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 JUNE 30, 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 August 1, 2003 was 876,968.
Logansport Financial Corp.
Form 10-Q
Index
Page No.
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Financial
Condition as of June 30, 2003
and December 31, 2002 3
Consolidated Statements of Earnings
for the three and six months ended June 30,
2003 and 2002 4
Consolidated Statements of Shareholders'
Equity for the six months ended
June 30, 2003 and 2002 5
Consolidated Statements of Cash Flows
for the six months ended
June 30, 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 12
Item 3. Quantitative and Qualitative Disclosures About Market Risk 16
Item 4. Controls and Procedures 17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 2. Changes in Securities and Use of Proceeds 18
Item 3. Defaults Upon Senior Securities 18
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 18
SIGNATURES 19
CERTIFICATIONS 20
LOGANSPORT FINANCIAL CORP.
Consolidated Statements of Financial Condition
(In thousands, except share data)
June 30, December 31,
ASSETS 2003 2002
(unaudited)
Cash and due from banks $ 1,153 $ 778
Interest-bearing deposits in other financial institutions 17,393 12,739
---------- ---------
Cash and cash equivalents 18,546 13,517
Investment securities designated as available for sale - at market 7,965 8,060
Mortgage-backed securities designated as available for sale - at market 17,034 11,009
Loans receivable - net 109,008 110,386
Office premises and equipment - at depreciated cost 1,743 1,767
Real estate acquired through foreclosure 25 -
Federal Home Loan Bank stock - at cost 2,029 2,003
Investment in real estate partnership 993 1,026
Accrued interest receivable on loans 391 410
Accrued interest receivable on mortgage-backed securities 63 49
Accrued interest receivable on investments and interest-bearing deposits 115 107
Prepaid expenses and other assets 605 80
Cash surrender value of life insurance 1,317 1,317
Deferred income tax asset 384 364
Prepaid income taxes 31 4
---------- ---------
Total assets $160,249 $150,099
========== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits $106,466 $ 98,325
Advances from the Federal Home Loan Bank 35,156 33,836
Notes payable 1,843 1,793
Accrued interest and other liabilities 801 772
Total liabilities 144,266 134,726
Shareholders' equity
Preferred stock - no par value, 2,000,000 shares authorized; none issued - -
Common stock - no par value, 5,000,000 shares authorized; 858,672
and 848,958 shares at aggregate value issued and outstanding at
June 30, 2003 and December 31, 2002, respectively 1,548 1,446
Retained earnings - restricted 14,005 13,444
Less shares acquired by stock benefit plan (32) (44)
Accumulated comprehensive income, unrealized gains on securities
designated as available for sale, net of related tax effects 462 527
---------- ---------
Total shareholders' equity 15,983 15,373
---------- ---------
Total liabilities and shareholders' equity $160,249 $150,099
========== =========
LOGANSPORT FINANCIAL CORP.
Consolidated Statements of Earnings
(In thousands, except share data)
(unaudited)
Three months ended Six months ended
June 30, June 30,
2003 2002 2003 2002
Interest income
Loans $1,889 $2,110 $3,810 $4,185
Mortgage-backed securities 137 82 268 154
Investment securities 99 97 195 189
Interest-bearing deposits and other 47 57 94 120
------ ------ ------ ------
Total interest income 2,172 2,346 4,367 4,648
Interest expense
Deposits 652 743 1,292 1,515
Borrowings 484 476 961 951
------ ------ ------ ------
Total interest expense 1,136 1,219 2,253 2,466
------ ------ ------ ------
Net interest income 1,036 1,127 2,114 2,182
Provision for losses on loans 90 90 180 180
------ ------ ------ ------
Net interest income after provision for
losses on loans 946 1,037 1,934 2,002
Other income
Service charges on deposit accounts 53 56 107 111
Gain on sale of investment securities 171 17 252 17
Gain on sale of loans 45 - 50 -
Loss on equity investment (26) (20) (50) (56)
Other operating 29 29 54 61
------ ------ ------ ------
Total other income 272 82 413 133
General, administrative and other expense
Employee compensation and benefits 349 336 702 630
Occupancy and equipment 58 61 119 126
Data processing 44 46 93 95
Other operating 139 160 296 327
------ ------ ------ ------
Total general, administrative and other expense 590 603 1,210 1,178
------ ------ ------ ------
Earnings before income taxes 628 516 1,137 957
Income tax expense 191 145 336 266
NET EARNINGS $ 437 $ 371 $ 801 $ 691
======= ======= ======= =======
Other comprehensive income, net of tax:
Unrealized gains (losses) on securities available for sale (22) 151 (65) 98
------ ------ ------ ------
COMPREHENSIVE INCOME $ 415 $ 522 $ 736 $ 789
======= ======= ======= =======
EARNINGS PER SHARE
Basic (based on net earnings) $ .51 $ .39 $ .94 $ .71
======= ======= ======= =======
Diluted (based on net earnings) $ .50 $ .38 $ .91 $ .69
======= ======= ======= =======
LOGANSPORT FINANCIAL CORP.
