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 March 31, 2003 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)
(574) 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 [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes [ ] No [X]
The number of shares outstanding of the Registrant's common stock, without par
value, as of May 1, 2003 was 851,672.
Logansport Financial Corp.
Form 10-Q
Index
Page No.
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Financial
Condition as of March 31, 2003
and December 31, 2002 3
Consolidated Statements of Earnings
for the three months ended March 31,
2003 and 2002 4
Consolidated Statements of Shareholders'
Equity for the three months ended
March 31, 2003 and 2002 5
Consolidated Statements of Cash Flows
for the three months ended
March 31, 2003 and 2002 6
Notes to Consolidated Condensed Financial
Statements 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
Item 3. Quantitative and Qualitative Disclosures About Market Risk 14
Item 4. Controls and Procedures 15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 6. Exhibits and Reports on Form 8-K 16
SIGNATURES 17
CERTIFICATION 18
LOGANSPORT FINANCIAL CORP.
Consolidated Statements of Financial Condition
(In thousands, except share data)
March 31, December 31,
ASSETS 2003 2002
Cash and due from banks $ 1,019 $ 778
Interest-bearing deposits in other financial institutions 8,627 12,739
-------- --------
Cash and cash equivalents 9,646 13,517
Investment securities designated as available for sale - at market 9,381 8,060
Mortgage-backed securities designated as available for sale - at market 10,066 11,009
Loans receivable - net 109,586 110,386
Office premises and equipment - at depreciated cost 1,742 1,767
Real estate acquired through foreclosure 153 -
Federal Home Loan Bank stock - at cost 2,003 2,003
Investment in real estate partnership 1,015 1,026
Accrued interest receivable on loans 443 410
Accrued interest receivable on mortgage-backed securities 42 49
Accrued interest receivable on investments and interest-bearing deposits 109 107
Prepaid expenses and other assets 79 80
Cash surrender value of life insurance 1,317 1,317
Deferred income tax asset 380 364
Prepaid income taxes - 4
-------- --------
Total assets $145,962 $150,099
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits $ 93,690 $ 98,325
Advances from the Federal Home Loan Bank 33,836 33,836
Notes payable 1,843 1,793
Accrued interest and other liabilities 850 772
Accrued income taxes 134 -
-------- --------
Total liabilities 130,353 134,726
Shareholders' equity
Preferred stock - no par value, 2,000,000 shares authorized; none issued - -
Common stock - no par value, 5,000,000 shares authorized; 851,672
and 848,958 shares at aggregate value issued and outstanding at
March 31, 2003 and December 31, 2002, respectively 1,475 1,446
Retained earnings - restricted 13,688 13,444
Less shares acquired by stock benefit plan (38) (44)
Accumulated comprehensive income, unrealized gains on securities
designated as available for sale, net of related tax effects 484 527
-------- --------
Total shareholders' equity 15,609 15,373
-------- --------
Total liabilities and shareholders' equity $145,962 $150,099
======== ========
LOGANSPORT FINANCIAL CORP.
Consolidated Statements of Earnings
(In thousands, except share data)
Three months ended
March 31,
2003 2002
Interest income
Loans $1,921 $2,075
Mortgage-backed securities 131 72
Investment securities 96 92
Interest-bearing deposits and other 47 63
------ ------
Total interest income 2,195 2,302
Interest expense
Deposits 640 772
Borrowings 477 475
------ ------
Total interest expense 1,117 1,247
------ ------
Net interest income 1,078 1,055
Provision for losses on loans 90 90
------ ------
Net interest income after provision for
losses on loans 988 965
Other income
Service charges on deposit accounts 54 55
Gain on sale of mortgage-backed securities 81 -
Gain on sale of loans 5 -
Loss on equity investment (24) (36)
Other operating 25 32
------ ------
Total other income 141 51
General, administrative and other expense
Employee compensation and benefits 353 294
Occupancy and equipment 61 65
Data processing 49 49
Other operating 157 167
------ ------
Total general, administrative and other expense 620 575
------ ------
Earnings before income taxes 509 441
Income tax expense 141 121
------ ------
NET EARNINGS $ 364 $ 320
====== ======
Other comprehensive loss, net of tax - unrealized losses on securities (43) (53)
------ ------
COMPREHENSIVE INCOME $ 321 $ 267
====== ======
EARNINGS PER SHARE
Basic (based on net earnings) $ 0.43 $ 0.32
====== ======
Diluted (based on net earnings) $ 0.41 $ 0.31
====== ======
LOGANSPORT FINANCIAL CORP.
