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, 2002 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 [ ]
The number of shares outstanding of the Registrant's common stock, without par
value, as of November 1, 2002 was 848,958.
-1-
Logansport Financial Corp.
Form 10-Q
Index
Page No.
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Financial
Condition as of September 30, 2002
and December 31, 2001 3
Consolidated Statements of Earnings
for the three and nine months ended September 30,
2002 and 2001 4
Consolidated Statements of Shareholders'
Equity for the nine months ended
September 30, 2002 and 2001 5
Consolidated Statements of Cash Flows
for the nine months ended
September 30, 2002 and 2001 6
Notes to Consolidated Condensed 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
Item 4. Controls and Procedures 15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 6. Exhibits and Reports on Form 8-K 16
SIGNATURES 17
CERTIFICATIONS
LOGANSPORT FINANCIAL CORP.
Consolidated Statements of Financial Condition
(In thousands, except share data)
September 30, December 31,
ASSETS 2002 2001
Cash and due from banks $ 1,029 $ 1,081
Interest-bearing deposits in other financial institutions 10,583 7,735
------- -------
Cash and cash equivalents 11,612 8,816
Investment securities available for sale - at market 7,190 5,788
Mortgage-backed securities available for sale - at market 11,491 4,419
Loans receivable-net 113,574 111,696
Office premises and equipment - at depreciated cost 1,790 1,803
Real estate acquired through foreclosure - 65
Federal Home Loan Bank stock - at cost 2,003 1,973
Investment in real estate partnership 1,053 1,109
Accrued interest receivable on loans 481 445
Accrued interest receivable on mortgage-backed securities 51 28
Accrued interest receivable on investments 79 92
Prepaid expenses and other assets 70 88
Cash surrender value of life insurance 1,291 1,291
Prepaid income taxes 40 -
Deferred income tax asset 302 452
------- -------
Total assets $151,027 $138,065
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits $ 97,014 $ 83,900
Advances from the Federal Home Loan Bank 35,836 34,750
Notes payable 1,093 1,165
Accrued interest payable and other liabilities 888 819
Accrued income taxes - 29
------- -------
Total liabilities 134,831 120,663
Shareholders' equity
Common stock 2,627 4,802
Retained earnings-restricted 13,115 12,408
Less shares acquired by stock benefit plan (50) (63)
Accumulated comprehensive income, unrealized gains on securities
designated as available for sale, net of related tax effects 504 255
------- -------
Total shareholders' equity 16,196 17,402
------- -------
Total liabilities and shareholders' equity $151,027 $138,065
======= =======
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LOGANSPORT FINANCIAL CORP.
Consolidated Statements of Earnings
(In thousands, except share data)
Three months ended Nine months ended
September 30, September 30,
2002 2001 2002 2001
Interest income
Loans $2,087 $2,219 $6,272 $6,565
Mortgage-backed securities 106 70 260 231
Investment securities 93 95 282 323
Interest-bearing deposits and other 66 78 186 342
----- ----- ----- -----
Total interest income 2,352 2,462 7,000 7,461
Interest expense
Deposits 741 894 2,256 2,851
Borrowings 474 482 1,425 1,524
----- ----- ----- -----
Total interest expense 1,215 1,376 3,681 4,375
----- ----- ----- -----
Net interest income 1,137 1,086 3,319 3,086
Provision for losses on loans 90 86 270 257
----- ----- ----- -----
Net interest income after provision for
losses on loans 1,047 1,000 3,049 2,829
Other income (loss)
Service charges on deposit accounts 54 56 165 179
Gain on sale of investment securities - - 17 -
Loss on equity investment (21) (54) (77) (170)
Other operating 25 45 86 135
----- ----- ----- -----
Total other income 58 47 191 144
General, administrative and other expense
Employee compensation and benefits 341 261 971 823
Occupancy and equipment 58 56 184 178
Federal deposit insurance premiums 4 4 11 11
Data processing 49 47 144 138
Other operating 127 108 447 374
----- ----- ----- -----
Total general, administrative and other expense 579 476 1,757 1,524
----- ----- ----- -----
Earnings before income taxes 526 571 1,483 1,449
Income tax expense 151 167 417 398
----- ----- ----- -----
NET EARNINGS $ 375 $ 404 $1,066 $1,051
===== ===== ===== =====
Other comprehensive income, net of tax:
Unrealized gains on securities, net of tax $ 151 $ 98 $ 260 $ 248
Reclassification adjustment for realized gains included in
earnings, net of tax of $5 - - (11) -
----- ----- ----- -----
COMPREHENSIVE INCOME $ 526 $ 502 $1,315 $1,299
===== ===== ===== =====
EARNINGS PER SHARE
Basic (based on net earnings) $.41 $.37 $1.12 $.97
=== === ==== ===
Diluted (based on net earnings) $.39 $.36 $1.08 $.95
=== === ==== ===
-4-
LOGANSPORT FINANCIAL CORP.