Consolidated Statements of Shareholders' Equity
(unaudited)
(In thousands, except share data)
Six months ended
June 30,
2003 2002
Balance at January 1 $15,373 $17,402
Purchase of shares - (2,466)
Issuance of shares under stock option plan 102 193
Amortization of stock benefit plan 12 8
Cash dividends of $.28 per share in 2003 and $.25 in 2002 (240) (239)
Unrealized gains (losses) on securities designated as
available for sale, net of related tax effects (65) 98
Net earnings 801 691
------- -------
Balance at June 30 $15,983 $15,687
======= =======
Accumulated other comprehensive income $ 462 $ 353
======= =======
LOGANSPORT FINANCIAL CORP.
Consolidated Statements of Cash Flows
For the six months ended June 30,
(unaudited)
(In thousands)
2003 2002
Cash flows from operating activities:
Net earnings for the period $ 801 $ 691
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Depreciation and amortization 55 54
Amortization of premiums on investments and
mortgage-backed securities 14 26
Amortization expense of stock benefit plan 12 8
Federal Home Loan Bank stock dividends (26) -
Gain on sale of investment and mortgage-backed securities (252) (17)
Loans originated for sale in the secondary market (2,703) -
Proceeds from sale of loans in the secondary market 2,730 -
Gain on sale of loans (27) -
Provision for losses on loans 180 180
Loss on equity investment 50 56
Increase (decrease) in cash, due to changes in:
Accrued interest receivable on loans 19 (33)
Accrued interest receivable on mortgage-backed securities (14) (7)
Accrued interest receivable on investments (8) (14)
Prepaid expenses and other assets (525) 6
Accrued interest and other liabilities 29 93
Federal income taxes
Current (27) (22)
Deferred 14 15
-------- --------
Net cash provided by operating activities 322 1,036
Cash flows provided by (used in) investing activities:
Proceeds from sale of investment securities 1,008 269
Purchase of investment securities (4,207) (3,463)
Proceeds from maturities/calls of investment securities 3,375 1,485
Purchase of mortgage-backed securities (18,531) (3,018)
Proceeds from sale of mortgage-backed securities 9,896 -
Principal repayments on mortgage-backed securities 2,668 700
Purchase of Federal Home Loan Bank stock - (30)
Loan disbursements (27,116) (21,402)
Principal repayments on loans 28,161 19,369
Investment in real estate partnership (17) (19)
Proceeds from sale of real estate acquired through foreclosure 128 65
Purchases and additions to office premises and equipment (31) (4)
-------- --------
Net cash used in investing activities (4,666) (6,092)
-------- --------
Net cash used in operating and investing activities
(balance carried forward) (4,344) (5,056)
-------- --------
LOGANSPORT FINANCIAL CORP.