Consolidated Statements of Shareholders' Equity
(In thousands, except share data)
Three months ended
March 31,
2003 2002
Balance at January 1 $15,373 $17,402
Purchase of shares - (679)
Issuance of shares under stock option plan 29 70
Amortization expense of stock benefit plan 6 2
Cash dividends of $.14 and $.12 per share in 2003 and 2002 (120) (120)
Unrealized losses on securities designated as available for sale,
net of related tax effects (43) (53)
Net earnings 364 320
------- -------
Balance at March 31 $15,609 $16,942
======= =======
Accumulated other comprehensive income $ 484 $ 202
======= =======
LOGANSPORT FINANCIAL CORP.
Consolidated Statements of Cash Flows
(In thousands)
Three months ended
March 31,
2003 2002
Cash flows from operating activities:
Net earnings for the period $ 364 $ 320
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Depreciation and amortization 27 27
Amortization of premiums on investments and
mortgage-backed securities 7 15
Amortization expense of stock benefit plan 6 2
Gain on sale of mortgage-backed securities (81) -
Loans originated for sale in the secondary market (190) -
Proceeds from sale of loans in the secondary market 193 -
Gain on sale of loans (3) -
Provision for losses on loans 90 90
Loss on equity investment 24 36
Increase (decrease) in cash, due to changes in:
Accrued interest receivable on loans (33) (28)
Accrued interest receivable on mortgage-backed securities 7 (6)
Accrued interest receivable on investments (2) (2)
Prepaid expenses and other assets 1 25
Accrued interest and other liabilities 78 13
Federal income taxes
Current 138 72
Deferred 7 8
-------- -------
Net cash provided by operating activities 633 572
Cash flows provided by (used in) investing activities:
Purchase of investment securities (2,159) (2,314)
Maturities/calls of investment securities 825 30
Purchases of mortgage-backed securities (5,073) (2,019)
Proceeds from sale of mortgage-backed securities 5,025 -
Principal repayments on mortgage-backed securities 1,012 324
Loan disbursements (11,459) (8,287)
Principal repayments on loans 12,016 8,998
Investment in real estate partnership (13) (15)
Proceeds from sale of real estate acquired through foreclosure - 65
Purchases and additions to office premises and equipment (2) (31)
-------- -------
Net cash provided by (used in) investing activities 172 (3,249)
-------- -------
Net cash provided by (used in) operating and investing activities
(subtotal carried forward) 805 (2,677)
-------- -------
LOGANSPORT FINANCIAL CORP.
