of the forward-looking statements included herein are the statements
regarding management's determination of the amount and adequacy of the allowance
for losses on loans, the effect of the year 2000 on information technology
systems and the effect of certain recent accounting pronouncements.
Financial Condition
Total assets were $113.8 million at September 30, 1999 compared to $96.1 million
at December 31, 1998, an increase of $17.7 million or 18.4 %. This increase was
funded primarily from $11.0 million of additional FHLB borrowings and growth in
deposits of $6.8 million. Cash and cash equivalents increased by $1.2 million,
from $4.3 million at December 31, 1998 to $5.5 million at September 30, 1999.
The growth in assets was reinvested in new loans. Paybacks of mortgage-backed
securities were reinvested in investment securities and the total amount of
investments increased by $1.3 million from $13.2 million at December 31, 1998 to
$14.5 million at September 30, 1999.
Net loans increased $14.0 million, or 19.1%, to $87.0 million at September 30,
1999. Loan originations amounted to $31.7 million for the nine months ended
September 30, 1999, with payoffs equaling $17.6 million. Loan demand continued
to be strong, as origination volume in 1999 exceeded that of 1998 by $13.1
million, or 70.6%.
Deposits were $76.8 million at September 30, 1999 compared to $70.0 million at
December 31, 1998, an increase of $6.8 million, or 9.7 %, in the first nine
months of 1999. Borrowings consisted of $18.0 million of FHLB advances and a
$1.3 million note payable related to an equity investment in low-income housing.
Shareholders' equity was $16.7 million at September 30, 1999 and $16.5 million
at December 31, 1998. The payment of dividends combined with a decrease in the
market value of available for sale securities resulted in a decrease in equity
of $757,000. Equity was increased by $972,000 from net earnings coupled with the
effects of amortization of the stock benefit plan and the exercise of stock
options.
10
<PAGE>
Results of Operations
Comparison of the Nine Months Ended September 30, 1999 and September 30, 1998
Net earnings for the Company for the nine months ended September 30, 1999 were
$871,000 compared with $937,000 for nine months ended September 30, 1998, a
decrease of $66,000 , or 7.0%. Net interest income increased $297,000 while
general, administrative and other expenses increased $286,000 and taxes
decreased $74,000. The major contributor to the increase in net interest income
was the growth in the loan portfolio during the past twelve months. Loans were
$87.0 million at September 30, 1999 compared to $69.5 million at September 30,
1998. The impact of such growth was offset by a decline in the yield on the
mortgage and consumer loan portfolio by 32 basis points from an average yield of
8.09% at September 30, 1998 to 7.77% at September 30, 1999; however, the
addition of $11.4 million of commercial loans in the past year with an average
interest rate of 8.32% at September 30, 1999 contributed significantly to the
increase in interest income.
The provision for loan losses was $122,000 for the nine months ended September
30, 1999 and $31,000 for the nine months ended September 30, 1998. Additional
provisions were made due to growth in the loan portfolio coupled with the
development of a commercial loan portfolio, which totaled $11.4 million at
September 30, 1999. Non-performing loans increased to $472,000, or .54% of loans
at September 30, 1999 from $315,000, or .42% of loans at December 31, 1998,
substantially all of which were comprised of one- to four-family residential
properties or consumer loans. Loan loss reserves amounted to $405,000 or .46 %
of total loans at September 30, 1999 compared to $285,000, or .38% at December
31, 1998.
Although management believes that it uses the best information available in
providing for possible loan losses and believes that the allowance is adequate
at September 30, 1999, future adjustments to the allowance could be necessary
and net earnings could be affected if circumstances and/or economic conditions
differ substantially from the assumptions used in making the initial
determinations.
Total other income increased by $26,000, or 14.3%, during the nine months ended
September 30, 1999, excluding the effect of an $86,000 pre-tax loss from an
equity investment in a low income housing tax credit investment which is renting
slower than projected. Service charges on deposit accounts increased by $33,000.
Total general, administrative and other expenses increased $286,000, or 29.9%,
in the nine months ended September 30, 1999 compared to September 30, 1998.
Employee compensation and benefits increased $130,000 or 24.3% because of
additional personnel needed in the new facility and the addition of a commercial
lending department. Data processing fees increased $29,000, or 35.8%, partially
due to loan and deposit growth, and occupancy and equipment expense increased
$59,000, or 101.7%, mainly because of increased depreciation related to the
purchase of new computer equipment and the completion of a new banking facility.