Consolidated Statements of Shareholders' Equity
(In thousands, except share data)
Nine months ended
September 30,
2002 2001
Balance at January 1 $17,402 $17,013
Purchase of shares (2,466) (72)
Issuance of shares under stock option plan 291 141
Amortization of stock benefit plan 13 38
Cash dividends of $.38 in 2002 and $.36 in 2001 (359) (393)
Unrealized gains on securities designated as
available for sale, net of related tax effects 249 248
Net earnings 1,066 1,051
------ ------
Balance at September 30 $16,196 $18,026
====== ======
Accumulated other comprehensive income $ 504 $ 323
====== ======
-5-
LOGANSPORT FINANCIAL CORP.
Consolidated Statements of Cash Flows
(In thousands)
Nine months ended
September 30,
2002 2001
Cash flows from operating activities:
Net earnings for the period $ 1,066 $ 1,051
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Depreciation and amortization 80 78
Amortization of premiums on investments and
mortgage-backed securities 34 28
Gain on sale of investment securities (17) -
Amortization expense of stock benefit plan 13 38
Provision for losses on loans 270 257
Loss on equity investment 77 170
Increase (decrease) in cash, due to changes in:
Accrued interest receivable on loans (36) 7
Accrued interest receivable on mortgage-backed securities (23) 9
Accrued interest receivable on investments 13 9
Prepaid expenses and other assets 18 5
Accrued interest and other liabilities 69 (1)
Federal income taxes
Current (69) (78)
Deferred 22 25
------ ------
Net cash provided by operating activities 1,517 1,598
Cash flows provided by (used in) investing activities:
Proceeds from sale of investment securities 269 -
Purchase of investment securities (3,712) (253)
Maturities/calls of investment securities 2,235 2,275
Purchase of mortgage-backed securities (8,024) -
Principal repayments on mortgage-backed securities 1,118 715
Purchase of Federal Home Loan Bank stock (30) -
Loan disbursements (33,518) (43,693)
Principal repayments on loans 31,370 33,861
Investment in real estate partnership (21) (29)
Proceeds from sale of real estate acquired through foreclosure 65 -
Purchases and additions to office premises and equipment (67) (49)
Increase in cash surrender value of life insurance policy - (31)
------ ------
Net cash used in investing activities (10,315) (7,204)
------ ------
Net cash used in operating and investing activities
(balance carried forward) (8,798) (5,606)
------ ------
-6-
LOGANSPORT FINANCIAL CORP.
Consolidated Statements of Cash Flows (Continued)
(In thousands)
Nine months ended
September 30,
2002 2001
Net cash used in operating and investing activities
(balance brought forward) $(8,798) $(5,606)
Cash flows provided by (used in) financing activities:
Net increase in deposit accounts 13,114 3,421
Proceeds from Federal Home Loan Bank advances 9,950 10,750
Repayment of Federal Home Loan Bank advances (8,864) (10,000)
Repayment of note payable (72) (72)
Proceeds from the exercise of stock options 291 141
Purchase of shares (2,466) (72)
Dividends on common stock (359) (393)
------ ------
Net cash provided by financing activities 11,594 3,775
------ ------
Net increase (decrease) in cash and cash equivalents 2,796 (1,831)
Cash and cash equivalents, beginning of period 8,816 9,210
------ ------
Cash and cash equivalents, end of period $11,612 $ 7,379
====== ======
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest on deposits and borrowings $ 3,674 $ 4,405
====== ======
Income taxes $ 464 $ 450
====== ======
Dividends payable at end of period $ 120 $ 132
====== ======
Supplemental disclosure of noncash financing activities:
Unrealized gains on securities designated as available for sale,
net of related tax effects $ 249 $ 248
====== ======
-7-
Logansport Financial Corp.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
For the nine and three month periods ended September 30, 2002 and 2001
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, 2001.