Consolidated Statements of Cash Flows (Continued)
(In thousands)
Three months ended
March 31,
2003 2002
Net cash provided by (used in) operating and investing activities
(subtotal brought forward) $ 805 $(2,677)
Cash flows provided by (used in) financing activities:
Net increase (decrease) in deposit accounts (4,635) 5,018
Proceeds from Federal Home Loan Bank advances 3,000 1,100
Repayment of Federal Home Loan Bank advances (3,000) (2,000)
Proceeds from note payable 125 -
Repayment of note payable (75) (72)
Proceeds from exercise of stock options 29 70
Purchase of shares - (679)
Dividends on common stock (120) (120)
-------- -------
Net cash provided by (used in) financing activities (4,676) 3,317
-------- -------
Net increase (decrease) in cash and cash equivalents (3,871) 640
Cash and cash equivalents, beginning of period 13,517 8,816
-------- -------
Cash and cash equivalents, end of period $ 9,646 $ 9,456
======== =======
Supplemental disclosure of cash flow information: Cash paid during the period
for:
Interest on deposits and borrowings $ 1,110 $ 1,234
======== =======
Income taxes $ - $ 60
======== =======
Dividends payable at end of period $ 120 $ 120
======== =======
Supplemental disclosure of noncash investing activities:
Recognition of mortgage servicing rights
in accordance with SFAS No. 140 $ 2 $ -
======== =======
Transfers from loans to real estate acquired through
foreclosure $ 153 $ -
======== =======
Supplemental disclosure of noncash financing activities:
Unrealized losses on securities designated as
available for sale, net of related tax effects $ (43) $ (53)
======== =======
Logansport Financial Corp.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
For the three month periods ended March 31, 2003 and 2002
NOTE A: Basis of Presentation
The unaudited interim consolidated condensed 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 accounting principles
generally accepted in the United States of America 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, 2002.
In the opinion of management, the financial statements reflect all adjustments
(consisting of only normal recurring accruals) necessary to present fairly the
Logansport Financial Corp.'s (the "Company") financial position as of March 31,
2003, and its results of operations and cash flows for the three month periods
ended March 31, 2003 and 2002. The results of operations for the three month
period ended March 31, 2003 are not necessarily indicative of the results which
may be expected for the entire year.
NOTE B: Principles of Consolidation
The unaudited interim consolidated condensed financial statements include the
accounts of the Company and its subsidiary, Logansport Savings Bank, FSB (the
"Bank"). All significant intercompany items have been eliminated.
NOTE C: Earnings Per Share and Dividends Per Share
Basic earnings per share is computed based upon the weighted-average shares
outstanding during the period. Diluted earnings per share is computed taking
into consideration common shares outstanding and dilutive potential common
shares issuable under the Company's stock option plan. The computations are as
follows:
For the three months ended
March 31,
2003 2002
Weighted-average common shares
outstanding (basic) 850,333 1,013,176
Dilutive effect of assumed exercise
of stock options 27,723 34,712
------- ---------
Weighted-average common shares
outstanding (diluted) 878,056 1,047,888
======= =========
A cash dividend of $.14 per common share was declared on February 27, 2003,
payable on April 10, 2003, to stockholders of record as of March 14, 2003.
NOTE D: Critical Accounting Policies
Certain of the Company's accounting policies are important to the portrayal of
the Company's financial condition, since they require management to make
difficult, complex or subjective judgments, some of which may relate to matters
that are inherently uncertain. Estimates associated with these policies are
susceptible to material changes as a result of changes in facts and
circumstances. Facts and circumstances which could affect these judgments
include, but without limitation, changes in interest rates, in the performance
of the economy or in the financial condition of borrowers. Management believes
that its critical accounting policies include determining the allowance for loan
losses and determining the fair value
NOTE D: Critical Accounting Policies (continued)
of securities and other financial instruments. The Company's critical accounting
policies are discussed in detail in its Shareholder Annual Report for the year
ended December 31, 2002 (incorporated by reference into the Company's 10K
filing) in Note A of the Notes to the Consolidated Financial Statements under
"Allowance for Loan Losses" and "Investment and Mortgage-Backed Securities." If
Management were to underestimate the allowance for loan losses, earnings could
be reduced in the future as a result of greater than expected net loan losses.
Overestimations of the required allowance could result in future increases in
income, as loan loss recoveries increase or provisions for loan losses decrease.
Fluctuations in the fair value of securities will affect the level of capital in
the case of securities available for sale or earnings directly in the case of
trading securities.