Consolidated Statements of Cash Flows (continued)
For the six months ended June 30,
(unaudited)
(In thousands)
2003 2002
Net cash used in operating and investing activities
(balance brought forward) $ (4,344) $ (5,056)
Cash flows provided by (used in) financing activities:
Net increase in deposit accounts 8,141 11,110
Proceeds from Federal Home Loan Bank advances 4,445 6,850
Repayment of Federal Home Loan Bank advances (3,125) (6,864)
Proceeds from note payable 125 -
Repayment of note payable (75) (72)
Purchase of shares - (2,466)
Proceeds from the exercise of stock options 102 193
Dividends on common stock (240) (239)
-------- --------
Net cash provided by financing activities 9,373 8,512
-------- --------
Net increase in cash and cash equivalents 5,029 3,456
Cash and cash equivalents, beginning of period 13,517 8,816
-------- --------
Cash and cash equivalents, end of period $ 18,546 $ 12,272
========= =========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest on deposits and borrowings $ 2,266 $ 2,461
========= =========
Income taxes $ 350 $ 272
========= =========
Dividends payable at end of period $ 120 $ 119
========= =========
Supplemental disclosure of noncash investing activities:
Recognition of mortgage servicing rights in accordance
with SFAS No. 140 $ 23 $ --
========= =========
Transfers from loans to real estate acquired through foreclosure $ 153 $ --
========= =========
Supplemental disclosure of noncash financing activities:
Unrealized gains (losses) on securities designated as available for
sale, net of related tax effects $ (65) $ 98
========= =========
Logansport Financial Corp.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
For the six and three month periods ended June 30, 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 June 30,
2003, and its results of operations and cash flows for the three and six month
periods ended June 30, 2003 and 2002. The results of operations for the three
and six month periods ended June 30, 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 For the six months ended
June 30, June 30,
2003 2002 2003 2002
Weighted-average common shares
outstanding (basic) 855,479 937,216 852,920 974,986
Dilutive effect of assumed exercise
of stock options 28,018 34,510 26,648 32,651
------- ------- ------- ---------
Weighted-average common shares
outstanding (diluted) 883,497 971,726 879,568 1,007,637
======= ======= ======= =========
A cash dividend of $.14 per common share was declared on June 2, 2003, payable
on July 10, 2003, to stockholders of record as of June 13, 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 six-month periods ended June 30, 2003
and 2002.
A summary of the status of the Corporation's stock option plans as of June 30,
2003 and December 31, 2002 and 2001, and changes during the periods ending on
those dates is presented below:
June 30, 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 (9,714) $10.53 (27,660) 10.53 (15,463) 10.53
Forfeited -- -- -- -- (3,656) 10.53
------ ------ ------- ------ ------- -------
Outstanding at end of period 69,422 $10.63 79,136 $10.63 106,796 $10.61
====== ====== ======= ====== ======= ======
Options exercisable at period-end 68,922 $10.61 78,636 $10.61 105,796 $10.58
====== ====== ======= ====== ======= ======
NOTE E: Stock Option Plans (continued)
The following information applies to options outstanding at June 30, 2003:
Number outstanding 69,422
Range of exercise prices $10.53-$13.75
Weighted-average exercise price $10.63
Weighted-average remaining contractual life 2.4 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 June 30, 2003 is $3.2 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 does not
expect FIN 46 to have a material effect on its financial statements.
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities" which clarifies certain
implementation issues raised by constituents and amends SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," to include the
conclusions reached by the FASB on certain FASB Staff Implementation Issues
that, while inconsistent with Statement 133's conclusions, were considered by
the Board to be preferable; amends SFAS No. 133's discussion of financial
guarantee contracts and the application of the shortcut method to an
interest-rate swap agreement that includes an embedded option and amends other
pronouncements.
NOTE F: Recent Accounting Pronouncements (continued)
The guidance in Statement 149 is effective for new contracts entered into or
modified after June 30, 2003 and for hedging relationships designated after that
date, except for the following:
o guidance incorporated from FASB Staff Implementation Issues that was
effective for periods beginning prior to June 15, 2003 should continue
to be applied according to the effective dates in those issues
o guidance relating to forward purchase and sale agreements involving
when-issued securities should be applied to both existing contracts
and new contracts entered into after June 30, 2003.
Management does not expect SFAS No. 149 to have a material effect on the
Corporation's financial position or results of operations.
In May 2003 the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity," which changes
the classification in the statement of financial position of certain common
financial instruments from either equity or mezzanine presentation to
liabilities and requires an issuer of those financial statements to recognize
changes in fair value or redemption amount, as applicable, in earnings. SFAS No.
150 requires an issuer to classify certain financial instruments as liabilities,
including mandatorily redeemable preferred and common stocks.