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 September
30, 2002, and its results of operations and cash flows for the three and nine
month periods ended September 30, 2002 and 2001. The results of operations for
the three and nine month periods ended September 30, 2002 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 issued under the Company's stock option plan. The computations are as
follows:
For the three months ended For the nine months ended
September 30, September 30,
2002 2001 2002 2001
Weighted-average common shares
outstanding (basic) 918,123 1,095,378 955,824 1,089,000
Dilutive effect of assumed exercise
of stock options 30,121 23,477 29,512 17,952
------- --------- ------- ---------
Weighted-average common shares
outstanding (diluted) 948,244 1,118,855 985,336 1,106,952
======= ========= ======= =========
A cash dividend of $.13 per common share was declared on September 3, 2002,
payable on October 10, 2002, to stockholders of record as of September 16, 2002.
In October 2002, the Company repurchased 73,000 of its shares from two
shareholders in a privately negotiated transaction for $17.25 per share, or a
total cost of approximately $1.3 million.
-8-
NOTE D: Recent Accounting Pronouncements
In September 2001 the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 142 "Goodwill and
Intangible Assets," which prescribes accounting for all purchased goodwill and
intangible assets. Pursuant to SFAS No. 142, acquired goodwill is not amortized,
but is tested for impairment at the reporting unit level annually and whenever
an impairment indicator arises.
Management adopted SFAS No. 142 effective January 1, 2002, as required, without
material effect on the Company's financial position or results of operations.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets." SFAS No. 144 carries over the recognition and
measurement provisions in SFAS No. 121. Accordingly, an entity must recognize an
impairment loss if the carrying value of a long-lived asset or asset group (a)
is not recoverable and (b) exceeds its fair value. Similar to SFAS No. 121, SFAS
No. 144 requires an entity to test an asset or asset group for impairment
whenever events or changes in circumstances indicate that its carrying amount
may not be recoverable. SFAS No. 144 differs from SFAS No. 121 in that it
provides guidance on estimating future cash flows to test recoverability. An
entity may use either a probability-weighted approach or best-estimate approach
in developing estimates of cash flows to test recoverability. SFAS No. 144 is
effective for financial statements issued for fiscal years beginning after
December 15, 2001 and interim periods within those fiscal years. Management
adopted SFAS No. 144 effective January 1, 2002, without material effect on the
Company's financial condition or results of operations.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities." SFAS No. 146 provides financial accounting
and reporting guidance for costs associated with exit or disposal activities,
including one-time termination benefits, contract termination costs other than
for a capital lease, and costs to consolidate facilities or relocate employees.
SFAS No. 146 is effective for exit or disposal activities initiated after
December 31, 2002. SFAS No. 146 is not expected to have a material effect on the
Company's financial condition or results of operations.
In October 2002, the FASB issued SFAS No. 147, "Accounting for Certain
Financial Institutions: An Amendment of FASB Statements No. 72 and 144 and
FASB Interpretation No. 9," which removes acquisitions of financial
institutions from the scope of SFAS No. 72, "Accounting for Certain
Acquisitions of Banking and Thrift Institutions," except for transactions
between mutual enterprises. Accordingly, the excess of the fair value of
liabilities assumed over the fair value of tangible and intangible assets
acquired in a business combination should be recognized and accounted for as
goodwill in accordance with SFAS No. 141, "Business Combinations," and
SFAS No. 142, "Goodwill and Other Intangible Assets."
SFAS No. 147 also requires that the acquisition of a less-than-whole financial
institution, such as a branch, be accounted for as a business combination if the
transferred assets and activities constitute a business. Otherwise, the
acquisition should be accounted for as the acquisition of net assets.
SFAS No. 147 also amends the scope of SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets," to include long-term customer
relationship assets of financial institutions (including mutual enterprises)
such as depositor- and borrower-relationship intangible assets and credit
cardholder intangible assets.
The provisions of SFAS No. 147 related to unidentifiable intangible assets and
the acquisition of a less-than-whole financial institution are effective for
acquisitions for which the date of acquisition is on or after October 1, 2002.
The provisions related to impairment of long-term customer relationship assets
are effective October 1, 2002. Transition provisions for previously recognized
unidentifiable intangible assets are effective on October 1, 2002, with earlier
application permitted.