NOTE E: Stock Option Plans
During 1996, the Board of Directors adopted a Stock Option Plan that provided
for the issuance of 132,250 shares of common stock at the fair value at the date
of grant. During 1999, the Board of Directors adopted a second Stock Option Plan
that provided for the issuance of 115,000 shares of common stock at the fair
value at the date of grant.
The Corporation accounts for its stock option plans in accordance with SFAS No.
123, "Accounting for Stock-Based Compensation," which contains a fair
value-based method for valuing stock-based compensation that entities may use,
which measures compensation cost at the grant date based on the fair value of
the award. Compensation is then recognized over the service period, which is
usually the vesting period. Alternatively, SFAS No. 123 permits entities to
continue to account for stock options and similar equity instruments under
Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued
to Employees." Entities that continue to account for stock options using APB
Opinion No. 25 are required to make pro forma disclosures of net earnings and
earnings per share, as if the fair value-based method of accounting defined in
SFAS No. 123 had been applied.
The Corporation applies APB Opinion No. 25 and related Interpretations in
accounting for its stock option plans. Accordingly, no compensation cost has
been recognized for the plans. Had compensation cost for the Corporation's stock
option plans been determined based on the fair value at the grant dates for
awards under the plans consistent with the accounting method utilized in SFAS
No. 123, there would have been no material effect on the Corporation's net
earnings and earnings per share for the three-month periods ended March 31, 2003
and 2002.
A summary of the status of the Corporation's stock option plans as of March 31,
2003 and December 31, 2002 and 2001, and changes during the periods ending on
those dates is presented below:
March 31, December 31,
2003 2002 2001
Weighted- Weighted- Weighted-
average average average
exercise exercise exercise
Shares price Shares price Shares price
Outstanding at beginning of period 79,136 $10.63 106,796 $10.61 125,915 $10.59
Granted - - - - - -
Exercised (2,714) 10.53 (27,660) 10.53 (15,463) 10.53
Forfeited - - - - (3,656) 10.53
------ ------ ------- ------ ------- ------
Outstanding at end of period 76,422 $10.63 79,136 $10.63 106,796 $10.61
====== ====== ======= ====== ======= ======
Options exercisable at period-end 75,922 $10.61 78,636 $10.61 105,796 $10.58
====== ====== ======= ====== ======= ======
NOTE E: Stock Option Plans (continued)
The following information applies to options outstanding at March 31, 2003:
Number outstanding 76,422
Range of exercise prices $10.53 - $13.75
Weighted-average exercise price $10.63
Weighted-average remaining contractual life 2.7 years
NOTE F: Recent Accounting Pronouncements
In December 2002, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure." SFAS No. 148 amends SFAS
No. 123, "Accounting for Stock-Based Compensation," to provide alternative
methods of transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. In addition, SFAS No. 148
amends the disclosure requirements of SFAS No. 123 to require prominent
disclosures in both annual and interim financial statements about the method of
accounting for stock-based employee compensation and the effect of the method
used on reported results. SFAS No. 148 is effective for fiscal years beginning
after December 15, 2002. The expanded annual disclosure requirements and the
transition provisions are effective for fiscal years ending after December 15,
2002. The interim disclosure provisions are effective for financial reports
containing financial statements for interim periods beginning after December 15,
2002. Management adopted the disclosure provisions of SFAS No. 148 effective
December 31, 2002, without material effect on the Corporation's financial
position or results of operations.
In November 2002, the FASB issued FASB Interpretation No. 45 ("FIN 45"),
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others." FIN 45 requires a guarantor
entity, at the inception of a guarantee covered by the measurement provisions of
the interpretation, to record a liability for the fair value of the obligation
undertaken in issuing the guarantee. The Corporation has financial letters of
credit which require the Corporation to make payment if the customer's financial
condition deteriorates, as defined in the agreements. FIN 45 requires the
Corporation to record an initial liability, generally equal to the fees received
for these letters of credit when guaranteeing obligations. FIN 45 applies
prospectively to letters of credit the Corporation issues or modifies subsequent
to December 31, 2002.