SFAS No. 150 is effective for financial instruments entered into or modified
after May 31, 2003 and, with one exception, is effective at the beginning of the
first interim period beginning after June 15, 2003 (July 1, 2003 as to the
Corporation). The effect of adopting SFAS No. 150 must be recognized as a
cumulative effect of an accounting change as of the beginning of the period of
adoption. Restatement of prior periods is not permitted. Management does not
expect SFAS No. 150 to have a material effect on the Corporation's 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 June 30,
2003
The Company reported total assets of $160.2 million at June 30, 2003, an
increase of $10.2 million, or 6.8%, compared to December 31, 2002. This increase
was funded primarily by the addition of $8.1 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 increased by $5.0 million, from $13.5
million at December 31, 2002, to $18.5 million at June 30, 2003. Investment and
mortgage-backed securities totaled $25.0 million at June 30, 2003, an increase
of $5.9 million, or 31.1%, over December 31, 2002. Purchases of securities
totaling $22.7 million were partially offset by repayments, calls and maturities
of $6.0 million and sales of $10.9 million.
Net loans decreased from $110.4 million at December 31, 2002 to $109.0 million
at June 30, 2003. Loan originations amounted to $29.8 million for the six months
ended June 30, 2003, while principal repayments amounted to $28.2 million and
sales of one-to-four family residential real estate loans amounted to $2.7
million. 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
$40.9 million at June 30, 2003, compared to $35.8 million at December 31, 2002.
Loans secured by one- to four-family residential real estate totaled $55.8
million at June 30, 2003, compared to $61.7 million at December 31, 2002. In the
first quarter of 2003, the Company initiated a program to sell certain one- to
four-family loans in the secondary market, dealing with the Federal Home Loan
Bank of Indianapolis.
Deposits totaled $106.5 million at June 30, 2003, a increase of $8.1 million, or
8.3%, from the balance at December 31, 2002. Borrowings increased slightly over
the six month period, and at June 30, 2003, were comprised of $35.2 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 $16.0 million at June 30, 2003, an increase of
$610,000, or 4.0%, over the $15.4 million total at December 31, 2002. The
increase resulted from net earnings of $801,000 and proceeds from exercise of
stock options of $102,000, which were partially offset by dividends paid of
$240,000 and a decrease of $65,000 in the unrealized gains on securities
available for sale.
Results of Operations
Comparison of the Six Months Ended June 30, 2003 and June 30, 2002
Net earnings for the six months ended June 30, 2003 totaled $801,000, compared
with $691,000 for the six months ended June 30, 2002, an increase of $110,000,
or 15.9%. Net interest income decreased by $68,000, total other income increased
by $280,000 and general, administrative and other expense increased by $32,000,
while the provision for losses on loans remained constant and income taxes
increased by $70,000.
Interest income on loans decreased by $375,000, or 9.0%, for the six months
ended June 30, 2003, compared to the same period 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 $557,000 for the six
months ended June 30, 2003, a $94,000, or 20.3%, increase over the six months
ended June 30, 2002. The increase was due primarily to an increase in the
average balance outstanding year to year. Interest expense on deposits decreased
by $223,000, or 14.7%, as the average cost of deposits decreased. Interest
expense on borrowings increased by $10,000 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 decreased
by $68,000, or 3.1%.
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 $180,000 for each of the
six month periods ended June 30, 2003 and 2002. The provision for losses on
loans was primarily attributable to the increasing percentage of commercial
loans in the portfolio. At June 30, 2003 and December 31, 2002, the allowance
amounted to $1.6 million and $1.5 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 1.43% at June 30, 2003 and 1.32% at
December 31, 2002. Non-performing loans totaled $1.4 million and $1.5 million at
June 30, 2003 and December 31, 2002, respectively. The ratio of the allowance
for loan losses to non-performing loans amounted to 116.9% at June 30, 2003 and
98.3% at December 31, 2002. During the six months ending June 30, 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.