SFAS No. 147 is not expected to have a material effect on the Company's
financial condition or results of operations.
-9-
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, 2001 to September
30, 2002
The Company reported total assets of $151.0 million at September 30, 2002, an
increase of $13.0 million, or 9.4%, compared to December 31, 2001. This increase
was funded primarily by growth in deposits of $13.1 million, an increase in
advances from the Federal Home Loan Bank of $1.0 million and undistributed
earnings of $707,000, which were partially offset by share repurchases of $2.5
million. Cash and cash equivalents increased by $2.8 million, from $8.8 million
at December 31, 2001, to $11.6 million at September 30, 2002. Investment and
mortgage-backed securities totaled $18.7 million at September 30, 2002, an
increase of $8.5 million, or 83.0%, over December 31, 2001, as purchases of
securities totaling $11.7 million were partially offset by repayments, calls and
maturities of $3.4 million and sales of $252,000.
Net loans increased from $111.7 million at December 31, 2001 to $113.6 million
at September 30, 2002. Loan originations amounted to $33.5 million for the nine
months ended September 30, 2002, while principal repayments amounted to $31.4
million. Loan originations during 2002 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
$36.2 million at September 30, 2002, compared to $31.9 million at December 31,
2001. Loans secured by one- to four-family residential real estate totaled $63.9
million at December 31, 2001 and $64.4 million at September 30, 2002.
Construction loans totaled $732,000 at September 30, 2002, compared to $2.3
million at December 31, 2001.
Deposits totaled $97.0 million at September 30, 2002, an increase of $13.1
million, or 15.6%, over the balance at December 31, 2001. Borrowings increased
by $1.0 million over the nine month period, and at September 30, 2002, were
comprised of $35.8 million of FHLB advances and a $1.1 million note payable
related to an equity investment in low income housing. Proceeds from deposit
growth were generally used to fund the purchase of investments and
mortgage-backed securities, new loan growth, and a 10% stock repurchase program.
However, $5.2 million of the deposit increase was comprised of short-term local
governmental deposits which are subject to bids every 60 to 90 days and,
therefore, may or may not be retained.
Shareholders' equity totaled $16.2 million at September 30, 2002, a decrease of
$1.2 million, or 6.9%, from the $17.4 million total at December 31, 2001. The
decrease resulted from stock repurchases totaling $2.5 million and dividends
paid of $359,000, which were partially offset by net earnings of $1,066,000, an
increase of $249,000 in the unrealized gains on securities available for sale
and proceeds from exercise of stock options totaling $291,000.
-10-
Results of Operations
Comparison of the Nine Months Ended September 30, 2002 and September 30, 2001
Net earnings for the nine months ended September 30, 2002 totaled $1,066,000,
compared with $1,051,000 for the nine months ended September 30, 2001, an
increase of $15,000, or 1.4%. Net interest income increased by $233,000, total
other income increased by $47,000 and general, administrative and other expense
increased by $233,000, while the provision for losses on loans increased by
$13,000 and income taxes increased by $19,000.
Interest income on loans decreased by $293,000, or 4.5%, for the nine months
ended September 30, 2002, compared to the same period in 2001, due primarily to
a decrease in the yield on loans of 51 basis points, from 7.81% in the 2001
period to 7.30% in the 2002 period. Interest income on mortgage-backed
securities, investments and other interest-earning assets totaled $728,000 for
the nine months ended September 30, 2002, a $168,000, or 18.8%, decrease from
the 2001 period. The decrease was due primarily to a decrease in the average
yield year to year. Interest expense on deposits decreased by $595,000, or
20.9%, as the average cost of deposits decreased by 108 basis points, from 4.12%
for the nine months ended September 30, 2001 to 3.04% for the nine months ended
September 30, 2002. Interest expense on borrowings decreased by $99,000, or
6.5%, due primarily to a decrease in the average cost of borrowings year to
year, from 5.46% for the nine months ended September 30, 2001 to 5.37% in the
2002 period. 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 during 2001. This low interest
rate environment continued during the nine month period ended September 30,
2002.
As a result of the foregoing changes in interest income and interest expense,
net interest income increased by $233,000, or 7.6%, to $3.3 million for the nine
months ended September 30, 2002, compared to $3.1 million for the same period in
2001. The interest rate spread was 3.38% at September 30, 2002 compared to 3.19%
at September 30, 2001.