The Corporation defines the initial fair value of these letters of credit as the
fee received from the customer. The maximum potential undiscounted amount of
future payments of these letters of credit as of March 31, 2003 is $3.0 million
and they expire through 2008. Amounts due under these letters of credit would be
reduced by any proceeds that the Corporation would be able to obtain in
liquidating the collateral for the loans, which varies depending on the
customer.
In January 2003, the FASB issued FASB Interpretation No. 46 ("FIN 46"),
"Consolidation of Variable Interest Entities." FIN 46 requires a variable
interest entity to be consolidated by a company if that company is subject to a
majority of the risk of loss from the variable interest entity's activities or
entitled to receive a majority of the entity's residual returns, or both. FIN 46
also requires disclosures about variable interest entities that a company is not
required to consolidate, but in which it has a significant variable interest.
The consolidation requirements of FIN 46 apply immediately to variable interest
entities created after January 31, 2003. The consolidation requirements apply to
existing entities in the first fiscal year or interim period beginning after
June 15, 2003. Certain of the disclosure requirements apply in all financial
statements issued after January 31, 2003, regardless of when the variable
interest entity was established. The Corporation has not established any
variable interest entities subsequent to January 31, 2003. Management is
continuing to evaluate the effect of the provisions of FIN 46 on its financial
statements.
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 loan losses, management's assessment of the Company's interest rate risk and
the effect of recent accounting pronouncements.
Discussion of Financial Condition Changes from December 31, 2002 to March 31,
2003
The Company reported total assets of $146.0 million at March 31, 2003, a
decrease of $4.1 million, or 2.8%, compared to December 31, 2002. This decrease
was primarily a result of the withdrawal of $4.0 million in short-term local
government deposits which are subject to bid every 60 to 90 days. The Company
bids to retain the funds when it has a use for the proceeds but local market
competition for the funds varies and the outcome of bidding is frequently
unpredictable. Cash and cash equivalents decreased by $3.9 million, from $13.5
million at December 31, 2002, to $9.6 million at March 31, 2003. Investment and
mortgage-backed securities totaled $19.4 million at March 31, 2003, an increase
of $378,000 over December 31, 2002. Purchases of securities totaling $7.2
million were partially offset by repayments, calls and maturities of $1.8
million and sales of $5.0 million.
Net loans decreased from $110.4 million at December 31, 2002 to $109.6 million
at March 31, 2003. Loan originations amounted to $11.6 million for the three
months ended March 31, 2003, while principal repayments amounted to $12.0
million and sales amounted to $190,000. Loan originations during 2003 were
comprised primarily of loans secured by nonresidential and commercial real
estate, other commercial property and commercial leases. The commercial and
nonresidential loan portfolios totaled $37.2 million at March 31, 2003, compared
to $35.8 million at December 31, 2002. Loans secured by one- to four-family
residential real estate totaled $59.7 million at March 31, 2003, compared to
$61.7 million at December 31, 2002. In the first quarter of 2003, the Company
initiated a program to sell certain 1-4 family loans in the secondary market,
dealing with the Federal Home Loan Bank of Indianapolis.
Deposits totaled $93.7 million at March 31, 2003, a decrease of $4.6 million, or
4.7%, from the balance at December 31, 2002. Borrowings increased slightly over
the three month period, and at March 31, 2003, were comprised of $33.8 million
of FHLB advances, a $1.0 million note payable related to an equity investment in
low income housing, and an $825,000 line of credit.
Shareholders' equity totaled $15.6 million at March 31, 2003, an increase of
$236,000, or 1.5%, over the $15.4 million total at December 31, 2002. The
increase resulted from net earnings of $364,000 and proceeds from exercise of
stock options of $29,000, which were partially offset by dividends paid of
$120,000 and a decrease of $43,000 in the unrealized gains on securities
available for sale.