Other operating expenses increased by $66,000, or 26.0%, primarily due to a one
time non-recurring charge of $35,000 related to deposit operations.
The Company's effective tax rate for the nine months ended September 30, 1999
was 36.3% and was 37.9% for the nine months ended September 30, 1998.
11
<PAGE>
Results of Operations
Comparison of the Three Months Ended September 30, 1999 and September 30, 1998
Net earnings for the Company for the three months ended September 30, 1999 were
$318,000 compared with $308,000 for three months ended September 30, 1998, a
increase of $10,000 or 3.2%. Net interest income increased $115,000 while
general, administrative and other expenses increased $77,000 and taxes decreased
$16,000. The major contributor to the increase in net interest income was the
growth in the loan portfolio during the past twelve months.
The provision for loan losses was $41,000 for the three months ended September
30, 1999 and $13,000 for the three months ended September 30, 1998. Additional
provisions were made due to growth in the loan portfolio coupled with the
development of a commercial loan portfolio.
Although management believes that it uses the best information available in
providing for possible loan losses and believes that the allowance is adequate
at September 30, 1999, future adjustments to the allowance could be necessary
and net earnings could be affected if circumstances and/or economic conditions
differ substantially from the assumptions used in making the initial
determinations.
Total other income was impacted negatively by the pass-through of a loss on an
equity investment as noted above; however, service charges increased $14,000, or
53.8%.
Total general, administrative and other expenses increased $77,000, or 24.1%, in
the three months ended September 30, 1999 compared to September 30, 1998.
Employee compensation and benefits increased by $45,000, or 25.4% due to
additional personnel. Data processing fees increased $8,000, or 26.7%, due to
loan and deposit growth. Occupancy and equipment expense increased $19,000, or
86.4%, mainly because of increased depreciation related to the purchase of new
computer equipment and the completion of a new banking facility, along with
increased property tax accruals and increases in various utility expenses. Other
operating expenses increased by only $4,000, or 4.9%.
The Company's effective tax rate for the three months ended September 30, 1999
was 35.2% and was 38.0% for the three months ended September 30, 1998. The
Company's effective tax rate is decreasing slightly due to tax credits available
from the equity investment.
Capital Resources
Pursuant to OTS capital regulations, savings associations must currently meet a
1.5% tangible capital requirement, a 4% leverage ratio (or core capital)
requirement, and a total risk-based capital to risk-weighted assets ratio of 8%.
At September 30, 1999, the Bank's tangible capital ratio was 14.74%, its
leverage ratio was14.74%, and its risk-based capital to risk-weighted assets
ratio was 25.06%. Therefore, the Bank's capital significantly exceeded all of
the capital requirements currently in effect. The following table provides the
minimum regulatory capital requirements and the Bank's capital ratios as of
September 30, 1999.
Capital Standard Required Bank's Excess
(In thousands)
Tangible (1.5%) $1,705 $16,756 $15,051
Core (4.0%) 4,548 16,756 12,208
Risk-based (8.0%) 5,479 17,161 11,682
12
<PAGE>
Liquidity
The standard measure of liquidity for savings associations is the ratio of cash
and eligible investments to a certain percentage of net withdrawable savings
accounts and borrowings due within one year. The minimum required ratio is
currently set by the Office of Thrift Supervision at 4%. At September 30, 1999
the Bank's regulatory liquidity ratio was 25.65%.
Year 2000 Compliance Matters
As with all providers of financial services, the Company's operations are
heavily dependent on information technology systems. The Bank is addressing the
potential problems associated with the possibility that the computers that
control or operate the Bank's information technology systems and infrastructure
may not be programmed to read four-digit date codes and, upon arrival of the
year 2000, may recognize the two-digit code "00" as the year 1900, causing
systems to fail to function or to generate erroneous data. The Bank is working
with the companies that supply or service its information technology systems to
identify and remedy any year 2000 related problems.