During this period two of the three properties have been sold and one remains in
Real Estate Owned. Based on management's review of the loan portfolio, the
allowance for loan losses at June 30, 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 $413,000 for the six months ended June 30, 2003, a
$280,000, or 210.5%, increase over the 2002 period. The increase was due
primarily to a $235,000 increase in the gain on the sale of investment and
mortgage-backed securities and a $50,000 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 $6,000. Other operating income decreased by $7,000, or
11.5%, due primarily to a decrease in loan service charges and fees.
General, administrative and other expense totaled $1.2 million for the six-month
period ended June 30, 2003, an increase of $32,000, or 2.7%, compared to the six
month period ended June 30, 2002. Employee compensation and benefits expense
increased by $72,000, or 11.4%, due primarily to an increase in management
staff, an increase in the cost of medical insurance and normal merit increases.
In addition, the resumption of the accrual for pension expense related to the
Bank's multi-employer defined benefit pension plan accounted for $39,000 of the
increase. Other operating expenses decreased by $31,000, or 9.5%, compared to
the six months period ended June 30, 2002, due primarily to decreases in
advertising and professional fees.
Subsequent to June 30, 2003, routine internal audit procedures uncovered several
unauthorized loan transactions by an employee whose employment has been
terminated. At this time, the Corporation does not believe the amount of such
loans will exceed $40,000. The Corporation has filed a claim with its fidelity
bond carrier and is seeking immediate restitution from the employee. In the
opinion of management, the final resolution of this matter will not have a
material adverse effect on the Corporation's financial condition or results of
operations.
Comparison of the Six Months Ended June 30, 2003 and June 30, 2002 (continued)
The provision for income taxes totaled $336,000 for the six months ended June
30, 2003, an increase of $70,000, or 26.3%, over the same period in 2002. The
increase was due to a $180,000, or 18.8%, increase in pre-tax earnings. The
Company's effective tax rates for the six-month periods ended June 30, 2003 and
2002, were 29.6% and 27.8%, respectively. The effective tax rate remains low due
to the tax credits available from the Company's investment in a low income
housing partnership.
Comparison of the Three Months Ended June 30, 2003 and June 30, 2002
Net earnings for the three months ended June 30, 2003 totaled $437,000, compared
with $371,000 for the three months ended June 30, 2002, an increase of $66,000,
or 17.8%. Net interest income decreased by $91,000, total other income increased
by $190,000 and general, administrative and other expense decreased by $13,000,
while the provision for losses on loans remained constant and income taxes
increased by $46,000.
Interest income on loans decreased by $221,000, or 10.5%, for the three months
ended June 30, 2003, compared to the same quarter in 2002, due primarily to a
decrease in the yield on loans and a slight decline in the outstanding balance.
Interest income on mortgage-backed securities, investments and other
interest-earning assets totaled $283,000 for the three months ended June 30,
2003, a $47,000, or 19.9%, 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 $91,000, or 12.2%, as the average cost
of deposits decreased. Interest expense on borrowings increased by $8,000 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 decreased by $91,000, or 8.1%.
The Company maintains an 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 June 30, 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. Based on
management's review of the loan portfolio, the allowance for loan losses at June
30, 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 $272,000 for the three months ended June 30, 2003, a
$190,000, or 231.7%, increase over the 2002 quarter. The increase was due
primarily to a $154,000 increase in the gain on the sale of investment and
mortgage-backed securities and a $45,000 gain on the sale of loans.
General, administrative and other expense totaled $590,000 for the three-month
period ended June 30, 2003, a decrease of $13,000, or 2.2%, compared to the
three month period ended June 30, 2002. Other operating expenses decreased by
$21,000, or 13.1%, compared to the quarter ended June 30, 2002, due primarily to
decreases in advertising and professional fees. Employee compensation and
benefits expense increased by $13,000, or 3.9%, due primarily to 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.
The provision for income taxes totaled $191,000 for the three months ended June
30, 2003, an increase of $46,000, or 31.7%, over the same period in 2002. The
increase was due to a $112,000, or 21.7%, increase in pre-tax earnings. The
Company's effective tax rates for the three-month periods ended June 30, 2003
and 2002, were 30.4% and 28.1%, respectively. The effective tax rate remains low
due to the tax credits available from the Company's investment in a low income
housing partnership.