Results of Operations
Comparison of the Three Months Ended March 31, 2003 and March 31, 2002
Net earnings for the three months ended March 31, 2003 totaled $364,000,
compared with $320,000 for the three months ended March 31, 2002, an increase of
$44,000, or 13.8%. Net interest income increased by $23,000, total other income
increased by $90,000 and general, administrative and other expense increased by
$45,000, while the provision for losses on loans remained constant and income
taxes increased by $20,000.
Interest income on loans decreased by $154,000, or 7.4%, for the three months
ended March 31, 2003, compared to the same quarter in 2002, due primarily to a
decrease in the yield on loans. Interest income on mortgage-backed securities,
investments and other interest-earning assets totaled $274,000 for the three
months ended March 31, 2003, a $47,000, or 20.7%, increase over the 2002
quarter. The increase was due primarily to an increase in the average balance
outstanding year to year. Interest expense on deposits decreased by $132,000, or
17.1%, as the average cost of deposits decreased. Interest expense on borrowings
increased by $2,000 due primarily to the addition of a line of credit. The
decreases in the level of yields on interest-earning assets and the average cost
of interest-bearing liabilities were due primarily to the overall decrease in
interest rates in the economy. As a result of the foregoing changes in interest
income and interest expense, net interest income increased by $23,000, or 2.4%.
The Company maintains a general allowance for loan losses that reflects an
estimate of inherent losses based upon the types and categories of outstanding
loans, as well as problem loans and current economic conditions in the Company's
market area. The provision for losses on loans totaled $90,000 for each of the
three month periods ended March 31, 2003 and 2002. The provision for losses on
loans was primarily attributable to the increasing percentage of commercial
loans in the portfolio and in the level of nonperforming loans year to year. At
March 31, 2003 and December 31, 2002, the allowance amounted to $1.498 million
and $1.458 million, respectively. In both periods, $200,000 of the total
allowance was allocated for a specific reserve. The ratio of the total allowance
to total loans was 1.37% at March 31, 2003 and 1.32% at December 31, 2002.
Non-performing loans totaled $1.4 million and $1.5 million at March 31, 2003 and
December 31, 2002, respectively. The ratio of the allowance for loan losses to
non-performing loans amounted to 105.5% at March 31, 2003 and 98.3% at December
31, 2002. During the quarter ending March 31, 2003 the Company took three
properties into real estate owned and wrote off $51,000 against the allowance to
record them at a net realizable value of $153,000. Based on management's review
of the loan portfolio, the allowance for loan losses at March 31, 2003 is
considered adequate to cover potential losses inherent in the loan portfolio.
However, there can be no assurance that additions to the allowance will not be
necessary in future periods, which could adversely affect the Company's results
of operations.
Other income totaled $141,000 for the three months ended March 31, 2003, a
$90,000, or 176.5%, increase over the 2002 quarter. The increase was due
primarily to an $81,000 gain on the sale of mortgage-backed securities and a
$5,000 gain on the sale of loans. The increase in other income was also impacted
by a decrease in the pre-tax loss on the equity investment of $12,000. Other
operating income decreased by $7,000, or 21.9%, due primarily to a decrease in
loan service charges and fees.
General, administrative and other expense totaled $620,000 for the three-month
period ended March 31, 2003, an increase of $45,000, or 7.8%, compared to the
three month period ended March 31, 2002. Employee compensation and benefits
expense increased by $59,000, or 20.1%, due primarily to an increase in
management staff, an increase in the cost of medical insurance compared to the
prior period, normal merit increases, as well as the resumption of the accrual
for pension expense. Other operating expenses decreased by $10,000, or 6.0%,
compared to the quarter ended March 31, 2002, due primarily to decreases in
advertising and professional fees.