Management and the Board of Directors recognize and understand year 2000 ("Y2K")
risks, are active in overseeing corrective efforts, and are ensuring that all
necessary resources are available to address the problem. The awareness,
assessment, and testing phases of the Company's year 2000 plan have been
completed. The Company's business and its Y2K readiness are dependent on the
readiness of its vendors. The Company has prepared a contingency plan and
continuing testing to validate its readiness. The Company's data processing is
performed primarily by a third party servicer. The Company also uses software
and hardware which are covered under maintenance agreements with third party
vendors. The Company has contacted each vendor to request time tables for such
vendor's year 2000 compliance and the expected costs, if any, to be passed along
to the Company. The Company has been informed that its primary service provider
is on schedule and testing has been completed.
The Company has replaced or upgraded all equipment to be year 2000 compliant at
a cost of less than $45,000. As of September 30, 1999, management has developed
an estimate of expenses that are reasonably likely to be incurred by the Bank in
connection with the Y2K issue; however, the Company does not expect to incur any
significant additional expenses to implement necessary corrective measures, and
additional costs related to the Y2K issues are not expected to have a material
impact on the Company's 1999 financial statements.
Should the Company's data center become unable to provide the necessary services
upon arrival of the year 2000, the Company has developed a contingency plan and
will have the capability to account for transactions on a manual basis until the
data center returns to normal operations. Additional testing of this plan will
continue in the third quarter of 1999.
In addition to possible expenses related to its own systems, the Bank could
incur losses if loan payments are delayed due to year 2000 problems affecting
any major borrowers in the Bank's primary market area. Because the Bank's loan
portfolio is highly diversified with regard to individual borrowers and types of
businesses, and the Bank's primary market areas are not significantly dependent
upon any one employer or industry, the Bank does not expect any significant or
prolonged difficulties that will affect net earnings or cash flow.
13
<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, 1999, the latest available date, is an analysis performed by the OTS of
the Bank's interest rate risk as measured by changes in NPV for instantaneous
and sustained parallel shifts in the yield curve, in 100 basis point increments,
up and down 300 basis points and in accordance with OTS regulations. As
illustrated in the table, the Bank's NPV is more sensitive to rising rates than
declining rates. This occurs principally because, as rates rise, the market
value of the Bank's investments, adjustable-rate mortgage loans (many of which
have maximum per year adjustments of 1%), fixed-rate loans and mortgage-backed
securities declines due to the rate increase. The value of the Bank's deposits
and borrowings change in approximately the same proportion in rising and falling
rate scenarios.
<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>
+300bp 13,090 -4,922 -27% 12.84% -380bp
+200bp 15,064 -2,948 -16% 14.43% -220bp
+100bp 16,761 -1,251 -7% 15.74% -90bp
0bp 18,012 16.64%
- -100bp 18,738 726 +4% 17.10% +47bp
- -200bp 19,232 1,219 +7% 17.38% +74bp
- -300bp 19,947 1,935 +11% 17.81% +117bp
</TABLE>
Interest Rate Risk Measures: 200 Basis Point (bp) Rate Shock
Pre-shock NPV Ratio: NPV as % of PV of Assets 16.64%
Exposure Measure: Post-Shock NPV Ratio 14.43%
Sensitivity Measure: Change in NPV Ratio 220bp
14
<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.
15
<PAGE>
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
Neither the Bank nor the Company were, during the three-month period ended
September 30, 1999, or are as of the date hereof involved in any legal
proceeding of a material nature. From time to time, the Bank is a party to legal
proceedings wherein it enforces its security interests in connection with its
mortgage and other loans.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
The following exhibits are attached to this report on Form 10-Q:
3.1 The Articles of Incorporation of the Registrant are
incorporated by reference to Exhibit 3.1 to the
Registration Statement on Form S-1 (Registration No.
33-89788).
3.2 The Code of By-Laws of the Registrant is incorporated
by reference to Exhibit 3.2 to the Form 10-Q for the
period ended June 30, 1997, filed with the Commission
on August 13, 1997.
27 Financial Data Schedule for the nine month period
ended September 30, 1999.
(b) Reports on Form 8-K
The Registrant filed no reports on Form 8-K during
the fiscal quarter ended September 30, 1999.
16
<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, 1999 By:/s/ Thomas G. Williams
---------------------- ---------------------------------
Thomas G. Williams, President and
Chief Executive Officer
Date: November 12, 1999 By:/s/ Dottye Robeson
---------------------- ---------------------------------
Dottye Robeson, Secretary and
Treasurer
17
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<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
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