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 $270,000 for the nine
months ended September 30, 2002, compared to $257,000 for the nine months ended
September 30, 2001. The increase in the provision for losses on loans was
primarily attributable to the increasing percentage of commercial loans in the
portfolio and the increase in the level of nonperforming loans year to year. At
September 30, 2002 and December 31, 2001, the allowance amounted to $1.4 million
and $1.1 million, respectively, for a ratio to total loans of 1.19% at September
30, 2002 and 1.00% at December 31, 2001. Non-performing loans totaled $1.8
million and $1.9 million at September 30, 2002 and December 31, 2001,
respectively. The ratio of the allowance for loan losses to non-performing loans
amounted to 76.9% at September 30, 2002 and 58.1% at December 31, 2001. Based on
management's review of the loan portfolio, the allowance for loan losses at
September 30, 2002 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.
Total other income increased by $47,000, or 32.6%, for the nine months ended
September 30, 2002, compared to the same period in 2001, due primarily to a
decrease in the pre-tax loss on the equity investment of $93,000 and a $17,000
gain on the sale of an investment security. Service charges on deposit accounts
decreased by $14,000, or 7.8%. Other operating income decreased by $49,000, or
36.3%, due primarily to a decrease in the income on Bank owned life insurance
and a decline in insurance commissions. The Company has transferred the Bank
owned life insurance to a new insurance company in order to obtain additional
death benefits; however, it is anticipated that no income will be earned on the
policies for a period of two years.
-11-
Comparison of the Nine Months Ended September 30, 2002 and September 30, 2001
(continued)
Total general, administrative and other expense amounted to $1.8 million for the
nine-month period ended September 30, 2002, an increase of $233,000, or 15.3%,
compared to the nine month period ended September 30, 2001. Employee
compensation and benefits expense increased by $148,000, or 18.0%, mainly due to
an increase in personnel and the increased cost of medical insurance, which has
increased by $34,000 compared to the same period in 2001. In addition, the
Company resumed an accrual of $5,000 per month in June for probable
contributions to the defined benefit pension plan due to the recent decline in
the equity markets. This plan has been fully funded for many years but the
Company has been notified by the plan trustee that contributions may be
required. The exact amount, if required, will not be available until the fourth
quarter of 2002. If no contributions are required the accrual will be reversed
in the fourth quarter. Other operating expenses increased by $73,000, or 19.5%,
compared to the period ended September 30, 2001, due primarily to increases in
advertising, internet banking costs, professional fees and Nasdaq filing fees,
year to year.
The provision for income taxes totaled $417,000 for the nine months ended
September 30, 2002, an increase of $19,000, or 4.8%, over the same period in
2001. The increase was due to a $34,000, or 2.3%, increase in pre-tax earnings.
The Company's effective tax rates for the nine-month periods ended September 30,
2002 and 2001, were 28.1% and 27.5%, 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 September 30, 2002 and September 30, 2001
Net earnings for the three months ended September 30, 2002 totaled $375,000,
compared with $404,000 for the three months ended September 30, 2001, a decrease
of $29,000, or 7.2%. Net interest income increased by $51,000, total other
income increased by $11,000 and general, administrative and other expense
increased by $103,000, while the provision for losses on loans increased by
$4,000 and income taxes decreased by $16,000.
Interest income on loans decreased by $132,000, or 5.9%, for the three months
ended September 30, 2002, compared to the same quarter in 2001, due primarily to
a decrease in the yield on loans. Interest income on mortgage-backed securities,
investments and other interest-earning assets totaled $265,000 for the three
months ended September 30, 2002, a $22,000, or 9.1%, increase from the 2001
quarter. The increase was due primarily to a increase in the average balance
year to year. Interest expense on deposits decreased by $153,000, or 17.1%, as
the average cost of deposits decreased. Interest expense on borrowings decreased
by $8,000, or 1.7%, due primarily to a decrease in the average cost of
borrowings year to year. 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
during 2001. This low interest rate environment continued through the 2002
reporting period. As a result of the foregoing changes in interest income and
interest expense, net interest income increased by $51,000, or 4.7%.