Comparison of the Three Months Ended March 31, 2003 and March 31, 2002
(continued)
The provision for income taxes totaled $141,000 for the three months ended March
31, 2003, an increase of $20,000, or 16.5%, over the same period in 2002. The
increase was due to a $68,000, or 15.4%, increase in pre-tax earnings. The
Company's effective tax rates for the three-month periods ended March 31, 2003
and 2002, were 27.7% and 27.4%, respectively. The effective tax rate remains low
due to the tax credits available from the Company's investment in a low income
housing partnership.
Capital Resources
Pursuant to Office of Thrift Supervision ("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 March 31, 2003, the Bank's tangible and
leverage capital ratios were each 10.9%, and its risk-based capital to
risk-weighted assets ratio was 17.9%. 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 levels as of March 31, 2003.
Capital Standard Required Bank's Excess
- ---------------- -------- ------ ------
(In thousands)
Tangible (1.5%) $2,181 $15,862 $13,681
Core (4.0%) 5,816 15,862 10,046
Risk-based (8.0%) 7,625 17,055 9,430
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Bank, like other financial institutions, 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") uses a net market value methodology to
measure the interest rate risk exposure of thrift institutions. As a part of its
efforts to monitor its interest rate risk, the Bank utilizes the "net portfolio
value" ("NPV") methodology to assess its exposure to interest rate risk.
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. Presented below, as of December 31, 2002 (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 in accordance
with OTS regulations. As illustrated in the tables, 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 decline due to the rate
increases. The value of the Bank's deposits and borrowings change in
approximately the same proportion in rising or falling rate scenarios.
Change Net Portfolio Value NPV as % of PV of Assets
In Rates $ Amount $ Change % Change NPV Ratio Change
(Dollars in thousands)
+300bp $15,152 $(840) (5)% 10.09% (15)bp
+200bp 15,921 (71) 0% 10.44% 20 bp
+100bp 16,332 340 2% 10.57% 33 bp
- 15,992 10.24%
- -100bp 15,036 (956) (6)% 9.55% (69)bp
Interest Rate Risk Measures: 200 Basis Point (bp) Rate Shock
Pre-shock NPV Ratio: NPV as % of PV of Assets 10.24%
Exposure Measure: Post-Shock NPV Ratio 9.55%
Sensitivity Measure: Change in NPV Ratio 69bp
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.
Item 4. Controls and Procedures
Within the 90-day period prior to the filing date of this report, an evaluation
was carried out under the supervision and with the participation of the
Company's management, including our President and Treasurer, of the
effectiveness of our disclosure controls and procedures (as defined in Exchange
Act Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934).
Based on their evaluation, our President and Treasurer have concluded that the
Company's disclosure controls and procedures are, to the best of their
knowledge, effective to ensure that information required to be disclosed by the
Company in reports that it files or submits under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in
Securities and Exchange Commission rules and forms.
Our President and Treasurer have concluded that, subsequent to the date of their
evaluation, there have been no significant changes in the Company's internal
controls or in other factors that could significantly affect its internal
controls, including any corrective actions with regard to significant
deficiencies and material weaknesses.
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
Neither the Bank nor the Company were, during the three-month period ended March
31, 2003, 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:
99.1 Certification of Chief Executive Officer and Treasurer
(b) Reports on Form 8-K.
The Registrant filed no reports on Form 8-K during the quarter.
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: May 13, 2003 By: /s/ David G. Wihebrink
--------------------- --------------------------------------
David G. Wihebrink, President and
Chief Executive Officer
Date: May 13, 2003 By: /s/ Dottye Robeson
--------------------- --------------------------------------
Dottye Robeson, Secretary and
Treasurer
CERTIFICATION
I, David G. Wihebrink, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Logansport Financial
Corp.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report.
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 13, 2003
------------------
/s/ David G. Wihebrink
-----------------------------------------
David G. Wihebrink
President and Chief Executive Officer
CERTIFICATION
I, Dottye Robeson, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Logansport Financial
Corp.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report.
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date ;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 13, 2003
------------------
/s/Dottye Robeson
-----------------------------------------
Dottye Robeson
Secretary and Treasurer