Comparison of the Three Months Ended June 30, 2003 and June 30, 2002 (continued)
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 June 30, 2003, the Bank's tangible and
leverage capital ratios were each 10.2%, and its risk-based capital to
risk-weighted assets ratio was 17.8%. 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 June 30, 2003.
Capital Standard Required Bank's Excess
- ---------------- -------- ------ ------
(In thousands)
Tangible (1.5%) $2,395 $16,322 $13,927
Core (4.0%) 6,386 16,322 9,936
Risk-based (8.0%) 7,880 17,555 9,675
Off-balance Sheet Arrangements
As of the date of this report, the Company does not have any off-balance sheet
arrangements that have or are reasonably likely to have a current or future
effect on the Company's financial condition, change in financial condition,
revenues or expenses, results of operations, liquidity, capital expenditures or
capital resources that are material to investors. The term "off-balance sheet
arrangement" generally means any transaction, agreement, or other contractual
arrangement to which an entity unconsolidated with the Company is a party under
which the Company has (i) any obligation arising under a guarantee contract,
derivative instrument or variable interest; or (ii) a retained or contingent
interest in assets transferred to such entity or similar arrangement that serves
as credit, liquidity or market risk support for such assets.
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. 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. 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.
Presented below, as of March 31, 2003 (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 $15,267 $(1,643) (10)% 10.49% (60)bp
+200bp 16,304 (606) (4)% 11.01% (8)bp
+100bp 16,966 56 0% 11.27% 18bp
- 16,910 -- - 11.09% --
- -100bp 16,058 (852) (5)% 10.43% (66)bp
Interest Rate Risk Measures: 200 Basis Point (bp) Rate Shock
Pre-shock NPV Ratio: NPV as % of PV of Assets 11.09%
Exposure Measure: Post-Shock NPV Ratio 10.43%
Sensitivity Measure: Change in NPV Ratio 66bp
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
(a) Evaluation of disclosure controls and procedures. The Company's Chief
Executive Officer and Chief Financial Officer, after evaluating the
effectiveness of the Company's disclosure controls and procedures (as
defined in Sections 13a-15(e) and 15d-15(e) of the Securities Exchange Act
of 1934, as amended), as of the end of the most recent fiscal quarter
covered by this quarterly report (the "Evaluation Date"), have concluded
that as of the Evaluation Date, the Company's disclosure controls and
procedures were adequate and are designed to ensure that material
information relating to the Company would be made known to such officers by
others within the Company on a timely basis.
(b) Changes in internal controls. There were no significant changes in the
Company's internal control over financial reporting identified in
connection with the Company's evaluation of controls that occurred during
the Company's last fiscal quarter that has materially affected, or is
reasonably likely to materially affect, the Company's internal control over
financial reporting.
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
Neither the Bank nor the Company were, during the six-month period ended June
30, 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 2. Changes in Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matter to a Vote of Security Holders
On April 8, 2003, the Company held its 2003 annual meeting of shareholders. A
total of 767,662 shares or 90.21% of the Company's shares outstanding, were
represented at the meeting either in person or by proxy.
Two directors were nominated by the Company's Board of Directors to serve new
three year terms. The nominees, and the voting results are listed below.
For Against Withheld
James P. Bauer 741,155 26,507 0
William Tincher, Jr. 741,155 26,507 0
The other directors continuing in office are Brian J. Morrill, Susanne S.
Ridlen, Charles J. Evans, Todd S. Weinstein, David G. Wihebrink, and Thomas G.
Williams.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
The following exhibits are attached to this report on Form 10-Q:
31(1) Certification required by 17 C.F.R. Section 240.13a-14(a)
31(2) Certification required by 17 C.F.R. Section 240.13a-14(a)
32 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K.
The Registrant filed one report on Form 8-K filed during the quarter
ended June 30, 2003.
Date of Report: April 22, 2003
Items Reported: Press release dated April 22, 2003 announcing results
of operations for the quarter ended March 31, 2003.
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: August 13, 2003 By: /s/ David G. Wihebrink
------------------------------------
David G. Wihebrink, President and
Chief Executive Officer
Date: August 13, 2003 By: /s/ Dottye Robeson
------------------------------------
Dottye Robeson, Secretary and
Treasurer