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 the three
months ended September 30, 2002, compared to $86,000 for the three months ended
September 30, 2001. The increase in the provision for losses on loans was
primarily attributable to the increasing percentage of commercial loans in the
portfolio and the increase in the level of nonperforming loans year to year. At
September 30, 2002 and December 31, 2001, the allowance amounted to $1.4 million
and $1.1 million, respectively, for a ratio to total loans of 1.20% at September
30, 2002 and 1.00% at December 31, 2001. Non-performing loans totaled $1.8
million and $1.9 million at September 30, 2002 and December 31, 2001,
respectively. The ratio of the allowance for loan losses to non-performing loans
amounted to 76.9% at September 30, 2002 and 58.1% at December 31, 2001. Based on
management's review of the loan portfolio, the allowance for loan losses at
September 30, 2002 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.
-12-
Comparison of the Three Months Ended September 30, 2002 and September 30, 2001
(continued)
Other income totaled $58,000 for the three months ended September 30, 2002, an
$11,000, or 23.4%, increase over the 2001 quarter. The increase was due
primarily to a decrease in the pre-tax loss on the equity investment of $33,000.
Service charges on deposit accounts decreased by $2,000, or 3.6%. Other
operating income decreased by $20,000, or 44.4%, due primarily to a decrease in
the income on Bank owned life insurance and a decline in insurance commissions.
The Company has transferred the Bank owned life insurance to a new insurance
company in order to obtain additional death benefits; however, it is anticipated
that no income will be earned on the policies for a period of two years.
General, administrative and other expense totaled $579,000 for the three-month
period ended September 30, 2002, an increase of $103,000, or 21.6%, compared to
the three month period ended September 30, 2001. Employee compensation and
benefits expense increased by $80,000, or 30.7%, due to increased personnel and
increases in the cost of medical insurance, in addition to the resumption of the
accrual for pension expense as discussed in the comparison of the nine months
ended September 30, 2002. Other operating expenses increased by $19,000, or
17.6%, compared to the quarter ended September 30, 2001, due primarily to
increases in advertising, the offering of internet banking, and professional
fees.
The provision for income taxes totaled $151,000 for the three months ended
September 30, 2002, a decrease of $16,000, or 9.6%, from the same period in
2001. The decrease was due to a $45,000, or 7.9%, decrease in pre-tax earnings.
The Company's effective tax rates for the three-month periods ended September
30, 2002 and 2001, were 28.7% and 29.2%, 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 September 30, 2002, the Bank's tangible and
leverage capital ratios were each 9.97%, and its risk-based capital to
risk-weighted assets ratio was 16.77%. 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 September 30, 2002.
Capital Standard Required Bank's Excess
- ---------------- -------- ------ ------
(In thousands)
Tangible (1.5%) $2,255 $14,982 $12,727
Core (4.0%) 6,013 14,982 8,969
Risk-based (8.0%) 7,723 16,191 8,468
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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 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, 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, 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.
Change Net Portfolio Value NPV as % of PV of Assets
In Rates $ Amount $ Change % Change NPV Ratio Change
(Dollars in thousands)
+300bp $12,927 $-4,742 -27% 8.88% -263bp
+200bp 14,855 -2,814 -16% 10.02% -149bp
+100bp 16,478 -1,191 -7% 10.91% -60bp
- 17,669 11.51%
- - 100bp 17,832 163 +1% 11.48% -3bp
- - 200bp - - - - -
- - 300bp - - - - -
Interest Rate Risk Measures: 200 Basis Point (bp) Rate Shock
Pre-shock NPV Ratio: NPV as % of PV of Assets 11.51%
Exposure Measure: Post-Shock NPV Ratio 10.02%
Sensitivity Measure: Change in NPV Ratio 150bp
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.
-14-
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.
-15-
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
Neither the Bank nor the Company were, during the nine-month period ended
September 30, 2002, 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.
The Registrant filed a report on Form 8-K on October 4, 2002,
disclosing the repurchase of 73,000 shares of its common stock from two
of its shareholders in a private transaction.
-16-
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, 2002 By:/s/ David G. Wihebrink
----------------------- ----------------------------------
David G. Wihebrink, President and
Chief Executive Officer
Date: November 12, 2002 By:/s/ Dottye Robeson
----------------------- ----------------------------------
Dottye Robeson, Secretary and
Treasurer
-17-
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: November 12, 2002
-----------------
/s/David G. Wihebrink
---------------------------
David G. Wihebrink
President and Chief Executive Officer
-18-
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.
Dated: November 12, 2002
-----------------
/s/Dottye Robeson
------------------------
Dottye Robeson
Secretary and Treasurer
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